**Exhibit 10.11**

** **

**NET, NET, NETLEASE**

** **

**THISLEASE**dated May 1, 1996, for reference purposes only is madebetween the Lessor and the Lessee named below, effective on the later of thedates set forth under their respective signatures.

**BASIC LEASE PROVISIONS ‘**

 
| **1.**     | ** ** | **Premises:**                            |   | As depicted  on Exhibit A.                                                                |
|------------|------------|------------------------------------------|--------|-------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                               |   |                                                                                      |
| ** ** |       | **Project Name:**                        |   | Santa Barbara Tech Center                                                                 |
| ** ** |       | ** **                               |   |                                                                                      |
| ** ** |       | **Building Name:**                       |   | N/A                                                                                       |
| ** ** |       | ** **                               |   |                                                                                      |
| ** ** |       | **Premises Address:**                    |   | 5520 Ekwill Street                                                                        |
|       |       |                                     |   | Santa Barbara, California 93111                                                           |
|       |       |                                     |   |                                                                                      |
| ** ** |       | **Use of Premises:**                     |   | Office or permitted industrial                                                            |
| ** ** |       | ** **                               |   |                                                                                      |
| **2.**     | ** ** | **Leased Area:**                         |   | As depicted on Exhibit A                                                                  |
| ** ** | ** ** | ** **                               |   |                                                                                      |
| ** ** |       | **Square Feet:**                         |   | 4,468                                                                                     |
| ** ** |       | ** **                               |   |                                                                                      |
| **3.**     | ** ** | **Lessee’s Percentages:**           |   |                                                                                      |
| ** ** | ** ** | ** **                               |   |                                                                                      |
| ** ** |       | **Building:**                            |   | 10.52%                                                                                    |
| ** ** |       | ** **                               |   |                                                                                      |
| ** ** |       | **Common  Area:**                        |   | 5.27%                                                                                     |
| ** ** |       | ** **                               |   |                                                                                      |
| **4.**     | ** ** | **Initial Annual Rent**                  |   | $61,122.24                                                                                | ($1.14 per square foot per month) |
| ** ** | ** ** | ** **                               |   |                                                                                      |   |
| ** ** |       | **Rental Deposit**                       |   | $5,093.52                                                                                 | (First month’s rent) |
| ** ** |       | ** **                               |   |                                                                                      |
| ** ** |       | **Rent Adjustment**                      |   | Rent to be $1.14 per square foot per month for the first eight (8)  months of this Lease. |
| ** ** |       | ** **                               |   |                                                                                      |
| **5.**     | ** ** | **Initial Monthly Rental Installments:** |   | $5,093.52                                                                                 |
| ** ** | ** ** | ** **                               |   |                                                                                      |
| **6.**     | ** ** | **Term:**                                |   | Ten (10) years and 3 months. One 5-year renewal option.                                   |
| ** ** | ** ** | ** **                               |   |                                                                                      |
| **7.**     | ** ** | **Commencement Date:**                   |   | May 1, 1996                                                                               |
| ** ** | ** ** | ** **                               |   |                                                                                      |
| ** ** |       | **Termination Date:**                    |   | July 31, 2006                                                                             |
| ** ** |       | ** **                               |   |                                                                                      |
| **8.**     | ** ** | **Security Deposit:**                    |   | $5,093.52                                                                                 |

 

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| **9.**     | ** ** | **Broker(s):**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | None   |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
| **10.**    | ** ** | **Parking Spaces Provided:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 12     |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
| **11.**    | ** ** | **Address for Payments and Notices (if different From below:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | None   |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
| **12.**    |       | Submission of this instrument for examination or signature by the  Lessee does not constitute a reservation of or option for space and it is not  effective as a lease or otherwise until execution by both the Lessee and the  Lessor. This document will be deemed withdrawn by the Lessor if not executed  by the Lessee and delivered to the Lessor by                                              . |

 

**IN WITNESS WHEREOF**, the parties hereto haveexecuted this Lease, consisting of the foregoing Basic Lease Provisions,Articles I through 17 which follow, and any attached Exhibits or Addendums, asof the date first above written.

 
|                                                                                                                                                                           | **LESSOR:**                                                  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------|
|                                                                                                                                                                           |                                                         |
| Date:                           ,  1996 | **EKWILL PARTNERS, LTD.**, a California limited  partnership |
|                                                                                                                                                                           |                                                         |
|                                                                                                                                                                           |                                                         |
|                                                                                                                                                                           | By:                                                          |  /s/ JEFFREY C. BERMANT |   |
|                                                                                                                                                                           |                                                         | Jeffrey C. Bermant, |
|                                                                                                                                                                           |                                                         | General Partner |
|                                                                                                                                                                           |                                                         |
|                                                                                                                                                                           | Address:                                                     |
|                                                                                                                                                                           |                                                         |
|                                                                                                                                                                           |                                                         | 130 Cremona Drive, Suite D |
|                                                                                                                                                                           |                                                         | Goleta, CA 93117 |
|                                                                                                                                                                           |                                                         |
|                                                                                                                                                                           |                                                         |
|                                                                                                                                                                           | **LESSEE:**                                                  |
|                                                                                                                                                                           |                                                         |
| Date:                           ,  1996 | **McGHAN MEDICAL CORPORATION**                               |
|                                                                                                                                                                           |                                                         |
|                                                                                                                                                                           |                                                         |
|                                                                                                                                                                           | By:                                                          |  /s/ DONALD C. MCGHAN |   |
|                                                                                                                                                                           |                                                         | Donald C. McGhan |
|                                                                                                                                                                           |                                                         | Chief Executive Officer |
|                                                                                                                                                                           |                                                         |
|                                                                                                                                                                           | Address:                                                     |
|                                                                                                                                                                           |                                                         |
|                                                                                                                                                                           |                                                         | 5540 Ekwill Street |
|                                                                                                                                                                           |                                                         | Santa Barbara,,  CA  93111 |
|                                                                                                                                                                                |                                                              |  |  |  |  |

 

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**TABLE OF CONTENTS**

 
| 1.     |   | LEASE of PREMISES                     |                                                |
|--------|--------|---------------------------------------|-----------------------------------------------------|
|   |   |                                  |                                                |   |
|   |   | 1.1                                   | Initial Premises                                    |   |
|   |   | 1.2                                   | First Right  to Lease Additional Space              |   |
|   |   |                                  |                                                |   |
| 2.     |   | TERM                                  |                                                |
|   |   |                                  |                                                |   |
|   |   | 2.1                                   | Commencement of Term                                |   |
|   |   | 2.2                                   | Delay in Commencement                               |   |
|   |   | 2.3                                   | Option to Extend                                    |   |
|   |   |                                  |                                                |   |
| 3.     |   | RENT                                  |                                                |
|   |   |                                  |                                                |   |
|   |   | 3.1                                   | Initial Annual Rent                                 |   |
|   |   |                                  | 3.1.1     Rental  Deposit  |   |
|   |   | 3.2                                   | Additional Rent                                     |   |
|   |   | 3.3                                   | No Reduction or Offset                              |   |
|   |   | 3.4                                   | Definitions                                         |   |
|   |   | 3.5                                   | Rent  Adjustment for Consumer Price Index           |   |
|   |   | 3.6                                   | Calculation and Payment                             |   |
|   |   | 3.7                                   | End of Term                                         |   |
|   |   |                                  |                                                |   |
| 4.     |   | SECURITY DEPOSIT                      |                                                |
|   |   |                                  |                                                |   |
| 5.     |   | USE                                   |                                                |
|   |   |                                  |                                                |   |
|   |   | 5.1                                   | Use                                                 |   |
|   |   | 5.2                                   | Compliance with Law;  Nuisance                      |   |
|   |   | 5.3                                   | Insurance Cancellation                              |   |
|   |   | 5.4                                   | Hazardous Substances                                |   |
|   |   | 5.5                                   | Environmental Laws                                  |   |
|   |   |                                  | (a)                                                 | Compliance with  Environmental Laws |   |
|   |   |                                  | (b)                                                 | Hazardous Materials  Handling |   |
|   |   |                                  | (c)                                                 | Notices |   |
|   |   |                                  | (d)                                                 | Indemnification of  Lessor |   |
|   |   |                                  |                                                |   |
| 6.     |   | MAINTENANCE,  REPAIRS AND ALTERATIONS |                                                |
|   |   |                                  |                                                |   |
|   |   | 6.1                                   | Lessor’s Obligations                           |   |
|   |   | 6.2                                   | Lessee’s Obligations                           |   |
|   |   | 6.3                                   | Alterations and  Additions                          |   |
|   |   | 6.4                                   | Surrender                                           |   |
|   |   | 6.5                                   | Lessor’s Rights                                |   |
|   |   |                                  |                                                |   |
| 7.     |   | INSURANCE,                            |                                                |
|   |   |                                  |                                                |   |
|   |   | 7.1                                   | Lessee’s Liability  Insurance                  |   |
|   |   | 7.2                                   | Lessee’s  Worker’s Compensation Insurance |   |
|   |   | 7.3                                   | Lessee’s  Fire and Extended Coverage Insurance |   |

 

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|   |   | 7.4                                 | Policy Requirements                        |   |
|--------|--------|-------------------------------------|--------------------------------------------|--------|
|   |   | 7.5                                 | Lessor’s Rights                       |   |
|   |   | 7.6                                 | Lessor’s Insurance                    |   |
|   |   | 7.7                                 | Indemnification                            |   |
|   |   | 7.8                                 | Exemption of  Lessor from Liability        |   |
|   |   |                                |                                       |   |
| 8.     |   | DAMAGE OR DESTRUCTION               |                                       |
|   |   |                                |                                       |   |
|   |   | 8.1                                 | Partial Damage                             |   |
|   |   | 8.2                                 | Damage Near End of Term                    |   |
|   |   | 8.3                                 | Abatement of  Rent; Lessee’s Remedies |   |
|   |   | 8.4                                 | Insurance  Proceeds Upon Termination       |   |
|   |   | 8.5                                 | Restoration                                |   |
|   |   |                                |                                       |   |
| 9.     |   | PERSONAL PROPERTY TAXES             |                                       |
|   |   |                                |                                       |   |
| 10.    |   | UTILITIES                           |                                       |
|   |   |                                |                                       |   |
| 11.    |   | ASSIGNMENT AND SUBLETTING           |                                       |
|   |   |                                |                                       |   |
| 12.    |   | DEFAULTS; REMEDIES                  |                                       |
|   |   |                                |                                       |   |
|   |   | 12.1                                | Default by Lessee                          |   |
|   |   | 12.2                                | Remedies for  Default by Lessee            |   |
|   |   | 12.3                                | Default by Lessor                          |   |
|   |   | 12.4                                | Late Charges                               |   |
|   |   |                                |                                       |   |
| 13.    |   | CONDEMNATION OR  RESTRICTION ON USE |                                       |
|   |   |                                |                                       |   |
|   |   | 13.1                                | Eminent Domain                             |   |
|   |   | 13.2                                | Abatement of Rent                          |   |
|   |   | 13.3                                | Temporary Taking                           |   |
|   |   | 13.4                                | Voluntary Sale as Taking                   |   |
|   |   |                                |                                       |   |
| 14.    |   | BROKERS                             |                                       |
|   |   |                                |                                       |   |
| 15.    |   | LESSOR’S LIABILITY             |                                       |
|   |   |                                |                                       |   |
| 16.    |   | PARKING                             |                                       |
|   |   |                                |                                       |   |
| 17.    |   | GENERAL PROVISIONS                  |                                       |
|   |   |                                |                                       |   |
|   |   | 17.1                                | Estoppel Certificate                       |   |
|   |   | 17.2                                | Severability                               |   |
|   |   | 17.3                                | Time of Essence                            |   |
|   |   | 17.4                                | Captions                                   |   |
|   |   | 17.5                                | Notices                                    |   |
|   |   | 17.6                                | Waivers                                    |   |
|   |   | 17.7                                | Holding Over                               |   |
|   |   | 17.8                                | Cumulative Remedies                        |   |
|   |   | 17.9                                | Inurement                                  |   |

 

ii

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|   |   | 17.10 | Choice of Law                   |   |
|--------|--------|-------|---------------------------------|--------|
|   |   | 17.11 | Subordination                   |   |
|   |   | 17.12 | Attorneys’ Fees            |   |
|   |   | 17.13 | Lessor’s Access            |   |
|   |   | 17.14 | Corporate Authority             |   |
|   |   | 17.15 | Surrender or  Cancellation      |   |
|   |   | 17.16 | Entire Agreement                |   |
|   |   | 17.17 | Signs                           |   |
|   |   | 17.18 | Gender; Number                  |   |
|   |   | 17.19 | Recording of Lease              |   |
|   |   | 17.20 | Waiver of Subrogation.          |   |
|   |   | 17.21 | Confidentiality of  Lease       |   |
|   |   | 17.22 | Quiet Enjoyment                 |   |
|   |   | 17.23 | Window Coverage                 |   |
|   |   | 17.24 | Materials Storage  Restrictions |   |
|   |   | 17.25 | No Agency                       |   |
|   |   | 17.26 | Force Majeure                   |   |
|   |   | 17.27 | Accord and Satisfaction         |   |
|   |   | 17.28 | Financial Statements            |   |
|   |   | 17.29 | Supersedes Proposal  to Lease   |   |
|   |   | 17.30 | Construction                    |   |
|   |   | 17.31 | Non-Disturbance  Agreement      |   |

 

iii

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1.                                       **LEASE OF PREMISES**

 

1.1                                 **Initial Premises**. The Lessor hereby leases to the Lessee and the Lessee leases from theLessor for the term, at the rental, and upon all of the conditions set forth inthis Lease, the Premises identified in Item 1 of the Basic Lease Provisions,together with the non-exclusive use, in common, with the Lessor and othertenants of the Building and their respective invitees, of common areas in orabout the Building and the parking garage (if any) or parking.  areas adjoining the Building.  The Lessee and the Lessor have agreed on thesquare footage set forth in item 2 of the Basic Lease Provisions and each partywill be bound by item 2 through the term of this Lease or any extensionthereof.  The approximate anticipatedconfiguration of the Project and the location of the Building, Premises andassociated common and parking areas is indicated on Exhibit “B”.  The size, location and function of thebuildings and related structures depicted here are approximate.  The configuration of the development, thedesign, size, function and location of all other improvements, and the identityand location of other tenants to the extent depicted are subject to changewithout notice for any reason deemed sufficient by the owner.  The Lessor reserves the right to alter theconfiguration of the Project to construct additional improvements thereon, towithdraw areas therefrom from time to time and alter the configuration of theassociated common and parking areas, provided that the number of parking spacesintended for the Lessee’s use shall not thereby be materially diminished andprovided that Lessee’s access to the Premises will not thereby beaffected.  The Lessee shall be allocatedthe number of parking spaces set forth in item 10 of the Basic Lease Provisionsand the Lessee acknowledges that the Lessor shall have no responsibility tosupervise or police the usage of the parking lot by the tenants of theBuilding.  Nothing in this Lease shallcause the Lessor in any way to be construed as an employer, employee,fiduciary, a partner, a joint venturer or otherwise associated in any way withthe Lessee in the operation of the Premises, or to subject the Lessor to anyobligation, loss, charge or expense connection with or arising from the Lessee’soperation or use of the Premises.

 

Pursuant toSection 1652 of the California Civil Code, it is understood and agreed that thegeneral intent and purpose of this Lease is that this !.ease shall be anabsolute triple net lease with respect to the Lessor.  The Lessee shall pay its pro rata share ofall insurance, utilities, all operating costs for file Premises, the commonareas of the Building, the Building and the land on which it is situated.  It is intended that the rental return to theLessor shall not be reduced, offset or diminished directly or indirectly by anycost, charge, or expense due from the Lessee and others in connection with thePremises, Building or land upon which it is situated, nor subject to suspensionor termination for any reason.  It isacknowledged and agreed that all provisions of this Lease shall be interpretedin a manner consistent with and subordinate to such general intent antipurpose.

 

1.2                                 **First Right to Lease Additional Space**.  In the event that additional space within theBuilding (the “Additional Space”) shall become available during the term ofthis Lease and the Lessee is not then in default under the terms of this Leaseor the lease for the adjacent building at 5540 Ekwill Street, Santa Barbara,California, the Lessor shall give the Lessee written notice of the Lessee’s firstright to lean: such Additional Space. The Notice from the Lessor shall describe the Additional Space,including any unique features thereof, and the date upon which the lease forthe Additional Space will commence.  Thelease for the Additional Space shall commence upon the date that the AdditionalSpace is first available for occupancy

 

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and shall continue for aterm coincidental with the term of this Lease. The terms and conditions of the lease for the Additional Space shall bethe same: as the terms of this Lease, including without limitation the persquare foot rental payable hereunder and the obligation of the Lessee to payAdditional Rent.  Rental adjustments forthe lease for the Additional Space shall be made to coincide with rentaladjustments under this Lease.  The leaseof the Additional Space shall be strictly on an “AS IS” basis, and the Lessorshall have no obligation to make any changes, alterations, modifications orrepairs whatsoever to the Additional Space.

 

The Lesseeshall have 10 business days from the date of receipt of the Lessor’s writtennotice to agree to lease the Additional Space. The Lessee’s election to lease the Additional Space shall only beeffective if its written agreement to lease is received by the Lessor within saidtime period and is accompanied by a check in an amount equal to the full firstmonth’s rent plus a security deposit of one month’s rent (collectively the “AdditionalSpace Deposit”).  In the event the Lesseefails to give timely written notice to the Lessor of its agreement to lease theAdditional Space together with the required Additional Space Deposit, theLessee’s rights hereunder shall terminate and the Lessor shall be free to leaseor otherwise treat the Additional Space as it sees fit.  Upon receipt of the Lessee’s agreement tolease the Additional Space and the Additional Space Deposit, the Lessor shallprepare an amendment to this Lease and deliver it to the Lessee.  The Lessee shall execute and return theamendment to the Lessor within 10 business clays of receipt.

 

2.                                       **TERM**

 

2.1                                 **Commencement of Term**

 

(a)                                  Theterm of the Lease shall be as shown in item 6 of the Basic Lease Provisions,commencing on the Commencement Date, which the lessor and the Lessee expect tobe the Commencement Date as shown in item 7 of the Basic Lease Provisions, butwhich may be such other date as herein provided, and ending on tire TerminationDale, unless sooner terminated pursuant to any provision hereof.

 

(b)                                 Notwithstandingthe foregoing, the term of this Lease and the payment of rent shall commenceupon delivery of possession of the Premises. Delivery of possession of the Premises shall occur upon written tenderof the same by the Lessor.

 

(c)                                  Ifdelivery of possession occurs prior to the Commencement Date, the term of thisLease shall commence on such (late; of delivery of possession, but theTermination Date shall not be advanced.

 

2.2                                 **Delay in Commencement**.  Notwithstanding the Commencement Date, if forany reason the Lessor cannot deliver possession of the Premises to the Lesseeon or before said date, the Lessor shall not be subject to any liabilitytherefor, nor shall such failure affect the validity of this Lease or theobligations of the Lessee hereunder or extend the term hereof provided,however, that if the Lessor shall not have delivered possession of the Premiseswithin six (6) months after the Commencement Date, the Lessee may, at theLessee’s option by notice in writing to the Lessor, within ten (10) daysthereafter, cancel this Lease, in which event the

 

2

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parties shall bedischarged from all obligations hereunder. The Lessee shall not be obligated to pay rent until delivery ofpossession of the Premises has occurred.

 

2.3                                 **Option to Extend**. Provided that the Lessee is not then in default under the terms of thislease or the lease for the adjacent Building at 5540 Ekwill Street, SantaBarbara, California, Lessee shall have the right to extend the term of thisLease as to the entire Premises then leased from the Lessor by the Lessee for aterm of five (5) years, on the same terms and conditions thereof, includingwithout limitation the annual rental adjustments under Article 3.

 

3.                                       **RENT**

 

3.1                                 **Initial Annual Rent**. The Lessee shall pay to the Lessor as rent for the Premises an InitialAnnual Rent in the amount specified in item 4 of the Basic Lease Provisions inequal monthly installments in the amount specified in item 5 of’ the BasicLease Provisions in advance on the first day of each month.

 

3.1.1                        **Rental Deposit**. Upon Lease execution, the Lessee shall deposit with the Lessor an amountequivalent to the first and last month’s rent as provided in item 4 of theBasic Lease Provisions.

 

3.2                                 **Additional Rent**. The Lessee shall reimburse the Lessor, as additional rent, in the mannerand at the times provided, for the Lessee’s proportionate share of all BuildingOperating Expenses and Common Area Operating Expenses (as hereinafter defined)incurred by the Lessor.  The Lessee’sproportionate share of such Building Operating Expenses and Common AreaOperating Expenses shall be based upon the Lessee’s Building Percentage in thecase of Building Operating Expenses, and upon the Lessee’s Common Areapercentage in the case of Common Area Operating Expenses, all as defined herein.

 

3.3                                 **No Reduction or Offset**.  All Rent due under this Lease shall bepayable without deduction, abatement or offset.

 

3.4                                 **Definitions**.  Forpurposes of this Article 3:

 

(a)                                  TheLessee’s Building Percentage is a percentage calculated by dividing the LeasedArea of the Premises by the leasable area of the Building, and is stipulated tobe as shown in item 3 of the Basic Lease Provisions.

 

(b)                                 BuildingOperating Expenses shall mean the sum of all expenses incurred by the Lessor inconnection with the operation, repair and maintenance of the Building,including, but not limited to, heating and air conditioning; all real propertytaxes (as hereinafter defined) imposed upon or with respect to the Building andrelated improvements (exclusive of the land underlying all such improvements);all fire and extended coverage, earthquake, loss of rents, vandalism, maliciousmischief and other insurance covering the Building and losses suffered whichfall below the insurance deductible; utilities; materials and supplies;salaries, wages and other expenses incurred with respect to the operation,repair and maintenance of the Building, the cost of repainting, security andfire protection; amortization of capital investments for improvements which aredesigned to reduce operating costs, improve operations or comply withgovernmental conservation or safety programs over such reasonable period as theLessor

 

3

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shall determine (togetherwith interest at five (5) percentage points above the discount rate of theFederal Reserve Bank of San Francisco on the unamortized amount); and an amountequal to fifteen percent (15%) of all such expenses to cover the Lessor’sadministrative and overhead expenses.  BuildingOperating Expenses attributable to the utilities and services furnishedpursuant to Article 10 shall be apportioned among the tenants of the Buildingreceiving such services (excluding those tenants furnishing or paying for theirown utilities and janitorial services) based on the respective leased areasoccupied by such tenants.

 

(c)                                  Lessee’sCommon Area Percentage is a percentage figure calculated by the projectarchitect by dividing the Leased Area of the Premises by the average leasablearea in all improvements, including the Building and other buildings, shown onExhibit “B”, during such year as is initially stipulated to be as shown in item3 of the Basic Lease Provisions.  Shouldthe Building and/or landscape area become a separate legal lot, or shouldadditional improvements or common area be added to or deleted from Exhibit “B”,the Lessor may, at its option, calculate the Lessee’s Common Area Percentage bycomparing the common area attributable to the Premises with the common area onsuch legal lot or otherwise within Exhibit “B” as so revised.

 

(d)                                 CommonArea Operating Expenses shall mean the sum of all expenses incurred by theLessor in connection with the operation and maintenance of driveways,landscaping, walkways, plazas, parking facilities, and perimeter propertyincluding, but not limited to: all items described in Section 6.1 hereof; allreal properly taxes (its hereinafter defined) imposed upon or with respect to theland included within Exhibit “B”; all public liability insurance coveringExhibit “B”, and losses suffered which fall below the insurance deductible;security and fire protection; salaries, wages and other expenses incurred withrespect to maintenance of the common areas, gardening, landscaping, repaving,repainting and trash removal; depreciation of equipment used in suchmaintenance; amortization of capital investments for improvements which complywith governmental conservation or safety programs over such reasonable periodas the Lessor shall determine (together with interest at five (5) percentagepoints above the discount rate of the Federal Reserve Bank of San Francisco onthe unamortized amount); and an amount equal to fifteen percent (15%) of allsuch expenses to cover the Lessor’s administrative and overhead expenses.  General overhead and depreciation ofimprovements shall not be included in the expenses except as specifically setforth in the foregoing.  Any governmentalsurcharge, fee or assessment imposed with respect to the parking facilitieswithin Exhibit “B” shall, to the extent paid by the Lessor and not passed on tothe users of said parking facilities, be included in Common Area OperatingExpenses.

 

(e)                                  RealProperly Taxes shall mean all real and personal property taxes and assessmentsincurred during any calendar year, including, but not limited to: special andextraordinary assessments, meter and sewer rates and charges, occupancy taxesor similar taxes imposed on or with respect to the real or personal property,whether or not imposed on or measured by the rent payable by the Lessee, andother governmental levies and charges, general and special, ordinary andextraordinary, unforeseen as well as foreseen, of any kind and naturewhatsoever relating to the real or personal property, and any gross rental,license or business tax measured by or levied on rent payable or space occupied.  If, by law, any property taxes are payable,or may at the option of the taxpayer be paid, in installments (whether or notinterest shall accrue on the unpaid balance of such property taxes), the Lessormay, at the Lessor’s

 

4

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option, pay the same and,in such event, any accrued interest on the unpaid balance of Such propertytaxes shall be deemed to be Real Property Taxes as defined herein.  Real Property Taxes shall also include allexpenses reasonably incurred by the Lessor in seeking a reduction by the taxingauthorities of Real Property Taxes applicable to the Project.  Real Property Taxes shall not include anycapital levy, franchise, estate, inheritance, succession, gift or transfer taxof the Lessor, or any income, profits or excess profits tax, assessment, chargeor levy upon the income of the Lessor; provided, however, that if at any timeduring the term of this lease under the laws of the United States or the Stateof California, or any political subdivision of either, a tax or excise onrents, space or other aspects of real property, is levied or assessed against theLessor, the same shall be deemed to be Real Property Taxes.  If any such property taxes upon the income ofthe Lessor shall be imposed on a graduated scale, based upon the Lessor’saggregate rental income, Real Property Taxes shall include only such portion ofsuch property taxes as would be payable if the rent payable with respect to theBuilding and Common Areas were the only rental income of the Lessor subject thereto.

 

3.5                                 **Rent Adjustment for Consumer Price Index**.  As specified in item 4 of the Basic LeaseProvisions, the annual rent shall be increased as of the expiration of each fullor partial calendar year of the lease term (the “Adjustment Date”) to reflectany increase in the United States Department of Labor, Bureau of LaborStatistics, Consumer Price Index, “Urban Wage Earners and Clerical Workers(Revised) Series) All Items - Los Angeles - Anaheim Riverside Average(1982-1984=100)”.  The index for saidsubgroup applicable for the month of December (or the month preceding theCommencement Date for the first full or partial calendar year of the lease term)preceding each Adjustment Date shall be considered the “base”, and the annualrent following each Adjustment Date shall be computed by adjusting the annualrent payable for the preceding calendar year thereof by the percentage changein the index as of the adjustment date over the “base”; provided, however, inno event shall the rent payable for any year be less than the rent payable forthe preceding period on account of the adjustment pursuant to this Section 3.5,notwithstanding the fact that the index may, as of some Adjustment Date, beless than the “base”.  The adjustmenteffective January 1, 1997 shall be based upon the changes in the index for thefull prior 12 months.  If as of any AdjustmentDate there shall not exist the Consumer Price Index in the same format as setforth above, the parties shall substitute any official index published by theBureau of Labor Statistics or any successor or similar Governmental agency asmay then be in existence and shall be most nearly equivalent thereto.  If the parties shall be unable to agree uponit successor index, the parties shall refer the choice to arbitration inaccordance with the rules of the American Arbitration Association.  This provision shall not apply to theBuilding Operating Expenses or Common Area Operating Expenses.

 

3.6                                 **Calculation and Payment**

 

(a)                                  Annualrent shall be payable to the Lessor without deduction or offset, in lawfulmoney of the United States at the Lessor’s address herein or to such otherpersons or at such other places as the Lessor designates in writing.  Rent payable for any period for less than one(1) month shall be prorated based upon a thirty (30) day month.

 

Prior to thecommencement of the lease term and of each December thereafter, the Lessorshall give the Lessee a written estimate of the Lessee’s share of Building andCommon Area Operating Expenses for the ensuing year or portion thereof.  The Lessee shall

 

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pay such estimated amount tothe Lessor in equal monthly installments, in advance.  Within ninety (90) days after the end of eachcalendar year, the Lessor shall furnish to the Lessee a statement showing inreasonable detail the actual Building and Common Area Operating Expensesincurred by the Lessor during such period, and the parties shall within thirty(30) days make any payment or allowance necessary to adjust the Lessee’sestimated payment to the Lessee’s actual proportionate share as shown by suchannual statement.  Any amount due theLessee shall be credited against installments next coming due under thisparagraph.  The Lessee or itsrepresentatives shall be entitled to examine the Lessor’s books and recordspertaining to such costs upon reasonable advance notice to the Lessor.

 

(b)                                 Withinninety (90) days after each Adjustment Date, the Lessor shall furnish the Lesseewith a written statement showing the percentage change in the index for theperiod ending on the Adjustment Date and specifying the increase, if any, in theannual rent subsequent to the Adjustment Date, taking into account all prioradjustments to annual rent for the period preceding the Adjustment Datepursuant to this paragraph above and applying any percentage increase in theindex to the annual rent as previously adjusted.  At the rental payment date next following theLessee’s receipt of such statement, the Lessee shall pay to the Lessor anamount equal to one-twelfth (1/12th) of the adjustment pursuant to thisParagraph (b) multiplied by the number of rent payment dates (including the currentone) since the relevant Adjustment Date. Subsequent rental payments shall be increased by one-twelfth (1/12th) ofthe adjustment pursuant to this Paragraph (b).

 

3.7                                 **End of Term**.  Uponthe expiration or earlier termination of this Lease, the Lessee shall pay theLessor, as additional rent, the aggregate rental increase which would have beenpayable by the Lessee pursuant to this Article 3, except for such expiration ortermination, for the portion of the year in which termination or expirationoccurs through the Termination Date.  Theamount of such payment shall be calculated by the Lessor based upon Sections3.2, 3.3 and 3.5 (using the expiration or Termination Date as the AdjustmentDate for Section 3.5) and the best information then available to the Lessor,and shall give effect to all prior adjustments and payments on account byLessee pursuant to this Article 3.

 

4.                                       **SECURITY DEPOSIT**

 

Concurrentlywith the Lessee’s execution of this lease, the Lessee shall deposit with theLessor the sum specified in item 8 of the Basic Lease Provisions as securityfor the faithful performance by the Lessee of all covenants and conditions ofthis Lease.  If the Lessee shall breachor default in the performance of any covenants or conditions of this Lease,including the payment of rent, the Lessor may use, apply or retain the whole orany part of such security deposit for the payment of any rent in default or forany other sum which the Lessor may spend or be required to spend by reason ofthe Lessee’s default.  If the Lessor souses or applies all or any portion of said deposit, the Lessee shall, within ten(10) days after written demand therefor, deposit cash with the Lessor in an amountsufficient to restore said deposit to the full amount hereinabove stated and theLessee’s failure to do so shall be a material breach of this Lease.  Should the Lessee comply with all covenantsand conditions of this Lease, the security deposit or any balance thereof shallbe returned to the Lessee (or at the option of the Lessor, to the last assigneeof the Lessee’s interest in this Lease) at the expiration of the term.  The Lessee shall not be entitled to intereston the security deposit and the Lessor shall have the right to commingle

 

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said securitydeposit with other funds of the Lessor.  Shouldthe Lessor sell its interest in the Premises, the Lessor may transfer to thepurchaser thereof the then unexpended or unappropriated deposit and thereupon theLessor shall be discharged from any liability for such funds.

 

5.                                       **USE**

 

5.1                                 **Use**.  ThePremises shall be used and occupied for the purposes described in item 1 of theBasic Lease Provisions, permitted under applicable ordinances and otherGovernmental requirements, the covenants, conditions and restrictions affectingthe Project, as the same may be amended from time to time, and the Rules andRegulations as the Lessor may from time to time reasonably adopt for thesafety, care and cleanliness of the Building and the Project or thepreservation of good order.  The Rulesand Regulations presently in effect are attached hereto as Exhibit “C”.  The Lessor shall not be responsible to theLessee for the nonperformance of any of said Rules and Regulations, ornon-compliance with said covenants, conditions and restrictions, by any othertenant of the Building.

 

5.2                                 **Compliance with Law; Nuisance**.  The Lessee, at the Lessee’s sole cost andexpense, shall comply promptly and at all times with all laws, requirements,ordinances, statutes, and regulations of all municipal, state or federalauthorities, or any board of fire insurance underwriters, or other similarbodies, now in force or which may hereafter be in force, pertaining to theBuilding and the Premises and the occupancy thereof, including any law thatrequires alteration, maintenance or restoration of the Premises as the resultof the Lessee’s use thereof.  Thejudgment of any court of competent jurisdiction, or the admission of the Lesseein any action or proceeding against the Lessee, whether the Lessor is a partythereto or not, that the Lessee violated any such ordinances or statutes in theuse of the Premises shall be conclusive of that fact as between the Lessor andthe Lessee.  The Lessee, at its soleexpense, shall also comply with all requirements for fire extinguishers or fireextinguisher systems required in the Premises.

 

The Lesseeshall not commit, or suffer to be committed, any waste of the Premises, or anynuisance, annoyance or other unreasonable annoyance which may disturb the quietenjoyment of adjoining premises or of the Building by the owners or occupantsthereof.

 

5.3                                 **Insurance Cancellation**.  Notwithstanding the provisions of Paragraph 5.1above, the Lessee shall not do or permit anything to be done in or about thePremises nor bring or keep anything therein, including all uses permitted underSection 5.1 above, which will in any way increase the existing rate of oraffect any fire or other insurance upon the Building, or any other partthereof, or any of its contents, and if the Lessee’s use of the Premises causesall increase in said insurance rates, the Lessee shall pay as additional rentthe amount of such increase.  The Lesseeshall be in default under this Lease should the Lessee cause the cancellationof fire or other insurance upon the Building or Property or should the Lesseefail to pay any increased insurance rate attributable to the Lessee’s use ofthe Premises.  In determining whetherincreased premiums are a result of the Lessee’s use or occupancy of thePremises or Building, a schedule issued by the Lessor’s insurer computing theinsurance rate on the Premises or Building, or the leasehold improvementsshowing the various components of such rate, shall be conclusive evidence ofthe several items and charges which make up such rate.  The Lessee

 

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shall promptly complywith all reasonable requirements of the insurance authority or of any insurernow or hereafter in effect relating to the Premises.

 

5.4                                 **Hazardous Substances**. Any corrosive, flammable, hazardous or other special waste or materialsshall be handled or disposed of as directed by applicable state, Federal,County and City regulations.  The Lesseeshall handle, store or dispose of such materials in a careful and prudentmanner.  At the termination of the Lease,or any option period thereof, the Lessee shall fully clean the Premises in sucha manner that no residue of such materials or waste shall remain on thePremises.  The Lessee shall notify theappropriate governmental authority of the presence and amount of any suchmaterial or waste, and shall comply with all conditions imposed by such authority.  The Lessee shall contact the appropriategovernmental authority prior to occupancy to determine the existence of anyrecords for the Building and/or Premises. Specifically thirty (30) days prior to occupancy, the Lessee shallsubmit a Hazardous Materials Management Plan (HMMP) and a Hazardous MaterialsFloor Plan (HMF) to the Lessor and the appropriate governmental authority forapproval.  These plans shall be attachedin full to this Lease.

 

The HMMP shallinclude the following:

 

(a)                                  Thecompany name, address and contact person.

 

(b)                                 Generalfacility description with map showing location of all buildings and structures.

 

(c)                                  Facilityhazardous material storage map showing the location of each proposed hazardousmaterial storage area and access to such facilities.  The map shall be updated annually by theoccupant and submitted by January l each year.

 

(d)                                 Afloor plan showing the location of each hazardous material storage area,storage area access, and the location of emergency equipment.

 

The HMF shallinclude file following:

 

(a)                                  HazardousMaterials Handling Report describing the safe handling of hazardous materialsto prevent accidents.

 

(b)                                 Separationor Hazardous Material Report outlining the methods to be utilized to insureseparation and protection of hazardous materials from such factors that couldcause fire, explosion, spills, etc.

 

(c)                                  Inspectionand Record Keeping Plan indicating the procedures for inspecting each storagefacility.  An authorized record ofinspection shall be maintained by the Lessee.

 

(d)                                 Employee“training Program to insure that employees know how to safety handle hazardousmaterials.

 

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(e)                                  HazardousMaterials Contingency Plan that clearly describes appropriate responseprocedures and measures in case of an accident.

 

(f)                                    Afloor plan identifying the location and quantity of each hazardous material,including the chemical name and quantity limit for each class.

 

The Lesseeshall pay inspection fees, based on the hourly inspection rate, for anenvironmental audit to be conducted by the appropriate governmental authority,or the Lessor at the termination of the Lease and prior to reoccupation of theBuilding and/or the Premises, if hazardous materials were in use on theBuilding and/or Premises.  Theappropriate governmental authority shall perform or the Lessee shall arrangefor such an audit in a timely manner to prevent economic hardship to the Lessorand shall certify that the Premises are available for reoccupation, or shallspecify clean-up measures that will render the Premises safe for reoccupation.  The Lessee shall be responsible for anyclean-up that may be required as a result of the audit.

 

Should theLessee fail to comply with any duty set forth in this Section 5.4, the Lessormay, in addition to all other remedies now or hereafter provided by this Lease,or by law, perform such duty or make good such default, and any amounts which theLessor shall advance pursuant thereto shall be repaid by the Lessee to theLessor on demand.

 

5.5                                 **Environmental Laws**.

 

(a)                                  **Compliance with Environmental Laws**.  The Lessee, in its conduct of business on orin any activity, work, thing done, permitted or suffered by the Lessee, itsagents, contractors, employees or invitees on the Premises, shall at all timesand in all respects comply with all federal, state and county laws, ordinancesand regulations (the “Hazardous Materials Laws”) relating to industrialhygiene, environmental protection or the use, analysis, generation,manufacture, storage, disposal or transportation of any oil, flammableexplosives, asbestos, radioactive materials or waste, or other hazardous,toxic, contaminated or polluting materials, substances, or wastes, including,without limitation, any “hazardous substances,” “hazardous wastes,” “hazardousmaterials,” or “toxic substances” under any such laws, ordinances orregulations (collectively, the “Hazardous Materials”).  Such laws, ordinances or regulations shallinclude, but not be limited to, the Comprehensive Environmental Response,Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, etseq; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, etseq; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901et seq; the Clean Water Act, 33 U.S.C. Section 466, et seq; the Safe DrinkingWater Act, 14 U.S.C. Section 1401, et seq; the Superfund Amendment andReauthorization Act of 1986; Public Law 99-499, 100 Stat. 1613; the ToxicSubstances Control Act, 15 U.S.C. Section 2601, et seq, as amended; thosesubstances defined as “hazardous waste”, “extremely hazardous waste”, “restrictedhazardous waste” or “hazardous substance” in the Hazardous Waste Control Act,Section 25100 et seq of the California Health & Safety Code; and thosematerials and substances similarly described in the Federal Insecticide,Fungicide and Rodenticide Act, 7 U.S.C. Section 136, et seq., as amended; theAtomic Energy Act of 1954, 42 U.S.C. Section 2011, et seq., as amended; thePorter Cologne Water Quality Control Act, Section 1300 et seq. of theCalifornia Health & Safety Code; and any regulations adopted andpublications promulgated pursuant to said Laws.

 

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(b)                                 **Hazardous Materials Handling**.  The Lessee shall, at its own expense,procure, maintain in effect and comply with all conditions of any and allpermits, licenses and other governmental and regulatory approvals required forthe Lessee’s use of the Premises, including, without limitation, discharge of(appropriately treated) materials or wastes into or through any sanitary sewerserving the Premises.  Except asdischarged into the sanitary sewer in strict accordance and conformity with allapplicable Hazardous Materials Laws, the Lessee shall cause any and allhazardous Materials removed from the Premises to be removed and transportedsolely by duly licensed haulers to duly licensed facilities for final disposalof such materials and wastes.  The Lesseeshall in all respects handle, treat, deal with and manage any and all HazardousMaterials in, on, under or about the Premises in total conformity with allapplicable Hazardous Materials Laws and prudent industry practices regardingmanagement of such Hazardous Materials.  Uponexpiration or earlier termination of the term of the Lease, the Lessee shallcause all Hazardous Materials to be removed from the Premises and transportedfor use, storage or disposal in accordance and compliance with all applicableHazardous Materials Laws.  The Lesseeshall not take any remedial action in response to the presence of any HazardousMaterials in or about the Premises or the Building, nor enter into anysettlement agreement, consent, decree or other compromise; in respect to anyclaims relating to any Hazardous Materials in any way connected with thePremises or the Building, without first notifying the Lessor of the Lessee’sintention to do so and affording the Lessor ample opportunity to appear,intervene or otherwise appropriately assert and protect the Lessor’s interestwith respect thereto.

 

(c)                                  **Notices**.  TheLessee shall immediately notify the Lessor in writing of any of the followingactivities relating to the Lessee’s operations on the Premises: (i) anyenforcement, clean-up, removal or other governmental or regulatory actioninstituted, completed or threatened pursuant to any Hazardous Materials laws;(ii) any claim made or threatened by any person against the Lessee, thePremises or the Building relating to damage, contribution, cost recoverycompensation, loss or injury resulting from or claimed to result from anyHazardous Materials in, on or removed from the Premises or the Building; and (iii)any reports made to any environmental agency arising out of or in connectionwith any Hazardous Materials in or removed from the Premises or the Building,including any complaints, notices, warnings or asserted violations inconnection therewith.  The Lessee shallalso supply to the Lessor as promptly as possible, and in any event within five(5) business days after the Lessee first receives or sends the same, withcopies of all claims, reports, complaints, notices, warnings or assertedviolations relating in any way to the Premises, the Building or the Lessee’suse thereof.  The Lessee shall promptlydeliver to the Lessor copies of hazardous waste manifests reflecting the legal andproper disposal of all Hazardous Materials removed from the Premises.

 

(d)                                 **Indemnification of Lessor**.  The Lessee shall indemnify, defend, protect,and hold the Lessor, and each of the Lessor’s partners, employees, agents,attorneys, successors and assigns, free and harmless from and against any andall claims, liabilities, penalties, forfeitures, losses or expenses (includingattorneys’ fees) for death of or injury to any person or damage to any propertywhatsoever arising from or caused in whole or in part, directly or indirectly,by (A) the presence in, on, under or about the Premises or the Building, ordischarge in or from the Premises or the Building of any Hazardous Materials orthe Lessee’s use, analysis, storage, transportation, disposal, release,threatened release, discharge or generation of Hazardous Materials to, in, on,under, about or from the Premises or the Building,

 

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but only to the extentsuch Hazardous Materials are present as a result of actions of the Lessee, itsofficers, employees, invitees, assignees, contractors, or agents, or (B) theLessee’s failure to comply with any Hazardous Materials Law.  The Lessee’s obligations hereunder shallinclude, without limitation, and whether foreseeable or unforeseeable, allcosts of any required or necessary repair, clean-tip or detoxification ordecontamination of the Premises or the Building, and the preparation andimplementation of any closure, remedial action or other required plans inconnection therewith, and shall survive the expiration or earlier termination ofthe term of the Lease.  For purposes ofthe release and indemnity provisions hereof, any acts or omissions of theLessee, or by officers, invitees, employees, agents, assignees, contractors orsubcontractors of the Lessee or others acting for or on behalf of the Lessee(to the extent any such individual is acting within the scope of hisrelationship with the Lessee), whether or :lot such acts or omissions arenegligent, intentional, willful or unlawful, shall be strictly attributable tothe Lessee.

 

6.                                       **MAINTENANCE, REPAIRS AND ALTERATIONS**

 

6.1                                 **Lessor’s Obligations**. The Lessor shall cause to be maintained, in good order, condition andrepair, the foundation, structural walls and exterior walls, common windows anddoors of the Building (excluding the interior surface thereof), heating,venting and air conditioning systems, and any public and common areas in theBuilding, as well as all parking areas, driveways, sidewalks, private roads orstreets, landscaping and all other areas located within the Project other thanareas occupied by other buildings (such non-building areas being hereinreferred to as “Common Areas”).  Thecosts of such maintenance are chargeable to the Lessee pursuant to Section 3.2hereof.

 

6.2                                 **Lessee’s Obligations**. The Lessee shall, during the term of this Lease, keep in good order,condition and repair, the roof and roof membrane, the interior of the Premisesand every part thereof, including, but not limited to, all interior windows anddoors in and to the Premises.  The Lessorshall incur no expense nor have any obligation of any kind whatsoever inconnection with the maintenance of the interior of the Premises and the Lesseeexpressly waives the benefits of any statute now or hereafter in effect whichwould otherwise afford the Lessee the right to make repairs at the Lessor’sexpense or to terminate this Lease because of any failure to keep the interiorof the Premises in good order, condition and repair.  Notwithstanding the foregoing, the Lessorshall be liable for maintenance or repairs which are caused by the Lessor’sgross negligence.  The Lessee shall beresponsible for interior janitorial services.

 

6.3                                 **Alterations and Additions**.

 

(a)                                  TheLessee shall not, without the Lessor’s prior written consent, which shall notbe unreasonably withheld, make any alterations, improvements, additions orutility installations in, on or about the Premises unless such work isnon-structural and does not exceed TWENTY THOUSAND DOLLARS ($20,000).  For all work, the Lessee will provide theLessor with as-built drawings reflecting any changes to the Premises.  As used in this Paragraph 6.3, the term “utilityinstallations” shall include bus ducting, power panels, fluorescent fixtures,space heaters, conduits and wiring.  As acondition to giving such consent, the Lessor may require that the Lessee (i)agree to remove any such alterations, improvements, additions or utilityinstallations at the expiration or sooner termination of the terms, and torestore the

 

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Premises to their priorcondition and/or (ii) provide the Lessor, at the Lessee’s sole cost andexpenses, a lien and completion bond in an amount equal to one and one-half (11/2) times the estimated cost of such improvements, to insure the Lessor againstany liability for mechanics’ and materialmen’s liens and to insure completionof work.

 

(b)                                 Allalterations, improvements and additions to the Premises shall be performed bythe Lessor’s contractor for the Project or other licensed contractor approvedby the Lessor, which approval shall not be unreasonably withheld.  The Lessee shall pay, when due, all claimsfor labor or materials furnished to or for the Lessee at or for use in thePremises, which claims are or may be secured by any mechanics’ or materialmen’slien against the Premises or any interest therein, and the Lessor shall have theright to post notices of non-responsibility in or on the Premises as providedby law.

 

6.4                                 **Surrender**.  On thelast day of the term hereof, or on any sooner termination, the Lessee shallsurrender to the Lessor the Premises and, subject to the provisions ofParagraph 6.3(a) hereof, all alterations, additions and improvements thereto,in the same condition as when received or made, ordinary wear and tearexcepted; provided, however, that the Lessee’s machinery, equipment and tradefixtures (including utility installations) which may be removed withoutirreparable or material damage to the Premises, shall remain the property ofthe Lessee and be removed by the Lessee. The Lessee shall repair any damage to the Premises occasioned by theremoval of the Lessee’s furnishings, machinery, equipment and trade fixtures,which repair shall include the patching and filing of holes and repair ofstructural damage.

 

6.5                                 **Lessor’s Rights**. If the Lessee fails to perform the Lessee’s obligations under thisArticle 6, the Lessor may, at its option (but shall not be required to), andwith a five (5) day written notice to the Lessee, perform such obligations onbehalf of the Lessee, and the cost thereof, together with interest thereon atthe rate specified in Paragraph 12.2(a) hereof, shall immediately become dueand payable as additional rent to the Lessor.

 

7.                                       **INSURANCE**

 

The Lessee, atits sole cost and expense, shall, commencing on the date the Lessee is givenaccess to the Premises for any purpose, and during the entire term hereof,procure, pay for and keep in full force and effect:

 

7.1                                 **Lessee’s Liability Insurance**.  Comprehensive general liability insurancewith respect to the Premises and the operations of or on behalf of the Lesseein, on or about the Premises, including, but not limited to, personal injury,product liability (if applicable), blanket contractual, owner’s protective,broad form property damage liability coverage, host liquor liability and ownedand non-owned automobile liability in an amount not less than TWO MILLIONDOLLARS ($2,000,000) Combined Single Limit. Such policy shall contain (i) severability of interest, (ii) crossliability, and (iii) an endorsement stating in substance that “such insuranceas is afforded by this policy for the benefit of the Lessor shall be primary asrespects any liability or claims arising out of the occupancy of the Premisesby the Lessee, or out of the Lessee’s operations, and any insurance carried by theLessor shall be excess and noncontributory. “

 

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7.2                                 **Lessee’s Worker’s Compensation Insurance**.  Worker’s Compensation coverage as required bylaw, together with Employer liability coverage.

 

7.3                                 **Lessee’s Fire and Extended Coverage Insurance**.  Insurance against fire, vandalism, maliciousmischief and such other additional perils its now are or hereafter may beincluded in a standard “All Risks” coverage, insuring all improvements and bettermentsmade to the Premises, the Lessee’s trade fixtures, furnishings, equipment,stock, loss of income or extra expense, and other items of personal property inan amount not less than 100% of replacement value.  Such insurance shall contain (i) no coinsuranceor contribution clauses, (ii) a Replacement Cost Endorsement, and (iii)deductible amounts acceptable to the Lessor.

 

7.4                                 **Policy Requirements**. All policies of insurance required to be carried by the Lessee pursuantto these requirements shall be written by responsible insurance companiesauthorized to do business in the State of California.  Any such insurance required by the Lesseehereunder may be furnished by the Lessee under any blanket policy carried by itor under a separate policy therefor.  Atrue and exact copy of each paid up policy evidencing such insurance or acertificate of the insurer, certifying that such policy has been issued,providing the coverage required and containing the provisions specified herein,shall he delivered to the Lessor prior to the date the Lessee is given theright to possession of the Premises, and upon renewals, not less than thirty(30) days prior to the expiration of such coverage.  The Lessor may, at any time, and from time totime, inspect and/or copy any and all insurance policies required hereunder.  In no event shall the then limits of anypolicy be considered as limiting the liability of the Lessee under this Lease.

 

Each policyevidencing insurance required to be carried by the Lessee pursuant to, these requirementsshall contain, in form and substance satisfactory to the Lessor: (i) aprovision including the Lessor, any lender holding a security interest in theBuilding and any other parties in interest designated by cite Lessor as anadditional insured; (ii) a waiver by the Lessee’s insurer of any right tosubrogation against the Lessor, its agents, employees and representatives whicharise or might arise by reason of any payment under such policy or by reason ofany act or omission of the Lessor, its agents, employees or representatives,and (iii) a provision that the insurer will not cancel or materially change thecoverage provided by such policy without first giving the Lessor thirty (30)days’ prior written notice.

 

7.5                                 **Lessor’s Rights**. If the Lessee fails to procure, maintain and/or pay for at the times andfor the durations specified in this Lease, the insurance required hereunder, orfails to carry insurance required by any governmental requirement, the Lessormay (but without obligation to do so), and with twenty-four (24) hours advancenotice to the Lessee, perform such obligations on behalf of the Lessee, and thecost thereof, together with interest thereon at the rate specified in Paragraph12.2(a) hereof, shall immediately become due and payable as additional rent tothe Lessor.

 

7.6                                 **Lessor’s Insurance**. The Lessor shall maintain during the term of this Lease such insuranceagainst physical damage to the Building, comprehensive liability insurance andother insurance as the Lessor may, from time to time, determine.  The Lessor will determine the limits ofcoverage, deductibles and specific perils insured against.  The Lessor may, but shall not be obliged to,take out and carry any other form or forms of insurance as it or the mortgagees

 

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of the Lessor mayreasonably determine advisable.  Anypolicies carried by the Lessor shall include a waiver by the Lessor’s insurerof any right to subrogation against the Lessee, its agents, employees and representativeswhich arise by right or might arise by reason of any payment under such policyor by reason of any act or omission of the Lessee, its agents, employees orrepresentatives.  Notwithstanding anycontributions by the Lessee to the cost of insurance premiums, with respect tothe Building or any alterations of the Premises as may be provided herein, theLessee acknowledges that it has no right to receive any proceeds from any suchinsurance policies carried by the Lessor.

 

7.7                                 **Indemnification**. To the fullest extent permitted by law, the parties shall each defend,indemnify and hold harmless one another from and against any and all claimsarising from the indemnifying party’s use of the Premises or the conduct of itsbusiness or from any activity, work or thing done, permitted or suffered by theindemnifying party, its agents, contractors, employees or invitees in or aboutthe Premises or elsewhere, and shall further indemnify and hold harmless oneanother from and against any and all claims arising from any breach or defaultin the performance of any obligation on the indemnifying party’s part to beperformed hereunder, or arising from any act, neglect, fault or omission of theindemnifying party, or of its agents, employees, or invitees, and from and againstall costs, attorney’s fees, expenses and liabilities incurred in or about suchclaim or any action or proceeding brought thereon.  In case any action or proceeding be broughtagainst one party by reason of any such claim, the indemnifying party uponnotice from the other party, shall defend the same at the indemnifying party’sexpense by counsel approved in writing by the other party.  The Lessee, as a material part of the considerationto the Lessor hereunder, hereby assumes all risk of damage to property orinjury to persons in, upon or about the Premises from any cause whatsoever,except that which is caused by the failure of the Lessor to observe any of theterms and conditions of this Lease and such failure has persisted for anunreasonable period of time after written notice of such failure, and theLessee hereby waives all of its claims in respect thereof against the Lessor.

 

7.8                                 **Exemption of Lessor from Liability**.  Except for its gross negligence or willfulmisconduct, the Lessor shall not be liable for injury to the Lessee’s businessor any loss of income therefrom or for damage to the property of the Lessee,the Lessee’s employees, invitees, customers or any other person in or about thePremises, nor shall the Lessor be liable for injury to the person of theLessee, the Lessee’s employees, agents or contractors, whether such damage orinjury is caused by or results from fire, explosion, falling plaster,electricity, gas, water or rain, or from the breakage, leakage, obstruction orother defects of pipes, sprinklers, wires, appliances, plumbing, airconditioning or lighting fixtures, or from any other cause, whether such damageor injury results form conditions arising upon the Premises or upon otherportions of the Building, or from other sources or places and regardless ofwhether the cause of such damage or injury or the means of repairing the sameis inaccessible.  The Lessor shall not beliable for incorporeal hereditaments including interference or obstruction oflight, air or view.  The Lessor shall nothe liable for any damages arising from any act or neglect of any other tenantof the Building or the other portions of the Project.

 

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8.                                       **DAMAGE OR DESTRUCTION**

 

8.1                                 **Partial Damage**. If the Premises, or so much of the Building as to cause the Premises tobe uninhabitable, are damaged by any casualty, and the damage (exclusive of anyproperty or improvements installed by the lessee in the Premises) can berepaired within ninety (90) days without the payment of overtime, the Lessorshall, at the Lessor’s expense, repair such damage (exclusive of any propertyof the Lessee or improvements installed by the Lessee in the Premises) as soonas practicable and this Lease shall continue in full force and effect.  If the Premises, or so much of the Buildingas to cause the Premises to be uninhabitable, are damaged by any casualty, and thedamage (exclusive of any property of the Lessee or improvements installed by theLessee in the Premises) cannot be repaired within ninety (90) days without thepayment of overtime or other premiums, the Lessor may, at the Lessor’s option,either (i) repair such damage as soon as practicable at the Lessor’s expense,in which event this Lease shall continue in full force and effect, or (ii) givewritten notice to Lessor within thirty (30) days after the date of theoccurrence of such damage of the Lessor’s intention to terminate this Lease, inwhich event this Lease shall terminate as of the date of the occurrence of suchdamage.

 

8.2                                 **Damage Near End of Term**.  If the Premises, or so much of the Buildingas to cause the Premises to be uninhabitable, are damaged during the last six(6) months of the term of this Lease, or any renewal thereof, the Lessor may,at the Lessor’s option, terminate this Lease as of the date of occurrence ofsuch damage by giving written notice to Lessee of the Lessor’s election to doso within thirty (30) days after the date of occurrence of such damage;provided, however, that if the term of this Lease has been extended for anyreason whatsoever, the Lessor’s right to terminate this Lease shall only applyduring the last six (6) months of the then current term of this Lease.

 

8.3                                 **Abatement of Rent; Lessee’s Remedies**.

 

(a)                                  Iflime Lessor is obligated or elects to repair the Premises as provided above, therent payable for the period during which such repair continues shall be abated,in proportion to the degree to which the Lessee’s use of the Premises isimpaired; provided, however, that the aggregate period of abatement hereundershall not exceed six (6) months.  Exceptfor such abatement, if any, the Lessee shall have no claim against the Lessorfor any damage suffered by reason of any such damage, destruction, repair orrestoration.

 

(b)                                 Ifthe Lessor is obligated or elects to repair the Premises as provided above, butdoes not commence such repair within ninety (90) days after such obligationshall occur, subject to any extension or up to another sixty (60) days fordelays beyond the reasonable control of the Lessor, the Lessee may, at theLessee’s option, terminate this Lease by giving the Lessor written notice of theLessee’s election to do so at any time prior to the commencement of such repairor restoration, in which event this Lease shall terminate as of the date ofsuch destruction.

 

8.4                                 **Insurance Proceeds Upon Termination**.  If this Lease is terminated pursuant to anyright given the Lessee or the Lessor to do so under this Article 8, allinsurance proceeds payable under Section 7.6 with respect to the damage givingrise to such right of

 

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termination shall be paidto the lessor and any encumbrances of the Premises, as their interests mayappear.

 

8.5                                 **Restoration**.  TheLessor’s obligation to restore shall not include the restoration or replacementof the Lessee’s furnishings, machinery, equipment, trade fixtures or otherpersonal property or any improvements or alterations made by the lessee to thePremises.

 

9.                                       **PERSONAL PROPERTY TAXES**

 

The Lessee shallpay prior to delinquency all Real Property Taxes and other taxes assessedagainst, levied upon or attributable to its furnishings, machinery, equipment,trade fixtures or other personal property contained in the Premises orelsewhere and, if required, all improvements to the Premises in excess of theLessor’s “building standard” improvements, provided, however, that nothingcontained herein shall require the Lessor to insure the accuracy of anysegregation of the same for purposes of Section 3.4(b) hereof.  When practicable, the Lessee shall cause saidfurnishings, machinery, equipment, trade fixtures and all other personalproperty to be assessed and billed separately from the real property of theLessor.

 

10.                                 **UTILITIES**

 

The Lesseeshall pay for all water, gas, heat, light, power, janitorial services and otherutilities and services supplied to the Premises, together with any taxesthereon.  If any such services are notseparately metered or charged to the Lessee, the Lessee shall pay a pro rataproportion, as part of operating expenses, based on leasable area, of allcharges jointly metered or charged with other premises.  Water charges include costs of operating thewafer system as well as amortization of costs for the water system as describedin Exhibit “D”.  The Lessor shall not beliable in damages or otherwise unless due to the Lessor’s gross negligence forany failure or interruption of any utility services being furnished to thebuilding and no such failure or interruption shall entitle the Lessee toterminate this Lease.  In no event shallthe Lessor be liable for any such failure or interruption caused by theexercise of governmental authority, strikes, riots, acts of God, war, adverseweather conditions, fire, flood or casualties or acts of third parties beyond theLessor’s control.  The operation andcontrol of utilities, air conditioning and any other energy system is subjectto compliance with any government authority governing the regulation and use ofenergy systems within the commercial office or industrial building structure.  The Lessee shall not subject any of themechanical, electrical, plumbing, sewer or other utility or service systems orequipment to exercise or use which causes damage to said systems or equipment.  Any such damages to equipment caused by thelessee overloading such equipment shall be rectified by the Lessee, or may, at theLessor’s option, be rectified by the Lessor, at the Lessee’s sole cost andexpense.

 

11.                                 **ASSIGNMENT AND SUBLETTING**

 

11.1                           TheLessee shall not voluntarily or by operation of law sublet, assign, transfer,mortgage or otherwise encumber, or grant concessions, licenses or franchiseswith respect to all or any part of the Lessee’s interest in this Lease or thePremises without the prior written consent of the Lessor, which shall not beunreasonably withheld.  If the Lesseedesires at any time to assign this Lease or to sublet the Premises or anyportion thereof, it shall first notify

 

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the Lessor of its desireto do so and shall submit in writing to the Lessor (i) the name of the proposedsublessee or assignee; (ii) the nature of the proposed sublessee or assignee;(iii) the nature of the proposed sublessee’s or assignee’s business to becarried on in the Premises; (iv) the terms and provisions of the proposedsublease or assignment; (v) such reasonable financial information as the Lessormay request concerning the proposed sublessee or assignee, including, but notlimited to, a balance sheet as of a date within ninety (90) days of the requestfor the Lessor’s consent, statements of income or profit and loss for the two(2) year period preceding the request for the Lessor’s consent, and a writtenstatement in reasonable details as to the business experience of the proposedsublessee or assignee during the five (5) years preceding the request for theLessor’s consent; and (vi) the name and address of sublessee’s or assignee’spresent or previous landlord.  The Lessormay, as a condition to granting such consent, require that the obligations ofany assignee which is a subsidiary or affiliate of another corporation beguaranteed by the parent or controlling corporation.  Any sublease, license, concession, franchiseor other permission to use the Premises shall be expressly subject andsubordinate to all applicable terms and conditions of this Lease.  Any purported or attempted assignment,transfer, mortgage, encumbrance, subletting, license, concession, franchise orother permission to use the Premises contrary to the provisions of thisparagraph shall be void and, at the option of the Lessor, shall terminate thisLease.

 

11.2                           Ifthe Lessee is a corporation, any transfer of its stock, or any dissolution,merger or consolidation which results in a change in the control of the lesseefrom the person or persons owning a majority of its voting stock immediatelyprior thereto, or the sale or other transfer of all or substantially all of theassets of the Lessee and which results in a reduction in the net worth of theentity following such action shall constitute an assignment of the Lessee’sinterest in this Lease within the meaning of this Article 11 and the provisionsrequiring consent contained herein.  TheLessor may require, as a condition to giving such consent, that the newcontrolling person(s) execute a guaranty of this Lease.  If the Lessee is a corporation which, underthen current guidelines published by the California Commissioner ofCorporations, is not deemed to be a public corporation, the transfer, assignmentor hypothecation of any interest in such corporation in the aggregate in excessof twenty-five percent (25%) (other than a transfer occurring by operation oflaw upon the death of the holder of such interest) shall be deemed anassignment within the provisions of this Article.

 

11.3                           Nosubletting, assignment, license, concession, franchise or other permission touse the Premises shall relieve the Lessee of its obligations to pay the rent orto perform all of the other obligations to be performed by the Lesseehereunder.  The acceptance of rent by theLessor from any other person shall not be deemed to be a waiver by the Lessorof any provisions of this Lease.

 

11.4                           Atany time within twenty (20) days after the Lessor’s receipt of the informationspecified in Section 11.1 above, the Lessor may by written notice to the Lesseeelect (a) to sublease the Premises or the portion thereof so proposed to besubleased by the Lessee, or to take an assignment of the Lessee’s leaseholdestate hereunder, upon the same terms as those offered to the proposedsublessee or assignee, as the case may be; or (b) disapprove such assignment orsubletting.  If the Lessor does not actwithin the twenty (20) days, such failure to act is deemed a disapproval ofsuch request for assignment or subletting.

 

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11.5                           Eachassignee or transferee, other than the Lessor, shall assume all obligations ofthe Lessee under this Lease and shall be and remain liable jointly andseverally with the Lessee for the payment of the rent, and for the dueperformance of all the terms, covenants, conditions and agreements to beperformed by the Lessee hereunder; provided, however, that a transferee otherthan an assignee shall be liable to the Lessor for rent only in the amount setforth in the assignment or transfer.  Noassignment shall be binding on the Lessor unless such assignee or Lessee shalldeliver to the Lessor a counterpart of such assignment and an instrument inrecordable form which contains a covenant of assumption by such assigneesatisfactory in substance and form to the Lessor, consistent with therequirements of this Section 11.5, but the failure or refusal of such assigneeto execute such instrument of assumption shall not release or discharge suchassignee from its liability as set forth above.

 

11.6                           Consentby the Lessor to any subletting or assignment shall be conditioned upon paymentby the Lessee to the Lessor of all “Transfer Consideration” (as hereafterdefined) received or to be received, directly or indirectly, by the Lessee onaccount of such assignment or subletting. Transfer Consideration shall be paid to the Lessor at the same time ortimes as the same is due to the Lessee. Failure to pay the Lessor the Transfer Consideration, or any portion orinstallment thereof, shall be deemed a default under this Lease, entitling theLessor to exercise all remedies available to it under law including, but notlimited to, those specified in Article 12 of this Lease.  “Transfer Consideration” shall mean a) in thecase of a subletting, any consideration paid or given, directly or indirectly,by the sublessee to the Lessee pursuant to the sublease for the use of thePremises, or any portion thereof, over and above the rent and any additionalrent, however denominated, in this Lease, payable by the Lessee to the Lessor forthe use of the Premises (or portion thereof), prorating as appropriate theamount payable by the Lessee to the Lessor under this Lease, if less than allof the Premises is sublet, and (b) in the case of an assignment or a sublease,any consideration paid or given, directly or indirectly, by the sublessee orassignee to the Lessee in exchange for entering into the sublease orassignment, but shall not include reimbursement for any security deposit,reimbursement of any improvements, fixtures or furnishings installed in thePremises by the Lessee or any payment for personal property of the Lessee notin excess of the Lessee’s book value thereof. As used herein, consideration shall include consideration in any form,including, but not limited to, money, property, assumption of liabilities otherthan those arising under this Lease, discounts, services, credits or any otheritem or thing of value.  Irrespective ofthe form of such consideration, the Lessor shall be entitled to be paid in cashin an amount equivalent to the aggregate of the cash portion of the TransferConsideration and the value of any non-cash portion of the TransferConsideration.  If any TransferConsideration is to be paid or given in installments, the Lessee shall pay eachsuch installment at the time the same is to be paid or given.

 

12.                                 **DEFAULTS; REMEDIES**

 

12.1                           **Default by Lessee**. The occurrence of any one or more of the following events shallconstitute a default of this Lease by the Lessee:

 

(a)                                  Thevacating or abandonment of the Premises by the Lessee combined with the failureto pay rent;

 

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(b)                                 Thefailure of the Lessee to make any payment of rent or any other payment requiredto be made by the Lessee hereunder, as and when due, where such failure shallcontinue for a period of three (3) days after written notice thereof from theLessor to the Lessee; provided, however, that any such notice shall be in lieuof, and not in addition to, any notice required under California Code of CivilProcedure Section 1161;

 

(c)                                  Thefailure by the Lessee to observe or perform any of the covenants, conditions orprovisions of this Lease (or the covenants, conditions and restrictionsgoverning the Project) to be observed or performed by the Lessee, other thandescribed in Paragraph 12.1(b) hereof, where such failure shall continue for aperiod of thirty (30) days after written notice thereof from the Lessor to theLessee; provided, however, that any such notice shall be in lieu of, and not inaddition to, any notice required under California Code of Civil ProcedureSection 1161; provided, further, that if the nature of the Lessee’s default issuch that more than thirty (30) days are reasonably required for its cure, thenthe Lessee shall not be deemed to be in default if the Lessee commences suchcure within said thirty (30) day period and thereafter diligently prosecutessuch cure to completion; or

 

(d)                                 Themaking by the Lessee of any general assignment or general arrangement for thebenefit of creditors; the filing by or against the Lessee of a petition to havethe Lessee adjudged a bankrupt or a petition for reorganization or arrangementunder any law relating to bankruptcy (unless, in the case of a petition filedagainst the Lessee, the same is dismissed within sixty (60) days); theappointment of a trustee or receiver to take possession of substantially all ofthe Lessee’s assets located at the Premises, or of the Lessee’s interest inthis Lease, where possession is not restored to the Lessee within thirty (30)days; or the attachment, execution or other judicial seizure of substantiallyall of the Lessee’s assets located at the Premises or of the Lessee’s interestin this Lease, where such seizure is not discharged within thirty (30) days.

 

12.2                           **Remedies for Default by Lessee**.  In the event of any such default, the Lessormay at any time thereafter, upon notice and demand and without limiting theLessor in the exercise of any other right or remedy which the Lessor may haveby reason of such default or breach:

 

(a)                                  Terminatethe Lessee’s right to possession of the Premises by any lawful means, in whichcase this Lease shall terminate and the Lessee shall immediately surrenderpossession of the Premises to the Lessor. In such event, the Lessor shall be entitled to recover from the Lessee:

 

(1)                                  Theworth at the time of award of the unpaid rent which has been earned at the timeof termination;

 

(2)                                  Theworth at the time of award of the amount by which the unpaid rent which wouldhave been earned after termination until the time of award exceeds the amountof such rental loss that the Lessee proves could have been reasonably avoided;

 

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(3)                                  Theworth at the time of award of the amount by which the unpaid rent for thebalance of the term after the time of award exceeds the amount of such rentalloss that the Lessee proves could be reasonably avoided; and

 

(4)                                  Anyother amount necessary to compensate the Lessor for all the detrimentproximately caused by the Lessee’s failure to perform its obligations underthis Lease or which in the ordinary course of things would be likely to resulttherefrom, including, but not limited to: the cost of recovering possession ofthe Premises, expenses of releasing including necessary renovation andalteration of the Premises, reasonable attorneys’ fees and any other reasonablecost.  The “worth at the time of award”of the amounts referred to in subparagraphs (1) and (2) above shall be computedby allowing interest at five (5) percentage points above the discount rate ofthe Federal Reserve Bank of San Francisco at the time of the award.  The “worth at the time of award” of theamount referred to in subparagraph (3) above shall be computed by discountingsuch amount at one (1) percentage point above such discount rate.

 

(b)                                 Requirethe Lessee to make payment of all rental obligations in cash or by certifiedcashier’s check.

 

(c)                                  Pursueany other remedy now or hereafter available to the Lessor under the laws orjudicial decisions of the Sate of California, including, but not limited to,the remedy provided in California Civil Code Section 1951.4 to continue thisLease in effect.

 

(d)                                 TheLessor, in addition to the rights hereinbefore given in the case of the Lessee’sbreach or default, may pursue any other remedy available to the Lessor at lawor in equity.

 

(e)                                  TheLessor shall have, and the Lessee hereby grants to the Lessor, a presentsecurity interest in the furniture, fixtures, equipment, improvements and otherpersonal property of the Lessee presently, or which may hereinafter be locatedon the leased Premises, and all proceeds therefrom in accordance with theUniform Commercial Code of the State of California.  The security interest granted by the Lesseeto the Lessor hereunder shall secure the full and prompt performance andobservance by the Lessee of all of the Lessee’s obligations under this Lease,and the Lessee will execute any financing statement required by the Lessor, orany other document necessary to perfect such security interest, and should theLessee fail to do so, the Lessee authorizes the Lessor to execute suchfinancing statements or other documents to perfect such security interest.

 

12.3                           **Default by Lessor**. ‘The Lessor shall not be in default of any, of the obligations of theLessor under the Lease, unless the Lessor fails to perform such obligationswithin a reasonable time, but in no event less than thirty (30) days afterwritten notice by the Lessee to the Lessor specifying wherein the Lessor hasfailed to perform such obligations; provided, however, that if the nature ofthe Lessor’s default is such that more than thirty (30) days are required forits cure, the Lessor shall not be in default if the Lessor commences such curewithin such thirty (30) day period and thereafter diligently prosecutes thesame to completion.  In the event of anysuch default by the Lessor, the Lessee may pursue any remedy now or hereafteravailable to the Lessee under the laws of judicial decisions of the State of

 

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California, except thatthe Lessee shall not have the right to terminate this Lease except as expresslyprovided herein nor to set off against any payments due under this Lease.  The Lessee waives any right to deduct the expensesof repairs done by the Lessor on the Lessor’s behalf from the rent and waives,except as herein provided, any of the Lessor’s obligations for tenantability ofthe Building or the Premises.

 

Copies of anynotice required under this Article 12.3 shall also be sent to any lenderholding a security in the Building.  Thelender shall have thirty (30) days to effect a cure beyond the 30-day cureperiod granted to the Lessor under this Article 12.3.  If the default is not one which is capable ofcure within the lender’s 30-day cure period, the Lessor shall not be in defaultif the lender commences such cure within the 30-day period and thereafterdiligently prosecutes the same to completion.

 

12.4                           **Late Charges**. The Lessee acknowledges that the late payment by the Lessee to theLessor of rent and other sums due hereunder will cause the Lessor to incurcosts not contemplated by this Lease, the exact amount of which will beextremely difficult to ascertain.  Suchcosts include, but are not limited to, processing and accounting charges andlate charges which may be imposed on the Lessor by the terms of any mortgage ortrust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from theLessee shall not be received by the Lessor, or the Lessor’s designee, withinten (10) days after the same is due, the Lessee shall pay to the Lessor a latecharge equal to fifteen percent (15%) of such overdue amount, monthly, untilsuch overdue amount is paid.  The Lessee acknowledgesthat such late charge represents a fair and reasonable estimate of the costthat the Lessor will incur by reason of a late payment by the Lessee.  Acceptance of such late charge by the Lessorshall in no event constitute a waiver of the Lessee’s default with respect tosuch overdue amounts nor prevent the Lessor from exercising any of the otherrights and remedies granted hereunder.

 

13.                                 **CONDEMNATION OR RESTRICTION ON USE**

 

13.1                           **Eminent Domain**. If the whole of the Premises, or so much thereof as to render thebalance unusable by the Lessee, shall be taken under power of eminent domain,this Lease shall automatically terminate as of the date of such condemnation,or as of the date possession is taken by the condemning authority, whichever isearlier.  No award for any partial orentire taking shall be apportioned, and the Lessee hereby assigns to the Lessorany award which may be made in such taking or condemnation, together with anyand all rights of the Lessee now or hereafter arising in or to the same or anypart thereof; provided, however, that nothing contained herein shall be deemedto give the Lessor any interest in or to require the Lessee to assign to theLessor any award made to the Lessee for its relocation expenses, the taking ofpersonal property and fixtures belonging to the Lessee, the interruption of ordamage to the Lessee’s business and/or for the Lessee’s unamortized cost ofleasehold improvements.  The unamortizedportion of the Lessee’s expenditures for improving the Premises shall bedetermined by multiplying such expenditures by a fraction, the numerator ofwhich shall be the number of years of the term of this Lease which shall nothave expired at the time of such appropriation or taking and the denominator ofwhich shall be the number of years of the term of this Lease which shall nothave expired at the time of improving the Premises.  In no event shall options to renew or extendbe taken into consideration in determining the payment to be made to theLessee.  The

 

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Lessee’s right to receivecompensation or damages for its fixtures and personal property shall not beaffected in any manner thereby.

 

13.2                           **Abatement of Rent**. In the event of a partial or temporary taking which does not result in atermination of this Lease, rent shall be abated in proportion to that part ofthe Premises so made unusable by the Lessee.

 

13.3                           **Temporary Taking**. No temporary taking of the Premises and/or of the Lessee’s rightstherein or under this Lease shall terminate this Lease and any award made byreason of any such temporary taking shall belong entirely to the Lessor.

 

13.4                           **Voluntary Sale as Taking**.  A voluntary sale by the Lessor to any publicbody or agency having the power of eminent domain, either under threat of condemnationwhile condemnation proceedings are pending, shall be deemed to be a takingunder the power of eminent domain for the purpose of this Article 13.

 

14.                                 **BROKERS**

 

The Lessoracknowledges its obligation to pay a single commission to the broker(s) specifiedin item 9 of the Basic Lease Provisions, if any.  The Lessee represents and warrants that ithas neither incurred nor is aware of any other broker’s, finder’s, or similarfee in connection with the origin, negotiation, execution or performance of thisLease and agrees to indemnify and hold harmless the Lessor from any loss,liability, damage, cost or expense incurred by reason of a breach of thisrepresentation.

 

15.                                 **LESSOR’S LIABILITY**

 

15.1                           Theterm “Lessor” as used herein shall mean only the owner or owners at the time inquestion of the fee title or a Lessee’s interest in a ground lease of theBuilding.  In the event of any transferof such title or interest, the Lessor herein named (and in case of anysubsequent transfers, the then grantor) shall be relieved from, and after thedate of such transfers of all liability for the Lessor’s obligations thereafterto be performed; provided, however, that any funds in the hands of the Lessoror the then grantor at the time of such transfer in which the Lessee has aninterest shall be delivered to the grantee. The obligations contained in this Lease to be performed by the Lessorshall, subject as aforesaid, be binding on the Lessor’s successors and assignsonly during their respective periods of ownership and no successor or assigneeshall be liable for the obligations of its predecessor Lessor hereunder.

 

15.2                           Theinitial Lessor hereunder is a joint venture operating as a Californiapartnership.  In consideration of thebenefits accruing hereunder, the Lessee, its successors and assigns, agreethat, in the event of any actual or alleged failure, breach or defaulthereunder by the initial Lessor:

 

(a)                                  Thesole and exclusive remedy shall be against the assets of the joint venture;

 

(b)                                 Nojoint venturer shall be sued or named a party in any suit or action (except asmay be necessary to secure jurisdiction of the joint venture);

 

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(c)                                  Noservice of process shall be made against any joint venturer (except as may benecessary to secure jurisdiction of the joint venture);

 

(d)                                 Nojoint venturer shall be required to answer or otherwise plead to any service ofprocess;

 

(e)                                  Nojudgment will be taken against any joint venturer;

 

(f)                                    Anyjudgment taken against any joint venturer may be vacated and set aside at anytime nine pro tune;

 

(g)                                 Nowrit of execution will ever be levied against the assets of any joint venturer;and

 

(h)                                 Thesecovenants and agreements are enforceable by the Lessor and also by any jointventurer thereof.

 

16.                                 **PARKING**

 

During theterm of this Lease, the Lessee shall have the right in common with othertenants of the Building (if any) and any adjacent buildings, to use the parkingarea available to tenants of the Building. The Lessee’s use of such parking facilities or that of its inviteesshall be limited to a maximum of the number of parking spaces shown in item 10of the Basic Lease Provisions (but such space will not be separately identifiedand the Lessor shall have no obligation to monitor the use of such parkingfacility), and shall be subject to such rules and regulations as may beestablished, from time to time, by the Lessor for the effective use of suchparking facilities.  Such rules andregulations may include, but shall not be limited to, designation of specificareas for use by, invitees of the Lessee and the Lessor; hours during whichparking shall be available for use; parking attendants; a parking validation orother control system to prevent parking abuse; and such other matters affectingthe parking operation to the end that said facilities shall be utilized tomaximum efficiency and in the best interest of the Lessor, the Lessee and theirrespective invitees.  The Lessor maytemporarily close any part of the Common Area for such periods of time as maybe necessary to prevent the public from obtaining prescriptive rights or tomake repair or alterations.  The Lessorshall not have any express or implied obligation to enforce or police theparking lot usage.  The Lessee’s right touse any area for parking purposes shall be subject to restrictions or otherlimitations resulting from any laws, statutes, ordinances and governmentalrules, regulations or requirements now in force or which may hereafter be inforce, and no such event shall in any way affect this Lease, abate rent,relieve the Lessee of any liabilities or obligations under this Lease, or giverise to any claim whatsoever against the Lessor; specifically, the Lessee’sright to use any area for parking purposes shall be subject to any preferentialparking program for participants in any ridesharing program established by theLessor.  If the Lessor reasonablydetermines that the Lessee is regularly using in excess of the number ofparking spaces specified in item 10 of the Basic Lease Provisions, the Lessormay, in addition to any other remedy, impose a reasonable charge for suchexcess, usage, payable by the Lessee upon demand.

 

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17.                                 **GENERAL PROVISIONS**

 

17.1                           **Estoppel Certificate**

 

(a)                                  TheLessee shall at any time, and from time to time, upon not less than ten (10)days’ prior written notice from the Lessor, execute, acknowledge and deliver tothe Lessor a statement in writing (i) certifying that this Lease is unmodifiedand in full force and effect (or, if modified, stating the nature of suchmodification and certifying that this Lease, as so modified, is in full forceand effect) and the date to which the rent and other charges are paid inadvance, if any, and (ii) acknowledging that there are no, to the Lessee’sknowledge, uncured defaults on the part of the Lessor hereunder, or specifyingsuch defaults if any are claimed.  Anysuch statement may be conclusively relied upon by any prospective purchaser orencumbrancer of the Premises.

 

(b)                                 TheLessee’s failure to deliver such statement within such time shall be conclusiveupon the Lessee that (i) this Lease is in full force and effect withoutmodification except as may be represented by the Lessor, (ii) there are nouncured defaults in the Lessor’s performance, and (iii) not more than one (1)month’s rent has been paid in advance.

 

(c)                                  Ifthe Lessor desires to finance or refinance the Premises, or any part thereof,the Lessee shall deliver to any lender designated by the Lessor such financialstatements of the Lessee as may be reasonably required by such lender.  All such financial statements shall bereceived by the Lessor in confidence and shall be used only for the purposesherein set forth.  In the case of thenamed Lessee, it shall have the right to deliver directly to any lender, bankor financial institution designated by the Lessor its most recent Form 10Kdocuments filed with the Securities and Exchange Commission in satisfaction ofits obligations hereunder.

 

17.2                           **Severability**. The invalidity of any provision of this Lease as determined by a courtof competent jurisdiction shall in no way affect the validity of any otherprovision hereof.

 

17.3                           **Time of Essence**. Time is of the essence in the performance of all terms and conditions ofthis Lease in which time is an element.

 

17.4                           **Captions**. Article and paragraph captions have been inserted solely as a matter ofconvenience and such captions in no way define or limit the scope or intent ofany provision of this Lease.

 

17.5                           **Notices**.  Anynotice required or permitted to be given hereunder shall be in writing and maybe served personally or by regular mail, addressed to the Lessor and the Lesseerespectively at the addresses set forth before their signatures in item 11 ofthe Basic Lease Provisions, or to such other or additional persons or at suchother addresses as may, from time to time, be designated in writing by theLessor or the Lessee by notice pursuant hereto.

 

17.6                           **Waivers**.  Nowaiver of any provision hereof shall be deemed a waiver of any other provisionhereof.  Consent to or approval of anyact by one of the parties hereto shall not be deemed to render unnecessary theobtaining of such party’s consent to or approval of any

 

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subsequent act.  The acceptance of rent hereunder by theLessor shall not be a waiver of any preceding breach by the Lessee of anyprovision hereof, other than the failure of the Lessee to pay the particularrent so accepted, regardless of the Lessor’s knowledge of such preceding breachat the time of acceptance of such rent.

 

17.7                           **Holding Over**. If the Lessee holds over after the expiration or earlier termination ofthe term hereof without the express written consent of the Lessor, the Lesseeshall become a tenant at sufferance only at one hundred fifty percent (150%) ofthe monthly rent for the Premises then in effect for the space, in effect uponthe date of such expiration or earlier termination (subject to adjustment asprovided in Article 3 hereof and prorated on a daily basis), and otherwise uponthe terms, covenants and conditions herein specified, so far asapplicable.  Acceptance by the Lessor ofrent after such expiration or earlier termination shall not constitute aconsent to a holdover hereunder or result in a renewal.  The foregoing provisions of this paragraphare in addition to and do not affect the Lessor’s right of re-entry or anyother rights of the Lessor hereunder or as otherwise provided by law.

 

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

 

17.9                           **Inurement**. Subject to any provisions hereof restricting assignment or subletting bythe Lessee and subject to the provisions of Article 15 hereof, the terms andconditions contained in this Lease shall bind the parties, their personalrepresentatives, successors and assigns.

 

17.10                     **Choice of Law**. This Lease shall be governed by the laws of the State of California.

 

17.11                     **Subordination**. This Lease shall, at the Lessor’s option, be either superior orsubordinate to mortgages or deeds of trust on file Premises, whether nowexisting or hereinafter created.  TheLessee shall, upon written demand by the Lessor, execute such instruments asmay be required, from time to time, to subordinate the rights and interest ofthe Lessee under this Lease to the lien of any mortgage or deed of trust on theBuilding.  Notwithstanding any such subordination,so long as the Lessee is not in default hereunder, this Lease shall not beterminated or the Lessee’s quiet enjoyment of the Premises disturbed in theevent such mortgage or deed of trust is foreclosed.  In the event of such foreclosure, the Lesseeshall thereupon become a Lessee of, and attorn to, the successor in interest tothe Lessor on the same terms and conditions as are contained in this Lease.

 

17.12                     **Attorneys’ Fees**. If any action at law or equity, including an action for declaratoryrelief, is brought to enforce the provisions of this Lease, the prevailingparty shall be entitled to recover actual attorneys’ fees incurred in bringingsuch action and/or enforcing any judgment granted therein, all of which shallbe deemed to have accrued upon the commencement of the action and shall be paidwhether or not such action is prosecuted to judgment.  The attorneys’ fees to be awarded theprevailing party may be determined by the court in the same action or in aseparate action brought for that purpose. Any judgment or order entered in such action shall contain a specificprovision providing for file recovery of actual attorneys’ fees and

 

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costs incurred inenforcing such judgment.  The award ofattorneys’ fees shall not be computed in accordance with any court schedule,but shall be made so as to fully reimburse the prevailing party for allattorneys’ fees, paralegal fees, costs and expenses actually incurred in goodfaith, regardless of the size of the judgment, it being the intention of theparties to fully compensate the prevailing party for all attorneys’ fees,paralegal fees, costs and expenses paid or incurred in good faith.  For purposes of this section, attorneys’ feesshall include, without limitation, attorneys’ fees, paralegal fees, costs andexpenses incurred in relation to any of the following: post-judgment motions;contempt proceedings, garnishment, levy and debtor or third party examinations;discovery; and bankruptcy litigation.

 

17.13                     **Lessor’s Access**. The Lessor and the Lessor’s agents shall have the right to enter thePremises with reasonable notice at reasonable times for the purpose ofinspecting the same, showing the same to prospective purchasers, lessees, orlenders, and making such alterations, repairs, improvements or additions to thePremises or to the Building as the Lessor may deem necessary or desirable.  The Lessor may at any time place on or aboutthe Building any ordinary “For Sale” signs and the Lessor may, at any timeduring the last one hundred eighty (180) days of the term hereof (or during anyperiod in which the Lessee is in default under this Lease), place on or aboutthe Building any ordinary “For Sale”, “For Lease” or similar signs, all withoutrebate of rent or liability to the Lessee.

 

17.14                     **Corporate Authority**. If the Lessee is a corporation, the Lessee shall, at the Lessor’srequest, require that each individual executing this Lease on behalf of saidcorporation represent and warrant that he is duly authorized to execute anddeliver this Lease on behalf of said corporation in accordance with a dulyadopted resolution of the Board of Directors of said corporation or inaccordance with the Bylaws of said corporation, and that this Lease is bindingupon said corporation in accordance with its terms.  The Lessee shall also, at the Lessor’srequest, within thirty (30) days after execution of this Lease, deliver to theLessor a certified copy of a resolution of the Board of Directors of saidcorporation authorizing or ratifying the execution of this Lease.

 

17.15                     **Surrender or Cancellation**.  The voluntary or other surrender of thisLease by the Lessee, or a mutual cancellation thereof, shall not work a merger,and shall terminate all or any existing subleases, unless the Lessor elects totreat such surrender or cancellation as an assignment to the Lessor of any orall of such subleases.

 

17.16                     **Entire Agreement**. This Lease, the exhibits hereto which by this reference are incorporatedherein as though set forth in full herein, covers in full each and everyagreement of every kind or nature whatsoever between the parties heretoconcerning the Premises and the Building, and all preliminary negotiations andagreements of whatsoever kind or nature are merged herein.  The Lessor has made no representations or promiseswhatsoever with respect to the Premises or the Building, or the designconfiguration of the Project, except those contained herein, and no otherperson, form or corporation has at any time had any authority from the Lessorto make nay representations or promises on behalf of the Lessor.  If any such representations or promises havebeen made by others, the Lessee hereby waives all right to rely thereon.  No verbal agreement or implied covenant shallbe held to vary the provisions hereof, any statute, law or custom to thecontrary notwithstanding.

 

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Except asotherwise provided herein, nothing expressed or implied herein is intended orshall be construed to confer upon or grant any person any rights or remediesunder or by reason of any term or condition contained in this Lease.

 

17.17                     **Signs**.  Nosign, placard, picture, advertisement, name or notice shall be inscribed,displayed, printed or affixed to or near any part of the outside or inside ofthe Building without the written consent of the Lessor first had and obtainedand without full compliance with all governmental requirements and with theProject Signage Plan and any other required consents.  The Lessor shall have the right to remove anysuch sign, placard, picture, advertisement, name or notice without notice toand at the expense of the Lessee.  Allapproved signs shall be installed at the Lessee’s sole cost and expense.  The Lessee further agrees to maintain anysuch approved signs, as may be approved by the Lessor, in good condition andrepair at all times.  The Lessee shallnot place any sign on a vehicle or movable or non-movable object in or on thestreet adjacent to the Project.

 

17.18                     **Gender; Number**. Whenever the context of this Lease requires, the masculine genderincludes the feminine or neuter, and the singular number includes the plural.

 

17.19                     **Recording of Lease**. The Lessee shall not record this Lease. The Lessee may prepare a memorandum of lease which shall be signed bythe Lessor, provided said memorandum meets with the Lessor’s approval, whichwill not be unreasonably withheld.  ‘TheLessee may record said memorandum of lease with the Santa Barbara CountyRecorder, provided a conformed copy is furnished to the Lessor.  The Lessee shall be responsible for all costsin preparing and recording the memorandum of lease.  At the expiration or sooner termination ofthis Lease, the Lessee shall execute, acknowledge and deliver to the Lessor,within ten (10) days after written demand from the Lessor, any quitclaim deedor other document reasonably required by any reputable title company to removethe cloud of this Lease from the title of the real property subject to theLease.

 

17.20                     **Waiver of Subrogation.**.  The Lessor and the Lessee each hereby waiveany and all rights of recovery against the other, or against the officers,employees and agents and representatives of the other, for loss of or anydamage to such waiving party or its property, or the property of others underits control, to the extent that such loss or damage is insured against underany valid and collectible insurance policy in force at the time of such loss ordamages.  The Lessee shall, uponobtaining the policies of insurance required hereunder, give notice to theinsurance carrier or carriers that the foregoing mutual waiver of subrogationis contained in this Lease.

 

17.21                     **Confidentiality of Lease**.  The Lessee acknowledges and agrees that theterms of this Lease are confidential and constitute proprietary information ofthe Lessor.  Disclosure of the termshereof could adversely affect the ability of the Lessor to negotiate otherleases with respect to the Building and impair the Lessor’s relationship withother tenants of the Building.  TheLessee agrees that it, its partners, officers, directors, employees andattorneys, shall not disclose the terms and conditions of this Lease to anyother person without the prior written consent of the Lessor.  It is understood and agreed that damageswould be an inadequate remedy for the breach of this provision by the Lessee,and the Lessor shall have the right to specific performance of this provisionand to injunctive relief to prevent its breach or continued

 

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breach.  Notwithstanding the foregoing, the namedLessee shall have the right to disclose the terms of this Lease to the Securityand Exchange Commission if required as a part of any reports which the Lesseemust provide.

 

17.22                     **Quiet Enjoyment**. Provided the Lessee has performed all of the terms, covenants,agreements and conditions of this Lease, including the payment for rent and allother sums due hereunder, the Lessee shall peaceably and quietly hold and enjoythe Premises for the term hereof, but subject to the provisions and conditionsof this Lease against the Lessor and all persons claiming by, through or underthe Lessor.  The Lessee’s right to usethe Premises and the Common Area as herein provided shall be subject torestrictions or other limitations or prohibitions resulting from any laws,statutes, ordinances and governmental rules, regulations or requirements now inforce or which may hereafter be in force and no such event shall in any wayaffect this Lease, abate rent, relieve the Lessee of any liabilities or obligationsunder this Lease or give rise to any claim whatsoever against the Lessor.

 

17.23                     **Window Coverage**. The Lessor shall select a standard mini-blind type and color for allwindows to be covered by the Lessee.  Nowindow covering, including, but not limited to, coatings or draperies, shall beused by the Lessor without the Lessor’s written approval.

 

17.24                     **Materials Storage Restrictions**.  The Lessee agrees to conduct its business soas not to violate or exceed the design standards of the fire protection systemor any insurance policies maintained by the Lessor pursuant to Article 7.

 

17.25                     **No Agency**. Neither party is the agent or partner of the other, and the legalrelationship between the parties hereto shall be governed solely by the termsof this Lease when duly executed by both parties with respect to thetransactions contemplated hereby.

 

17.26                     **Force Majeure**. Notwithstanding any of the items set forth above, the Lessor shall bearno liability of whatever kind to the Lessee if, despite the Lessor’s exerciseof due diligence, the Lessor’s carrying out of its obligations, as definedherein, prevented or delayed by legal action, nor by the exercise ofgovernmental authority, whether Federal, State of County, or other or by forcemajeure, strikes, riots, acts of God, war, adverse weather conditions, fire,unavoidable casualties, or acts of third parties beyond the Lessor’s control.

 

17.27                     **Accord and Satisfaction**.  No payment by the Lessee or receipt by theLessor of a lesser amount than the rent herein stipulated shall be deemed to beother than on account of the earliest stipulated rent, nor shall anyendorsement or statement on any check or any letter accompanying any check orpayment as rent be deemed an accord and satisfaction, and the Lessor may acceptsuch check or payment without prejudice to the Lessor’s right to recover thebalance of such rent or pursue any other remedy provided in this Lease.

 

17.28                     **Financial Statements**. The Lessee shall deliver to the Lessor, prior to the execution of thisLease, its financial statement, and the annual financial statements of theLessee within ninety (90) days after the end of the Lessee’s fiscal year, whichshall be certified by the Lessee as true and correct.  The Lessee shall also provide financialstatements of any guarantor of this Lease, which shall be certified as true andcorrect by such guarantor.  Suchfinancial

 

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statements shall be basedupon generally accepted accounting principles applied on a consistentbasis.  The financial statements shallclearly show sufficient information to accurately depict the financialcondition of the Lessee as of the date thereof. Any misrepresentations in the Lessee’s or the Guarantor’s financialstatements will be considered, at the Lessor’s option, as a breach of amaterial provision of this Lease.  If theLessee is a partnership or joint venture, such financial statements shall, uponthe Lessor’s request, be accompanied by similar financial statements of eachgeneral partner or joint venture of the Lessee. Such similar statements shall be certified to be true and correct by thesubject thereof.  Within five (5) daysfollowing written request by the Lessor delivered after any default by theLessee in the payment of any sums owing under this Lease, whether or not anytime period allowed for the cure of such default has expired, the Lessee shallprovide the Lessor with copies of the Lessee’s financial statement for the endof the most recent quarter of the Lessee’s fiscal year, and the Lessee’sfinancial statement (including year to date information) for the end of themonth preceding such default.  In eachcase, such financial statement shall meet all of the preceding requirements forannual financial statements.  The Lessee’sfailure to deliver the financial statements contemplated hereby within the timespecified shall constitute a material default by the Lessee under this Lease.

 

17.29                     **Supersedes Proposal to Lease**.  This Lease supersedes any proposals regardingthe leasing of the Premises, whether written or oral, and any such proposalswill be terminated, and of no force or effect, effective upon the execution ofthis Lease.

 

17.30                     **Construction**. The provisions of this Lease should be liberally construed to effectuateits purposes.  The language of all partsof this Lease shall be construed simply according to its, plain meaning andshall not be construed for or against either party, as each party hasparticipated in the drafting of this Lease and had the opportunity to havetheir counsel review it.  Whenever thecontext and construction so requires, all words used in the singular shall bedeemed to be used in the plural, all masculine shall include the feminine andneuter, and vice versa.

 

17.31                     **Non-Disturbance Agreement**.  The parties shall execute, concurrently withthe execution of this Lease, the Subordination, Non-Disturbance and AttornmentAgreement attached as Exhibit “E”, which is incorporated by thisreference.  The Lessor shall obtain itslender’s execution of said agreement as soon as reasonably practical afterexecution by the parties, and furnish the Lessee with a fully executed copy.

 

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** **

**EXHIBIT E**

 

**SUBORDINATION, NON-DISTURBANCE AND ATTORNMENTAGREEMENT**

 

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SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

 

THIS AGREEMENT is dated the                    day of                       ,19      , and is made between                                                                                                                                          (“Mortgagee”), and                                                                                                                                                                            (“Tenant”).

 

RECITALS:

 

(a)  Tenant has entered into acertain lease (“Lease”) dated                                           with                                                    as lessor (“Landlord”), covering certain premises known as                                                          and located in                                                         (the “Demised Premises”); and

 

(b)  Mortgagee has agreed to makea mortgage loan in the amount of                           (the “Mortgage”) to the Landlord, secured by the Demised Premises, and theparties desire to set forth their agreement herein.

 

NOW, THEREFORE, in consideration of the Demised Premises and of the sumof ONE DOLLAR ($1.00) by each party in hand paid to the other, the receipt ofwhich is hereby “acknowledged, the parties hereby agree as follows:

 

1.  Said Lease is and shall besubject and subordinate to the Mortgage insofar as it affects the real propertyof which the Demised Premises form a part, and to all renewals, modifications;consolidations, replacements and extensions thereof to the full extent ofamounts secured thereby and interest thereon.

 

2.  Tenant agrees that it willattorn to and recognize any purchaser at a foreclosure sale under the Mortgage,any transferee who acquires the Demised Premises by deed in lieu offoreclosure, and the successors and assigns of such purchaser(s), as itslandlord for the unexpired balance (and any extensions, if exercised) of theterm of said Lease upon the same terms and conditions set forth in said Lease.

 

3.  If it becomes necessary toforeclose the Mortgage, Mortgagee will not terminate said Lease nor join Tenantin summary or foreclosure proceedings so long as tenant is not in default underany of the terms, covenants, or conditions of said Lease.

 

4.  If Mortgagee succeeds to theinterest of Landlord under the Lease, Mortgagee shall not be:

 

a.  liable for any act oromission of any prior landlord (including Landlord) or

 

b.  liable for the return of anysecurity deposit; or

 

c. subject to any offsets or defenses which Tenant might have against anyprior landlord (including Landlord); or

 

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d. bound by any rent or additional rent which Tenant might have paid formore than the current month to any prior landlord (including Landlord); or

 

e. bound by any amendment or modification of the Lease made without itsconsent; or

 

f. bound by an representation or warranty made by any prior landlord(including Landlord).

 

5.  This Agreement shall be binding upon andshall insure to the benefit of the parties hereto and their successors andassigns.

 

6.  Tenant agrees to give Mortgagee, byregistered mail, a copy of any notice of default served upon the Landlord, tobe sent to the address of such Mortgagee indicated following Mortgagee’ssignature line below.  Tenant furtheragrees that if Landlord shall have failed to cure such defaults within the timeprovided for in this Lease, then the Mortgagee shall have an additional sixty(60) days within which to cure such default or if such default cannot be curedwithin that time, then such additional time as may be necessary to cure suchdefault shall be granted if within such sixty (60) days Mortgagee has commencedand is diligently pursuing the remedies necessary to cure such default(including, but not limited to, commencement of foreclosure proceedings, ifnecessary to effect such cure), in which event the Lease shall not beterminated while such remedies are being so diligently pursued.

 

IN WITNESS WHEREOF, the parties hereto haveexecuted these presents as of the day and year first above written.
|   |   |                                |
|--------|--------|-------------------------------------|
|   |   | Mortgagee:                          |   |
| Date   |   |                                |   |
|   |   | By:                                 |   |
|   |   |                                |   |
|   |   | Its:                                |   |
|   |   |                                |   |
|   |   | Address: c/o Aetna Realty Investors |
|   |   | 1740 Technology Drive               |
|   |   | San Jose, CA 95110                  |
|   |   |                                |
|   |   | Copy to: c/o Aetna Realty Investors |
|   |   | 242 Trumbull Street                 |
|   |   | Hartford, CT 06156                  |
|   |   |                                |
|   |   | Tenant:                             |   |
| Date   |   |                                |   |
|   |   | By:                                 |   |
|   |   |                                |   |
|   |   | Its:                                |
|        |        |                                     |  |  |  |  |  |  |

 

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FIRST AMENDMENT TO LEASE

 

THIS FIRST AMENDMENT TO LEASE is made and entered into as of May 5,1996, between EKWILL PARTNERS, Ltd., a California limited Partnership (“Lessor”)and McGHAN MEDICAL CORPORATION, a California corporation (“Lessee”).

 

RECITALS:

 

A.                                   Lessorand Lessee entered into a Lease dated for reference May 1, 1996 (the “Lease”)pursuant to which Lessor leased to Lessee and Lessee hired from Lessor 4,468sq.ft.  (the “Premises”) of the buildingcommonly known as 5520 Ekwill Street, Santa Barbara, California (the “Building”).

 

B.                                     Lesseecurrently subleases from Geodynamics Corporation an additional 15,956sq.ft.  in the Building (the “AdditionalSpace”).  Lessee’s sublease with GeodynamicsCorporation expires February 28, 1997. Lessee desires to lease directly from Lessor the Additional Spaceeffective upon the termination of Lessee’s Sublease with GeodynamicsCorporation on the terms and conditions described in the Lease.

 

NOW, THEREFORE, in consideration of the premises described above, andother good and valuable consideration, the parties agree as follows:

 

1.                                       BASICLEASE PROVISIONS

 

Effective March 1, 1997, Items 2 and 3 of the Basic Lease Provisions ofthe Lease are deleted in their entirety and replaced with the following:

 

“2.                                 LeasedArea:  20,424 Square Feet.

 

3.                                       Lessee’sPercentages:  Building:  48.10%; Common Area:  24.09%.”

 

2.                                       COMMENCEMENTOF TERM

 

The term of the Lease for the Additional Space shall commence on March1, 1997 and terminate on July 31, 2006.

 

3.                                       RIGHTTO EXTEND

 

The right to extend the term of the Lease set forth in Section 2.3shall apply to both the Premises and the Additional Space in their entirety.

 

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4.                                       INITIALANNUAL RENT

 

The Initial Annual Rent for the Additional Space shall be a per sq.ft.amount equal to the per sq.ft. rent then payable under the terms of the Leaseas to the Premises, multiplied by the total square footage in the AdditionalSpace of 15,956 sq.ft.  Rentalinstallments for the Additional Space shall be adjusted at the same time and inthe same manner as rental adjustments for the Premises.  The rental adjustment effective January 1,1998, shall be based upon the change in the index for the full prior 12 monthsso as to remain equal to the per sq.ft. rent payable under the Lease withrespect to the Premises.

 

5.                                       ADDITIONALRENT

 

Lessee shall pay Additional Rent for the Additional Space on the sameterms and conditions as for the Premises. Lessee’s proportionate share of all Building Operating Expenses for thePremises and the Additional Space is 48.10%. Lessee’s proportionate share of Common Area Operating Expenses for thePremises and the Additional Space is 24.09%.

 

6.                                       SECURITYDEPOSIT

 

As soon as the Initial Annual Rent for the Additional Space is known,but no later than March 1, 1997, Lessee shall deliver to Lessor cash in anamount equal to the first month’s rent for the Additional Space, which sumshall be added to the security deposit previously delivered to Lessor withrespect to the Premises.  The initialsecurity deposit for the Premises and the additional security deposit deliveredwith respect to the Additional Space shall be treated as a single deposit andused, applied or attained by Lessor on the terms and provisions in Paragraph 4of the Lease.

 

7.                                       CONDITIONOF ADDITIONAL SPACE

 

Lessee acknowledges and agrees that it has been in possession of theAdditional Space for an extended period of time and is fully familiar with thecondition thereof, and accepts the Additional Space strictly on an “AS IS”basis.

 

8.                                       NOFURTHER AMENDMENTS

 

Except as expressly set forth herein, all of the terms and provisionsof the Lease are hereby ratified and approved and shall constitute the agreementof the parties for the lease of the Premises and the Additional Space.

 

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IN WITNESS WHEREOF, the parties have executed this First Amendment asof the date first written above.

 

 
| LESSOR: | EKWILL PARTNERS, LTD., a California  limited partnership |
|---------|----------------------------------------------------------|
|    |                                                     |   |
|    |                                                     |   |
|    | By                                                       |  /s/ JEFFREY C. BERMANT |   |
|    |                                                     | Jeffrey C. Bermant, |
|    |                                                     | General Partner |
|    |                                                     |   |
|    |                                                     | 130 Cremona Drive, Suite D |
|    |                                                     | Goleta, CA 93117 |
|    |                                                     |   |
|    |                                                     |   |
| LESSEE: | McGHAN MEDICAL CORPORATION                               |
|    |                                                     |   |
|    |                                                     |   |
|    | By:                                                      |  /s/ DONALD K. MCGHAN |   |
|    |                                                     | Donald K. McGhan, |
|    |                                                     | Chief Executive Officer |
|    |                                                     |   |
|    |                                                     | 5540 Ekwill Street |
|    |                                                     | Santa Barbara, CA 93111 |

 

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**SMRH DRAFT**

**(05/21/02)**

 

**SECOND AMENDMENT TO LEASE**

 

This SECOND AMENDMENT TO LEASE, dated as of May 21, 2002 (this “Amendment”),is between EKWILL PARTNERS, LTD., a California limited partnership (the “Lessor”),and McGHAN MEDICAL CORPORATION, a California corporation (the “Lessee”).

 

**RECITALS:**

 

A.                                   TheLessor and the Lessee are parties to that certain Net, Net, Net Lease, datedMay 1, 1996 (as amended by a First Amendment to Lease, dated as of May 5, 1996,the “Lease”), pursuant to which the Lessor has leased to the Lesseecertain premises located at the property commonly known as the Santa BarbaraTech Center located at 5520 Ekwill Street in Goleta, California 93111.

 

B.                                     Theparties now desire to amend the Lease, as set forth herein.

 

NOW, THEREFORE, in consideration of the mutual covenants and promisesherein contained, and for other good and valuable consideration, the receiptand sufficiency of which are hereby acknowledged, the parties hereto agree asfollows:

 

**AGREEMENT**:

 

1.                                       **Definitions**.  Except as otherwise defined herein, termsdefined in the Lease are used in this Amendment as defined therein.

 

2.                                       Amendments. Subject to the provisions of Section 5, the parties hereto agree toamend the Lease, as follows:

 

(a)                                  **Basic Lease Provisions**.  Items 1 through 4 and Item10 of the Basic Lease Provisions shall be amended and restated in theirentireties as follows:

 

**“BASIC LEASE PROVISIONS**

 
| 1.     | **Premises:**         |   | As depicted on Exhibit A; provided, however, on  the Effective Date (as defined in Section 5 of the Second Amendment to  Lease, dated as of May 31, 2002 (the “Second Amendment”)), the  Premises shall be as depicted on Exhibit A-1 of the Second Amendment. |
|--------|-----------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                  |   |                                                                                                                                                                                                                                                                     |
|   | **Project Name:**     |   | SANTA BARBARA TECH CENTER                                                                                                                                                                                                                                                |
|   |                  |   |                                                                                                                                                                                                                                                                     |
|   | **Premises Address:** |   | 5520 Ekwill Street                                                                                                                                                                                                                                                       |
|   |                  |   | Goleta, CA 93111                                                                                                                                                                                                                                                         |

 

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|   | **Use of Premises:**           |   | Office or permitted industrial                                                                                                                                                                                                                                                                                              |
|--------|--------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                           |   |                                                                                                                                                                                                                                                                                                                        |
| 2.     | **Leased Area:**               |   | 20,424 rentable square feet; provided, however, on the  Effective Date (as defined in Section 5 of the Second Amendment), the  square footage of the Leased Area shall be decreased by approximately 7,485  square feet (the “Terminated Space”) for a total square footage of  approximately 12,939 square feet. |
|   |                           |   |                                                                                                                                                                                                                                                                                                                        |
| 3.     | **Lessee’s Percentages:** |   |                                                                                                                                                                                                                                                                                                                        |
|   |                           |   |                                                                                                                                                                                                                                                                                                                        |
|   | **Building:**                  |   | 48.10%; provided, however, on the Effective Date (as  defined in Section 5 of the Second Amendment), Lessee’s Percentage of  the Building shall be decreased to 30.47%.                                                                                                                                                |
|   |                           |   |                                                                                                                                                                                                                                                                                                                        |
|   | **Common Area:**               |   | 24.09%; provided, however, on the Effective Date (as  defined in Section 5 of the Second Amendment), Lessee’s Percentage of  the Common Area shall be decreased to 15.23%                                                                                                                                              |
|   |                           |   |                                                                                                                                                                                                                                                                                                                        |
| 4.     | **Initial Monthly Rent:**      |   | $26,477.71 ($1.29 per square foot per month); provided, however,  on the Effective Date (as defined in Section 5 of the Second  Amendment), the Monthly Rent shall be decreased to $16,755.40 ($1.29 per  square foot per month).                                                                                           |
|   |                           |   |                                                                                                                                                                                                                                                                                                                        |
|   | **Rental Deposit:**            |   | $23,797.65                                                                                                                                                                                                                                                                                                                  |
|   |                           |   |                                                                                                                                                                                                                                                                                                                        |
|   | **Rent Adjustment:**           |   | Annual and Monthly Rent to be adjusted annually in accordance with  the provisions of this Lease.                                                                                                                                                                                                                           |
|   |                           |   |                                                                                                                                                                                                                                                                                                                        |
|   |                           |   | * * *                                                                                                                                                                                                                                                                                                                       |
|   |                           |   |                                                                                                                                                                                                                                                                                                                        |
| 10.    | **Parking Spaces Provided:**   |   | 58 unreserved spaces in common with other tenants of the project;  provided, however, on the Effective Date (as defined in Section 5  of the Second Amendment), Lessee’s parking allocation shall be reduced to 37  unreserved spaces in common with other tenants of the project.”                               |

 

(b)                                 **No Option to Renew**.  Notwithstanding anything to the contrary inthe Lease or this Amendment, any option to renew or extend the Lease and anyfirst right to lease additional space set forth in the Lease shall not apply tothe Terminated Space.

 

(c)                                  **References to “Lease”**.  On the Effective Date (as defined in Section5 below), references in the Lease to “this Lease” and similar referencesshall be deemed to be

 

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references to the Lease, as amended by this Amendment.  Except as expressly provided in thisAmendment, the Lease shall continue in full force and effect in accordance withits terms.

 

3.                                       **Representations**.  Each party represents to the other that ithas full power and authority to execute this Amendment.  Each party represents to the other that ithas not made any assignment, sublease, transfer, conveyance or otherdisposition of the Lease or any interest therein or the Premises, and has noknowledge of any existing or threatened claim, demand, obligation, liability,action or cause of action arising from or in any manner connected with theLease or the Premises by any other party. Lessee represents that it has not, at any time, done or suffered, andwill not do or suffer, any act or thing whereby the Premises or any partthereof are or may be in any way charged, affected or covered by any lien orclaim, and shall indemnify and hold Lessor harmless from all liability,expenses, damages or costs arising therefrom, including without limitationattorneys’ fees.  The warranties,representations, amendments and obligations contained herein shall the survivethe execution and delivery of this Amendment and shall survive any and allperformances in accordance herewith.  Ifany party obtains a judgment against any other party by reason of breachhereof, reasonable attorneys’ fees as fixed by the court shall be included insuch judgment.  This Amendment shall bebinding on and inure to the benefit of the heirs, successors and assigns of theparties hereto.  The parties acknowledgeand agree that the Termination Date of the Lease is July 31, 2006.

 

4.                                       **Integration And Modification**.  This Amendment shall constitute the entireagreement between the parties with respect to the amendment of the Lease andsupersedes all prior and contemporaneous communications with respectthereto.  No supplement, modification orwaiver of this Amendment shall be binding unless executed in writing by bothparties to this Amendment.  No waiver ofany of the provisions of this Amendment shall be deemed or shall constitute awaiver of any other provision hereof (whether or not similar), nor shall suchwaiver constitute a continuing waiver unless otherwise expressly provided.

 

5.                                       **Effectiveness**.  The provisions of Section 2 of this Amendmentshall not become effective unless and until the first date on which all of thefollowing conditions are fulfilled in form and substance satisfactory to theLessor in its sole discretion (such date, the “Effective Date”): (i) allparties hereto shall have executed and delivered this Amendment pursuant to dueauthorization; (ii) the Lessee pays all . unpaid rent accrued up to (but excluding) the Effective Date; (iii) theLessee pays to the Lessor a nonrefundable termination fee in the amount of$25,000; (iv) the Lessor shall have notified the Lessee in writing that anothertenant acceptable to the Lessor has exercised its right of first refusal tolease all of the Terminated Space and shall have executed and delivered awritten amendment to its lease reflecting the foregoing and otherwise on termsacceptable to the Lessor; and (v) the Lessee shall not be in default of any ofits obligations under the Lease or this Amendment, including its obligationswith respect to surrender of the Terminated Space.

 

6.                                       **Agreement Regarding Brokers**.  The Lessee represents and warrants to theLessor that no broker or agent has negotiated or brought about the transactioncontemplated by this Amendment on behalf of the Lessee.  The Lessee shall indemnify and save harmlessthe Lessor from and against any claim which may be asserted against the Lessorby any broker or agent if the claim is made in connection with thistransaction.  The Lessor represents andwarrants to the Lessee that no broker or agent has negotiated or brought aboutthe transaction

 

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contemplated by this Amendment on behalf of the Lessor.  The Lessor shall indemnify and save harmlessthe Lessee from and against any claim which may be asserted against the Lesseeby any broker or agent if the claim is made in connection with thistransaction.

 

7.                                       **Governing Law**.  This Amendment shall be governed by andconstrued in accordance with the laws of the State of California, withoutregard to the conflicts of laws provisions of the State of California.

 

8.                                       **Counterparts**.  This Amendment may be signed in any number ofcounterparts all of which shall constitute one and the same agreement.  Signatures may be exchanged by telecopy, Withoriginal signatures to follow.  Eachparry hereto agrees that it will be bound by its own telecopied signature andthat it accepts the telecopied signature of the other party to this Amendment.

 

9.                                       **Default**.  Any misrepresentation made by the Lessee inany material respect in this Amendment or any failure of the Lessee to complyin any material respect with any covenant or obligation contained in thisAmendment shall constitute a default by the Lessee under the Lease which shallenable the Lessor to exercise remedies thereunder, including termination of theLease.

 

10.                                 **Continuing Lease Obligations**.  Notwithstanding anything to the contrary inthis Amendment, the Lessee agrees to comply with all of its obligations underthe Lease and this Amendment, including the Lessee’s obligations relating tosurrender of the Terminated Space.

 

The parties hereby agree that the Lease, as amended hereby, shallremain in full force and effect and the parties hereto hereby ratify and affirmthe Lease as so amended.

 

**IN WITNESS WHEREOF**,the Lessee and the Lessor have signed this Amendment on the date abovespecified.

 
| **LESSOR:**                      | ** ** | **LESSEE:**                 |
|----------------------------------|------------|-----------------------------|
| ** **                       | ** ** | ** **                  |
| EKWILL PARTNERS, LTD.,           |       | McGHAN MEDICAL CORPORATION, |
| a California limited partnership |       | a California corporation    |
|                             |       |                        |
| By:                              |       |                        | By: | ** ** | ** ** |
|                             | Name:      | Jeffrey C.  Bermant         |   |   | Name: | Vicente Trelles |
|                             | Title:     | General  Partner            |   |   | Title: | Chief Operating Officer |
|                             |       |                        |
| Address:                         |       | Address:                    |
|                             |       |                        |
| 5383 Hollister Avenue, Suite 150 |       | 5540 Ekwill Street          |
| Santa Barbara, CA 93111          |       | Goleta, CA 93111            |
|                                  |            |                             |  |  |  |  |  |

 

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