Document:

Exhibit
10.2

 

MERRILL
CREEK CENTER

LEASE AGREEMENT

 

 

BETWEEN

 

MERRILL CREEK HOLDINGS, LLC,

 

LANDLORD

 

 

AND

 

 

ZUMIEZ, INC.,

 

TENANT

 

TABLE OF
CONTENTS

 

	
  ARTICLE 1

  	
   

  
	
  PREMISES

  	
   

  
	
  1.1

  	
  Construction; Suitability

  	
   

  
	
  1.2

  	
  Location

  	
   

  
	
  1.3

  	
  Landlord’s Warranties

  	
   

  
	
  1.4

  	
  Right of First Offer

  	
   

  
	
  1.5

  	
  Parking

  	
   

  
	
  1.6

  	
  Exhibits

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
   

  
	
  BUSINESS RIGHTS AND RESTRICTIONS

  	
   

  
	
  2.1

  	
  Use

  	
   

  
	
  2.2

  	
  Restrictions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
   

  
	
  TERM

  	
   

  
	
  3.1

  	
  Duration; Early Possession

  	
   

  
	
  3.2

  	
  Options to Extend

  	
   

  
	
  3.3

  	
  Intentionally Omitted

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
   

  
	
  RENT

  	
   

  
	
  4.1

  	
  Payment

  	
   

  
	
  (a)

  	
  Fixed Minimum Rent

  	
   

  
	
  (b)

  	
  Late Fee

  	
   

  
	
  (c)

  	
  Fixed Minimum Rent During Second
  Extended Term

  	
   

  
	
  4.2

  	
  First Partial Month

  	
   

  
	
  4.3

  	
  Lease Year

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
   

  
	
  COMMON AREA

  	
   

  
	
  5.1

  	
  Definition

  	
   

  
	
  5.2

  	
  Reserved

  	
   

  
	
  5.3

  	
  Use

  	
   

  
	
  5.4

  	
  Maintenance and Operation

  	
   

  
	
  5.5

  	
  Records

  	
   

  
	
  5.6

  	
  Tenant’s Contribution

  	
   

  
	
  5.7

  	
  Operation and Control

  	
   

  
	
  5.8

  	
  Obstructions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
   

  
	
  TAXES

  	
   

  
	
  6.1

  	
  Personal Property Taxes

  	
   

  
	
  6.2

  	
  Real Property Taxes

  	
   

  
	
  (a)

  	
  Definition; Payment

  	
   

  
	
  (b)

  	
  Proration

  	
   

  
	
  (c)

  	
  Separate Tax Bill

  	
   

  
	
  (d)

  	
  Tenant’s Use

  	
   

  
	
  6.3

  	
  Business Taxes

  	
   

  
	
  6.4

  	
  Substitute and Additional Taxes

  	
   

  
	
  6.5

  	
  Commercial Rent Tax

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
   

  
	
  UTILITIES

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
   

  
	
  REPAIRS AND ALTERATIONS

  	
   

  
	
  8.1

  	
  Landlord’s Repairs

  	
   

  
	
  8.2

  	
  Tenant’s Repairs

  	
   

  
	
  8.3

  	
  Alterations

  	
   

  
	
  (a)

  	
  Tenant’s Alterations

  	
   

  
	
  (b)

  	
  Approval Not Required

  	
   

  
	
  8.4

  	
  General Conditions

  	
   

  

 

i

 

	
  (a)

  	
  Contractors

  	
   

  
	
  (b)

  	
  Compliance With Laws

  	
   

  
	
  (c)

  	
  Tenant’s Responsibility

  	
   

  
	
  (d)

  	
  Compliance with Americans With Disabilities Act

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
   

  
	
  INSURANCE

  	
   

  
	
  9.1

  	
  Use Rate

  	
   

  
	
  9.2

  	
  Liability Insurance

  	
   

  
	
  9.3

  	
  Worker’s Compensation Insurance

  	
   

  
	
  9.4

  	
  Property Insurance/Business Income

  	
   

  
	
  (a)

  	
  Landlord’s Insurance

  	
   

  
	
  (b)

  	
  Tenant’s Insurance

  	
   

  
	
  9.5

  	
  Waiver of Subrogation

  	
   

  
	
  9.6

  	
  General Requirements

  	
   

  
	
  (a)

  	
  Licensed in State

  	
   

  
	
  (b)

  	
  Primary

  	
   

  
	
  (c)

  	
  Additional Named Insured

  	
   

  
	
  (d)

  	
  Notice of Cancellation

  	
   

  
	
  9.7

  	
  Blanket Insurance

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 10

  	
   

  
	
  DAMAGE AND RESTORATION

  	
   

  
	
  10.1

  	
  Damage and Destruction of the
  Premises

  	
   

  
	
  10.2

  	
  Damage or Destruction of
  Development

  	
   

  
	
  10.3

  	
  Tenant’s Work

  	
   

  
	
  10.4

  	
  Limitation of Obligations

  	
   

  
	
  10.5

  	
  Damage or Destruction at End of
  Term

  	
   

  
	
  10.6

  	
  Waiver

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 11

  	
   

  
	
  FLOOR AREA DEFINED

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 12

  	
   

  
	
  EMINENT DOMAIN

  	
   

  
	
  12.1

  	
  Definition

  	
   

  
	
  12.2

  	
  Total Taking

  	
   

  
	
  12.3

  	
  Partial Taking of Premises

  	
   

  
	
  12.4

  	
  Common Area Taking

  	
   

  
	
  12.5

  	
  Repair and Restoration

  	
   

  
	
  12.6

  	
  Award

  	
   

  
	
  12.7

  	
  Waiver

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 13

  	
   

  
	
  INDEMNITY; WAIVER

  	
   

  
	
  13.1

  	
  Indemnification and Waivers

  	
   

  
	
  (a)

  	
  Indemnity

  	
   

  
	
  (b)

  	
  Waivers

  	
   

  
	
  (c)

  	
  Definitions

  	
   

  
	
  (d)

  	
  Scope of Indemnities and Waivers

  	
   

  
	
  (e)

  	
  Duty to Defend

  	
   

  
	
  (f)

  	
  Obligations Independent of
  Insurance

  	
   

  
	
  (g)

  	
  Waiver of Immunity

  	
   

  
	
  (h)

  	
  Survival

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 14

  	
   

  
	
  OPERATION OF BUSINESS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 15

  	
   

  
	
  SIGNS AND ADVERTISING

  	
   

  
	
  15.1

  	
  Interior

  	
   

  
	
  15.2

  	
  Exterior

  	
   

  

 

ii

 

	
  ARTICLE 16

  	
   

  
	
  LIENS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 17

  	
   

  
	
  RIGHT OF ENTRY

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 18

  	
   

  
	
  DELAYING CAUSES

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 19

  	
   

  
	
  ASSIGNMENT AND SUBLEASE

  	
   

  
	
  19.1

  	
  Consent
  Required

  	
   

  
	
  19.2

  	
  Request
  for Consent

  	
   

  
	
  19.3

  	
  Intentionally Omitted

  	
   

  
	
  19.4

  	
  General
  Conditions

  	
   

  
	
  (a)

  	
  Payment of Transfer Premium

  	
   

  
	
  (b)

  	
  Continued Liability of
  Tenant

  	
   

  
	
  19.5

  	
  Reserved

  	
   

  
	
  19.6

  	
  Transfer Pursuant
  to Bankruptcy Code

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 20

  	
   

  
	
  NOTICES

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 21

  	
   

  
	
  SURRENDER OF POSSESSION

  	
   

  
	
  21.1

  	
  Surrender

  	
   

  
	
  21.2

  	
  Holding Over

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 22

  	
   

  
	
  QUIET
  ENJOYMENT

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 23

  	
   

  
	
  SUBORDINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 24

  	
   

  
	
  ESTOPPEL
  CERTIFICATE

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 25

  	
   

  
	
  DEFAULT

  	
   

  
	
  25.1

  	
  Default

  	
   

  
	
  25.2

  	
  Remedies

  	
   

  
	
  (a)

  	
  Reentry and Termination

  	
   

  
	
  (b)

  	
  Express Termination
  Required

  	
   

  
	
  (c)

  	
  Damages

  	
   

  
	
  (d)

  	
  Alternative
  Damages

  	
   

  
	
  (e)

  	
  Definitions

  	
   

  
	
  (f)

  	
  Computation of Certain
  Sums

  	
   

  
	
  (g)

  	
  Reserved

  	
   

  
	
  (h)

  	
  Cumulative
  Remedies

  	
   

  
	
  (i)

  	
  No Waiver

  	
   

  
	
  25.3

  	
  Interest

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 26

  	
   

  
	
  INSOLVENCY

  	
   

  
	
  26.1

  	
  Breach of
  Lease

  	
   

  
	
  26.2

  	
  Operation
  of Law

  	
   

  
	
  26.3

  	
  Non-Waiver

  	
   

  
	
  26.4

  	
  Events
  of Bankruptcy

  	
   

  
	
  26.5

  	
  Landlord’s
  Remedies

  	
   

  
	
  (a)

  	
  Termination
  of Lease

  	
   

  
	
  (b)

  	
  Suit for Possession

  	
   

  

 

iii

 

	
  (c)

  	
  Non-Exclusive Remedies

  	
   

  
	
  (d)

  	
  Assumption or
  Assignment by Trustee

  	
   

  
	
  (e)

  	
  Adequate
  Assurance of Future Performance

  	
   

  
	
  (f)

  	
  Failure to
  Provide Adequate Assurance

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 27

  	
   

  
	
  REMEDIES CUMULATIVE

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 28

  	
   

  
	
  ATTORNEY’S
  FEES

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 29

  	
   

  
	
  WAIVER OF DEFAULT

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 30

  	
   

  
	
  NO
  PARTNERSHIP

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 31

  	
   

  
	
  SUBTENANCIES

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 32

  	
   

  
	
  SUCCESSORS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 33

  	
   

  
	
  REMOVAL OF TENANT’S
  PROPERTY

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 34

  	
   

  
	
  EFFECT OF CONVEYANCE

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 35

  	
   

  
	
  LANDLORD’S
  DEFAULT; NOTICE TO LENDER

  	
   

  
	
  35.1

  	
  Landlord’s
  Default

  	
   

  
	
  35.2

  	
  Notice
  to Lender

  	
   

  
	
  35.3

  	
  Independent
  Covenants, Limitation of Remedies

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 36

  	
   

  
	
  CONSENT

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 37

  	
   

  
	
  INTERPRETATION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 38

  	
   

  
	
  ENTIRE INSTRUMENT

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 39

  	
   

  
	
  EASEMENTS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 40

  	
   

  
	
  SALE BY LANDLORD

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 41

  	
   

  
	
  CANCELLATION BY LANDLORD

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 42

  	
   

  
	
  RESERVED

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 43

  	
   

  
	
  WAIVER OF TRIAL BY JURY

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 44

  	
   

  
	
  HAZARDOUS SUBSTANCES

  	
   

  
	
  44.1

  	
  Indemnity

  	
   

  
	
  44.2

  	
  Covenant

  	
   

  
	
  44.3

  	
  Definitions

  	
   

  

 

iv

 

	
  44.4

  	
  Breach
  of Obligations

  	
   

  
	
  44.5

  	
  Handling;
  Notices

  	
   

  
	
  44.6

  	
  Landlord’s Representations

  	
   

  
	
   

  	
   

  
	
  ARTICLE 45

  	
   

  
	
  AUTHORITY

  	
   

  
	
   

  	
   

  
	
  ARTICLE 46

  	
   

  
	
  BROKERS

  	
   

  

 

v

 

MERRILL CREEK CENTER

LEASE AGREEMENT

 

Landlord
hereby leases to Tenant and Tenant hereby leases and accepts from Landlord the
premises hereinafter described in the terms and conditions set forth in this
Lease Agreement, hereinafter called “this Lease”.

 

BASIC LEASE PROVISIONS

 

	
  A.

  	
  Lease
  Date:

  	
  August 2,
  2004

  
	
   

  	
   

  	
   

  
	
  B.

  	
  Landlord:

  	
  Merrill
  Creek Center, LLC

  
	
   

  	
   

  	
   

  
	
  C.

  	
  Tenant:

  	
  Zumiez,
  Inc., a Delaware Corporation

  
	
   

  	
   

  	
   

  
	
  D.

  	
  Development:

  	
  The
  project on property particularly described and depicted on the Site Plan
  marked Exhibit “B”  (the “Development”), located at 6300
  Merrill Creek Parkway, Everett, Snohomish County, Washington 98203

  
	
   

  	
   

  	
   

  
	
  E.

  	
  Premises:

  	
  The
  area shown by hatch-marks on Exhibit “B,” containing 87,350 rentable square
  feet (“RSF”), subject to a mutually-agreed on final measurement.

  
	
   

  	
   

  	
   

  
	
  F.

  	
  Use
  of Premises:

  	
  Solely
  for use as a Distribution Center and Office Facility and Direct Channel
  Distribution and for no other purpose.

  
	
   

  	
   

  	
   

  
	
  G.

  	
  Initial
  Term:

  	
  Eighty-Nine
  (89) months, with two (2) five-year Options

  
	
   

  	
   

  	
   

  
	
  H.

  	
  Minimum
  Monthly Rent:

  	
   

  

 

	
  Lease Months

  	
   

  	
  Minimum
  Monthly

  Rent (NNN)

  	
   

  
	
  1-5

  	
   

  	
  $

  	
  0.00

  	
   

  
	
  6-24

  	
   

  	
  $

  	
  33,648.00

  	
   

  
	
  25-36

  	
   

  	
  $

  	
  38,346.00

  	
   

  
	
  37-48

  	
   

  	
  $

  	
  39,400.00

  	
   

  
	
  49-60

  	
   

  	
  $

  	
  40,484.00

  	
   

  
	
  61-72

  	
   

  	
  $

  	
  41,598.00

  	
   

  
	
  73-84

  	
   

  	
  $

  	
  42,742.00

  	
   

  
	
  85-89

  	
   

  	
  $

  	
  43,917.00

  	
   

  
	
  90-101 (if First
  Option is exercised by Tenant)f

  	
   

  	
  $

  	
  45,125.00

  	
   

  
	
  102-113

  	
   

  	
  $

  	
  46,366.00

  	
   

  
	
  114-125

  	
   

  	
  $

  	
  47,641.00

  	
   

  
	
  126-137

  	
   

  	
  $

  	
  48,951.00

  	
   

  
	
  138-149

  	
   

  	
  $

  	
  50,297.00

  	
   

  
	
  150-209 (if
  Second Option is Exercised by Tenant)

  	
   

  	
  Fair Market Rent
  (See Section 4.1(c))

  	
   

  
							

 

	
  I.

  	
  Initial
  Security Deposit:

  	
  N/A

  
	
   

  	
   

  	
   

  
	
  J.

  	
  Landlord’s
  Address

  for Notices:

  	
  

  Merrill Creek Holdings, LLC

  600 University Street, Suite 2800

  Seattle, Washington 98101

  Attention: Brent Lower

  

 

 

	
  K.

  	
  Tenant’s
  Current

  Address for Notices:

  	
  1420
  80th St SW Suite A

  
	
   

  	
   

  	
  Everett,
  WA 98203

  
	
   

  	
   

  	
  Attention:
  Brenda Morris

  
	
   

  	
   

  	
   

  
	
   

  	
  Tenant’s
  Address for Notices On

  and After the Commencement

  Date:

  	
  The
  Premises

  
	
   

  	
   

  	
   

  
	
  L.

  	
  Landlord’s
  Broker:

  	
  Colliers
  International

  
	
   

  	
   

  	
   

  
	
  M.

  	
  Tenant’s
  Broker:

  	
  GVA
  Kidder Mathews

  

 

ARTICLE 1

 

PREMISES

 

1.1         Construction; Suitability.  The
improvements to the Premises leased to Tenant shall be constructed pursuant to Exhibit “A”  attached hereto.  Landlord shall have no other obligation to
perform any construction or other work to the interior or exterior of the
Premises, which work is not set forth on Exhibit
“A”.  Except as expressly provided herein, Tenant
acknowledges that neither Landlord, nor any agent or representative of
Landlord, has made any representation or warranty with respect to the suitability
of the Premises for the use set forth in the Basic Lease Provisions, and that
Tenant has entered into this Lease based solely upon its own investigation and
inspection of the Development, the Site and the Premises.  Landlord does not represent, and Tenant does
not rely on the fact that any specific tenant or tenants will occupy space in
the Development during the term of this Lease. 
Landlord reserves and excepts from the Premises the roof and exterior
walls of the building or buildings of which the Premises are a part.

 

1.2         Location.  The
parties acknowledge that Exhibit “B”
describes the current perimeter of the Development before the dedication or
grant of easements for highways, streets, and public ways.  Exhibit “B”
sets forth a general layout of the Development, and shall not be deemed a
representation by Landlord that the Development shall always be constructed as
indicated thereon or that any tenants or occupants designated by name or nature
of business thereon shall conduct business in the Development during the term
of this Lease; and, subject to compliance with all applicable laws and
governmental requirements and provided that there is reasonable access to the
Premises, Landlord may in its sole discretion increase, decrease or change the
location, and dimensions of the buildings within the Development outside the Premises,
driving lanes, driveways, walkways, parking places and other improvements shown
on Exhibit “B,”  and
Landlord reserves the right to make additions and alterations to all buildings
constructed in the Development, and to change the name of the Development from
time to time, provided that such changes, additions and alterations do not
unreasonably interfere with pedestrian and vehicular access to the Premises
(including without limitation access between the parking area and the main
entrance to the Premises) or the utility of garbage pickup areas and shipping,
receiving, and loading dock areas.  The parties
shall signify their approval of Exhibit “B”  by signing or
initialing Exhibit “B,”  and
such Exhibit is hereby made a part of this Lease.  References to “this Lease” include all
exhibits and matters incorporated by reference as part of this Lease.

 

1.3         Landlord’s Warranties.  Landlord
represents and warrants to Tenant that Landlord’s Work (if any, and as defined
in Exhibit “A”) will be performed in a good
and workmanlike manner.  Landlord further
represents and warrants to Tenant that upon substantial completion of the
Premises, Landlord’s Work (if any, and as defined in Exhibit “A”)
will be in compliance with all governmental rules, orders, regulations and
requirement then in effect.  Landlord’s
liability under the foregoing warranties shall be limited to the repair and/or
replacement, as the case may be, of defective materials and workmanship and/or
affecting compliance with such rules and requirements, and, in no event, shall
Landlord be liable for special or consequential damages.

 

1.4         Right of First Offer.  Provided
that Tenant has not been in material default under the terms and conditions of
this Lease, Tenant shall have, during the first five (5) years of the initial
Term, a right of first offer to lease additional space in the Development (the “ROFO
Space”).  Tenant’s right of first offer
shall be subject and subordinate to all leases, options and rights of other
third parties in existence as of the date of mutual execution hereof.  If at any time during the first five (5)
years of the Initial Term of this Lease, Landlord shall receive a bona fide
offer from any third party to lease all or any part of the ROFO Space, which
offer Landlord shall desire to accept, then Landlord shall promptly notify
Tenant of the existence of such offer by e-mail and by mail and shall provide
Tenant with a summary of all relevant

 

2

 

economic
terms of the third party offer.  Tenant
may, within ten (10) business days thereafter, elect by written notice to
Landlord to lease the ROFO Space on the same terms and conditions as those as
provided in the bona fide offer.  If
Tenant fails to respond within such 10-business day period, Landlord shall use
reasonable efforts to contact, orally or in writing, Tenant to confirm such
non-election.  Failure of Tenant to
exercise the foregoing right within the prescribed time period above shall
constitute a waiver of Tenant’s right as to that offer with respect to the ROFO
Space mentioned in Landlord’s notice and Landlord shall have the right to lease
the ROFO Space in Landlord’s sole discretion. 
In the event the bonafide third party offer does not materialize into a
lease or upon termination of the third party tenant’s lease, the ROFO will be
reinstated.  If Tenant duly elects to
exercise its right of first offer as aforesaid, Landlord shall prepare, and
Tenant shall promptly execute, an amendment to this Lease to memorialize such
election, provided, however, that failure of Tenant to execute such amendment
shall not affect the binding nature of Tenant’s election to exercise the right
of first offer as aforesaid.  All rights
of Tenant under the provisions of this right of first offer shall terminate and
be of no further force or effect even after Tenant’s due and timely exercise of
the right of first offer, if after such exercise, but prior to the occupancy of
the ROFO Space, Tenant is in material default hereunder.  The right described in this paragraph is
personal to originally-named Tenant or to an assignee or transferee permitted
outright pursuant to this Lease without Landlord’s consent and may not be
exercised or be assigned, voluntarily or involuntarily, by or to any person or
entity other than Tenant, and is not assignable separate and apart from this
Lease.

 

1.5         Parking.  Tenant and its employees, customers, suppliers
and invitees shall have the right to use, for no additional rent, the 250
parking spaces depicted on Exhibit B attached hereto.  Furthermore, Tenant shall have the right to
use 2.5 spaces of additional parking for each 1,000 RSF of additional Premises
leased by Tenant at the Development.  Landlord
shall have the right to relocate any of such parking spaces to areas reasonably
convenient to the Premises.

 

1.6         Exhibits.  The
following drawings and special provisions are attached as exhibits and made a part
of this Lease:

 

Exhibit
“A” - Construction and Acceptance of Premises

Exhibit
“B” - Site Plan

Exhibit
“C” - Rules and Regulations

Exhibit
“D” - Delivery of Premises

Exhibit
“E” - Sign Criteria

 

ARTICLE 2

 

BUSINESS
RIGHTS AND RESTRICTIONS

 

2.1         Use.  The Premises shall be used
solely for the specific use set forth in the Basic Lease Provisions and for no
other purpose or use whatsoever.

 

2.2         Restrictions.  Tenant shall not, without
Landlord’s prior written consent, which consent Landlord may withhold in its
sole discretion: (a) conduct any auction or bankruptcy sales; (b) conduct any
fire sale except as a result of a fire on the Premises; (c) conduct any
close-out sale except at the expiration of the Lease term or occasional
warehouse sales to the public (but not more than thrice annually); (d) sell any
so-called “surplus”, “Army and Navy”, or “secondhand” goods, as those terms are
generally used at this time and from time to time hereafter; (e) permit
anything to be done on the Premises which will in any way obstruct, interfere
with or infringe on the rights of other occupants or invitees of the
Development; (f) cause, maintain or permit any nuisance on the Premises or cause
or permit any waste to be committed on the Premises; (g) install or erect any
satellite dish or other roof- or building-mounted equipment without Landlords
prior written consent, which shall not be unreasonably withheld; or (h) bring
or keep on the Premises any item or thing or permit any act thereon which is
prohibited by any law, statute, ordinance or governmental regulation now in
force or hereinafter enacted or promulgated, or which is prohibited by any
Standard form of fire insurance policy.

 

ARTICLE 3

 

TERM

 

3.1         Duration; Early Possession.  The
initial term of this Lease shall commence on February 1, 2005 (the “Lease Commencement Date”).  If
the Lease Commencement Date occurs on a day other than the first day of a
calendar month, the term of this Lease shall commence on said Lease
Commencement Date and shall continue from the first day of the calendar month
next following the Lease Commencement Date for the period of years set forth in
the Basic Lease Provisions.  Tenant
agrees to execute a certificate confirming the date of the Lease Commencement
Date, in the form of the certificate attached hereto as Exhibit D, which certificate
shall be initialed by Landlord and attached to, and incorporated in, this Lease.  Commencing on the date Landlord tenders
delivery of possession to

 

3

 

Tenant
(the ‘‘Possession Date”), Tenant
and Landlord shall comply with each and every term, covenant, condition and
provision of this Lease, excepting only those provisions pertaining to Tenant’s
obligation to pay Fixed Minimum Rent, which obligation shall commence in
accordance with Article 4 below.  In
connection therewith, Tenant acknowledges and agrees that certain obligations
under various articles hereof shall commence prior to the Lease Commencement
Date (i.e., payment of certain charges, construction obligations, hold
harmless, liability insurance, etc.), and the parties agree to be bound by
these articles prior to the Lease Commencement Date.

 

3.2         Options to Extend.  Subject to the provisions of
this Lease and provided that on the date of exercise of the option by Tenant
and on the scheduled date of commencement of the Extended Term (as defined
below): (i) Tenant shall not then be in default under the terms of this Lease; (ii)
the original Tenant shall be in direct occupancy of the Premises; and (iii)
this Lease shall be in full force and effect; then, the term of this Lease may
be extended by Tenant for up to two (2) additional periods of five (5) years
each (each, an “Extended Term”), upon
the same terms and conditions as contained in this Lease upon compliance with
the notice provisions set forth herein.  Tenant
shall exercise its option, if at all, only with respect to the immediately
succeeding Extended Term, by delivering written notice of its election thereof
to Landlord, sent certified mail, return receipt requested (the “Option Notice”),
not more than 360 days nor less than 180 days prior to the expiration of the then-effective
Term.  The options to extend the term of
this Lease is only exercisable by the original named Tenant or to an assignee
or transferee permitted outright pursuant to this Lease without Landlord’s
consent.

 

3.3         Intentionally Omitted.

 

3.3.1

 

ARTICLE 4

 

RENT

 

4.1         Payment.  Tenant
shall pay to Landlord without prior demand, deduction, set-off, counter claim
or offset, for all periods during the Lease term, all sums provided in this Paragraph 4.1  and all other additional
sums as provided in this Lease, at the address set forth in the Basic Lease
Provisions, payable in lawful money of the United States of America on the
first day of each month, with a grace period of 3 days, except that the fixed
minimum rent due for the first month (or first partial month) shall be prepaid
on the date of execution of the Lease by Tenant.  All sums of money required to be paid
pursuant to the terms of this Lease are hereby defined as “rent”, including all sums as provided in Paragraphs 4, 5, 6, 7, 8, and 9  and provided elsewhere in this Lease,
whether or not the same are designated as such. 
Landlord’s acceptance of Tenant’s bank check or other funds shall not be
deemed a waiver of Landlord’s right to thereafter demand and receive timely
payment in immediately available funds.

 

(a)          Fixed Minimum Rent.  Tenant shall pay to Landlord,
on a triple net basis, fixed minimum rent at the initial monthly rate provided
in the Basic Lease Provisions.

 

(b)         Late
Fee.  If
Tenant shall fail to pay when due (within grace period), any installment of
fixed minimum rent or any other sums due under this Lease, a late charge equal
to two percent (2%) of the overdue amount shall be payable by Tenant to
reimburse Landlord for costs relating to collecting and accounting for said
late payment(s).

 

(c)          Fixed Minimum
Rent during Second Extended Term.  Fixed Minimum Rent during the
Second Extended Term shall be Fair Market Rental Value, provided that in no
event shall Fixed Minimum Rent be decreased.

 

(1)                                  The term “Fair Market Rental Value” shall be
the rental rate that comparable Premises for the same term of the Extended Term
would command on the open market at the time of commencement of the Extended
Term determined in the manner set forth in this Section.  For purposes hereof, the term “comparable
Premises” shall mean premises similar in size and location to the Premises with
similar improvements and amenities including any improvements installed upon
Tenant’s initial occupancy of Premises being leased to a tenant with similar
creditworthiness as Tenant.

 

(2)                                  If Landlord and Tenant cannot agree upon the
Fair Market Rental Value of the Premises within twenty (20) days after Landlord’s
receipt of Tenant’s notice exercising the second Extended Term option, then
Landlord and Tenant shall agree within ten (10) days thereafter on one real
estate appraiser (who shall be a Member of the American Institute of Real
Estate Appraisers or equivalent) who will determine the Fair Market Rental
Value of the Premises.  If Landlord and
Tenant cannot mutually agree upon an appraiser within said ten (10) day period,
then one M.A.I.  qualified appraiser
shall be appointed by Tenant and one M.A.I. 
qualified appraiser shall be appointed by Landlord within ten (10) days
of notice by one party to the other of such disagreement.  The two appraisers shall

 

4

 

determine
the Fair Market Rental Value of the Premises within twenty (20) days of their
appointment; provided, however, if either party fails to appoint an appraiser
within such ten (10) day period, then the determination of the appraiser first
appointed shall be final, conclusive and binding upon both parties.  The appraisers appointed shall proceed to
determine Fair Market Rental Value within twenty (20) days following such
appointment.  The conclusion shall be
final, conclusive and binding upon both Landlord and Tenant.  If said appraisers should fail to agree, but
the difference in their conclusions as to Fair Market Rental Value is ten
percent (10%) or less of the lower of the two appraisals, the Fair Market
Rental Value shall be deemed the average of the two.

 

(3)                                  If the two appraisers should fail to agree on
the Fair Market Rental Value, and the difference between the two appraisals
exceeds ten percent (10%), then the two appraisers thus appointed shall appoint
a third M.A.I.  qualified appraiser, and
in case of their failure to agree on a third appraiser within ten (10) days
after their individual determination of the Fair Market Rental Value, either
party may apply to the Presiding Judge of the Superior Court for Snohomish
County, Washington, requesting said Judge to appoint the third M.A.I.  qualified appraiser.  The third appraiser so appointed shall
promptly determine the Fair Market Rental Value of the Premises and the average
of the appraisals of the two closest appraisers shall be final, conclusive and
binding upon both parties.  The fees and
expenses of said third appraiser or the one appraiser Landlord and Tenant agree
upon, shall be borne equally by Landlord and Tenant.  Landlord and Tenant shall pay the fees and expenses
of their respective appraiser if the parties fail to agree on a single
appraiser.  All M.A.I.  appraisers appointed or selected pursuant to
this subsection shall have at least ten (10) years experience appraising
commercial properties in the Everett/Merrill Creek submarket.

 

4.2         First Partial Month.  If
the first day of the Lease term occurs on a day other than the first day of a
calendar month; fixed minimum rent for such partial month ending on the last
day of the calendar month in which the Lease term commences shall be prorated
based on a 30-day month, and as so prorated shall be paid on the date of
execution of the Lease.

 

4.3         Lease Year.  The
term “Lease Year” shall mean each period of
twelve (12) or less consecutive months which ends on December 31 of each
calendar year during the Lease term or any Extended Term, and the period from
the last December 31 during the Lease term or any Extended Term to and
including the last day of the Lease term or any Extended Term during the next
calendar year.  The first and last Lease
Years may be less than twelve (12) months.

 

ARTICLE 5

 

COMMON AREA

 

5.1         Definition.  The “Common Area” is that area within the Development which is
neither occupied by buildings (excluding roof overhangs and canopies, columns
supporting roof overhangs and canopies, and subsurface foundations) nor devoted
permanently to the exclusive use of a particular tenant, except that areas
containing pylon signs and buildings or subsurface utilities which are used
with respect to the operation of the Common Area shall be deemed to be a part
of the Common Area.  The Common Area
includes each area designated as a building area on Exhibit “B”
until such time as it is improved with a building.

 

5.2         Reserved.

 

5.3         Use.  During the Lease term Tenant, its
subtenants, concessionaires, licensees, invitees, customers, and employees
shall have the nonexclusive right to use the Common Area with Landlord, other
owners of portions of the Development, other tenants, and their respective
subtenants, concessionaires, licensees, invitees, customers, and employees,
subject to the provisions of this Lease. 
Tenant shall also have the right to use the western 3 exterior covered
docks on an exclusive basis.  Tenant shall
have the right to use the two adjacent exterior covered docks provided the
adjacent space is vacant.  Tenant shall
not have access to the two adjacent exterior docks once the adjacent space is
leased and Landlord may, at it’s election, install a fence limiting access
between Tenant’s exclusive docks and the adjacent docks.

 

5.4         Maintenance and Operation.  “Common Area Expenses” shall include, but not be limited to,
the reasonable and customary costs and expenses without markup of operating,
managing, lighting, repairing, replacing (when repairing will be uneconomic),
painting, and maintaining the Common Area and the Development in good and
sanitary order, condition, and repair, including without limitation, the costs
and expenses, accounted for based on GAAP, of the following: (1) managing; (2)
cleaning and removing rubbish and dirt; (3) labor costs for personnel
performing services in connection with the operation, repair and maintenance of
the Common Area or Development and the payroll taxes and benefits related
thereto; (4) all utility services utilized in connection with the Common Area
and Development which are not separately metered to the tenants, including but
not limited to heating, ventilation, and air conditioning, electricity, gas,
water charges, sewer charges, hook-up fees, and cost of

 

5

 

installing,
maintaining and repairing the Development’s intrabuilding network cabling,
repair and/or installation of any fire protection systems, security alarm
systems, lighting systems, electrical systems and any other utility systems;
(5) maintaining, repairing, replacing, and re-marking paved and unpaved
surfaces, curbs, signs, landscaping, lighting and electrical facilities,
drainage, elevators, meters, breakers, security systems, life safety systems,
irrigation systems, fences and gates, wiring, and repairs, modifications,
additions and replacements to the foregoing whether or not necessitated by any
present or future law, statute, regulation, or directive of any governmental
agency, and other similar items; (6) all premiums on, deductibles, retentions,
and claims not covered by, worker’s compensation, casualty, public liability,
property damage, loss of rent, fire and extended coverage, and other insurance
on the Common Area and Development obtained by Landlord pursuant to Article 9, or otherwise
(Tenant is to pay its pro-rata share of the costs in connection with such
insurance); (7) rental of or cost of tools, machinery, and equipment used in
connection with managing and maintaining the Common Area; (8) all real property
and personal property taxes and assessments levied or assessed against the
Development or the Common Area, including without limitation, transport fees,
trip fees, metro-rail fees or assessments, school fees, fees assessed by air
quality management districts or any governmental agency regulating air
pollution or commercial rental taxes; (9) the cost of all janitors, gardeners,
security personnel and equipment performing services on the Common Area; (10)
any regulatory fee or surcharge or similar imposition imposed by governmental
requirements based upon or measured by the number of parking spaces or the
areas devoted to parking in the Common Area; (11) the cost of other capital
improvements to the Common Area, amortized over their useful life based on
GAAP, to the extent that the improvement provides increased utility and
functionality to the Tenant or operations and maintenance of the Common areas;
and (12) Notwithstanding the foregoing, following shall be excluded from
Common Area Expenses: costs incurred due to Landlord’s negligence; promotional
and advertising expenses; real estate commissions, legal fees, depreciation and
amortization, except as provided herein and except on materials, tools,
supplies and vendor-type equipment purchased by Landlord to enable Landlord to
supply services Landlord might otherwise contract for with a third party where
such depreciation and amortization would otherwise have been included in the
charge for such third party’s services and when depreciation or amortization is
permitted or required, the item shall be amortized over its reasonably
anticipated useful life.

 

5.5         Records.  Landlord
shall keep accurate records showing in reasonable detail all expenses incurred
for such maintenance.  These records
shall, upon at least five (5) business days’ request, be made available during
business hours at the offices of Landlord for inspection by Tenant.  Any such inspection by Tenant shall take
place within one (1) year following the date of the annual reconciliation statement
(as defined in Paragraph 5.6
below) setting forth such expenses.

 

5.6         Tenant’s Contribution.  From
and after the Commencement Date of this Lease, and during the entire Lease term
and any Extended Term(s), Tenant shall pay to Landlord with Fixed Minimum Rent on
the first day of each month (subject to 3 day grace period), Tenant’s pro rata
share of the amount of all Common Area Expenses based on, at Landlord’s
election, either: (a) the amount of such expenses actually incurred during the
billing period; or (b) equal periodic installments which have been estimated in
advance by Landlord for a particular period. 
Landlord may revise such estimates upward or downward at any time
without prior notice to Tenant.  If
Landlord elects to bill Tenant based upon estimates, Landlord shall, within
sixty (60) days after the end of the calendar year, or as soon thereafter as
possible, forward to Tenant a written statement (the “annual
reconciliation statement”) which adjusts the estimated expenses to
reflect the actual expenses incurred for such year.  If the annual reconciliation statement shows
the actual expenses to have exceeded the estimated expenses, then Tenant’s
share of such additional amount shall be paid by Tenant to Landlord within
thirty (30) days of receipt of the annual reconciliation statement; if the
annual reconciliation statement shows the actual expenses to have been less
than the estimated expenses, Landlord shall credit Tenant’s share against the
sums next due hereunder from Tenant to Landlord (or against any outstanding
sums then due). Tenant’s pro rata share shall be equal to the ratio which
Tenant’s rentable ground floor area bears to the total rentable ground floor
area which has the benefit of, or participates in, the expense(s) or service(s)
for which Tenant is being charged.

 

5.7         Operation and Control.  Landlord
shall have control and non-exclusive possession of the entire Common Area and
may from time to time adopt rules and regulations pertaining to the use thereof.  Landlord shall, except as otherwise provided
herein, operate and maintain the Common Area during the Lease term.  Landlord reserves the right to use the Common
Area, so long as reasonable pedestrian and vehicular access to the Premises
continue to be provided and provided that pedestrian and vehicular access to
the Premises (including without limitation access between the parking area and
the main entrance to the Premises) and the utility of garbage pickup areas and
shipping, receiving, and loading dock areas are not thereby unreasonably
interfered with, for such promotions, exhibitions and similar uses as Landlord
reasonably deems in the best interests of the Development and its tenants. Landlord
may temporarily close parts of the Common Area for such periods of time as may
be necessary for (i) temporary use as a work area in connection with the
construction of buildings or other improvements within the Development or
contiguous property; (ii) repairs or alterations in or to the Common Area to any
utility facilities; (iii) preventing the public from obtaining prescriptive
rights in or to the Common Area; (iv) emergency or added safety reasons; or (v)
performing such other acts as in Landlord’s

 

6

 

reasonable
judgment are appropriate for the proper operation or maintenance of the
Development.  Landlord shall have the
sole and exclusive control of the Common Area. 
Landlord’s rights shall include, but not be limited to, the right to
(vii) restrain the use of the Common Area by unauthorized persons; (viii)
utilize from time to time any portion of the Common Area for promotional,
entertainment and related matters; (ix) reserved; (x) temporarily close any
portion of the Common Area for repairs, improvements or alterations, to
discourage non-customer use, to prevent dedication or an easement by
prescription, or for any other reason deemed sufficient in Landlord’s judgment;
and (xi) change the shape and size of the Common Area, add, eliminate or change
the location of improvements to the Common Area, including, without limitation,
buildings, lighting, parking areas, roadways and curb cuts, and construct
buildings on the Common Area.  Landlord
may determine the nature, size and extent of the Common Area; as well as make
changes to the Common Area from time to time which in Landlord’s opinion are
deemed desirable for the Development.  The
manner in which the Common Area shall be operated and maintained and the
expenditures therefor shall be in Landlord’s sole discretion.  Landlord reserves the right to appoint a
substitute operator, including but not limited to, any tenant in the
Development, to carry out any or all of Landlord’s rights and duties with
respect to the Common Area as provided in this Lease; and Landlord may enter
into a contract either by a separate document or in a Lease agreement with such
operator on such terms and conditions and for such period as Landlord shall
deem proper.

 

5.8         Obstructions.  No fence, wall, structure,
division, rail or obstruction shall be placed, kept, permitted or maintained
upon the Common Area or any part thereof by Tenant.  Tenant shall not conduct any business
activities of any kind whatsoever in or upon the Common Area without Landlord’s
prior written consent.  Tenant shall not
use the Common Area for solicitations, demonstrations or any other activities
that would interfere with the conduct of business in the Development, or which
might tend to create civil disorder or commotion.

 

ARTICLE 6

 

TAXES

 

6.1         Personal Property Taxes.  Tenant
shall pay before delinquency all license fees, public charges, taxes and
assessments on the furniture, fixtures, equipment, inventory and other personal
property of or being used by Tenant in the Premises, whether or not owned by
Tenant.

 

6.2         Real Property Taxes.

 

(a)          Definition; Payment.  Tenant shall pay to Landlord
as additional rent, in the manner set forth in Paragraph 5.6,  any and all real property taxes, excises,
license and permit fees, utility levies and charges, and other governmental
charges and assessments, general and special, ordinary and extraordinary,
unforeseen as well as foreseen, of any kind and nature whatsoever, and
installments thereof (including any business and occupation tax imposed on
Landlord or the Development, and any tax imposed on the rents collected
therefrom or on the income generated thereby, whether or not substituted in
whole or in part for real property taxes, as well as assessments and any
license fee imposed by a local governmental body on the collection of rent),
which shall be levied or assessed against all or any portion of the Premises,
or imposed on Landlord for any period during the term of this Lease, including
the costs of any appeals or protests thereof (provided that any tax reductions
effected by any such appeal or protest shall be offset against taxes otherwise
assessed pursuant to this paragraph).  Said
real property taxes and assessments attributable to the years that this Lease
commences and terminates shall, if necessary, be prorated and apportioned
between Landlord and Tenant to coincide with the commencement and expiration of
the Lease term.  Landlord agrees to
appeal the current tax assessment and provide Tenant copies of documentation
and Tenant shall benefit by any reduction in real estate taxes and NNN charges in
accordance with this Section.

 

(b)         Proration.  Tenant’s share shall be based
upon the ratio of the square footage of the Premises to the total square
footage of the Development unless a portion of the Development is assessed separately
in which case Tenant’s share shall be based upon the ratio of the square
footage of the Premises to the total square footage which is included in the
applicable tax bill.

 

(c)          Separate Tax Bill.  If the Premises are separately
billed pursuant to a segregation, Tenant shall pay such property taxes as
additional rent, at Landlord’s election, either (i) at least 30 days prior to
delinquency, directly to the tax collector, or (ii) together with Tenant’s Pro
Rata Share of monthly Common Area expenses, to Landlord, or (iii) twice each
year within ten (10) days after delivery of Landlord’s written statement which
shall be accompanied by a copy of the tax bill, to Landlord.  Each party shall furnish the other upon
written request, evidence of payment of such taxes and assessments.

 

(d)         Tenant’s Use.  Notwithstanding
any other provisions of this Paragraph 6.2, in the event that Tenant’s use of the Premises or any
action undertaken by Tenant causes an increase in real property taxes assessed
against the Development or the Premises as a result of any tax reassessment or

 

7

 

reappraisal,
Tenant shall be solely liable for, and shall pay, in addition to all other sums
payable under this Paragraph 6.2
or elsewhere in the Lease, the entire amount of the increase in real property
taxes over the amount of real property taxes for the Development or the
Premises had such reassessment or reappraisal not occurred.  Tenant shall not be required to pay increases
in taxes caused by other tenants’ uses of portions of the Development.

 

6.3         Business Taxes.  Tenant shall pay (a) all
special taxes and assessments or license fees now or hereafter levied, assessed
or imposed by law or ordinance, by reason of the use of the Premises, and (b) any
business and occupation tax and any tax, assessment, levy or charge assessed on
the rent paid under this Lease.

 

6.4         Substitute and Additional Taxes.  If,
at any time during the Term, the methods of taxation prevailing on the
execution date hereof shall be altered so that in lieu of, or as a supplement
to , or a substitute for, the whole or any part of the Taxes now levied,
assessed or imposed on the Premises or the Development, there shall be levied,
assessed or imposed a tax, assessment, levy, imposition or charge, wholly or
partially as a capital levy or otherwise, on the rents received therefrom, or a
tax, assessment, levy (including but not limited to any municipal, state, or
federal levy), imposition or charge measured by or based in whole or in part
upon the Premises and imposed upon Landlord, or a license fee measured by the
rent payable under this Lease or by expenditures made by Tenant on Landlord’s
behalf in connection which this Lease, then all such taxes, assessments,
levies, impositions, charges of the part thereof so measured or based, shall be
deemed to be included within the term “Taxes” as defined in Article 6 hereof, and Tenant
shall pay and discharge the same in the manner provided for the payment of
Taxes herein, it being the intention of the parties hereto that the rent to be
paid hereunder shall be paid to Landlord absolutely net, without deduction of
any kind or nature whatsoever.

 

6.5         Commercial Rent Tax.  Tenant
shall pay to Landlord, in addition to and together with any and all
installments of fixed minimum rent, additional rent and other charges payable
pursuant to this Lease, the excise, transaction, sales, privilege, or other tax
(other than net income and/or estate taxes) now or in the future imposed by the
city, county, state or any other
government or governmental agency upon Landlord and attributable to or measured
by the fixed minimum rent, common area expenses, additional rent or other
charges or prorations payable by Tenant pursuant to this Lease.

 

ARTICLE 7

 

UTILITIES

 

In
addition to all other sums Tenant is required to pay pursuant to this Lease,
Tenant shall be solely responsible for and shall pay as additional rent prior
to delinquency all charges for electricity, telephone, water, gas (if any),
heat and any other utilities used or consumed on the Premises from and after
the date Tenant first takes possession of the Premises.  If the Premises are separately metered by the
utility service company Tenant agrees to pay all charges therefor attributable
to the Lease term directly to the appropriate utility service company before
delinquency, whether the statement or invoice therefor is delivered to Tenant
during, or after expiration of, the Lease term. 
If the Premises are separately metered by the Landlord, Tenant agrees to
pay all charges therefore attributable to the Lease term directly to Landlord
before delinquency, whether the statement or invoice therefore is delivered to
Tenant during, or after expiration of, the Lease term.  Tenant shall pay to Landlord before
delinquency its pro-rata share of the costs of any utility services that are
not separately metered.  Tenant’s
pro-rata share shall be equal to the ratio which Tenant’s rentable ground floor
area bears to the total rentable ground floor area which has the benefit of, or
receives, the expense or utility service for which Tenant is being charged.  Nothing contained in this Lease shall limit
Landlord in any way from granting or using easements on, across, over, and
under the Development for the purpose of providing utility services for Tenant
or others.  In no event shall Landlord be
responsible for any loss, cost, liability or expense of any person or entity
resulting from any interruption of utility services to Tenant and/or the
Premises, nor shall rent be offset as a result of any such interruption, unless
any such utility interruption is due to the Landlord’s gross negligence or
intentional misconduct and continues for forty-eight (48) hours or more after
Tenant provides written notice thereof to Landlord.

 

ARTICLE 8

 

REPAIRS AND
ALTERATIONS

 

8.1         Landlord’s Repairs.  The Basic Building Systems
(e.g. plumbing, electrical, mechanical, etc.) will be in functional working
order upon Lease Commencement Date.  Landlord
shall keep in good condition and repair the structure, foundation, bearing
walls, roof system, exterior utility lines serving the Building at Tenant’s
cost which shall be amortized over the reasonably estimated useful life thereof
if a capital expense and prorated and paid by Tenant in accordance with
Paragraph 5.6.  Unless Landlord has elected
to require Tenant to maintain the HVAC system, Landlord shall maintain the HVAC
system of the Premises, at Tenant’s cost (which shall be paid solely by Tenant
in the event that the repair or replacement

 

8

 

relates
solely to the Premises or is necessitated by Tenant’s actions, or if not, which
shall be prorated and paid by Tenant in accordance with Paragraph 5.6),
except that Landlord shall not be required to make any such repairs or
replacements occasioned by the act or negligence of Tenant, its agents,
employees, invitees, licensees, representatives or contractors.  In addition to the foregoing, Landlord may,
at its election, employ qualified companies to provide regular inspection,
maintenance and repair of the walls, roof, utility lines, fire sprinklers and
HVAC system, the costs of which shall be included in Common Area Expenses
pursuant to Paragraph 5.4, and paid by Tenant in
accordance with Paragraph 5.6.  For purposes of this particular
proration, the floor area of any buildings not included in such service
contracts shall be excluded from the denominator.  Nothing contained in this Paragraph 8.1  shall limit Landlord’s
right to reimbursement from Tenant for maintenance, repair costs and
replacement costs provided elsewhere in this Lease.

 

8.2         Tenant’s Repairs.  Except as expressly provided in
Paragraph 8.1,  Tenant shall, at its sole cost, keep in
first-class appearance, in a condition at least equal to that which existed
when Tenant initially began operating at the Premises, and in good order,
condition, cleanliness and repair the interior of the Premises and every part
thereof, including without limitation, the interior surfaces of walls, floors, ceilings,
and the interior surfaces of all doors, door frames, door checks, entrances,
windows, window frames, and plate glass. 
Landlord shall repair, maintain, and replace, at Tenant’s expense, swamp
coolers, all plumbing and sewage facilities within the Premises, including free
flow up to the main sewer line, fixtures, ventilation, and electrical systems
serving the Premises, sprinkler systems, exterior walls, exterior windows,
doors, door frames, and any mechanical systems or equipment installed for the
sole use by Tenant.  All equipment,
facilities or fixtures shall, at Tenant’s sole expense, be kept, repaired, maintained,
replaced or added to as provided by this paragraph at all times in accordance
with all governmental requirements; except that Tenant shall not be required to
make any such repairs or replacements occasioned by the act or negligence of
Landlord, its agents, employees, invitees, licensees, representatives or
contractors.  In the event that Tenant
fails to comply with the obligations set forth in this Paragraph 8.2, Landlord may, but
shall not be obligated to, perform any such obligation on behalf of, and for
the account of Tenant, and Tenant shall reimburse Landlord for all costs and
expenses paid or incurred on behalf of Tenant in connection with performing the
obligations set forth herein.  Tenant expressly
waives the right to make repairs at Landlord’s expense under any law, statute
or ordinance now or hereafter in effect.

 

8.3         Alterations.

 

(a)          Tenant’s Alterations.  Tenant shall not make any
alterations, installations or improvements (collectively, “Tenant Changes”) in, to, or about the
interior or exterior of the Premises without obtaining the prior written
consent of Landlord, which shall not be unreasonably withheld or delayed.  Tenant’s request for Landlord’s consent to
perform any Tenant Changes which affect structural components, the electrical
or HVAC system or cause penetration through the roof or walls of the building, must
be accompanied by plans and specifications (to be prepared by Tenant at Tenant’s
sole cost) for the proposed Tenant Change in detail reasonably satisfactory to
Landlord, together with notice of the identity of the licensed contractor which
Tenant has or will engage to perform such work, plus reimbursement of Landlord’s
third party costs associated with reviewing such plans and specifications.  Landlord shall grant or withhold its approval
of such plans and specifications within fifteen (15) business days after Tenant
makes request therefor in the manner provided herein; provided, however, if
Landlord needs to consult with an outside consultant or expert with respect
thereto, Landlord’s consent shall be granted or denied within a reasonable time
after the expiration of such 15-day period. 
All such work shall be accomplished at Tenant’s sole risk, and Tenant
shall indemnify, defend and hold harmless Landlord from and against any and all
loss, cost, liability and expense (including consequential damages) relating to
or arising from the Tenant Changes.  All
permanent, nonmovable Tenant Changes shall become a part of the realty upon installation
thereof.

 

(b)         Approval Not Required.  Notwithstanding Paragraph 8.3(a),  with respect to carpeting
and painting and other Tenant Changes which (i) are non-structural in nature
(i.e., do not involve changes to the structural elements of the building or the
Development); (ii) do not involve changes to the building’s systems, including
without limitation, the roof, electrical, plumbing, and HVAC systems (the
Tenant Changes described in clauses (i) and (ii) hereof are collectively called
“Non- Structural Changes”); and
(iii) in the aggregate would not cost in excess of $10,000.00 when added together
with the cost of all other Non-Structural Changes made during the prior 3 month
period, Tenant need not obtain Landlord’s prior written consent, but must
notify Landlord in writing within ten (10) days prior to the commencement of
such Non-Structural Changes.

 

8.4         General Conditions.  Tenant
shall at all times comply with the following requirements when performing any
work pursuant to Paragraphs 8.2 and 8.3:

 

(a)          Contractors.  Tenant
shall use the contractors and mechanics then appearing on Landlord’s approved
list, which shall include at least three independent, qualified contractors, if
the Tenant Changes involve changes to the building’s systems and/or structural
elements.  With respect to

 

9

 

Non-Structural
Changes, Tenant shall use such contractors and mechanics which Landlord
approves of in writing prior to their use, which approval shall not be
unreasonably withheld.  All contractors
used by Tenant shall be licensed contractors who are experienced in the type of
work to be performed.

 

(b)         Compliance With Laws.  All Tenant Changes shall at
all times comply with all laws, rules, orders and regulations of governmental
authorities having jurisdiction thereof and all insurance requirements of this
Lease, shall comply with the rules and regulations for the Development now or hereafter
in existence, and shall comply with the plans and specifications approved by
Landlord.

 

(c)          Tenant’s Responsibility.  All
Tenant Changes shall be made and completed at Tenant’s sole cost and expense,
and the Development and the Premises shall be kept lien-free at all times by
Tenant.

 

(d)         Compliance with Americans With Disabilities Act.  Tenant
shall comply with all provisions of the Americans With Disabilities Act of 1990
and all regulations promulgated to implement the provisions of such act
(collectively, the “ADA”).  In this
regard, in connection with any improvement or alteration to the Premises done
by Tenant, Tenant shall insure that the Premises are readily accessible to and
usable by individuals with disabilities, including individuals who use
wheelchairs.  New ADA requirements
requiring structural changes to the Common Areas will be the responsibility of
the Landlord, and new ADA requirements requiring structural changes to the
Premises will be the responsibility of the Tenant.

 

ARTICLE 9

 

INSURANCE

 

9.1         Use Rate.  Tenant
shall not carry any stock of goods or do anything in or about the Premises which
will cause an increase in insurance rates on the building in which the Premises
are located.  In no event shall Tenant
perform any activities which would invalidate any insurance coverage on the Development
or the Premises.  Tenant shall pay on
demand any increase in premiums that may be charged as a result of Tenant’s use
or activities, but this provision shall not be deemed to limit in any respect
Tenant’s obligations under Article 14.  In no event shall the limits of insurance
required to be maintained by Landlord or Tenant pursuant to this Lease be
deemed to limit the liability of either party hereunder.

 

9.2         Liability Insurance.  Tenant
shall, during the Lease term, at its sole expense, maintain in full force a policy
or policies of Commercial general liability (CGL) insurance including
contractual, on an occurrence basis, with coverage at least as broad as the
most commonly available ISO Commercial General Liability policy CG 00 01, at
least Two Million Dollars ($2,000,000) per occurrence limit, Two Million
Dollars ($2,000,000) general aggregate limit. 
Tenant shall also maintain Commercial Automobile coverage, One Million
Dollars ($1,000,000) combined single limit/per accident, covering injury (or
death) and property damage arising out of the ownership, maintenance, or use of
any private passenger or commercial vehicles and of any other equipment
required to be licensed for road use.  Such
limits may be achieved through the use of umbrella liability insurance otherwise
meeting the requirements of this paragraph.

 

9.3         Worker’s Compensation Insurance.  Tenant
shall at all times maintain worker’s compensation insurance in compliance with
federal, state and local law, including Employer’s Liability coverage (contingent
liability/stop gap) in the amount of $1,000,000 each accident; $1,000,000
bodily injury by disease policy limit; and $1,000,000 bodily injury each
employee.

 

9.4         Property Insurance/Business Income.

 

(a)                                  Landlord’s Insurance.  Landlord
shall pay for and shall maintain in full force and effect during the term of
this Lease a standard form of extended coverage endorsement and standard form of
lender’s loss payable endorsement issued to the holder or holders of Landlord’s
mortgage or deed of trust, in an amount equal to 90% of the replacement cost of
the Development, including the Premises (which coverage may include, at
Landlord’s sole option, special extended coverage, earthquake and sprinkler
leakage coverage, boiler and machinery,), and Business Income and Extra Expense
with loss of rents coverage equal to fixed minimum rent for up to eighteen
months.  Tenant shall pay Tenant’s pro
rata share for the costs incurred by Landlord, for such insurance in accordance
with the payment provisions set forth in Paragraph 5.6
above.

 

(b)                                 Tenant’s Insurance.  Tenant
shall pay for and shall maintain in full force and effect during the term of
this Lease Property insurance covering its leasehold improvements to the
Premises, furniture, fixtures, equipment, inventory and other personal property
located on the Premises in an amount of not less than one hundred percent
(100%) insurable replacement value with no coinsurance penalty, Tenant shall
also obtain and maintain Business Income and Extra Expense coverage for a
period

 

10

 

of
twelve (12) months.  Tenant may
self-insure personal property and leasehold improvements (but not inventory).

 

9.5         Waiver of Subrogation.  Tenant
hereby waives, and Tenant’s insurance policy or policies shall include a waiver
of such carrier’s, entire right of recovery (i.e., subrogation) against
Landlord, and the officers, directors, agents, representatives, employees,
successors and assigns of Landlord which arises or might arise by reason of any
payment under Tenant’s property, worker’s compensation and employer’s liability
insurance policy or by Tenant or by reason of any act or omission of Landlord,
its directors, partners, agents, employees or representatives.

 

9.6         General Requirements.  Landlord will provide certificates of
insurance on facility with specific coverages and deductibles.  Landlord will be responsible for notifying
Tenant of changes to Insurance coverages. 
All policies of insurance required to be carried hereunder by Tenant
shall be evidenced by an appropriate evidence of insurance (ACORD Form 24 for
property insurance and ACORD Form 25 for all others), which evidences must
contain the following additional clause:

 

“It
is agreed that this insurance will not be canceled, not renewed, or the limits
of coverage in any way reduced without at least thirty (30) days’ advance
written notice [ten (10) days for nonpayment of premiums] sent by certified
mail, return receipt requested, to the [enter Landlord’s Name and Address].”

 

(a)          Licensed in State.  Be written by companies
reasonably satisfactory to Landlord and licensed to do business in the state of
Washington.  All policies of insurance
required to be maintained by Tenant shall be issued by insurance companies with
an A.M.  Best’s financial strength rating
of “A” or better and an A.M.  Best’s
Financial Size Category of Class “XII” or higher, and shall not contain a deductible
greater than $2,500 or any self-insured retention unless expressly approved in
writing by Landlord.

 

(b)         Primary.  Contain a clause that such
policy and the coverage evidenced thereby shall be primary and non-contributing
with respect to any policies carried by Landlord, and that any coverage carried
by Landlord shall be excess insurance.  All
insurance coverage must be on an “occurrence basis”; “claims made” forms of
insurance are not acceptable.

 

(c)          Additional Named Insured.  Liability
policies shall name Landlord and the following parties as additional insureds
utilizing ISO Endorsement CG 20-11-01-96 or its equivalent (“certificate holder”
status is not acceptable):

 

[List names of Additional Insured Entities]

 

Landlord
shall be listed as a “loss payee” on property policies.

 

(d)         Notice of Cancellation.  Not
be subject to cancellation or reduction in coverage except upon at least thirty
(30) days prior written notice to each additional insured.  The policies of insurance containing the
terms specified herein, or duly executed certificates evidencing them, shall be
deposited with each additional insured at least 30 days prior to the Lease
Commencement Date and subsequently not less than thirty (30) days prior to the
expiration of the original or any renewal term of such coverage.  If Tenant fails to comply with the insurance
requirements set forth in this Lease, Landlord shall have the right, but not
the obligation, at any time and from time to time, without notice, to procure such
insurance and/or pay the premium for such insurance, in which event Tenant
shall repay Landlord, immediately upon demand by Landlord, as additional rent,
all sums so paid by Landlord together with interest thereon and any costs or
expenses incurred by Landlord in connection therewith, without prejudice to any
other rights and remedies of the Landlord under this Lease.

 

9.7         Blanket Insurance.  Each party shall be entitled
to fulfill its insurance obligations hereunder by maintaining a so-called “blanket”
policy or policies of insurance.  Such
policy shall contain an endorsement that names the other party as an additional
insured, references the Premises, and guarantees a minimum limit of coverage
available for the obligations under this Lease at least equal to the insurance amounts
required hereunder.  Tenant’s right to
fulfill its insurance obligations hereunder through a “blanket” policy shall be
subject to approval of such policy by Landlord and Landlord’s lender(s).

 

ARTICLE 10

 

DAMAGE AND
RESTORATION

 

10.1                           Damage and Destruction of the Premises.  If
the Premises are at any time destroyed or damaged by a casualty insured against
by Landlord pursuant to Article 9 hereof or otherwise insured
against by Landlord, and if as a result of such occurrence:

 

11

 

(a)          the Premises are rendered untenantable only
in part, this Lease shall continue in full force and effect and, provided
Tenant shall covenant in writing to Landlord that Tenant shall comply with the
provisions of Paragraph 10.3  below
upon completion of Landlord’s reconstruction, rebuilding or repair of the
Premises, Landlord shall, subject to the provisions of Paragraph 10.4  below, commence diligently
to reconstruct, rebuild or repair the Premises to the extent only of Landlord’s
Work set forth in Exhibit “A” (Landlord shall have no
obligation to construct any of Tenant’s Work). 
In such event, fixed minimum rent and additional rent shall abate
proportionately to the portion of the Premises rendered untenantable from the
date of the destruction or damage until the entire Premises have been restored
by Landlord to the extent of Landlord’s Work as set forth on Exhibit “A”
hereto;

 

(b)         the Premises are rendered totally
untenantable, provided Tenant shall covenant in writing to Landlord that Tenant
shall reopen in the entire Premises for such use and will comply with the provisions
of Paragraph
10.3  below upon completion of Landlord’s reconstruction,
rebuilding or repair of the Premises, Landlord shall, subject to Paragraph 10.4  hereof, commence
diligently to reconstruct, rebuild or repair the Premises to the same operative
condition at the time of Lease Commencement and including the requirements of Exhibit “A”  (Landlord shall have no
obligation to perform any of Tenant’s Work). 
In such event, fixed minimum rent and additional rent shall abate
entirely from the date of the destruction or damage until the Premises have
been restored by Landlord to the extent of Landlord’s Work as set forth on Exhibit “A”
hereto.

 

10.2                           Damage or Destruction of Development.

 

(a)          If 25% or more of the Leasable Area of the
Premises or 25% or more of the Common Area of the Development, or any
combination of Leasable Area of the Premises and Common Area which aggregate
25% or more of the total square footage of Development land, is at any time destroyed
or damaged (including, without limitation, by smoke or water damage) as a
result of fire, the elements, accident, or other casualty, whether or not the
Premises are affected by such occurrence, Landlord may, at its option (to be
exercised by written notice to Tenant within ninety (90) days following any
such occurrence), elect to terminate this Lease.  In the case of such election, the term and
tenancy created hereby shall expire on the ninety (90th) day after such notice
is given, without liability or penalty payable or any other recourse by one
party to or against the other; and Tenant shall, within such 30-day period,
vacate the Premises and surrender them to Landlord.  All rent shall be due and payable without reduction
or abatement subsequent to the destruction or damage and until the date of
termination, unless the Premises shall have been destroyed or damaged, in which
event the terms of Paragraph 10.1(a) or (b),
as applicable, of this Lease shall apply to determine the obligations of
Tenant to pay rent.

 

(b)         If Landlord does not elect to terminate this
Lease in accordance with the terms of Paragraph
10.2(a),  Landlord shall,
following such destruction or damage, commence diligently to reconstruct,
rebuild, or repair, if necessary, that part of the Development which is
necessary, in Landlord’s sole judgement, to create an economically viable unit.  However, Landlord shall reconstruct, rebuild,
or repair the Premises and the Development to the extent only of proceeds
received by Landlord from its insurers.  Further,
if Landlord elects to repair, reconstruct, or rebuild the Development, or any
part thereof, Landlord may use plans, specifications, and working drawings
other than those used in the original construction of the Development and shall
only be obligated to restore the damaged portions thereof to a reasonably
operative condition similar to that which existed prior to the event of damage
or destruction, provided that the ultimate reconstruction does not unreasonably
impair Tenant use, occupancy and enjoyment of the Premises as the same existed
prior to such event.

 

10.3                           Tenant’s Work.  If
this Lease has not been terminated after damage or destruction as provided
above, then upon receipt by Tenant of written notice that Landlord’s Work has
been substantially completed, Tenant shall forthwith complete all Tenant’s Work
as described in Exhibit “A”  hereto,
and all other work required to fully restore the Premises for business fully
fixturized, stocked, and staffed.  If the
Premises have been closed for business, Tenant shall reopen for business for
the permitted use set forth in the Basic Lease Provisions, but no later than
sixty (60) days after notice that Landlord’s Work is substantially completed.

 

10.4                           Limitation of Obligations.  Notwithstanding
anything set forth to the contrary herein, in the event the Premises or
Development are damaged as a result of any cause in respect of which there are no
insurance proceeds available to Landlord, or the proceeds of insurance are
insufficient to pay for the costs of repair or
reconstruction, or any mortgagee or other person entitled to the proceeds of
insurance does not consent to the payment to Landlord of such proceeds to fully
restore the Premises or Development, or if the Premises or Development cannot
be fully restored to its prior condition under land use and building codes in
force at the time of the casualty, then Landlord may, without obligation or liability
to Tenant, terminate this Lease on sixty (60) days’ written notice to Tenant
and all rent shall be adjusted as of the effective date of such termination,
and Tenant shall vacate and surrender the Premises on the date set forth in
Landlord’s termination notice.

 

12

 

10.5                           Damage or Destruction at End of Term.  Notwithstanding
anything to the contrary contained herein, Neither Landlord nor Tenant shall
have any obligation to repair, reconstruct, or restore the Premises or
Development when the damage or destruction occurs during the last eighteen (18)
months of the term of this Lease.

 

10.6                           Waiver.  Tenant
hereby waives any statutory and common law rights of termination which may
arise by reason of any partial or total destruction of the Premises which
Landlord is obligated to restore or may restore under any of the provisions of
this Lease.

 

ARTICLE 11

 

FLOOR AREA
DEFINED

 

“Floor Area” or “floor area” means: (a) as to each building or part thereof within
the Development, including Tenant’s Premises, the actual number of square feet
of ground floor space measured to the exterior faces of exterior walls and to
the center of party walls, including columns, stairs, elevators and escalators,
excluding exterior ramps and loading docks.

 

ARTICLE 12

 

EMINENT DOMAIN

 

12.1                           Definition.  If
there is any taking or condemnation of or transfer in lieu thereof for a public
or quasi-public use of all or any part of the Development or the Premises or
any interest therein because of the exercise of the power of eminent domain or
inverse condemnation, whether by condemnation proceedings or otherwise (all of
the foregoing being hereinafter referred to as “taking”) before or during the
term hereof, the rights and obligations of the parties with respect to such
taking shall be as provided in this Article 12.

 

12.2                           Total Taking.  If
there is a taking of all of the Premises, this Lease shall terminate as of the
date of such taking.  All fixed minimum
rent and other amounts due under this Lease shall be paid by Tenant to the date
of such termination.

 

12.3                           Partial Taking of Premises.  If
any part of the Premises shall be taken, and a part thereof remains which is
reasonably susceptible of occupation hereunder for the use permitted herein,
this Lease shall, as to the part so taken, terminate as of the date title shall
vest in the condemnor or transferee, and the fixed minimum rent payable
hereunder shall be reduced by the proportion which the floor area taken from
the Premises bears to the total Floor Area of the Premises immediately before
the taking; but in such event Landlord or Tenant shall have the option to
terminate this Lease as of the date when title to the part so condemned vests
in the condemnor or transferee.  All
fixed minimum rent and other amounts due under this Lease shall be paid by
Tenant to the date of any such termination.

 

12.4                           Common Area Taking.  If
so much of the Common Area is taken that in the commercially reasonable
judgement of Landlord the Development will be rendered unsuitable for the continued
use thereof for the purposes for which it was intended, Landlord, or Tenant, if
such taking significantly negatively impacts Tenant’s business, may elect to
terminate this Lease by giving the other party written notice of such election
within sixty (60) days after the date that title to the portion so taken vests
in the condemnor or transferee.  If
either party fails to give such notice, this Lease shall remain in full force
and effect.  If any part of the
Development is taken, but no part of the Premises is taken, and Landlord does
not elect to terminate this Lease, the rent payable hereunder shall not be
reduced, nor shall Tenant be entitled to any part of the award made therefor.  In the event of termination, all fixed
minimum rent and other amounts due under this Lease shall be paid by Tenant to
the date of such termination.

 

12.5                           Repair and Restoration.  If
this Lease is not terminated as provided in this Article 12,  Landlord shall, at its sole expense,
restore with due diligence the remainder of the improvements occupied by Tenant
so far as is practicable to a complete unit of like quality, character, and
condition as that which existed immediately prior to the taking, provided that
the scope of the work shall not exceed the scope of the work to be done by
Landlord originally in construction of the Premises, and further provided that
Landlord shall not be obligated to expend an amount greater than that which was
awarded to Landlord for such taking.  Tenant,
at its sole cost and expense, shall restore its furniture, fixtures and other
allowed leasehold improvements to their condition immediately preceding such
taking.

 

12.6                           Award.  In the event of any taking,
Landlord shall be entitled to the entire award of compensation or settlement in
such proceedings, whether for a total or partial taking or for diminution in the
value of the leasehold or for the fee.  Any
such amounts shall belong to and be the property of Landlord.  Without in any way diminishing the rights of
Landlord under the preceding sentence, Tenant shall be entitled to recover from
the condemnor such compensation as may be separately awarded by the condemnor
to Tenant or recoverable from the condemnor by Tenant in its own right for the
taking of trade

 

13

 

fixtures
and equipment owned by Tenant (meaning personal property, whether or not
attached to real property, which may be removed without injury to the Premises)
and for the expense of removing and relocating them, and for loss of goodwill,
but only to the extent that the compensation awarded to Tenant shall be in
addition to and shall not diminish the compensation awarded to Landlord as
provided above.

 

12.7                           Waiver.  Tenant
hereby waives any statutory and common law rights of termination which may
arise by reason of any partial taking of the Premises under the power of
eminent domain.

 

ARTICLE 13

 

INDEMNITY;
WAIVER

 

13.1                           Indemnification and Waivers.

 

(a)          Indemnity.  To the fullest extent
permitted by law, Tenant shall, at Tenant’s sole cost and expense, Indemnify
Landlord Parties against all Claims arising from (i) any Personal Injury,
Bodily Injury or Property Damage whatsoever occurring in or at the Premises;
(ii) any Bodily Injury to an employee of a Tenant Party arising out of and in
the course of employment of the employee and occurring anywhere in the
Development; (iii) the use or occupancy, or manner of use or occupancy, or
conduct or management of the Premises or of any business therein; (iv) subject
to the waiver of subrogation provisions of this Lease, any act, error, omission
or negligence of any of the Tenant Parties in, on or about the Premises or the
Development; (v) the conduct of Tenant’s business; (vi) any alterations,
activities, work or things done, omitted, permitted or allowed by Tenant
Parties in, at or about the Premises or Development, including the violation of
or failure to comply with, or the alleged violation of or alleged failure to
comply with any applicable laws, statutes, ordinances, standards, rules,
regulations, orders, or judgments in existence on the date of the Lease or
enacted, promulgated or issued after the date of this Lease including Hazardous
Materials Laws (defined below); (vii) any breach or default by Tenant in the full
and prompt payment of any amount due under this Lease, any breach, violation or
nonperformance of any term, condition, covenant or other obligation of Tenant
under this Lease, or any misrepresentation made by Tenant or any guarantor of
Tenant’s obligations in connection with this Lease; (viii) all damages sustained
by Landlord as a result of any holdover by Tenant or any Tenant Party in the
Premises including, but not limited to, any claims by another tenant resulting
from a delay by Landlord in delivering possession of the Premises to such
tenant; (ix) any liens or encumbrances arising out of any work performed or
materials furnished by or for Tenant; (x) commissions or other compensation or charges
claimed by any real estate broker or agent with respect to this Lease by,
through or, under Tenant or, (xi) any matter enumerated in Paragraph
13(b) below.

 

To
the fullest extent permitted by law, Landlord shall, at Landlord’s sole cost
and expense, Indemnify Tenant Parties against all Claims arising from (i) any
Personal Injury, Bodily Injury or Property Damage whatsoever occurring in or at
the remainder of the Development other than the Premises; (ii) any Bodily
Injury to an employee of a Landlord Party arising out of and in the course of
employment of the employee and occurring anywhere in the Development outside
the Premises; (iii) any breach, violation or nonperformance of any term,
condition, covenant or other obligation of Landlord under this Lease; (iv) any
liens or encumbrances arising out of any work performed or materials furnished
by or for Landlord; or (v) commissions or other compensation or charges claimed
by any real estate broker or agent with respect to this Lease by, through or,
under Landlord.

 

(b)         Waivers.  To the fullest extent
permitted by law, Tenant, on behalf of all Tenant Parties, Waives all Claims
against Landlord Parties arising from the following: (i) any Personal Injury, Bodily
Injury, or Property Damage occurring in or at the Premises; (ii) any loss of or
damage to property of a Tenant Party located in the Premises or other part of
the Development by theft or otherwise; (iii) any Personal Injury, Bodily
Injury, or Property Damage to any Tenant Party caused by other tenants of the Development,
parties not occupying space in the Development, occupants of property adjacent
to the Development, or the public or by the construction of any private,
public, or quasi-public work occurring either in the Premises or elsewhere in
the Development; (iv) any interruption or stoppage of any utility service or
for any damage to persons or property resulting from such stoppage; (v)
business interruption or loss of use of the Premises suffered by Tenant; (vi)
any latent defect in construction of the Building; (vii) damages or injuries or
interference with Tenant’s business, loss of occupancy or quiet enjoyment and any
other loss resulting from the exercise by Landlord of any right or the
performance by Landlord of Landlord’s maintenance or other obligations under
this Lease, or (viii) any Bodily Injury to an employee of a Tenant Party
arising out of and in the course of employment of the employee and occurring
anywhere in the Development.

 

(c)          Definitions.  For
purposes of this Article 13:
(i) the term “Tenant Parties” means Tenant, and
Tenant’s officers, members, partners, agents, employees, sublessees, licensees,
invitees and independent contractors, and all persons and entities claiming
through any of these persons or entities; (ii) the term “Landlord
Parties” means Landlord and the members, partners, venturers,
trustees and ancillary trustees of Landlord and the respective officers,
directors, shareholders, members, parents,

 

14

 

subsidiaries
and any other affiliated entities, personal representatives, executors, heirs,
assigns, licensees, invitees, beneficiaries, agents, servants, employees and
independent contractors of these persons or entities; (iii) the term “Indemnify” means indemnify, defend (with
counsel reasonably acceptable to Landlord) and hold free and harmless for, from
and against; (iv) the term “Claims” means
all liabilities, claims, damages (including consequential damages), losses,
penalties, litigation, demands, causes of action (whether in tort or contract,
in law or at equity or otherwise), suits, proceedings, judgments,
disbursements, charges, assessments, and expenses (including attorneys’ and
experts’ fees and expenses incurred in investigating, defending, or prosecuting
any litigation, claim, or proceeding); (v) the term “Waives” means that the Tenant Parties waive and knowingly and
voluntarily assume the risk of; and (vi) the terms “Bodily Injury”, “Personal Injury” and “Property Damage” will have the same
meanings as in the form of commercial general insurance policy issued by
Insurance Services Office, Inc.  most
recently prior to the date of the injury or loss in question.

 

(d)         Scope of Indemnities and Waivers. Except as provided in the following
sentence, the indemnities and waivers contained in this Article 13  shall apply regardless
of the active or passive negligence or sole, joint, concurrent, or comparative
negligence of any of the Landlord Parties, and regardless of whether liability
without fault or strict liability is imposed or sought to be imposed on any of the
Landlord Parties. The indemnities and waivers contained in this Article 13  shall not apply to the extent
of the percentage of liability that a final judgment of a court of competent
jurisdiction establishes under the comparative negligence principles of the
state of Washington, that a Claim against a Landlord Party was proximately
caused by the willful misconduct or gross negligence of that Landlord Party, provided,
however, that in such event the indemnity or waiver will remain valid for all
other Landlord Parties.

 

(e)          Duty to Defend. Tenant’s duty to defend Landlord Parties is
separate and independent of Tenant’s duty to Indemnify Landlord Parties.  Tenant’s duty to defend includes Claims for which
Landlord Parties may be liable without fault or may be strictly liable. Tenant’s
duty to defend applies regardless of whether issues of negligence, liability,
fault, default or other obligation on the part of Tenant Parties have been
determined.  Tenant’s duty to defend
applies immediately, regardless of whether Landlord Parties have paid any sums
or incurred any detriment arising out of or relating, directly or indirectly,
to any Claims.  It is the express
intention of Landlord and Tenant that Landlord Parties will be entitled to
obtain summary adjudication regarding Tenant’s duty to defend Landlord Parties
at any stage of any Claim within the scope of this Article 13.

 

(f)            Obligations Independent of Insurance.  The
indemnification provided in this Article 13
shall not be construed or interpreted as in any way restricting, limiting
or modifying Tenant’s insurance or other obligations under this Lease, and the
provisions of this Article 13
are independent of Tenant’s insurance and other obligations. Tenant’s
compliance with the insurance requirements and other obligations under this
Lease does not in any way restrict, limit or modify Tenant’s indemnification obligations
under this Lease.

 

(g)         Waiver of Immunity.  EACH OF LANDLORD AND TENANT
HEREBY WAIVES ITS IMMUNITY WITH RESPECT TO THE PARTIES INDEMNIFIED UNDER THE
PRECEDING PARAGRAPHS UNDER THE INDUSTRIAL INSURANCE ACT (RCW TITLE 51) AND/OR
THE LONGSHOREMAN’S AND HARBORWORKER’S ACT AND/OR ANY EQUIVALENT ACTS AND EXPRESSLY
AGREES TO ASSUME POTENTIAL LIABILITY FOR ACTIONS BROUGHT AGAINST AN INDEMNIFIED
PARTY BY THE INDEMNIFYING PARTY’S EMPLOYEES. THIS WAIVER HAS BEEN SPECIFICALLY
NEGOTIATED BY THE PARTIES TO THIS LEASE AND EACH PARTY HAS HAD THE OPPORTUNITY
TO, AND HAS BEEN ENCOURAGED, TO CONSULT WITH INDEPENDENT COUNSEL REGARDING THIS
WAIVER.

 

(h)         Survival.  The provisions of this Article 13  will survive the
expiration or earlier termination of this Lease until all Claims against
Landlord Parties involving any of the indemnified or waived matters are fully
and finally barred by the applicable statutes of limitations.

 

ARTICLE 14

 

OPERATION
OF BUSINESS

 

Tenant
shall (a) keep the Premises and interior portions of windows, doors and all
other glass or plate glass fixtures in a neat, clean, sanitary and safe
condition; (b) refrain from burning any papers or refuse of any kind in the
Development; (c) store in the area designated by Landlord all trash and garbage
in neat and clean containers so as not to be visible to members of the public
and arrange for the regular pick-up and cartage of such trash or garbage at
Tenant’s expense, or cooperate in the employment of a trash removal contractor
designated by Landlord, as long as at the same rate or lower rates of other
third party providers, if Landlord deems it desirable to have all waste
materials removed by one contractor; (d) observe and promptly comply with all
governmental requirements and insurance requirements affecting the Premises or
any part of the Common Area which is under Tenant’s exclusive control and
promulgated

 

15

 

during
the term of this Lease; and (e) not use or suffer or permit the Premises or any
part thereof to be used for any use other than the use set forth in the Basic
Lease Provisions or in any manner that will constitute a nuisance or
unreasonable annoyance to the public, to other occupants of the Development or
to Landlord, or that will injure the reputation of the Development, or for any
extra hazardous purpose or in any manner that will impair the structural strength
of the building of which the Premises are a part.

 

ARTICLE 15

 

SIGNS AND
ADVERTISING

 

15.1                           Interior.  Tenant
may at its own expense erect and maintain upon the interior areas of the Premises
all signs and advertising matter customary and appropriate in the conduct of
Tenant’s business, subject to Landlord’s right to remove any signs or
advertising matter which violates Article 14
or this Article 15. The Tenant
shall not affix or maintain upon the glass panes and supports of the exterior windows
and doors, or within twelve inches (12”) of the exterior windows and doors, any
signs, advertising placards, names, insignia, trademarks, descriptive material
or any other such like item or items except such as shall have first received
the written approval of the Landlord as to size, type, color, location, copy,
nature and display qualities.

 

15.2                           Exterior.  Tenant
shall be permitted, but not obligated, to place a sign on the high-image monument
sign which exists in the Development, and shall be permitted to place its
signage on the southern and western fascia of the Building in which the
Premises are situated, at Tenant’s expense, provided such sign conforms in all
respects to the sign criteria established by Landlord for the Development from
time to time, and shall be subject to the prior written approval of Landlord as
to construction, method of attachment, size, shape, height, lighting, color and
general appearance.  All signs and other
advertising media shall comply with all applicable governmental requirements. Except
for signs which comply with the terms of this Article, Tenant shall not erect,
place, paint, or maintain in or on the Premises, any sign, exterior advertising
medium, or any other object of any kind whatsoever, whether an advertising
device or not, visible or audible outside the Premises.  Tenant shall not change the color, size,
location, composition, wording or design of any sign or advertisement on the
Premises that may have been theretofore approved by Landlord, without the prior
written approval of Landlord and the applicable governmental authorities.  Tenant shall at its own expense maintain and
keep in good repair all installations, signs, and advertising devices which it
is permitted or required by Landlord to maintain.

 

ARTICLE 16

 

LIENS

 

Tenant
shall keep the Premises and the Development free of any liens or claims of lien
arising from any work performed, material furnished or obligations incurred by
Tenant.  Notwithstanding the foregoing,
in the event that any lien is recorded in connection with Tenant’s work or
materials, Tenant shall, within twenty (20) days after recording thereof, post
such bond as will release said property from the lien claimed.

 

ARTICLE 17

 

RIGHT OF
ENTRY

 

Landlord
and its authorized agents and representatives shall be entitled to enter the
Premises at all reasonable times to inspect them, to make the repairs which
Landlord is obligated to make under this Lease, to show them to prospective
tenants, purchasers or lenders, to cure a default of Tenant, to post any notice
provided by law that relieves a landlord from responsibility for the acts of a
tenant, to comply with any governmental requirements or insurance requirements,
to post ordinary signs advertising the Premises for sale or for lease, and for
any other lawful purpose relating to Landlord’s rights and obligations under
this Lease.  Landlord shall make
reasonable efforts to notify Tenant 24-hours prior to entering Premises unless
an emergency exists in which case no advance notice shall be required.  Nothing in the preceding sentence shall imply
or impose a duty to make repairs which Tenant has agreed to make hereunder.  Landlord may erect scaffolding and other
necessary structures where reasonably required by the character of the work to
be performed, provided that the entrance to the Premises shall not be
unreasonably blocked.  Landlord shall
have the right to use any means which Landlord may deem proper to enter the
Premises in an emergency.  Landlord’s
entry to the Premises shall not under any circumstances be construed to be a
forcible or unlawful entry into the Premises or an eviction of Tenant from the
Premises.

 

16

 

ARTICLE 18

 

DELAYING CAUSES

 

If
either party is delayed in the performance of any covenant of this Lease
because of any of the following causes (referred to elsewhere in this Lease as
a “delaying cause”): acts of the other
party, action of the elements, war, riot, labor disputes, inability to procure
or general shortage of labor or material in the normal channels of trade, delay
in transportation, delay in inspections, or any other cause beyond the
reasonable control of the party so obligated, whether similar or dissimilar to
the foregoing, financial inability excepted, then, such performance shall be
excused for the period of the delay; and the period for such performance shall
be extended for a period equivalent to the period of such delay, except that
the foregoing shall in no way affect Tenant’s obligation to pay rent or any
other amount payable hereunder, or the length of the term of this Lease.

 

ARTICLE 19

 

ASSIGNMENT AND SUBLEASE

 

19.1                           Consent
Required.  Notwithstanding
anything to the contrary contained in this Lease, Tenant shall not assign this
Lease or any interest herein or any right or privilege appurtenant hereto or
sublet, license, grant any concessions, or otherwise give permission to anyone
other than Tenant to use or occupy all or any part of the Premises (hereinafter
sometimes referred to as a “Transfer”),
without the prior written consent of Landlord,. 
Any actual or attempted Transfer without the Landlord’s prior written
consent or otherwise in violation of the terms of this Lease shall, at Landlord’s
election, be void and shall confer no rights upon any third person, and shall be
a non-curable default under this Lease which shall entitle Landlord to
terminate this Lease upon ten (10) days’ written notice to Tenant at any time
after such actual or attempted Transfer without regard to Landlord’s prior
knowledge thereof.  The acceptance of
rent by Landlord from any person or entity shall not be deemed to be a waiver
by Landlord of any provision of this Lease or consent to any Transfer.  Consent by Landlord to one or more Transfers
shall not be deemed to be consent to any subsequent Transfer.  In addition, the option to extend the term
hereunder shall be personal to Tenant, and shall not be transferred without the
prior written consent of Landlord in accordance with the terms of this Article 19.

 

(a)                                  Notwithstanding anything in this Article 19
to the contrary, neither (a) an assignment or transfer of this Lease as a
result of a merger, a consolidation, public offering, and/or sale of all of
Tenant’s capital stock and/or assets nor (b) an assignment of this Lease to an
Affiliate of Tenant nor (c) transfer of stock to members of the immediate
family of Tenant’s stockholders through gift, will or trust (each of (a), (b),
and (c), a “Permitted Transfer”) shall require a prior consent of Landlord,
provided, however, the same shall not be binding on Landlord until a fully
executed copy of such assignment and/or assumption of this Lease by the
assignee shall have been delivered to Landlord, and further, provided that:

 

(i)             Tenant shall not then be in default under
this Lease;

 

(ii)          In each instance, the succeeding entity shall
assume in writing all of the obligations of this Lease on the part of Tenant;

 

(iii)       In the case of (a) above, the net worth of
the succeeding entity (and any guarantors thereof) immediately following such
assignment shall not be less than the net worth of Tenant (and any guarantors
thereof) as of the date of mutual execution of this Lease;

 

(iv)      In the case of (b) above, any such assignee
in possession of the Premises shall, during such possession, remain an
Affiliate of Tenant;

 

(v)         Such assignment or transfer shall in no
manner relieve Tenant of any of the obligations undertaken by it under this
Lease; and

 

(vi)      The Premises shall continue to be operated
solely for the Permitted Use specified in this Lease and consistent with the
manner in which the Premises were prior to the effective date of (a) and (b);
provided, however, that if at any time thereafter, there is a material or
adverse change in the nature, standard or quality of the operation at the
Premises, Landlord reserves the right to declare such change a breach of this
Lease, subject to the remedies provided for in this Lease.

 

Tenant
shall submit such information as Landlord may reasonably require concerning all
of the foregoing for Landlord’s files.

 

As
used herein, the term “Affiliate” shall mean an entity which (a) directly or
indirectly controls Tenant, or (b) is under the direct or indirect control of
Tenant or (c) is under common direct or indirect control with Tenant.  Control shall mean ownership of 51% or more
of the voting securities or rights of the controlled entity.

 

17

 

19.2                           Request
For Consent.  If
Tenant shall desire Landlord’s consent to any Transfer, Tenant shall notify
Landlord in writing, which notice shall include: (a) the proposed effective
date ; (b) the portion of the Premises subject to the Transfer; (c) all of the
terms of the proposed Transfer and the consideration therefor; (d) the name and
address of the proposed transferee; (e) a copy of the proposed sublease,
instrument of assignment and all other documentation pertaining to the proposed
Transfer; (f) current financial statements of the proposed transferee certified
by an officer, partner or owner thereof; (g) any information reasonably requested
by Landlord to enable Landlord to determine the financial responsibility,
character, and reputation of the proposed transferee and the nature of such
transferee’s business and the proposed use the Premises; and (h) such other
information as Landlord may reasonably request

 

19.3                           Intentionally
Omitted.

 

19.4                           General
Conditions.  If
Landlord consents to a Transfer, such consent shall be subject to the following
conditions, which the parties hereby agree are reasonable:

 

(a)          Payment
of Transfer Premium.  Landlord
shall receive 90% and Tenant shall receive 10% of any Transfer Premium derived
by Tenant from such Transfer.  “Transfer Premium” shall mean all rent and any other
consideration payable by such transferee in excess of the fixed minimum rent
payable by Tenant under this Lease (on a per square foot basis, if less than
all of the Premises is Transferred), after deducting therefrom any brokerage
commissions and legal fees in connection with the Transfer actually paid by
Tenant to an unaffiliated broker and/or attorney, as applicable.  If any part of the consideration for such
Transfer shall be payable other than in cash, Landlord’s share of such non-cash
consideration shall be in such form as is reasonably satisfactory to Landlord.  The Transfer Premium payable hereunder shall
be due within ten (10) days after Tenant receives such payments.

 

(b)         Continued Liability of Tenant.  Tenant shall remain primarily liable on its
covenants hereunder unless released in writing by Landlord. In the event of any
assignment or sublease which is consented to by Landlord, the transferee shall
agree in writing to perform and be bound by all of the covenants of this Lease
required to be performed by Tenant.

 

19.5                           Reserved.

 

19.6                           Transfer Pursuant to Bankruptcy Code.  Anything
to the contrary notwithstanding, if this Lease is assigned (or all or a portion
of the Premises is sublet) to any person or entity pursuant to the provisions
of the Bankruptcy Code, 11 U.  S.  C.  101
et.  seq. 
(the “Bankruptcy Code”), any and all monies
or other consideration payable or otherwise to be delivered in connection with
such assignment or subletting shall be paid or delivered to Landlord, shall be
and remains the exclusive property of Landlord and shall not constitute
property of Tenant or of its estate within the meaning of the Bankruptcy Code.  Any and all monies or other consideration
constituting Landlord’s property under the preceding sentence not paid or
delivered to Landlord shall be held in trust for the benefit of Landlord and be
promptly paid or delivered to Landlord.  Any
assignee pursuant to the Bankruptcy Code shall be deemed to have assumed all of
Tenant’s obligations under this Lease.  Any
such assignee shall on demand by Landlord execute and deliver to Landlord a
written instrument confirming such assumption.

 

ARTICLE 20

 

NOTICES

 

All
notices, requests and demands to be made hereunder shall be in writing at the
addresses set forth in the Basic Lease Provisions by any of the following
means: (a) personal service (including service by overnight courier service);
(b) electronic communication, whether by telex, telegram or facsimile (if
confirmed in writing sent by personal service or by registered or certified,
first class mail, return receipt requested); or (c) registered or certified,
first class mail, return receipt requested. 
Such addresses may be changed by notice to the other party given in the
same manner provided above.  Any notice,
request, or demand sent pursuant to clause (a) or (b) of this Article 20 shall be deemed received
upon such personal service or upon dispatch by electronic means, and if sent
pursuant to clause (c) shall be deemed received three (3) days following
deposit in the mail.

 

ARTICLE 21

 

SURRENDER OF POSSESSION

 

21.1                           Surrender.  At the expiration of the
tenancy created hereunder, whether by lapse of time or otherwise, Tenant shall
surrender the Premises broom clean and in good condition and repair.  This obligation of Tenant shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Tenant’s alterations or Tenant’s Changes, furnishings, and equipment, as well
as the removal of any storage tank installed by or for Tenant (whether or not
the installation was consented to by

 

18

 

Landlord),
and the removal, replacement, or remediation of any soil, material or ground
water contaminated by Tenant’s Permittees, all as may then be required by
applicable Laws.

 

21.2                           Holding Over. If Tenant fails to surrender the Premises at the expiration or
earlier termination of this Lease, occupancy of the Premises after the
termination or expiration shall be that of a tenancy at sufferance.  Tenant’s occupancy of the Premises during the
holdover shall be subject to all the terms and provisions of this Lease and
Tenant shall pay an amount (on a per month basis without reduction for partial
months during the holdover) equal to 150% for the first 90 days of the holdover
period and 200% thereafter, in each case, of the greater of: (1) the sum of the
Minimum Annual Rent and Additional Rent due for the period immediately
preceding the holdover; or (2) the fair market gross rental for the Premises as
determined by Landlord.  No holdover by
Tenant or payment by Tenant after the expiration or early termination of this
Lease shall be construed to extend the Term or prevent Landlord from immediate
recovery of possession of the Premises by summary proceedings or otherwise.  In addition to the payment of the amounts
provided above, if Landlord is unable to deliver possession of the Premises to
a new tenant, or to perform improvements for a new tenant, as a result of
Tenant’s holdover, Tenant shall be liable to Landlord for all damages,
including, without limitation, consequential damages, that Landlord suffers
from the holdover.  Nothing herein shall
be construed as consent to such holding over.

 

ARTICLE 22

 

QUIET ENJOYMENT

 

Subject
to the provisions of this Lease and conditioned upon performance of all of the
provisions to be performed by Tenant hereunder, Landlord shall secure to Tenant
during the Lease term the quiet and peaceful possession of the Premises and all
rights and privileges appertaining thereto, free from hinderance or molestation
by Landlord and those claiming by, through or under Landlord.

 

ARTICLE 23

 

SUBORDINATION

 

Unless
otherwise required by a lender, this Lease shall be subordinate to any mortgage
or deed of trust held by any lender, now or hereafter in force against the
Premises or the Development or any part thereof, and to all advances make or to
be made upon the security thereof.  If
any proceedings are brought for foreclosure, or in the event of the exercise of
the power of sale under any mortgage or deed of trust made by Landlord, Tenant
shall, at the option of the lender or other purchaser at any such foreclosure
or sale, attorn to and recognize the purchaser as the Landlord under this Lease.  Although the subordination in the immediately
preceding sentence shall be self-operating, Tenant agrees, within ten (10)
business days following the request of Landlord, to execute such documents or
instruments as may be requested by Landlord or its lender(s) to confirm such
subordination, provided that such mortgagees or beneficiaries agree in writing
not to disturb Tenant’s possession of the Premises in the event of foreclosure
if Tenant is not in default.  The failure
of Tenant to so timely execute any such instrument or other such document shall
constitute a non-monetary default hereunder. 
If Tenant fails to execute and deliver such instrument or other document
within said ten (10) business day period, Landlord shall use reasonable efforts
to contact, orally or in writing, Tenant to confirm such non-election,
whereafter Tenant hereby appoints Landlord as Tenant’s attorney-in-fact for the
purpose of completing, executing and delivering the same to the person or firm
requesting it.

 

ARTICLE 24

 

ESTOPPEL CERTIFICATE; FINANCIAL STATEMENTS

 

Tenant
shall, at any time and from time to time within ten business (10) days after
written request therefor by Landlord, without change, deliver a certificate to
Landlord or to any person or entity designated by Landlord, certifying the date
the Lease term commenced, the date the rent commenced and is paid through, the
amount of rent and other charges due under the Lease, the expiration date of
the Lease term, that this Lease is then in full force and effect, setting forth
the amount and nature of modifications, defenses, or offsets, if any, claimed
by Tenant, and any other matter concerning the Lease, the Tenant, or the
Premises requested by Landlord or such person or entity.  If Tenant fails to respond within such
10-business day period, Landlord shall use reasonable efforts to contact,
orally or in writing, Tenant prior to declaring a default hereunder.

 

Tenant
acknowledges that it has provided Landlord with certain financial statement(s)
as a material inducement to Landlord’s agreement to lease the Premises to
Tenant, and that Landlord has  relied on the accuracy of such financial statement(s) in entering into
this Lease.  Tenant represents and
warrants that the information contained in such financial statement(s) is true,
complete and correct in all material respects. 
Within twenty (20) days from a written request by Landlord, Tenant will
make

 

19

 

available
to Landlord or to any prospective purchaser or lender of the Development, the
most recent audited financial statements of Tenant and any guarantor, provided,
if Tenant is not a publicly traded entity, that Landlord or any such
prospective purchaser or lender agrees to maintain such statements and
information in confidence.  Notwithstanding
the foregoing, so long as the named Tenant herein is a publicly traded
corporation and its financial information is readily available to the public,
Tenant will not be required to deliver additional financial statements to
Landlord.

 

ARTICLE 25

 

DEFAULT

 

25.1                           Default. The occurrence
of any or more of the following events shall constitute a material breach and
default of this Lease (each, an “Event of
Default”):

 

(a)          Any
failure by Tenant to pay fixed minimum rent, Common Area Expenses, additional
rent or any other charge when due; or

 

(b)         Any
failure by Tenant to observe or perform any other provision, covenant or
condition of this Lease to be observed or performed by Tenant not provided for in
subparagraph (a) above and subparagraphs (c), (d) and (h)
below where such failure continues for thirty (30) days after written notice
thereof by Landlord to Tenant, provided that if the nature of such breach is
such that although curable, the breach cannot reasonably be cured within a
thirty (30) day period, an Event of Default shall not exist if Tenant shall
commence to cure such breach and thereafter rectifies and cures such breach
with due diligence; or

 

(c)          Abandonment
of the Premises; or

 

(d)         A
general assignment by Tenant for the benefit of creditors, or the filing by or
against Tenant of any proceeding under any insolvency or bankruptcy law, or the
appointment of a trustee or receiver to take possession of all or substantially
all of Tenant’s assets located upon the Premises or of Tenant’s interest in
this Lease; or

 

(e)          Any
three (3) or more failures of the type described in Paragraph
25.1(a) in any twelve month period; or

 

(f)            Reserved;
or

 

(g)         The
conducting by Tenant of a going out of business sale, bankruptcy sale or any
similar liquidation sale in violation of the provisions of this Lease where
such sale does not permanently cease within twenty-four (24) hours after
written notice of such violation by Landlord to Tenant; or

 

(h)         The
occurrence of an Event of Default as defined in any other provision of this
Lease.

 

25.2                           Remedies.

 

(a)          Reentry
and Termination. Upon and during the continuance of an Event
of Default, but after all notice and cure periods, Landlord, in addition to any
other remedies available to Landlord at law or in equity, at Landlord’s option,
may without further notice or demand of any kind to Tenant or any other person:

 

1                                          Declare the Lease Term ended and reenter the
Premises and take possession thereof and remove all persons therefrom, and
Tenant shall have no further claim to the Premises; or

 

2.                                       Without declaring this Lease ended, reenter
the Premises and occupy the whole or any part thereof for and on account of
Tenant and collect any unpaid fixed minimum rent, rent, Additional Rent, Common
Area Expenses and other charges, which have become payable, or which may
thereafter become payable; or

 

3.                                       Even though Landlord may have reentered the
Premises, thereafter elect to terminate this Lease and all of the rights of
Tenant in or to the Premises.

 

(b)         Express Termination Required.
Should Landlord have reentered the Premises under the provisions of Paragraph 25.2(a)(2)  above, Landlord
shall not be deemed to have terminated this Lease, or the liability of Tenant
to pay any fixed minimum rent, Common Area Expenses, Additional Rent or other
charges thereafter accruing, or to have terminated Tenant’s liability for
damages under any of the provisions of this Lease, by any such reentry or by
any action, in unlawful detainer or otherwise, to

 

20

 

obtain
possession of the Premises, unless Landlord shall have notified Tenant in
writing that Landlord had elected to terminate this Lease.  Tenant further covenants that the service by
Landlord of any notice pursuant to the unlawful detainer statutes of the State
where the Development is situated and the surrender of possession pursuant to
such notice shall not (unless Landlord elects to the contrary at the time of or
at any time subsequent to the serving of such notices and such election is
evidenced by a written notice to Tenant) be deemed to be a termination of this
Lease.

 

(c)          Damages.  Should Landlord elect to terminate this Lease
pursuant to the provisions of Paragraphs
25.2(a)(1)  or 25.2(a)(3)
above, Landlord may recover from Tenant as damages, the following:

 

1.                                       The worth at the time of award of any unpaid
fixed minimum rent, Common Area Expenses, Additional Rent or other charges which
had been earned at the time of such termination; plus

 

2.                                       The worth at the time of award of the amount
by which the unpaid fixed minimum rent, Common Area Expenses, Additional Rent
or other charges which would have been earned after termination until the time
of award exceeds the amount of such loss Tenant proves could have been
reasonably avoided; plus

 

3.                                       The worth at the time of award of the amount
by which the unpaid fixed minimum rent, Common Area Expenses, Additional Rent
or other charges for the balance of the Lease Term after the time of award
exceeds the amount of such loss that Tenant proves could be reasonably avoided;
plus

 

4.                                       Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant’s failure to perform
Tenant’s obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including, but not limited to any costs or
expenses incurred by Landlord in (i) retaking possession of the Premises,
including reasonable attorneys’ fees, (ii) maintaining or preserving the
Premises after the occurrence of an Event of Default, (iii) preparing the
Premises for reletting to a new tenant, including repairs or alterations to the
Premises for such reletting, (iv) leasing commissions, and (v) any other costs
necessary or appropriate to relet the Premises; plus

 

5.                                       At Landlord’s election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time
by the laws of the State where the Development is situated.

 

(d)         Alternative
Damages.  Should Landlord elect to bring an action
against Tenant in unlawful detainer or for damages or both or otherwise (and
Landlord may bring as many actions as Landlord may elect to bring throughout
the Lease Term), without terminating this Lease, Landlord may recover from
Tenant as damages the following:

 

1.                                       The worth at the time of award of any unpaid
fixed minimum rent, Common Area Expenses, Additional Rent or other charges
which had been earned at the time Landlord recovered possession of the
Premises; plus

 

2.                                       The worth at the time of award of the amount
by which the unpaid fixed minimum rent, Common Area Expenses, Additional Rent
or other charges which would have been earned after the date Landlord recovered
possession until the time of award exceeds the amount of such loss Tenant
proves could have been reasonably avoided; plus

 

3.                                       Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant’s failure to
perform Tenant’s obligations under this Lease, including but not limited to,
any costs or expenses incurred by Landlord in (i) retaking possession of the
Premises, including reasonable attorneys’ fees, (ii) maintaining or preserving
the Premises after the occurrence of an Event of Default, (iii) preparing the
Premises for reletting to a new tenant, including repairs or alterations to the
Premises for such reletting, (iv) leasing commissions, and (v) any other costs
necessary or appropriate to relet the Premises; plus

 

4.                                       At Landlord’s election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time
by the laws of the State where the Development is situated.

 

21

 

(e)          Definitions.  As used in Paragraphs 25.2(c)(1), 25.2(c)(2), and 25.2(d)(1) above, the “worth at the time of award” is computed by allowing
interest at the rate of eighteen percent (18%) per annum.  As used in Paragraphs 25.2(c)(3)
and 25.2(d)(2) above, the “worth at the time of award” is computed by discounting
such amount at the discount rate of the Federal Reserve Bank situated nearest
to the location of the Development at the time of award plus one (1) percentage
point.

 

(f)            Computation of Certain Sums.
For all purposes of this Article 25, Common Area Expenses,
Additional Rent and other charges shall be computed on the basis of the average
monthly amount thereof accruing during the immediately preceding sixty (60)
month period, except that if it becomes necessary to compute such amounts
before such a sixty (60) month period has occurred then such amounts shall be
computed on the basis of the average monthly amounts accruing during such
shorter period.

 

(g)         Reserved.

 

(h)         Cumulative
Remedies. The remedies given to Landlord in this Paragraph 25 shall be in addition
and supplemental to all other rights or remedies which Landlord may have at
law, in equity or by statute and the exercise of any one remedy shall not
preclude the subsequent or concurrent exercise of further or additional
remedies.

 

(i)             No Waiver. The waiver by Landlord of any breach of any term, covenant or
condition herein contained in this Lease shall not be deemed to be a waiver of
such term, covenant or condition of any subsequent breach of the same or any
other term, covenant or condition of this Lease.  The subsequent acceptance of fixed minimum
rent, Common Area Expenses, Additional Rent or other charges due hereunder
shall not be deemed to be a waiver of any preceding breach by Tenant of any
term, covenant or condition of this Lease, other than the failure of Tenant to
pay the particular amount so accepted regardless of Landlord’s knowledge of
such preceding breach at the time of acceptance of such amount.  No covenant, term, or condition of this Lease
shall be deemed to have been waived by Landlord unless such waiver shall be in
writing and signed by Landlord.

 

25.3                           Interest. Any sum accruing to Landlord under the
terms and provisions of this Lease which shall not be paid when due shall bear
interest at the interest rate provided herein from the date the same becomes
due and payable by the terms and provisions of this Lease until paid, unless
otherwise specifically provided in this Lease. 
The interest rate which shall apply shall be lesser of (i) eighteen
percent (18%) per annum or (ii) the highest rate allowed by applicable law.

 

ARTICLE 26

 

INSOLVENCY

 

26.1                           Breach
of Lease.  Subject to the applicable United States
Bankruptcy Code and other laws, the filing of any petition by or against Tenant
under any chapter of the Bankruptcy Act, or any successor statute thereto, or
the adjudication of Tenant as a bankrupt or insolvent, or the appointment of a
receiver or trustee to take possession of all or substantially all of the
assets of Tenant, or a general assignment by Tenant for the benefit of
creditors, or any other action taken or suffered by Tenant under any state or
federal insolvency or bankruptcy act, shall constitute a default under and
breach of this Lease by Tenant, regardless of Tenant’s compliance with the
other provisions of this Lease; and Landlord at its option by written notice to
Tenant may exercise all rights and remedies provided for in Article 25,
including the termination of this Lease, effective of such notice, without
the necessity of further notice under Article 25.

 

26.2                           Operation
of Law. Neither this Lease, nor any interest
herein, nor any estate created hereby, shall pass by operation of law under any
state or federal insolvency or bankruptcy act to any trustee, receiver,
assignee for the benefit of creditors or any other person whatsoever without
the prior written consent of Landlord, which shall not be unreasonably withheld.
 Any purported transfer in violation of
the provisions of this Paragraph 26.2
shall constitute a default under and breach of this Lease, regardless of
Tenant’s compliance with the other provisions of this Lease; and Landlord at
its option by written notice to Tenant may exercise all rights and remedies
provided for in Article 25,  including the termination of
this Lease, effective on service of such notice without the necessity of
further notice under Article 25.

 

26.3                           Non-Waiver. The acceptance of rent at any time and from time to time by Landlord
from Tenant as debtor in possession or from a transferee of the type mentioned
in Paragraph 26.2, shall
not preclude Landlord from exercising its rights under this Article 26  at any time hereafter.

 

26.4                           Events of Bankruptcy. The following shall be Events of Bankruptcy
under this Lease:

 

22

 

(a)          Tenant’s becoming insolvent, as that term is
defined in Title 11 of the United States Code, entitled Bankruptcy, U.S.C.  Sec.  101
et.  seq. 
(the “Bankruptcy Code”), or under the
insolvency laws of the State in which the Premises are situated (“Insolvency Laws”);

 

(b)         The appointment of a receiver or custodian
for any or all of Tenant’s property or assets, or the institution of a
foreclosure action upon any of Tenant’s real or personal property;

 

(c)          The filing of a voluntary petition under the
provisions of the Bankruptcy Code or Insolvency Laws;

 

(d)         The filing of an involuntary petition against
Tenant as the subject debtor under the Bankruptcy Code or Insolvency Laws,
which is either not dismissed within sixty (60) days of filing, or results in
the issuance of an order for relief against the debtor, whichever is later; or

 

(e)          Tenant’s making or consenting to an
assignment for the benefit of creditors or a common law composition of
creditors.

 

26.5                           Landlord’s
Remedies.

 

(a)          Termination
of Lease.  Upon
occurrence of an Event of Bankruptcy, Landlord shall have the right to
terminate this Lease by giving written notice to Tenant; provided, however,
that this Paragraph 26.5(a) shall have no effect while a case in
which Tenant is the subject debtor under the Bankruptcy Code is pending, unless
Tenant or its Trustee is unable to comply with the provisions of Paragraph 26.5(d) and (e) below.  At
all other times this Lease shall automatically cease and terminate, and Tenant
shall be immediately obligated to quit the Premises upon the giving of notice
pursuant to this Paragraph 26.5(a).
 Any other notice to quit, or notice of
Landlord’s intention to re-enter is hereby expressly waived. If Landlord elects
to terminate this Lease, everything contained in this Lease on the part of
Landlord to be done and performed shall cease without prejudice; subject,
however, to the rights of Landlord to recover from Tenant all rent and any
other sums accrued up to the time of termination or recovery of possession by
Landlord, whichever is later, and any other monetary damages or loss of
reserved rent sustained by Landlord.

 

(b)         Suit
for Possession.  Upon
termination of this Lease pursuant to Paragraph 26.5(a), Landlord
may proceed to recover possession under and by virtue of the provisions of laws
of any applicable jurisdiction, or by such other proceedings, including
re-entry and possession, as may be applicable.

 

(c)          Non-Exclusive
Remedies. Without regard to any action by Landlord as
authorized by Paragraph 26.5(a) and (b) above, Landlord may at its discretion exercise all the additional
provisions set forth in Article 25.

 

(d)         Assumption or Assignment by Trustee.  In
the event Tenant becomes the subject debtor in a case pending under the
Bankruptcy Code, Landlord’s right to terminate this Lease pursuant to Paragraph 26.5(a) shall be subject
to the rights of the Trustee in Bankruptcy to assume or assign this Lease.  The Trustee shall not have the right to
assume or assign this Lease unless the Trustee (i) promptly cures all defaults
under this Lease, (ii) promptly compensates Landlord for monetary damages
incurred as a result of such default, and (iii) provides adequate assurance of
future performance on the part of Tenant as debtor in possession or on the part
of the assignee Tenant.

 

(e)          Adequate Assurance of Future Performance. Landlord and Tenant hereby agree in advance
that adequate assurance of future performance, as used in Paragraph
26.5(a) above, shall mean that all of the following minimum
criteria must be met: (i) Tenant must pay its estimated pro rata share of the
cost of all services provided by Landlord (whether directly or through agents
or contractors and whether or not previously included as part of the minimum or
base rent), in advance of the performance or provision of such services; (ii)
the Trustee must agree that Tenant’s business shall be conducted in a first
class manner, and that no liquidating sales, auctions, or other non-first class
business operations shall be conducted on the Premises (iii) the Trustee must
agree that the use of the Premises as stated in this Lease will remain
unchanged and that no prohibited use shall be permitted; and (iv) the Trustee
must agree that the assumption or assignment of this Lease will not violate or
affect the rights of other tenants in the Development.

 

(f)            Failure to Provide Adequate Assurance.  In
the event Tenant is unable to (i) cure its defaults, (ii) reimburse the
Landlord for its monetary damages, (iii) pay the rent due under this Lease and
all other payments required of Tenant under this Lease on time (or within three
(3) days), or (iv) meet the criteria and obligations imposed by Paragraph 26.5(d)  above, Tenant agrees
in advance that it has not met
its burden to provide adequate assurance of future performance, and this Lease
may be terminated by Landlord in
accordance with Paragraph 26.5(a)
above.

 

23

 

ARTICLE 27

 

REMEDIES CUMULATIVE

 

The various rights, elections, and remedies of Landlord and Tenant
contained in this Lease shall be cumulative, and no one of them shall be
construed as exclusive of any other, or any right, priority, or remedy allowed
or provided for by law.

 

ARTICLE 28

 

ATTORNEY’S FEES

 

If either party hereto shall file any action or bring any proceeding
against the other party arising out of this Lease or for the declaration of any
rights hereunder, the prevailing party therein shall be entitled to recover
from the other party all costs and expenses, including reasonable attorneys’
fees, incurred by the prevailing party as determined by the court.  If either party (“secondary party”) without its fault is made a party to
litigation instituted by or against the other party, the primary party shall
pay to the secondary party all costs and expenses, including reasonable
attorneys’ fees, incurred by the secondary party in connection therewith.

 

ARTICLE 29

 

WAIVER OF DEFAULT

 

The waiver by either party of any default in the performance by the
other of any covenant contained herein shall not be construed to be a waiver of
any preceding or subsequent default of the same or any other covenant contained
herein.  The subsequent acceptance of
rent or other sums hereunder by Landlord shall not be deemed a waiver of any
preceding default other than the failure of Tenant to pay the particular rent
or other sum or portion thereof so accepted, regardless of Landlord’s knowledge
of such preceding default at the time of acceptance of such rent or other sum.

 

ARTICLE 30

 

NO PARTNERSHIP

 

Landlord shall not in any way for any purpose be deemed a partner,
joint venturer or member of any joint enterprise with Tenant.

 

ARTICLE 31

 

SUBTENANCIES

 

The voluntary or other surrender of this Lease by Tenant or a mutual
cancellation of this Lease shall not effect a merger and shall, at Landlord’s
option, terminate all existing subtenancies or operate as an assignment to
Landlord of any or all of such subtenancies.

 

ARTICLE 32

 

SUCCESSORS

 

This Lease shall be binding upon and shall inure to the benefit of the
parties hereto and their successors and permitted assigns.  The term “successors” is
used herein in its broadest possible meaning and includes, but is not limited
to, every person succeeding to any interest in this Lease or the premises of
Landlord or Tenant herein whether such succession results from the act or
omission of such party.  Every covenant
and condition of this Lease shall be binding upon all assignees, subtenants,
licensees, and concessionaires of Tenant.

 

ARTICLE 33

 

REMOVAL OF TENANT’S PROPERTY

 

Upon the expiration of the term of this Lease or upon any earlier
termination thereof, Tenant shall remove at its own expense all trade fixtures,
equipment, inventory, and personal property (collectively called “Tenant’s property”) in this Lease which
were installed by Tenant or any subtenant, concessionaire or licensee in or
upon the Premises.  All equipment and
personal property which existed in the Premises prior to the Lease Commencement
shall remain thereon.  In case of any
injury or damage to the building or any portion of the Premises resulting from
the removal of Tenant’s property, Tenant shall promptly pay to Landlord the
cost of repairing such injury or damage, excepting normal wear and tear

 

24

 

over
the term of the lease.  Tenant shall also
remove at its own expense all of its racking and mezzanine storage equipment,
and shall repair, or promptly reimburse Landlord for the cost of repairing, all
damage done to the Premises or the Building by such removal.  Tenant shall complete all of the foregoing
repairs, restoration and removal by the time provided in the first sentence of
this Article 33 unless prevented
from so doing by a delaying cause, or Landlord may, at Landlord’s option,
retain any or all of Tenant’s property, and title thereto shall thereupon vest
in Landlord without the execution of documents or sale or conveyance by Tenant;
or Landlord may remove any or all items of Tenant’s property from the Premises
and dispose of them in any manner Landlord sees fit, and Tenant shall pay upon
demand to Landlord the actual expense of such removal and disposition together
with interest from the date of payment by Landlord until repayment by Tenant.

 

ARTICLE 34

 

EFFECT OF CONVEYANCE

 

If, during the term of this Lease, Landlord conveys its interest in the
Development, the Premises or this Lease, then, from and after the effective
date of such conveyance, Landlord shall be released and discharged from any and
all further obligations and responsibilities under this Lease, and the transferee
shall be deemed, without any further agreement between the parties or their
successors in interest or between the parties and any such transferee, to have
assumed and agreed to carry out any and all of the covenants and obligations of
the Landlord under this Lease.  Any
security given by Tenant to secure performance of its obligations hereunder may
be transferred and assigned by Landlord to such transferee.

 

ARTICLE 35

 

LANDLORD’S DEFAULT; NOTICE TO LENDER

 

35.1                           Landlord’s
Default.  In
the case of a default by Landlord, Landlord shall commence promptly to cure
such default immediately after receipt of written notice from Tenant specifying
the nature of such default and shall complete such cure within thirty (30) days
thereafter, provided that if the nature of such default is such that it cannot
be cured within said thirty (30) day period, Landlord shall not be in default
hereunder if Landlord shall commence to cure such breach and thereafter
rectifies and cures such breach with due diligence.

 

35.2                           Notice
to Lender.  Whenever
Tenant is required to serve notice on Landlord of Landlord’s default, written
notice shall also be served at the same time upon the mortgagee under any first
mortgage or beneficiary under any first deed of trust, so long as Landlord has
provided Tenant with written notice of such mortgagee. Such mortgagee or
beneficiary shall have the periods of time within which to cure Landlord’s
defaults as are provided in Paragraph 35.1,
which periods shall commence to run ten (10) days after the commencement of the
periods within which Landlord must cure its defaults under Paragraph
35.1.  In this connection,
any representative of the mortgagee or beneficiary shall have the right to
enter upon the Premises for the purpose of curing the Landlord’s default. Such
mortgagee or beneficiary shall notify Landlord and Tenant in the manner
provided by Article 20 of the address
of such mortgagee or beneficiary to which such notice shall be sent, and the
agreements of Tenant hereunder are subject to prior receipt of such notice.

 

35.3                           Independent Covenants; Limitation of Remedies.  The
obligations of Landlord and Tenant, respectively, under this Lease are
expressly agreed by the parties to be independent covenants.  If Landlord fails to perform any obligation
under this Lease required to be performed by Landlord, Tenant shall have no
right to: (i) terminate this Lease; (ii) avail itself of self-help or to
perform any obligation of Landlord except as expressly permitted in Section 35.1
above; (iii) abate or withhold any rent or any other charges or sums payable by
Tenant under this Lease; or (iv) any right of setoff.  If Landlord is in default hereunder, and as a
consequence Tenant recovers a money judgment against Landlord, such judgment
shall be satisfied only out of the proceeds of sale received on execution of
the judgment and levy against the right, title and interest of Landlord in the
Premises, and out of rent or other income from the Premises receivable by
Landlord or out of the consideration received by Landlord from the sale or
other disposition of all or any part of Landlord’s right, title and interest in
the Premises.  Neither Landlord, nor any
agent, officer, director, partner or employee of Landlord shall be personally
liable for any portion of such a judgment.

 

ARTICLE 36

 

CONSENT

 

In consideration of each covenant made elsewhere under this Lease
wherein one of the parties agrees not to unreasonably withhold its consent or
approval, the requesting party hereby releases the other and waives all claims
for any damages arising out of or connected with any alleged or claimed

 

25

 

unreasonable
withholding or consent or approval, and the requesting party’s sole remedy shall be to have the consent granted.

 

ARTICLE 37

 

INTERPRETATION

 

The captions by which the articles and paragraphs of this Lease are
identified are for convenience only, and shall not affect the interpretation of
this Lease.  Wherever the context so
requires, the singular number shall include the plural, the plural shall refer
to the singular and the neuter gender shall include the masculine and feminine
genders.  If there is more than one
signatory hereto as Tenant, the liability of such signatories shall be joint
and several.  If any provision of this
Lease shall be held to be invalid by a court, the remaining provisions shall
remain in effect and shall in no way be impaired thereby.

 

ARTICLE 38

 

ENTIRE INSTRUMENT

 

It is understood that there are no oral agreements between the parties hereto affecting this Lease, and this Lease supersedes and cancels any
and all previous negotiations, arrangements, brochures, agreements and
understandings, if any, between the parties hereto or displayed by Landlord to
Tenant with respect to the subject matter thereof, and none thereof shall be
used to interpret or construe this Lease. All of the agreements heretofore and
contemporaneously made by the parties are contained in this Lease, and this
Lease cannot be modified in any respect except by a writing executed by
Landlord and Tenant.

 

ARTICLE 39

 

EASEMENTS

 

This Lease is made expressly subject to:

 

(a)          any
conditions, covenants and restrictions and/or easements of record on the
Premises and/or the Development; and

 

(b)         any
easements for utilities or ingress and egress which now or hereafter may be
placed of record by Landlord for purposes of the common benefit of the
occupants of the Development.  Tenant
agrees, subject to the provisions of Article 23,
to execute such documents necessary to subordinate its interest hereunder to
such easements.

 

ARTICLE 40

 

SALE BY LANDLORD

 

The Premises and/or Landlord’s interest under this Lease may be freely
sold or assigned by Landlord, and in the event of any such sale or assignment,
the covenants and obligations of Landlord herein shall be binding
on each successive “landlord,” and its successors and assigns, only during
their respective periods of ownership.

 

ARTICLE 41

 

CANCELLATION BY LANDLORD

 

In the event that the Lease Commencement Date has not occurred within two (2) years following the date of execution hereof for any reason
other than a default by Landlord hereunder, then Landlord shall have the right
to cancel this Lease with no obligation or liability whatsoever upon notice to
Tenant.

 

ARTICLE 42

 

RESERVED

 

ARTICLE 43

 

WAIVER OF TRIAL BY JURY

 

Tenant hereby waives trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto on any matters whatsoever
arising out of or in any way connected with this Lease, including without
limitation, the relationship of Landlord and Tenant, Tenant’s use or occupancy
of the

 

26

 

Premises,
or any claim of injury or damage, or the enforcement of any remedy under any
law, statute, or regulation.

 

ARTICLE 44

 

HAZARDOUS SUBSTANCES

 

44.1                           Indemnity.  Tenant shall be solely
responsible and liable for, and shall indemnify, defend and hold harmless
Landlord for, from and against any and all Hazardous Substances, unless
determined to be pre-existing, existing on the Premises or the Development or
any other property, or present in or on the air, ground water, soil, buildings
or other improvements or otherwise in, on, under or about the Premises or the
Development or any other property, resulting from the Handling by Tenant’s
Permittees of any Hazardous Substance during the period of Tenant’s occupancy
or use of the Premises.  Without limiting
the generality of the foregoing, Tenant shall, at any time during the term of
the Lease and at the end of the term of the Lease, perform all work necessary
to render the Premises or any other property “clean” and free of all Hazardous
Substances, in accordance with all present and then-applicable Laws.

 

44.1.1 Nothing else in this Lease notwithstanding, Tenant shall be
responsible for only the Hazardous Substances introduced to or released at the
Development by the Tenant, its agents, contractors and employees.  Tenant shall have no liability to Landlord
for Hazardous materials installed in the Premises or the Common Areas by Landlord,
previous tenants or their agents, contractors, employees or other parties.

 

44.2                           Covenant.  Tenant shall not cause or
permit any Hazardous Substance to be Handled in, upon,
under or about the Premises (or any part thereof) or any part of the Development
by Tenant’s Permittees without the prior written consent of Landlord.  Notwithstanding the foregoing, Tenant shall
promptly deliver to Landlord true copies of all governmental permits and
approvals relating to the Handling of Hazardous Substances and all
correspondence sent or received by Tenant’s Permittees regarding any Handling
of Hazardous Substances in or about the Premises, including, without
limitation, inspection reports and citations.

 

44.3                           Definitions.  As used in this Article 44, the following terms shall have the following definitions:

 

(a)          “Hazardous Substance” means any chemical, compound, material, substance or other matter that:
(i) is a flammable explosive, asbestos, radioactive material, nuclear medicine
material, drug, vaccine, bacteria, virus, hazardous waste, toxic substance,
petroleum product, or related injurious or potentially injurious material,
whether injurious or potentially injurious by itself or in combination with
other Substance; (ii) is controlled, designated in or governed by any Hazardous
Substance Law; (iii) gives rise to any reporting, notice or publication
requirements under any Hazardous Substance Law; or (iv) gives rise to any
liability, responsibility or duty on the part of Tenant or Landlord with
respect to any third person under any Hazardous Substance Law.

 

(b)         “Handle”
or “Handled” or “Handling” means generated, produced, brought upon, used,
handled, stored, treated or disposed of.

 

(c)          “Tenant’s
Permittees” means and
includes Tenant, Tenant’s employees, licensees, contractors, subcontractors,
representatives, agents, officers, partners, directors, subtenants, sub- subtenants
and invitees:

 

(d)         “Laws” means all applicable present and future
laws, ordinances, rules, regulations, statutes, requirements, actions, policies,
and common law of any local, state, Federal or quasi- governmental agency,
body, board or commission.

 

44.4                           Breach
of Obligations.  If
Tenant breaches the obligations set forth in Paragraphs 44.1 and 44.2 of
this Lease, or if the presence of Hazardous Substances in, upon, under or about
the Premises, excluding pre-existing Hazardous Substances not released by
Tenant or its agents, employees or contractors, caused or permitted by Tenant’s
Permittees results in contamination of the Premises or any other property, or
if contamination of the Premises or any other property by Hazardous Substances
otherwise occurs or exists at any time during or after the term of this Lease,
resulting from Tenant’s Permittee’s use of the Premises, then Tenant shall
indemnify, defend and hold Landlord harmless from and against any and all
liabilities, costs, expenses, claims, judgments, damages, penalties, fines or
losses (including without limitation, damages for the loss or restriction on
use of rentable or usable space or of any amenity of the Premises or the
Development, claims by any government agency or other third parties, and sums
paid in settlement of claims, attorneys’ fees, consultants’ fees, experts’ fees
and the like) which arise at any time during the term of this Lease or after
the term of this Lease as a direct result therefrom.  This obligation of Tenant to indemnify,
defend and hold Landlord harmless shall survive and extend beyond the
expiration or earlier termination of this Lease and includes, without limitation,

 

27

 

indemnification
against all costs incurred in connection with any investigation of site
conditions or any studies, testing, reports, monitoring, clean-up,
detoxification, decontamination, repairs, replacements, restoration and
remedial work required by any federal, state or local governmental agency,
authority or political subdivision because of any Hazardous Substance present
in soil, ground water, air, buildings or other improvements or otherwise in,
upon, under or about the Premises or the adjacent Development or any other
property, air or water.  Without limiting
the foregoing, if the presence of any Hazardous Substance in, on, under or
about the Premises or the Development due to the Handling of Hazardous
Substances by Tenant’s Permittees results in contamination of the Premises or
the Development or any other property, air or water, Tenant shall immediately
take all actions at its sole cost and expense as are necessary or appropriate
to return the Premises and the Development to the condition existing prior to
the Handling, provided that Tenant obtains Landlord’s prior written approval of
such actions and of the contractors and other persons performing such actions,
which approval shall not be unreasonably withheld, so long as such actions
would not potentially have any materially adverse long-term or short-term
effect on the Premises or the Development. 
In any event, any and all actions by Tenant to return the Premises and
the Development to the condition existing prior to the Handling of any such
Hazardous Substance shall be done in compliance with all Laws, and in such a
manner and at such times as to avoid interference with and/or inconvenience to
any or all other tenants, occupants, contractors and invitees of any adjacent
property to the maximum extent possible. 
It is the intent of Landlord and Tenant (and Landlord and Tenant hereby
agree) that Landlord shall have no liability whatsoever for the existence or
presence of Hazardous Substances in, upon, under or about the Premises
resulting from the Handling of any Hazardous Substances in connection with
Tenant’s occupancy or use of the Premises, and that Tenant shall have sole and
absolute responsibility for the existence or presence of Hazardous Substances
in, upon, under or about the Premises and shall fully indemnify and hold
Landlord harmless from and against any liabilities, costs, expenses (including
attorneys’ fees), claims, judgments, damages, demand, penalties, fines and
losses arising from or in connection with the existence or presence of
Hazardous Substances in, upon, under or about the Premises or the migration
thereof from or to the Premises resulting from the Handling of any Hazardous
Substances in connection with Tenant’s occupancy or use of the Premises.  Tenant’s obligations under this Article shall
survive the termination of this Lease.

 

44.5                           Handling;
Notices. Without in any way diminishing or waiving
the limitations on and obligations of Tenant set forth in this Article 44, if Tenant’s
Permittees Handle Hazardous Substances in, upon, under or about the Premises,
such Handling shall be done in full compliance with all Laws.  In that connection, Landlord and its agents
and representatives shall have the right, but not the obligation, at Tenant’s
cost, to enter onto and to inspect the Premises and conduct investigations,
studies, tests, reports, monitoring and analysis of the Premises and any and
all Hazardous Substances at any and all reasonable times to determine whether
Tenant is complying with its obligations under this Lease; provided, however,
that before Landlord enters the Premises to conduct any such tests or
investigations, Landlord shall provide Tenant with at least five (5) working
days’ prior notice.  Furthermore, Tenant
shall immediately upon receipt thereof, provide to Landlord written notice of
the following:

 

(a)          Any
enforcement, clean-up or other regulatory action taken or threatened by any
governmental authority (including, without limitation, the Washington State Department
of Ecology or any other federal, state or local governmental entity) with
respect to the presence of any Hazardous Substances in, upon under or about the
Premises or the migration thereof from or to other property;

 

(b)         All
demands or claims made or threatened by any third party against Tenant or the
Premises relating to any loss or injury resulting from any Hazardous
Substances;

 

(c)                                  Any spill, release, discharge or disposal of
Hazardous Substances in, upon, under or about the Premises;

 

(d)                                 All matters with respect to which Tenant is
required to give notice pursuant to any applicable health and safety
regulations.

 

Landlord shall have the right to join and participate in, as a party if
it so elects, any legal proceedings or actions affecting the Premises initiated
in connection with any Hazardous Substances or related laws.

 

44.6                           Landlord
Representations.  Landlord represents and warrants, to the best
of its knowledge, that the Building and Premises do not contain any asbestos,
PCB’s, underground storage tanks, or other Hazardous Substances and that the
Premises shall be in compliance with all applicable federal, state and local
ordinance and laws relating to environmental protection and/or Hazardous
Substances as of the Commencement Date of this Lease.

 

28

 

ARTICLE 45

 

AUTHORITY

 

If Tenant is other than a natural person, each person executing this
Lease on behalf of Tenant hereby covenants and warrants to Landlord that: such person is duly authorized to execute this Lease on behalf
of Tenant; Tenant is duly qualified in all respects; all steps have been taken
prior to the date hereof to qualify Tenant to do business in the state in which
the Premises are situated; all franchise and other taxes have been paid to
date; and all forms, reports, fees and other documents necessary to comply with
applicable laws will be filed when due.  Tenant
will furnish to Landlord promptly upon demand, a corporate resolution, proof of
due authorization of partners, or other appropriate documentation reasonably
requested by Landlord evidencing the due authorization of Tenant to enter into
this Lease.

 

ARTICLE 46

 

BROKERS

 

Tenant hereby represents and warrants that, other than Landlord’s
Broker and Tenant’s Broker, Tenant has not employed any broker with regard to
this Lease and that Tenant has no knowledge of any other broker being
instrumental in bringing about this Lease transaction.  Tenant shall indemnify Landlord against any
expense incurred by Landlord as a result of any claim for brokerage or other
commissions made by any other broker, finder, or agent, whether or not
meritorious, employed by Tenant or claiming by, through or under Tenant. Tenant
acknowledges that Landlord shall not be liable for any representations of Landlord’s
leasing agent or other agents of Landlord regarding this Lease transaction
except for the representations and covenants of Landlord expressly set forth in
this Lease.

 

Landlord shall pay brokerage commissions due to Landlord’s Broker.  Through Landlord’s Leasing Agreement with
Landlord’s broker, Tenant’s Broker shall be paid for the initial Premises any
and any ROFO Space added pursuant to Section 1.4 above, a commission equal
to the sum of (x) five percent (5%) of the Minimum Monthly Rent payable during
Lease Months 1-60, and (y) two and one-half percent (2.5%) of the Minimum
Monthly Rent payable during Lease Months 61-89; such commission to be payable
one-half upon mutual execution hereof and one-half upon the Commencement Date
hereof (or, with respect to any ROFO Space, one-half upon Tenant’s election to
lease such ROFO Space and one-half upon Tenant’s taking occupancy thereof).  If Tenant exercises its first 5-year Extended
Term option pursuant to Section 3.2 above, Tenant’s Broker shall be paid
an additional commission equal to two and one-half percent (2.5%) of the
Minimum Monthly Rent payable during the first Extended Term, payable one-half
upon exercise of such option and one-half upon the Commencement Date thereof.

 

29

 

IN
WITNESS WHEREOF, the parties hereto have executed this lease the day and year
first above written.

 

	
   

  	
  LANDLORD:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MERRILL CREEK HOLDINGS, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  WASHINGTON
  REAL
  ESTATE HOLDINGS,

  LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Brent Lower

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Brent
  Lower

  	
   

  
	
   

  	
   

  	
  Its:

  	
  Senior
  Vice President

  	
   

  
	
   

  	
   

  	
  Date:

  	
  8/2/04

  	
   

  
							

 

	
   

  	
  TENANT:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZUMIEZ, INC., A DELAWARE CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Brenda I.  Morris 

  	
   

  
	
   

  	
  Name:

  	
  Brenda
  I.  Morris 

  	
   

  
	
   

  	
  Its:

  	
  CFO,
  Secretary

  	
   

  
	
   

  	
  Date:

  	
  8/4/02

  	
   

  
						

 

30

 

	
  STATE
  OF WASHINGTON

  	
   

  
	
   

  	
   

  
	
   

  	
  ss.

  
	
   

  	
   

  
	
  COUNTY
  OF KING

  	
   

  

 

I certify that I know or have satisfactory evidence
that Brent Lower is the person who appeared before me, and said person
acknowledged that said person signed this instrument, on oath stated that said
person was authorized to execute the instrument and acknowledged it as the Sr. Vice
Pres. of WASHINGTON REAL ESTATE HOLDINGS, LLC, a Washington
limited liability company, the Sr. Vice Pres. of MERRILL CREEK HOLDINGS, LLC, a
Washington limited liability company, to be the free and voluntary act of such
limited liability company for the uses and purposes mentioned in the
instrument.

 

	
   

  	
  Dated
  this

  	
  2nd

  	
   day of

  	
  August

  	
  ,
  2004.

  

 

 

	
   

  	
   

  	
  /s/
  Trina K. Olsen

  	
   

  
	
   

  	
   

   

  [SEAL]

  	
  (Signature
  of Notary)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Trina
  K. Olsen

  	
   

  
	
   

  	
  (Legibly
  Print or Stamp Name of Notary)

  	
   

  
	
   

  	
  Notary
  public in and for the state of Washington,

  	
   

  
	
   

  	
  residing
  at

  	
  Kirkland

  	
   

  
	
   

  	
  My
  appointment expires  

  	
  10-14-06

  	
   

  
						

 

 

	
  STATE
  OF WASHINGTON

  	
   

  
	
   

  	
   

  
	
   

  	
  ss.

  
	
   

  	
   

  
	
  COUNTY
  OF KING

  	
   

  

 

I certify that I know or have satisfactory evidence
that Brenda I. Morris is the person who appeared
before me, and said person acknowledged that said person signed this
instrument, on oath stated that said person was authorized to execute the
instrument and acknowledged it as the CFO of ZUMIEZ, Inc., a Delaware
corporation, to be the free and voluntary act of such corporation for the uses
and purposes mentioned in the instrument.

 

	
   

  	
  Dated
  this

  	
  2nd

  	
   day of

  	
  August

  	
  ,
  2004.

  

 

 

	
   

  	
   

  	
  /s/
  Katrina L.  Basic

  	
   

  
	
   

  	
  (Signature
  of Notary)

  	
   

  
	
   

  	
   

  
	
  /s/
  Katrina L.  Basic

  	
   

  
	
  (Legibly
  Print or Stamp Name of Notary)

  	
   

  
	
  Notary
  public in and for the state of Washington,

  	
   

  
	
  residing
  at

  	
   

  	
   

  
	
  My
  appointment expires  

  	
   

  	
   

  
						

 

31

 

EXHIBIT “A”

 

CONSTRUCTION
AND ACCEPTANCE OF PREMISES

 

 

A-1

 

 

EXHIBIT  “A”

 

CONSTRUCTION AND ACCEPTANCE OF PREMISES

 

	
  LANDLORD:

  	
   

  	
  MERRILL
  CREEK HOLDINGS LLC

  
	
   

  	
   

  	
   

  
	
  TENANT:

  	
   

  	
  ZUMIEZ,
  INC.

  
	
   

  	
   

  	
   

  
	
  PREMISES:

  	
   

  	
  6300
  Merrill Creek Parkway, Everett, Washington

  

 

The purpose of this Work Letter is to set forth how, by whom, and at
whose cost the improvements comprising the Landlord Work and Tenant Work (each
defined below) are to be constructed. The dates for submission of plans and
documents to Landlord pursuant to Section 2.3 below are as follows:

 

	
  (A)

  	
   

  	
  Schematic Plans:

  	
   

  	
  Completed & attached
  as Schedules A-2 & A-3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (B)

  	
   

  	
  Final Preliminary Plans:

  	
   

  	
  September 15, 2004

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (C)

  	
   

  	
  Final Construction Plans:

  	
   

  	
  October 1, 2004

  

 

The preliminary construction schedule for Landlord Work and Tenant Work
(subject to change) is attached hereto as Schedule A-4.

 

1.            Tenant Work.

 

Improvements to the Premises that are in addition to those identified
herein as “Landlord’s Work” are herein called the “Tenant Work.” Tenant Work shall be completed by Landlord at
Tenant’s expense, and Landlord’s Work shall be completed by Landlord at
Landlord’s expense. The same procedure shall pertain to any matters referred to
in this Exhibit as being at Tenant’s expense or a charge to Tenant Work. Tenant
Work, and costs charged to Tenant Work, shall include without limitation:

 

(a)           The work described on Schedule A-l attached hereto and made a
part hereof for all purposes. Upon completion of the final plans and
specification for the Tenant Work as set forth in Section 2 below, Landlord and
Tenant shall enter into an amendment of this Exhibit to include the list of
final plans and specifications in Schedule A-l.

 

(b)           All changes or additions made, at Tenant’s request, (i) to Landlord’s
Work (as described below) to the extent that the cost to Landlord of completing
Landlord’s Work is increased by the aggregate of all such changes or additions
or (ii) to the Tenant Work.

 

(c)           Any structural modification to the Building or Development with respect
to the Tenant Work, which shall be subject to Landlord’s consent.

 

(d)           The fees of architects, engineers, consultants and contractors, including
Landlord’s Construction Manager (defined below), for services with respect to
the Tenant Work.

 

(e)           All applicable Washington State sales tax.

 

(f)            Fees and expenses for all permits, including
building, special energy and structural modification permits and other
governmental fees, except for the permits required for Landlord’s Work.

 

(g)           Any other costs referred to in this Exhibit as being at Tenant’s
expense or a charge to Tenant Work.

 

1A.                           Landlord’s Work.  Landlord shall perform the following items
(which are depicted on Schedule A-3 and Exhibit B) of work at its sole expense:

 

Exterior:

 

a.             Provide additional asphalt paving
at truck maneuvering area. Work to include removal of existing sidewalks and
planters adjacent to north face of the Building B wing. Asphalt paving to be 3”
compacted class “B” asphalt concrete pavement on 6” compacted crushed rock base
course on 12” subgrade compacted to 95%.

 

2

 

b.           Install (12) dock high truck doors
(II on north elevation, 1 on west  elevation), with canopies, dock levelers and dock seals at each new
opening per plan. Dock doors, canopies and dock seals to match existing.
Relocate trash compactor at west end of building for Tenants exclusive use.

 

Interior:

 

a.            Infill existing openings between
building link and Building A wing. Provide GWB each side of 3  5/8” metal studs (paint).

 

b.           Provide clearance as required to
accommodate tenants racking and relocated mezzanine storage, however, HVAC
units and distribution ducts shall remain in place. Remove existing
curtainboards as much as possible (where allowed by code).

 

c.            Provide separate metering for
electricity, gas and to the extent feasible, water.

 

d.            Landlord shall create, at its sole
cost, a telecommunications demarcation room at the Development that provides
reasonable and customary security and access for multiple tenants, (the “Common
Telecommunication Demarcation Room”), which shall be directly accessible at all
times from the exterior of the Building.  
Landlord shall also be responsible for providing 3” conduit between the
Common Telecommunication Demarcation Room and the Premises.  In designing and constructing the Common
Telecommunication Demarcation Room, Landlord will permit Tenant to utilize any
surplus telecommunications-related equipment from the existing Telecommunication
Demarcation / data center Room for Tenant’s exclusive use at no additional cost
(e.g. fire suppression system, raised flooring, HVAC units, server racks,
etc.).  Such equipment will remain with
the Premises at the end of the Lease Term. 
Tenant will be responsible for the construction of its demarcation and
server room.

 

2.            Design of Leasehold Improvements.

 

2.1           Landlord’s Construction Manager. 
Landlord has engaged the services of a construction manager (“Landlord’s Construction Manager”) to provide certain
professional services required for the improvement of the Premises. The fees
and expenses of Landlord’s Construction Manager for services pertaining to the
Premises shall be a charge to Tenant Work. The fee for such services shall be
4% of the total construction costs of the Tenant Work (exclusive of architects’
and engineers’ fees).  Construction management
of Landlord’s Work shall be Landlord’s responsibility.

 

2.2           Architect.  Landlord and Tenant shall use
the services of a qualified architect/office planner (“Architect”),
licensed to practice architecture in the State of Washington and approved by Landlord
and Tenant, to provide architectural services related to the Tenant Work and
Landlord Work, except for those services that by express provisions of this
Exhibit are to be provided by Landlord’s Construction Manager. Tenant shall pay
for Architect’s time and costs associated with Tenant Work and Landlord shall
pay for Architect’s time and costs associated with Landlord Work. As a charge
to Tenant Work, if reasonably required, Landlord shall retain the services of a
qualified civil, electrical and mechanical engineers to provide
services/drawings related to the Tenant Work. Architect shall timely prepare
all plans and specifications described in Section 2.3 of this Exhibit.  Upon completion of the final construction drawings,
Architect shall provide Landlord with a record set in a format designated by
Landlord.

 

2.3           Plans for Tenant Work. The Schematic Plans, Final Preliminary
Plans, and Final Contract Documents shall be subject to Landlord and Tenant’s
approval.  Such plans shall be compatible
with the basic plans and specifications for the Building and when submitted to
Landlord for its approval shall clearly show any proposed modifications to the
plans and specifications for the Building. Tenant shall (a) provide timely and
adequate information, direction and approval of plans and specifications to
Landlord’s Construction Manager and (b) work with Landlord’s Construction
Manager and submit the following plans or documents to Landlord for Landlord’s
approval on or before the respective dates specified at page 1 of this Exhibit:

 

A.            Schematic Plans.

 

The Schematic Plan(s) and specifications are attached as Schedules A-2
& A-3.  These plans are to be the
basis for the Final Preliminary Plans.

 

B.            Final Preliminary Plans.

 

The Final Preliminary Plans submitted for interim approval shall show
all partition layouts indicating partition type and identifying each room and
its function. The floor plan must also clearly identify and locate equipment
and fixtures requiring plumbing or other special mechanical systems, and any
other major or

 

3

 

special
features, including an outline specification of special finishes. These plans
are to be the basis for the Final Contract Documents.

 

C.           Final Contract Documents.

 

The Final Contract Documents shall be prepared in
accordance with the standards adopted by Landlord including scale, common
symbols, legends and abbreviations together with information required to obtain
permits. The Final Contract Documents shall be approved and signed by the
Tenant and Landlord’s Construction Manager prior to submittal to Landlord and
approved and signed by Landlord prior to submittal to contractors for pricing,
and shall include:

 

(1)          Architectural Floor Plan(s): A
plan, fully dimensioned, showing partition layout and type, identifying each
room with a number and each door with a number, and the location, nature and
extent of floor finishes, casework, relites, etc. Plumbing locations and requirements
shall be shown on this plan.

 

(3)           Telecommunications, Electrical and Telephone
Outlet Plan(s): A plan
locating all telecom, power and telephone requirements dimensioned to give
exact location of outlet and height above concrete slabs if locations are
critical. This plan shall identify all dedicated circuits and identify all power
outlets greater than 120 volts.  For
equipment used in outlets that require dedicated circuits and/or that require
greater than 120 volts, identify the type of equipment, the manufacturer’s name
and manufacturer’s model number and provide power requirements and other
technical specifications. The plan shall also show modifications to basic
system, circuit identification, conduit size, the number and size of wires, all
in compliance with applicable Everett codes or other applicable laws and
regulations.

 

(4)           Mechanical Plan(s), HVAC, and Plumbing:  A
plan that clearly shows the basic HVAC system, modifications to the basic
system if required, any special cooling or stand-alone systems, all supply air
diffusers, thermostats and return air grills. All plumbing information shall be
complete for final installation, including the fixture schedule and
specifications.

 

(5)           Construction Note and Specifications: 
Provide all required special notes and complete specifications,
including instruction for bidders, special conditions incorporating the ALA
standard form of general conditions or such modifications thereof as are
designated or approved by Landlord and technical specifications for all special
improvements.

 

(6)           Structural Modifications: If Tenant’s leasehold improvements include
any items that require structural modifications, a structural engineer,
approved by Landlord, shall be engaged to perform all required structural engineering
services. The cost of such services shall be a charge to Tenant Work. A drawing
shall be prepared showing the extent of structural modification necessary and a
separate building permit shall be obtained for this phase of work.

 

2.4           Contract Administration. 
Landlord’s Construction Manager shall provide construction administration
and management during the execution of Tenant Work on the Premises and will
observe progress of such work, attend necessary contractor coordination
meetings, advise Tenant and Landlord on status and progress payments, prepare a
punchlist for any construction deficiencies at completion and certify the
Premises substantially completed.

 

2.5           Delays.  Tenant shall be responsible
for delays and additional costs in completion of the Tenant Work and any
damages or other costs incurred by Landlord that are caused by (a) Tenant’s
failure to provide adequate information and direction to Architect or failure
to timely perform its obligations in order to meet the plan delivery dates set
forth in Section 2.3 of this Exhibit, in either case of which such failure Landlord
has notified Tenant in writing promptly after the occurrence of the applicable
failure, (b) Tenant’s failure to timely authorize Landlord to proceed with the
Tenant Work, (c) changes made to any of Tenant’s Plans after the specified
Delivery Date for Final Contract Documents, (d) delays in delivery of special materials
or (e) delays requested by Tenant. The costs of any such delay or damage of
which Tenant has been notified in writing shall be a charge to Tenant Work.

 

2.6           Services by Landlord’s Construction Manager.  
Certain services with respect to Tenant Work shall be provided by
Landlord’s Construction Manager and any third-party charges incurred in connection
therewith shall be charged to Tenant Work. Landlord’s Construction Manager
shall:

 

(a)           Provide Architect with information
about the Building and background drawings for execution of the Tenant Work as
reasonably requested by Architect.

 

4

 

(b)          Review all plans and specifications required under Section 2.3 and
assist Architect regarding compliance with the requirements of building systems
and codes related to Tenant Work. Notwithstanding such review and assistance,
Architect is responsible for compliance with such requirements and codes.

 

(c)           Provide coordination with the Landlord, Tenant and/or Architect and the
contractor(s), as applicable, throughout the design, pricing and construction
of the Tenant Work. Transmit shop drawings and submittals pertaining to special
items to contractor as requested, and provide contract administration as
provided in Section 2.4, such administration to be coordinated with Architect.

 

(d)                                 Obtain the blanket building permit for tenant
improvement construction and transmit the Final Contract Documents to the
appropriate department and officials at the permitting authority (the “Permit
Authority”) for review and approval. Architect shall be responsible for all
changes required as a result of such review by the Permit Authority.  All other permits, including without
limitation electrical, mechanical, plumbing, energy code and structural
permits, shall be obtained by subcontractors or Landlord’s Construction
Manager.

 

(e)           Perform Construction Management services through completion of Tenant
Work. 

 

3.             Construction of Leasehold Improvements.

 

3.1           Authorization to Proceed.  
Contract work shall be submitted to contractors selected and approved by
Landlord and Tenant. After they have been completed, the Final Contract
Documents shall be promptly submitted to such contractors for bids. Landlord
and Tenant will review all bids and contracts will be awarded as they mutually
agree. If the price of Tenant Work exceeds Tenant’s expectations, Tenant may in
such authorization delete any or all items of extra cost; but if Landlord,
acting reasonably, deems these changes to be extensive, Landlord may refuse to
accept the authorization to proceed until all changes have been incorporated in
revised Final Contract Documents signed by Tenant, approved and signed by
Landlord, and priced by Landlord, and Tenant’s written acceptance of the
revised price has been received by Landlord. In the absence of written
authorization to proceed, Landlord shall not be obligated to commence work on
the Premises.

 

3.2           Payments.  Contractor shall complete the
Tenant Work in accordance with the approved Final Contract Documents.   Contractor shall submit monthly progress
billings to Tenant, which shall be payable within twenty (20) days after
receipt, subject to a ten percent (10%) holdback (the “Retainage”).
Final billing shall be rendered and payable within twent (20) days after
acceptance of the Premises by Tenant in accordance with the terms of the Lease,
subject to the Retainage. The Retainage shall be payable within twenty (20)
days after completion of any punchlist items identified by Tenant in writing
within ten (10) business days after Landlord’s delivery to Tenant of written
notice of completion.

 

3.3           Final Plans and Modifications.  If
Tenant requests any change from the approved Final Contract Documents, Tenant
shall request such change in writing to Landlord and such request shall be accompanied
by all plans and specifications necessary to show and explain changes from the
approved Final Contract Documents. After receiving this information, Landlord
shall give Tenant a written price for the cost to incorporate the changes in
Tenant’s Final Contract Documents. If Tenant approves such price in writing, Landlord
shall have such Final Contract Documents changes made and the cost thereof
shall be a charge to Tenant Work. Within a reasonable time after completion of
such changes in the Final Contract Documents, Landlord shall obtain and notify
Tenant in writing of the construction cost, if any, that will be chargeable to Tenant
as a result of such change. The cost for such change, whether chargeable or
credited to Tenant, shall include a coordination fee payable to Landlord equal
to ten percent (10%) of the amount of such change, which charge shall be in
lieu of, and not in addition to, the standard four percent (4%) construction management
fee payable pursuant to Section 2.1 of this Exhibit (in the event any one such
change exceeds $5,000, the standard four percent (4%) construction management
fee shall apply).  Tenant shall within
five (5) days notify Landlord in writing to proceed with such change.  In the absence of such notice, Landlord shall
proceed in accordance with the previously approved Final Contract Documents
before such change was requested. Tenant shall also be responsible for any
demolition work required as a result of the change.

 

3.4           Tenant’s Entry to Premises. 
Tenant’s entry to the Premises for any purpose prior to commencement of
the Lease term shall be scheduled in advance with Landlord and shall be subject
to all the terms and conditions of the Lease except the payment of rent.
Tenant’s entry shall mean entry by Tenant its officers, contractors, office
planner, licensees, agents, servants, employees, guests, invitees or visitors.

 

3.5           Tenant’s Telecom Services. 
Tenant is responsible for Tenant’s telecom services.   Tenant shall select Tenant’s telephone and
telecom systems.  Information concerning
telephone and telecom equipment size, manufacturer, technical specifications,
special requirements and other information requested by Landlord’s Construction
Manager shall be provided by Tenant to Landlord’s Construction Manager during
the development of the Final Preliminary Plans. Tenant shall coordinate
installation of the telephone

 

5

 

and
telecom system with Landlord’s Construction Manager during the construction
phase. Notwithstanding anything to the contrary contained herein, Tenant shall
be totally responsible for the installation of telephone and telecom wiring and
equipment, all subject to Landlord’s approval.

 

4.             General Provisions.

 

The
following provisions shall apply to all Tenant Work.

 

(a)           Tenant shall be responsible for the design, function and maintenance of
all special improvements made to the Premises.

 

(b)           Tenant shall pay, as additional rent, any increase in energy cost for
all special lighting and any lighting not governed by the Permit Authority’s
Energy Code and such lighting shall not be installed without Landlord’s prior
approval.  Lamp or bulb replacement for
special lights shall be charged to Tenant as a service charge.

 

(c)           In addition to other requirements in the Lease, signs or signage
proposed by Tenant shall comply in all respects with Landlord’s sign policies
for the Premises.

 

(d)           Tenant shall be solely responsible for compliance with all applicable
laws and all regulations and requirements of municipal or other governmental
bodies exercising authority over the Tenant Work; this compliance shall include
(but not be limited to) the filing of plans and other documents as required,
the procuring of all required licenses or permits, the cost of any upgrades
required to receive permits necessary for the completion of the Tenant Work or
the operation of Tenant’s business at the Premises. Notwithstanding the
foregoing, if Landlord is managing the construction of the Tenant Work,
Landlord or Landlord’s Construction Manager will obtain necessary permits therefor
at Tenant’s expense (and Tenant shall cooperate as necessary with Landlord’s
efforts with respect thereto).

 

(e)           If any portion of the Tenant Work within the Premises (collectively
referred to below as “such work”)
is to be performed at any time by someone other than Landlord’s contractor or subcontractor,
then the following terms and conditions shall apply (in addition to any
requirements set forth in the Lease):

 

(1)            All such work shall be subject to Landlord’s
prior approval.  Tenant shall be responsible
to coordinate and schedule such work with Landlord’s Construction Coordinator.

 

(2)            All costs and expenses of such work shall be
paid by Tenant.

 

(3)            All such work shall conform to written
standards or rules and regulations of Landlord.

 

(4)            Tenant shall at no time permit anything to be
done whereby the Premises or the Land is subjected to any mechanic’s or other
liens or encumbrances arising out of the Tenant Work.

 

(5)            If the performance of such work requires
additional services or facilities (including, but not limited to, hoisting,
utilities, cleanup or other cleaning services, trash removal from the Premises,
field supervision or ordering materials) be provided, Tenant shall pay Landlord
(or Landlord’s contractor, if directed to do so by Landlord) a reasonable
charge therefor, which shall not exceed the direct additional costs to provide
such services (being the actual out-of-pocket cost or expense to Landlord that
would not have been incurred by Landlord but for such work) plus a markup often
percent (10%) thereon (but in no event more than four percent (4%) of Tenant’s
cost for such work).

 

(6)            Landlord shall have no responsibility for
such work.   Tenant shall remedy at Tenant’s
expense and be responsible for any and all defects in such work.   Tenant shall reimburse Landlord for any
extra expense incurred by Landlord by reason of faulty work done by Tenant or
Tenant’s contractor(s), by reason of delays caused by such work, or by reason
of inadequate clean up.

 

(7)            Tenant shall, at its sole expense, comply
with all applicable laws and all regulations and requirements of municipal or
other governmental bodies exercising authority over such work, and this
compliance shall include the filing of plans and other documents as required and
the procuring of all required licenses or permits.

 

6

 

(8)           If any shutdown of plumbing, electrical, fire and life safety equipment
or air conditioning equipment becomes necessary, Tenant shall notify Landlord
and Landlord will determine when such shutdown may be made. Any such shutdown
shall be done only if an agent or employee of Landlord is present. In the case
of a shutdown of fire and life safety equipment, it shall be Tenant’s
responsibility to obtain all necessary fire department and other governmental
approvals.

 

(9)           Tenant or Tenant’s contractor shall not install plumbing, mechanical,
electrical wiring or fixtures, acoustical or integrated ceilings, unless prior
written approval is obtained from
Landlord.  In addition to the foregoing,
all telecommunications infrastructure and other special electrical equipment
shall be installed only under the coordination supervision of Landlord or
Landlord’s electrical contractor (i.e., in the presence of and in a manner approved
by Landlord or Landlord’s electrical contractor).  Landlord and Landlord’s electrical contractor
shall not incur any obligations or liability to Tenant or Tenant’s contractors
or others as a result of such coordination supervision.  Such coordination supervision by Landlord or
Landlord’s electrical contractor shall be at Tenant’s expense.

 

(10)         Tenant shall be responsible for any delay in completion of Tenant Work
as a result of such work.

 

(f)           If Tenant requests to perform any
alterations, additions or improvements to the Premises that are in addition to
the Tenant Work, and Landlord consents to such requests, the terms and
conditions of this Exhibit shall apply to all such work.

 

5.             Delivery; Punchlist; Commencement Date. 
Although this Lease shall be effective as of the date of mutual execution hereof, the “Commencement
Date” shall be the later of: a) February 1, 2005 or b) the date Landlord
notifies Tenant that the Landlord’s Work is substantially completed, subject to
completion of punchlist items described below, to the point that Tenant may
complete without unreasonable interference or delay by Landlord or Landlord’s
contractors the installation of Tenant’s furniture, fixtures, equipment, and
data/telephone cabling. Subject to force majeure and delays caused by Tenant,
Landlord shall use commercially reasonably efforts to cause substantial
completion of both Landlord’s Work and Tenant’s Work and delivery of the
Premises to occur not later than February 1, 2005. Within ten (10) business
days after substantial completion and delivery of the Premises, Tenant shall
prepare a punchlist of any deficiencies or incompleted items of Landlord’s Work
or Tenant’s Work. Landlord shall correct such deficiencies or incompleted items
thereof within a reasonable period of time, without unreasonable interference
or delay to Tenant, but in no event later than thirty (30) days after receipt
of the punchlist. The existence of such deficiencies or incompleted items of
Landlord’s Work shall not affect Tenant’s obligation to accept the Premises as
otherwise required under the Lease.

 

7

 

Schedule A-l

 

Tenant Work

 

The
Tenant Work is generally described below. This Schedule will be amended
pursuant to Section l(a) of the Tenant Work Letter to include list of approved
final plans and specifications.

 

a.            Remove all carpet from open office areas, VCT
from cafeteria, hallway and serving area. Scrape glue from floor and provide
concrete sealer.

Alternate
floor treatment: Provide unit square footage cost for colored stain for
concrete or other similar treatment.

 

b.            Sawcut and create opening into
existing concrete panel separating existing cafeteria and warehouse. Provide
finished opening 8’-6” wide x 7’-0” high. Patch to match adjacent walls.

 

c.            Optional - Remove existing double
doors separating cafeteria from warehouse. Patch walls to match adjacent.

 

d.            Remove wall between existing storage
room and network closet in Building B. Patch walls to match adjacent.

 

e.            Remove interior vestibule doors.
Store for future use.

 

f.             Provide (2) new offices at existing
lobby area with doors and relites to match existing office/ conference rooms.
Patch ceiling inside room and existing lobby to match or complement existing
design.

 

g.            Remove existing storage room near
building link and extend existing conference rooms an additional 5’-7”. Patch
walls and ceiling to match existing.

 

h.            Optional - Infill opening from
reception to fax/copy. Provide GWB each side of 3 5/8” metal studs and paint to
match existing adjacent walls.

 

i.             Provide line item cost for converting
existing dry food storage room to nursing room for breast feeding mothers.
Provide new hollow metal door and frame to building link and infill opening
from existing door removed.

 

j.             Remove and replace existing ceiling
tiles in cafeteria. Provide acoustical ceiling tiles with high NRC  rating.

 

k.            Remove existing conference room
adjacent to south wall of Building B. Patch walls to match existing.

 

1.            Provide new walls and ceiling to
create large opening office area within existing warehouse portion of Building
B.

 

m.           Provide new wall within existing
conference room in building B for creation of two offices. Provide new door
with relite per plan. Patch walls to match existing.

 

n.            Provide new fenced areas within
Building B warehouse using existing fence and gate materials from previous
owner. See floor plan for extent.

 

o.            Relocate existing free standing
steel mezzanine from tenant’s facility. Coordinate relocation and required
retrofit needed for new conveyor and stair locations.

 

p.            Provide 36” high power and phone
distribution walls in new open office areas per plan. Wall to be 1/2”
GWB on 3 5/8” metal studs with 12”xl2” GWB furred columns at one end of each
wall section. Provide power and data outlets at each wall per quantity of desks
depicted.

 

q.            Optional – Tenant may utilize the
existing security system in the Development provided it reconfigures the system
to secure only the Premises at Tenants sole cost. Tenant shall provide plans
and specifications for such reconfiguration for Landlords review and approval,
which shall be required prior to Tenant commencing work on security system.

 

1

 

 

 

 

 

 

 

 

 

EXHIBIT “B”

 

SITE PLAN

 

B-1

 

EXHIBIT “C”

 

RULES AND REGULATIONS

 

Dated:                ,
2004.

 

This Exhibit is attached to and becomes a part of that certain Lease by
and between Merrill Creek Holdings, LLC, as Landlord, and Zumiez, Inc., as
Tenant.

 

1.                                      The outside sidewalks and loading areas
immediately adjoining the Premises, and all other Common Areas, shall be kept
clean and free from dirt and rubbish by Tenant and Tenant shall not place or
permit any obstructions in such areas, except with Landlord’s prior written
consent.

 

2.                                      Tenant shall not make or permit any noise or
odors that annoy or interfere with other tenants or persons having business
within the Development.

 

3.                                      No radio or television aerial or satellite
dish (or similar device) shall be installed or erected on the roof or exterior
walls of the Leased Premises, or on the grounds of the Development generally,
without first obtaining in each instance the written consent of Landlord. Any
aerial or satellite dish so installed without such written consent shall be
subject to removal without notice at any time.

 

4.                                      All of Tenant’s refuse and rubbish shall be
removed to central trash bins located in the Development. Tenant shall not
place any rubbish or other matter outside any building within the Development,
except in such containers as are authorized from time to time by Landlord.
Trash enclosures where any food-related trash is deposited, shall be emptied on
a daily basis. Dumpsters for food-related trash shall be supplied with closable
lids, and shall be kept closed at all times.  
Trash shall not be allowed to accumulate outside of/or within a trash
enclosure, or outside of a dumpster or other approved receptacle.  All necessary measures shall be taken to ensure
that the accumulation of trash does not attract animals or insects.

 

5.                                      No window coverings, shades, or awnings shall
be installed or used by Tenant, except with prior written consent of Landlord.

 

6.             Tenant shall make no use of the roof without
obtaining the consent of Landlord.

 

7.                                      Tenant shall not use any method of heating or
air conditioning other than as provided by Landlord, without Landlord’s prior
written consent.

 

8.             Tenant shall not use, and shall not allow
anyone else to use, the Premises as a habitation.

 

9.             Tenant will obey all posted signs and park
only in the areas designated for vehicle parking.

 

10.                                The maintenance, washing, waxing, cleaning, and repairing of vehicles
in the Common Areas is prohibited.

 

11.                                Landlord reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Development, its occupants and customers. Tenant
agrees to abide by these and such rules and regulations. Rules shall be
enforced fairly against all tenants of the Development.

 

C-1

 

EXHIBIT “D”

 

DELIVERY OF PREMISES

 

	
  NAME OF DEVELOPMENT:

  	
   

  	
  MERRILL CREEK CENTER

  
	
   

  	
   

  	
   

  
	
  NAME OF TENANT:

  	
   

  	
  ZUMIEZ, INC.

  
	
   

  	
   

  	
   

  
	
  PREMISES ADDRESS:

  	
   

  	
  6300 Merrill Creek Parkway

  Everett, WA 98203

  

 

ACKNOWLEDGEMENT

 

As stipulated under Paragraph 3.1
(“Term”) of the Lease Agreement executed by Landlord and Tenant herein for
the above-referenced demised Premises, Tenant does hereby acknowledge that
Tenant is in receipt of the keys to said Premises as of the date listed below.

 

Furthermore,
Tenant acknowledges that Tenant has inspected the demised Premises, and that
Landlord’s Work pursuant to Paragraph 7
of Exhibit “A” are
substantially completed. The date listed below (the “Possession
Date”) shall be the start date of Tenant’s fixturization period
pursuant to said Lease.

 

 

	
   

  	
  TENANT:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZUMIEZ,
  INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
							

 

D-1

 

EXHIBIT “E”

 

SIGN CRITERIA

 

[Landlord shall complete and provide to Tenant by
September 15, 2004]

 

E-1Exhibit
10.3

 

EXECUTIVE
AGREEMENT

 

This Executive Agreement (“Agreement”),
dated as of November 4, 2002, is entered into between Zumiez, Inc., a
Delaware corporation (“Zumiez”), and Richard M. Brooks (“Executive”).

 

RECITALS

 

A.                                 Zumiez is engaged in the retail business of
offering, selling, and marketing active sportswear, sports equipment and
lifestyle products to teens, young men, and young women.  Zumiez may
in the future expand its business to additional products, services and markets.

 

B.                                   Zumiez has employed Executive as President
and Chief Executive Officer (CEO), and Executive wishes to hold this position
under the terms and conditions of this Agreement.

 

C.                                   As President and CEO, Executive holds a
sensitive position with access to, and requiring knowledge of, Zumiez’s
proprietary and commercially valuable information, including trade secrets and
strategic information.  Executive also
has contact with Zumiez’s customers, suppliers, investors and strategic
partners (collectively, “Zumiez Business Partners”).  Unauthorized use or disclosure of such
information, or interference with Zumiez’s relationships with Zumiez Business
Partners could cause Zumiez irreparable injury. 
This Agreement is intended to assure that Zumiez’s proprietary
information and materials and relationships with Zumiez Business Partners will
be protected both during and after Executive’s employment.  Executive understands the need for this
commitment and makes it willingly.

 

AGREEMENT

 

In consideration of
Executive’s employment by Zumiez, Executive’s receipt of benefits under this
Agreement, and the other covenants in this Agreement, the parties agree:

 

1.                                     Employment.  Zumiez shall employ Executive,
and Executive shall serve as an employee of Zumiez, on the terms and conditions
in this Agreement.  Executive’s
employment under this Agreement shall continue indefinitely, until terminated
by Zumiez or Executive under Section 5 below.

 

2.                                     Duties.  Executive shall serve as
President and CEO, or in such other positions as determined by Zumiez, and
perform other such duties that Zumiez may assign to Executive from time to
time.  Executive shall comply with all of
Zumiez’s policies and procedures applicable to similarly situated executives,
as modified from time to time.

 

3.                                     Attention and Effort. 
Executive shall devote Executive’s full working time, energies, and best
efforts to Zumiez’s business and affairs, and shall faithfully and diligently serve
Zumiez’s interests.   Executive shall not engage in any other
business or employment activity (whether or not pursued for gain or profit)
except for (a) activities approved in writing in advance by Zumiez’s Board of
Directors (the “Board”), and (b) passive investments that do not involve
Executive providing any advice or services to the businesses in which the
investments

 

 

are made, except that Executive may continue to serve as a member of
the Board of Directors of MicroServ, Inc., as a Trustee of the University of
Puget Sound and such other boards as may be approved from time to time by the
Board.

 

4.                                       Compensation
and Benefits.  Executive shall
receive the following compensation and benefits:

 

(a)                                 Base Salary.  Executive
shall receive an initial base salary (“Base Salary”) of $175,000 per year.   Base
Salary shall be paid in substantially equal periodic installments in accordance
with Zumiez’s payroll schedule, but in any case not less frequently than
monthly.  All payments shall be subject
to standard employee withholding taxes and deductions.

 

(b)                                Bonus.  Executive shall be considered
for an annual discretionary bonus of up to $100,000 based on Zumiez’s
determination that Executive achieved the individual and company goals set by
the Board as part of Zumiez’s Annual Operating Plan, as it may be modified by
the Board.   In order to receive a bonus, Executive must be
actively employed on the date the bonus is paid.

 

(c)                                 Fringe Benefits. 
Executive shall participate in all benefit programs that Zumiez from
time to time makes available to other employees holding positions similar to
that of Executive, subject to applicable eligibility and other restrictions as
set forth in the applicable summary plan description or other policy
description.  Zumiez may modify or
eliminate benefits from time to time.

 

(d)                                Expenses.  In accordance with Zumiez’s
policies, Executive shall be reimbursed for all reasonable authorized business
expenses incurred in connection with Zumiez duties following receipt of such
documentation as Zumiez may reasonably require.

 

(e)                                 Stock Options. 
Executive also shall be eligible to receive such future stock option
grants as the Board from time to time deems appropriate.

 

5.                                      Termination.  Executive’s employment with
Zumiez shall be terminated upon the occurrence of any one or more of the
following events:

 

(a)                                 Immediately, upon Executive’s death.

 

(b)                                At the election of Zumiez, upon written
notice to Executive, if Executive is prevented by sickness or disability from
fully and adequately performing Executive’s job duties, with or without
reasonable accommodation, for a continuous period of not less than ninety (90)
days or for intermittent periods totaling not less than ninety (90) days in any
twelve month period.  This provision
shall be interpreted consistently with applicable disability law.

 

(c)                                 At the election of Zumiez, upon written
notice to Executive, with or without Cause.  “Cause” shall mean Zumiez’s determination that
Executive has committed an act or acts constituting any of the following: (i)
dishonesty, fraud, misconduct or gross negligence in connection with Executive’s
performance of his duties and responsibilities at Zumiez; 

 

2

 

(ii) intentional unauthorized disclosure or use
of Confidential Information (as defined in Section 6); (iii)
misappropriation of a business opportunity of Zumiez; (iv) materially and
deliberately aiding a competitor of Zumiez; (v) conduct that constitutes a
felony; (vi) failure or refusal to attend to the duties or obligations of
Executive’s position under this Agreement, or to comply with Zumiez’s rules,
policies or procedures, which failure or refusal remains uncorrected thirty
(30) days after the Board delivers written notice of such misconduct to
Executive; (vii) any other reason that constitutes “cause” under Washington
law; or (viii) the failure of Zumiez to achieve at least eighty percent (80%)
of its projected operating income (earnings before interest and taxes) set
forth in its Annual Operating Plan for two consecutive years.

 

(d)                                 At the election of Executive, upon thirty
(30) days’ notice to Zumiez, with or without Good Reason.  “Good Reason” shall mean (i) a forced
relocation of more than one hundred (100) miles in the principal place for
Executive’s performance of duties under this Agreement; or (ii) Zumiez’s
material breach of a material provision of this Agreement, which breach remains
uncured thirty (30) days after Executive delivers written notice of such breach
to Zumiez; (iii) a material worsening in Executive’s title, duties,
responsibilities or authority, which worsening is not corrected thirty (30)
days after Executive delivers written notice to Zumiez; or (iv) a reduction in
Executive’s Base Salary or percentage of bonus opportunity under Section 4(b).
 Good Reason shall not exist if Zumiez
contemporaneously has Cause to terminate Executive’s employment.

 

6.                                      Payments and Other Financial Obligations Upon
Termination.

 

(a)                                If Executive’s employment is terminated (i)
due to Executive’s death or permanent disability, (ii) by Zumiez for Cause
(other than as set forth in Section 5(b)(viii) above), or (iii) by
Executive without Good Reason, Zumiez shall pay Executive’s Base Salary through
the date of termination, and provide such other payments and benefits as
applicable law may require.

 

(b)                               If Executive’s employment is terminated by
Zumiez without Cause or by Executive with Good Reason or for the reason set
forth in Section 5(b)(viii) above, then as liquidated damages or severance
pay, or both, Zumiez shall continue to pay Executive’s Base Salary until the
earlier of the date that Executive accepts employment with another employer or upon
the expiration of eighteen (18) months after Executive’s termination of
employment.  All employee benefits shall
cease upon termination of employment.  As
a condition to post-termination salary continuation payments under this
Section, Zumiez may require that Executive provide consulting services to
Zumiez on a reasonable basis during the period that payments continue.

 

(c)                                Zumiez’s
obligations under Section 6(b) shall immediately cease if Executive
breaches any of the covenants in Sections 7 through 10 of this Agreement, and Executive
shall repay to Zumiez all amounts previously paid to Executive during the
period of such breach.  The amounts paid,
the amounts withheld and the amounts repaid are intended as a reasonable
forecast of only some of the damages that would result from Executive’s breach
of Section 7, 8, 9, or 10, and not as a penalty.  The obligation on the part of Executive to
repay any

 

3

 

amount
under this Agreement shall not preclude the exercise by Zumiez of any right or
remedy available to it at law or in equity.

 

7.                                     Confidentiality.

 

(a)                                “Confidential Information” means any and all
confidential and/or proprietary knowledge, data or information of Zumiez.  By way of illustration but not limitation, “Confidential
Information” includes (i) Zumiez’s trade secrets, inventions, ideas, processes,
systems, designs, formulas, computer programs, databases, customer lists,
business practices, and strategic plans; (ii) any information regarding plans
for research, development, new products, marketing and selling, business plans,
budgets, unpublished financial statements, licenses, prices and costs,
suppliers and customers; (iii) information regarding the skills and compensation
of employees of Zumiez; and (iv) information received from third parties including,
without limitation, Zumiez Business Partners and their clients, vendors,
business partners, or potential business partners that Zumiez is obligated to
treat as confidential.  Confidential
Information disclosed to Executive by any Zumiez partner, employee, contractor and/or agent is also covered
by this Agreement.  Confidential
Information will not include information Executive can establish: (i) entered
or subsequently enters the public domain without Executive’s breach of any
obligation owed Zumiez; (ii) became known to Executive prior to Zumiez’s
disclosure of such information to Executive; or (iii) became known to Executive
from a source other than Zumiez other than by the breach of an obligation of
confidentiality owed to Zumiez.

 

(b)                               Executive shall not use any Confidential
Information for any purpose other than to further Zumiez’s business interests
as requested by Zumiez and, without limiting the foregoing, Executive shall not
use the Confidential Information for the benefit of himself or any third
party.  Executive shall not disclose any
Confidential Information to any third party without having first received the
express prior written permission of Zumiez.  Executive shall at all times keep Confidential
Information confidential and shall take all reasonable security precautions to
keep confidential and protect the Confidential Information from unauthorized access
and use.  Executive may directly or
indirectly reproduce, summarize and distribute Confidential Information
provided to Executive only in pursuance of Zumiez’s business and only as
otherwise provided hereunder.

 

(c)                                Executive’s Section 7 obligations shall
remain in effect for the longest time permitted by applicable law.  If Executive is required by subpoena or
otherwise to disclose Confidential Information, Executive shall give Zumiez
notice of the proposed disclosure as soon as practicable after learning of the
subpoena or the disclosure requirement and shall make any such disclosure in a
manner so as to maximize the protection of the information from further disclosure.

 

8.                                     Return of Documents and Property.  At
termination of employment, or earlier if requested, Executive shall promptly
surrender to Zumiez, without retaining copies, all tangible and intangible
things which are or contain Confidential Information.  Executive shall also return all files,
correspondence, memoranda, computer software and print-outs, work papers, client
lists, and other property or things which Zumiez gave to Executive, which
Executive created in

 

4

 

whole or part within the scope of Executive’s employment, or to which
Executive had access, even if they do not contain Confidential Information.  In addition, at the time of termination from
Zumiez, regardless of reason, Executive shall in good faith take all acts
necessary and reasonable to assure that Executive’s work is efficiently
transitioned to Zumiez.

 

9.                                      Restrictive Covenants.

 

(a)                                “Competitor” means any person or entity which
engages or is preparing to engage in a retail business by selling, offering, or
marketing the same or similar products or services which Zumiez then sells,
offers or markets, or is then preparing to sell, offer, and/or market to teens
and/or young men and women.

 

(b)                               During employment with Zumiez and continuing
for eighteen (18) months thereafter (the “Non-Competition Term”), regardless of
the reason for termination, Executive shall not, unless Zumiez gives its prior
written consent: (i) manage, operate, control, or be employed by any
Competitor; (ii) consult with, act as agent for, or otherwise assist any Competitor
to compete or prepare to compete with Zumiez; (iii) own any interest (other
than a passive investment interest in a publicly traded company) in any
Competitor; (iv) take any action calculated to divert from Zumiez any
opportunity within the scope of its then business; (v) solicit, hire or
otherwise engage any person who had been employed by Zumiez during the last six
(6) months before Executive’s termination, to perform services for Executive or
any other person or entity; or (vi) solicit, divert, or in any other manner
persuade or attempt to persuade any Zumiez Business Partner to alter or
discontinue its relationship with Zumiez. 
The Non- Competition Term shall terminate if Zumiez breaches its
obligation to pay liquidated damages or severance pay, pursuant to Section 6(b)
hereof.

 

(c)                                The covenants contained in this Section 9
shall be limited to a geographic area of the United States, specifically
including the twelve (12) states where Zumiez currently conducts its business,
the states where Zumiez conducts or has taken preparatory measures to conduct
its business on the date Executive’s employment at Zumiez is terminated, and
the states where Zumiez contemplates conducting its business on Executive’s
termination date.

 

10.                                Assignment of Inventions.

 

(a)                                Executive shall promptly make full written
disclosure to Zumiez of, shall hold in trust for the sole right and benefit of
Zumiez, and, subject to Section 3(c) of this Agreement, hereby assigns to
Zumiez or its designee all of Executive’s right, title, and interest in and to,
any and all inventions, original works of authorship, developments, concepts,
ideas, discoveries, improvements and trade secrets, whether or not patentable
or registrable under copyright or similar laws, that Executive may solely or
jointly conceive or develop or reduce to practice, or cause to be conceived or
developed or reduced to practice, during the period of time Executive is
employed by Zumiez.

 

(b)                               Notwithstanding Section 10(a) above, Section 49.44.140
of the Revised Code of Washington exempts from assignment to Zumiez certain
inventions developed entirely on Executive’s own time without using Zumiez’s
equipment, supplies, facilities or trade secret

 

5

 

information, except for inventions that: (i) relates directly to Zumiez’s
business, (ii) relates to Zumiez’s actual or demonstrably anticipated research
or development, or (iii) results from any work performed by Executive for
Zumiez.  A copy of Section 49.44.140
of the Revised Code of Washington is attached as Appendix A to this
Agreement.  Executive shall advise Zumiez
promptly in writing of any inventions, original works of authorship,
developments, concepts, ideas, discoveries, improvements or trade secrets that
Executive believes need not be assigned to Zumiez; and Executive shall at that
time provide to Zumiez in writing all evidence necessary to substantiate that
belief.  Zumiez will keep in confidence
and will not use for any purpose or disclose to third parties without Executive’s
consent any confidential information disclosed in writing to Zumiez relating to
inventions that qualify fully under the provisions of Section 49.44.140 of
the Revised Code of Washington.

 

(c)                                 Executive acknowledges that all original
works of authorship made by Executive (solely or jointly with others) within the
scope of Executive’s employment by Zumiez and which are protectable by
copyright are “works made for hire,” as that term is defined in the United
States Copyright Act (17 U.S.C.A., Section 101) and that Executive is an “employee”
as defined by that Act.  Executive
further agrees from time to time to execute written transfers of ownership to
Zumiez of specific original works of authorship (and all copyrights therein)
made by me (solely or jointly with others) which may, despite the preceding
sentence be deemed by a court of law not to be works made for hire, and which
are being assigned by Executive to Zumiez pursuant to this Agreement in such
form as is acceptable to Zumiez in its reasonable discretion.

 

(d)                                Executive shall keep and maintain adequate
and current written records of all inventions and original works of authorship
made by Executive (solely or jointly with others) during the term of Executive’s
employment by Zumiez.  The records will
be in the form of notes, drawings, and any other format that may be specified
by Zumiez.  The records will be available
to and remain the sole property of Zumiez at all times.

 

(e)                                 Executive agrees to assist Zumiez to obtain
United States or foreign letters patent, copyrights or trademark rights
covering inventions, works of authorship and trademarks, respectively, assigned
hereunder to Zumiez.  Such obligation
shall continue beyond the termination of Executive’s employment by Zumiez, at
which point Zumiez shall compensate Executive at a reasonable rate for time actually
spent by Executive at Zumiez’s request on such assistance.  If Zumiez is unable because of Executive’s
mental or physical incapacity or for any other reason to secure Executive’s
signature to apply for or to pursue any application for any United States or
foreign letters patent, copyrights or mask work rights covering inventions or other
rights assigned to Zumiez under this Agreement, then Executive hereby
irrevocably designates and appoints Zumiez and its duly authorized officers and
agents as Executive’s agent and attorney in fact, to act for and in Executive’s
behalf and stead to execute and file any such applications and to do all other
lawfully permitted acts to further the prosecution and issuance of letters
patent, copyrights and mask work rights with the same legal force and effect as
if executed by Executive.  This
appointment is coupled with an interest in and to the inventions and works of
authorship and shall survive Executive’s death or disability.  Executive hereby waives and quitclaims to
Zumiez any and all claims, of any nature whatsoever, which Executive now or

 

6

 

may hereafter have for infringement of any patents,
copyrights or mask work rights resulting from or relating to any such application
assigned hereunder to Zumiez.

 

(f)                                   Executive agrees to assign to the United
States government all right, title and interest in and to any and all
inventions, original works of authorship, developments, improvements or trade
secrets whenever such full title is required to be in the United States by a
contract between Zumiez and the United States or any of its agencies.

 

11.                               Remedies.  Executive acknowledges that
Zumiez would be greatly injured by, and has no adequate remedy at law for,
Executive’s breach of Section 7, 8, 9, or 10.  Executive therefore consents that if such
breach occurs or is threatened, Zumiez may, in addition to all other remedies,
enjoin Executive (together with all persons acting in concert with Executive) from
such breach or threatened breach.  If an
injunction is granted, the periods in Sections 7 and 9 shall be extended so as
to commence when such injunction is entered.

 

(a)                                Attorneys’ Fees.  In
any claim arising out of or relating to this Agreement, the substantially
prevailing party shall recover its reasonable costs and attorneys’ fees to the extent
permitted by law.

 

(b)                               Venue and Jurisdiction/Controlling Law.  For
any claim or cause of action arising under or relating to this Agreement,
Zumiez and Executive consent to the exclusive jurisdiction of the King County,
Washington Superior Court, or a federal court located within Seattle,
Washington, and waive any objection based on jurisdiction or venue, including forum
non  conveniens.  Washington
law shall apply.

 

12.                               Assignment.  Zumiez may assign rights and duties under this
Agreement, but Executive may not.  This
Agreement shall bind Executive’s heirs and personal representatives, and inure
to the benefit of Zumiez and its successors and/or assigns.

 

13.                               Freedom To Contract. 
Executive warrants that Executive has the full power and authority to
enter into and perform according to the terms of this Agreement and is under no
disability or obligation, express or implied, to any other party, including
former employers, that prevents Executive from entering into this Agreement and
from complying with all of its provisions to the fullest extent, and that no
third party approval or consent is necessary for its entry into or performance
under this Agreement.  Executive shall
comply fully with all confidentiality obligations owed to all third parties,
including all former employers, and shall not disclose to Zumiez any trade
secret or proprietary information of any third party that Executive is obligated
not to disclose without the written consent of Zumiez and the third party.

 

14.                               Complete Agreement; Severability; No Waiver.  This
Agreement is the entire agreement between the parties on its subject matters,
and supersedes all prior and contemporaneous discussions and understandings,
except that nothing in this Agreement shall be construed to alter or amend
either party’s rights or duties under the Plan, as amended from time to time.  No waiver, modification or termination of any
term of this Agreement shall be effective unless in writing and signed by both
parties.  If any provision as written is
deemed unlawful, overbroad or otherwise unenforceable, the parties agree to
follow a construction which will give Zumiez the maximum protection which is reasonable and permissible under the
circumstances

 

7

 

(including,
if necessary, a reduction in the time and/or geographic scope of nondisclosure
and/or restrictive covenants), or if this is not possible, it shall be deemed
severed.  The failure, delay or
forbearance on the part of either party to insist on strict performance of any
provision of this Agreement, or to exercise any right or remedy, shall not be
construed as a waiver.  The waiver of any
right or remedy by either party in one or more instances shall not excuse the
strict performance of the duties and obligations on the part of the other
party.

 

15.                                Legal Representation.  Executive
has been represented by counsel of his own choosing in connection with this
Agreement.  As the parties have
cooperated in the drafting and negotiation of this Agreement, this Agreement
shall not be construed against either party as the drafter.  Executive understands this Agreement and
acknowledges that the restrictions in this Agreement are fair and reasonable.

 

(Signature
Page Follows)

 

8

 

IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first above written.

 

 

	
   

  	
  ZUMIEZ:

  
	
   

  	
   

  
	
   

  	
  ZUMIEZ
  INC.

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas D. Campion

  	
   

  
	
   

  	
   

  	
  Thomas
  D. Campion

  Chairman

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  
	
   

  	
  /s/ Richard M. Brooks

  	
   

  
	
   

  	
  Richard
  M. Brooks

  

 

[Executive
Agreement Signature Page]

 

 

APPENDIX A

 

Notice to
Executive Regarding Employee Rights to Inventions Under the Revised Code of

Washington Section 49.44.140

 

“(1)                            A provision in an employment agreement which
provides that an employee shall assign or offer to assign any of the employee’s
rights in an invention to the employer does not apply to an invention for which
no equipment, supplies, facilities, or trade secret information of the employer
was used and which was developed entirely on the employee’s own time, unless
(a) the invention relates (i) directly to the business of the employer, or (ii)
to the employer’s actual or demonstrably anticipated research or development,
or (b) the invention results from any work performed by the employee for the
employer.  Any provision which purports
to apply to such an invention is to that extent against the public policy of
this state and is to that extent void and unenforceable.

 

(2)                                 An employer shall not require a provision
made void and unenforceable by subsection (1) of this section as a
condition of employment or continuing employment.

 

(3)                                 If an employment agreement entered into after
September 1, 1979, contains a provision requiring the employee to assign
any of the employee’s rights in any invention to the employer, the employer
must also, at the time the agreement is made, provide a written notification to
the employee that the agreement does not apply to an invention for which no
equipment, supplies, facility, or trade secret information of the employer was
used and which was developed entirely on the employee’s own time, unless (a)
the invention relates (i) directly to the business of the employer, or (ii) to
the employer’s actual or demonstrably anticipated research or development, or
(b) the invention results from any work preformed [performed] by the employee
for the employer.”

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