Document:

exv10w4

 

Exhibit 10.4

RAE SYSTEMS, INC.

STOCK OPTION AGREEMENT

(For U.S. Participant)

     RAE Systems, Inc. has granted to the Participant named in the Notice of Grant of Stock Option
(the “Grant Notice”) to which this Stock Option Agreement (the “Option Agreement”) is attached an
option (the “Option”) to purchase certain shares of Stock upon the terms and conditions set forth
in the Grant Notice and this Option Agreement. The Option has been granted pursuant to and shall
in all respects be subject to the terms and conditions of the RAE Systems, Inc. 2007 Equity
Incentive Plan (the “Plan”), as amended to the Date of Grant, the provisions of which are
incorporated herein by reference. By signing the Grant Notice, the Participant: (a) acknowledges
receipt of and represents that the Participant has read and is familiar with the Grant Notice, this
Option Agreement, the Plan and a prospectus for the Plan prepared in connection with the
registration with the Securities and Exchange Commission of shares issuable pursuant to the Option
(the “Plan Prospectus”), (b) accepts the Option subject to all of the terms and conditions of the
Grant Notice, this Option Agreement and the Plan and (c) agrees to accept as binding, conclusive
and final all decisions or interpretations of the Committee upon any questions arising under the
Grant Notice, this Option Agreement or the Plan.

     1. Definitions and Construction.

          1.1 Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings
assigned to such terms in the Grant Notice or the Plan.

          1.2 Construction. Captions and titles contained herein are for convenience only and shall not
affect the meaning or interpretation of any provision of this Option Agreement. Except when
otherwise indicated by the context, the singular shall include the plural and the plural shall
include the singular. Use of the term “or” is not intended to be exclusive, unless the context
clearly requires otherwise.

     2. Tax Consequences.

          2.1 Tax Status of Option. This Option is intended to have the tax status designated in the
Grant Notice.

               (a) Incentive Stock Option. If the Grant Notice so designates, this Option is intended to be
an Incentive Stock Option within the meaning of Section 422(b) of the Code, but the Company does
not represent or warrant that this Option qualifies as such. The Participant should consult with
the Participant’s own tax advisor regarding the tax effects of this Option and the requirements
necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but
not limited to, holding period requirements. (NOTE TO PARTICIPANT: If the Option is exercised more
than three (3) months after the date on which you cease to be an Employee (other than by reason of
your death or permanent and total disability as defined in Section 22(e)(3) of the Code), the
Option will be treated as a Nonstatutory Stock Option and not as an Incentive Stock Option to the
extent required by Section 422 of the Code.)

 

 

               (b) Nonstatutory Stock Option. If the Grant Notice so designates, this Option is intended to
be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option within the
meaning of Section 422(b) of the Code.

          2.2 ISO Fair Market Value Limitation. If the Grant Notice designates this Option as an
Incentive Stock Option, then to the extent that the Option (together with all Incentive Stock
Options granted to the Participant under all stock option plans of the Participating Company Group,
including the Plan) becomes exercisable for the first time during any calendar year for shares
having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of
such options which exceeds such amount will be treated as Nonstatutory Stock Options. For purposes
of this Section 2.2, options designated as Incentive Stock Options are taken into account in the
order in which they were granted, and the Fair Market Value of stock is determined as of the time
the option with respect to such stock is granted. If the Code is amended to provide for a
different limitation from that set forth in this Section 2.2, such different limitation shall be
deemed incorporated herein effective as of the date required or permitted by such amendment to the
Code. If the Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock
Option in part by reason of the limitation set forth in this Section 2.2, the Participant may
designate which portion of such Option the Participant is exercising. In the absence of such
designation, the Participant shall be deemed to have exercised the Incentive Stock Option portion
of the Option first. Separate certificates representing each such portion shall be issued upon the
exercise of the Option. (NOTE TO PARTICIPANT: If the aggregate Exercise Price of the Option (that
is, the Exercise Price multiplied by the Number of Option Shares) plus the aggregate exercise price
of any other Incentive Stock Options you hold (whether granted pursuant to the Plan or any other
stock option plan of the Participating Company Group) is greater than $100,000, you should contact
the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an
Incentive Stock Option.)

     3. Administration.

          All questions of interpretation concerning this Option Agreement shall be determined by the
Committee. All determinations by the Committee shall be final and binding upon all persons having
an interest in the Option as provided by the Plan. Any Officer shall have the authority to act on
behalf of the Company with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the Officer has apparent
authority with respect to such matter, right, obligation, or election.

     4. Exercise of the Option.

          4.1 Right to Exercise. Except as otherwise provided herein, the Option shall be exercisable
on and after the Initial Vesting Date and prior to the termination of the Option (as provided in
Section 6) in an amount not to exceed the number of Vested Shares less the number of shares
previously acquired upon exercise of the Option. In no event shall the Option be exercisable for
more shares than the Number of Option Shares, as adjusted pursuant to Section 9.

          4.2 Method of Exercise. Exercise of the Option shall be by means of electronic or written
notice (the “Exercise Notice”) in a form authorized by the Company. An

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electronic Exercise Notice must be digitally signed or authenticated by the Participant in
such manner as required by the notice and transmitted to the Company or an authorized
representative of the Company (including a third-party administrator designated by the Company).
In the event that the Participant is not authorized or is unable to provide an electronic Exercise
Notice, the Option shall be exercised by a written Exercise Notice addressed to the Company, which
shall be signed by the Participant and delivered in person, by certified or registered mail, return
receipt requested, by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Company, or an authorized representative of the Company (including a third-party
administrator designated by the Company). Each Exercise Notice, whether electronic or written,
must state the Participant’s election to exercise the Option, the number of whole shares of Stock
for which the Option is being exercised and such other representations and agreements as to the
Participant’s investment intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. Further, each Exercise Notice must be received by the Company
prior to the termination of the Option as set forth in Section 6 and must be accompanied by full
payment of the aggregate Exercise Price for the number of shares of Stock being purchased. The
Option shall be deemed to be exercised upon receipt by the Company of such electronic or written
Exercise Notice and the aggregate Exercise Price.

          4.3 Payment of Exercise Price.

               (a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the
aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised
shall be made (i) in cash or by check or cash equivalent, (ii) if permitted by the Company, by
tender to the Company, or attestation to the ownership, of whole shares of Stock owned by the
Participant having a Fair Market Value not less than the aggregate Exercise Price, (iii) by means
of a Cashless Exercise, as defined in Section 4.3(b), or (iv) by any combination of the foregoing.

               (b) Limitations on Forms of Consideration.

                    (i) Tender of Stock. Notwithstanding the foregoing, the Option may not be exercised by tender
to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or
attestation would constitute a violation of the provisions of any law, regulation or agreement
restricting the redemption of the Company’s stock. If required by the Company, the Option may not
be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless
such shares either have been owned by the Participant for more than six (6) months or such other
period, if any, required by the Company (and not used for another option exercise by attestation
during such period) or were not acquired, directly or indirectly, from the Company.

                    (ii) Cashless Exercise. A “Cashless Exercise” means the delivery of a properly executed
notice together with irrevocable instructions to a broker in a form acceptable to the Company
providing for the assignment to the Company of the proceeds of a sale or loan with respect to some
or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or
procedure approved by the Company (including, without limitation, through an exercise complying
with the provisions of Regulation T as promulgated from time to time by the Board of Governors of
the Federal Reserve System). The Company

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reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to
establish, decline to approve or terminate any such program or procedure, including with respect to
the Participant notwithstanding that such program or procedures may be available to others.

          4.4 Tax Withholding.

               (a) In General. At the time the Option is exercised, in whole or in part, or at any time
thereafter as requested by the Company, the Participant hereby authorizes withholding from payroll
and any other amounts payable to the Participant, and otherwise agrees to make adequate provision
for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding obligations of the
Participating Company Group, if any, which arise in connection with the Option. The Company shall
have no obligation to deliver shares of Stock until the tax withholding obligations of the
Participating Company Group have been satisfied by the Participant.

               (b) Withholding in Shares. The Company may permit or require the Participant to satisfy all
or any portion of a Participating Company’s tax withholding obligations upon exercise of the Option
by deducting from the shares of Stock otherwise issuable to the Participant upon such exercise a
number of whole shares having a fair market value, as determined by the Company as of the date of
exercise, not in excess of the amount of such tax withholding obligations determined by the
applicable minimum statutory withholding rates. Any adverse consequences to the Participant
resulting from the procedure permitted under this Section, including, without limitation, tax
consequences, shall be the sole responsibility of the Participant.

          4.5 Beneficial Ownership of Shares; Certificate Registration. The Participant hereby
authorizes the Company, in its sole discretion, to deposit for the benefit of the Participant with
any broker with which the Participant has an account relationship of which the Company has notice
any or all shares acquired by the Participant pursuant to the exercise of the Option. Except as
provided by the preceding sentence, a certificate for the shares as to which the Option is
exercised shall be registered in the name of the Participant, or, if applicable, in the names of
the heirs of the Participant.

          4.6 Restrictions on Grant of the Option and Issuance of Shares. The grant of the Option and
the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all
applicable requirements of federal, state or foreign law with respect to such securities. The
Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other law or regulations
or the requirements of any stock exchange or market system upon which the Stock may then be listed.
In addition, the Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with respect to the shares
issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the
shares issuable upon exercise of the Option may be issued in accordance with the terms of an
applicable exemption from the registration requirements of the Securities Act. THE PARTICIPANT IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE

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PARTICIPANT MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS
VESTED. The inability of the Company to obtain from any regulatory body having jurisdiction the
authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and
sale of any shares subject to the Option shall relieve the Company of any liability in respect of
the failure to issue or sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of the Option, the Company may require the Participant to
satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any
applicable law or regulation and to make any representation or warranty with respect thereto as may
be requested by the Company.

          4.7 Fractional Shares. The Company shall not be required to issue fractional shares upon the
exercise of the Option.

     5. Nontransferability of the Option.

          During the lifetime of the Participant, the Option shall be exercisable only by the
Participant or the Participant’s guardian or legal representative. The Option shall not be subject
in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge,
encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary,
except transfer by will or by the laws of descent and distribution. Following the death of the
Participant, the Option, to the extent provided in Section 7, may be exercised by the Participant’s
legal representative or by any person empowered to do so under the deceased Participant’s will or
under the then applicable laws of descent and distribution.

     6. Termination of the Option.

          The Option shall terminate and may no longer be exercised after the first to occur of (a) the
close of business on the Option Expiration Date, (b) the close of business on the last date for
exercising the Option following termination of the Participant’s Service as described in Section 7,
or (c) a Change in Control to the extent provided in Section 8.

     7. Effect of Termination of Service.

          7.1 Option Exercisability. The Option shall terminate immediately upon the Participant’s
termination of Service to the extent that it is then unvested and shall be exercisable after the
Participant’s termination of Service to the extent it is then vested only during the applicable
time period as determined below and thereafter shall terminate.

               (a) Disability. If the Participant’s Service terminates because of the Disability of the
Participant, the Option, to the extent unexercised and exercisable for Vested Shares on the date on
which the Participant’s Service terminated, may be exercised by the Participant (or the
Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12)
months after the date on which the Participant’s Service terminated, but in any event no later than
the Option Expiration Date.

               (b) Death. If the Participant’s Service terminates because of the death of the Participant,
the Option, to the extent unexercised and exercisable for Vested Shares on the date on which the
Participant’s Service terminated, may be exercised by the Participant’s legal

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representative or other person who acquired the right to exercise the Option by reason of the
Participant’s death at any time prior to the expiration of twelve (12) months after the date on
which the Participant’s Service terminated, but in any event no later than the Option Expiration
Date. The Participant’s Service shall be deemed to have terminated on account of death if the
Participant dies within three (3) months after the Participant’s termination of Service.

               (c) Termination for Cause. If the Participant’s Service is terminated for Cause or if,
following the Participant’s termination of Service and during any period in which the Option
otherwise would remain exercisable, the Participant engages in any act that would constitute Cause,
the Option shall terminate in its entirety and cease to be exercisable immediately upon such
termination of Service or act.

               (d) Other Termination of Service. If the Participant’s Service terminates for any reason,
except Disability, death or Cause, the Option, to the extent unexercised and exercisable for Vested
Shares by the Participant on the date on which the Participant’s Service terminated, may be
exercised by the Participant at any time prior to the expiration of three (3) months after the
date on which the Participant’s Service terminated, but in any event no later than the Option
Expiration Date.

          7.2 Extension if Exercise Prevented by Law or Insider Trading Policy. Notwithstanding the
foregoing, other than termination of Service for Cause, if the exercise of the Option within the
applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6 or a
sale of shares pursuant to a Cashless Exercise of the Option would violate the provisions of the
Insider Trading Policy, the Option shall remain exercisable until thirty (30) days after the date
such exercise or sale, as the case may be, would no longer be prevented by such provisions, but in
any event no later than the Option Expiration Date.

     8. Effect of Change in Control.

          In the event of a Change in Control, except to the extent that the Committee determines to
cash out the Option in accordance with Section 15.1(c) of the Plan, the surviving, continuing,
successor, or purchasing entity or parent thereof, as the case may be (the “Acquiror”), may,
without the consent of the Participant, assume or continue in full force and effect the Company’s
rights and obligations under all or any portion of the Option or substitute for all or any portion
of the Option a substantially equivalent option for the Acquiror’s stock. For purposes of this
Section, the Option or any portion thereof shall be deemed assumed if, following the Change in
Control, the Option confers the right to receive, subject to the terms and conditions of the Plan
and this Option Agreement, for each share of Stock subject to such portion of the Option
immediately prior to the Change in Control, the consideration (whether stock, cash, other
securities or property or a combination thereof) to which a holder of a share of Stock on the
effective date of the Change in Control was entitled; provided, however, that if such consideration
is not solely common stock of the Acquiror, the Committee may, with the consent of the Acquiror,
provide for the consideration to be received upon the exercise of the Option, for each share of
Stock subject to the Option, to consist solely of common stock of the Acquiror equal in Fair Market
Value to the per share consideration received by holders of Stock pursuant to the Change in
Control. The Option shall terminate and cease to be outstanding effective as of the time of
consummation of the Change in Control to the extent that the Option is neither

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assumed or continued by the Acquiror in connection with the Change in Control nor exercised as
of the date of the Change in Control.

     9. Adjustments for Changes in Capital Structure.

          Subject to any required action by the stockholders of the Company, in the event of any change
in the Stock effected without receipt of consideration by the Company, whether through merger,
consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of
shares, or similar change in the capital structure of the Company, or in the event of payment of a
dividend or distribution to the stockholders of the Company in a form other than Stock (excepting
normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock,
appropriate and proportionate adjustments shall be made in the number, Exercise Price and kind of
shares subject to the Option, in order to prevent dilution or enlargement of the Participant’s
rights under the Option. For purposes of the foregoing, conversion of any convertible securities
of the Company shall not be treated as “effected without receipt of consideration by the Company.”
Any fractional share resulting from an adjustment pursuant to this Section shall be rounded down to
the nearest whole number, and the Exercise Price shall be rounded up to the nearest whole cent. In
no event may the Exercise Price be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The Committee in its sole discretion, may also make such adjustments
in the terms of the Option to reflect, or related to, such changes in the capital structure of the
Company or distributions as it deems appropriate. All adjustments pursuant to this Section shall
be determined by the Committee, and its determination shall be final, binding and conclusive.

     10. Rights as a Stockholder, Director, Employee or Consultant.

          The Participant shall have no rights as a stockholder with respect to any shares covered by
the Option until the date of the issuance of the shares for which the Option has been exercised (as
evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). No adjustment shall be made for dividends, distributions or other rights
for which the record date is prior to the date the shares are issued, except as provided in
Section 9. If the Participant is an Employee, the Participant understands and acknowledges that,
except as otherwise provided in a separate, written employment agreement between a Participating
Company and the Participant, the Participant’s employment is “at will” and is for no specified
term. Nothing in this Option Agreement shall confer upon the Participant any right to continue in
the Service of a Participating Company or interfere in any way with any right of the Participating
Company Group to terminate the Participant’s Service as a Director, an Employee or Consultant, as
the case may be, at any time.

     11. Notice of Sales Upon Disqualifying Disposition.

          The Participant shall dispose of the shares acquired pursuant to the Option only in accordance
with the provisions of this Option Agreement. In addition, if the Grant Notice designates this
Option as an Incentive Stock Option, the Participant shall (a) promptly notify the Chief Financial
Officer of the Company if the Participant disposes of any of the shares acquired pursuant to the
Option within one (1) year after the date the Participant exercises all or part of the

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Option or within two (2) years after the Date of Grant and (b) provide the Company with a
description of the circumstances of such disposition. Until such time as the Participant disposes
of such shares in a manner consistent with the provisions of this Option Agreement, unless
otherwise expressly authorized by the Company, the Participant shall hold all shares acquired
pursuant to the Option in the Participant’s name (and not in the name of any nominee) for the
one-year period immediately after the exercise of the Option and the two-year period immediately
after Date of Grant. At any time during the one-year or two-year periods set forth above, the
Company may place a legend on any certificate representing shares acquired pursuant to the Option
requesting the transfer agent for the Company’s stock to notify the Company of any such transfers.
The obligation of the Participant to notify the Company of any such transfer shall continue
notwithstanding that a legend has been placed on the certificate pursuant to the preceding
sentence.

     12. Legends.

          The Company may at any time place legends referencing any applicable federal, state or foreign
securities law restrictions on all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Participant shall, at the request of the Company,
promptly present to the Company any and all certificates representing shares acquired pursuant to
the Option in the possession of the Participant in order to carry out the provisions of this
Section. Unless otherwise specified by the Company, legends placed on such certificates may
include, but shall not be limited to, the following:

“THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE
REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION AS DEFINED IN
SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (“ISO”). IN ORDER TO
OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE SHARES SHOULD NOT BE
TRANSFERRED PRIOR TO [INSERT DISQUALIFYING DISPOSITION DATE HERE]. SHOULD THE
REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO
ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION
IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE
INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER’S NAME (AND NOT IN THE NAME OF ANY
NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE.”

     13. Miscellaneous Provisions.

          13.1 Termination or Amendment. The Committee may terminate or amend the Plan or the Option at
any time; provided, however, that except as provided in Section 8 in connection with a Change in
Control, no such termination or amendment may adversely affect the Option or any unexercised
portion hereof without the consent of the Participant unless such termination or amendment is
necessary to comply with any applicable law or government

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regulation, including, but not limited to, Section 409A. No amendment or addition to this
Option Agreement shall be effective unless in writing.

          13.2 Further Instruments. The parties hereto agree to execute such further instruments and to
take such further action as may reasonably be necessary to carry out the intent of this Option
Agreement.

          13.3 Binding Effect. Subject to the restrictions on transfer set forth herein, this Option
Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective
heirs, executors, administrators, successors and assigns.

          13.4 Delivery of Documents and Notices. Any document relating to participation in the Plan or
any notice required or permitted hereunder shall be given in writing and shall be deemed
effectively given (except to the extent that this Option Agreement provides for effectiveness only
upon actual receipt of such notice) upon personal delivery, electronic delivery at the e-mail
address, if any, provided for the Participant by a Participating Company, or upon deposit in the
U.S. Post Office or foreign postal service, by registered or certified mail, or with a nationally
recognized overnight courier service, with postage and fees prepaid, addressed to the other party
at the address of such party set forth in the Grant Notice or at such other address as such party
may designate in writing from time to time to the other party.

               (a) Description of Electronic Delivery. The Plan documents, which may include but do not
necessarily include: the Plan, the Grant Notice, this Option Agreement, the Plan Prospectus, and
any reports of the Company provided generally to the Company’s stockholders, may be delivered to
the Participant electronically. In addition, the Participant may deliver electronically the Grant
Notice and Exercise Notice called for by Section 4.2 to the Company or to such third party involved
in administering the Plan as the Company may designate from time to time. Such means of electronic
delivery may include but do not necessarily include the delivery of a link to a Company intranet or
the Internet site of a third party involved in administering the Plan, the delivery of the document
via e-mail or such other means of electronic delivery specified by the Company.

               (b) Consent to Electronic Delivery. The Participant acknowledges that the Participant has
read Section 13.4(a) of this Option Agreement and consents to the electronic delivery of the Plan
documents and the delivery of the Grant Notice and Exercise Notice, as described in
Section 13.4(a). The Participant acknowledges that he or she may receive from the Company a paper
copy of any documents delivered electronically at no cost to the Participant by contacting the
Company by telephone or in writing. The Participant further acknowledges that the Participant will
be provided with a paper copy of any documents if the attempted electronic delivery of such
documents fails. Similarly, the Participant understands that the Participant must provide the
Company or any designated third party administrator with a paper copy of any documents if the
attempted electronic delivery of such documents fails. The Participant may revoke his or her
consent to the electronic delivery of documents described in Section 13.4(a) or may change the
electronic mail address to which such documents are to be delivered (if Participant has provided an
electronic mail address) at any time by notifying the Company of such revoked consent or revised
e-mail address by telephone, postal service or

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electronic mail. Finally, the Participant understands that he or she is not required to
consent to electronic delivery of documents described in Section 13.4(a).

          13.5 Integrated Agreement. The Grant Notice, this Option Agreement and the Plan, together
with any the Superseding Agreement, if any, shall constitute the entire understanding and agreement
of the Participant and the Participating Company Group with respect to the subject matter contained
herein and supersede any prior agreements, understandings, restrictions, representations, or
warranties among the Participant and the Participating Company Group with respect to such subject
matter. To the extent contemplated herein, the provisions of the Grant Notice, the Option
Agreement and the Plan shall survive any exercise of the Option and shall remain in full force and
effect.

          13.6 Applicable Law. This Option Agreement shall be governed by the laws of the State of
California as such laws are applied to agreements between California residents entered into and to
be performed entirely within the State of California.

          13.7 Counterparts. The Grant Notice may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same instrument.

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	ä Incentive Stock Option

ä Nonstatutory Stock Option
	 	Participant:                                         
	 
	 	Date:                                         

STOCK OPTION EXERCISE NOTICE

RAE Systems, Inc.

Attention: Stock Administration

3775 North First Street

San Jose, CA 95134

Ladies and Gentlemen:

     1. Option. I was granted an option (the “Option”) to purchase shares of the common
stock (the “Shares”) of RAE Systems, Inc. (the “Company”) pursuant to the Company’s 2007 Equity
Incentive Plan (the “Plan”), my Notice of Grant of Stock Option (the “Grant Notice”) and my Stock
Option Agreement (the “Option Agreement”) as follows:

	 	 	 	 	 
	Date of Grant:
	 	 	                    	 
	 
	 	 	 	 
	Number of Option Shares:
	 	 	                    	 
	 
	 	 	 	 
	Exercise Price per Share:
	 	$	                    	 

     2. Exercise of Option. I hereby elect to exercise the Option to purchase the
following number of Shares, all of which are Vested Shares in accordance with the Grant Notice and
the Option Agreement:

	 	 	 	 	 
	Total Shares Purchased:
	 	 	                    	 
	 
	 	 	 	 
	Total Exercise Price (Total Shares X Price per Share)
	 	$	                    	 

     3. Payments. I enclose payment in full of the total exercise price for the Shares in
the following form(s), as authorized by my Option Agreement:

	 	 	 	 	 
	ä Cash:
	 		$                    	 
	 
	 	 	 	 
	ä Check:
	 		$                    	 
	 
	 	 	 	 
	ä Tender of Company Stock:
	 	Contact Plan Administrator
	 
	 	 	 	 
	ä Cashless Exercise (same-day sale):
	 	Contact Plan Administrator

     4. Tax Withholding. I authorize payroll withholding and otherwise will make adequate
provision for the federal, state, local and foreign tax withholding obligations of the Company, if
any, in connection with the Option. If I am exercising a Nonstatutory Stock Option, I enclose
payment in full of my withholding taxes, if any, as follows:

(Contact Plan Administrator for amount of tax due.)

	 	 	 	 	 
	ä Cash:
	 		$                    	 
	 
	 	 	 	 
	ä Check:
	 		$                    	 
	 
	 	 	 	 
	ä Tender of Company Stock:
	 	Contact Plan Administrator

 

	 	 	 	 	 
	ä Cashless Exercise (same-day sale):
	 	Contact Plan Administrator

     5. Participant Information.

	 	 	 
	My address is:
	 	 
	 

	 	 
	 
	 	 
	 

	 	 

	 	 	 
	My Social Security Number is:
	 	 
	 

	 	 

     6. Notice of Disqualifying Disposition. If the Option is an Incentive Stock Option, I
agree that I will promptly notify the Chief Financial Officer of the Company if I transfer any of
the Shares within one (1) year from the date I exercise all or part of the Option or within two (2)
years of the Date of Grant.

     7. Binding Effect. I agree that the Shares are being acquired in accordance with and
subject to the terms, provisions and conditions of the Grant Notice, the Option Agreement and the
Plan, to all of which I hereby expressly assent. This Agreement shall inure to the benefit of and
be binding upon my heirs, executors, administrators, successors and assigns.

	 	 	 	 	 
	 

	 	Very truly yours,	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	 

(Signature)
	 	 

	 	 	 	 	 
	Receipt of the above is hereby acknowledged.	 	 
	 
	 	 	 	 
	RAE SYSTEMS, INC.	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Title:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Dated:
	 	 	 	 
	 

	 	 

	 	 

2exv10w5

 

Exhibit 10.5

AGREEMENT OF LEASE

between

INLAND AMERICAN/STEPHENS (N FIRST) VENTURES,

a Delaware limited liability company

as Landlord

and

RAE SYSTEMS INC.

a California corporation

as Tenant

Dated as of December 20, 2007

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	 	Page
	 
	1. Definitions and Interpretation
	 	 	2	 
	2. Demise, Premises, Term and Rent
	 	 	2	 
	3. Delivery, Use and Occupancy of Premises
	 	 	3	 
	4. Real Property Tax Payments
	 	 	4	 
	5. Alterations
	 	 	6	 
	6. Management, Maintenance and Repairs
	 	 	8	 
	7. Compliance with Legal Requirements
	 	 	10	 
	8. Subordination, Nondisturbance and Attornment
	 	 	11	 
	9. Insurance Requirements
	 	 	12	 
	10. Damage or Destruction by Casualty
	 	 	13	 
	11. Condemnation
	 	 	14	 
	12. Assignment, Subletting and Mortgaging
	 	 	16	 
	13. Electricity
	 	 	17	 
	14. Roof Rights
	 	 	17	 
	15. Building Name and Signage
	 	 	18	 
	16. Access to Premises
	 	 	18	 
	17. Certificate of Occupancy
	 	 	19	 
	18. Events of Default
	 	 	19	 
	19. Remedies for Default
	 	 	20	 
	20. Fees and Expenses
	 	 	23	 
	21. No Representations by Landlord
	 	 	23	 
	22. Expiration, Surrender and Holdover
	 	 	23	 
	23. Fixtures, Equipment and Other Property
	 	 	24	 
	24. Quiet Enjoyment
	 	 	25	 
	25. No Waiver Provisions
	 	 	25	 
	26. Affirmative Waivers
	 	 	25	 
	27. Unavoidable Delays
	 	 	25	 
	28. Notices
	 	 	26	 
	29. Estoppel Certificates
	 	 	27	 
	30. Broker
	 	 	28	 

 

 

TABLE OF CONTENTS

(continued)

	 	 	 	 	 
	 	 	 	Page
	 
	31. Indemnity
	 	 	28	 
	32. Intentionally Deleted
	 	 	30	 
	33. Extension Terms
	 	 	31	 
	34. Miscellaneous
	 	 	37	 
	35. Easements
	 	 	40	 
	36. Confidentiality; Press Releases
	 	 	44	 
	37. Financing
	 	 	48	 
	38. Leasehold Mortgages
	 	 	49	 

- 2 -

 

EXHIBITS

EXHIBIT A  — DEFINITIONS AND INTERPRETATION

EXHIBIT B  — LEGAL DESCRIPTION OF LAND

EXHIBIT C  —  FORM OF SUPERIOR MORTGAGEE SNDA

EXHIBIT D  — FORM OF LANDLORD’S NON-DISTURBANCE AGREEMENT

 

 

AGREEMENT OF LEASE

     AGREEMENT OF LEASE (this “Lease”), dated as of December ___, 2007 (the
“Commencement Date”), between Inland American/Stephens (N First) Ventures, LLC, a Delaware
limited liability company (“Landlord”), having an office at 465 California Street, Suite
330, San Francisco, California 94104, and RAE Systems Inc., a Delaware corporation
(“Tenant”), having an office at 3775 N. First Street, San Jose, California 95134.

W I T N E S S E T H:

          WHEREAS, immediately prior to the execution and delivery of this Lease, pursuant to that
certain Purchase and Sale Agreement dated November 9, 2007, between Tenant, as seller, and
Landlord, as purchaser (the “Contract of Sale”), Tenant conveyed to Landlord its ownership
interest in and to that certain parcel of real property consisting of approximately 4.63 acres (the
“Land”) as described in Exhibit B attached hereto, including that certain building
comprised of approximately 67,582 square feet of space and commonly known as 3775 N. First Street,
San Jose, California 95134 (together with all equipment and other improvements and appurtenances of
every kind and description now located or hereafter erected, constructed or placed thereupon and
any and all alterations, renewals, and replacements thereof, additions thereto and substitutions
therefore, but excluding the items expressly retained by Seller under the Contract of Sale, the
“Building”); and

          WHEREAS, Tenant desires to lease from Landlord, and Landlord desires to lease to Tenant, the
Premises (as hereinafter defined), as more particularly described in Section 2.1 hereof.

          NOW, THEREFORE, for the mutual covenants herein contained and other good and valuable
consideration, the receipt and adequacy of which are hereby conclusively acknowledged, the parties
hereto, for themselves, their successors and permitted assigns, hereby covenant as follows:

          1. Definitions and Interpretation. All capitalized terms used in this Lease and not
otherwise defined herein shall have the meanings given to them in Exhibit A and the
provisions of this Lease shall be interpreted in accordance with the rules of construction set
forth therein.

          2. Demise, Premises, Term and Rent. Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, upon and subject to the terms, covenants, provisions and conditions of
this Lease, the Premises, as defined and more particularly described in Section 2.1.

          2.1 Premises. The premises and interests leased by Landlord to Tenant (collectively,
the “Premises”) pursuant to this Lease shall consist of the Land and the entire Building,
together with any property beneath the Land, the curbs, sidewalks, parking lots and facilities and
plazas on the Land and all easements, air rights, development rights and other appurtenances
benefiting the Building or the Land or both the Building and the Land.

 

 

          2.2 Term. The term of this Lease (the “Initial Term”) shall commence on the
Commencement Date and shall end at 11:59 p.m. on the Expiration Date or on such later or earlier
date upon which the term of this Lease shall be extended or expire or be canceled or terminated
pursuant to any of the conditions or covenants of this Lease. Tenant has the right to renew the
term of this Lease, subject to, and in accordance with the provisions of Section 33 hereof,
and the Initial Term and any Extension Term with respect to which Tenant exercises an Extension
Option in accordance with Section 33 are collectively called the “Term” in this
Lease.

          2.3 Rent. The rents payable by Tenant under this Lease shall be and consist of the
following amounts with respect to the Premises:

          (a) fixed rent (the “Fixed Rent”) for the Premises at a rate per annum equal to Eight
Hundred Ninety Two Thousand Eighty and no/100 Dollars ($892,080.00), payable in equal monthly
installments of Seventy Four Thousand Three Hundred Forty and no/100 Dollars ($74,340.00) in
advance on the first (1st) day of each calendar month during the Term commencing on the
Commencement Date, subject to annual increases of three percent (3%) during the entire Term
(including the Extension Term, if Tenant exercises the Option) on each Adjustment Date during the
Term; and

          (b) additional rent (collectively, the “Additional Rent”) consisting of any and all
other sums of money as shall become due from and payable by Tenant to Landlord, in accordance with
the provisions of this Lease.

          (c) In addition, concurrently with the execution and delivery of this Lease, Tenant shall pay
to Landlord a security deposit equal to Ninety Six Thousand Nine Hundred Ninety Six and 83/100
Dollars ($96,996.83) (the “Security Deposit”) as security for the performance by Tenant of all of
the provisions of this Lease. Following an Event of Default by Tenant under this Lease, Landlord
may use, apply or retain all or any portion of the Security Deposit to the extent necessary to
compensate Landlord for any rent or other charge in default. If Landlord so uses or applies all or
any portion of the Security Deposit, then within ten (10) days after Landlord’s written demand
therefor Tenant shall deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to the original amount thereof. Landlord shall not be required to keep the Deposit
separate from its general accounts. Upon the expiration or earlier termination of this Lease, the
Security Deposit, or so much thereof as has not theretofore been applied by Landlord, shall be
returned to Tenant, without payment of interest.

          2.4 Method of Payment. Tenant covenants and agrees to pay Fixed Rent and Additional
Rent (collectively, “Rent”) promptly when due without notice or demand therefor, except as
such notice or demand may be expressly provided for in this Lease, and without any abatement,
deduction or setoff for any reason whatsoever except as otherwise provided for in this Lease. All
payments of Rent shall be paid in lawful money of the United States to Landlord at its office, or
such other place, as Landlord shall designate on at least thirty (30) days advance written notice
to Tenant. Fixed Rent and regularly scheduled payments of Additional Rent may, at Tenant’s
election, be paid by electronic funds transfer to Landlord’s account, for which Landlord shall
provide Tenant with wiring instructions within ten (10) days after Tenant’s written request. Any
Additional Rent payments which are not regularly scheduled payments shall be paid, at Tenant’s
election, either by good and sufficient check (subject to collection) or by

-2-

 

electronic funds to an account designated from time to time by Landlord at
least thirty (30) days advance written notice to Tenant.

          2.5 Apportionment. If the Term commences on a day other than the first
(1st) day of a calendar month, the Fixed Rent and Additional Rent for the applicable
partial calendar month shall be prorated based on the actual number of days in such month.

          2.6 Landlord Rights. No payment by Tenant or receipt or acceptance by Landlord of a
lesser amount than the correct Fixed Rent or Additional Rent shall be deemed to be other than a
payment on account, nor shall any endorsement or statement on any check or any letter accompanying
any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord’s right to recover the balance or pursue any other remedy in
this Lease or at law provided. Additional Rent shall be deemed to be rent under this Lease and
Tenant’s failure to pay Additional Rent in the manner provided in this Lease (subject to any
applicable grace, cure or notice period) shall be considered a failure to pay rent under this Lease
and Landlord shall be entitled to any rights and remedies provided herein or by law for such
default.

          2.7 Net Lease. It is the intention of the parties hereto that except as otherwise
expressly set forth in this Lease, this Lease shall be a triple net lease and it is agreed and
intended that Fixed Rent and Additional Rent, including, without limitation, all utilities,
impositions and assessments, shall be paid without notice (except to the extent otherwise expressly
specified in this Lease), demand, counterclaim, setoff, deduction or defense and without abatement,
suspension, deferment, diminution or reduction and that Tenant’s obligation to pay all such
amounts, throughout the Term is absolute and, except to the extent specifically provided herein,
unconditional in all respects.

          3. Delivery, Use and Occupancy of Premises.

          3.1 Tenant acknowledges that Tenant was the owner of the Premises immediately prior to the
execution and delivery of this Lease and is fully familiar with the condition thereof. As of the
date hereof, Tenant accepts the Premises in their “as is” condition, and Landlord shall not be
required to perform any work, install any fixtures or equipment or render any services to make the
Building or the Premises ready or suitable for Tenant’s occupancy and the taking of possession of
the Premises described herein shall be deemed to have constituted an acceptance of the Premises.

          3.2 Subject to the other provisions of this Article 3, the Premises may be used and
occupied for any lawful purpose by Tenant and any other Permitted Users from time to time (any such
use, a “Permitted Use”), including, without limitation, an office building, call center,
data center, operations center, light manufacturing and assembly facility, lab use and/or business
trading operations site and the following uses incidental thereto, (i) cafeteria, (ii) a data
center for computer and other electronic data processing, business machine and desktop publishing
operations, (iii) training facilities and classrooms, (iv) duplicating, photographic reproduction
and/or offset printing facilities, (v) mailroom facilities, and (vi) storage of inventory,
components, equipment, records, files and other items.

-3-

 

          3.3 If any governmental license or permit (including any amendment to the certificate of
occupancy for the Building) shall be required for the proper and lawful conduct of Tenant’s
business in the Premises or any part thereof, at its own expense, Tenant shall duly procure and
thereafter maintain such license or permit and, upon request, shall deliver a copy of the same to
Landlord. Tenant shall comply with the terms and conditions of such licenses or permits. At
Tenant’s sole cost and expense, Landlord shall cooperate with Tenant in connection with obtaining
any such governmental license or permit (including any permit required in connection with any
Alterations) or any application by Tenant for any amendment or modification to the Building’s
certificate of occupancy, and shall reasonably promptly execute and deliver any applications,
reports or related documents as may be requested by Tenant in connection therewith, provided that
Tenant shall reimburse Landlord for the reasonable out-of-pocket costs and expenses incurred by
Landlord in connection with such cooperation within thirty (30) days after written demand therefor,
accompanied by reasonably satisfactory documentation of such costs and expenses.

          3.4 Landlord expressly agrees that Tenant shall be entitled to use and store Hazardous
Materials in connection with its business operations in the Premises, subject to the terms and
conditions of this Section 3.4.

          (a) As used herein, “Hazardous Materials” means any substance (A) that now or in the future is
regulated or governed by, requires investigation or remediation under, or is defined as a hazardous
waste, hazardous substance, hazardous material, pollutant or contaminant under any Legal
Requirements, including the Comprehensive Environmental Response Compensation and Liability Act, 42
U.S.C. § 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901
et seq., and Sections 25117 and 25316 of the California Health and Safety Code, or
(B) that is toxic, explosive, corrosive, flammable, radioactive, carcinogenic or otherwise
hazardous, including gasoline, diesel fuel, petroleum hydrocarbons, polychlorinated biphenyls
(PCBs), asbestos, radon and urea formaldehyde foam insulation

          (b) No Hazardous Materials shall be handled, used, generated, stored or released by Tenant at
or about the Premises without Landlord’s prior written consent, which consent may be granted,
denied, or conditioned upon compliance with Landlord’s requirements, all in Landlord’s reasonable
discretion. Notwithstanding the foregoing, (i) normal quantities and use of those products
containing small amounts of Hazardous Materials customarily used in the conduct of general office
activities, such as copier fluids and cleaning supplies, and (ii) the Hazardous Materials
designated, in the concentrations and approximate quantities listed on Permit No. 410703 and used
by Tenant in the Premises identified by Facility ID No. FA0258517 prior to the Commencement Date
(collectively, “Permitted Hazardous Materials”), may be handled, used, generated, stored or
released at the Premises without Landlord’s prior written consent, provided that Tenant’s shall
comply at all times with all Legal Requirements applicable thereto. At the expiration or
termination of the Lease, Tenant shall promptly remove the Permitted Hazardous Materials from the
Premises. Tenant shall keep Landlord fully and promptly informed of all handling by Tenant of
Hazardous Materials other than Permitted Hazardous Materials.

          (c) Tenant shall at its expense promptly take all actions required by any governmental agency
in connection with or as a result of Tenant’s handling, use, generation,

-4-

 

storage or release of Hazardous Materials (including Permitted Hazardous Materials) on the
Premises. Tenant shall deliver to Landlord prior to delivery to any governmental agency, or
promptly after receipt from any such agency, copies of all permits, manifests, closure or remedial
action plans, notices, and all other documents or communications relating to any such Hazardous
Materials and/or compliance with applicable Legal Requirements regarding the same. If any lien
attaches to the Premises in connection therewith and Tenant does not cause the same to be released,
by payment, bonding or otherwise, within ten (10) days after Tenant’s receipt of written notice of
the attachment thereof, Landlord shall have the right but not the obligation to cause the same to
be released and any sums expended by Landlord (plus Landlord’s administrative costs and reasonable
attorneys fees) in connection therewith shall be payable by Tenant within thirty (30) days after
its receipt of Landlord’s written demand.

          (d) Landlord shall have the right to enter the Premises at any reasonable time (upon
reasonable prior notice to Tenant and subject to Tenant’s reasonable security requirements) to
confirm Tenant’s compliance with the provisions of this Section 6.2. If Tenant handles, uses,
generates, stores or releases any Hazardous Materials at the Premises that are not Permitted
Hazardous Materials, then Landlord shall also have the right to elect, at its sole expense, to have
qualified Hazardous Materials consultants inspect the Premises and review such Hazardous Materials,
including review of all permits, reports, plans, and other documents regarding same. Landlord
shall not be responsible for any interference caused by Landlord’s entry into the Premises;
provided, however, that Landlord shall use reasonable efforts to minimize any interference with
Tenant’s business during any such entry.

          (e) Tenant agrees to indemnify, defend, protect and hold harmless Landlord and its constituent
partners or members and its or their partners, members, directors, officers, shareholders,
employees and agents against and from all claims, actions, losses, damages, liabilities, costs and
expenses of every kind, including reasonable attorneys’, experts’ and consultants’ fees and costs,
incurred at any time and arising from or in connection with the handling, use, generation, storage
or release by Tenant, its agents, employees and contractors, of Hazardous Materials at or about the
Premises in violation of applicable Legal Requirements at any time after the Commencement Date.

          4. Real Property Tax Payments.

          4.1 Tenant shall pay all taxes, general and special assessments, excises, levies, license and
permit fees and other governmental charges, general or special, ordinary or extraordinary,
unforeseen or foreseen, of any kind and nature whatsoever (including without limitation all
penalties and interest thereon by reason of Tenant’s failure to pay Taxes as herein provided) which
at any time during the Term may be assessed, levied, imposed upon, or grow or become due and
payable out of or in respect of, the Premises or any part thereof, or the use or occupancy thereof
(including but not limited to any and all use taxes), or which at any time during the Term may
become a lien on the Rent of the Premises or any part thereof (all of the foregoing are sometimes
herein collectively called “Taxes”). Taxes shall not include any transfer tax imposed in
connection with any sale of the Premises, income taxes measured by the net income of Landlord and
franchise, excise, gross receipts, gift, sales, estate and inheritance taxes imposed on Landlord,
nor shall Taxes include penalties and interest, other than to the extent attributable to Tenant’s
failure to comply timely with its obligations pursuant to this

-5-

 

Lease. Notwithstanding anything to the contrary contained in this Lease, if an assessed
valuation of the Land or Building shall include an assessed valuation amount allocable to a
Reassessment Event which occurs after the date of this Lease, then the computation of Taxes shall
include any amount which would otherwise constitute Taxes payable by reason of such Reassessment
Event but only for the first and second of any such Reassessment Events during the Term. If, by
law, any Taxes may be paid in installments then, for purposes hereof such Taxes shall be deemed to
have been payable in the maximum number or installments permitted by law.

          4.2 Tenant shall furnish to Landlord for inspection within ten (10) Business Days of demand of
Landlord, a photocopy of the official receipt of the appropriate taxing authority, or, in lieu
thereof, other proof reasonably satisfactory to Landlord evidencing payment of such Taxes.
Landlord shall, within ten (10) days following receipt of a bill for any Tax, or notice of
assessment, or notice of increase, or other change therein, forward the same to Tenant, but
Tenant’s non-receipt thereof (provided Tenant has received a copy of same from the applicable
taxing authority) shall not excuse Tenant from the timely payment of any Taxes which Tenant is
obligated to pay hereunder or otherwise relieve Tenant of Tenant’s liabilities and duties
hereunder.

          4.3 Notwithstanding anything to the contrary contained in Section 4.1, any Taxes
assessed on the basis of a fiscal or tax period of the relevant taxing authority, a part of which
period is included within and/or attributable to the Term and a part of which falls after the Term,
shall be prorated between Landlord and Tenant so that Tenant shall pay such proportion of said
Taxes as applies, and/or is attributable, to the Term, and Landlord shall pay the remainder
thereof. If and to the extent that Tenant pays any Taxes that relate to the period following the
Term, Landlord shall within ten (10) days following receipt of a notice from Tenant showing the
amount of any such payment by Tenant, refund such amount to Tenant. The provisions of this
Section 4.3 shall survive the expiration or termination of this Lease

          4.4 All refunds, rebates, early payment discounts, savings from tax contests and similar
reimbursements and discounts that relate to any period during, or prior to, the Term (collectively
referred to as “Refund(s)”) shall belong to Tenant and shall be held in trust for Tenant by
Landlord. Except as provided in the preceding parenthetical, any Refunds received by Landlord at
any time during or after the Term shall be paid to Tenant within thirty (30) days following
Landlord’s receipt thereof. This provision shall survive the expiration or termination of this
Lease.

          4.5 Tenant shall have the right from time to time to contest or appeal, at Tenant’s sole cost
and expense, the amount or validity, in whole or in part, of any Taxes (collectively referred to as
a “Tax Appeal”), by appropriate proceedings diligently conducted by Tenant in good faith,
but only after payment of such Taxes. Tenant shall give Landlord at least thirty (30) days prior
notice of any such Tax Appeal and shall provide Landlord with any applications, affidavits and like
supporting documentation that Landlord may reasonably request. Landlord shall, at no cost or
liability to Landlord, reasonably cooperate with Tenant (including signing applications, joining in
the Tax Appeal or permit the Tax contest to be brought in the Landlord’s name (subject to
Landlord’s reasonable approval) and the like, if so requested by Tenant) subject to and in
accordance with the conditions set forth in this Section 4.5. If by the date that is
thirty (30) days prior to the last day on which Landlord would be entitled to initiate a

-6-

 

Tax Appeal, Tenant has not initiated a Tax Appeal for the tax year in question, Landlord shall
have the right (but not the obligation) to initiate and pursue a Tax Appeal with respect to the
subject tax year (unless prior to initiating such Tax Appeal, Tenant has delivered notice to
Landlord evidencing the fact that Tenant has initiated a Tax Appeal for the subject tax year).

          4.6 Landlord shall use its commercially reasonable efforts to cooperate with Tenant, at no
cost, expense or liability to Landlord, in connection with Tenant’s efforts to obtain (and/or
retain existing) economic incentive packages from any federal, state or local governmental or
quasi-governmental agencies having jurisdiction over the Premises, including, without limitation,
any fee in lieu arrangements and funding for infrastructure (collectively, “Benefits”).
Tenant shall have the right to pursue and control any such economic incentive packages respecting
its leasehold interest in the Premises and/or its business operations in the Premises during the
Term, at Tenant’s sole cost and expense, so long as any such packages do not result in any costs,
expenses or liabilities payable by Landlord with regard to the Premises upon the expiration of the
Term. Landlord hereby acknowledges and agrees that Tenant shall be entitled to the entirety of any
and all such Benefits (whether previously, currently or hereinafter obtained) relating to the
period prior to and during the Term.

          5. Alterations.

          5.1 So long as Tenant shall be in compliance with the other applicable provisions of this
Section 5 in all material respects, Tenant (including any permitted subtenant or other
Permitted User of the Premises) may make any Alterations without the prior written consent of
Landlord; provided, that, any such Alterations (i) do not materially reduce the value of the
Premises; (ii) do not impair the structural integrity of the Building; and (iii) cost less than
Five Hundred Thousand Dollars ($500,000) in the aggregate.

          5.2 Prior to commencing any Alterations, Tenant shall submit detailed plans and specifications
to Landlord for Landlord’s review. If Landlord’s consent to the Alterations is required pursuant
to Section 5.1 above, Landlord shall notify Tenant of its approval or disapproval of such
plans and specifications and the work described therein within fifteen (15) Business Days of
receipt thereof; Landlord’s failure to respond within such period shall be deemed Landlord’s
approval of Tenant’s plans and specifications. Landlord shall state in writing any objection to
the Alterations. At the time Landlord responds to any request for approval of Alterations
requiring its consent hereunder, Landlord shall indicate in such response whether or not Landlord
requires removal of specific Alterations upon the expiration or earlier termination of this Lease,
and if and to the extent any response(s) from Landlord indicate that Landlord requires removal of
particular Alterations, then Tenant shall remove all such Alterations at its expense as a condition
of its surrendering the Premises to Landlord as required hereunder. Tenant may revise its plans
and specifications to incorporate such comments and, if Tenant does so, it may again request
Landlord’s consent pursuant to the process described above. Neither approval of the plans and
specifications nor supervision of the Alterations by Landlord shall constitute a representation or
warranty by Landlord as to the accuracy, adequacy, sufficiency, or propriety of such plans and
specifications or the quality of workmanship or the compliance of such Alterations with applicable
laws. If Tenant desires to make material revisions to any plans and specifications after obtaining
Landlord’s approval thereof, Tenant shall re-submit such plans and specifications to Landlord for
its approval as provided above.

-7-

 

          5.3 With respect to any Alterations, Tenant shall (i) after making any Alteration, deliver to
Landlord “as-built” plans and specifications (including layout, architectural, mechanical and
structural drawings) for such Alterations, which plans and specifications shall be prepared by
architects and/or engineers validly and then currently licensed by the State in which the Premises
are located (who may be employees of Tenant), (ii) at Tenant’s expense, obtain all permits,
approvals and certificates required by any Governmental Authorities, and (iii) prior to making any
Alterations, furnish to Landlord duplicate certificates of worker’s compensation insurance
(covering all persons to be employed by Tenant, and Tenant’s contractors and subcontractors in
connection with such Alterations) and comprehensive public liability insurance (including property
damage coverage) in such form, with such companies, for such periods and in such amounts consistent
with customary industry practice in Comparable Buildings, naming Landlord, and any Superior
Mortgagee (of which Landlord has provided prior notice to Tenant), as additional insureds. Upon
completion of such Alterations, Tenant, at Tenant’s expense, shall obtain certificates of final
approval of such Alterations required by any Governmental Authority and shall furnish Landlord with
copies thereof; provided said Governmental Authority will, in its normal course, provide or conduct
such review or approval.

          5.4 All Alterations shall (i) be made and performed in accordance with all Legal Requirements;
(ii) not adversely affect the safety of the Building or the mechanical, electrical and/or plumbing
systems of the Building; (iii) be completed promptly and in a good and workmanlike manner and in
accordance with the plans and specifications referenced in Section 5.2 above; (iv) be
performed pursuant to validly issued building and construction permits; and (v) be performed by
contractors and subcontractors reasonably approved by Landlord prior to the commencement of the
work who possess the requisite experience, personnel, financial strength and other resources
necessary to perform and complete the proposed Alterations in a good and workmanlike lien free
manner. Landlord shall, at Tenant’s sole expense, cooperate with Tenant in connection with any
filings, approvals and permits that may required in connection with any Alterations or any of
Tenant’s signage as well as with respect to any zoning variances sought by Tenant, and shall
execute reasonably promptly (and shall endeavor to do so within two (2) Business Days after
request) any applications or other documents as may be required in connection therewith.

          5.5 Any mechanic’s lien filed against the Premises for work claimed to have been done for, or
materials claimed to have been furnished to, Tenant or any Permitted User, shall be discharged by
Tenant within thirty (30) days after Tenant receives written notice thereof, at Tenant’s expense,
by payment or filing the bond required by law.

          6. Management, Maintenance and Repairs.

          6.1

          (a) Subject to the provisions of Article 10 relating to damage or destruction and
Article 11 relating to condemnation, (i) Tenant shall, at its expense, throughout the Term,
manage, operate, maintain, repair and replace all components of the Premises (including all
fixtures and improvements therein), other than the Structural Elements and other than repair of
damage to any portion of the Premises resulting from the gross negligence or willful misconduct of
the Landlord, its agents, employees and contractors, and (ii) Subject to Section 6.2 below,

-8-

 

Landlord shall, at its expense, throughout the Term, maintain, repair and replace all
Structural Elements other than repair of damage thereto resulting from the gross negligence or
willful misconduct of the Tenant, its agents, employees and contractors, with the parties’
respective obligations to be performed in a manner consistent with the standards of operation and
maintenance of Comparable Buildings (a “Comparable Standard”) and otherwise in accordance
with all Legal Requirements. Landlord and Tenant agree that, during the Term, Tenant shall pay
Landlord, as Additional Rent, a property management fee equal to two percent (2%) of the Fixed Rent
payable hereunder, to be paid with each regular installment of Fixed Rent; provided, however, that
Landlord agrees that Tenant shall not be required to pay any other costs, fees or expenses in
connection with any party’s management or oversight of the this Lease or the Premises, including
without limitation any “administrative fee” charged by Landlord in connection with Additional Rent
paid by Tenant hereunder. Landlord and Tenant acknowledge that, other than with respect to the
Structural Elements and subject to Section 5.1, Tenant shall exercise its reasonable
discretion over any determination to cause any repairs, maintenance or Alterations to be made so
long as Tenant maintains the Premises in accordance with a Comparable Standard and otherwise in
compliance with Legal Requirements and not in a manner that would decrease the value of the
Building.

          (b) Landlord shall perform appropriate maintenance, repairs and replacements to the Structural
Elements within thirty (30) days after receipt of written notice from Tenant (or oral notice in the
event of an “Emergency,” as that term is defined, below) requesting the same; provided, however,
that if such maintenance, repairs and replacements cannot reasonably be completed within thirty
(30) days, Landlord shall commence the same within such thirty (30) day period and diligently
pursue the same to completion. If Landlord fails to perform or commence such maintenance, repair
or replacement of such Structural Elements within the foregoing time period and such failure
materially adversely affects the conduct of Tenant’s business in the Premises, then Tenant may
proceed to take the required action upon delivery of an additional ten (10) says’ written notice to
Landlord indicating that Tenant will take such required action (provided, however, that the initial
thirty (30) day notice and the subsequent ten (10) day notice shall not be required in the event of
an Emergency) and if such action is not commenced by Landlord within such ten (10) day period (or
had not been previously commenced in the case of Emergency) and thereafter diligently pursued to
completion, then Tenant shall be entitled to perform the same and to prompt reimbursement by
Landlord of Tenant’s reasonable costs and expenses in taking such action. Landlord shall reimburse
Tenant the amounts incurred by Tenant in performing the same within thirty (30) days after
delivering to Landlord written statements and copies of invoices from Tenant’s contractor(s) and/or
vendor(s). If Landlord shall fail to so reimburse Tenant, Tenant may offset the amounts due Tenant
by Landlord against any Rent becoming due under this Lease or any other payment obligations under
this Lease. As used herein, an “Emergency” shall mean an event threatening immediate and material
danger to people located in the Building and/or immediate, material damage to the Building, and/or
immediate and material interference with, or immediate and material interruption of, Tenant’s
business operations.

          6.2 Replacements; Roof Covering. Landlord and Tenant agree and acknowledge that
Tenant’s obligations under Section 6.1 include the replacement of components of the Premises which
would be considered capital replacements under generally accepted accounting principles. Landlord
and Tenant agree that Tenant shall make all such replacements

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as reasonably necessary to comply with the Comparable Standard during the Term and that all
such replacements shall be at Tenant’s sole expense save and except any replacement of the roof
membrane (or other roof covering) of the Building (the “Roof Covering”), which shall be deemed
included in the “Structural Elements” with respect to Landlord’s obligation to replace (but not to
maintain or repair) the same, subject to Tenant’s obligations to pay for such replacement as
provided in this Section 6.2. To the extent any replacement of the Roof Covering is required
during the Term in order to meet the Comparable Standard, Landlord and Tenant agree that Landlord
shall contract for and pay all costs and expenses associated with such replacement of the Roof
Covering and shall charge Tenant, as Additional Rent, the annual amortized amount (amortized at a
then-reasonable interest rate) of such cost, amortized over two (2) years, for the remaining Term.
Landlord shall obtain Tenant’s prior written approval, not to be unreasonably withheld, of the cost
of any replacement of the Roof Covering prior to Landlord’s commencing such replacement work.

          7. Compliance with Legal Requirements.

          7.1 Tenant shall give prompt notice to Landlord of any notice it receives of the violation of
any Legal Requirements with respect to the Premises or the use or occupation thereof in any
material respect. Tenant shall comply and shall be responsible for the cost of such compliance, in
all material respects with all Legal Requirements which shall be applicable to the Premises, or any
part thereof, or to the use or manner of use thereof by any of the occupants thereof, during the
Term. Tenant shall pay all out-of-pocket costs and expenses actually incurred by, and all the
fines, penalties and damages which may be imposed upon, Landlord by reason of or arising out of
Tenant’s failure to fully and promptly comply with and observe the provisions of this
Section 7.1.

          7.2 Tenant, at its expense, may contest, by appropriate proceedings prosecuted diligently and
in good faith, the validity or applicability to the Premises or the Building of any Legal
Requirement, provided that:

          (a) Landlord shall not be subject to a bona fide threat of criminal penalty or to prosecution
for a crime, or any other fine or charge (unless Tenant agrees in writing to indemnify, defend and
hold Landlord harmless from and against such non-criminal fine or charge), nor shall the Premises
or any part thereof or the Building or Land, or any part thereof, be subject to a bona fide threat
of being condemned or vacated;

          (b) such non-compliance or contest shall not constitute or result in any violation of any
Superior Mortgage; and

          (c) Tenant shall keep Landlord reasonably advised as to the status of such proceedings.

          8. Subordination, Nondisturbance and Attornment.

          8.1 This Lease is subject and subordinate to the lien of each and every Superior Mortgage.
Subject to compliance with Section 8.4, the provisions of this Section 8.1 shall be
self-operative and no further instrument of subordination shall be required to make the interest of
any Superior Mortgagee (collectively, a “Superior Party”) superior to the interest of

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Tenant hereunder; however, Tenant shall execute and deliver promptly any certificate that
Landlord may reasonably request in confirmation of such subordination.

          8.2 Intentionally Omitted.

          8.3 If at any time prior to the expiration of the Term, any Superior Mortgagee comes into
possession of the Premises by receiver or otherwise, Tenant agrees, at the election and upon demand
of any owner of the Premises or of any Superior Mortgagee in possession of the Premises, to attorn,
from time to time, to any such owner or Superior Mortgagee or any person acquiring the interest of
Landlord as a result of any such termination, or as a result of a foreclosure of the Superior
Mortgage or the granting of a deed in lieu of foreclosure, upon the then executory terms and
conditions of this Lease, for the remainder of the Term. Subject to compliance with
Section 8.4, the provisions of this Section 8.3 shall inure to the benefit of any
such owner or Superior Mortgagee and shall be self-operative upon any such demand, and no further
instrument shall be required to give effect to said provisions.

          8.4 As a condition precedent to the subordination of Tenant’s interests in this Lease to any
Superior Mortgage as set forth in Section 8.1, the provisions of this Article 8 are
and shall be conditioned upon the execution and delivery by and between Tenant and any such
Superior Mortgagee of a subordination, non-disturbance and attornment agreement substantially in
the form of Exhibit C attached hereto with respect to any Superior Mortgagee (a
“Superior Mortgagee SNDA”), in each case with such reasonable modifications as the
applicable Superior Party may require, provided that such modifications do not increase Tenant’s
obligations or liabilities or decrease or otherwise adversely affect Tenant’s rights as set forth
in the form document attached hereto as Exhibit C (other than to a de minimis extent).

          8.5 Landlord represents that as of the date hereof there are no superior leases and there is
no Superior Mortgage other than a mortgage dated December ___, in favor of Bank of the West, a
California banking corporation, in the face amount of up to $8,150,000.00. Contemporaneous
herewith, Landlord has delivered to Tenant, and Tenant acknowledges receipt of, a Superior Mortgage
SNDA from said Superior Mortgagee.

          9. Insurance Requirements.

          9.1 Tenant shall, at its expense, maintain or cause to be maintained (1) “All Risks” property
policy, in an amount not less than the full replacement value (as from time to time reasonably
determined by Landlord and Tenant) of the Building, with coverage (in addition to the standard
coverage afforded by such insurance) for theft, vandalism, malicious mischief and boiler explosion;
provided, however, that Tenant shall not be required to maintain special flood hazard or earthquake
insurance with respect to the Premises or reimburse Landlord for such insurance, (2) Commercial
General Liability insurance in respect of the Premises, protecting Landlord and Tenant, with limits
of not less than $2,000,000 per occurrence for bodily injury and property damage and $5,000,000 in
excess liability coverage, with a duty to defend against claims of bodily injury, personal injury
and property damage arising out of Tenant’s operations, assumed liabilities, or use of the
Building, including contractual liability coverage for the performance by Tenant of the indemnity
agreements set forth in this Lease, and (3) All Risk Property/Business Interruption Insurance,
written at replacement cost value and with a

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replacement cost endorsement covering all of Tenant’s Property and any Alterations made by
Tenant, in either case to the extent insurable under the available standard forms of “all-risk” or
“Special Causes of Loss” insurance policies, in an amount equal to one hundred percent (100%) of
the replacement value thereof (subject, however, at Tenant’s option, to whatever deductible Tenant
then maintains).

          9.2 If Tenant fails to maintain the insurance required to be maintained by Tenant hereunder,
then, subject to the provisions of Article 20, Landlord may obtain same at commercially
reasonable rates and bill Tenant therefor (which Tenant shall pay within thirty (30) days thereof),
but Landlord shall have no obligation to (i) insure the Building or Tenant’s Property or (ii)
repair, restore, or replace any of the Building, Tenant’s furniture, furnishings, equipment or
other personal property or the value of any improvements made to the Premises by Tenant. The
policy of insurance to be maintained by Tenant under subclause (2) of Section 9.1 shall
name the Landlord and any Superior Mortgagee (of which Landlord has provided notice to Tenant) as
an additional insured, and the policy or policies of insurance to be maintained by Tenant under
subclause (1) shall include an appropriate endorsement reasonably acceptable to Landlord
acknowledging Landlord’s interest in the Premises and in the proceeds of such insurance as provided
hereunder. The Commercial General Liability policy of insurance shall contain a standard
severability of interest clause.

          9.3 The policies of insurance to be maintained by Tenant shall be issued by a company or
companies of recognized responsibility and rated in Best’s Insurance Guide, or any successor
thereto, as having a general policyholder rating of A- and a financial rating of at least VIII (it
being understood that if such ratings are no longer issued, then such insurer’s financial integrity
shall conform to the standards that constitute such ratings from Best’s Insurance Guide as of the
date hereof). Tenant shall procure and pay for renewals of such insurance to be maintained by it
from time to time before the expiration thereof, and shall deliver to Landlord certificates of
insurance upon the execution of this Lease and when such policies are renewed. All such policies
and certificates shall endeavor to provide Landlord with not less than thirty (30) days prior
written notice of any material reduction in coverage, termination or cancellation (ten (10) days
for non-payment of premium) of such policies.

          9.4 Each party shall look first to any insurance in its favor before making any claim against
the other party for recovery for loss or damage resulting from fire or other casualty, and to the
extent permitted by law, Landlord and Tenant each hereby releases and waives all right of recovery
against the other or anyone claiming through or under each of them by way of subrogation or
otherwise. Each party shall obtain a waiver of subrogation from its insurance carriers with
respect to the preceding sentence.

          9.5 All proceeds from any insurance coverages maintained by Tenant under this Article
9 (other than from commercial general liability insurance, if any) shall be payable solely to
Landlord and released to Tenant only in compliance with the terms of any Superior Mortgage.

          9.6 All insurance policies required to be carried hereunder shall be maintained with solvent
insurance companies of recognized standing and licensed to do business in the State in which the
Premises are located.

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          10. Damage or Destruction by Casualty.

          10.1 If at any time during the Term, the Building or the Premises, including, without
limitation, the portions of the Building outside the Premises that are reasonably necessary to
provide Tenant with access to and from the Premises and the machinery, equipment and systems used
in the operation of the Building or to provide services to the Premises, are damaged by fire or
other casualty (the “Damaged Improvements”), Tenant shall, at its expense, cause the same
to be repaired, restored and replaced, as expeditiously as possible using reasonable diligence to a
condition as nearly as practicable to that which existed immediately prior to occurrence of the
fire or other casualty subject to such changes as shall be necessitated by any Legal Requirements
or are otherwise desired by Tenant and otherwise in a good workmanlike manner, using new materials
of like quality to those that were incorporated in the Damaged Improvements immediately prior to
the subject casualty and in accordance with all Legal Requirements. To the extent any insurance
proceeds are received during the Term (or during any other period with respect to a casualty which
occurred during the Term) by Landlord or Landlord’s lender, the same shall be paid to Tenant to be
applied, as necessary, to the repair or restoration of the Premises as described in this
Section 10.1, with any excess proceeds to be retained by Landlord (except with respect to
insurance for Tenant’s personal property). Landlord (and any Landlord’s lender) shall have no
right or claim in and to the proceeds of any insurance proceeds of property insurance maintained by
Tenant other than as expressly provided in Section 10.3 below.

          10.2 No damage or destruction of any of the Premises as a result of fire or any other hazard,
risk or casualty whatsoever shall relieve Tenant from its obligations hereunder; provided, however,
that to the extent the Premises are untenable by Tenant as a result thereof, Rent shall be abated
during the period of such restoration and/or repair until and to the extent Tenant is able to
recommence use and occupancy of the Premises thereafter.

          10.3 Notwithstanding anything to the contrary contained in this Article 10, if (a) the
Building suffers a casualty the cost of restoration of which, in Tenant’s reasonable opinion,
exceeds 50% of the replacement cost of the entire Building, and (b) the date of such casualty
occurs within the last two (2) years of the Term, then, Tenant may terminate this Lease by written
notice to Landlord given no more than sixty (60) days after the date of such casualty, in which
event Tenant shall have no obligation to repair, restore or rebuild the Building, this Lease shall
terminate as of the thirtieth (30th) day after Landlord’s receipt of such termination
notice from Tenant and the Rent shall be apportioned as of the date of the termination of this
Lease; provided that Tenant shall pay to Landlord all property insurance proceeds for the Building
paid to Tenant.

          10.4 The provisions of this Lease, including this Article 10, constitute an express
agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all
or any part of the Premises or the Building, and any applicable laws with respect to any rights or
obligations concerning damage or destruction in the absence of an express agreement between the
parties, and any similar or successor applicable laws now or hereinafter in effect, shall have no
application to this Lease or any damage or destruction to all or any part of the Premises or the
Building.

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          11. Condemnation.

          11.1 In the event that the whole of the Premises shall be taken under the exercise of the
power of eminent domain or by agreement with any condemnor in lieu of such taking (herein called a
“Total Taking”), then this Lease shall terminate as of the earlier of the date when title
thereto vests in the condemnor or the date when possession thereof shall be delivered to the
condemnor.

          11.2 The entire award with respect to any Total Taking shall be paid to Landlord, except that
Tenant shall be entitled to pursue any separate award which the condemnor may make, and which shall
be provided for by law, specifically for Tenant’s moving expenses and business dislocation damages
and the value of Tenant’s fixtures, Alterations, installations and improvements which are not part
of the Premises or property of Landlord.

          11.3 In the event that any portion or portions of the Premises shall be taken under the
exercise of the power of eminent domain or by agreement with any condemnor in lieu of such taking
(herein called a “Partial Taking”), then this Lease, only as to the portion or portions so
taken, shall terminate as of the date possession thereof shall be delivered to the condemnor, but
otherwise this Lease shall remain in full force and effect. If Tenant reasonably determines that
the Premises cannot be used for the conduct of Tenant’s business after a Partial Taking, then
Tenant shall have the right to terminate this Lease by giving notice to Landlord.

          11.4 If during the Term there shall be a Partial Taking and Tenant has not elected to
terminate this Lease, then (a) Landlord shall repair and restore the remaining portion of the
Premises so that they constitute architectural units with the same general character and condition
to the nearest extent possible under the circumstances as the previous Premises subject to such
changes as shall be necessitated by any Legal Requirement or are otherwise desired by Tenant, and
(b) this Lease shall remain in full force and effect with respect to such remaining portion of the
Premises.

          11.5 The entire award with respect to any Partial Taking shall be paid to Landlord.

          11.6 For the purposes of this Lease, all amounts paid pursuant to an agreement with any
condemnor in settlement of any condemnation or any eminent domain proceeding affecting the Premises
shall be deemed to constitute an award made in such proceeding, provided that no action of Landlord
to settle or compromise its claim shall be deemed a settlement or satisfaction of any independent
claim or award to which Tenant may be entitled for Tenant’s moving expenses, business dislocation
damages or otherwise.

          11.7 In the case of a Partial Taking which does not result in a termination of this Lease, the
Rent payable under this Lease after possession of the portion so taken shall be delivered to the
condemnor shall be reduced in the same proportion as the amount of usable floor area of the
Premises shall have been reduced by such Taking. In addition, to the extent any remaining portion
of the Premises are untenable by Tenant as a result of Landlord’s restoration and/or repair
pursuant to Section 11.4, Rent shall be abated during the period of such restoration and/or
repair.

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          11.8 If the whole or any part of the Premises shall be acquired or condemned temporarily
during the Term for any public or quasi-public use or purpose, Tenant shall give prompt notice
thereof to Landlord and the Term shall not be reduced or affected in any way and Tenant shall
continue to pay in full all items of Rent payable by Tenant hereunder without reduction or
abatement, and Tenant shall be entitled to receive for itself any award or payments for such use,
provided, however, that:

          (a) if the acquisition or condemnation is for a period not extending beyond the Term, and if
by reason of such acquisition or condemnation changes or alterations are required to be made to the
Premises which would necessitate an expenditure to restore the Premises to its former condition,
such changes or alterations shall be performed by Tenant, at Tenant’s sole cost and expense; or

          (b) if the acquisition or condemnation is for a period extending beyond the Term, after
deducting the cost for any changes or alterations required for the restoration of the Premises from
the amount of any award or payment which shall be retained by Landlord, the balance of such award
or payment shall be apportioned between Landlord and Tenant and prorated over the duration of the
taking as of the Expiration Date.

          12. Assignment and Subletting.

          12.1 Tenant shall not (i) assign its interest in this Lease (whether by operation of law,
transfers of interests in Tenant or otherwise), (ii) mortgage or encumber its interest in this
Lease, in whole or in part or (iii) sublet, or permit the subletting of, more than twenty five
percent (25%) of the Premises (individually or collectively, a “Transfer”), without first obtaining
in each instance the prior written consent of Landlord. Landlord’s consent shall not be
unreasonably withheld, conditioned or delayed.

          12.2 If Tenant desires to engage in a Transfer, Tenant shall give Landlord written notice no
later than fifteen (15) days in advance of the proposed effective date of the Transfer specifying
the name and business of the proposed transferee or subtenant (the “Transferee”) , the amount and
location of the space proposed to be subleased, the proposed Transferee’s financial statements, the
proposed terms of the Transfer and other information as Landlord may request to evaluate the
proposed Transfer. Landlord may condition its consent on any Transfer on its receipt of fifty
percent (50%) of any excess Rent generated by any Transfer (including any consideration paid for
the assignment of this Lease) after deduction of all expenses incurred by Tenant for marketing,
leasing commissions, attorneys fees, tenant improvements and other concessions associated with any
Transfer. Landlord’s failure to respond to Tenant’s request within such fifteen (15) day period
shall be deemed Landlord’s approval of such Transfer.

          12.3 The parties hereby acknowledge and agree that, notwithstanding any assignment or
transfer, whether or not in violation of the provisions of this Lease, and the acceptance of any of
the Fixed Rent and/or Additional Rent by Landlord from an assignee, transferee, or any other party,
the Named Tenant and any subsequent assignees of such Named Tenant’s interest under this Lease
shall remain fully liable for the payment of the Fixed Rent and

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Additional Rent and for the other obligations of this Lease on the part of Tenant to be
performed or observed.

          12.4 If this Lease is assigned, Landlord may collect rent from the assignee. If the Premises
or any part thereof are sublet or used or occupied by anybody other than Tenant, Landlord may,
after any Event of Default has occurred, collect rent from the subtenant or occupant. In either
event, Landlord may apply the net amount collected to the Fixed Rent and Additional Rent herein
reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of
any provision of this Lease, or the acceptance of the assignee, subtenant or occupant as tenant, or
a release of Tenant from the performance by Tenant of Tenant’s obligations under this Lease.
References in this Lease to use or occupancy by others (that is, anyone other than Tenant) shall
not be construed as limited to subtenants and those claiming under or through subtenants but as
including also licensees and others claiming under or through Tenant, immediately or remotely.

          12.5 Intentionally Deleted.

          12.6 The following events shall not be considered a Transfer under this Article 12:
(a) a change in ownership of Tenant as a result of a merger, consolidation, reorganization, or
joint venture; (b) the sale of all or substantially all of Tenant’s assets; (c) the sale, exchange,
issuance, or other transfer of Tenant’s stock on a national exchange or between Tenant and any
Affiliate; (d) the Transfer of this Lease to any Affiliate or an entity that purchases all or
substantially all of Tenant’s assets; (e) the sublet of less than twenty five percent (25%) of the
rentable square feet of the Premises, in the aggregate, to one (1) or more parties; or (f) a
collateral assignment of Tenant’s interest in this Lease to a lender as security for any
indebtedness of Tenant to the lender. Tenant shall not be required to obtain Landlord’s consent and
Landlord shall have no right to delay, alter, condition or impede any of the foregoing transactions
or combinations thereof.

          13. Utilities and Services.

          13.1 Utilities and services (including without limitation electricity, gas, water, sanitary
sewer systems, refuse removal and landscape and janitorial services) used and consumed by Tenant in
relation to all or any portion of the Premises shall be obtained by Tenant on a direct basis using
connections and equipment currently installed or to be installed by or on behalf of Tenant.
Without limiting the terms and conditions of Section 6.1(c), Tenant shall be solely
responsible for and shall pay all amounts to be charged to Tenant by the relevant utility company
for utilities consumed within the Premises (and by any equipment installed by Tenant outside of the
Premises), including all surcharges, taxes, fuel adjustments and sales taxes and charges thereon
and other sums payable in respect thereof directly to the public utility for the supply of electric
energy to Tenant for the Premises. Landlord shall cooperate with Tenant to obtain any utility
rebates and discounts that may be available.

          14. Roof Rights.

          14.1 Subject to applicable Legal Requirements, Tenant shall, at Tenant’s sole cost and
expense, have the right throughout the Term to install, operate, repair, maintain and/or replace
any of the following equipment on any of the external roof areas of the Building at any

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level: (i) telecommunications and similar equipment and apparatus, including, without
limitation, antennae, microwave dishes and radio antenna and satellite communication dishes and
apparatus, together with all related wiring, cables, power connectors, installation frames and
related equipment, (ii) air conditioning and ventilation units, including all related connections,
ducts, vents, installation frames and related equipment, (iii) emergency power generation systems
and equipment, including all related wiring, cables, power connectors, installation frames and
related equipment, and (iv) any other similar mechanical equipment.

          15. Signage.

     During the Term, Tenant shall have the exclusive right to install, maintain (including all
current signage) and replace signage of any type within or on the Premises without the consent or
approval of Landlord provided that such signage does not violate any applicable Legal Requirements.
Notwithstanding the foregoing, Landlord and Tenant agree that neither party hereto shall have the
right to sell signage rights to any third party or otherwise allow any third party to erect or
maintain signs on the Premises, and that all signage at the Premises shall be limited to signage
associated with Tenant’s business operations.

          16. Access to Premises.

          16.1 Landlord or any Superior Mortgagee or any other party designated by Landlord, and their
respective agents, shall have the right to enter the Premises during regular business hours, upon
at least 24 hours prior notice (which notice may be oral) except in the case of emergency, to (i)
examine the Premises, (ii) show it to prospective purchasers, mortgagees, or during the last 15
months of the Term to lessors or lessees, and their respective agents and representatives or others
provided that Tenant shall have the right to accompany Landlord and any such interested party at
all times while the same are in the Premises, and (iii) to make such maintenance, repairs or
replacements to the Structural Elements as provided in Section 6.1 and/or to perform any
other maintenance, repairs or replacements in and to the Premises which if not made would
materially adversely affect the structure, systems, safety or security of the Premises which
Landlord may elect to perform following Tenant’s failure to perform as required under this Lease
within thirty (30) days after Tenant having received notice of such failure to perform from
Landlord; provided, that, if such performance is not susceptible of being completed within said
thirty (30) day period, Landlord shall have no right to perform same on behalf of Tenant so long as
Tenant has commenced (if practicable) and is diligently prosecuting such performance to completion,
and Landlord shall be allowed to take all material into the Premises (but may not store) that may
be required for the performance of such work without the same constituting an actual or
constructive eviction of Tenant in whole or in part and without any abatement of Rent. Except in
the case of an emergency, if any work performed by Landlord pursuant to this Article 16
would affect Tenant or Tenant’s use, enjoyment and occupancy of the Premises, then Landlord shall
give notice of such work to Tenant prior to commencing such work, and if requested by Tenant shall
perform such work on an overtime basis at Tenant’s sole cost and expense (except if such work
affects access or any services, in which case such work will be performed on an overtime basis at
Landlord’s sole cost and expense).

          16.2 In exercising its rights of entry and in the performance of any work of any kind in the
pursuant to this Article or any other provision of this Lease, Landlord shall use

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commercially reasonable efforts to cause the least possible interference with Tenant’s
business, access, use and occupancy in or of the Premises and shall be subject to such reasonable
security procedures as Tenant may require. Notwithstanding anything to the contrary contained in
this Lease, Landlord acknowledges that Tenant may, from time to time, have certain security or
confidentiality requirements such that portions of the Premises shall be locked and/or inaccessible
to persons unauthorized by Tenant and such areas will not be made available to Landlord except in
the case of an emergency.

          17. Certificate of Occupancy.

          17.1 Tenant shall not at any time use or occupy the Premises in violation of the certificate
of occupancy at such time issued for the Premises or for the Building.

          17.2 Throughout the Term, Landlord shall not change the certificate of occupancy for the
Building unless required by Legal Requirements or consented to by Tenant (which consent may be
granted or withheld by Tenant in its sole discretion). At Tenant’s request, Landlord shall
cooperate with Tenant, at Tenant’s sole cost and expense, in connection with any changes to the
certificate of occupancy for any Permitted Use, provided such use will not materially and adversely
affect the fair market value of the Building.

          18. Events of Default.

          18.1 The occurrence of any of the following events beyond any applicable grace, cure or notice
period set forth below shall be an “Event of Default” hereunder:

          (a) if Tenant shall fail to pay any installment of Fixed Rent or Additional Rent when due and
such failure shall continue unremedied for a period of at least ten (10) days after written notice
thereof by or on behalf of Landlord; or

          (b) if Tenant shall generally be unable to, or shall admit in writing its inability to, pay
its debts as they become due; or

          (c) if Tenant shall commence or institute any case, proceeding or other action (i) seeking
relief on its behalf as debtor, or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, or
(ii) seeking appointment of a receiver, trustee, custodian or other similar official for it or for
all or any substantial part of its property; or

          (d) if Tenant shall make a general assignment for the benefit of creditors; or

          (e) if any case, proceeding or other action shall be commenced or instituted against Tenant
(i) seeking to have an order for relief entered against it as debtor or to adjudicate it a bankrupt
or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts under any existing or
future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, or (ii) seeking appointment of a receiver, trustee, custodian
or

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other similar official for it or for all or any substantial part of its property, which either
(A) results in any such entry of an order for relief, adjudication of bankruptcy or insolvency or
such an appointment or the issuance or entry of any other order having a similar effect, or (B)
remains undismissed for a period of ninety (90) days; or

          (f) if any case, proceeding or other action shall be commenced or instituted against Tenant
seeking issuance of a warrant of attachment, execution, distraint or similar process against all or
any substantial part of its property which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or bonded pending appeal within ninety
(90) days from the entry thereof; or

          (g) if a trustee, receiver or other custodian is appointed for any substantial part of the
assets of Tenant which appointment is not vacated or effectively stayed within ten (10) Business
Days; or

          (h) if Tenant shall default in the observance or performance of any other term, covenant or
condition of this Lease on Tenant’s part to be observed or performed and Tenant shall fail to
remedy such default within thirty (30) days after notice by Landlord to Tenant of such default, or
if such default is of such a nature that it cannot be remedied with due diligence within such
thirty (30) day period, such period shall be extended for such longer period as is reasonably
necessary provided that Tenant shall commence to remedy within such initial thirty (30) day period
and shall thereafter diligently and in good faith proceed to remedy such default within an
additional period of time reasonably necessary to correct such failure.

          19. Remedies for Default.

          19.1 If an Event of Default hereunder shall have occurred and then be continuing, subject to
the provisions of Section 19.6, Landlord shall have the right at its option to do any one
or more of the following without further demand upon or notice to Tenant:

          (a) Terminate this Lease, in which event Tenant shall immediately surrender the Premises to
Landlord, and if Tenant fails to do so, Landlord may, after due process of law, enter upon and take
possession of the Premises and expel or remove Tenant and any other person who may be occupying the
Premises or any part thereof, and Landlord may recover from Tenant the following:

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

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

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

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               (iv) Subject to Section 19.1(c) below, any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to result therefrom,
specifically including but not limited to, brokerage commissions and advertising expenses incurred,
expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same
or a different use, and any special concessions made to obtain a new tenant but in no event
including consequential damages;

          As used in Sections 19.1(a)(i) and (ii), above, the “worth at the time of
award” shall be computed by allowing interest at the Applicable Rate. As used in Section
19.1(a)(iii) above, the “worth at the time of award” shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus
one percent (1%)

          (b) Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor
may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes
due, if lessee has the right to sublet or assign, subject only to reasonable limitations).
Accordingly, if Landlord does not elect to terminate this Lease on account of any Tenant Default,
Landlord may, from time to time, without terminating this Lease, enforce all of its rights and
remedies under this Lease, including the right to recover all Rent as it becomes due.

          (c) Tenant shall have, and under no circumstances shall Tenant be deemed to have waived, the
rights set forth in Sections 1174 and 1179 of the California Code of Civil Procedure. Landlord
hereby waives any and all other rights and remedies to which Landlord may be entitled, at law or in
equity, including without limitation any right of re-entry without terminating this Lease and any
lock-out remedies available under applicable Legal Requirements.

          (d) Notwithstanding anything to the contrary set forth herein, Landlord shall use its
reasonable best efforts to mitigate its damages resulting from a Tenant Default. Any costs or
damages set forth herein shall not include costs normally paid by a new tenant and in no event
shall include costs beyond restoring the Premises to a “warm, lit” shell.

          19.2 Notwithstanding anything to the contrary contained in this Lease, no shareholder, member,
director or partner from time to time of Tenant, nor any officer, agent, or employee of Tenant
shall be charged personally with any liability by, or held liable to, any party hereto or by any
Person claiming through or under such party under any term or provision of this Lease, or by virtue
of its execution or attempted execution, or due to any breach, attempted breach or alleged breach
thereof.

          19.3 Notwithstanding any provisions of this Lease to the contrary, Landlord shall not be
liable to Tenant, and Tenant shall not be liable to Landlord, for indirect, consequential, special,
punitive, exemplary, incidental or other like damages (including, without limitation, damages to
Landlord for lost profits or opportunities, or the loss by foreclosure, deed in lieu, or otherwise,
of all or any portion of Landlord’s interest in the Building and/or Land), even if arising from any
act, omission or negligence of such party or from the breach by such party of its obligations under
this Lease.

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          20. Fees and Expenses.

     If Tenant shall default under this Lease beyond any applicable grace, cure or notice periods,
Landlord may, after notice to Tenant, (a) perform the same for the account of Tenant if the same
arises out of any obligation owed by Tenant to a third party, or (b) make any reasonable
expenditure or incur any obligation for the payment of money in connection with any obligation owed
to Landlord, including, but not limited to, reasonable attorneys’ fees and disbursements in
instituting, prosecuting or defending any action or proceeding, and the cost thereof, with interest
thereon at the Applicable Rate, shall be deemed to be Additional Rent hereunder and shall be paid
by Tenant to Landlord within ten (10) Business Days of delivery of a demand therefor, together with
any reasonably required substantiating bills, statements or other documentation.

          21. No Representations by Landlord.

          21.1 Tenant acknowledges and agrees that Landlord has not made and is not making any
warranties or representations with respect to the Premises or the Building and Tenant, in executing
and delivering this Lease, is not relying upon any warranties, representations, promises or
statements of Landlord with respect to the Premises or the Building, except to the extent that the
same are set forth in this Lease or in any other written agreement which may be made between the
parties concurrently with the execution and delivery of this Lease. All understandings and
agreements between the parties are merged in this Lease and any other written agreements made
concurrently herewith, which alone fully and completely express the agreement of the parties and
which are entered into after full investigation, neither party relying upon any statement or
representation not embodied in this Lease or any other written agreements made concurrently
herewith.

          22. Expiration, Surrender and Holdover.

          22.1 Upon the expiration or other termination of this Lease, Tenant shall quit and surrender
to Landlord the Premises, vacant and in their then-existing condition, and Tenant shall remove such
of its property as may be required pursuant to Section 23 hereof; this obligation shall
survive the expiration or sooner termination of the Term. If the last day of the Term or any
renewal thereof falls on Saturday or Sunday, this Lease shall expire on the Business Day
immediately preceding.

          22.2 In the event this Lease is not renewed or extended or a new lease is not entered into
between the parties, and if Tenant shall then hold over after the expiration of the Term (it being
agreed that Tenant shall not be deemed holding over by the mere fact that Tenant’s Property and/or
its Alterations remain in the Premises after the expiration of the Term), the parties hereby agree
that Tenant’s occupancy of the Premises after the expiration of the Term shall be under a
month-to-month tenancy commencing on the first day after the expiration of the Term, which tenancy
shall be upon all of the terms set forth in this Lease except Tenant shall pay on the first day of
each month of the holdover period as Fixed Rent, an amount equal to the product obtained by
multiplying (i) one-twelfth of the Fixed Rent payable by Tenant during the last month of the Term
(i.e., the month immediately prior to the holdover period), by (ii) one hundred ten (110%) percent
for the first month of such month-to-month tenancy, one hundred fifteen (115%) percent for the next
two months of such month-to-month tenancy, one hundred

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twenty-five (125%) percent for the next three months of such month-to-month tenancy, and one
hundred fifty (150%) percent thereafter.

          22.3 Notwithstanding anything to the contrary contained in this Lease, the acceptance of any
Rent paid by Tenant pursuant to this Article shall not preclude Landlord from commencing and
prosecuting a holdover or summary eviction proceeding.

          23. Fixtures, Equipment and Other Property.

          23.1 All fixtures, equipment, improvements, cables, raised floors, ventilation and
air-conditioning equipment and appurtenances attached to or built into the Premises at the
commencement of or during the Term, whether or not by or at the expense of Tenant, but specifically
excluding Tenant’s Property, shall be and remain a part of the Premises and shall, upon the
Expiration Date, be deemed the property of Landlord (without representation or warranty by Tenant)
and shall not be removed by Tenant, except as otherwise provided herein.

          23.2 All of the following (collectively, the “Tenant’s Property”) shall be and shall
remain the property of Tenant and may be removed by Tenant at any time during the Term (i) all
property characterized as “Retained Property” in the Purchase Agreement pursuant to which Tenant
conveyed the Premises to Landlord as of the date hereof, (ii) all furniture, furnishings, office
and other movable equipment and other sections or items of movable personal property, in each case
located in the Premises and owned by Tenant or by any other Person (other than Landlord) and for
which Tenant is responsible, (iii) all partitions, furniture systems, special or other cabinet
work, business and trade fixtures, machinery and equipment, office equipment and communications
equipment, including, without limitation, telephone systems, security systems, emergency generator
and uninterrupted power supply systems, lab benches and equipment, fume hoods and any other similar
equipment, property or items, whether or not attached to or built into the Premises, but which are
installed in the Premises by or for the account of Tenant or any other Permitted User and in each
case can be removed without damage to the structural elements of the Building in any material
respect, and (iv) all fixtures, fittings, installations, equipment, machinery and other items
relating to the operation of Tenant’s business, which in each case can be removed without damage to
the structural elements of the Building in any material respect. Tenant shall remove all of
Tenant’s Property from the Premises at its sole expense upon the expiration or earlier termination
of the Lease. Without limiting any of the forgoing, it is understood and agreed that Tenant shall
have no obligation to remove any cables or raised floors on or prior to the Expiration Date or
earlier termination of this Lease, except to the extent the same are part of Alterations made after
the date hereof which Tenant is obligated to remove pursuant to Section 5.2 above.

          24. Quiet Enjoyment.

     So long as no Event of Default has occurred and is then continuing, Tenant may peaceably and
quietly enjoy the Premises without hindrance, ejection or molestation by Landlord, or any Person
lawfully claiming through or under any of the foregoing, subject, nevertheless, to the terms and
conditions of this Lease, and to all Superior Mortgages.

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          25. No Waiver Provisions.

          25.1 No act or thing done by Landlord or Landlord’s agents during the Term shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept such surrender shall be valid
unless in writing signed by Landlord.

          25.2 The failure of Landlord to seek redress for violation of, or to insist upon the strict
performance of, any covenant or condition of this Lease shall not prevent a subsequent act, which
would have originally constituted a violation, from having all of the force and effect of an
original violation. The receipt by Landlord of Fixed Rent, Additional Rent or any other item of
Rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of
such breach. No provision of this Lease shall be deemed to have been waived by Landlord, unless
such waiver be in writing signed by Landlord. No payment by Tenant or receipt by Landlord of a
lesser amount than the monthly Fixed Rent or other item of Rent herein stipulated shall be deemed
to be other than on account of the earliest stipulated Fixed Rent or other item of Rent, or as
Landlord may elect to apply same, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as Fixed Rent or other item of Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right
to recover the balance of such Fixed Rent or other item of Rent or pursue any other remedy in this
Lease provided.

          26. Affirmative Waivers.

     Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim
brought by either against the other on any matter whatsoever arising out of or in any way connected
with this Lease, the relationship of Landlord and Tenant, Tenant’s use or occupancy of the
Premises, including, without limitation, any claim of injury or damage, and any emergency and other
statutory remedy with respect thereto.

          27. Unavoidable Delays.

          27.1 This Lease and the obligation of Tenant to pay Rent hereunder and perform all of the
other covenants and agreements hereunder on the part of Tenant to be performed shall in no way be
affected, impaired or excused because Landlord is unable to fulfill any of its obligations under
this Lease expressly or impliedly to be performed by Landlord or because Landlord is unable to
make, or is delayed in making any repairs, additions, alterations, improvements or decorations or
is unable to supply or is delayed in supplying any equipment or fixtures, if Landlord is prevented
or delayed from so doing by reason of any Unavoidable Delay.

          27.2 Other than Tenant’s obligation to pay Rent when due, Tenant’s obligation to perform or
observe any term, condition, covenant or agreement on Tenant’s part to be performed or observed
shall be suspended during such time that such performance or observance is prevented or delayed by
reason of any Unavoidable Delay.

          28. Notices.

     Except as otherwise expressly provided in this Lease, all bills, statements, consents,
notices, demands, approvals, requests or other communications required or permitted to be given

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under this Lease shall be given in writing and shall be effective for all purposes if hand
delivered or sent by (a) certified or registered United States mail, postage prepaid, return
receipt requested, or (b) expedited prepaid delivery service, either commercial or United States
Postal Service, with proof of attempted delivery, addressed as follows (or at such other address
and Person as shall be designated from time to time by any party hereto, as the case may be, in a
written notice to the other parties hereto in the manner provided for in this Section 28):

	 	 	 
	If to Landlord:

	 	c/o D.R. Stephens & Company, LLC
	 

	 	465 California Street, Suite 330
	 

	 	San Francisco, CA 94104
	 

	 	Attention: Lane Stephens
	 
	 	 
	If to Tenant:

	 	RAE Systems Inc.
	 

	 	3773 N. First Street
	 

	 	San Jose, CA 95134
	 

	 	Attention: Chief Financial Officer or Treasurer
	 
	 	 
	with a copy to:
	 	 
	 

	 	DLA Piper US LLP
	 

	 	2000 University Avenue
	 

	 	East Palo Alto, CA 94303
	 

	 	Attention: Peter Astiz, Esq.

     All notices, elections, requests and demands under this Lease shall be effective and deemed
received upon the earliest of (i) the actual receipt of the same by personal delivery or otherwise,
(ii) one (1) Business Day after being deposited with a nationally recognized overnight courier
service as required above or (iii) three (3) Business Days after being deposited in the United
States mail as required above. Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was given as herein required shall be deemed to be
receipt of the notice, election, request, or demand sent.

          29. Estoppel Certificates.

     Each party agrees, at any time and from time to time, as requested by the other party, upon
not less than twenty (20) days notice, to execute and deliver to the other a statement certifying
that this Lease is unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the modifications), certifying
the dates to which the fixed rent has been paid, and stating whether or not, to the knowledge of
the signer, the other party is in default in performance of any of its obligations under this Lease
and, if so, specifying each such default of which the signer may have knowledge, it being intended
that any such statement delivered pursuant hereto may be relied upon by others with whom the party
requesting such certificate may be dealing.

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          30. Broker.

     Landlord and Tenant each covenant, warrant and represent that, except for Broker, no broker
was instrumental in bringing about or consummating this Lease and that it had no conversations or
negotiations with any broker concerning the leasing of the Premises to Tenant. Tenant agrees to
indemnify and hold harmless Landlord against and from any claims for any brokerage commissions and
all costs, expenses and liabilities in connection therewith, including, without limitation,
reasonable attorneys’ fees and expenses, arising out of any conversations or negotiations had by
Tenant with any broker (including Broker). Landlord agrees to indemnify and hold harmless Tenant
against and from any claims for any brokerage commissions and all costs, expenses and liabilities
in connection therewith, including, without limitation, reasonable attorneys’ fees and expenses,
arising out of conversations or negotiations had by Landlord with any broker other than Broker.
The provisions of this Article 30 shall survive the expiration or earlier termination of
this Lease.

          31. Indemnity.

          31.1 Neither Landlord (except to the extent expressly set forth in this Lease), any Superior
Mortgagee, nor any partner, director, officer, shareholder, principal, agent, servant or employee
of Landlord, or any Superior Mortgagee (in any case whether disclosed or undisclosed), shall be
liable to Tenant for any loss, injury or damage to Tenant or to any other Person, or to its or
their property, irrespective of the cause of such injury, damage or loss, nor shall the aforesaid
parties be liable for any damage to property of Tenant or of others entrusted to employees of
Landlord or Landlord’s managing agent (if any), nor for loss of or damage to any such property by
theft or otherwise; provided, however, that nothing contained in this
Section 31.1 shall be construed to exculpate Landlord for loss, injury or damage to the
extent caused by or resulting from any of the events or matters described in Section 31.4
below. Further, neither Landlord, or any Superior Mortgagee, nor any partner, director, officer,
principal, shareholder, agent, servant or employee of Landlord, or any Superior Mortgagee, shall be
liable (i) for any such damage caused by other Persons in, upon or about the Building or the Real
Property, or caused by operations in construction of any private, public or quasi-public work, or
(ii) for consequential damages arising out of any loss of use of the Premises or any equipment,
facilities or other property therein by Tenant or any Person claiming through or under Tenant.

          31.2 Neither Tenant (except to the extent expressly set forth in this Lease) nor any partner,
director, officer, shareholder, principal, agent, servant or employee of Tenant (in any case
whether disclosed or undisclosed), shall be liable to Landlord for any loss, injury or damage to
Landlord or to any other Person, or to its or their property, irrespective of the cause of such
injury, damage or loss, nor shall the aforesaid parties be liable for any damage to property of
Landlord, or of others entrusted to employees of Tenant, nor for loss of or damage to any such
property by theft or otherwise; provided, however, that nothing contained in this
Section 31.2 shall be construed to exculpate Tenant for loss, injury or damage to the
extent caused by or resulting from any of the events or matters described in Section 31.3
below. Further, neither Tenant, nor any partner, director, officer, principal, shareholder, agent,
servant or employee of Tenant shall be liable (i) for any such damage caused by other Persons in,
upon or about the Building or the Real Property, or caused by operations in construction of any
private, public or

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quasi-public work, or (ii) for consequential damages arising out of any loss of use of the
Building or any equipment, facilities or other property of Landlord or any Person claiming through
or under Landlord.

          31.3 Subject to the terms of Section 9.4 hereof relating to waivers of subrogation (to
the extent that such waivers of subrogation shall be applicable in any case) and subject to
Section 34.1, Tenant shall indemnify and hold harmless Landlord and its directors, officers
and employees (each of the foregoing, a “Landlord Party”) from and against any and all
claims (together with all reasonable, actual out-of-pocket costs, expenses and liabilities incurred
in or in connection with each such claim or action or proceeding brought hereon, including, without
limitation, all reasonable attorneys’ fees and expenses) arising from or in connection with:

          (a) the occupancy, conduct or management of the Premises or of any business therein, by or on
behalf of Tenant, or any work or thing whatsoever done, or any condition created (other than by any
Landlord Party) in the Premises during the Term;

          (b) any act, omission (where there is an affirmative duty to act) or negligence of Tenant or
any of its subtenants or licensees or its or their partners, directors, principals, shareholders,
officers, agents, employees or contractors (except to the extent caused by the negligence or
willful misconduct of any Landlord Party, or their agents, employees or contractors);

          (c) any accident, injury or damage whatever (except to the extent caused by the negligence or
willful misconduct of any Landlord Party, or their respective agents, employees, or contractors)
occurring in, at or upon the Premises; or

          (d) any breach or default by Tenant in the full and prompt payment and performance of Tenant’s
obligations under this Lease.

          31.4 Subject to the terms of Section 9.4 hereof relating to waivers of subrogation (to
the extent that such waivers of subrogation shall be applicable in any case) and subject to
Section 34.1, Landlord shall indemnify and hold harmless Tenant and each Tenant Party from
and against any and all claims (together with all reasonable, actual out-of-pocket costs, expenses
and liabilities incurred in or in connection with each such claim or action or proceeding brought
hereon, including, without limitation, all reasonable attorneys’ fees and expenses) arising from or
in connection with (i) the performance or non-performance of any of the obligations to be performed
by Landlord under this Lease or (ii) any negligence or intentional wrongful act or omission of
Landlord or any of its or their employees, partners, members, managers, shareholders, officers,
directors, trustees, agents or contractors.

          31.5 Notwithstanding anything contained herein to the contrary, it is acknowledged and agreed
that Tenant and Tenant’s partners, directors, officers, principals, shareholders, agents and
employees (each of the foregoing, a “Tenant Party”) shall not be liable for and shall not
be required to indemnify any Person with respect to any and all claims arising from or in
connection with any event or matter to the extent arising or occurring after the expiration or
earlier termination of the Term.

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          31.6 In case any action or proceeding be brought against any Landlord Party or Tenant Party
indemnified hereunder (such party, an “Indemnified Party”) by reason of any claim described
in this Article 31, upon notice from such Indemnified Party to the appropriate party
hereunder (such party, the “Responsible Party”) that is obligated to indemnify such
Indemnified Party, the Responsible Party shall resist and defend such action or proceeding by
counsel reasonably satisfactory to such Indemnified Party. Provided that the Responsible Party
complies with the requirements of this Section 31.6 with respect to any third-party claim,
the Responsible Party shall not be liable for the costs of any separate counsel employed by the
Indemnified Party with respect thereto. If the issuer of any insurance policy maintained by the
Responsible Party and meeting the applicable requirements of this Lease shall assume the defense of
any such third-party claim, then such Indemnified Party shall permit such insurance carrier to
defend the claim with its counsel and (i) no Indemnified Party shall settle such claim without the
consent of the insurance carrier (unless such settlement would relieve such Indemnified Party of
all liability for which the Responsible Party or its insurance carrier may be liable hereunder and
the Responsible Party and its insurance carrier shall have no liability for such settlement), (ii)
the Responsible Party shall have the right to settle such claim without the consent of the
Indemnified Party if Indemnified Party and its insurance carriers would be relieved of all
liability in connection therewith, (iii) the Indemnified Party shall reasonably cooperate, at the
Responsible Party’s expense, with the insurance carrier in its defense of any such claim, and (iv)
the Responsible Party shall not be liable for the costs of any separate counsel employed by the
Indemnified Party. In no event shall the Responsible Party be liable for consequential or indirect
damages. Nothing contained in this Section 31.6 shall be deemed to relieve any party under
this Lease of the obligation to maintain insurance in accordance with the provisions of
Article 9.

          32. [intentionally deleted].

          33. Extension Term.

          33.1 (a) For purposes hereof:

     the term “Option” shall mean Tenant’s right to extend the term of this Lease for an
additional term of five (5) years commencing on the day immediately following the expiration of the
Initial Term;

     the term “Extension Term” shall mean the five (5) year period commencing on the day
immediately following the expiration of the Initial Term.

     Any exercise by Tenant of the Extension Option shall be for not less than the entire Premises
and shall be on all of the terms and conditions of this Lease other than Fixed Rent for the
Extension Term determined in accordance with this Article 33. Notwithstanding anything to
the contrary in this Article 33, Tenant agrees that Fixed Rent for the Extension Term,
however determined, shall in no event be less than the Fixed Rent payable immediately prior to the
commencement of the Extension Term.

     (b) The Extension Option may be exercised only by Tenant giving notice to Landlord to that
effect (herein called an “Extension Election Notice”) at least nine (9) months prior to the

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expiration of the Initial Term. Within fifteen (15) days after Landlord receives the
Extension Election Notice, Landlord shall deliver a notice to Tenant specifying its estimate of the
Market Value Rent for the Premises for the Extension Term (the “Rent Notice”). Tenant
shall notify Landlord in writing within thirty (30) days after the date that Tenant receives the
Rent Notice whether it approves Landlord’s estimate of Market Value Rent (the “Response
Notice”). If Tenant fails to provide a Response Notice within such thirty (30) day period,
then Tenant shall be deemed to have accepted Landlord’s estimate of Market Value Rent, in which
case Fixed Rent for the first year of the Extended Term shall be equal to ninety-five percent (95%)
of such Market Value Rent. If Tenant gives a Response Notice disapproves of Landlord’s designation
of Market Value Rent, then Landlord and Tenant shall negotiate in good faith for a period of thirty
(30) days after the date of the Response Notice to reach agreement on Market Value Rent. If
Landlord and Tenant do not reach agreement on Market Value Rent within such thirty (30) day period,
then Tenant, as its sole options, may either (i) revoke its Extension Election Notice by delivering
a “Revocation Notice” (herein so called) to Landlord within ten (10) days after the end of
the thirty (30) day negotiation period (herein called the “Revocation Period”), or (ii)
deliver an “Appraisal Notice” (herein so called) to Landlord before the end of the Revocation
Period, notifying Landlord of its election to submit the determination of Market Value Rent to
appraisal in accordance with Section 33.3(a). If Tenant does not deliver a Revocation
Notice or an Appraisal Notice before the end of the Revocation Period, then Tenant shall be deemed
to have given an Appraisal Notice. If Tenant gives a Revocation Notice before the end of the
Revocation Period, then this Lease will be terminated upon the expiration of the initial Term.
Subject to the provisions of this Article 33, upon the giving of an Extension Election
Notice the Term shall be extended in accordance with the terms hereof for the Extension Term
without the execution of any further instrument.

          33.2 The exercise of any of the aforesaid options to extend the Term when any default has
occurred and is continuing beyond the expiration of any applicable notice or grace period provided
for in this Lease, shall, upon written notice by Landlord, be void and of no force and effect
unless either (i) Landlord shall elect otherwise or (ii) Tenant disputes Landlord’s determination
that the Extension Election Notice is void and of no force or effect and seeks judicial relief
within fifteen (15) Business Days after the giving of such notice by Landlord to Tenant, in which
event the issue of whether the Extension Election Notice is void and of no force or effect shall be
determined by a court of competent jurisdiction. The termination of this Lease during the Initial
Term shall also terminate and render void any option or right on Tenant’s part to extend this Lease
for the Extension Term, whether or not such option or right shall have been exercised. Tenant’s
option to extend the Term may not be severed from this Lease or separately sold, assigned or
otherwise transferred.

          33.3 (a) If Tenant delivered (or is deemed to have delivered) an Appraisal Notice, then
Landlord shall designate its appraiser in a written notice to Tenant specifying the name and
address of the person designated to act as Landlord’s appraiser within thirty (30) days following
Landlord’s receipt (or Tenant’s deemed delivery) of the Appraisal Notice. Within ten (10) Business
Days after the Tenant’s receipt of notice of the designation of Landlord’s appraiser, Tenant shall
give notice to Landlord specifying the name and address of the person designated to act as an
appraiser on its behalf. If Tenant fails to notify Landlord of the appointment of its appraiser
within the time above specified, then Landlord shall provide an additional notice to Tenant
requiring Tenant’s appointment of an appraiser within five (5)

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Business Days after Tenant’s receipt thereof, and if Tenant fails to notify Landlord of the
appointment of its appraiser within the time specified by the second notice, the appointment of the
second appraiser shall be made in the same manner as hereinafter provided for the appointment of a
third appraiser in a case where the two appraisers appointed hereunder and the parties are unable
to agree upon such appointment. The two appraisers so chosen shall meet within ten (10) Business
Days after the second appraiser is appointed, and shall exchange sealed envelopes each containing
such appraiser’s written determination of an amount equal to Market Value Rent for the Premises
during the Extension Term. Market Value Rent specified by Landlord’s appraiser shall herein be
called “Landlord’s Submitted Value” and Market Value Rent specified by Tenant’s appraiser
shall herein be called “Tenant’s Submitted Value.” Neither Landlord nor Landlord’s
appraiser shall be bound by nor shall any reference be made to the determination of Market Value
Rent for the Premises during the Extension Term which was furnished by Landlord in the Rent Notice.
Neither Tenant nor Tenant’s appraiser shall be bound by nor shall any reference be made to the
determination of Market Value Rent for the Premises during the Extension Term which was furnished
by Tenant in response to the Rent Notice. Copies of the two appraisers’ written determinations
shall be sent to both Landlord and Tenant concurrently with each appraiser providing its “Submitted
Value” notice to the other. Any failure of either such appraiser to meet and exchange such
determinations shall be acceptance of the other party’s appraiser’s determination as Market Value
Rent if such failure persists for three (3) days after notice to the party for whom such appraiser
is acting, and provided that such three (3) day period shall be extended by reason of any
applicable condition of Unavoidable Delay. If the higher determination of Market Value Rent is not
more than one hundred two percent (102%) of the lower determination of Market Value Rent, then
Market Value Rent shall be deemed to be the average of the two determinations. If, however, the
higher determination is more than one hundred two percent (102%) of the lower determination, then
within five (5) days of the date the appraisers submitted their respective Market Value Rent
determinations, the two appraisers shall together appoint a third appraiser. All three appraisers
shall be licensed appraisers and shall have been actively and continuously engaged in the appraisal
of Comparable Buildings for the immediately preceding ten (10) year period and be MAI certified.
In the event of their being unable to agree upon such appointment within said five (5) day period,
the third appraiser shall be selected by the parties themselves if they can agree thereon within a
further period of five (5) days. If the parties do not so agree, then either party, on behalf of
both and on notice to the other, may request such appointment by the American Arbitration
Association or any successor organization thereto (the “AAA”) in accordance with its rules
then prevailing or if the AAA shall fail to appoint said third appraiser within fifteen (15) days
after such request is made, then either party may apply, on notice to the other, to any court of
competent jurisdiction in the County in which the Premises is located for the appointment of such
third appraiser. Within five (5) days after the appointment of such third appraiser, Landlord’s
appraiser shall submit Landlord’s Submitted Value to such third appraiser and Tenant’s appraiser
shall submit Tenant’s Submitted Value to such third appraiser. Such third appraiser shall, within
thirty (30) days after the end of such five (5) day period, select either Landlord’s Submitted
Value or Tenant’s Submitted Value as Market Value Rent of
 the Premises during the applicable
Extension Term and send copies of his or her determination promptly to both Landlord and Tenant
specifying whether Landlord’s Submitted Value or Tenant’s Submitted Value shall be Market Value
Rent, in which case Fixed Rent for the first year of the Extension Term shall be equal to
ninety-five percent (95%) of the Market Value Rent determined by the third appraiser.

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          (b) Each party shall have a right to present evidence to the appraisers, produce witnesses or
experts to be heard by the appraisers, and provide such other information that may be relevant in
connection with the appraisal. The decision of the first and second appraiser or the third
appraiser, as the case may be, shall be conclusively binding upon the parties, and judgment upon
the decision may be entered in any court having jurisdiction.

          (c) Each party shall pay the fees and expenses of the one of the two original appraisers
appointed by or for such party, and the fees and expenses of the third appraiser and all other
expenses (not including the attorneys’ fees, witness fees and similar expenses of the parties which
shall be borne separately by each of the parties) of the appraisal shall be borne by the parties
equally.

          (d) In the event the aforesaid appraisal process is initiated, then as of the commencement
date of the Extension Term, Tenant shall pay the amount equal to the average of Landlord’s
Submitted Value and Tenant’s Submitted Value and when the determination has actually been made, an
appropriate retroactive adjustment shall be made as of the commencement date of Extension Term.
Overpayments shall be paid by Landlord to Tenant and underpayments shall be paid by Tenant to
Landlord promptly after such determination, in both cases, together with interest thereon at the
Applicable Rate.

          33.4 For purpose for this Article 33, the determination of “Market Value Rent”
shall mean the annual rental rate for the Premises charged to non-renewing/non-extending tenants
for space of comparable size and conditions in Comparable Buildings, further taking into
consideration the following: the location in a business park/campus and amenities available to
tenants, quality, condition and age of the building; the use, location, size and floor level(s) of
the space in question; the definition of “rentable area”; the extent of leasehold improvements;
leasehold improvement allowances; abatements (including with respect to basic rental, operating
expenses and real estate taxes); lease takeovers/assumptions; relocation/moving allowances; space
planning/interior architecture and engineering allowances; refurbishment and repainting allowances;
club memberships; other concessions or inducements including, without limitation, signage and
parking charges; extent of services provided or to be provided; distinction between “gross” and
“net” lease; base year or dollar amount for escalation purposes (both operating expenses and ad
valorem/real estate taxes); any other adjustments (including by way of indexes) to basic rental;
credit standing and financial stature of the tenant; term or length of lease; the time the
particular rental rate under consideration was agreed upon and became or is to become effective;
the payment of a leasing commission and/or fees/bonuses in lieu thereof, whether to Landlord, any
person or entity affiliated with Landlord, or otherwise; and any other relevant term or condition
in making such Market Value Rent determination.

          34. Miscellaneous.

          34.1 The covenants, conditions and agreements contained in this Lease shall bind and inure to
the benefit of Landlord and Tenant and their respective heirs, distributees, executors,
administrators, successors, and, except as otherwise provided in this Lease, their assigns;
provided that, the benefit of the indemnity obligations provided by Tenant pursuant
to Article 31 of this Lease shall be for the owner of the Premises at the time of the
occurrence of the relevant event, together with its successor owners of the Premises as Landlord
hereunder.

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          34.2 The obligations of Landlord under this Lease shall not be binding upon Landlord named
herein after the sale, conveyance, assignment or transfer by such Landlord (or upon any subsequent
landlord after the sale, conveyance, assignment or transfer by such subsequent landlord) of its
interest in the Building or the Real Property, as the case may be, to the extent that they shall
accrue subsequent to the transfer of Landlord’s interest in the Building or the Real Property as
owner thereof and in the event of such transfer said obligations thereafter accruing shall be
expressly assumed by and binding upon each transferee of the interest of Landlord herein named as
such owner or lessee of Building or the Real Property, and such transferee, by accepting such
interest, shall be deemed to have assumed such obligations accruing after transfer. Except as
otherwise expressly provided herein, the transferor shall be released from any obligations accruing
prior to the transfer of its interest in Building or Real Property as owner thereof, if the
transferee shall expressly assume such prior accruing obligations in a written recordable
instrument and the transferee is not an affiliate of Landlord. Neither the partners comprising
Landlord, nor the shareholders (nor any of the partners comprising same), partners, directors or
officers of any of the foregoing shall be liable for the performance of Landlord’s obligations
under this Lease. Tenant shall look solely to Landlord to enforce Landlord’s obligations hereunder
and shall not seek any damages against any of the foregoing. The liability of Landlord for the
performance of Landlord’s obligations hereunder shall be limited to Landlord’s interest in the Real
Property (and the proceeds therefrom) and Tenant shall not look to any other property or assets of
Landlord in seeking either to enforce Landlord’s obligations under this Lease or to satisfy a
judgment for Landlord’s failure to perform such obligations.

          34.3 Tenant shall not record this Lease, but at the request of either party, Landlord and
Tenant shall execute, acknowledge and deliver, and Landlord or Tenant may record, a memorandum with
respect to this Lease. Within ten (10) Business Days after the end of the Term (as the same may be
extended), Tenant shall enter into such documentation as is reasonably required by Landlord in form
reasonably acceptable to Tenant to remove the memorandum of record.

          34.4 Except as otherwise expressly set forth in this Lease, including, without limitation, any
right on behalf of Tenant to terminate all or a portion this Lease, no agreement shall be effective
to change, modify, waive, release, discharge, terminate or effect an abandonment of this Lease, in
whole or in part, including, without limitation, this Section 34.4, unless such agreement
is in writing, refers expressly to this Lease and is signed by the party against whom enforcement
of the change, modification, waiver, release, discharge, termination or effectuation of the
abandonment is sought.

          34.5 This Lease (including any exhibits referred to herein and all supplementary agreements
provided for herein) contains the entire agreement between the parties and all prior negotiations
and agreements are merged into this Lease. All of the exhibits attached hereto are incorporated in
and made a part of this Lease, provided that, in the event of any inconsistency between the terms
and provisions of this Lease and the terms and provisions of the exhibits hereto, the terms and
provisions of this Lease shall control.

          34.6 This Lease shall be governed in all respects by, and construed in accordance with, the
laws of the State in which the Real Property is located.

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          34.7 If any provision of this Lease, or its application to any person or circumstance, shall
ever be held to be invalid or unenforceable, then in each such event the remainder of this Lease or
the application of such provision to any other person or any other circumstance (other than those
as to which it shall be invalid or unenforceable) shall not be thereby affected, and each provision
hereof shall remain valid and enforceable to the fullest extent permitted by law.

          34.8 The section headings used herein are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this Lease nor the intent of any
provision hereof.

          34.9 Landlord hereby unconditionally and irrevocably waives any and all claims and causes of
action of any nature whatsoever it may now or hereafter have against any of the Tenant’s employees,
agents, licensees, invitees, customers, and contractors, Tenant’s parent, subsidiary and affiliated
companies (collectively, the “Tenant Companies”) and the directors, officers, agents and
employees of the Tenant Companies (collectively “Tenant’s Indemnitees”), and hereby
unconditionally and irrevocably releases and discharges Tenant’s Indemnitees from any and all
liability whatsoever which may now or hereafter accrue in favor of Landlord against the Tenant
Indemnitees, in connection with or arising out of this Lease. Landlord agrees to look solely to
Tenant and its assets for the satisfaction of any liability or obligation arising under this Lease
or for the performance of any of the covenants, warranties or other agreements contained herein.
Notwithstanding anything to the contrary contained in this Lease, Tenant shall not be liable under
any circumstances for injury or damage to, or interference with, Landlord’s business, including
loss of title to the Building or any portion thereof, loss of profits, loss of rents or other
revenues (excluding payments thereof which Tenant is otherwise obligated to make under this Lease),
loss of business opportunity, loss of goodwill or loss of use, in each case however occurring. The
provisions of this Section 34.9 shall survive the expiration or termination of this Lease.

          34.10 Each of Tenant and Landlord represents and warrants to the other that each individual
executing this Lease on behalf of such party is authorized to do so on behalf of such party and
that such party is not, and the entities or individuals constituting such party or which may own or
control such party or which may be owned or controlled by such party are not (i) in violation of
any laws relating to terrorism or money laundering, or (ii) among the individuals or entities
identified on any list complied pursuant to Executive Order 13224 for the purpose of identifying
suspected terrorists or on the most current list published by the U.S. Treasury Department Office
of Foreign Assets Control at its official website, http://www.treas.gov/ofac/tllsdn.pdf or any
replacement website or other replacement official publication of such list.

          34.11 Landlord hereby waives any statutory liens and any rights of distress with respect to
Tenant’s property from time to time located in, on or about the Premises. This Lease does not
grant a contractual lien or any other security interest to Landlord or in favor of Landlord with
respect to Tenant’s Property. Landlord further agrees, without cost to Tenant, to execute and
deliver such instruments reasonably requested by Tenant from time to time to evidence the aforesaid
waiver by Landlord.

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          35. Confidentiality; Press Releases.

          35.1 Landlord acknowledges that it may have access to certain confidential information of
Tenant concerning Tenant’s and/or its Affiliates businesses, facilities, operations, plans,
proprietary software, technology, and products (“Confidential Information”). Confidential
Information shall not include any information that is available to the general public (e.g., SEC
filings). Landlord agrees that it will not use in any way, for its own account or the account of
any third party, except as expressly permitted by this Lease, nor disclose to any third party
(except public filings and other information available to the general public, as required by law,
judicial proceeding or to its attorneys, accountants, and other advisors and mortgagees and
prospective purchasers of the Premises, but only as reasonably necessary and subject to the
confidentiality provisions hereof), any of Tenant’s Confidential Information or any of the terms
and conditions of this Lease and will take reasonable precautions to protect the confidentiality of
such Confidential Information and the terms and conditions of this Lease (in each case, except as
permitted hereby). Tenant agrees that it will not use in any way, for its own account or the
account of any third party, except as expressly permitted by this Lease, nor disclose to any third
party (except public filings and other information available to the general public, as required by
law, judicial proceeding or to its attorneys, accountants, and other advisors, but only as
reasonably necessary and subject to the confidentiality provisions hereof), any of the terms and
conditions of this Lease and will take reasonable precautions to protect the confidentiality of the
terms and conditions of this Lease (except as permitted hereby). The obligations of Landlord and
Tenant under this Article 35 shall survive the expiration or termination of this Lease.

          35.2 Neither party hereto may issue (or cause to be issued) a press release or written
statement to the press with respect or concerning this Lease or the terms hereof with the express
consent of the other party hereto. Notwithstanding the foregoing, either party shall be permitted
to issue any such press release or written statement that is necessary in order to comply with
Legal Requirements. Furthermore, upon notice from Tenant that any of Landlord’s advertisements or
press releases are not consistent with Tenant’s corporate policies relating to public relations,
Landlord shall endeavor to cause its advertisements and press releases to be consistent with
Tenant’s corporate policies relating to public relations to the extent same are commercially
reasonable.

          36. Financing.

          36.1 Notwithstanding anything to the contrary contained in this Lease, Tenant shall have the
right to obtain financing secured by security interests in Tenant’s furniture, fixtures and
equipment constituting Tenant’s Property (hereinafter referred to as “Tenant’s Collateral”)
and the provider of such financing shall have the right to file UCC financing statements in
connection therewith, provided and on the condition that (a) Landlord shall be under no obligation
to preserve or protect Tenant’s Collateral, (b) following an Event of Default by Tenant hereunder
the secured party shall be required to reimburse Landlord for Landlord’s actual out-of-pocket costs
and expenses incurred in storing Tenant’s Collateral and repairing any damage to the Premises which
occurs during the removal of Tenant’s Collateral provided such damage was not the result of
Landlord or any of its agents negligence or willful misconduct, and (c) except in connection with a
leasehold mortgage, the description of the secured property in the UCC financing statements shall
specifically exclude Tenant’s leasehold estate and any so-called

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betterments and improvements to the Premises (in contradiction to Tenant’s Collateral).
Landlord agrees to execute and deliver a so called “recognition agreement“ with the holder of the
security interest in Tenant’s Collateral acknowledging the foregoing, provided same is in form and
substance reasonably acceptable to Landlord and, if required, the holder of any Superior Mortgage.
In addition, Landlord agrees to execute and deliver a document reasonably acceptable to Landlord to
protect the position of the holder of the security interest in Tenant’s Collateral, sometimes
referred to as a so called “landlord’s waiver,” which includes provisions (i) waiving any rights
Landlord may have to Tenant’s Collateral by reason of (A) the manner in which Tenant’s Collateral
is attached to the Building, or (B) any statute or rule of law which would, but for this provision,
permit Landlord to distrain or assert a lien or claim any other interest against any such property
by reason of any other provisions of this Lease against Tenant’s Collateral for the nonpayment of
any rent coming due under this Lease, and (ii) giving the right to the holder of the security
interest in Tenant’s Collateral, prior to the expiration of this Lease or in the event of the
earlier termination of this Lease, prior to the later of the earlier termination of this Lease and
fifteen (15) Business Days after Landlord’s notice to the holder of the security interest in
Tenant’s Collateral of Landlord’s intent to terminate this Lease as a result of Tenant’s default
hereunder, to remove Tenant’s Collateral in the event of a default by Tenant under any agreement
between Tenant and the holder of the security interest in Tenant’s Collateral, provided Tenant
shall remain liable to perform, in accordance with the terms and conditions of this Lease, or
paying the costs incurred by Landlord in performing, restoration and repairs to any damage to the
Premises resulting therefrom.

          37. Leasehold Mortgages.

          37.1 Tenant shall at all times and from time to time have the right to encumber by mortgage,
deed of trust, or security agreement (each a “Leasehold Mortgage”) Tenant’s leasehold
estate in the Premises, together with Tenant’s rights and interests in all improvements, fixtures,
equipment, and alterations situated thereon, and all rents, issues, profits, revenues, and other
income to be derived by Tenant therefrom, to secure such loans from time to time made by any bona
fide third-party lender that is unaffiliated with Tenant (a “Leasehold Mortgagee”) to Tenant;
provided, however, that such Leasehold Mortgage shall in no event encumber Landlord’s fee title and
interest in the Premises.

          37.2 Landlord shall deliver notice of any default by Tenant under this Lease to any Leasehold
Mortgagee provided Tenant or such Leasehold Mortgagee shall have notified Landlord in writing of
the existence of the Leasehold Mortgage under this Lease and the address to which notices should be
delivered, and no notice of default shall be deemed effective against a Leasehold Mortgagee whose
identity and address has been provided to Landlord until it is so delivered. A Leasehold Mortgagee
shall have the right (but not the obligation) to correct or cure any such default within the same
period of time after receipt of such notice as is given to Tenant herein to correct or cure
defaults, plus an additional period of thirty (30) days thereafter. Landlord will accept Leasehold
Mortgagee’s performance of any covenant, condition, or agreement on Tenant’s part to be performed
under this Lease with the same force and effect as though performed by Tenant. Notwithstanding the
foregoing, if Landlord has given such Leasehold Mortgagee more than two such default notices in any
twelve (12) month period, then, with respect to any subsequent default, such Leasehold Mortgagee
shall no longer have such

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additional time to cure but shall have the same (i.e., coterminous) cure period, if any,
available to Tenant pursuant to this Lease.

          37.3 Leasehold Mortgagee or any purchaser in foreclosure proceedings, including any business
entity formed by Leasehold Mortgagee or the holder of the note or other obligations secured by the
Leasehold Mortgage, may become the legal owner and holder of this Lease and the alterations,
equipment, fixtures and other property assigned as additional security for such Mortgage, by
foreclosure of the Mortgage or as a result of assignment or conveyance in lieu of foreclosure.

          37.4 Tenant shall, promptly upon receipt of any notice of default under or acceleration of the
maturity of the Leasehold Mortgage, deliver a copy thereof to Landlord.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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     IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this Lease as of the day
and year first above written.

	 	 	 	 	 	 	 	 	 
	 	 	LANDLORD:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	INLAND AMERICAN/STEPHENS (N FIRST) VENTURES, LLC, a
Delaware limited liability company	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Stephens & Stephens, LLC, a California limited
liability company, its manager	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	/s/ Lane B. Stephens	 	 
	 

	 	 	 	 	 	 

Lane B. Stephens, Manager
	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	TENANT:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	RAE SYSTEMS INC., a Delaware corporation	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	/s/ Randall Gausman	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Randall Gausman, Chief Financial
Officer	 	 
	 

	 	 	 	 	 	 	 	 

-36-

 

EXHIBIT A

DEFINITIONS AND INTERPRETATION

     I. Definitions. Capitalized terms used in the Lease shall have the meanings set forth
below, unless otherwise specifically provided in this Lease or the context so requires:

     “AAA” has the meaning provided in Section 33.3(a).

     “Additional Rent” has the meaning provided in Section 2.3(b).

     “Adjustment Date” means the first (1st) day of the calendar month first occurring
after the first (1st) anniversary of the Commencement Date, and each subsequent anniversary of such
first (1st) day of the calendar month all times during the entire Term (including the Extension
Term, if applicable).

     “Affiliate” means, with respect to any specified Person, any other Person directly or
indirectly controlling or controlled by or under direct or indirect common control with, or any
general partner or managing member in, such specified Person and includes, without limitation,
(i) any record or beneficial owner of more than twenty-five percent (25%) of any class of ownership
interests of such Person, and (ii) any Affiliate of such owner. For the purposes of this
definition, “control” when used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through the ownership of
voting securities or other beneficial interest, by contract or otherwise; and the terms
“controlling” and “controlled” have the meanings correlative to the foregoing.

     “Alterations” means any physical alterations (other than decorative items or work),
installations, improvements, additions or other physical changes in, to or about the Premises,
including, without limitation, any additional improvements to be constructed on the Land and/or
such other improvements that may be required to add additional electrical, structural, HVAC,
domestic water, sprinkler and/or cooling capacity.

     “Applicable Rate” means the lesser of (i) one percent (1%) above the then current
“base” rate charged by Bank of America, N.A. or its successor, and (ii) the maximum rate permitted
by applicable law.

     “Broker” means Scott Kinder of CRESA Partners, representing Tenant.

     “Building” has the meaning provided in the recitals to this Lease.

     “Business Days” means all days, excluding Saturdays, Sundays and all days observed by
either the State in which the Premises are located or the Federal Government and by the labor
unions servicing the Building as legal holidays.

     “Capital Item” has the meaning provided in Section 6.2(b).

     “Capital Item Notice” has the meaning provided in Section 6.2(b).

A-1

 

     “Commencement Date” means the date hereof as stated in the introductory paragraph to
this Lease.

     “Comparable Buildings” means other office buildings in the general vicinity and/or
business district that the Premises are located comparable in nature, quality and size to the
Building.

     “Comparable Standard” has the meaning provided in Section 6.1.

     “Confidential Information” has the meaning provided in Section 36.1.

     “Contract of Sale” has the meaning provided in the recitals to this Lease.

     “Corporate Successor” means any of (i) any corporation which is a successor to Tenant
by merger, consolidation or reorganization, or (ii) any purchaser of all or substantially all of
the assets of Tenant.

     “Event of Default” has the meaning provided in Section 18.1.

     “Expiration Date” means the last day of the calendar month in which the tenth (10th)
anniversary of the Commencement Date occurs, as the same may be extended as more particularly set
forth in Article 33 hereof.

     “Extension Election Notice” has the meaning provided in Section 33.1(b).

     “Extension Option” has the meaning provided in Section 33.1(a).

     “Extension Term” has the meaning provided in Section 33.1(a).

     “Fixed Rent” means the rent provided in Section 2.3(a).

     “Governmental Authority” means the United States of America, the State, County and
City in which the Real Property is situate and any agency, department, commission, board, bureau,
instrumentality or political subdivision of any of the foregoing, now existing or hereafter
created, having jurisdiction over the Real Property or any portion thereof.

     “Indemnified Party” has the meaning provided in Section 31.6.

     “Initial Term” has the meaning provided in Section 2.2.

     “Item Cost” has the meaning provided in Section 6.2(b).

     “Item Dispute Notice” has the meaning provided in Section 6.2(b).

     “Land” has the meaning provided in the recitals to this Lease.

     “Landlord” has the meaning provided in the introductory paragraph to this Lease;
provided that, from and after the date hereof, Landlord means only the then current fee owner of
the Premises at the time of determination.

A-2

 

     “Landlord Party” has the meaning provided in Section 31.3.

     “Landlord Reimbursement Notice” has the meaning provided in Section 6.2(e).

     “Landlord’s Submitted Value” has the meaning provided in Section 33.1(b).

     “Leasehold Mortgage” has the meaning provided in Section 37.1.

     “Leasehold Mortgagee” has the meaning provided in Section 37.1.

     “Legal Requirements” means all present and future laws, rules, orders

     “Legal Requirements” means all present and future laws, rules, orders, ordinances,
regulations, statutes, requirements, codes and executive orders, extraordinary as well as ordinary,
of all Governmental Authorities, and of any and all of their departments and bureaus, and of any
applicable fire rating bureau, or other body exercising similar functions, whether now existing or
hereafter created, affecting all or any portion of the Real Property, or affecting the maintenance,
use or occupation of all or any portion of the Building.

     “Market Value Rent” has the meaning provided in Section 33.4.

     “Named Tenant” means RAE Systems Inc. and any successor thereto through merger,
acquisition, consolidation, or change of control, or any entity which has purchased all or
substantially all of the assets of Named Tenant.

     “Permitted Use” has the meaning provided in Section 3.2.

     “Permitted Users” means Tenant, any Affiliate of Tenant, any Corporate Successor of
Tenant, any other legal occupant of all or any portion of the Premises including any subtenant,
together with each of the respective officers, employees, agents, contractors and guests of the
foregoing.

     “Person” means any individual, corporation, partnership, joint venture, limited
liability company, estate, trust, unincorporated association, any federal, state, county or
municipal government or any bureau, department or agency thereof and any fiduciary acting in such
capacity on behalf of any of the foregoing.

     “Premises” has the meaning provided in Section 2.1.

     “Qualifying Capital Item” has the meaning provided in Section 6.2(d).

     “Real Property” means, collectively, the Building (together with all personal property
of Landlord located therein and used in connection with the operation, repair and maintenance of
the Real Property and all fixtures, facilities, machinery and equipment used in the operation of
the Building), the Land, the curbs and sidewalks on and/or immediately adjoining the Land, and all
easements, air rights, development rights and other appurtenances benefiting the Building and/or
the Land.

A-3

 

     “Reassessment Event” shall mean only the following events: (A) a voluntary or
involuntary sale, exchange, partition (e.g., condominium conversion, it being understood and agreed
the foregoing is not intended to permit Landlord to do so), including, without limitation, any
transfer of the Land and Building (not including the transfer pursuant to the Contract of Sale) or
other transfer of an equity interest in the Land and/or Building or a lease or sublease of the
entire Land and/or Building (or a material portion of the entire Land and/or the Building) which
triggers a reassessment of the Property to market value under applicable Legal Requirements, or (B)
the voluntary or involuntary sale, exchange, or transfer (whether in a single transaction or a
series of related transactions) of any direct or indirect beneficial interest in the entity
constituting Landlord or the lessee under any lease or sublease which triggers a reassessment or an
option or agreement to do any of the foregoing.

     “Refund(s)” has the meaning provided in Section 4.3.

     “Reimbursement Amount” has the meaning provided in Section 6.2(a).

     “Rent” has the meaning provided in Section 2.4.

     “Rent Notice” has the meaning provided in Section 33.1(b).

     “Response Notice” has the meaning provided in Section 33.1(b).

     “Responsible Party” has the meaning provided in Section 31.6.

     “Revocation Notice” has the meaning provided in Section 33.1(b).

     “Revocation Period” has the meaning provided in Section 33.1(b).

     “Security Deposit” has the meaning provided in Section 2.3(c).

     “Structural Elements” means all structural portions of the Building, including the
foundation, footings, exterior walls, roof structure, columns, beams, stairwells, floor slabs and
the Roof Covering, subject to Section 6.2.

     “Superior Mortgage” means any trust indenture or mortgage which may now or hereafter
affect Landlord’s interests in the Premises, and all renewals, extensions, supplements, amendments,
modifications, consolidations and replacements thereof or thereto, substitutions therefor, and
advances made thereunder.

     “Superior Mortgagee” means any trustee, mortgagee or holder of a Superior Mortgage.

     “Superior Mortgagee SNDA” has the meaning provided in Section 8.4.

     “Superior Party” has the meaning provided in Section 8.1.

     “Tax Appeal” has the meaning provided in Section 4.4.

     “Taxes” has the meaning set forth in Section 4.1.

A-4

 

     “Tenant” has the meaning provided in the introductory paragraph to this Lease;
provided that, from and after the date hereof, Tenant means only the then current tenant under this
Lease at the time of determination.

     “Tenant Companies” has the meaning provided in Section 34.9.

     “Tenant Indemnitees” has the meaning provided in Section 34.9.

     “Tenant Party” has the meaning provided in Section 31.5.

     “Tenant’s Property” has the meaning provided in Section 23.2.

     “Tenant’s Submitted Value” has the meaning provided in Section 33.1(b).

     “Term” has the meaning provided in Section 2.2.

     “Useful Life Estimate” has the meaning provided in Section 6.2(b).

     “Unavoidable Delay” means, in relation to any obligation of a Person, that such Person
is prevented or delayed from performing such obligation by reason of strikes or labor troubles or
by accident, adjustment of insurance or by any cause whatsoever reasonably beyond such Person’s
control, including but not limited to, laws, governmental preemption in connection with a national
emergency or by reason of any Legal Requirements of any Governmental Authority or by reason of the
conditions of supply and demand which have been or are affected by war, act of terrorism or other
similar emergency, except that such Person’s financial status and lack of funds shall not, in and
of itself, be sufficient to constitute an Unavoidable Delay.

     II. Interpretation. For purposes of this Lease, the phrase “including” shall mean
“including without limitation” and, whenever the circumstances or the context requires, the
singular shall be construed as the plural and the masculine shall be construed as the feminine
and/or the neuter and vice versa. This Lease shall be interpreted and enforced without the aid of
any canon, custom or rule of law requiring or suggesting construction against the party drafting or
causing the drafting of the provision in question.

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EXHIBIT B

LEGAL DESCRIPTION OF LAND

B-1

 

EXHIBIT C

FORM OF SUPERIOR MORTGAGEE SNDA

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