Document:

Exhibit 10.1

 

LEASE AGREEMENT

 

 

PROFESSIONAL REAL ESTATE
SERVICES, INC.,

a California corporation

 

“Landlord”

 

 

and

 

 

dj ORTHOPEDICS, LLC,

a Delaware limited
liability company

 

“Tenant”

 

 

CITY OF
VISTA

 

COUNTY OF SAN DIEGO

 

STATE OF CALIFORNIA

 

 

	
  1.

  	
  PREMISES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  TERM.

  	
   

  
	
   

  	
  2.1

  	
  Base Term

  	
   

  
	
   

  	
  2.2

  	
  Options to
  Extend

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  USE OF PREMISES.

  	
   

  
	
   

  	
  3.1

  	
  Type of Use

  	
   

  
	
   

  	
  3.2

  	
  Compliance
  With Law.

  	
   

  
	
   

  	
  3.3

  	
  Miscellaneous Restrictions

  	
   

  
	
   

  	
  3.4

  	
  Landlord’s
  Indemnity as to Hazardous Materials

  	
   

  
	
   

  	
  3.5

  	
  Mold, Fungus, Bacteria and Other Biological Growth

  	
   

  
	
   

  	
  3.6

  	
  Additional Use
  Restrictions.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  CONSTRUCTION.

  	
   

  
	
   

  	
  4.1

  	
  Plans
  and Specifications

  	
   

  
	
   

  	
  4.2

  	
  Construction

  	
   

  
	
   

  	
  4.3

  	
  Commencement of
  Construction

  	
   

  
	
   

  	
  4.4

  	
  Tenant
  Improvements.

  	
   

  
	
   

  	
  4.5

  	
  Construction
  Schedule

  	
   

  
	
   

  	
  4.6

  	
  Completion of Construction

  	
   

  
	
   

  	
  4.7

  	
  Warranties

  	
   

  
	
   

  	
  4.8

  	
  Trade Fixtures

  	
   

  
	
   

  	
  4.9

  	
  Landlord’s Development Team

  	
   

  
	
   

  	
  4.10

  	
  Change Orders

  	
   

  
	
   

  	
  4.11

  	
  Acquisition/Construction
  Loan

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  RENT.

  	
   

  
	
   

  	
  5.1

  	
  Rental
  During Base Term.

  	
   

  
	
   

  	
  5.2

  	
  Payment of Annual Base Rent

  	
   

  
	
   

  	
  5.3

  	
  Adjustment of
  Minimum Rent to Market

  	
   

  
	
   

  	
  5.4

  	
  Governmental
  Restriction on Rent Increases

  	
   

  
	
   

  	
  5.5

  	
  Payment of Rent

  	
   

  
	
   

  	
  5.6

  	
  Net Rent

  	
   

  
	
   

  	
  5.7

  	
  Tenant
  Improvement Rent

  	
   

  
	
   

  	
  5.8

  	
  Additional Rent

  	
   

  
	
   

  	
  5.9

  	
  Lump Sum Rent

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  ALTERATIONS,
  MAINTENANCE AND REPAIRS.

  	
   

  
	
   

  	
  6.1

  	
  By Landlord

  	
   

  
	
   

  	
  6.2

  	
  By Tenant

  	
   

  
	
   

  	
  6.3

  	
  Waiver
  as to Repairs

  	
   

  
	
   

  	
  6.4

  	
  Alterations

  	
   

  
	
   

  	
  6.5

  	
  Mechanic’s
  Liens

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  INSURANCE
  AND INDEMNITY.

  	
   

  

 

i

 

	
   

  	
  7.1

  	
  Indemnity.

  	
   

  
	
   

  	
  7.2

  	
  Insurance

  	
   

  
	
   

  	
  7.3

  	
  Landlord’s Insurance.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  TAXES.

  	
   

  
	
   

  	
  8.1

  	
  Personal Property Taxes

  	
   

  
	
   

  	
  8.2

  	
  Real Property Taxes

  	
   

  
	
   

  	
  8.3

  	
  Contest

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  UTILITIES;
  ASSOCIATION DUES AND ASSESSMENTS.

  	
   

  
	
   

  	
  9.1

  	
  Utilities

  	
   

  
	
   

  	
  9.2

  	
  Association
  Dues and Assessments

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  SIGNS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  CASUALTY
  DAMAGE

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  CONDEMNATION.

  	
   

  
	
   

  	
  12.1

  	
  Termination of Lease

  	
   

  
	
   

  	
  12.2

  	
  Continuance of Lease; Adjustment
  of Rent

  	
   

  
	
   

  	
  12.3

  	
  Division of Award

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  ASSIGNMENT
  AND SUBLETTING.

  	
   

  
	
   

  	
  13.1

  	
  Landlord’s
  Consent Not Required

  	
   

  
	
   

  	
  13.2

  	
  Information
  on Proposed Assignee or Subtenant

  	
   

  
	
   

  	
  13.3

  	
  No Release

  	
   

  
	
   

  	
  13.4

  	
  Sublease
  Rentals as Security

  	
   

  
	
   

  	
  13.5

  	
  Non-Disturbance

  	
   

  
	
   

  	
  13.6

  	
  Use
  by Suppliers

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  SECURITY
  DEPOSIT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
  DEFAULT AND REMEDIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
  SUBORDINATION,
  NON-DISTURBANCE AND ATTORNMENT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
  QUIET
  ENJOYMENT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
  MISCELLANEOUS COVENANTS.

  	
   

  
	
   

  	
  18.1

  	
  Inspection

  	
   

  
	
   

  	
  18.2

  	
  Attorneys’
  Fees.

  	
   

  
	
   

  	
  18.3

  	
  Surrender
  at End of Term

  	
   

  
	
   

  	
  18.4

  	
  Holding
  Over

  	
   

  
	
   

  	
  18.5

  	
  Waiver

  	
   

  
	
   

  	
  18.6

  	
  Notices

  	
   

  
	
   

  	
  18.7

  	
  Scope of Agreement

  	
   

  
	
   

  	
  18.8

  	
  Inurement

  	
   

  

 

ii

 

	
   

  	
  18.9

  	
  Assignment
  by Landlord

  	
   

  
	
   

  	
  18.10

  	
  Estoppel Certificate

  	
   

  
	
   

  	
  18.11

  	
  Fixture Financing

  	
   

  
	
   

  	
  18.12

  	
  Captions

  	
   

  
	
   

  	
  18.13

  	
  Severability

  	
   

  
	
   

  	
  18.14

  	
  Brokers

  	
   

  
	
   

  	
  18.15

  	
  Financial Statements

  	
   

  
	
   

  	
  18.16

  	
  Memorandum of Lease

  	
   

  
	
   

  	
  18.17

  	
  Time of the Essence

  	
   

  
	
   

  	
  18.18

  	
  Business
  Day

  	
   

  
	
   

  	
  18.19

  	
  Purchase
  of Real Property

  	
   

  
	
   

  	
  18.20

  	
  Exhibits

  	
   

  

 

iii

 

LEASE AGREEMENT

 

In consideration of the
rents and covenants hereinafter set forth, Landlord hereby leases to Tenant,
and Tenant hereby leases from Landlord, the Premises described in Paragraph 2
of the Fundamental Lease Provisions on the terms and conditions set forth in
this Lease Agreement (the “Lease”).

 

FUNDAMENTAL LEASE
PROVISIONS

 

1.                                       DATE
OF LEASE.  The date of the Lease is
October 20, 2004.

 

2.                                       PREMISES.  Landlord leases to Tenant and Tenant leases
from Landlord that certain parcel of real property located in the City of
Vista, State of California legally described in Exhibit “A” attached
hereto (the “Real Property”) together with an approximate one hundred ten
thousand (110,000) gross measured square foot building to be constructed on the
Real Property pursuant to the provisions of Article 4 hereof (the “Building”) and
a paved parking lot, driveways and walkways to be constructed on the Real
Property pursuant to the provisions of Article 4 hereof (the “Improvements”)
(the Real Property, Building and Improvements being referred to herein
collectively as, the “Premises”). 
Tenant’s rights to use the Building shall include the exclusive right to
use the roof thereof.

 

3.                                       LANDLORD.  The Landlord is PROFESSIONAL REAL ESTATE
SERVICES, INC., a California corporation, or its assignee if it assigns this
Lease pursuant to the provisions of Section 18.9 hereof.

 

4.                                       TENANT.  The Tenant is dj ORTHOPEDICS, LLC, a Delaware
limited liability company, or its assignee if it assigns this Lease pursuant to
the provisions of Section 13.1 hereof.

 

5.                                       BASE
TERM.  The Lease shall be for a “Base
Term” equal to fifteen (15) years, plus any partial calendar month at the
beginning of the Base Term (the “Base Term”). 
The Base Term shall commence (the “Commencement Date”) on the date that
is the earlier of (a) thirty (30) days
after the date that the Building, the Improvements and the Tenant Improvements
have been substantially completed in accordance with the respective “Final
Plans and Specifications” (as such term is used in Sections 4.1 and 4.4 hereof)
except for “punchlist” items, all as provided in Article 4 hereof, and a
certificate of occupancy or equivalent has been obtained permitting the
occupancy of the Building by Tenant (the “Substantial Completion Date”) or (b)
10 days after the date Tenant takes possession of the Premises and begins using
the Premises for the operation of its business. 
In the event the Commencement Date is a day other than the first day of
a calendar month, the Base Term shall be for fifteen (15) years plus the
partial calendar month during which the Commencement Date occurs.  At the request of either party, once the
Commencement Date has been determined, Landlord and Tenant shall execute an
amendment to this Lease setting forth the Commencement Date.  However, the failure to execute such an
amendment (or to request that one be executed) shall not affect the
Commencement Date.

 

i

 

6.                                       OPTIONS
TO EXTEND.  Tenant is granted two (2)
options to extend the Base Term for periods of five (5) years each (See Section 2.2
hereof).

 

7.                                       TERM.  The term of this Lease (the “Term”) means the
Base Term together with the First Option Term (as defined in Section 2.2
hereof) in the event the First Option is exercised and the Second Option Term
(as defined in Section 2.2 hereof) in the event the Second Option is exercised.

 

8.                                       ANNUAL
BASE RENT.  The Annual Base Rent for
the Base Term shall be the amount determined pursuant to Section 5.1
hereof.  Monthly Base Rent during the
Base Term shall be one-twelfth of the applicable Annual Base Rent.  At the request of either party, once the
Annual Base Rent has been determined pursuant to Section 5.1 hereof, Landlord
and Tenant shall execute an amendment to this Lease setting forth the initial
Annual Base Rent (and Monthly Base Rent) so determined.  However, the failure to execute such an
Amendment (or to request one) shall not affect the amount of (or the
effectiveness of) the Annual Base Rent or Monthly Base Rent.

 

9.                                       RENTAL
ADJUSTMENT DURING THE OPTION TERMS. 
In the event that the First Option (as defined in Section 2.2 hereof) is
exercised, the Annual Base Rent and Monthly Base Rent shall be determined as
provided in Section 5.3 hereof.  In the
event that the Second Option (as defined in Section 2.2 hereof) is exercised,
the Annual Base Rent and Monthly Base Rent shall also be determined as provided
in Section 5.3 hereof.

 

10.                                 USE
OF PREMISES.  Tenant shall use the
Premises for any lawful purpose consistent with the existing zoning of the
Premises.  Neither Landlord nor Tenant
(each a “Party”) shall institute a zone change or request a variance or obtain
a conditional use permit without the other Party’s prior written consent, which
consent may be withheld in such other Party’s sole and absolute discretion.

 

11.                                 SECURITY
DEPOSIT.  Within five (5) Business
Days following Landlord’s obtaining of a building permit allowing the
construction of the “Tenant Improvements” pursuant to Section 4.4 hereof
and Landlord’s notice to Tenant that same has been obtained, Tenant shall pay
to Landlord an amount equal to the Monthly Base Rent for the first full month
of the Base Term (“First Month’s Rent”) as a security deposit (the “Security
Deposit”).  The estimated First Month’s
Rent shall be based upon the “Total
Project Cost” (as defined in Section 5.1 hereof) established in the budget
agreed upon by Landlord and Tenant pursuant to Section 5.1 hereof.  Once the actual First Month’s Rent has been
determined pursuant to Section 5.1 hereof, Tenant shall increase the Security
Deposit by depositing with Landlord an additional amount in the event the
amount paid by Tenant based on the estimated First Month’s Rent is less than
the actual First Month’s Rent, or Landlord shall immediately refund to Tenant
any overpayment in the event that the actual First Month’s Rent is less than
the amount paid by Tenant based on the estimated First Month’s Rent.  Following the seventh
(7th) full year of the Term of the Lease, if an Event of Default has not
occurred and is continuing and no event or non-event has occurred and is
continuing which with the passage of time, the giving of notice or both would
become an Event of Default (an “Inchoate Default”), Landlord shall return the
Security Deposit to Tenant in the form of the application of the Security
Deposit against the next installment of Monthly Base Rent payable under this
Lease or by cash reimbursement from Landlord 

 

ii

 

to Tenant, as
determined by Landlord in its sole and absolute discretion.  In the event any Event of Default or Inchoate
Default has occurred and is continuing, Landlord shall not return the Security
Deposit to the Tenant as set forth above unless and until such Event of Default
or Inchoate Default is cured, at which time Landlord shall return the Security
Deposit as set forth in the preceding sentence.

 

12.                                 ADDRESSES
AND FACSIMILE NUMBERS FOR NOTICES. 
The addresses and facsimile numbers for notices or demands are as
follows:

 

	
  Landlord:

  	
   

  	
  Professional Real Estate Services, Inc.

  
	
   

  	
   

  	
  1201 Dove Street, Suite 100

  
	
   

  	
   

  	
  Newport Beach, CA 92660

  
	
   

  	
   

  	
  Attn: John W. Fitzgibbon, Executive Vice President

  
	
   

  	
   

  	
  Facsimile Number: (949) 442-1925

  
	
   

  	
   

  	
   

  
	
  Tenant:

  	
   

  	
  dj Orthopedics, LLC

  
	
   

  	
   

  	
  2985 Scott Street

  
	
   

  	
   

  	
  Vista, CA 92081

  
	
   

  	
   

  	
  Attn: Don Roberts, General Counsel

  
	
   

  	
   

  	
  Facsimile Number: (760) 734-7536

  
	
   

  	
   

  	
   

  
	
  with a copy
  to:

  	
   

  	
  Steven Levine

  
	
   

  	
   

  	
  Latham & Watkins LLP

  
	
   

  	
   

  	
  600 West Broadway, Suite 1800

  
	
   

  	
   

  	
  San Diego, CA 92101

  
	
   

  	
   

  	
  Facsimile Number: (619) 696-7419

  

 

13.                                 EXHIBITS.  The following exhibits are attached hereto
and made a part hereof:

 

Exhibit “A” – Legal Description of the Real Property

Exhibit “B-1” – Site Plan

Exhibit “B-2” – Outline Specifications

Exhibit “C” – Construction Schedule

Exhibit “D” – Tenant Estoppel Certificate

Exhibit “E” – Building Core and Shell

Exhibit “F” – Approved Hazardous Materials

Exhibit “G” – Baseline Budget

 

These Fundamental Lease
Provisions are an integral part of this Lease and each reference in this Lease
to any of the Fundamental Lease Provisions shall be construed to incorporate
all of the terms provided under each such Fundamental Lease Provision.  In the event of any conflict between any
Fundamental Lease Provision and the balance of the Lease, the Lease shall
control.

 

	
   

  	
  Landlord’s Initials

  	
   

  
	
   

  	
   

  
	
   

  	
  Tenant’s Initials

  	
   

  
				

 

iii

 

1.                                       PREMISES.  Landlord hereby leases and demises to Tenant
and Tenant hereby hires from Landlord, for the term, at the rental and upon the
conditions set forth herein, the Premises, as defined in the Fundamental Lease
Provisions.

 

2.                                       TERM.

 

2.1                                 Base Term  .  The Base Term
of this Lease shall be for fifteen (15) years, as set forth in Paragraph 5 of
the Fundamental Lease Provisions.  The
Base Term shall commence on the Commencement Date.  In the event the Commencement Date is a day
other than the first day of a calendar month, the Base Term shall be for
fifteen (15) years plus the partial calendar month during which the
Commencement Date occurs.  Landlord
shall use commercially reasonable efforts to cause the Commencement Date to
occur within 20 months after the date this Lease is executed.  If the Substantial Completion Date has not
occurred by December 31, 2006 (as adjusted (a) one (1) day for each day
after October 15, 2004 and before this Lease is executed, (b) to the extent
that events of Force Majeure (as defined herein) delayed the Substantial
Completion Date, (c) to the extent of delays caused by Change Orders requested
by Tenant as provided in Section 4.10 and (d) to the extent caused by (i)
Tenant’s active interference with the construction of the Building, other Improvements
and/or Tenant Improvements or (ii) delays in Tenant approving drawings and
specifications, the budget, Change Orders or other matters required to be
approved by Tenant pursuant to Article 4 within the applicable time period
specified, or if no time is specified, within a reasonable period of time,
Landlord shall owe Tenant one-sixtieth (1/60th) of the Monthly Base Rent that
would have been applicable if the Commencement Date had occurred for each day
after December 31, 2006 (as adjusted) and before the Substantial Completion
Date occurs, which amount will be paid to Tenant in the form of a cash payment
by Landlord to Tenant, the amount payable for each calendar month being payable
within ten (10) days following the end of such calendar month, or a credit
against the first payment of Monthly Base Rent, as determined by Landlord in
Landlord’s sole discretion.

 

2.2                                 Options to Extend.  Provided that, at the time of giving notice
of exercise or at the commencement of the First or Second Option Term, as applicable,
no Event of Default or Inchoate Default has occurred which is continuing,
Tenant shall have the right and option to extend the term of this Lease for two
(2) additional periods of five (5) years each upon the same terms and
conditions herein applicable to the Base Term, except for the amount of the
Annual Base Rent, the first option being referred to herein as the “First
Option,” the second option being referred to herein as the “Second Option,” and
the First Option and Second Option being referred to herein, individually, as
an “Option” and collectively, as the “Options.” 
In the event that, at the time of giving notice of exercise or at the
commencement of the First or Second Option Term, as applicable, an Inchoate
Default has occurred which is continuing, Landlord shall provide Tenant with
written notice thereof, Tenant shall have sixty (60) days to cure such Inchoate
Default following such written notice, the applicable Option will not expire
during such sixty (60) day period so long as Tenant is diligently pursuing such
cure and, in the event such Inchoate Default is cured within such sixty (60)
day period or Landlord waives in writing the obligation of Tenant to cure such
Inchoate Default as a condition to the effectiveness of the exercise of the
Option within such sixty (60) day period, the Option shall be deemed to have
been timely exercised.  The five (5) year
period for which the term is extended in the event the First Option is
exercised is referred to herein as the “First Option Term”, and the five (5)
year period for which the term is extended in the event the Second Option is
exercised is referred to herein as the “Second Option Term.”  Tenant shall exercise the First Option, if at
all, by giving written notice to Landlord of 

 

1

 

such exercise not less than nine (9) months
and not more than twelve (12) months prior to the expiration of the Base Term,
and Tenant shall exercise the Second Option, if at all, by giving written
notice to Landlord of such exercise not less than nine (9) months and not more
than twelve (12) months prior to the expiration of the First Option Term.  At Tenant’s request during the three-month
periods described in the preceding sentence, Landlord shall, by the later of
(a) thirty (30) days after such request and (b) ten (10) months before the
commencement of the First or Second Option Term, as applicable, provide Tenant
with a written notice setting forth Landlord’s estimate of the Fair Market
Rental for the Premises (as described in Section 5.3 hereof).  The Second Option may be exercised only if
the First Option is exercised.  An
exercise of an Option shall be irrevocable. 
If Tenant fails to give written notice of the exercise of the applicable
Option within the time provided above, such Option shall automatically
terminate, time being of the essence.

 

3.                                       USE OF PREMISES.

 

3.1                                 Type of Use.  Tenant shall use the Premises for the
purposes specified in Paragraph 10 of the Fundamental Lease Provisions and for
no other use or purpose.

 

3.2                                 Compliance With Law.  

 

(a)                                  Landlord
agrees that the Premises shall be constructed in compliance with all applicable
statutes, ordinances, orders, laws, rules and regulations, and the requirements of all federal, state and
municipal governments and appropriate departments, commissions, boards and
offices thereof, which may be applicable to the Premises or to the use or
manner of use of the Premises, including without limitation the American with
Disabilities Act which are in effect at the Substantial Completion Date
(collectively, “Applicable Laws”).  Any
incremental costs that Landlord demonstrates are necessary to comply with any
changes in any applicable statutes, ordinances, orders,
laws, rules and regulations, and the requirements of
all federal, state and municipal governments and appropriate departments,
commissions, boards and offices thereof, which may be applicable to the
Premises or to the use or manner of use of the Premises, that are given effect
after the time that a building permit for the construction of the Building is
issued and before the Substantial Completion Date will be included in “Total
Project Costs” and the GMTC shall be increased by the amount of such
incremental costs. Subject to Landlord’s right to include incremental costs in
Total Project Costs and obtain an adjustment to the GMTC as provided in the
immediately preceding sentence, to the extent that the Premises are not
constructed in compliance with Applicable Laws, Landlord shall be responsible
for any costs of causing such compliance to occur which are in excess of the
costs that would have been incurred and included in Total Project Costs had the
Premises been originally constructed in accordance with Applicable Laws, and
any such excesses shall not be included in “Total Project Costs” pursuant to
Section 5.1(a).  Any costs of causing
such compliance to occur that would have been incurred and included in Total
Project Costs had the Premises been originally constructed in accordance with
Applicable Laws shall be included in Total Project Costs, and the Annual Base
Rent shall be recalculated accordingly. 
Landlord shall indemnify and defend Tenant and hold Tenant and the
Premises harmless against all actions, claims and damages by reason of (i)
Landlord’s failure to perform any of the terms of this Section 3.2(a) or (ii)
Landlord’s non-observance or non-performance of any statute, ordinance, order,
law, rule, regulation and/or governmental requirement applicable to Landlord’s
construction of the Premises.

 

2

 

(b)                                 Tenant
agrees that all of Tenant’s operations or activities and the operations and
activities of any subtenants on the Premises shall be conducted in compliance
with all applicable statutes, ordinances, orders, laws, rules and regulations,
and the requirements of all federal, state and municipal governments and
appropriate departments, commissions, boards and offices thereof, which may be
applicable to the Premises or to the use or manner of use of the Premises.  Tenant shall indemnify and defend Landlord
and hold Landlord and the Premises harmless against all actions, claims and
damages by reason of (i) Tenant’s failure to perform any of the terms of this
Section 3.2(b) or (ii) Tenant’s non-observance or non-performance of any
statute, ordinance, order, law, rule, regulation and/or governmental
requirement applicable to Tenant’s operations or activities on the Premises.

 

3.3                                 Miscellaneous Restrictions.  Tenant agrees
that in using the Premises:

 

(a)                                  Tenant shall
not commit any waste or suffer any waste to be committed upon the Premises or
the Real Property, the Building or the other Improvements.

 

(b)                                 Tenant
shall not cause or permit any “Hazardous Materials” (as defined below) to be
brought, stored, used, generated, released or disposed of on, under, from or
about the Premises (including, without limitation, the soil and ground water
thereunder) other than the presence and use of those “Hazardous Materials”
currently used in the conduct of its business set forth on Exhibit F hereto (so
long as such presence and use is in compliance with all applicable laws, rules
and regulations) without the prior written consent of Landlord, which consent
shall not be unreasonably withheld, conditioned or delayed so long as the
presence, use, generation, release or disposal, as applicable, does not violate
any applicable law, rule or regulation. 
If Landlord does not notify Tenant of its disapproval within fifteen
(15) days after receipt of Tenant’s written request, Landlord shall be deemed
to have approved such additional “Hazardous Material”.  Tenant shall not engage in, and shall
indemnify, defend (with counsel selected by Landlord) and hold Landlord
harmless from, any activity on or about the Premises during the Term that violates
any “Environmental Law” (as defined below) and shall promptly, at Tenant’s sole
cost and expense, take all investigatory and/or remedial action required or
ordered by any governmental agency or Environmental Law for clean-up and
removal of any contamination involving any Hazardous Materials (as defined
below) brought to, placed on or discharged onto or from the Premises during the
Term of this Lease or created or caused directly or indirectly by Tenant on or
under any adjoining property; provided, however, that Tenant shall not be
responsible for any off-site migration of Hazardous Materials to the Premises
if such off-site migration is not caused by Tenant and shall not be responsible
for any violations of any Environmental Law, and shall not be responsible for
any Hazardous Materials brought to, placed on or discharged onto or from the
Premises, by Landlord or any of its contractors, employees, officers or
agents.  The term “Environmental Law”
shall mean any federal, state or local law, statute, ordinance or regulation
pertaining to health, industrial hygiene or the environmental conditions on,
under or about the Premises, including, without limitation, (i) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(“CERCLA”), 42 U.S.C. Sections 9601 et seq.;
(ii) the Resource Conservation and Recovery Act of 1976 (“RCRA”), 42 U.S.C.
Sections 6901 et seq.; (iii) California
Health and Safety Code Sections 25100 et seq.;
(iv) the Safe Drinking Water and Toxic Enforcement Act of 1986, California
Health and Safety Code Section 25249.5 et seq.;
(v) the Federal Water Pollution Control Act, 33 U.S.C. Sections 1317 et seq.; (vi) California Water Code
Section 1300 et seq.; and (vii) California
Civil Code Section 3479 et seq., as such
laws are amended and the regulations and administrative codes applicable

 

3

 

thereto.  The term “Hazardous Materials” includes,
without limitation, any material or substance which is (i) defined or listed as
a “hazardous waste”, “extremely hazardous waste”, “restrictive hazardous waste”
or “hazardous substance” in, or considered a waste, condition of pollution or
nuisance under, the Environmental Laws; (ii) defined as hazardous material or
hazardous substance in California Health and Safety Code Section 25501; (iii)
petroleum or a petroleum product or fraction thereof; (iv) asbestos; (v)
lead in water, paint or elsewhere; and/or (vi) known by the State of California
to cause cancer and/or reproductive toxicity. 
It is the intent of the parties hereto to construe the terms “Hazardous
Materials” and “Environmental Laws” in their broadest sense.  Notwithstanding the foregoing, the presence
and/or use of the following substances shall not be deemed a violation of this
Section if stored, formulated, used or tested at or on the Premises in
accordance with all applicable laws, rules and regulations; office supplies,
cleaning supplies, construction supplies, herbicides, insecticides,
fertilizers, and other garden products, rodenticides, chemicals and specimens
used in biological or pharmaceutical research, pharmaceuticals and
pharmaceutical supplies and chemicals, in each case stored, fabricated, used or
tested at or on the Premises in the ordinary course of Tenant’s business.  Tenant shall provide all notices required
pursuant to the Safe Drinking Water and Toxic Enforcement Act of 1986,
California Health and Safety Code Section 25249.5 et seq.  Tenant shall provide
prompt written notice to Landlord of any notice of violation of any
Environmental Law received by Tenant and, upon learning of same, the presence
of Hazardous Materials on the Premises. 
Tenant’s obligations pursuant to this Paragraph (b) shall be referred to
in this Lease as “Environmental Compliance”. 
Tenant’s obligations under this Paragraph (b) shall survive the
termination of this Lease.

 

3.4                                 Landlord’s Indemnity as to Hazardous
Materials.  Landlord
shall not engage in, and shall indemnify, defend and hold Tenant harmless from,
any activity by Landlord or its agents on or about the Premises that violates
any Environmental Law, and shall promptly, at Landlord’s sole cost and expense,
take all investigatory and/or remedial action ordered by any governmental
agency for clean-up and removal of Hazardous Materials (i) created or caused by
Landlord on or about the Premises, (ii) existing on or about the Premises prior
to the commencement of the Term, or (iii) incorporated into the Building or
other Improvements.  Notwithstanding the
above, any damages that Tenant may suffer and be entitled to recover pursuant
to this Section shall be limited to its actual out-of-pocket expenses and shall
in no event include any consequential damages, lost profits or opportunity
costs suffered by Tenant.  Landlord’s
obligations under this Section 3.4 shall survive the termination of this Lease.

 

3.5                                 Mold, Fungus, Bacteria and Other Biological Growth.  Tenant shall
use commercially reasonable efforts to prevent the accumulation of mold,
fungus, bacteria or other biological growth at or in the Premises, and in the
event that same does occur, shall promptly cause same to be removed and
remediated at Tenant’s expense.

 

3.6                                 Additional Use Restrictions.

 

(a)                                  Notwithstanding any other
provision of this Lease to the contrary and without limiting the restriction on
Tenant’s use of the Premises set forth in Paragraph 11 of the Fundamental Lease
Provisions, in no event shall Tenant use the Premises, or any portion thereof,
for any use that conflicts with any document encumbering the Premises which is recorded
in the Official Records of San Diego County, California as of the date of this
Lease.

 

4

 

(b)                                 Notwithstanding any other
provision of this Lease to the contrary, Landlord shall not create
or cause to be made of record any new covenants, conditions, easements or
restrictions on the Premises or any modification thereto that would adversely
affect Tenant’s rights under this Lease or increase Tenant’s costs of
occupation.

 

4.                                       CONSTRUCTION.

 

4.1                                 Plans and Specifications

 

(a)                                  Tenant shall have the right
to approve each of Landlord’s consultants, contractors or subcontractors which
are under direct contract with Landlord, including Landlord’s project architect
(the “Project Architect”) and its General Contractor (as defined herein), and
shall have the right to review and approve of any contract to be entered into
with any such consultant, contractor or subcontractor, in each case which
approval shall not be unreasonably withheld, conditioned or delayed.  Ware Malcomb is deemed approved by Tenant as
Project Architect.  Landlord shall cause
its Project Architect to prepare complete working drawings and specifications
for the construction of a building and other improvements meeting the following
requirements:  The building shall contain
approximately one hundred ten thousand (110,000) gross
measured square feet; the building, parking areas, entries to
the parking areas and driveways shall be consistent with the site plan and
outline specifications attached hereto as Exhibits “B-1” and “B-2”,
respectively; the building shall be a high image two-story concrete tilt-up
building with the maximum possible amount of glassline, with the exception of
the locations where loading doors and other required building features preclude
glassline; and the building shall be served by a two-story elevator.  The drawings and specifications shall provide
for the surface parking spaces on the Real Property as shown on the site plan
attached hereto as Exhibit “B-1.” 
Landlord shall cause the Project Architect to cooperate and coordinate
with Tenant in connection with the development of the plans and specifications.

 

(b)                                 Landlord shall cause its
Project Architect to deliver three (3) plan submissions (each, a “Plan
Submission”) for the Building and Improvements to Tenant for review and
approval as follows:

 

(1)                                  No later
than the date set forth in the Construction Schedule, submission of schematic
plans which establish the conceptual design of the Building and Improvements
illustrating the scale and relationship of the components, including a
conceptual site plan, if appropriate, preliminary building plans, preliminary
sections, exterior elevations, schematic grading plans and parking plans (the
“Schematic Drawings”);

 

(2)                                  No later
than the date set forth in the Construction Schedule, submission of design
development plans which illustrate and describe the refinement of the design of
the Building and Improvements, establishing the scope, relationships, forms,
size and appearance of the Building and Improvements by means of plans,
sections and elevations, typical construction details and equipment layouts and
including specifications that identify major materials and systems and
establish in general their quality levels (the “Design Development Plans”); and

 

(3)                                  No later
than the date set forth in the Construction Schedule, submission of final
construction plans and specifications which set forth in detail the
requirements for construction of the Building and Improvements, including final
grading plans, 

 

5

 

construction plans, drawings
and specifications that establish in detail the quality levels of materials and
systems required for the Building and Improvements (the “Working Plans”).

 

Landlord shall include with each Plan Submission: (a)
a commercially reasonable budget for the construction of the Building and
Improvements prepared by its General Contractor based upon the Plan
Submissions, which budget shall reasonably estimate all amounts to be included
in Total Project Costs listed in clauses (2), (3), (6), (7) and (10) of the
definition of Total Project Costs contained in Section 5.1(a); and (b) a
reasonable all-inclusive budget for expected Total Project Costs prepared by
Landlord, which budget shall be consistent with the corresponding budget
prepared by the General Contractor as to the items contained in clauses (2),
(3), (6), (7) and (10) of Section 5.1(a). 
Landlord shall cause the Project Architect to prepare the Schematic
Plans such that they are consistent with and a logical evolution of the
requirements of this Lease and Exhibit B-1.   
Landlord shall cause the Project Architect to prepare the Design
Development Plans such that they are consistent with and a logical evolution of
the requirements of this Lease and the Schematic Plans.  Landlord shall cause the Project Architect to
prepare the Working Plans such that they are consistent with and a logical
evolution of the requirements of this Lease and the Design Development Plans.

 

(c)                                  Each Plan
Submission shall be subject to Tenant’s written approval.  Tenant shall have five (5) Business Days
after receipt of each Plan Submission to review and approve such Plan
Submission, which approval shall not be unreasonably withheld or
conditioned.  If
Tenant disapproves of any plans and specifications, or any portion thereof,
provided by Landlord, Tenant shall promptly notify Landlord thereof and of the
revisions which Tenant reasonably requires in order to obtain Tenant’s
approval.  Landlord shall submit to
Tenant a revised Plan Submission incorporating the revisions required by
Tenant.  Said revisions will be subject
to Tenant’s approval, which shall not be unreasonably withheld, conditioned or
delayed.  The foregoing process shall be
repeated until Tenant finally approves the Plan Submission.  If the estimated Total Project Costs at any
of the stages of development set forth in Section 4.1(b)(1)-(3), exceeds the
amount set forth in the budget for the preceding stage of development (or, in
the case of 4.1(b)(1), the baseline budget attached hereto as Exhibit G), then
such deviations will constitute a basis for Tenant to reject the plans and
specifications provided and, in the event of rejection, the Building and other
Improvements shall be redesigned to bring estimated Total Project Costs within
the prior budget.  Without limiting Tenant’s foregoing approval rights,
Tenant has the right to review, comment on and approve the specifications for
the HVAC system, electrical system, plumbing system and elevators, such
approval not to be unreasonably withheld, conditioned or delayed.  Once approved, the working drawings and
specifications are herein referred to as the “Final Plans and Specifications.”

 

4.2                                 Construction.  Landlord has elected to
construct the Project using a construction consultant/ contractor process,
generally similar to that provided for in AIA Form A121, in which Landlord
contracts with the general contractor for the Project (the “General
Contractor”) at an early stage in the development of plans and specifications
for the Project and the General Contractor acts as the Landlord’s
preconstruction consultant in connection with the Project.  As such, the contract with the General
Contractor (the “General Contract”) shall provide:

 

(a)                                  for
the construction of the Building and the Improvements, the General Contractor
to be compensated (the amounts of such compensation, the “General Contract
Price”) 

 

6

 

(i) for preconstruction work on
the basis of a fixed fee and (ii) for construction work on the basis of (A)
cost plus a fee subject to a guaranteed maximum price or (B) a fixed sum;

 

(b)                                 for
the construction of the Building and the Improvements, stipulated amounts for
the provision of preconstruction services, the General Contractor’s fee, the
provision of general conditions (including the cost of payment and performance
bonds) and contingency; and

 

(c)                                  for
the construction of the Building and the Improvements, a General Contract Price
equal to the sum of subcontractor bids for all trade work, and the stipulated
amounts for the General Contractor’s preconstruction services fee, construction
fee, general conditions (including the cost of payment and performance bonds)
and contingency.

 

Within thirty (30) days following the date of
this Lease, or as soon thereafter as is reasonably possible, Landlord and
Tenant shall interview at least three (3) proposed general contractors and
Landlord, with input from Tenant, will tentatively select one general
contractor to act as the General Contractor for the construction of the
Building and the other Improvements. 
Landlord’s selection of the General Contractor shall not be effective
until approved by Tenant, which approval shall not be unreasonably withheld,
conditioned or delayed.  As part of the
interview process, the General Contractor shall agree to the preconstruction
fee, construction fee, general conditions (including the cost of payment and
performance bonds) and contingency. 
Landlord and General Contractor shall agree as to the form of the
Construction Contract, which form shall be subject to the approval of Tenant,
which approval shall not be unreasonably withheld, conditioned or delayed.  The amount to be paid to the General
Contractor for the Building and Improvements shall be the General Contractor’s
cost of construction plus the construction fee, general conditions (including
the cost of payment and performance bonds) and contingency.  The General Contract shall provide for the
construction of the Building and Improvements in accordance with the Final
Plans and Specifications, including, without limitation, all on and off-site
work, and all fees, permits, licenses, inspections and certificates required by
any governmental authority for such work. 
As part of the interview process, the General Contractor shall also
propose a preconstruction fee, construction fee, general conditions (including
the cost of payment and performance bonds) and contingency for the construction
of the Tenant Improvements.  Tenant shall
review such proposal and will notify Landlord and the General Contractor within
twenty (20) days after the delivery thereof to Tenant whether it accepts or
rejects such proposal.  To the extent
that the final construction contract to be executed by Landlord and the General
Contractor varies from the form of the construction contract previously
approved by Tenant as above provided, Tenant shall have the right to review and
approve any such deviations, such approval not to be unreasonably withheld,
conditioned or delayed.

 

4.3                                 Commencement of Construction.  Upon
completion of the Working Plans, Landlord shall cause General Contractor to
obtain subcontract bids for the construction of the Building and other
Improvements from at least three (3) reputable subcontractors approved by
Tenant for each trade whose total compensation is expected to exceed Ten
Thousand Dollars ($10,000.00), which approval shall not be unreasonably
withheld, conditioned or delayed. 
Landlord and General Contractor shall review the bids obtained and shall
recommend to Tenant which bid to accept for each trade.  Tenant shall approve or disapprove of each
recommended bid, such approval not to be unreasonably withheld, conditioned or
delayed, and the General Contractor shall promptly award the subcontract to
such bidders so selected and shall execute 

 

7

 

subcontracts for the construction of the
Building and other Improvements in accordance with the Final Plans and
Specifications approved pursuant to Section 4.1 hereof.  After all subcontracts have been awarded, a
guaranteed maximum price to be inserted into the General Contract shall be
established and shall be equal to the sum of
subcontractor bids for all work, and the stipulated amounts for the General
Contractor’s preconstruction services fee, construction fee, general conditions
(including the cost of payment and performance bonds) and contingency.  Alternatively,
Landlord and General Contractor, with the approval of Tenant, which approval shall
not be unreasonably withheld, conditioned or delayed, may convert the General
Contract into a fixed sum contract. 
Within ten (10) Business Days after the award of the subcontracts as set
forth above and the obtaining of necessary permits, including the building
permit, Landlord shall deliver final versions of the budgets described in
Section 4.1(b) based on the General Contract Price to Tenant for Tenant’s
approval, which approval shall not be unreasonably withheld, conditioned or
delayed.  In addition, within thirty-five
(35) days after the award of the subcontracts as set forth above and the
obtaining of necessary permits, including the building permit, Landlord shall
cause General Contractor to commence
and thereafter diligently prosecute the construction of the Building and other
Improvements to completion pursuant to the approved Final Plans and
Specifications, subject only to Change Orders approved by Tenant, minor field
changes or changes required by governmental authority.  The commencement and completion of the
Building and other Improvements shall be subject to delays resulting from acts
of Tenant, acts of God, adverse weather conditions, war, invasion,
insurrection, acts of a public enemy, riot, mob violence, civil commotion,
sabotage, labor disputes, inability to procure or general shortage of labor,
materials, facilities, equipment or supplies on the open market, delay in
transportation, laws, rules, regulations or orders of governmental agencies,
inability to obtain permits or approvals, breaches by the General
Contractor and subcontractors, if any, of their respective
contracts, changes in Applicable Laws after the building permit is issued or
any other cause beyond the reasonable control of Landlord, financial ability
excepted, whether similar or dissimilar to the foregoing (“Force Majeure”).

 

For
purposes of the budget to be proposed by Landlord and approved by Tenant
pursuant to this Section 4.3, interest payable on the acquisition loan and/or
construction loan shall be based on the interest rate set forth in the term
sheet approved by Tenant pursuant to Section 4.11 plus one (1) percent (1%) (if
a floating rate, the interest rate shall be based on the interest rate that
would be in effect under such term sheet as of the date the budget is approved
pursuant to this Section 4.3) with the construction period and the disbursement
schedule to be based upon reasonable custom and practice for construction of a
project of this type and magnitude.

 

4.4                                 Tenant Improvements.

 

(a)                                  In addition to the construction
of the Building and other Improvements shown in the Final Plans and
Specifications, Landlord shall construct for Tenant “Tenant Improvements” up to
and not exceeding a cost of Thirty-Five Dollars ($35.00) per gross
measured square foot for any items in addition to those set
forth in Exhibit ”E” hereto, such items being defined as the
“Building Core and Shell.

 

(b)                                 If Tenant approves the
proposal for the construction of Tenant Improvements prepared by the General
Contractor as part of the application process pursuant to Section 4.2 hereof,
then upon completion of the plan submissions for the Tenant Improvements as set
forth in Section 4.4(d) below, Landlord shall cause General Contractor to
obtain 

 

8

 

subcontract bids for the construction of the
Tenant Improvements from at least three (3) reputable subcontractors approved
by Tenant for each trade, which approval shall not be unreasonably withheld, conditioned
or delayed.  Landlord and General
Contractor shall review the bids obtained and shall recommend to Tenant which
bid to accept for each trade.  Tenant
shall approve or disapprove of the recommended bid, such approval not to be
unreasonably withheld, conditioned or delayed, and the General Contractor shall
promptly award the subcontract to such bidders so selected and shall execute
subcontracts for the construction of the Tenant Improvements in accordance with
the plan submissions approved pursuant to Section 4.4(d) below.

 

(c)                                  If Tenant disapproves the
proposal for the construction of Tenant Improvements prepared by the General
Contractor as part of the application process pursuant to Section 4.2 hereof,
then within twenty (20) days of completion of the plan submissions for the
Tenant Improvements as set forth in Section 4.4(d) below, Landlord agrees to
obtain bids from at least three (3) reputable general contractors approved by
Tenant, which approval shall not be unreasonably withheld, conditioned or
delayed, for the construction of the Tenant Improvements.  The bid packages (which shall include a form
of construction contract for the construction of the Tenant Improvements) to be
submitted to potential general contractors shall be subject to Tenant’s prior
written approval within twenty (20) days after the delivery thereof to Tenant,
including review and approval of the terms of the construction contract,
including the insurance provisions contained therein, which approval shall not
be unreasonably withheld or conditioned. 
Each bidder shall be required to include within its bid all work
required by the approved plan submissions for the Tenant Improvements,
including, without limitation, all fees, permits, licenses, inspections and
certificates required by any governmental authority for such work.  Except for a good cause determined by
Landlord and Tenant in their reasonable judgment, Landlord shall promptly award
the contract to the low bidder and shall execute a construction contract in the
form included in the bid package for the construction of the Tenant
Improvements in accordance with the plan submissions approved pursuant to
Section 4.4(d) hereof, which construction contract shall be for a fixed sum
equal to the bid of such contractor.  To
the extent that the construction contract to be executed by the Landlord and
the low bidder deviates from the form of construction contract included in the
bid package, Tenant shall have the right to review and approve any such
deviations within ten (10) days after the delivery thereof to Tenant, such
approval not to be unreasonably withheld or conditioned.  Landlord and Tenant shall have the right to
review all bids, if any, and discuss them with the contractors submitting bids
to confirm that all work described in the plan submissions is included in such
contractor’s bid.

 

(d)                                 Tenant’s space planner
(“Tenant’s Space Planner”) shall deliver three (3) plan submissions for the
Tenant Improvements to Landlord and Tenant for review and approval as follows:

 

(1)                                  No later
than the date set forth in the Construction Schedule, submission of schematic
plans which shall include (floor plans including architectural features such
as, but not limited to, walls, doors and door swing, casework (millwork), room
identifications and adjacencies);

 

(2)                                  No later
than the date set forth in the Construction Schedule, submission of design
development plans which shall include architectural plans and legends, finish
plans and legends, reflecting ceiling plan and concept lighting schedules,
major elevations, related sketches and perspectives to further illustrate
design concept as necessary; and

 

9

 

(3)                                  No later
than the date set forth in the Construction Schedule, submission of final plans
and specifications which shall include cover sheet/legend, floor plans for each
floor, reflected ceiling plans for each floor including lighting legend, finish
plans for each floor, power and communications plans for each floor, MEP plans
for each floor, furniture plans for reference for each floor (however,
furniture is not included in Tenant Improvements), enlarged plans and details
(this could include rooms such as the reception area and copy rooms), casework
detail, partition construction schedules and associated detailing, door
scheduling and details.

 

Landlord shall be required to
provide its approval of the Tenant Improvements as designed by Tenant’s Space Planner unless
their construction will delay the completion of the Building and the
Improvements by more than ten (10) Business Days.  Tenant shall have the right to review and
approve the plans and specifications set forth in (1)-(3) above.  Notwithstanding the foregoing, the plans and specifications for the Tenant
Improvements shall be agreed to by Tenant in a timely manner such that the
completion of the Building and the other Improvements is not delayed as a
result thereof.

 

(e)                                  In addition to the Tenant
Improvements provided above, Landlord shall provide, at Tenant’s written
request, additional Tenant Improvements, the cost of which shall be paid as
provided in this Paragraph (e).  Up to an
additional Ten Dollars ($10.00) per gross measured square foot shall be paid by Tenant by either of the
following methods, which method shall be selected by Tenant in its sole
discretion:  (i) Such amount shall be
paid by Landlord and amortized over the Base Term at an interest rate of
nine percent (9%) per annum, compounded monthly, and paid by Tenant as “Tenant
Improvement Rent” pursuant to Section 5.6 hereof or (ii) paid by Tenant to
Landlord on the Commencement Date. 
Tenant shall advise Landlord of its election within thirty (30) days
following the execution of this Lease. 
Any cost of the Tenant Improvements requested by Tenant in writing in
excess of Forty-Five Dollars ($45.00) per gross measured square foot shall be paid by Tenant to Landlord on
the Commencement Date.

 

(f)                                    Provided
that Tenant and its agents do not unreasonably and unnecessarily interfere with
Landlord’s work in the Premises or affect Landlord’s ability to bring the
Tenant Improvements to substantial completion on or before the Commencement
Date, Landlord agrees to allow Tenant reasonable access to the Premises prior
to the substantial completion of the Tenant Improvements for the purpose of
Tenant installing its own fixtures, furnishings and equipment (including
Tenant’s data and telephone equipment) in the Premises and to inspect the
Premises. Prior to Tenant’s entry into the Premises as permitted by the terms
of this Section 4.4, Tenant shall submit a schedule to Landlord, for its  approval, which approval shall not be
unreasonably withheld, conditioned or delayed, which schedule shall detail the
timing and purpose of Tenant’s entry. Tenant shall hold Landlord harmless from
and indemnify, protect and defend Landlord against any loss or damage to the
Premises and against injury to any persons caused by Tenant’s actions pursuant
to this Section 4.4(f).  Tenant’s entry
shall be subject to such reasonable rules and regulations as Landlord or its
contractor may establish prior to such entry.

 

(g)                                 The amount
to be applied against the allowances for Tenant Improvements set forth in
Section 4.4(a) and 4.4(e) hereof, or to be paid by Tenant under clause (ii) of
Section 4.4(e) hereof, shall not exceed Landlord’s out of pocket costs in
connection with the design and construction of the Tenant Improvements.

 

10

 

4.5                                 Construction Schedule.  Attached
hereto as Exhibit “C” is an estimated Construction Schedule for the
construction of the Building, Improvements and Tenant Improvements.  Landlord represents that it has no reason to
believe that the Construction Schedule cannot be followed such that the
Building, the other Improvements and the Tenant Improvements will be completed
by the completion date shown in the Construction Schedule, subject to delays as
described in Section 4.3 or Section 4.6 hereof. 
Landlord shall provide monthly updates of the
Construction Schedule to Tenant, which updates shall be produced on a critical
path method basis using Primavera software, shall include at least five hundred
(500) tasks and shall be delivered to Tenant both in hard copy and digital
form.  Landlord shall use commercially
reasonable efforts to meet the Construction Schedule (including achieving
substantial completion of the Building, other Improvements and Tenant
Improvements by the date shown therefor in the Construction Schedule).  Notwithstanding the above, so long as
Landlord uses commercially reasonable efforts to meet the Construction
Schedule, Landlord shall have no liability to Tenant for a failure to meet the
Construction Schedule, including meeting the completion date, unless such
delays are caused by Landlord’s failure to comply with the provisions of the
General Contract.

 

4.6                                 Completion of Construction.  Construction
shall be deemed substantially completed at such time as the Building, other
Improvements and Tenant Improvements have been constructed in accordance with
the Final Plans and Specifications, subject to “punchlist” items, and a
certificate of occupancy or equivalent has been obtained from the City of Vista
permitting Tenant to occupy the Building. 
“Punchlist” items shall be those items that, in
Tenant’s reasonable judgment, (a) have not been completed in accordance with
the Final Plans and Specifications, as modified by any Change Order pursuant to
Section 4.10, and (b) do not have a material and adverse effect on Tenant’s
ability to use the Building for Tenant’s intended purposes, and do not
materially increase the cost of operating or maintaining the Building.  Landlord agrees to use
commercially reasonable efforts to cause the General
Contractor to complete the “punchlist” items identified pursuant
to Paragraph 5 of the Fundamental Lease Provisions within forty-five (45) days
after the Commencement Date, and in so doing, the General
Contractor or a subcontractor shall complete same in such a
manner as to not unreasonably or unnecessarily interfere with Tenant’s
occupancy of, or ability to use, the Building. 
Landlord agrees that it will not release any retainage provided for
under its contract with the General Contractor until all 
applicable “punchlist” items are completed.  If the “punchlist” items are not completed
within ninety (90) days after the Commencement Date, at Tenant’s written request,
Landlord shall retain another contractor to complete the “punchlist” items, the costs of which
shall be treated as part of the Total Project Costs.  Notwithstanding the above, the Commencement
Date shall be deemed to have occurred (and Monthly Base Rent shall commence) on
the date that construction would have been completed (except for “punchlist”
items) and a certificate of occupancy would have obtained but for delays caused
by: (a) Change Orders requested by Tenant; (b) Tenant’s active interference
with the construction of the Building, other Improvements and/or Tenant
Improvements; and/or (c) delays in Tenant approving drawings and specifications,
the budget, Change Orders and other matters required to be approved by Tenant
pursuant to this Article 4 within the applicable time specified or, if no time
is specified, within a reasonable period of time.

 

4.7                                 Warranties.  Landlord shall use commercially reasonable
efforts to cause the General Contractor to remedy all defects in the construction of the
Building and the other Improvements as to which Tenant notifies Landlord in
writing (“Landlord’s Notice”).  Provided,

 

11

 

however, one (1)
year following the Commencement Date, all warranty rights under the General Contract
will be deemed assigned to Tenant, except to the extent they relate to defects
identified in a Landlord’s Notice given prior to the expiration of such one (1)
year period, and Landlord shall have no further obligation or liability for
defects other than those identified in a Landlord’s Notice.  Except for such items,
Tenant shall be deemed to have accepted the Building and other Improvements in
the condition delivered to it “As Is,” and Landlord shall have no liability to
correct other claimed defects; provided, however, except as to those items that
Landlord is required to correct pursuant to this Section 4.7, Landlord shall
assign to Tenant all warranties that it has received from any subcontractor or
from any material supplier, in addition to the assignment of warranties under
the General Contract.  Without limiting
what constitutes a defect, the term “defect” shall include any portion of the
Building, Improvements or Tenant Improvements that is not constructed in
compliance with all Applicable Laws, that is not constructed in accordance with
the Final Plans and Specifications in all material respects or that includes
any material defect in design, engineering, materials or construction.

 

4.8                                 Trade Fixtures.  The Building and other Improvements constructed
on the Real Property shall be the property of Landlord and shall be surrendered
to Landlord upon the expiration or earlier termination of this Lease; provided,
however, all trade fixtures, equipment and signs installed by or under Tenant
shall be and remain the property of Tenant and shall be removed at Tenant’s
sole cost and expense at any time during the term of this Lease, so long as
Tenant repairs any damage caused by the removal thereof.

 

4.9                                 Landlord’s Development Team.  Landlord’s development team for the
construction of the Building, the Improvements and the Tenant Improvements
includes the following persons and/or entities: Michael Massaro, Project
Executive, and Gary Levinski, Project Manager. 
Tenant’s prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed, shall be required for any changes to the
foregoing development team.

 

4.10                           Change Orders. 
Tenant shall have the right to make a change to the Final Plans and
Specification approved by Tenant, whether such changes are modifications,
alterations, additions, or deletions.  If
Tenant desires a change, Tenant shall deliver a notice to Landlord describing
the change requested.  If Landlord
receives such a notice from Tenant, Landlord shall cause the Project Architect
and General Contractor to prepare detailed analyses of the requested change,
which, in the case of the General Contractor, shall include:

 

(a)                                  the
change, if any, to the Construction Schedule and the Substantial Completion
Date associated with such change; and

 

(b)                                 the
change, if any, to the fixed price or the guaranteed maximum price associated
with such change.

 

Within fifteen (15) days after Tenant’s notice,
Landlord will provide Tenant with copies of the analyses received from the
Project Architect and the General Contractor. 
If Tenant desires to proceed with the proposed change, Tenant shall
advise Landlord in writing within five (5) days following receipt of the
analyses, which shall thereafter be a change order to the General Contract
(“Change Order”).  If Tenant gives such
notice to proceed with the proposed change, the GMTC (as defined below) will be
increased by the change, if any, to the fixed price or the guaranteed maximum
price, as applicable, associated with such Change Order as set forth in the 

 

12

 

General Contractor’s analysis, and the Scheduled
Completion Date shall be extended as provided in the General Contractor’s
analysis.  All such changes shall be made
in accordance with this Section 4.10, and, upon approval of a Change
Order by Landlord and Tenant, shall be considered, for all purposes of this
Lease, as part of the Final Plans and Specifications.

 

4.11                           Acquisition/Construction Loan.  Tenant shall have the right to approve of the
term sheet for Landlord’s acquisition loan and/or construction loan obtained in
connection with the Premises, which consent shall not be unreasonably withheld,
conditioned or delayed.  In addition,
Tenant may not withhold its consent to the term sheet for any acquisition loan
and/or construction loan that is on market terms and conditions.  If Tenant approves of the term sheet for
Landlord’s acquisition loan and/or construction loan, then concurrently with the
execution of the loan documents in connection therewith, Landlord shall deliver
to Tenant an officer’s certificate representing and warranting that the
economic terms contained in such loan documents are consistent with those
contained in the term sheet approved by Tenant, or any variation shall again be
submitted to Tenant for its approval as above provided.

 

5.                                       RENT.

 

5.1                                 Rental During Base Term.

 

(a)                                  Tenant shall pay to Landlord
as Annual Base Rent for each year during the Base Term the product of “Adjusted
Development Costs” multiplied by nine and five-tenths percent (9.5%) (the
“Interest Factor”).  Adjusted Development
Costs shall be the lesser of (x) the aggregate of estimated Total Project Costs
as set forth in the final budget described in Section 4.3 hereof prepared by
Landlord (consistent with the budget prepared by the General
Contractor) on a reasonable line item basis, plus a five percent
(5%) contingency, which has been approved by Tenant pursuant to Section 4.3,
with increases thereto, if any, as expressly provided in this Lease (the
“GMTC”) and (y) the actual Total Project Costs. 
“Total Project Costs” means the construction and acquisition costs
(including the cost of the construction of the first Thirty-Five Dollars
($35.00) of the Tenant Improvements) incurred in completing the Premises, and
shall include the cost of the Real Property and the construction of the
Building and the other Improvements, all of the following, and any other costs
pre-approved by Tenant in writing:

 

(1)                                  The cost of the Real
Property, which is agreed to be Four Million Two Hundred Eight Thousand Four
Hundred Forty Dollars ($4,208,440.00);

 

(2)                                  All sums paid or to be paid
by Landlord to the General Contractor for construction pursuant to the General Contract and
all Change Orders implemented pursuant to the provisions of Section 4.10
hereof other than for the construction of the Tenant Improvements;

 

(3)                                  Fees for, and the cost of,
permits, licenses, inspections and certificates required for the construction
of the Building and the other Improvements by any governmental authority or to
comply with warranties and/or guaranties paid by Landlord;

 

(4)                                  Fees and costs charged by
Landlord’s architect, engineers and other consultants with respect to the
construction of the Building and the other Improvements and the obtaining of
entitlements relating thereto;

 

13

 

(5)                                  All interest, points, fees
and cost reimbursements paid by Landlord on its acquisition loan and/or
construction loan for the period before the Commencement Date, the proceeds of
which are used for the acquisition of the Real Property and/or the construction
of the Building and the other Improvements (including the Tenant Improvements)
including any loan fees paid as a condition to obtaining any such loan, appraisal
fees, documentation fees and the like; provided, however, in no event shall the
amount of interest on the acquisition loan or construction loan to be included
in Total Projects Costs for any period of time exceed the amount of interest
that would be calculated (a) on the outstanding principal amount during such
period of time and (b) at the interest rate payable on such loan on the date
the deed of trust securing such loan is recorded plus one percent (1%);

 

(6)                                  The cost of any offsite
improvements, or fees in lieu thereof, required by law or applicable
governmental authority in connection with the construction of the Building, the
Improvements and the Tenant Improvements not made pursuant to the General
Contract, and specifically excluding any offsite improvements related to or
fairly allocable to the construction or development of any improvements or
buildings owned by Landlord or its affiliates other than the Premises and the
Tenant Improvements;

 

(7)                                  The cost of the construction
of utilities and utility hook-up fees, unless paid by the General
Contractor pursuant to the General Contract;

 

(8)                                  The cost of the Tenant
Improvements up to a maximum amount of Thirty-Five Dollars ($35.00) per gross
measured square foot as provided in Section 4.4 hereof;

 

(9)                                  Brokerage commission payable
to CB Richard Ellis Inc. in connection with the execution of the Lease in an
amount equal to four percent (4%) of the Annual Base Rent payable under this
Lease for the first five (5) years of the Term and two percent (2%) of the
Annual Base Rent payable under this Lease for the second five (5) years of the
Term, and a brokerage commission payable to Landlord or an affiliate of
Landlord in connection with the execution of this Lease in an amount equal to
two percent (2%) of the Annual Base Rent payable under this Lease for the first
five (5) years of the Term and one percent (1%) of the Annual Base Rent payable
under this Lease for the second five (5) years of the Term (in both instances,
the brokerage commission shall be determined (and fixed) at the time the final
budget is approved by Tenant pursuant to Section 4.3 based upon the Annual Base
Rent that would be payable pursuant to such final budget);

 

(10)                            A development fee payable to
Landlord, in an amount equal to the difference of:

 

(a)  five percent (5%)
of the Total Project Costs, excluding (i) the amounts described in Sections
5.1(a)(1), 5.1(a)(10) and 5.1(a)(14) hereof, (ii) the amounts described in
Section 5.1(a)(5) hereof (except for the “Finance (Loan Fee)” shown in the
Baseline Budget attached hereto as Exhibit “G,” which shall be included in
Total Project Costs for purposes of this Section 5.1(a(10))) and (iii) the
brokerage commission payable to Landlord or its affiliate pursuant to Section
5.1(a)(9), in each case as set forth in the final budget approved by Tenant
pursuant to Section 4.3, less

 

(b) the brokerage commission paid to Landlord or its
affiliate pursuant to Section 5.1(a)(9) above;

 

14

 

(11)                            The cost of landscaping and
hardscape as is shown on the Final Plans and Specifications, as modified by any
Change Order pursuant to the provisions of Section 4.10 hereof, or otherwise
approved by Tenant, such approval not to be unreasonably withheld, conditioned
or delayed;

 

(12)                            Any dues or assessments paid
by Landlord to any owners’ association, including Vista Oaks Business Park and
Oak Ridge Business Center, for the period between the date Landlord acquires
the Real Property and the Commencement Date;

 

(13)                            The cost of any
environmental assessment requested by Tenant; and

 

(14)                            The cost of the title
insurance policy to be provided pursuant to Section 18.19.

 

(b)                                 Notwithstanding
the foregoing, Total Project Costs shall not include any of the following:

 

(1)                                  financing costs after the
Commencement Date;

 

(2)                                  costs payable to affiliates
of Landlord to the extent that they are higher than the costs would be for
independent third parties performing the same work;

 

(3)                                  costs that result from the
negligence or willful misconduct of Landlord or any of its affiliates, except
for the negligent failure of Landlord to prevent Tenant or any third party
(other than Landlord’s contractors and consultants) from taking any action
(“Passive Negligence”);

 

(4)                                  costs that arise from any
damage or destruction to the Building and the other Improvements;

 

(5)                                  Landlord’s internal costs
and expenses, including Landlord’s overhead;

 

(6)                                  travel costs for Landlord,
its affiliates and their employees, officers, directors, etc.;

 

(7)                                  costs of environmental
assessments, unless requested by Tenant, and abatements;

 

(8)                                  any amounts for which any
other person reimburses Landlord (including, but not limited to, insurance
proceeds, condemnation proceeds and amounts rebated to Landlord by any
contractor or consultant);

 

(9)                                  charitable or political
contributions;

 

(10)                            any other cost or expense
not required for the construction or development of the Building or the
Improvements which is not included in the budget approved by Tenant pursuant to
the provisions of Section 5.1(a) (it is not the intent of this paragraph (10) 

 

15

 

to limit the cost or expense of any item
shown in the budget to the dollar amount shown in the budget for such item);

 

(11)                            additional costs incurred as
a result of Landlord’s failure to make a payment on a timely basis to its
contractors, consultants or lenders;

 

(12)                            construction costs for items
other than those set forth in the Final Plans and Specifications or a Change
Order approved pursuant to the provisions of Section 4.10 hereof;

 

(13)                            legal fees incurred in
connection with negotiations with Tenant and salaries for Landlord’s employees;

 

(14)                            costs for pre-existing
environmental conditions as set forth in Section 3.4 of this Lease;

 

(15)                            bonuses or other special
compensation except for incentives set forth in the General Contract such as a
sharing of any cost savings below the guaranteed maximum price;

 

(16)                            excess cost of causing
compliance with Applicable Laws as provided in Section 3.2(a) of this Lease;

 

(17)                            any management fee payable
to Landlord or an affiliate of Landlord except for the development fee payable
pursuant to clause (10) of Section 5.1(a) hereof;

 

(18)                            insurance and taxes paid by
Tenant pursuant to Section 5.8 hereof; and

 

(19)                            any other cost or expense
not specifically identified in clauses (1) through (14) of Section 5.1(a)
above.

 

(c)                                  Landlord
shall keep detailed and accurate books and records (including financial
records) in connection with the construction of the Premises, and in accordance
with customary standards for similar projects. 
Landlord shall provide to Tenant a schedule showing
the calculation of Total Project Costs and Tenant or its architects or other
agents shall have the right to inspect and audit Landlord’s books and records
relating thereto, so long as Tenant requests such inspection or audit within
one hundred twenty (120) days after receipt from Landlord of Landlord’s
calculation of Total Project Costs. 
Tenant shall pay to Landlord the Monthly Base Rent based upon Landlord’s
calculation of Total Project Costs beginning with the Commencement Date.  In the event that Tenant’s inspection and/or
audit of Landlord’s books and records determines that Total Project Costs have
been miscalculated, (1) there shall be an appropriate adjustment of Monthly
Base Rent previously paid and a payment by either Landlord to Tenant or Tenant
to Landlord of the amount of any overpayment or underpayment, as the case may
be and (2) if Landlord overstated Total Project Costs by
more than three percent (3%), then Landlord shall pay all of Tenant’s
reasonable out-of-pocket costs of its audit or inspection plus interest on
excess Rent paid by Tenant at a rate of nine and five-tenths percent (9.5%) per
annum.  If
the parties are unable to agree upon an adjusted Monthly Base Rent, the parties
agree 

 

16

 

that arbitration shall
constitute the exclusive remedy for settlement of any such dispute.  If either Landlord or Tenant desires to exercise
its right pursuant to this paragraph, such party shall deliver written demand
for arbitration to the other party, setting out the basis for the
controversy.  Any arbitration proceeding
undertaken pursuant to this paragraph shall be held in front of a retired judge
working with JAMS or another similar group, or if no such groups exists, a
single neutral arbitrator shall be chosen by mutual agreement or, if the
parties fail to agree, by the presiding judge of the San Diego Superior Court
upon ex parte application.  The
arbitration shall take place in San Diego, California.  The decision of the arbitrator shall be
conclusive, final and binding upon Landlord and Tenant.  Judgment upon the decision of the arbitrator
may be entered in any court of competent jurisdiction.  The cost of such arbitration (including any
attorneys’ fees incurred therein) shall be borne by the losing party as
determined by the arbitrator.

 

(d)                                 The Annual Base Rent (and
thereby the Monthly Base Rent) then in effect shall be increased by five
percent (5%) on the second anniversary of the Commencement Date, if the
Commencement Date is the first day of a calendar month or if not the first day
of a calendar month on the second anniversary of the first day of the calendar
month following the Commencement Date, and on each second anniversary
thereafter during the Base Term.

 

5.2                                 Payment of Annual Base Rent.  Annual Base Rent shall be paid in twelve (12)
equal monthly installments (the “Monthly Base Rent”).  The Monthly Base Rent shall be paid in
advance on the first day of each and every calendar month following the
Commencement Date with appropriate proration in the event of a partial month at
the beginning of the Base Term.

 

5.3                                 Adjustment of Minimum Rent to Market.  The Annual
Base Rent (and thereby the Monthly Base Rent) payable for the First Option Term
and the Second Option Term shall be adjusted to the Fair Market Rental of the
Premises as of the commencement of the First Option Term and the Second Option
Term, as applicable, determined pursuant to this Section.  The Annual Base Rent so determined shall then
be divided by twelve (12) to arrive at the Monthly Base Rent.  In the event Tenant exercises the First
Option, Landlord and Tenant shall attempt to arrive at the Fair Market Rental
of the Premises no later than four (4) months prior to the commencement of the
First Option Term, and in the event Tenant exercises the Second Option,
Landlord and Tenant shall attempt to arrive at the Fair Market Rental of the
Premises no later than four (4) months prior to the commencement of the Second
Option Term (each an “Outside Agreement Date”). 
In the event that Landlord and Tenant cannot agree on such Fair Market
Rental prior to the applicable Outside Agreement Date, each party, within
fifteen (15) days after the applicable Outside Agreement Date, shall select a
certified MAI appraiser with at least five (5) years experience appraising
similar properties in San Diego County, California to attempt to reach
agreement as to the Fair Market Rental and shall advise the other party in
writing of the MAI appraiser so appointed by it.  If only one party appoints such MAI
appraiser, that MAI appraiser acting alone shall determine the Fair Market
Rental of the Premises.  In the event
that the two (2) MAI appraisers are so appointed and the two (2) MAI appraisers
cannot agree on the Fair Market Rental of the Premises within thirty (30) days
after their appointment, the two (2) MAI appraisers shall within ten (10) days
thereafter appoint a third MAI appraiser meeting the same minimum
qualifications.  In the event that the
two (2) MAI appraisers cannot agree on the third MAI appraiser, either party,
by giving ten (10) days’ prior written notice to the other party, shall have
the right to apply to the presiding judge of the San Diego County Superior
Court to appoint the third MAI appraiser. 
The three (3) MAI appraisers so appointed shall independently determine
the Fair Market Rental of the Premises within sixty (60) days after the
appointment of 

 

17

 

the third MAI appraiser.  The three (3) MAI appraisers shall meet and
simultaneously exchange their written appraisals.  If the high appraisal and the low appraisal
are each within ten percent (10%) of the middle appraisal, the three (3)
appraisals shall be averaged and such average shall be the Fair Market Rental
of the Premises.  In the event that
either the high or low appraisal is more than ten percent (10%) from the middle
appraisal, the two (2) appraisals that are within ten percent (10%) of each
other shall be averaged and that average shall be the Fair Market Rental of the
Premises.  If the high and low appraisal
are both more than ten percent (10%) from the middle appraisal, the middle
appraisal shall be the Fair Market Rental of the Premises.  “Fair Market Rental” means the rental rate
that would be paid by a non-renewal tenant for a lease having a five (5) year
term, as reasonably extrapolated to the commencement of the Option Term, on the
terms and conditions contained in this Lease. 
Implicit in this definition is the consummation of a lease whereby:  (a) lessor and lessee are typically
motivated; (b) both parties are well informed or well advised, and each is
acting in what it considers its own best interest; (c) a reasonable time is
allowed for exposure of the Premises on the open market; (d) landlord and
tenant are not affiliated; (e) payment of rent is made in terms of cash in U.S.
dollars or in terms of financial arrangements comparable thereto; and (f) the
rent represents the normal consideration for the rental of the property
unaffected by special concessions granted by anyone associated with the
lease.  In making the determination, the
appraiser or appraisers shall consider rental comparables in the geographic
area containing the Premises with appropriate adjustment for the location and
quality of the project, and all other relevant
criteria except as set forth in the next sentence, and included among the
criteria to be considered shall be the bi-annual increases in rent specified in
the last sentence of this Section.  The appraiser or appraisers shall not attribute any
factor for any tenant improvement allowances or brokerage commissions, or lack
thereof, in making its determination of Fair Market Rental.  Each party shall pay the cost of the MAI
appraiser appointed by it and one-half (1/2) of the cost of the third MAI
appraiser, if any.  In the event that the
new Annual Base Rent has not been determined as provided in this Section 5.3 at
the time that the First Option Term or Second Option Term, as applicable,
commences, Tenant shall pay as Monthly Base Rent an amount equal to the amount
of the immediately prior Monthly Base Rent payable hereunder until the new
Monthly Base Rent is determined.  When
the new Monthly Base Rent is determined, Tenant shall promptly pay to Landlord
the excess due based on the new Monthly Base Rent, if any, over the amounts
previously paid by Tenant for any prior month during the applicable Option
Term.  The Annual Base Rent (and thereby
the Monthly Base Rent) determined for each of the two Option Terms shall be
increased by five percent (5%) at the beginning of the third (3rd) and fifth
(5th) years of each Option Term.

 

5.4                                 Governmental Restriction on Rent
Increases.  In the event
that any governmental law, rule or regulation prohibits or postpones, in whole
or in part, any increase in the Annual Base Rent or other sums payable by
Tenant hereunder, then, and in either of such events, such increase shall be
made to the maximum extent permissible by law at the time or times provided in
this Lease, and/or at any time or times thereafter such increase, or any
portion thereof, may lawfully be made, and any such increase in the Annual Base
Rent, or any portion thereof, or other sums payable hereunder, or portions
thereof, the payment of which has been so prohibited or postponed, shall
thereafter become due and payable to the maximum extent and at the earliest
time or times permitted by law.

 

5.5                                 Payment of Rent.  All payments of Monthly Base Rent and other
sums owing by Tenant to Landlord shall be made by Tenant to Landlord, without
notice or demand and without offset or deduction, at such place as Landlord may
from time to time designate to Tenant in 

 

18

 

writing. 
Until changed by written notice to Tenant, Monthly Base Rent and such
other sums to be paid by Tenant to Landlord shall be paid to Landlord at the
address of Landlord set forth in Paragraph 12 of the Fundamental Lease
Provisions.

 

5.6                                 Net Rent.  It is the intention of the parties that the
Annual Base Rent herein specified shall be net to Landlord during the Term of
this Lease.

 

5.7                                 Tenant Improvement Rent.  In the event
that the cost of the Tenant Improvements as requested by Tenant in writing
exceeds Thirty-Five Dollars ($35.00) per gross measured square foot and Tenant does not elect to fund such
additional Tenant Improvement Costs with its own funds or pay such excess to
Landlord as provided in Section 4.4 hereof, Tenant shall pay to Landlord as
additional rent the excess cost thereof up to a maximum of an additional Ten
Dollars ($10.00) per gross measured square foot
amortized over the fifteen (15) year Base Term at an interest rate of nine
percent (9%) per annum, compounded monthly (the “Tenant Improvement
Rent”).  The Tenant Improvement Rent
shall be paid in advance, without deduction or offset, on the first day of each
calendar month during the Base Term.  The
Tenant Improvement Rent shall terminate at the end of the Base Term even if an
Option is exercised and the Term is extended.

 

5.8                                 Additional Rent.  Tenant shall reimburse Landlord for the
insurance premiums incurred by Landlord with respect to providing insurance
described in Section 7.3 and shall pay as and when due all real property
taxes and assessments on the Premises for the period between the date Landlord
acquires the Real Property and the Commencement Date.  All taxes, charges, costs and expenses which
Tenant is required to pay hereunder (whether to be paid to Landlord or a third
party), together with all interest and penalties that may accrue thereon in the
event of Tenant’s failure to pay such amounts, and all damages, costs and
expenses which Landlord may incur by reason of any default of Tenant, or
failure on Tenant’s part to comply with the terms of this Lease, shall be
deemed to be additional rent and, in the event of non-payment by Tenant,
Landlord shall have all rights and remedies with respect thereto as Landlord
has for the non-payment of Monthly Base Rent.

 

5.9                                 Lump Sum Rent.  As additional rent hereunder (in addition to
the Annual Base Rent), Tenant agrees to pay to Landlord on the Commencement
Date an initial payment of rent (the “Lump Sum Rent”) equal to (a) forty
percent (40%) of the sum of the “Adjusted Base Rent,” “Adjusted Property Taxes”
and “Adjusted Insurance Premiums” for the period between the “Termination Date”
and February 20, 2008, less (b) if Tenant vacates all or a portion of
2980, 2985 or 3105 Scott Street, Vista, California early as set forth in
Section 5 of the Termination Agreement, the amount of any rent, real property
taxes and insurance premiums paid by a tenant, licensee or other occupant or
user of all or a portion of 2980, 2985 or 3105 Scott Street (a “New Tenant”) to
Landlord under a new lease, license agreement or other agreement providing for
the use or occupancy (“Occupancy Agreement”) of all or a portion of 2980, 2985
or 3105 Scott Street for the period before the Termination Date.  For purposes of this calculation, “Adjusted
Base Rent” means the minimum monthly rent that would be paid under the “2985
and 3105 Scott Sublease” and the “2980 Scott Sublease” from the Termination
Date through and including February 20, 2008 based on the minimum monthly
rent in effect on the Termination Date, increased by two percent (2%) on every
September 21 thereafter.  For
purposes of this calculation, “Adjusted Property Taxes” means the taxes,
assessments, license fees and other charges payable on personal property and
real property taxes and general and special assessments payable on the real
property and improvements under the “2985 and 3105 Scott Street Sublease” and
the “2980 Scott Sublease” from the Termination Date through February 20, 

 

19

 

2008 (with appropriate prorations) based on
the amount of annual real property taxes in effect immediately prior to the
Termination Date and, in the case of real property taxes, increased by two
percent (2%) on July 1 of each year thereafter.  For purposes of this calculation, “Adjusted
Insurance Premiums” means the insurance premiums payable for the insurance
required to be carried by the subtenant under the “2985 and 3105 Scott
Sublease” and the “2980 Scott Sublease” for the one (1) year period before the
Termination Date.  Any “free rent”
payable under an Occupancy Agreement shall be amortized equally over the base
term (but not any option term) of any such Occupancy Agreement.  Landlord agrees that rental increases, if
any, shall be commercially reasonable such that an artificially low rent is not
charged during the portion of the term of the Occupancy Agreement prior to the
Termination Date and an artificially high rent is charged for the period after
the Termination Date.  As used herein the
terms “2985 and 3105 Scott Sublease” and the “2980 Scott Sublease” shall have
the meanings given to them in the Termination Agreement.  The term “Termination Date” means the later
of the Commencement Date of this Lease or the date that Tenant vacates 2980,
2985 and 3105 Scott Street and leaves the buildings in broom-clean and good
condition as described in Section 5 of the Termination Agreement.

 

6.                                       ALTERATIONS, MAINTENANCE AND REPAIRS.

 

6.1                                 By Landlord.  In addition to and
without limiting the generality of the warranties and agreements of Landlord
contained elsewhere in this Lease, including any express or implied warranties
of construction or condition by Landlord, 
Landlord shall, at its sole cost and expense, be
responsible for parking lot replacement (as opposed to maintenance and repair
of the parking lot such as slurry coating and restriping which shall be the
responsibility of Tenant as provided in Section 6.2 hereof) and repairs to
or replacement of the structural components of the Building and load bearing walls,
unless such repairs or replacement are caused by the acts of Tenant or those
acting under Tenant. 
In addition, Landlord shall be responsible for replacement of the roof,
which replacement will be required if the roof needs repair and cannot be
repaired other than at a cost which is in excess of fifty percent (50%) of the
cost of replacing the roof.  Except as expressly provided in this Section 6.1,
Tenant agrees that Landlord is to have no responsibility or obligation for the
maintenance or repair of the Premises, including the Building and any other
Improvements located on the Real Property. 
Tenant waives the right to repair the Building and/or other Improvements
at the expense of Landlord under any applicable laws including, without
limitation, Sections 1941 and 1942 of the California Civil Code.

 

6.2                                 By Tenant.  Except as expressly provided in Section 6.1
and subject to any express or implied warranties of construction or condition
by Landlord, Tenant agrees, at the expense of Tenant, to maintain the
Premises, including the Real Property, the Building and the other Improvements
(including parking areas, driveways and landscaping), in good condition and
repair throughout the Term of this Lease. 
Except as expressly provided in Section 6.1, Tenant shall be responsible
for repair of the roof, including
taking all customary, reasonable and necessary actions required under any
warranty applicable to the roof in order to maintain the warranty in full force
and effect.  If Tenant fails to take the
customary, reasonable and necessary actions to keep the warranty in effect,
Tenant shall be responsible for any replacement of the roof that would have
been covered by the warranty. 
Notwithstanding the foregoing, if any item for which Tenant otherwise is
responsible needs repair and such item cannot be repaired other than at a cost
which is in excess of fifty percent (50%) of the cost of replacing such item,
then Tenant shall have the right to replace such item (the “Replacement
Standard”).  Prior to commencing 

 

20

 

such replacement, Tenant shall
provide Landlord with written notice and documentation confirming such cost.
Landlord may object to such replacement only in writing.  If the Landlord so objects in writing within ten
(10) Business Days of receipt of such notice to the replacement, the parties
agree that Tenant may nonetheless replace the item and that arbitration shall
constitute the exclusive remedy for settlement of any such dispute.  The cost of any such replacement shall be
prorated between Landlord and Tenant based upon the useful life of the replaced
item, with Tenant responsible for the useful life of the item during the term
of the Lease unless the arbitrator determines that, based on the Replacement
Standard, Tenant should have repaired such item rather than replacing it.  Within ten (10) Business Days of a written
request from Tenant, Landlord shall be obligated to reimburse Tenant, for the
cost of the replaced item times a fraction the numerator of which is the useful
life of such replaced item less the remaining Term of this Lease and the
denominator of which is the useful life of such replaced item.

 

If either
Landlord or Tenant desires to exercise its arbitration right pursuant to the
preceding paragraph, such party shall deliver written demand for arbitration to
the other party, setting out the basis for the controversy.  Any arbitration proceeding undertaken
pursuant to this paragraph shall be held in front of a retired judge working
with JAMS or, if JAMS no longer exists, another similar group, or if no such
groups exists, a single neutral arbitrator shall be chosen by mutual agreement
or, if the parties fail to agree, by the presiding judge of the San Diego
Superior Court upon ex parte application. 
The arbitration shall take place in San Diego, California.  The decision of the arbitrator shall be
conclusive, final and binding upon Landlord and Tenant.  Judgment upon the decision of the arbitrator
may be entered in any court of competent jurisdiction.  The cost of such arbitration (including any
attorneys’ fees incurred therein) shall be borne by the losing party as
determined by the arbitrator.

 

6.3                                 Waiver as to Repairs.  Tenant hereby expressly waives any right or
privilege under statute or, except as expressly provided herein, otherwise to
require that repairs be performed by Landlord or at the expense of Landlord.

 

6.4                                 Alterations.  Tenant shall have the right, at its expense,
to make alterations (the “Alterations”) to the Premises so long as such Alterations
do not materially adversely affect the value of the Premises and so long as all
necessary governmental approvals and permits are obtained and all necessary
approvals under any recorded document are obtained.  All Alterations shall be constructed by a
licensed general contractor and shall be constructed in accordance with plans
and specifications prepared by a licensed architect.  Any Alterations during the last two (2) years
of the Base Term or any Option Term shall require the prior written consent of
Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed.  Any Alternations not permitted
by this Section shall require the prior written approval of Landlord, which
Landlord may withhold in its sole discretion, except as expressly provided
above.  As to any Alteration affecting
the structure of the Building, Tenant shall deliver “as-built” plans therefor
to Landlord within thirty (30) days following completion.  Upon request of Landlord, Tenant shall, at
its sole cost and expense, remove any Alterations by the later of (a) the
expiration or sooner termination of the Term of this Lease or (b) thirty (30)
days following Landlord’s written request, which request may be given only
before, or within thirty (30) days after, the expiration or sooner termination
of the Term of this Lease.  Tenant shall
have the right to request in writing that Landlord notify Tenant in writing
within fifteen (15) days of Tenant’s written request, accompanied by a
description of the alterations and plans and specifications therefor as to
whether or not Landlord will require Tenant to remove the proposed Alterations.

 

21

6.5                                 Mechanic’s Liens.  Tenant agrees that it will pay or cause to be
paid all costs for work done by it or caused to be done by it on the Premises
of a character that may result in liens on Landlord’s or Tenant’s estate
therein, and Tenant will keep the Premises free and clear of all mechanic’s
liens or other liens on account of work done or alleged to have been done by or
for Tenant or persons claiming under it, expressly excluding any such liens
resulting from the construction of the Building, the Improvements or the Tenant
Improvements or any other work done by Landlord.  Landlord and its representatives shall have
the right to post and keep posted on the Premises such notices as Landlord may
deem necessary for the protection of its interest in the Premises during the
period that any work is being performed that might result in a lien being filed
against the Premises.  At least twenty
(20) days prior to Tenant’s placing any materials upon the Premises or causing
any labor or work of construction of any Alterations, additions or improvements
or repairs having a cost in excess of Twenty-Five Thousand Dollars ($25,000.00)
to be performed, Tenant shall deliver to Landlord notification thereof
specifying the nature and location of the intended work and the expected date
of commencement thereof, and Landlord shall have the right to post Notices of
Non-Responsibility on the Premises relating to the intended work.  All construction to be performed by Tenant or
performed by or under Tenant shall be performed without cost or expense to
Landlord.  Notwithstanding the above,
Tenant may contest the validity of any such mechanic’s lien claim filed against
the Premises or Landlord’s estate therein, provided that in such event Tenant shall
first notify Landlord and, if requested by Landlord, shall, within ten (10)
days of the Landlord’s request, cause such lien to be bonded in the manner
authorized by law so as to release from such lien the real property or interest
therein subject thereto.

 

7.                                       INSURANCE AND INDEMNITY.

 

7.1                                 Indemnity.

 

(a)                                  Prior
to the Commencement Date, Landlord shall not be
liable for, and Tenant shall indemnify, defend and hold Landlord harmless
against, any and all claims, demands, liabilities and/or obligations resulting
from or arising out of any loss, damage or injury to the property or person of
any person whomsoever, at any time occasioned by or arising out of Tenant’s
actual negligence or willful misconduct, or the actual negligence or willful
misconduct of anyone acting on Tenant’s behalf or at Tenant’s request, on or at
the Premises.  From and after the
Commencement Date, Landlord shall not be
liable for, and Tenant shall indemnify, defend and hold Landlord harmless
against, any and all claims, demands, liabilities and/or obligations resulting
from or arising out of any loss, damage or injury to the property or person of
any person whomsoever, at any time occasioned by or arising out of (a) any act
or omission of Tenant or of anyone holding under Tenant, (b) the occupancy of
the Premises or use of the Premises or any part thereof including the Building
and other Improvements by or under Tenant or (c) by reason of any defects in
material or workmanship incorporated into, or defects in the design of, any
Alterations constructed by Tenant during the Term of this Lease.  Notwithstanding the foregoing, Tenant
shall not be required to indemnify Landlord for any claims that result from
Landlord’s negligence or willful misconduct, except for Passive Negligence, or
that of anyone acting on Landlord’s behalf or at Landlord’s request (including
Landlord’s contractors, consultants, agents, employees and officers).

 

(b)                                 Subject
to the provisions of Section 4.7, Tenant shall not be
liable for, and Landlord shall indemnify, defend and hold Tenant harmless
against, any and all claims, 

 

22

 

demands, liabilities and/or obligations
resulting from or arising out of any loss, damage or injury to the property or
person of any person whomsoever, at any time occasioned by or arising out of
(a) Landlord’s negligence or willful misconduct,
other than Passive Negligence, or the negligence or willful misconduct of
anyone acting on Landlord’s behalf, other than Passive Negligence, or at
Landlord’s request (including Landlord’s contractors, consultants, agents,
employees and officers), on or at the Premises or (b) any work or things done
on the Premises by Landlord or by anyone acting on Landlord’s behalf or at
Landlord’s request (including Landlord’s contractors, consultants, agents,
employees and officers), in connection with the Premises and any work to be
done on the Premises by Landlord.

 

(c)                                  The
foregoing indemnities are in addition to those provided for in Section 3.3 and
3.4 of this Lease.

 

7.2                                 Insurance.  Tenant agrees,
as additional rent:

 

(a)                                  Tenant
shall procure and maintain during the Term of this Lease a policy or policies
of comprehensive public liability and property damage insurance in a good and
solvent insurance company or companies for the benefit of Tenant, Landlord and
Landlord’s lender and other parties with an insurable interest that may be
designated by Landlord or Tenant and under and by the terms of which Landlord
and such other designated parties are protected from and insured against
liability arising out of or in connection with the use of or operations on or
from the Premises, the Building or other Improvements or on, in or about
adjoining sidewalks and passageways during the Term hereof.  The limits of liability on any policy of
public liability insurance shall not be less than Five Million Dollars
($5,000,000.00) combined single limit per occurrence and in the aggregate.  Such policy shall be written as a primary
policy and not contributory with or in excess of any policy which Landlord and
the other insureds may carry and shall cover and insure Landlord, its
shareholders, directors, officers, partners and members, and Landlord’s Lender
and any other party designated by Landlord, as additional insureds.  Said insurance shall be written on an
occurrence basis.  Nothing contained
herein shall prohibit Tenant from providing the initial One Million Dollars
($1,000,000.00) in coverage by way of primary coverage and the second Four
Million Dollars ($4,000,000.00) in coverage by way of umbrella coverage.  Any umbrella coverage that is provided under
a “blanket” policy must contain a specific allocation of at least Four Million
Dollars ($4,000,000.00) to the Premises. 
Landlord periodically, but not more often than every five (5) years,
shall have the right to adjust such minimum policy limits to make same
correspond with that which Landlord reasonably determines is then commercially
reasonable for the geographic area containing the Premises.  In the event that Landlord requests an
increase in the policy limits based upon what it believes is commercially
reasonable and Tenant disputes such request, such matter shall be determined by
arbitration in the County of San Diego, State of California pursuant to the
rules of the American Arbitration Association.

 

(b)                                 Tenant
shall procure and maintain throughout the Term of this Lease insurance upon the
Building and other Improvements, including the value of all additions,
alterations, replacements and repairs thereto, by whomever made, as well as the
machinery, equipment and their systems forming a part thereof, against loss or
damage by any hazard insured under a so-called All Risk policy, including fire
and extended coverage insurance, and such additional insurance as would
customarily be carried by owners of similar buildings in the same locale as the
Building, and in all events including insurance against earthquake, collapse,
vandalism, water damage and sprinkler leakage, and boiler and machinery
insurance, in an 

 

23

 

amount equal to not less than
one hundred percent (100%) of the full replacement cost of the Building
(excluding cost of excavations, foundations, footings, underground pipes,
conduits, flues and drains) without diminution of such insurance for
depreciation or obsolescence.  Said
policies shall include a one (1) year rental loss endorsement in favor of
Landlord.  The policies evidencing such
insurance shall name Landlord and, at Landlord’s request, Landlord’s lender as
loss payee(s).  The policies shall
contain an endorsement waiving any right of subrogation against Landlord.  The foregoing policies shall contain an
agreed-amount clause waiving coinsurance and Tenant shall annually update the
amount of insurance coverage and arrange to continue the agreed-amount clause.  Any such policies shall provide that any loss
shall be paid to Landlord and any other loss payee notwithstanding any act of
negligence of Tenant which may otherwise result in a forfeiture of such
insurance.  The foregoing policies shall
also contain, to the extent available, endorsements providing coverage for
demolition costs, increased cost of construction, and contingent liability from
operation of building laws.

 

(c)                                  Tenant
shall procure and maintain during the Term of this Lease any other insurance
coverage reasonably and customarily required by Landlord’s lender.

 

(d)                                 Tenant
shall procure and maintain during the Term of this Lease workers’ compensation
insurance as required by law.

 

(e)                                  Tenant
shall deliver to Landlord policies evidencing the insurance procured by Tenant
required under the terms hereof, or to deliver in lieu thereof certificates of
coverage from the insurance company or companies writing said policy or
policies of insurance, which certificates shall, among other things, designate the
company writing the same, the number, amount and provisions thereof.

 

(f)                                    All
insurance policies shall contain a provision that said policies shall not be
cancelled or terminated without providing thirty (30) days’ prior written
notice from the insurance company to Landlord and the other named insureds or
loss payees and the certificate or policy required by paragraph (e) above shall
so provide.  Tenant agrees that prior to
expiration of any insurance policy, Tenant will deliver to Landlord and any
other named insureds or loss payees designated by Landlord written notification
in the form of a receipt or other similar document from the applicable
insurance company that said policy or policies have been renewed or deliver
certificates of coverage for the insurance required by this Article from
another good and solvent insurance company meeting the requirements of this
Section.

 

(g)                                 Tenant
shall pay any and all premiums or other expenses in connection with the
furnishing of the insurance by Tenant as herein provided.

 

(h)                                 Notwithstanding
anything to the contrary contained in this Section 7.2, Tenant’s obligations to
carry liability insurance provided for herein may be brought within the
coverage of a blanket policy or policies of insurance carried and maintained by
Tenant; provided, however, Landlord, Landlord’s lender and the other parties
designated by Landlord shall be named as additional insureds thereunder, the
coverage afforded Landlord and the other named insureds will not be reduced or
diminished by reason of the use of such blanket policy of insurance and said
policy of insurance otherwise shall satisfy the requirements of this Section 7.2
applicable to liability insurance.

 

24

 

(i)                                     Tenant
shall not use, or conduct any activity on, the Premises, which may be
prohibited by the All Risk insurance.

 

(j)                                     If Tenant
shall fail to timely procure any policy required to be maintained by Tenant
hereunder, or renewal thereof, or to evidence the procurement or renewal thereof
by delivery of the certificates or renewal notifications required by this
Section 7.2, Landlord may (but it is not required to), after having given not
less than three (3) days’ prior written notice to Tenant, procure such
insurance and charge the cost thereof to Tenant as additional rental payable in
full on the next rent payment date.

 

(k)                                  Tenant
shall not do or permit to be done anything which shall invalidate the insurance
policies to be maintained by Tenant hereunder.

 

(l)                                     All
policies of insurance to be provided for by Tenant pursuant to this Section
shall be issued by companies with a Best’s rating of A-IX or better or, if
Best’s Guide is no longer published, such policies shall be issued by companies
with a substantially similar or better rating in any comparable guide and that
all such insurance companies are qualified to transact business in the State of
California.

 

(m)                               Landlord
shall not be liable for and Tenant hereby waives any and all claims or causes
of action against Landlord for damages to the Building or other Improvements
and/or any property upon the Premises resulting from a casualty of the type to
be covered by the insurance to be provided; provided, however, that the terms
of this subsection (m) shall not affect Tenant’s rights to terminate this Lease
pursuant to the terms of Article 11 below.

 

(n)                                 All
insurance to be provided under this Section, and the premiums therefor, shall
be deemed additional rent.

 

7.3                                 Landlord’s Insurance.  During construction of the Building and other
Improvements, Landlord shall purchase and maintain, subject to reimbursement by
Tenant for the cost thereof pursuant to Section 5.8 hereof, Builder’s Risk
coverage with an admitted carrier with a Best’s rating of A-IX or better.  The property insurance shall be written in
the amount of initial contract sum, plus value of subsequent contract
modifications and cost of materials supplied or installed by others, comprising
total value for the entire project at the site on a replacement cost basis and
subject to a maximum deductible of Twenty-Five Thousand Dollars
($25,000.00).  Such insurance should also
include coverage for property in transit and property at temporary
locations.  The property portion of such
insurance shall be written on an “all risk” or equivalent policy form and shall
include, without limitation, insurance against the perils of fire (with
extended coverage) and physical loss or damage including theft, vandalism,
malicious mischief, terrorism, collapse, windstorm, boiler and machinery
perils, false work, testing and startup and debris removal including demolition
occasioned by enforcement of any applicable legal requirements and shall cover
reasonable compensation for an architect’s and contractor’s services and
expenses required as a result of such insured loss.

 

8.                                       TAXES.

 

8.1                                 Personal Property Taxes.  Tenant agrees
to pay, as additional rent and prior to delinquency, all taxes levied upon
personal property, including trade fixtures and equipment, which is kept on or
about the Premises by or under Tenant.

 

25

 

8.2                                 Real Property Taxes.  Tenant agrees to pay, as additional rent, all
real property taxes and assessments levied or assessed against the Premises,
including the Real Property, the Building and the other Improvements,
applicable to any period from and after the Commencement Date and continuing
through the end of the Term of the Lease. 
Any real property tax or assessment relating to a fiscal period, a part
of which precedes the Commencement Date or continues beyond the end of the Term
of the Lease, shall be prorated so Tenant shall pay only that portion thereof
which relates to the portion of the subject tax period commencing with the
Commencement Date and ending on the expiration or sooner termination of the
Term of this Lease.

 

Tenant further agrees to
pay any tax or excise on rent or any other tax, however described, that is
levied or assessed by the State of California, or any political subdivision
thereof, against Landlord on account of or measured by the rentals and/or other
charges payable to or for the benefit of Landlord hereunder.  If under the laws of the State of California,
or any political subdivision thereof, at any time during the term hereof, the
methods of taxation shall be altered so as to impose in lieu of current methods
of assessments and taxation, in whole or in part, taxes based on other
standards, or in lieu of any increase therein, such taxes shall be deemed to be
a tax levied or assessed upon the Premises for the purposes of this Lease.  Nothing herein contained, however, shall
obligate Tenant to pay any income, inheritance, estate, gift, succession,
sales, use, or a transfer tax of Landlord, nor shall Tenant be deemed obligated
to pay any personal property, corporation, franchise, payroll, excess profits,
excise, or privilege tax which may be assessed or levied against Landlord.

 

Landlord shall cause the
tax bill to be mailed directly by the tax assessor to Tenant, and Tenant shall
pay the real property taxes and assessments directly to the taxing authority at
least ten (10) days prior to delinquency and concurrently provide Landlord with
evidence of payment in a form reasonably satisfactory to Landlord.  If required by Landlord’s lender, Tenant
shall also provide evidence of payment to Landlord’s lender as required by the
loan documents.

 

8.3                                 Contest.  Landlord agrees that Tenant shall have the
right, at Tenant’s sole cost and expense, to contest in good faith the legality
or validity of any of the taxes, assessments, levies or other public charges to
be paid by Tenant hereunder, but such right shall not be deemed or construed in
any way as relieving or modifying or extending Tenant’s covenant to pay any
such obligation at the time and in the manner as in this Lease provided.  Landlord shall, upon request, join in any
such proceeding if Tenant determines that it shall be necessary or convenient
for Landlord to do so in order for Tenant to prosecute properly such
proceedings, but Landlord shall not be subject to any liability for the payment
of any cost or expenses in connection with any such proceeding brought by
Tenant.  Tenant hereby covenants to
indemnify and save Landlord and the Premises harmless from any such costs and
expenses.

 

9.                                       UTILITIES; ASSOCIATION DUES AND ASSESSMENTS.

 

9.1                                 Utilities.  Tenant shall, at Tenant’s sole cost and
expense, pay directly, but as additional rent, for all water, gas, power,
electric current and all other utilities used by or supplied to Tenant, the
Premises or the Improvements during the Term of this Lease.

 

9.2                                 Association Dues and Assessments.  Tenant shall,
pay directly, but as additional rent, all dues and assessments payable to any
owners association of which the Real Property is a 

 

26

 

part as of the date hereof including but not
limited to the Vista Oaks Business Park and Oak Ridge Business Center.

 

10.                                 SIGNS.  Tenant shall have the exclusive right, but
not the obligation, to install building-top signage, monument signage and
wayfinding signage all in accordance with the rules and regulations of the City
of Vista.  Prior to installing any signs,
Tenant, at its sole cost and expense, shall obtain all necessary governmental
approvals and permits relating to same. 
Any signs shall be subject to any recorded restrictions relating thereto
in effect as of the date of this Lease.

 

11.                                 CASUALTY DAMAGE.  In the event the whole or any part of the
Building and/or other Improvements shall be damaged or destroyed by fire or
other casualty, damage or action of the elements, at any time during the Term
of this Lease, Tenant shall with all due diligence repair, restore and rebuild
the Building and/or other Improvements as close as possible to the same plan
and design as existed immediately prior to such damage or destruction (subject
to such changes as may be required by any local governmental authorities as a
condition to obtaining necessary permits to rebuild), and to the same condition
that existed immediately prior to such damage. 
In the event of any restoration or reconstruction pursuant to this
Article, any insurance proceeds available in consequence of such damage shall
be made available to Tenant for said purpose and Landlord shall release any
right it has to such insurance proceeds. 
Prior to any such restoration and reconstruction as herein provided, the
drawings and specifications therefor shall be submitted to Landlord for its
approval and to any other necessary party for its approval under any document
of record as of the date of the recordation of the Memorandum of Lease for its
approval.  Landlord agrees that its
approval of such drawings and specifications shall not be unreasonably
withheld, conditioned or delayed.  All
such work performed by Tenant shall be constructed in a good and workmanlike
manner according to and in conformance with the laws, rules and regulations of
all governmental bodies and agencies. 
The Monthly Base Rental and other charges payable hereunder shall abate,
or be reduced, by reason of any casualty damage to the extent proceeds from the
rental loss insurance to be provided by Tenant pursuant to Section 7.2 are
actually received by Landlord.  Except as
expressly provided herein, Tenant waives all rights to terminate this Lease
pursuant to any applicable law now or hereafter in effect, including, without
limitation, any right to terminate granted under Section 1932, subdivision 2,
and Section 1933 of the California Civil Code.

 

12.                                 CONDEMNATION.

 

12.1                           Termination of Lease.  In the event proceedings are brought pursuant
to an exercise of the power of eminent domain by any lawful authority to
condemn or otherwise acquire (a) more than twenty percent (20%) of the
floor area of the Building or (b) more than twenty percent (20%) of the
parking area as shown on the Site Plan attached hereto as Exhibit “B-1”
(or in the event of a transfer of more than twenty percent (20%) of the floor
area of the Building or more than twenty percent (20%) of such parking area in
lieu of such condemnation) (in each case, a “Taking”) and, as a result of such
Taking, the Building and/or Premises will no longer be suitable for the
operation of the business being conducted by Tenant at the Premises immediately
prior to the Taking, Tenant shall have the right, by written notice to Landlord
given at any time prior to the date the said Building or portions of the Real
Property are taken by the condemning authority, to elect to terminate this
Lease effective as of the date of possession by the condemning authority.  In the event of such termination, Monthly Base
Rent paid by Tenant shall be prorated to the date of termination and any
unearned Monthly Base Rent shall be

 

27

 

refunded to Tenant.  Tenant shall not grant a right of entry to
any condemnor without the written consent of Landlord.

 

12.2                           Continuance of Lease; Adjustment of Rent.  Should Tenant
not elect to so terminate this Lease, or should any such Taking not be such as
to allow Tenant the right to terminate this Lease pursuant to Section 12.1,
this Lease shall terminate as to the portion of the Premises taken upon the
date on which possession of said portion is taken, but this Lease shall
continue in force and effect as to the remainder of the Premises, and Tenant,
at its own cost and expense, shall promptly restore the remaining portions of
the Building and/or Improvements to an architectural unit as nearly comparable
as practicable to the unit existing just prior to such Taking.  Tenant shall, in the event of a Taking of any
portion of the Building (but not any other portion of the Premises), be
entitled to a reduction in the Annual Base Rent (and Monthly Base Rent) payable
pursuant to Article 5 above thereafter required to be paid, based on the
ratio between (i) the reduction in the Fair Market Rental value of the Premises
(valued based on the actual use of the Premises) and (ii) the Fair Market
Rental value of the Premises (valued based on the actual use of the Premises)
before the Taking.  If the parties are
unable to determine the new Annual Base Rent within thirty (30) days after the
date of a Taking, then within ten (10) days after the expiration of that thirty
(30) day period, each party, shall select a certified MAI appraiser with at
least five (5) years experience appraising similar properties in San Diego
County, California to attempt to reach agreement as to the Annual Base Rent,
calculated as provided hereinabove, and shall advise the other party in writing
of the MAI appraiser so appointed by it. 
If only one party appoints such MAI appraiser, that MAI appraiser acting
alone shall determine the Annual Base Rent of the Premises.  In the event that the two (2) MAI appraisers
are so appointed and the two (2) MAI appraisers cannot agree on the Annual Base
Rent of the Premises within thirty (30) days after their appointment, the two
(2) MAI appraisers shall within ten (10) days thereafter appoint a third MAI
appraiser meeting the same minimum qualifications.  In the event that the two (2) MAI appraisers
cannot agree on the third MAI appraiser, either party, by giving ten (10) days’
prior written notice to the other party, shall have the right to apply to the
presiding judge of the San Diego County Superior Court to appoint the third MAI
appraiser.  The three (3) MAI appraisers
so appointed shall independently determine the Annual Base Rent of the Premises
within thirty (30) days after the appointment of the third MAI appraiser.  The three (3) MAI appraisers shall meet and
simultaneously exchange their written appraisals.  If the high appraisal and the low appraisal
are each within ten percent (10%) of the middle appraisal, the three (3)
appraisals shall be averaged and such average shall be the Annual Base Rent of
the Premises.  In the event that either
the high or low appraisal is more than ten percent (10%) from the middle
appraisal, the two (2) appraisals that are within ten percent (10%) of each
other shall be averaged and that average shall be the Annual Base Rent of the
Premises.  If the high and low appraisal
are both more than ten percent (10%) from the middle appraisal, the middle
appraisal shall be the Annual Base Rent of the Premises.

 

12.3                           Division of Award.  In the event that an award is made for an
entire or partial Taking or for damage to the Premises in any action in direct
or inverse condemnation, the parties hereto agree that their respective rights
to the award or compensation paid shall be as follows:

 

(a)                                  To the
extent Tenant is required to restore the remaining portions of the Building
and/or Improvements as a result of a Taking, then the entire award for the
Taking of the Premises and severance damages shall be payable to Tenant up to
the cost of restoring the 

 

28

 

Building and Improvements.  Any award in excess of the cost of restoring the
Building and Improvements shall be payable to Landlord.

 

(b)                                 To the
extent Tenant is not required to restore the remaining portions of the Building
and/or Improvements as a result of a Taking, Landlord shall be entitled to the
entire award received for the Taking of the Premises and for any severance
damage relating thereto or interest thereon and any damages received as a
result of inverse condemnation.

 

(c)                                  Notwithstanding
the provisions of Paragraphs (a) and (b) above, Tenant shall have the right to seek
a separate award from the condemning authority for the taking of personal
property and fixtures belonging to Tenant and for relocation or business
interruption expenses recoverable from the condemning authority.

 

(d)                                 Tenant
shall not be entitled to any portion of the award relating to the fact that
Tenant’s interest in this Lease has a bonus value (i.e. that the fair rental of
the Premises for all or any portion of the remainder of the Term hereof exceeds
the rental reserved under this Lease for such period).

 

13.                                 ASSIGNMENT AND SUBLETTING.

 

13.1                           Landlord’s Consent .  So long as the assignee or subtenant has a
net worth and credit rating at least equal to that of Tenant as of the date of
this Lease, Tenant shall have the right to assign this Lease or to sublet all
or a portion of the Premises, without Landlord’s prior written consent, (a) to
an “Affiliate” of Tenant or (b) to any firm which acquires, is acquired by or
merges with Tenant.  For this purpose, an
“Affiliate” shall mean a person or entity which controls, is controlled by or
is under common control with Tenant, whether directly or indirectly, where
“control” means the ability to elect a majority of directors or managers or
otherwise direct the business of such person or entity.  Any other assignments of this Lease or
subletting of all or a portion of the Premises shall be subject to Landlord’s
prior written consent, which consent shall not be unreasonably withheld,
conditioned or delayed.  In the event that
Landlord does not approve or disapprove of the proposed assignment or sublease
within five (5) Business Days after Tenant’s written request for approval,
which request for approval shall contain the name and address of the proposed
assignee or subtenant and shall be accompanied by Five Hundred Dollars
($500.00) to compensate Landlord for its costs in processing the request, such
proposed assignment or sublease shall be deemed approved.  Any assignment shall be subject to all the
terms and provisions hereof and any subletting shall be subject to all the
terms and provisions hereof except for the economic terms (such as the
obligation to pay rent, taxes and the like). 
Tenant shall furnish to Landlord a copy of any assignment or sublease
promptly following its execution.

 

13.2                           Information on Proposed Assignee or Subtenant.  Within the
five (5) Business Day period provided in Section 13.1 above for Landlord’s
approval or disapproval of the proposed assignment or sublease, Landlord shall
have the right to require Tenant to supply to it reasonable information
relating to the financial condition of the proposed assignee or subtenant, the
operating or business experience of the proposed assignee or subtenant and
other information reasonably required by Landlord so long as Landlord agrees to
keep all such information confidential (except Landlord may disclose same to a
lender, prospective lender, purchaser or prospective purchaser, provided that
such lender, prospective lender, purchaser or prospective purchaser also agrees
to keep all such information confidential, or as required by a court order).

 

29

 

In the event that Landlord requests such
information, the five (5) Business Day period specified in Section 13.1 within
which Landlord shall approve or disapprove of the proposed assignment or
sublease shall run from the date that such information is supplied by Tenant to
Landlord.

 

13.3                           No Release.  No subletting or assignment shall relieve
Tenant of its obligations to pay rent and to perform all of the other obligations
to be performed by Tenant hereunder.  The
acceptance by Landlord of any payment due hereunder from any other person shall
not be deemed to be a waiver by Landlord of any provision of this Lease.  Upon any assignment in accordance with the
provisions hereof, at the same time Landlord provides any such notice to the
assignee, Landlord agrees to deliver any notice of default to the original
tenant named in this lease at the addresses specified in Paragraph 12 of the
Fundamental Lease Provisions or to such other address or addresses supplied by
the original tenant to Landlord in writing.

 

13.4                           Sublease Rentals as Security.  If an Event
of Default under this Lease should occur while the Premises or any portion
thereof are then subleased and such Event of Default shall be continuing,
Landlord, in addition to any other remedies provided herein or by law or in
equity, may at its option have a receiver appointed to collect, or itself
collect, until such Event of Default is cured, directly from the sublessee(s)
under such sublease(s) all rent or other consideration then due or becoming due
to Tenant from such sublessee(s) and apply such rent or other consideration
against any sums due to Landlord by Tenant hereunder; and Tenant hereby
authorizes and directs any such sublessee to make such payments of rent or
other consideration directly to Landlord upon receipt of notice from
Landlord.  Any sublessee may conclusively
rely on Landlord’s notice, and any payment to Landlord shall be deemed a
payment to Tenant.  For this purpose,
Landlord is authorized and empowered, on behalf of Tenant, to endorse the name
of Tenant upon any check, draft or other instrument payable to Tenant
evidencing payment of such rent or other consideration and to receive and apply
the proceeds therefrom in accordance with the terms hereof.  No direct collection by Landlord from any
such sublessee shall be construed to constitute a novation or a release of
Tenant from the further performance of its obligations under or in connection
with this Lease.  Landlord shall not be
liable to Tenant for any failure or inability to collect such rents or other
charges from any such sublessee.

 

13.5                           Non-Disturbance.  Upon written request of Tenant, Landlord
shall provide a Non-Disturbance Agreement to any subtenant that subleases all,
or a portion, of the Premises, the form of which shall be reasonably
satisfactory to Landlord, Tenant and the subtenant.

 

13.6                           Use by Suppliers.  Tenant will have the
right to permit its suppliers, vendors and customers, including suppliers of
equipment, machinery and technology equipment, to use a portion of the Premises
(a) for a period of less than thirty (30) consecutive days, (b) with payment of
rent, fee or a charge, but only with respect to up to fifteen percent (15%) of the
gross measured square footage of the Building, or (c) without payment of rent,
fee or charge of any kind, and any such use shall not constitute a sublease or
assignment.  Tenant shall
promptly notify Landlord in writing of any use of the Premises pursuant to (b)
above.

 

14.                                 SECURITY DEPOSIT.  Upon Landlord’s receipt of a building permit
from the City of Vista for the construction of the Tenant Improvements, Tenant
shall immediately pay to Landlord the Security Deposit in the amount provided
in Paragraph 11 of the Fundamental Lease Provisions, subject to adjustment as
provided in Paragraph 11 of the Fundamental Lease Provisions.  Landlord shall not be required to hold the
Security Deposit in a segregated account or separate from its general funds or
to pay interest on the Security Deposit. 
The Security 

 

30

 

Deposit shall be retained by Landlord as security for the
performance by Tenant of its obligations under this Lease.  If an Event of Default occurs under this
Lease, Landlord may, but is not obligated to retain or use or apply the whole
or any part of the Security Deposit to pay any sum which Tenant is obligated to
pay under this Lease, to pay any sum the Landlord may expend or be required to
expend by reason of the Event of Default by Tenant, to compensate Landlord for
any loss or damage that Landlord may suffer by reason of the Event of Default
and/or to cure any such Event of Default. 
In the event that Landlord does so use the Security Deposit, within three
(3) Business Days following written demand from Landlord, Tenant shall restore
the Security Deposit to its original amount. 
Following the seventh (7th) full year of the Term of the Lease, if an
Event of Default has not occurred and is continuing and an Inchoate Default has
not occurred and is continuing, Landlord shall return the Security Deposit to
Tenant in the form of the application of the Security Deposit against the next
installment of Monthly Base Rent payable under this Lease or by cash reimbursement
from Landlord to Tenant, as determined by Landlord in its sole and absolute
discretion.  In the
event any Event of Default or Inchoate Default has occurred and is continuing,
Landlord shall not return the Security Deposit to the Tenant as set forth above
unless and until such Event of Default or Inchoate Default is cured, at which
time Landlord shall return the Security Deposit as set forth in the preceding
sentence.

 

15.                                 DEFAULT AND REMEDIES.  Any of the following shall be deemed an
“Event of Default” under this Lease:  (a)
If Tenant shall default in the payment of any installment of Monthly Base Rent,
additional rent or other sum to be paid by Tenant hereunder (whether or not
required to be paid to Landlord or a third party) or if Tenant shall fail to
provide the insurance required to be provided by Tenant pursuant to Section 7.2
or otherwise fail to comply with the provisions of Section 7.2, and such
default shall continue for a period of five (5) days after written notice
thereof from Landlord to Tenant (which notice may consist of a notice to pay
(or perform) or quit served on Tenant pursuant to applicable Unlawful Detainer
statutes); or (b) if Tenant shall default in the performance or observance of
any other term, covenant, agreement or obligation of this Lease to be performed
or observed by Tenant, and such default shall continue for a period of thirty
(30) days after written notice thereof by Landlord to Tenant (unless such
default cannot, with the exercise of reasonable diligence, be cured within such
thirty (30) day period in which event Tenant shall begin the cure within such
thirty (30) day period, Tenant shall diligently and continuously continue the
curing of such default and such default is cured within one hundred and eighty
(180) days after such written notice) (which notice may consist of a notice to
perform or quit served on Tenant pursuant to applicable Unlawful Detainer
statutes); or (c) if any voluntary petition or similar pleading under any
section or sections of the Bankruptcy Act or any Chapter thereof shall be filed
by Tenant or any voluntary proceeding in any court or tribunal shall be
instituted to declare Tenant insolvent or unable to pay Tenant’s debts; or (d)
if any involuntary petition or similar pleading under any section or sections
of the Bankruptcy Act or any Chapter thereof shall be filed against Tenant or
any involuntary proceedings in any court or tribunal shall be instituted to
declare Tenant insolvent or unable to pay Tenant’s debts and the same shall not
be dismissed or discharged within one hundred twenty (120) days after the date
of initiation of any such proceedings; or (e) if Tenant makes any assignment of
its property for the benefit of creditors; or (f) should a material portion of
Tenant’s trade fixtures, equipment, furnishings or other personal property
located at the Premises be taken under a levy of execution or attachment in an
action against Tenant and such levy of attachment is not dismissed and
discharged within thirty (30) days.  If
an Event of Default shall occur, Landlord shall have, in addition to any other
remedies available at law, without further notice to Tenant, and without 

 

31

 

barring later election of any other remedy, any one or more
of the following remedies at Landlord’s election:

 

(1)                                  Landlord
may re-enter the Premises with process of law, eject therefrom all parties in
possession thereof, and, without terminating this Lease, at any time and from
time to time, re-let the Premises or any part thereof or parts thereof for the
account of Tenant, or otherwise, and receive and collect the rents therefor,
applying the same first to the payment of such expenses as Landlord may have
paid, assumed or incurred in recovering possession of the Premises, and placing
the Building and other Improvements in good order and condition and/or
repairing or altering the same for reletting and such additional expenses
(including commissions and attorneys’ fees) paid, assumed or incurred by
Landlord in, or in connection with, reletting the Premises, and then to the
fulfillment of the terms, covenants, agreements and obligations of Tenant;
and/or

 

(2)                                  By written
notice to Tenant, Landlord may terminate Tenant’s right to possession, re-enter
the Premises by process of law, eject therefrom all parties in possession
thereof and repossess said Premises, in which event Landlord shall have the
right, pursuant to California Civil Code Section 1951.2, as same may hereafter
be modified or recodified, to recover from Tenant:  (1) the worth, at the time of the award, of
the unpaid rent that had been earned at the time of termination of this Lease;
(2) the worth, at the time of the award, of the amount by which the unpaid rent
that would have been earned after the date of termination of this Lease until
the time of award exceeds the amount of loss of rent that Tenant proves could
have been reasonably avoided; (3) the worth, at the time of the award, of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of the loss of rent that Tenant proves could have
reasonably been avoided; and (4) any other amount, and court costs, necessary
to compensate Landlord for all detriment proximately caused by Tenant’s
default.  “The worth, at the time of the
award”, as used in (1) and (2) of this Paragraph (b), is to be computed by
allowing interest at the lesser of the prime rate then being charged by Wells
Fargo Bank, N.A., plus two percent (2%) per annum (the “Applicable Interest
Rate”), or the maximum rate permitted by law; “the worth, at the time of the
award”, as referred to in (3) of this Paragraph (b), is to be computed by
discounting the amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of the award, plus one percent (1%).  The term “rent”, as used in this Paragraph
(and the other Paragraphs of this Article), shall include the Monthly Base Rent
and the additional rent; and/or

 

(3)                                  Landlord
may continue this Lease in effect without terminating Tenant’s right to
possession even though Tenant has breached this Lease and/or abandoned the
Premises and enforce all of Landlord’s rights and remedies under this Lease,
including the right to recover the rent as it becomes due under this Lease;
provided, however, that Landlord may at any time thereafter elect to terminate
this Lease for such previous breach by notifying Tenant in writing that
Tenant’s right to possession of the Premises has been terminated.  This Paragraph (c) grants to Landlord the
rights described in California Civil Code Section 1951.4; and/or

 

(4)                                  Landlord
may pursue any other remedy now or hereafter available to Landlord under the
laws or judicial decisions of the State of California.

 

All
rights and remedies of Landlord herein enumerated shall be cumulative and none
shall exclude any other right or remedy allowed by law or equity; and likewise,
the exercise by 

 

32

 

Landlord
of any remedy provided for herein or allowed by law or equity shall not be to the
exclusion of any other remedy.

 

Acts of maintenance or
preservation, or efforts to relet the Premises, or the appointment of a
receiver upon the initiation of the Landlord to protect the Landlord’s
interests under this Lease shall not constitute a termination of Tenant’s right
to possession.  Landlord shall have the
right to alter or otherwise modify the Premises in connection with efforts to
relet the Premises, without releasing Tenant from liability under this Lease.

 

Any re-entry pursuant to
the provisions of this Article 15 shall be allowed by Tenant without hindrance,
and Landlord shall not be liable in damages for any such re-entry, or be guilty
of trespass or forcible entry.  No act by
Landlord hereunder shall terminate this Lease unless Landlord notifies Tenant
in writing that Landlord elects to terminate this Lease.

 

It is further agreed
that Landlord, at any time after an Event of Default occurs, may cure the Event
of Default at Tenant’s cost and otherwise take such action with respect thereto
as Landlord shall deem reasonably necessary. 
If Landlord at any time, by reason of the Event of Default, pays any sum
or does any act that requires the payment of any sum, or if Landlord incurs any
expense, including attorneys’ fees, in instituting proceedings or defending any
action or proceedings instituted by reason of any Event of Default, the sum or
expense paid by Landlord, with all interest, costs and damages, shall be
additional rent and shall be due immediately from Tenant to Landlord at the
time the same is paid by Landlord, and if not so immediately paid by Tenant,
shall bear interest as hereinafter provided.

 

Any sums to be paid to
Landlord under this Lease not paid when due shall bear interest from the date
due until paid at the rate of the lesser of (i) the Applicable Interest Rate or
(ii) the maximum rate of interest permitted by law.

 

Tenant acknowledges that
any late payment by Tenant to Landlord of Monthly Base Rent and other sums due
hereunder will cause Landlord to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain.  Such costs may include, but are not limited
to, administrative, processing and accounting charges, and late charges which
may be imposed on Landlord by the terms of any mortgage or trust deed
encumbering the Premises.  Accordingly,
if any installment of Monthly Base Rent or any other sum due from Tenant shall
not be paid by Tenant within five (5) days after the date due more than one
time in any rolling twelve (12) month period, then Tenant shall pay the
Landlord, in addition to the interest provided above, a late charge in the
amount of five percent (5%) of the delinquent installment of Monthly Base Rent
or other delinquent sum due hereunder. 
The parties agree that such late charge represents a fair and reasonable
estimate of the cost Landlord will incur by reason of late payment by
Tenant.  Acceptance of such late charge
by Landlord shall in no event constitute a waiver of the Tenant’s default with
respect to such overdue amount, nor prevent Landlord from exercising any of the
other rights and remedies granted hereunder.

 

Landlord shall not be in
default under this Lease unless Landlord fails to perform obligations required
of Landlord within thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust encumbering the
Premises and whose name and address shall have theretofore been furnished to
Tenant in writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord’s obligation is such that
more than thirty (30) days are required for performance then 

 

33

 

Landlord shall not be in
default if Landlord or any holder of a first mortgage or deed of trust
commences performance within such thirty (30) day period and thereafter diligently and continuously continues the curing of
such default.

 

16.                                 SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT.  At the option
of Landlord or any lender of Landlord that obtains a lien against the Real
Property, the Building and/or the other Improvements, this Lease shall be
either superior or subordinate to all mortgages and deeds of trust, if any,
which may hereafter encumber the Premises, and to all renewals, modifications,
consolidations, replacements and extensions thereof; provided, that, no such
subordination of this Lease to a mortgage or deed of trust shall be effective
unless the mortgagee or deed of trust beneficiary executes a non-disturbance
agreement that provides that so long as no Event of Default exists under this
Lease, Tenant’s possession and quiet enjoyment of the Premises shall not be
disturbed and this Lease shall not terminate in the event of the foreclosure of
any such mortgage or deed of trust to which this Lease has been subordinated
pursuant to this Article.  In the event
of a foreclosure or the delivery of a deed in lieu of foreclosure, Tenant shall
become a tenant of and attorn to the successor-in-interest to Landlord upon the
same terms and conditions as are contained in this Lease, and shall execute any
instrument reasonably required by Landlord’s successor for that purpose.  Tenant shall also, upon written request of
Landlord, execute and deliver all instruments as may be required from time to
time to subordinate the rights of Tenant under this Lease to the lien of any
mortgage or deed of trust (provided that any such instrument include the
nondisturbance and attornment provisions set forth above), or, if requested by
Landlord, to subordinate any mortgage or deed of trust to this Lease.  If any mortgage or deed of trust would be
superior to this Lease (for example, if any loan obtained by Landlord or an
affiliate of Landlord to acquire the Real Property would otherwise be superior
to this Lease), then Landlord shall cause the holder of such mortgage or deed
of trust to execute such commercially reasonable instruments as may be required
to provide Tenant with the non-disturbance and attornment rights set forth above
(the “Non-Disturbance Documents”). 
Tenant agrees that any purchaser at a foreclosure sale or lender taking
title under a deed-in-lieu of foreclosure shall not be responsible for any act
or omission of a prior landlord (except that successor
Landlord shall cure any default that is of a reoccurring nature), shall not be subject to any offsets or defenses
Tenant may have against a prior landlord, and shall not be liable for the
return of the Security Deposit to the extent it is not actually received by such
purchaser or bound by any rent paid for more than the current month in which
the foreclosure occurred; provided, however, successor
Landlord shall be fully responsible for causing the Commencement Date to occur
if it has not occurred at the time of any such foreclosure.  Landlord shall not permit any mortgage or
deed of trust to encumber the property which is senior in priority to this
Lease unless the mortgagee or deed of trust beneficiary shall have executed Non-Disturbance Documents as set
forth above.

 

17.                                 QUIET ENJOYMENT.  Landlord hereby warrants, represents and
covenants that so long as no Event of Default exists, Tenant may peaceably and
quietly have, hold, occupy and enjoy the Premises and all of the appurtenances
thereto without hindrance or molestation from Landlord or those claiming an
interest in or to the Premises through or under Landlord.

 

18.                                 MISCELLANEOUS COVENANTS.

 

18.1                           Inspection.  Landlord reserves the right for Landlord and
for its agents, servants and representatives to enter upon the Premises,
including the Building, at any reasonable time during Tenant’s normal business
hours and upon reasonable prior notice to Tenant, to inspect the 

 

34

 

Premises. 
In exercising its rights under this Section, Landlord agrees to cause as
little disruption to Tenant’s (or any subtenant’s) operations as is reasonably
possible.

 

18.2                           Attorneys’ Fees.

 

(a)                                  Except
with respect to a dispute described in Paragraph (c) below, in the event that
Landlord, without any fault on its part, shall be made a party to any
litigation commenced by or against Tenant growing out of or having relation to
Tenant’s activities on the Premises or to this Lease, then (i) Tenant agrees to
indemnify and hold Landlord harmless therefrom and defend Landlord with counsel
selected by Tenant or Tenant’s insurance carrier and reasonably approved by
Landlord and (ii) if the use of separate legal counsel is necessary to defend
Landlord because of a possible conflict between Landlord and Tenant (as in the
case of cross-claims between Landlord and Tenant), then, except to the extent
of any fault by Landlord, Tenant agrees to pay to Landlord, on demand, all
reasonable costs and attorneys’ fees actually paid by Landlord in any such
litigation to Landlord’s separate counsel.

 

(b)                                 Except
with respect to a dispute described in Paragraph (c) below, in the event that
Tenant, without any fault on its part, shall be made a party to any litigation
commenced by or against Landlord growing out of or having relation to
Landlord’s activities on the Premises or to this Lease, then (i) Landlord
agrees to indemnify and hold Tenant harmless therefrom and defend Tenant with
counsel selected by Landlord’s insurance carrier and reasonably approved by
Tenant and (ii) if the use of separate legal counsel is necessary to defend
Tenant because of a possible conflict between Tenant and Landlord (as in the
case of cross-claims between Tenant and Landlord), then, except to the extent
of any fault by Tenant, Landlord agrees to pay to Tenant, on demand, all
reasonable costs and attorneys’ fees actually paid by Tenant in any such
litigation to Tenant’s separate counsel.

 

(c)                                  In
addition to the foregoing, in the event of any dispute between the parties
hereto involving covenants and conditions herein contained or arising out of
the subject matter of this Lease, or to enforce its provisions, the prevailing
party in such dispute, including any arbitration thereof, shall be entitled to
recover all actual expenses, attorneys’ fees and costs.

 

18.3                           Surrender at End of Term.  The Building
and other Improvements, other than movable furniture, merchandise, personal
property or trade fixtures shall remain on the Premises and be surrendered to
Landlord without any cost to Landlord upon the termination of this Lease,
whether by lapse of time or forfeiture by reason of default, and shall be in
good condition, reasonable wear and tear excepted.  If, at the expiration of the term of this
Lease or earlier termination as herein provided, Tenant has left any
merchandise, furniture or trade fixtures in or about the Premises, Landlord may
give Tenant written notice to remove said property.  Except as provided in Section 18.11 hereof,
in the event said property is not removed within ten (10) days of the sending
of said notice, Landlord may dispose of said property in any manner whatsoever,
at Tenant’s cost, and Tenant hereby waives any claim or right to said property
or any proceeds derived from the sale thereof.

 

18.4                           Holding Over.  In the event Tenant shall hold over the
Premises after the expiration of the Term hereof without the express consent of
Landlord, including, without limitation, a hold over by a sublessee, such
holding over shall be subject to all the covenants, conditions and obligations
hereof, and Tenant hereby agrees to pay Landlord the same rent and charges
provided for by this Lease for such additional time as Tenant shall hold over
the 

 

35

 

Premises; provided, however, that Monthly
Base Rent payable during such holdover period shall be equal to the Monthly
Base Rent payable immediately prior to the expiration of the term hereof
increased by fifty percent (50%). 
Notwithstanding the foregoing, upon three (3) months prior written
notice by Tenant to Landlord, Tenant shall have the one-time right to extend
the Term of the Lease for up to an additional sixty (60) days subject to all
the covenants, conditions and obligations hereof and Tenant shall pay Landlord
the hold over rent set forth above in this Section 18.4 and other charges
provided for by this Lease for such additional time and such additional time
shall not give rise to any hold over remedies.

 

18.5                           Waiver.  No written waiver of any breach of any of the
terms, covenants, agreements, restrictions or conditions of this Lease shall be
construed as a waiver of any succeeding breach of the same or other covenants,
agreements, restrictions and conditions hereof. 
Landlord’s acceptance of rent or any other sum payable by Tenant to
Landlord under this Lease while Tenant is in default under the terms of this
Lease shall not constitute a waiver by Landlord of such default, other than a
default by Tenant in payment of the sum so accepted by Landlord.  Neither Tenant nor Landlord shall rely on any
oral waiver or on any course of conduct as a waiver of any provision of this
Lease.  Tenant may rely only on specific
waivers confirmed in writing.  Without
limiting the generality of the above, the acceptance of rent or any other sum
hereunder by Landlord shall not be deemed a waiver by Landlord of any default
by Tenant of any of the provisions hereof other than the failure of Tenant to
make the payment of such rent or other sum represented by the amount paid.

 

18.6                           Notices.  Whenever in this Lease it shall be required
or permitted that notice or demand be given or served by either party to this
Lease to or on the other, such notice or demand shall be given or served, and
shall not be deemed to have been duly given or served, unless said notice or
demand is in writing and is either personally served upon the person for whom
intended, sent by overnight courier to the address set forth for said party in
Paragraph 12 of the Fundamental Lease Provisions, mailed, by registered or
certified mail, with postage prepaid, addressed to the party for whom intended
at the address set forth for said party in Paragraph 12 of the Fundamental
Lease Provisions or sent by facsimile transmission to the facsimile number set
forth for said party in Paragraph 12 of the Fundamental Lease Provisions with
an additional copy sent on the same day by registered or certified mail as
above provided.  Either Landlord or
Tenant may change its address or facsimile number by notifying the other party
in writing as to the new address and/or facsimile number as Tenant or Landlord
may desire to use and which new address and/or facsimile number shall continue
as the address and/or facsimile number until further written notice.  Either Landlord or Tenant may require an
additional copy of any notice or demand be sent by notifying the other party in
writing of the name of the person or entity to receive such copy and the
address and facsimile number to where it is to be sent.  Any notice or demand shall be deemed given or
served upon actual receipt or attempted delivery thereof and refusal to accept
same by personal delivery, mail or nationally recognized overnight courier at
the location at which they are to be sent pursuant to this Section 18.6.

 

18.7                           Scope of Agreement.  This Lease is and shall be considered to be
the only agreement between the parties hereto, and all negotiations and oral
agreements are included herein.

 

18.8                           Inurement.  Each of the covenants, conditions and
agreements herein contained shall inure to the benefit of and shall apply to and
be binding upon the parties hereto and their respective heirs, legatees,
devisees, executors, administrators, successors, assigns, sublessees or

 

36

 

any person who may come into possession of
said Premises or any part thereof in any manner whatsoever.

 

18.9                           Assignment by Landlord.  Landlord may transfer its fee interest in and
to the Premises (and thereby this Lease) without the consent of Tenant.  In the event Landlord shall transfer or
convey or be divested of its fee estate in and to the Premises, and as a part
of said transaction shall transfer, convey, assign or be divested of its
interest as Landlord in and to this Lease, then from and after the effective
date of said assignment, transfer, conveyance or divestiture, Landlord shall
have no further liability, except for liabilities which shall have accrued and
be unsatisfied as of such date, for which liabilities Landlord shall continue
to be obligated notwithstanding any such assignment, transfer, conveyance or
divestiture.

 

18.10                     Estoppel Certificate.  Each party shall, at any time upon not less
than ten (10) Business Days’ prior written notice from the requesting party,
execute, acknowledge and deliver to the requesting party, or, as the requesting
Party may direct, to a prospective purchaser or encumbrancer of the interest of
the requesting party in and to the Premises, a statement in writing signed by
the party in the form of the Estoppel Certificate attached hereto as Exhibit
“D” and forming a part of this Lease, with all blanks completed.  Any such statement may be conclusively relied
upon by any prospective purchaser or encumbrancer of the interest of the
requesting party in and to the Premises, this Lease and/or the rentals accruing
hereunder.

 

18.11                     Fixture Financing.  Tenant shall have the right to install in or
on the Premises trade fixtures, furniture and equipment that are either leased
or encumbered.  In either event, upon
request, which request may be made prior to the Commencement Date, Landlord
agrees to execute an agreement with the lessor or lender in a form reasonably
satisfactory to Landlord and such lessor or lender which permits the lessor or
lender, as applicable, to remove the trade fixtures, equipment and furniture
prior to the expiration of the term of this Lease or, if the Lease shall
terminate earlier, within thirty (30) days following the termination.  In the latter event, as a condition to lessor
or lender’s right to remove the trade fixtures, furniture and equipment, lessor
or lender shall agree to pay to Landlord an amount equal to one month’s Monthly
Base Rent at the rental rate in effect immediately prior to the termination of
the Lease.  In any event, lessor or
lender shall repair any damage occasioned by such removal.

 

18.12                     Captions.  The captions of Articles and Sections of this
Lease are for convenience only and are not a part of this Lease and do not in
any way limit or amplify the terms and provisions hereof.

 

18.13                     Severability.  If any term, covenant or condition of this
Lease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this Lease shall be
valid and be in force to the fullest extent permitted by law.

 

18.14                     Brokers.  CB Richard Ellis Inc. is acting as a real
estate broker in connection with this Lease and will be compensated by Landlord
pursuant to the terms of a separate agreement between them.  Landlord and Tenant warrant and represent to
each other that, except for the compensation to be paid to CB Richard Ellis
Inc. and any affiliate of Landlord which is entitled to a commission or other
compensation, it has not incurred any other obligation for a brokerage 

 

37

 

commission, finder’s fee or other
compensation to any other broker, agent, person or entity with respect to this
Lease.  Each party shall indemnify,
defend and hold harmless the other party in the event this representation and
warranty is untrue.

 

18.15                     Financial Statements.  If Landlord desires to finance, refinance or
sell the Premises, Tenant hereby agrees to deliver to any lender, prospective
lender, purchaser or prospective purchaser designated by Landlord, current
financial statements of the Tenant and of any guarantor of Tenant’s obligations
under this Lease, so long as such parties agree to treat such financial
statements confidentially except for those that are publicly available.  If this Lease is assigned pursuant to Article
13, the obligation to provide financial statements shall apply to both the
assignee and the original tenant named in this Lease.

 

18.16                     Memorandum of Lease.  At the request of either Party following
satisfaction of the condition set forth in Section 18.19 hereafter, the Parties
hereto shall execute and record a memorandum of lease in the real property
records for San Diego County, California.

 

18.17                     Time of the Essence.  Time is of the essence as to each and every
provision of this Lease.

 

18.18                     Business Day.  As used herein, a “Business Day” is any day
other than a Saturday or Sunday or legal holiday in the State of California.

 

18.19                     Purchase of Real Property.  Landlord
does not yet own the Real Property. 
Pursuant to that certain Purchase and Sale Agreement and Joint Escrow
Instructions, dated June 30, 2004, as amended and as same may be further
amended (“Purchase Agreement”), Landlord has agreed to buy the Real Property
and Stetman and Morris Properties has agreed to sell the Real Property to
Landlord.  Landlord shall use its
commercially reasonable efforts to acquire or cause its affiliate to acquire
the Real Property in accordance with the Purchase Agreement by January 15,
2005.  It is a condition precedent to the
effectiveness of the Lease (except for Sections 3.3, 3.4, 7.1, 18.2, 18.6,
18.14 and 18.18 hereof and this Section, which shall be in full force and
effect as of the date of the Lease) that Landlord or an affiliate of Landlord
shall have acquired the Real Property. 
If neither Landlord nor Landlord’s affiliate shall have acquired the
Real Property by March 15, 2005, then Tenant may and, if such failure to
acquire the Real Property is not due to any default or breach by Landlord,
Landlord may, terminate this Lease by delivery of written notice to the other
party, effective upon such delivery.

 

If an affiliate of Landlord acquires the Real
Property, then Landlord shall cause such affiliate to assume all of Landlord’s
obligations hereunder before such affiliate acquires the Real Property or any
interest therein (other than the right to purchase the Real Property pursuant to
the Purchase Agreement).

 

If Landlord or an affiliate of Landlord acquires the
Real Property, then:

 

(a)                                  Landlord
shall properly deliver written notice thereof to Tenant;

 

(b)                                 Landlord
and Tenant shall promptly execute a written acknowledgment that the condition
precedent set forth in this Section 18.19 has been satisfied;

 

38

 

(c)                                  Landlord
and Tenant shall promptly execute and cause to be recorded a memorandum of this
Lease (the recordation of the memorandum shall be deemed satisfaction of (b)
above);

 

(d)                                 Landlord
shall promptly cause any applicable holder of a mortgage or deed of trust which
is superior in priority to this Lease to execute and deliver the Non-Disturbance Documents to
Tenant in form and substance reasonably acceptable to Tenant; and

 

(e)                                  Landlord
shall promptly cause Lawyers Title Company (“Title Company”) to deliver to
Tenant an ALTA extended lessee’s policy of title insurance (with the Western
Regional exception deleted) insuring Tenant’s leasehold in the Premises under
this Lease in a reasonable and customary amount determined by Tenant on or
before January 1, 2005, free and clear of all liens and encumbrances other
than:

 

(i)                                     any
deed of trust or mortgage for which Landlord has delivered Non-Disturbance
Documents to Tenant;

 

(ii)                                  this
Lease;

 

(iii)                               any
matter shown as Exceptions 1-18, and 20-24 on Schedule “B” of Title Company’s
Preliminary Report No. 09000026-900-AP dated October 7, 2004; and

 

(iv)                              any
other items approved in writing by Tenant, which
approval shall not be unreasonably withheld, conditioned or delayed.

 

18.20                     Exhibits.  Exhibits ”A”,
“B-1”, “B-2”,  “C”, “D”,.
“E”, “F” and “G” attached hereto, are incorporated herein
by this reference.

 

IN WITNESS WHEREOF,
Landlord and Tenant have caused this Lease Agreement to be executed as of the
day and year first hereinabove written.

 

	
   

  	
  PROFESSIONAL REAL
  ESTATE SERVICES, 

  INC., a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  

 

“Landlord”

 

39

 

	
   

  	
  dj ORTHOPEDICS, LLC,

  a Delaware limited liability company

  
	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  

 

“Tenant”

 

40

 

EXHIBIT
“A”

 

LEGAL
DESCRIPTION OF THE REAL PROPERTY

 

 

[See Attached]

 

 

EXHIBIT
“A”

TO GROUND LEASE AGREEMENT

 

 

EXHIBIT
“B-1”

SITE PLAN

 

 

[See Attached]

 

 

EXHIBIT
“B-1”

TO GROUND LEASE AGREEMENT

 

 

EXHIBIT
“B-2”

OUTLINE SPECIFICATIONS

 

 

[See Attached]

 

 

EXHIBIT “B-2”

TO GROUND LEASE AGREEMENT

 

 

EXHIBIT
“C”

CONSTRUCTION SCHEDULE

 

 

[See Attached]

 

 

EXHIBIT “C”

TO GROUND LEASE AGREEMENT

 

 

EXHIBIT
“D”

 

ESTOPPEL
CERTIFICATE

 

To:                          

 

 

 

 

The undersigned
certifies as follows:

 

	
  1.

  	
   

  	
                                                  Tenant,
                                                        ,
  occupies the following described Premises for the term of
           (       ) years
  commencing
                                
  and ending                            :

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
                                                         (the
  “Premises”)

  
	
   

  	
   

  	
  (Description of Premises)

  
	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
                                                  Tenant
  occupies the Premises under the terms of that certain Lease Agreement dated
  October 20, 2004, between dj Orthopedics, LLC, as Tenant, and Professional
  Real Estate Services, Inc., as Landlord, attached hereto, and as amended by
  agreement(s) dated
                                     
  which are also attached hereto [indicate
  “NONE” if there are no amendments] which documents are
  collectively referred to as the “Lease”.

  
	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
                                                  The
  Monthly Base Rent (as defined in the Lease) which Tenant is presently paying
  for the Premises is $         ,
  NNN.

  
	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
                                                  There are
  no other agreements between Landlord and Tenant with respect to the Premises,
  except as attached hereto. [Attach copies
  of any further documents or delete “except as attached hereto”.]

  
	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
                                                  Tenant has
                           
  remaining options to extend the term of the Lease for five years [each] on the terms and conditions
  provided in the Lease. [If there are no
  options, insert the word “no” in the blank and delete all words after the
  word “Lease” in the first line.]

  
	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
                                                  Tenant has
  no option or other right to purchase the Premises or any portion thereof.

  
	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
                                                  The Lease
  is currently in full force and effect, and Tenant presently occupies the
  Premises.

  
	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
                                                  [Tenant/Landlord] has no setoffs, claims or defenses to
  the effectiveness of the Lease [or specify
  the nature of any claimed setoffs, claims or defenses].

  

 

EXHIBIT “D”

TO GROUND LEASE AGREEMENT

 

 

	
  9.

  	
   

  	
                                                  As of the
  date of this Tenant Estoppel Certificate, to [Tenant’s/Landlord’s]
  current actual knowledge without any investigation, no Event of Default under
  the Lease exists [or specify the nature
  of any claimed default].

  
	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
                                                  As of the
  date of this Tenant Estoppel Certificate, to [Tenant’s/Landlord’s]
  current actual knowledge without investigation, [Landlord/
  Tenant] is not in default in the performance of the Lease and no
  notice of default has been given to [Landlord/ Tenant] [or specify the nature of any claimed
  default].

  
	
   

  	
   

  	
   

  
	
  11.

  	
   

  	
                                                  No rent
  has been paid by Tenant in advance under the Lease except for the Monthly
  Base Rent that became due on
                           ,
            .

  
	
   

  	
   

  	
   

  
	
  12.

  	
   

  	
                                                  Tenant has
  no claim against Landlord for any Security Deposit or prepaid rent [or specify the amount of any Security Deposit held
  by Landlord].

  
	
   

  	
   

  	
   

  
	
  13.

  	
   

  	
                                                  Tenant has
  not been given or promised any rebate, concession or other benefit except as
  disclosed in the Lease, and no notes or consideration other than cash has
  been given by Tenant in payment of moneys due from Tenant.

  
	
   

  	
   

  	
   

  
	
  14.

  	
   

  	
                                                  To [Tenant’s/Landlord’s] current actual knowledge, there is
  no violation, with respect to the Premises, of any lawful requirement, rule,
  regulation, statute and/or ordinance of any legally constituted authority and
  has received no notice from any governmental authority that an alleged
  violation exists.

  
	
   

  	
   

  	
   

  
	
  15.

  	
   

  	
                                                  [Tenant/Landlord] has not undertaken any improvements or
  lienable work on the Premises within ninety days prior to the date hereof [or if any exist, describe].

  
	
   

  	
   

  	
   

  
	
  16.

  	
   

  	
                                                  [Tenant/Landlord] is not a party to any litigation
  affecting or relating to the Premises or the Lease [or if any
  exist, describe].

  

 

 

Executed on                                ,
          

 

 

	
   

  	
  [dj ORTHOPEDICS, LLC,

  
	
   

  	
  a Delaware limited liability
  company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  

 

Tenant”]

 

2

 

 

	
   

  	
   

  	
  [OR]

  
	
   

  	
   

  
	
   

  	
  [PROFESSIONAL REAL
  ESTATE SERVICES, 

  INC., a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
					

 

“Landlord”]

 

3

 

EXHIBIT
“E”

 

BUILDING
CORE AND SHELL

 

 

[See
Attached]

 

 

EXHIBIT “E”

TO GROUND LEASE AGREEMENT

 

 

EXHIBIT
“F”

 

APPROVED
HAZARDOUS MATERIALS

 

 

	
  GENERIC NAME

  	
   

  	
  State

  
	
  Liquid
  wrench, aerosol

  	
   

  	
  Aerosol

  
	
  Propane

  	
   

  	
  Liq

  
	
  Polyurethane
  resin

  	
   

  	
  Liq

  
	
  Solder

  	
   

  	
  Solid

  
	
  Ink retarder

  	
   

  	
  Liq

  
	
  Ink thinner

  	
   

  	
  Liq

  
	
  PVC adhesive

  	
   

  	
  Solid

  
	
  Hydraulic
  oil

  	
   

  	
  Liq

  
	
  Mineral oil

  	
   

  	
  Liq

  
	
  Ink

  	
   

  	
  Liq

  
	
  Lubricant,
  aerosol

  	
   

  	
  Liq

  
	
  Epoxy
  adhesive

  	
   

  	
  Liq

  
	
  Aerosol
  adhesive

  	
   

  	
  Aerosol

  
	
  Anti-static
  aerosol

  	
   

  	
  Aerosol

  
	
  Instant
  adhesive

  	
   

  	
  Liq

  
	
  Adhesive primer

  	
   

  	
  Liq

  
	
  Silicone
  aerosol

  	
   

  	
  Aerosol

  
	
  Rubber
  penetrant, spray

  	
   

  	
  Liq

  
	
  Solvent
  mixture

  	
   

  	
  Liq

  
	
  Silicone
  aerosol

  	
   

  	
  Aerosol

  
	
  Mold release
  agent

  	
   

  	
  Liq

  
	
  Polyester
  Glazing Putty

  	
   

  	
  Solid

  
	
  Cream
  Hardener

  	
   

  	
  Solid

  
	
  Cyclohexanone

  	
   

  	
  Liq

  
	
  White Sewing
  Machine Oil

  	
   

  	
  Liq

  
	
  Isopropyl
  Rubbing Alcohol 70%

  	
   

  	
  Liq

  
	
  Clean-up
  Solvent, adhesives

  	
   

  	
  Liq

  
	
  Chemlok 487A

  	
   

  	
  Liq

  
	
  Chemlok 487B

  	
   

  	
  Liq

  
	
  Hardener TPH

  	
   

  	
  Liq

  
	
  Bondo

  	
   

  	
  Solid

  
	
  Basecoat
  paint

  	
   

  	
  Liq

  
	
  Paint
  hardener

  	
   

  	
  Liq

  
	
  Primer base

  	
   

  	
  Solid

  
	
  Polyurethane
  paint

  	
   

  	
  Liq

  
	
  Specialty
  paint

  	
   

  	
  Liq

  
	
  Acetone

  	
   

  	
  Liq

  
	
  Paint
  accelerator

  	
   

  	
  Liq

  
	
  Primer
  hardener

  	
   

  	
  Liq

  
	
  Paint
  hardener

  	
   

  	
  Solid

  
	
  Paint
  catalyst

  	
   

  	
  Liq

  
	
  Paint
  reducer

  	
   

  	
  Liq

  

 

EXHIBIT “F”

TO GROUND LEASE AGREEMENT

 

 

	
  Clear coat
  paint

  	
   

  	
  Liq

  
	
  Primer
  catalyst

  	
   

  	
  Liq

  
	
  Clear coat
  hardener

  	
   

  	
   

  
	
  Paint
  basecoat

  	
   

  	
  Liq

  
	
  Lubricant, aerosol

  	
   

  	
  Aerosol

  
	
  Solvent
  mixture, aerosol

  	
   

  	
  Aerosol

  
	
  Solvent
  degreaser

  	
   

  	
  Aerosol

  
	
  Solvent
  blend

  	
   

  	
  Liq

  
	
  Thinner

  	
   

  	
  Liq

  
	
  Lacquer
  thinner

  	
   

  	
  Liq

  
	
  Lubricant,
  glycol

  	
   

  	
  Liq

  
	
  Petroleum
  Jelly

  	
   

  	
  Solid

  
	
  Nitrogen,
  Liquid

  	
   

  	
  Liq (Cryo)

  
	
  Water
  soluble oil/coolant

  	
   

  	
  Liq

  
	
  Ethylene Glycol

  	
   

  	
  Liq

  
	
  Hydraulic
  oil

  	
   

  	
  Liq

  
	
  Surface
  cleaner

  	
   

  	
  Liq

  
	
  Kerosine

  	
   

  	
  Liq

  
	
  Lubricant
  grease

  	
   

  	
  Liq

  
	
  High
  performance grease

  	
   

  	
  Solid

  
	
  Hydraulic
  oil

  	
   

  	
  Liq

  
	
  Low
  viscosity oil, machine

  	
   

  	
  Liq

  
	
  High
  performance gear oil

  	
   

  	
  Liq

  
	
  Cutting oil

  	
   

  	
  Liq

  
	
  Muriatic
  Acid 20%

  	
   

  	
  Liq

  
	
  Automobile
  lubricant oil

  	
   

  	
  Liq

  
	
  Acetone

  	
   

  	
  Liq

  
	
  Thinner,
  Paint

  	
   

  	
  Liq

  
	
  Propane

  	
   

  	
  Gas

  
	
  25% Carbon
  Dioxide/75% Argon

  	
   

  	
  Gas

  
	
  Acetylene,
  dissolved

  	
   

  	
  Gas

  
	
  Argon,
  compressed

  	
   

  	
  Gas

  
	
  Oxygen,
  compressed

  	
   

  	
  Gas

  

 

2

 

EXHIBIT “G”

 

 

BASELINE BUDGET

 

 

[See Attached]

 

 

EXHIBIT “G”

TO GROUND LEASE AGREEMENTExhibit 10.2

 

AGREEMENT
REGARDING TERMINATION OF LEASES

 

This Agreement regarding Termination of Leases (the “Agreement”)
is entered into this 20th day of October, 2004, by and among PROFESSIONAL REAL
ESTATE SERVICES, INC., a California corporation (“PRES”), SMITH & NEPHEW,
INC., a Delaware corporation (“Smith & Nephew”) and dj ORTHOPEDICS, LLC, a
Delaware limited liability company (“dj Orthopedics”) with reference to the
following:

 

A.                                   dj
Orthopedics is the ground lessee under that certain ground lease between STETMAN &
MORRIS PROPERTIES, a California general partnership (“Stetman & Morris”),
as ground lessor, dated January 12, 2001 (the “Ground Lease”), whereby dj
Orthopedics leases from Stetman & Morris real property containing
approximately two hundred eighty-five thousand (285,000) net square feet
located at the intersection of Business Park Drive and Scott Street in the City
of Vista, California, more particularly described in the attached Exhibit “A”
(the “Ground Leased Premises”).  The
Ground Lease has been amended by a Modification of Lease dated June 30, 2001
and a Modification of Lease No. 2 dated July 26, 2001.  A Memorandum of Lease evidencing the Ground
Lease was recorded on July 27, 2001 as Document No. 2001-0527433 in the
Official Records of San Diego County, California.

 

B.                                     Smith
& Nephew is the tenant under an Amended and Restated Lease Agreement
between Stetman & Morris as landlord and Professional Care Products, Inc.,
a California corporation, as tenant, dated September 21, 1995 by which Professional
Care Products, Inc. leased from Stetman & Morris real property and
improvements located thereon known as 2985 and 3105 Scott Street, Vista,
California (the “2985 and 3105 Scott Lease”). 
A Memorandum of Lease evidencing the 2985 and 3105 Scott Lease was
recorded on October 6, 1995 as Document No. 1995-0451246 in the Official
Records of San Diego County, California. 
Professional Care Products Inc. assigned its interest in the 2985 and
3105 Scott Lease to Smith & Nephew DonJoy, Inc. by Assignment of Lease,
Consent and Estoppel Certificate dated as of September 21, 1995, which was
recorded on November 16, 1995, as Document No. 1995-0522114 in the Official
Records of San Diego County, California. 
Smith & Nephew DonJoy, Inc. was merged into Smith & Nephew
effective as of November 30, 1996.  As a
result of the assignment and merger, Smith & Nephew is the current tenant
under the 2985 and 3105 Scott Lease.  The
2985 and 3105 Scott Lease has been amended by Amendment No. 1 to Amended and
Restated Lease Agreement dated June 9, 1997.

 

C.                                     Pursuant
to a Sublease dated June 30, 1999 between dj Orthopedics and Smith &
Nephew, dj Orthopedics subleases 2985 and 3105 Scott Street, Vista, California
from Smith & Nephew (the “2985 and 3105 Scott Sublease”).

 

D.                                    Smith
& Nephew is the tenant under a Lease Agreement between Stetman &
Morris, as landlord, and Smith & Nephew, as tenant, dated June 9,
1997 by which Smith & Nephew leases from Stetman & Morris
real property and improvements located thereon known as 2980 Scott Street,
Vista, California (the “2980 Scott Lease”). 
A Memorandum of Lease evidencing the 2980 Scott Lease was recorded on
April 8, 1998 as Document No. 1998-0198211 in the Official Records of San
Diego County, California.  The 2980 Scott
Lease was amended by 

 

 

a First Amendment to Lease Agreement dated November 17, 1997, and by a
Second Amendment to Lease Agreement and Agreement Regarding Lease Terms dated
February 21, 1998.

 

E.                                      Pursuant
to a Sublease dated June 30, 1999 between dj Orthopedics and Smith &
Nephew, dj Orthopedics subleases 2980 Scott Street from Smith & Nephew (the
“2980 Scott Sublease”).

 

F.                                      PRES
has entered into a Purchase and Sale Agreement and Joint Escrow Instructions
with Stetman & Morris dated June 30, 2004, as amended (the “Purchase
Agreement”), whereby PRES has agreed to buy from Stetman & Morris, and
Stetman & Morris has agreed to sell to PRES, the Ground Lease Premises and
2980, 2985 and 3105 Scott Street, and, upon consummation of the purchase and
sale, the Ground Lease, the 2985 and 3105 Scott Lease and 2980 Scott Lease will
be assigned to PRES.

 

G.                                     As
of October 20, 2004, PRES and dj Orthopedics have entered into a new lease for
the Ground Leased Premises and certain improvements to be constructed thereon
by PRES (the “New Lease”), which New Lease shall be effective upon satisfaction
of the condition precedent set forth in Section 18.19 of the New Lease (the “New
Lease Condition Precedent”).

 

H.                                    Subject
to certain conditions hereinafter described having occurred, PRES, Smith & Nephew
and dj Orthopedics desire to terminate the Ground Lease, the 2985 and 3105
Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott Sublease and the
2980 Scott Sublease on the terms and conditions herein contained.

 

NOW, THEREFORE, it is hereby agreed as follows:

 

1.                                       Termination
of Ground Lease.  In the event that
PRES acquires the Ground Lease Premises, PRES and dj Orthopedics agree to
terminate the Ground Lease on the later of (a) the acquisition by PRES of the
Ground Lease Premises or (b) the execution of the New Lease.  From and after such termination, dj
Orthopedics shall have no further obligation to pay rent under the Ground
Lease.

 

2.                                       Forgiveness
of Payment.  In the event that the
Ground Lease is terminated as hereinabove provided in Section 1, the payment
described in Section 2.2.a of the Ground Lease in the amount of Two Hundred
Fifty Thousand Dollars ($250,000.00) shall be forgiven and need not be paid by
dj Orthopedics to PRES.

 

3.                                       Termination
of 2985 and 3105 Scott Lease and 2980 Scott Lease.  Upon termination of the 2985 and 3105 Scott
Sublease, as hereinafter provided in Section 4, PRES and Smith & Nephew
agree that the 2985 and 3105 Scott Lease shall terminate.  Upon termination of the 2980 Scott Sublease,
as hereinafter provided in Section 4, PRES and Smith & Nephew agree
that the 2980 Scott Lease shall terminate. 
Neither PRES nor Smith & Nephew shall owe anything to the other
as a result of such terminations.  From
and after such termination, Smith and Nephew shall have no further obligation
under the 2985 and 3105 Scott Lease or the 2980 Scott Lease, except for
obligations that survive the termination of the applicable lease pursuant to
the terms of such lease.

 

2

 

4.                                       Termination
of 2980 and 3105 Scott Sublease and 2985 Scott Sublease.  In the event that PRES acquires 2980, 2985
and 3105 Scott Street from Stetman & Morris, PRES, Smith & Nephew and
dj Orthopedics agree that the 2980 and 3105 Scott Sublease and the 2985 Scott
Sublease shall terminate on the later of the “Commencement Date” of the New
Lease or the date that dj Orthopedics vacates 2980, 2985 and 3105 Scott Street
and leaves the buildings in broom-clean and good condition, as described in
Section 5 hereafter (the “Termination Date”). 
The term “Commencement Date” is defined in Paragraph 5 of the
Fundamental Lease Provisions of the New Lease, which definition is incorporated
herein by reference.  From and after the
Termination Date, dj Orthopedics shall have no further obligation to pay rent
under the 2985 and 3105 Scott Sublease or the 2980 Scott Sublease.  Upon the Termination Date, PRES shall refund
the $50,000 security deposit, which was paid pursuant to Section 4.4 of the
2985 and 3105 Scott Lease, in accordance with written instructions signed by
both dj Orthopedics and Smith & Nephew. 
Upon the Termination Date, each party hereby releases each of the other
parties hereto from any and all liabilities arising under the Ground Lease, the
2985 and 3105 Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott
Sublease and the 2980 Scott Sublease, except for obligations that survive the
termination of the applicable lease or sublease pursuant to the terms of such
lease or sublease.

 

5.                                       Vacation
of 2980, 2985 and 3105 Scott Street. 
dj Orthopedics agrees to vacate 2980, 2985 and 3105 Scott Street within
thirty (30) days following the Commencement Date of the New Lease.  As part of such vacation, dj Orthopedics
shall remove all of its personal property, furniture and trade fixtures and
shall leave the buildings broom-clean and in good condition, subject to
reasonable wear and tear.  To the extent
that dj Orthopedics vacates all or a portion of 2980, 2985 and 3105 Scott
Street early as set forth in the last sentence of Section 7, the 2985 and 3105
Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott Sublease or the 2980
Scott Sublease, as applicable, shall be amended effective as of the date of
vacation to exclude therefrom, and terminate as to, the portion of 2980, 2985
or 3105 Scott Street so vacated.  Other
than excluding the vacated portion of 2980, 2985 or 3105 Scott Street, all
other terms and conditions of the 2985 and 3105 Scott Lease, the 2980 Scott
Lease, the 2985 and 3105 Scott Sublease and the 2980 Scott Sublease shall
remain in full force and effect until the Termination Date without amendment,
including the provisions therein pertaining to the payment of rent.  Notwithstanding the vacation of all or any
portion of 2980, 2985 and/or 3105 Scott Street and the termination of the
applicable sublease and lease, until the Termination Date, dj Orthopedics shall
continue to pay rent, real property taxes, insurance premiums and all other
amounts payable by dj Orthopedics under the 2985 and 3105 Scott Sublease and
the 2980 Scott Sublease to Smith & Nephew and Smith & Nephew
shall continue to pay the same under the 2985 and 3105 Scott Lease and the 2980
Scott Lease to PRES or its successors. 
Notwithstanding the above, (a) dj Orthopedics shall pay such amounts
directly to PRES or its successors and any amount so paid to PRES or its
successors shall be credited against any amounts owing by Smith & Nephew
under the preceding sentence, (b) Smith & Nephew shall have no obligation
to pay any amount under the 2985 and 3105 Scott Lease and the 2980 Scott Lease
unless dj Orthopedics pays the corresponding amount to Smith & Nephew under
the 2985 and 3105 Scott Sublease and the 2980 Scott Sublease and (c) Smith
& Nephew shall have no obligations or liability whatsoever with respect to
the vacated space of any type, including, without limitation, obligations or
liabilities (i) to PRES under the 2985 and 3105 Scott Lease or the 2980 Scott
Lease, (ii) to dj Orthopedics under the 2985 and 3105 Scott Sublease and the
2980 Scott Sublease, or (iii) to the New Tenant, 

 

3

 

except, in the case of (i) and (ii) above, for obligations that survive
the expiration of the applicable lease or sublease pursuant to the terms of
such lease or sublease.

 

6.                                       Lump
Sum Rent.  dj Orthopedics has agreed
to make an initial payment of rent (the “Lump Sum Rent”) under Section 5.9 of
the New Lease and Smith & Nephew shall have no obligations to make any
payment or any other consideration or contribute to the Lump Sum Rent.

 

7.                                       Refund
of All or a Portion of the Lump Sum Rent. 
Under the circumstances described in this Section and in the event the
Lump Sum Rent has been paid under the New Lease, on February 20, 2008, or as
soon thereafter as is reasonably necessary to make a final accounting, PRES (or
its successors in interest as to the 2980, 2985 and 3105 Scott Street, Vista,
California) shall refund the “Excess Lump Sum Rent” (as hereinafter defined),
if any, to dj Orthopedics.  As used
herein, the term “Excess Lump Sum Rent” means the Lump Sum Rent paid pursuant
to Section 5.9 of the New Lease after modifying the Lump Sum Rent as follows:

 

(a)                                  There
shall be deducted from such amount PRES’ or its successors’ reasonable and
customary out-of-pocket expenses (other than expenses with respect to tenant
improvements) in leasing the buildings, or space within the buildings, located
on 2980, 2985 and 3105 Scott Street. 
Such reasonable expenses shall include an “Equitable Portion” of any
brokerage commission paid in connection with the obtaining of any new lease,
license agreement or other agreement providing for use and occupancy (“Occupancy
Agreement”).  The Equitable Portion shall
be a portion of the total brokerage commission paid as to any such Occupancy
Agreement (including payment to an affiliate of PRES or its successors as long
as the total commission paid is commercially reasonable), such portion being
the amount allocated to the period between the commencement date of such new
Occupancy Agreement and February 20, 2008, the total commission being
allocated proportionately over the base term of such Occupancy Agreement
(without regard to options to extend the base term).

 

(b)                                 There
shall be deducted from such amount a portion of any tenant improvements or any
tenant improvement allowance paid by PRES or its successors, such portion being
the amount thereof allocated to the period between the commencement date of the
Occupancy Agreement and February 20, 2008, the total tenant improvements being
allocated proportionately over the longer of (1) ten (10) years or (2) the base
term of such Occupancy Agreement (without regard to options to extend the base
term).

 

(c)                                  There
shall be deducted from such amount “Lost Rent”, “Lost Taxes” and “Lost
Insurance Premiums” suffered by PRES or its successors for the period between
the Termination Date and February 20, 2008. 
“Lost Rent” means the excess of (1) the rent that would have been paid
by dj Orthopedics under the 2985 and 3105 Scott Sublease and the 2980 Scott
Sublease for such period; over (2) the rent or other consideration in lieu of
rent (including key money and bonus money and any payment in excess of fair
market value for services rendered by PRES to New Tenant (as defined below) or
assets, fixtures, inventory, equipment, or furniture transferred by New Tenant
(as defined below) to PRES in connection with the Occupancy Agreement) that
PRES or its successors receives from any new tenant, licensee or occupant
(each, a “New Tenant”) under an Occupancy Agreement(s) for such period.  Any “free rent” payable under an Occupancy
Agreement shall be amortized over the base term (without regard to options to
extend the base term) under any such Occupancy Agreement.  PRES agrees 

 

4

 

that rental increases, if any, under any such Occupancy Agreement shall
be commercially reasonable such that an artificially low rent is not charged
during the portion of the term of the Occupancy Agreement prior to
February 20, 2008 and an artificially high rent is charged for the period
after the Termination Date.  “Lost Taxes”
means the excess of (1) the real property taxes and general and special
assessments payable on 2980, 2985 and 3105 Scott Street that dj Orthopedics
would have paid under the 2985 and 3105 Scott Sublease and the 2980 Scott
Sublease for such period; over (2) the real property taxes and general and
special assessments paid on 2980, 2985 and 3105 Scott Street paid by New
Tenant(s) for such period.  “Lost
Insurance Premiums” means the excess of (1) the insurance premiums that dj
Orthopedics would have paid under the 2985 and 3105 Scott Sublease and the 2980
Scott Sublease for such period; over (2) the insurance premiums paid on 2980,
2985 and 3105 Scott Street by New Tenant(s) for such period.

 

(d)                                 There
shall be added to such amount (1) to the extent not credited in the calculation
of the Lump Sum Rent pursuant to Section 5.9 of the New Lease, if dj
Orthopedics vacates all or a portion of 2980, 2985 or 3105 Scott Street early
as set forth in the last sentence of this Section 7, the amount of any rent or
other consideration in lieu of rent (including key money and bonus money and
any payment in excess of fair market value for services rendered by PRES to New
Tenant or assets, fixtures, inventory, equipment, or furniture transferred by
New Tenant to PRES in connection with the Occupancy Agreement) that PRES or its
successors earns from New Tenant(s) under an Occupancy Agreement(s) (such
amounts being calculated by allocating the amount to be paid under such
Occupancy Agreement evenly over the term of such Occupancy Agreement) with
respect to all or a portion of 2980, 2985 or 3105 Scott Street for period
before the Termination Date and (2) the amount of any “Excess Rent”, “Excess
Taxes” and “Excess Insurance Premiums;” provided, however, that
in no event will the amounts credited pursuant to this Section 7(d) exceed the
amount of the Lump Sum Rent.  “Excess
Rent” means the excess of (1) the rent or other consideration in lieu of rent
(including key money and bonus money and any payment in excess of fair market
value for services rendered by PRES to New Tenant or assets, fixtures,
inventory, equipment, or furniture transferred by New Tenant to PRES in
connection with the Occupancy Agreement) that PRES or its successors earns from
New Tenant(s) under an Occupancy Agreement(s) for the period between the
Termination Date and February 20, 2008 (such amounts being calculated by
allocating the amount to be paid under any Occupancy Agreement evenly over the
term of such Occupancy Agreement); over (2) the rent that would have been paid
by dj Orthopedics under the 2985 and 3105 Scott Sublease and the 2980 Scott
Sublease.  “Excess Taxes” means the
excess of (1) the real property taxes and general and special assessments payable
on 2980, 2985 and 3105 Scott Street paid by New Tenant(s) for the period
between the termination of the 2985 and 3105 Scott Sublease and the 2980 Scott
Sublease and February 20, 2008; over (2) the real property taxes and general
and special assessments payable on 2980, 2985 and 3105 Scott Street that dj
Orthopedics would have paid under the 2985 and 3105 Scott Sublease and the 2980
Scott Sublease for such period.  “Excess
Insurance Premiums” means the excess of (1) the insurance premiums paid by New
Tenant(s) for the period between the termination of the 2985 and 3105 Scott
Sublease and the 2980 Scott Sublease and February 20, 2008; over (2) the
insurance premiums that dj Orthopedics would have paid under the 2985 and 3105
Scott Sublease and the 2980 Scott Sublease tenants for such period.

 

5

 

(e)                                  The Adjusted
Base Rent (as defined in the New Lease) shall be recalculated to equal the rent
that would have been paid under the “2985 and 3105 Scott Sublease” and the “2980
Scott Sublease” based on the escalation in rent amounts that actually would
have occurred.  If (1) the Adjusted Base
Rent as recalculated is less than (2) the Adjusted Base Rent as originally
calculated in determining the Lump Sum Rent, then the
Excess Lump Sum Rent shall be reduced by the difference
between (2) and (1).  If (1) the Adjusted
Base Rent as recalculated is greater than (2) the Adjusted Base Rent as
originally calculated in determining the Lump Sum Rent, then the
Excess Lump Sum Rent shall be increased by the
difference between (1) and (2).

 

By way
of example, assume that the Lump Sum Rent is Two Million Dollars
($2,000,000.00).  Assume further that
PRES (or its successors) incur reasonable and customary expenses in leasing the
buildings (other than brokerage commission) in the amount of Twenty-Five
Thousand Dollars ($25,000.00).  Further
assume that brokerage commission paid to obtain the new leases is Two Hundred
Thousand Dollars ($200,000.00) and that Fifty Thousand Dollars ($50,000.00) of
such amount is allocated to the period of time between the commencement date of
the new leases and February 20, 2008 (as provided in paragraph (a)
above).  Assume further that the tenant
improvements and tenant improvement allowances paid by PRES (or its successor)
as landlord under the new leases is Five Hundred Thousand Dollars ($500,000.00)
and that One Hundred Thousand Dollars ($100,000.00) of such amount is allocated
to the period of time between the commencement date of the new leases and February
20, 2008 (as provided in paragraph (b) above). 
Assume further that the “Lost Rent” is One Million Dollars
($1,000,000.00) (based upon rent payable by dj Orthopedics from the termination
of the 2985 and 3105 Scott Sublease and the 2980 Scott Sublease to February 20,
2008 being Four Million Dollars ($4,000,000.00) and the rent paid by the new
tenants under their leases for such period being Three Million Dollars
($3,000,000.00)).  Assume further that
Landlord pays real property taxes and insurance premiums during such period for
which it is not reimbursed by tenants in the amount of One Hundred Thousand
Dollars ($100,000.00). Assume further that the Adjusted Base Rent (as
recalculated as provided in paragraph (e) above) is $10,000 less than the
Adjusted Base Rent as originally calculated in determining the Lump Sum
Rent.  As a result of these assumptions,
the total deduction from the Lump Sum Rent to determine the Excess Lump Sum
Rent is One Million Two Hundred Sixty-Five Thousand Dollars ($1,265,000.00) and
the Excess Lump Sum Rent is Seven Hundred Thirty-Five Thousand Dollars
($735,000.00).

 

In no
event shall the Excess Lump Sum Rent exceed the Lump Sum Rent.

 

If a
proposed Occupancy Agreement is (1) not on an arm’s length basis or (2) with an
affiliate of PRES or its successors, PRES shall not enter into such Occupancy
Agreement without the prior consent of dj Orthopedics, which consent shall not
be unreasonably withheld.  dj Orthopedics
shall have the right to audit the books and records of PRES or its successors
relating to the calculation of the Excess Lump Sum Rent, including a right to
review any Occupancy Agreements, any brokers agreement(s) relating to such
lease, real property tax bills and records relating to payment of insurance
premiums.  In the event that dj
Orthopedics desires to audit the books and records of PRES or its successors,
it shall give written notice thereof to PRES or its successor within one
hundred twenty (120) days following receipt of the Excess Lump Sum Rent or a
statement from PRES or its successors that no Excess Lump Sum Rent is
owing.  If dj Orthopedics fails to give
such notice, it shall be deemed to have waived its right to 

 

6

 

audit the books and records.  Any
such audit shall be conducted within thirty (30) days after dj Orthopedics’
notice at the principal place of business of PRES or its successors and at a
time mutually agreed to by the parties.

 

dj
Orthopedics agrees to cooperate with PRES or its successors in their releasing
efforts by making available (and vacating) any unused space within the 2980,
2985 and 3105 Scott Street buildings at the earliest date that is consistent
with dj Orthopedics’ space needs as determined by dj Orthopedics in good faith.

 

8.                                       Waiver
of Certain Rights.  Smith &
Nephew and dj Orthopedics waive and relinquish any and all rights of first
offer, rights of first refusal, options to purchase or similar rights, if any,
under the Ground Lease, the 2985 and 3105 Scott Lease, the 2980 Scott Lease,
the 2985 and 3105 Scott Sublease and the 2980 Scott Sublease, as applicable.

 

9.                                       Representations
and Warranties of dj Orthopedics.  dj
Orthopedics represents and warrants to PRES and Smith & Nephew the
following, each of which shall survive the termination of the Ground Lease, the
2985 and 3105 Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott
Sublease and the 2980 Scott Sublease contemplated hereby:

 

(a)                                  dj
Orthopedics is the current ground lessee under the Ground Lease.

 

(b)                                 dj
Orthopedics has not assigned, transferred or hypothecated all or any portion of
its ground leasehold interest under the Ground Lease.

 

(c)                                  dj
Orthopedics is the current subtenant under the 2985 and 3105 Scott Sublease and
the 2980 Scott Sublease.

 

(d)                                 dj
Orthopedics has not assigned, transferred or hypothecated all or any portion of
its subleasehold interest under the 2985 and 3105 Scott Sublease or the 2980
Scott Sublease.

 

(e)                                  dj
Orthopedics has the right and authority to enter into this Agreement and to
carry out the transactions contemplated hereby including the termination of the
Ground Lease, the 2985 and 3105 Sublease and the 2980 Scott Sublease.

 

(f)                                    All
necessary consents and approvals for dj Orthopedics to enter into this
Agreement and to carry out the transactions contemplated hereby, including the
termination of the Ground Lease, the 2985 and 3105 Sublease and the 2980 Scott
Lease, have been obtained.

 

(g)                                 This
Agreement has been duly executed and validly entered into by dj Orthopedics and
is enforceable against dj Orthopedics in accordance with its terms.

 

(h)                                 To
the best of dj Orthopedics’ current actual knowledge without investigation,
there is no zoning law violation, building code violation or other violation of
any law, ordinance or regulation with regard to the improvements located on
2980, 2985 and 3105 Scott Street and it has received no notice of any such
violation.

 

7

 

(i)                                     To
the best of dj Orthopedics’ knowledge, there is no pending or threatened
condemnation action with regard to the Ground Leased Premises or 2980, 2985 or
3105 Scott Street.

 

(j)                                     To
the best of dj Orthopedics’ knowledge, there are no “Hazardous Materials” (as
defined below) stored, used, generated, released, disposed of or discharged on,
under or about the Ground Leased Premises, or 2980, 2985 or 3105 Scott Street
in violation of any applicable law, rule or regulation.  The term “Hazardous Materials” includes,
without limitation, any material or substance which is (i) defined or listed as
a “hazardous waste”, “extremely hazardous waste”, “restrictive hazardous waste”
or “hazardous substance” in, or considered a waste, condition of pollution or
nuisance under, any federal, state or local law, statute, ordinance or
regulation pertaining to health, industrial hygiene or environmental
conditions; (ii) defined as hazardous material or hazardous substance in
California Health and Safety Code Section 25501; (iii) petroleum or a petroleum
product or fraction thereof; (iv) asbestos; (v) lead in water, paint or
elsewhere; and/or (vi) known by the State of California to cause cancer and/or
reproductive toxicity.  Notwithstanding
the foregoing, the presence and/or use of the following substances shall not be
deemed a violation of this Section if stored, formulated, used or tested at or
on the Ground Leased Premises, or 2980, 2985 or 3105 Scott Street in accordance
with all applicable laws, rules and regulations:  office supplies, cleaning supplies,
construction supplies, herbicides, insecticides, fertilizers, and other garden
products, rodenticides, chemicals and specimens used in biological or
pharmaceutical research, pharmaceuticals and pharmaceutical supplies and
chemicals, in each case stored, fabricated, used or tested at or on the Ground
Leased Premises, or 2980, 2985 or 3105 Scott Street in the ordinary course of
dj Orthopedics’ business.

 

10.                                 Representations
and Warranties of Smith & Nephew. 
Smith & Nephew hereby represent and warrant to PRES and dj
Orthopedics as follows, each of which shall survive the termination of the 2985
and 3105 Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott Sublease
and the 2980 Scott Sublease contemplated hereby:

 

(a)                                  Smith
& Nephew is the current lessee under the 2985 and 3105 Scott Lease and the
2980 Scott Lease and the current sublessor under the 2985 and 3105 Scott
Sublease and the 2980 Scott Sublease.

 

(b)                                 Smith
& Nephew has not assigned, transferred or hypothecated all or any portion
of its interest under the 2985 and 3105 Scott Lease, the 2980 Scott Lease, the
2985 and 3105 Scott Sublease or the 2980 Scott Sublease and has made no
assignment, transfer or hypothecation of any of the rents owing to it under the
2985 and 3105 Scott Sublease and the 2980 Scott Sublease.

 

(c)                                  Smith
& Nephew has the right and authority to enter into this Agreement and to
carry out the transactions contemplated hereby including the termination of the
2985 and 3105 Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott
Sublease and the 2980 Scott Sublease.

 

(d)                                 All
necessary consents to the execution of this Agreement and the carrying out of
the transactions by Smith & Nephew, including the termination of the 2985
and 3105 

 

8

 

Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott Sublease and
the 2980 Scott Sublease have been obtained.

 

(e)                                  This
Agreement has been duly executed and delivered by Smith & Nephew and is
enforceable against Smith & Nephew in accordance with its terms.

 

(f)                                    To
the best of Smith & Nephew’s current actual knowledge, without
investigation, Smith & Nephew has received no notice of any zoning law
violation, building code violation or other violation of any law, ordinance or
regulation with regard to the improvements located on 2980, 2985 and 3105 Scott
Street.

 

(g)                                 To
the best of Smith & Nephew’s knowledge, Smith & Nephew has received no
notice of any pending or threatened condemnation action with regard to 2980,
2985 or 3105 Scott Street.

 

11.                                 Representations
and Warranties of PRES.  PRES hereby
represents and warrants to Smith & Nephew and dj Orthopedics as
follows, each of which shall survive the termination of the Ground Lease, the
2985 and 3105 Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott
Sublease and the 2980 Scott Sublease contemplated hereby:

 

(a)                                  PRES
has entered into a Purchase Agreement to acquire the Ground Lease Premises and
2980, 2985 and 3105 Scott Street.

 

(b)                                 PRES
has the right and authority to enter into this Agreement and to carry out the
transactions contemplated hereby including, upon acquisition of the Ground
Leased Premises, the termination of the Ground Lease, and upon acquisition of
2980, 2985 and 3105 Scott Street, the termination of the 2985 and 3105 Scott
Lease and the 2980 Scott Lease.

 

(c)                                  All
necessary consents and approvals for PRES to enter into this Agreement and to
carry out the transactions contemplated hereby have been obtained.

 

(d)                                 This
Agreement has been duly executed and delivered by PRES and is enforceable
against PRES in accordance with its terms.

 

12.                                 PRES
Affiliate.  PRES has disclosed to
Smith & Nephew and dj Orthopedics that prior to the consummation of the
acquisition of the Ground Leased Premises and 2980, 2985 and 3105 Scott Street,
it is likely that it will assign its rights under the purchase agreement and
the resulting escrow to an affiliate of PRES and that such affiliate will
acquire such real property.  In such
event PRES agrees that it shall cause such affiliate to assume its obligations
under this Agreement.  Such assignment
shall not relieve PRES of its obligations hereunder.

 

13.                                 Ground
Lease, Leases and Subleases to Remain in Effect.  Until the applicable termination thereof as
herein provided occurs, the Ground Lease, the 2985 and 3105 Scott Lease, the
2980 Scott Lease, the 2985 and 3105 Scott Sublease and the 2980 Scott Sublease
shall remain in full force and effect. 
In the event that the Ground Lease has not terminated at the time PRES
acquires the Ground Leased Premises, dj Orthopedics agrees to recognize PRES
(or its successor) as the landlord (ground lessor) under the Ground Lease and
to attorn to PRES (or its successor) in accordance with the terms of the Ground
Lease.  In the event that the 2985 and 

 

9

 

3105 Scott Lease and the 2980 Scott Lease have not terminated as of the
time PRES acquires 2980, 2985 and 3105 Scott Street, such leases shall remain
in full force and effect and Smith & Nephew shall recognize PRES (or its
successor) as the landlord under such leases and agrees to attorn to PRES (or
its successor) in accordance with the terms of such leases.

 

14.                                 Termination
of Memoranda.  The memoranda of the
Ground Lease, the 2985 and 3105 Scott Lease and the 2980 Scott Lease described
in the recitals of this Agreement shall terminate effective as of the
termination of the leases which they evidence, and at such time the appropriate
party or parties agree to execute any instruments necessary to remove same from
the official records.  The parties agree
that Smith & Nephew shall not be responsible for any recording fees in
connection with such instruments.

 

15.                                 Holding
Over.  In the event that dj
Orthopedics does not vacate 2980, 2985 or 3105 Scott Street within thirty (30)
days following the Commencement Date of the New Lease as hereinabove provided
in Section 5, dj Orthopedics shall be deemed a holdover tenant from and after
such date and shall pay to Smith & Nephew as a holdover tenant one
hundred fifty percent (150%) of the monthly rent otherwise payable hereunder
and Smith & Nephew agree that such holdover rent, if received from dj
Orthopedics, shall be passed on and paid to PRES (or its successor).

 

16.                                 Prorations.  In the event that the Ground Lease, the 2985
and 3105 Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott Sublease or
the 2980 Scott Sublease is terminated on a day other than the last day of a
calendar month, rent payable thereunder and any real or personal property taxes
or assessments payable thereunder shall be appropriately prorated.

 

17.                                 Effectiveness;
Termination.  It is a condition
precedent to the effectiveness of this Agreement (except for Section 18(a) and
this Section 17, which shall be in full force and effect as of the date hereof)
that the New Lease Condition Precedent shall have been satisfied.  If dj Orthopedics or PRES terminates the New
Lease pursuant to and in accordance with Section 18.19 of the New Lease, then
this Agreement shall terminate effective upon the termination of the New Lease.

 

18.                                 Miscellaneous.

 

(a)                                  Attorneys’
Fees.  In the event that a dispute
arises under this Agreement, the prevailing party shall be entitled to recover
from the non-prevailing party(ies) its reasonable attorneys’ fees and
out-of-pocket costs and expenses.

 

(b)                                 Waiver.  No waiver of any breach of the terms,
covenants, agreements, restrictions or conditions of this Agreement shall be
construed as a waiver of any succeeding breach of the same or other covenants,
agreements, restrictions and conditions hereof. 
Any waiver to be effective shall be in writing and signed by the party
against whom such waiver is sought.

 

(c)                                  Notices.  Whenever in this Agreement, it shall be
required or permitted that notice or demand be given or served by any party to
this Agreement to any other party, such notices or demands shall be given or served,
and shall not be deemed to have been duly given or served unless said notice or
demand is in writing and is either personally served upon the person 

 

10

 

for whom intended, sent by overnight courier to the address set forth
for said party below, mailed by registered or certified mail, with postage
prepaid, addressed to the party for whom intended at the address set forth
below or sent by facsimile transmission to the facsimile for said party set forth
below for said party with an additional copy sent on the same day by registered
or certified mail as above provided.  Any
party may change its address or facsimile number by notifying the other party
in writing as to such new address and/or facsimile number as such party may
desire to use which new address and/or facsimile number shall continue as the
address and/or facsimile number until further written notice.  Any party may require an additional copy of
any notice or demand be sent by notifying the other parties in writing of the
name of the person or entity to receive such copy and the address and facsimile
number where it is to be sent.  Any notice or
demand shall be deemed given or served upon actual receipt or attempted
delivery thereof and refusal to accept same by personal delivery, mail or
nationally recognized overnight courier at the location at which they are to be
sent pursuant to this Section 18(c).  Any notice or demand served on a party shall
be served concurrently on all parties. 
The addresses and facsimile numbers for notices and demands are as
follows:

 

	
  PRES:

  	
   

  	
  Professional Real Estate Services, Inc.

  
	
   

  	
   

  	
  1201 Dove Street, Suite 100

  
	
   

  	
   

  	
  Newport Beach, California, 92660

  
	
   

  	
   

  	
  Attention: John W. Fitzgibbon, Executive Vice
  President

  
	
   

  	
   

  	
  Fax: (909) 442-1925

  
	
   

  	
   

  	
   

  
	
  dj Orthopedics:

  	
   

  	
  dj Orthopedics, LLC

  
	
   

  	
   

  	
  2985 Scott Street

  
	
   

  	
   

  	
  Vista, CA 92081

  
	
   

  	
   

  	
  Attn: Don Roberts, General Counsel

  
	
   

  	
   

  	
  Facsimile Number: (760) 734-7536

  
	
   

  	
   

  	
   

  
	
  Smith & Nephew:

  	
   

  	
  Smith & Nephew, Inc.

  
	
   

  	
   

  	
  1450 Brooks Road

  
	
   

  	
   

  	
  Memphis, TN 38116

  
	
   

  	
   

  	
  Attention: General Counsel

  
	
   

  	
   

  	
  Fax: (901) 399-1174

  

 

(d)                                 Entire
Agreement.  This Agreement is and
shall be considered to be the only agreement among the parties hereto on the
subject matter hereof, and all negotiations or oral agreements are included
herein.

 

(e)                                  Inurement.  Each of the covenants, conditions and
agreements herein contained shall inure to the benefit of and shall apply to
and be binding upon the parties hereto and their respective heirs, legatees,
devisees, executors, administrators, successors, assigns, or any person who may
come into possession of any portion of the real property or any part thereof in
any manner whatsoever.

 

(f)                                    Captions.  The captions of the Sections of this
Agreement are for convenience only and are not a part of this Agreement and do
not in any way limit or amplify the terms and provisions hereof.

 

11

 

(g)                                 Time
of the Essence.  Time is of the
essence of each and every provision of this Agreement.

 

(h)                                 Business
Day.  As used herein, a business day
is any day other than a Saturday or Sunday or legal holiday in the State of
California.

 

(i)                                     Counterparts.  This Agreement may be executed in any number
of counterparts which when taken together shall constitute one fully executed
instrument as though all signatures appeared on one copy thereof.

 

(j)                                     Indemnity.  dj Orthopedics hereby agrees to indemnify,
defend and hold harmless Smith & Nephew from any and all losses, claims,
damages or liabilities arising out of or caused by any breach by dj Orthopedics
of any of its obligations under this Agreement.

 

(k)                                  Assignment.  This Agreement may not be assigned by any
party hereto; provided  however that PRES may assign this
Agreement to a successor purchaser to which PRES assigns the Purchase Agreement.

 

(l)                                     Third
Party Beneficiaries.  This Agreement
is made solely and specifically between and for the benefit of the parties
hereto, and their respective successors and permitted assigns subject to the
express provisions hereof relating to successors and assigns, and no other
person or party shall have any rights, interest, or claims hereunder or be
entitled to any benefits under or on account of this Agreement as a third party
beneficiary or otherwise

 

IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first hereinabove written.

 

	
   

  	
  PROFESSIONAL
  REAL ESTATE SERVICES, INC.,

  
	
   

  	
  a California
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
					

 

12

 

	
   

  	
  dj ORTHOPEDICS,
  LLC,

  
	
   

  	
  a Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SMITH &
  NEPHEW, INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
						

 

13

 

EXHIBIT “A”

 

LEGAL DESCRIPTION
OF GROUND LEASE PREMISES

 

 

[SEE ATTACHED]

 

 

EXHIBIT “A”

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00073-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00073-of-00352.parquet"}]]