Document:

Exhibit
10.13

MERRILL
CREEK CENTER

LEASE
AGREEMENT

BETWEEN

MERRILL
CREEK HOLDINGS, LLC,

LANDLORD

AND

ZUMIEZ,
INC.,

TENANT

TABLE
OF CONTENTS

	
  

  	
   

  	
  

  	
   

  	
  Page

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 1

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PREMISES

  	
   

  	
   

  	
   

  
	
  1.1

  	
   

  	
  Construction;
  Suitability

  	
   

  	
  2

  	
   

  
	
  1.2

  	
   

  	
  Location

  	
   

  	
  2

  	
   

  
	
  1.3

  	
   

  	
  Landlord’s Warranties

  	
   

  	
  3

  	
   

  
	
  1.4

  	
   

  	
  Right of First Offer

  	
   

  	
  3

  	
   

  
	
  1.5

  	
   

  	
  Parking

  	
   

  	
  3

  	
   

  
	
  1.6

  	
   

  	
  Exhibits

  	
   

  	
  3

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 2

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  BUSINESS RIGHTS
  AND RESTRICTIONS

  	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  Use

  	
   

  	
  4

  	
   

  
	
  2.2

  	
   

  	
  Restrictions

  	
   

  	
  4

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 3

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TERM

  	
   

  	
   

  	
   

  
	
  3.1

  	
   

  	
  Duration; Early
  Possession

  	
   

  	
  4

  	
   

  
	
  3.2

  	
   

  	
  Option to Extend

  	
   

  	
  4

  	
   

  
	
  3.3

  	
   

  	
  Intentionally Omitted

  	
   

  	
  4

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 4

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  RENT

  	
   

  	
   

  	
   

  
	
  4.1

  	
   

  	
  Payment

  	
   

  	
  4

  	
   

  
	
  (a)

  	
   

  	
  Fixed Minimum Rent

  	
   

  	
  5

  	
   

  
	
  (b)

  	
   

  	
  Late Fee

  	
   

  	
  5

  	
   

  
	
  (c)

  	
   

  	
  Fixed Minimum Rent
  During Extended Term

  	
   

  	
  5

  	
   

  
	
  4.2

  	
   

  	
  Intentionally Deleted

  	
   

  	
  5

  	
   

  
	
  4.3

  	
   

  	
  Lease Year

  	
   

  	
  5

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 5

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  COMMON AREA

  	
   

  	
   

  	
   

  
	
  5.1

  	
   

  	
  Definition

  	
   

  	
  5

  	
   

  
	
  5.2

  	
   

  	
  Reserved

  	
   

  	
  6

  	
   

  
	
  5.3

  	
   

  	
  Use

  	
   

  	
  6

  	
   

  
	
  5.4

  	
   

  	
  Maintenance and
  Operation

  	
   

  	
  6

  	
   

  
	
  5.5

  	
   

  	
  Records

  	
   

  	
  6

  	
   

  
	
  5.6

  	
   

  	
  Tenant’s Contribution

  	
   

  	
  6

  	
   

  
	
  5.7

  	
   

  	
  Operation and Control

  	
   

  	
  7

  	
   

  
	
  5.8

  	
   

  	
  Obstructions

  	
   

  	
  7

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 6

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TAXES

  	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  Personal Property Taxes

  	
   

  	
  7

  	
   

  
	
  6.2

  	
   

  	
  Real Property Taxes

  	
   

  	
  7

  	
   

  
	
  (a)

  	
   

  	
  Definition; Payment

  	
   

  	
  7

  	
   

  
	
  (b)

  	
   

  	
  Proration

  	
   

  	
  8

  	
   

  
	
  (c)

  	
   

  	
  Separate Tax Bill

  	
   

  	
  8

  	
   

  
	
  (d)

  	
   

  	
  Tenant’s Use

  	
   

  	
  8

  	
   

  
	
  6.3

  	
   

  	
  Business Taxes

  	
   

  	
  8

  	
   

  
	
  6.4

  	
   

  	
  Substitute and
  Additional Taxes

  	
   

  	
  8

  	
   

  
	
  6.5

  	
   

  	
  Commercial Rent Tax

  	
   

  	
  8

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 7

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  UTILITIES

  	
   

  	
   

  	
   

  
	
  7

  	
   

  	
  Utilities

  	
   

  	
  8

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 8

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  REPAIRS AND
  ALTERATIONS

  	
   

  	
   

  	
   

  
	
  8.1

  	
   

  	
  Landlord’s Repairs

  	
   

  	
  9

  	
   

  
	
  8.2

  	
   

  	
  Tenant’s Repairs

  	
   

  	
  9

  	
   

  
	
  8.3

  	
   

  	
  Alterations

  	
   

  	
  9

  	
   

  
	
  (a)

  	
   

  	
  Tenant’s Alterations

  	
   

  	
  9

  	
   

  

 

TABLE OF CONTENTS

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  Page

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  Approval Not Required

  	
   

  	
  10

  	
   

  
	
  8.4

  	
   

  	
  General Conditions

  	
   

  	
  10

  	
   

  
	
  (a)

  	
   

  	
  Contractors

  	
   

  	
  10

  	
   

  
	
  (b)

  	
   

  	
  Compliance With Laws

  	
   

  	
  10

  	
   

  
	
  (c)

  	
   

  	
  Tenant’s Responsibility

  	
   

  	
  10

  	
   

  
	
  (d)

  	
   

  	
  Compliance with
  Americans With Disabilities Act

  	
   

  	
  10

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 9

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  INSURANCE

  	
   

  	
   

  	
   

  
	
  9.1

  	
   

  	
  Use Rate

  	
   

  	
  10

  	
   

  
	
  9.2

  	
   

  	
  Liability Insurance

  	
   

  	
  10

  	
   

  
	
  9.3

  	
   

  	
  Worker’s Compensation
  Insurance

  	
   

  	
  11

  	
   

  
	
  9.4

  	
   

  	
  Property
  Insurance/Business Income

  	
   

  	
  11

  	
   

  
	
  (a)

  	
   

  	
  Landlord’s Insurance

  	
   

  	
  11

  	
   

  
	
  (b)

  	
   

  	
  Tenant’s Insurance

  	
   

  	
  11

  	
   

  
	
  9.5

  	
   

  	
  Waiver of Subrogation

  	
   

  	
  11

  	
   

  
	
  9.6

  	
   

  	
  General Requirements

  	
   

  	
  11

  	
   

  
	
  (a)

  	
   

  	
  Licensed in State

  	
   

  	
  11

  	
   

  
	
  (b)

  	
   

  	
  Primary

  	
   

  	
  11

  	
   

  
	
  (c)

  	
   

  	
  Additional Named
  Insured

  	
   

  	
  11

  	
   

  
	
  (d)

  	
   

  	
  Notice of Cancellation

  	
   

  	
  11

  	
   

  
	
  9.7

  	
   

  	
  Blanket Insurance

  	
   

  	
  12

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 10

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DAMAGE AND
  RESTORATION

  	
   

  	
   

  	
   

  
	
  10.1

  	
   

  	
  Damage and Destruction
  of the Premises

  	
   

  	
  12

  	
   

  
	
  10.2

  	
   

  	
  Damage or Destruction
  of Development

  	
   

  	
  12

  	
   

  
	
  10.3

  	
   

  	
  Tenant’s Work

  	
   

  	
  13

  	
   

  
	
  10.4

  	
   

  	
  Limitation of
  Obligations

  	
   

  	
  13

  	
   

  
	
  10.5

  	
   

  	
  Damage or Destruction
  at End of Term

  	
   

  	
  13

  	
   

  
	
  10.6

  	
   

  	
  Waiver

  	
   

  	
  13

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 11

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  FLOOR AREA
  DEFINED

  	
   

  	
   

  	
   

  
	
  11

  	
   

  	
  Floor Area Defined

  	
   

  	
  13

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 12

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EMINENT DOMAIN

  	
   

  	
   

  	
   

  
	
  12.1

  	
   

  	
  Definition

  	
   

  	
  13

  	
   

  
	
  12.2

  	
   

  	
  Total Taking

  	
   

  	
  13

  	
   

  
	
  12.3

  	
   

  	
  Partial Taking of
  Premises

  	
   

  	
  13

  	
   

  
	
  12.4

  	
   

  	
  Common Area Taking

  	
   

  	
  13

  	
   

  
	
  12.5

  	
   

  	
  Repair and Restoration

  	
   

  	
  14

  	
   

  
	
  12.6

  	
   

  	
  Award

  	
   

  	
  14

  	
   

  
	
  12.7

  	
   

  	
  Waiver

  	
   

  	
  14

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 13

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  INDEMNITY;
  WAIVER

  	
   

  	
   

  	
   

  
	
  13.1

  	
   

  	
  Indemnification and
  Waivers

  	
   

  	
  14

  	
   

  
	
  (a)

  	
   

  	
  Indemnity

  	
   

  	
  14

  	
   

  
	
  (b)

  	
   

  	
  Waivers

  	
   

  	
  15

  	
   

  
	
  (c)

  	
   

  	
  Definitions

  	
   

  	
  15

  	
   

  
	
  (d)

  	
   

  	
  Scope of Indemnities
  and Waivers

  	
   

  	
  15

  	
   

  
	
  (e)

  	
   

  	
  Duty to Defend

  	
   

  	
  15

  	
   

  
	
  (f)

  	
   

  	
  Obligations Independent
  of Insurance

  	
   

  	
  15

  	
   

  
	
  (g)

  	
   

  	
  Waiver of Immunity

  	
   

  	
  15

  	
   

  
	
  (h)

  	
   

  	
  Survival

  	
   

  	
  16

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 14

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  OPERATION OF
  BUSINESS

  	
   

  	
   

  	
   

  
	
  14

  	
   

  	
  Operation of Business

  	
   

  	
  16

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

TABLE OF CONTENTS

(continued)

	
  

  	
   

  	
   

  	
   

  	
  Page

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 15

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SIGNS AND
  ADVERTISING

  	
   

  	
   

  	
   

  
	
  15.1

  	
   

  	
  Interior

  	
   

  	
  16

  	
   

  
	
  15.2

  	
   

  	
  Exterior

  	
   

  	
  16

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 16

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LIENS

  	
   

  	
   

  	
   

  
	
  16

  	
   

  	
  Liens

  	
   

  	
  17

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 17

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  RIGHT OF ENTRY

  	
   

  	
   

  	
   

  
	
  17

  	
   

  	
  Right of Entry

  	
   

  	
  17

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 18

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DELAYING CAUSES

  	
   

  	
   

  	
   

  
	
  18

  	
   

  	
  Delaying Causes

  	
   

  	
  17

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 19

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ASSIGNMENT AND
  SUBLEASE

  	
   

  	
   

  	
   

  
	
  19.1

  	
   

  	
  Consent Required

  	
   

  	
  17

  	
   

  
	
  19.2

  	
   

  	
  Request for Consent

  	
   

  	
  18

  	
   

  
	
  19.3

  	
   

  	
  Intentionally Omitted

  	
   

  	
  18

  	
   

  
	
  19.4

  	
   

  	
  General Conditions

  	
   

  	
  18

  	
   

  
	
  (a)

  	
   

  	
  Payment of Transfer
  Premium

  	
   

  	
  18

  	
   

  
	
  (b)

  	
   

  	
  Continued Liability of
  Tenant

  	
   

  	
  18

  	
   

  
	
  19.5

  	
   

  	
  Reserved

  	
   

  	
  18

  	
   

  
	
  19.6

  	
   

  	
  Transfer Pursuant to
  Bankruptcy Code

  	
   

  	
  18

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 20

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  NOTICES

  	
   

  	
   

  	
   

  
	
  20

  	
   

  	
  Notices

  	
   

  	
  19

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 21

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SURRENDER OF
  POSSESSION

  	
   

  	
   

  	
   

  
	
  21.1

  	
   

  	
  Surrender

  	
   

  	
  19

  	
   

  
	
  21.2

  	
   

  	
  Holding Over

  	
   

  	
  19

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 22

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  QUIET ENJOYMENT

  	
   

  	
   

  	
   

  
	
  22

  	
   

  	
  Quiet Enjoyment

  	
   

  	
  19

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 23

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SUBORDINATION

  	
   

  	
   

  	
   

  
	
  23

  	
   

  	
  Subordination

  	
   

  	
  19

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 24

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ESTOPPEL CERTIFICATE

  	
   

  	
   

  	
   

  
	
  24

  	
   

  	
  Estoppel Certificate

  	
   

  	
  20

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 25

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DEFAULT

  	
   

  	
   

  	
   

  
	
  25.1

  	
   

  	
  Default

  	
   

  	
  20

  	
   

  

 

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  25.2

  	
   

  	
  Remedies

  	
   

  	
  21

  	
   

  
	
  (a)

  	
   

  	
  Reentry and Termination

  	
   

  	
  21

  	
   

  
	
  (b)

  	
   

  	
  Express Termination Required

  	
   

  	
  21

  	
   

  
	
  (c)

  	
   

  	
  Damages

  	
   

  	
  21

  	
   

  
	
  (d)

  	
   

  	
  Alternative Damages

  	
   

  	
  22

  	
   

  
	
  (e)

  	
   

  	
  Definitions

  	
   

  	
  22

  	
   

  
	
  (f)

  	
   

  	
  Computation of Certain
  Sums

  	
   

  	
  22

  	
   

  
	
  (g)

  	
   

  	
  Reserved

  	
   

  	
  22

  	
   

  
	
  (h)

  	
   

  	
  Cumulative Remedies

  	
   

  	
  22

  	
   

  
	
  (i)

  	
   

  	
  No Waiver

  	
   

  	
  22

  	
   

  
	
  25.3

  	
   

  	
  Interest

  	
   

  	
  22

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 26

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  INSOLVENCY

  	
   

  	
   

  	
   

  
	
  26.1

  	
   

  	
  Breach of Lease

  	
   

  	
  23

  	
   

  
	
  26.2

  	
   

  	
  Operation of Law

  	
   

  	
  23

  	
   

  
	
  26.3

  	
   

  	
  Non-Waiver

  	
   

  	
  23

  	
   

  
	
  26.4

  	
   

  	
  Events of Bankruptcy

  	
   

  	
  23

  	
   

  
	
  26.5

  	
   

  	
  Landlord’s Remedies

  	
   

  	
  23

  	
   

  
	
  (a)

  	
   

  	
  Termination of Lease

  	
   

  	
  23

  	
   

  
	
  (b)

  	
   

  	
  Suit for Possession

  	
   

  	
  23

  	
   

  
	
  (c)

  	
   

  	
  Non-Exclusive Remedies

  	
   

  	
  24

  	
   

  
	
  (d)

  	
   

  	
  Assumption or
  Assignment by Trustee

  	
   

  	
  24

  	
   

  
	
  (e)

  	
   

  	
  Adequate Assurance of
  Future Performance

  	
   

  	
  24

  	
   

  
	
  (f)

  	
   

  	
  Failure to Provide
  Adequate Assurance

  	
   

  	
  24

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 27

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  REMEDIES
  CUMULATIVE

  	
   

  	
   

  	
   

  
	
  27

  	
   

  	
  Remedies Cumulative

  	
   

  	
  24

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 28

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ATTORNEY’S FEES

  	
   

  	
   

  	
   

  
	
  28

  	
   

  	
  Attorney’s Fees

  	
   

  	
  24

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 29

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  WAIVER OF
  DEFAULT

  	
   

  	
   

  	
   

  
	
  29

  	
   

  	
  Waiver of Default

  	
   

  	
  24

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 30

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  NO PARTNERSHIP

  	
   

  	
   

  	
   

  
	
  30

  	
   

  	
  No Partnership

  	
   

  	
  24

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 31

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SUBTENANCIES

  	
   

  	
   

  	
   

  
	
  31

  	
   

  	
  Subtenancies

  	
   

  	
  25

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 32

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SUCCESSORS

  	
   

  	
   

  	
   

  
	
  32

  	
   

  	
  Successors

  	
   

  	
  25

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 33

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  REMOVAL OF
  TENANT’S PROPERTY

  	
   

  	
   

  	
   

  
	
  33

  	
   

  	
  Removal of Tenant’s
  Property

  	
   

  	
  25

  	
   

  

 

TABLE OF CONTENTS

(continued)

	
  

  	
   

  	
   

  	
   

  	
  Page

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 34

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EFFECT OF CONVEYANCE

  	
   

  	
   

  	
   

  
	
  34

  	
   

  	
  Effect of Conveyance

  	
   

  	
  25

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 35

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LANDLORD’S
  DEFAULT; NOTICE TO LENDER

  	
   

  	
   

  	
   

  
	
  35.1

  	
   

  	
  Landlord’s Default

  	
   

  	
  25

  	
   

  
	
  35.2

  	
   

  	
  Notice to Lender

  	
   

  	
  26

  	
   

  
	
  35.3

  	
   

  	
  Independent Covenants,
  Limitation of Remedies

  	
   

  	
  26

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 36

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CONSENT

  	
   

  	
   

  	
   

  
	
  36

  	
   

  	
  Consent

  	
   

  	
  26

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 37

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  INTERPRETATION

  	
   

  	
   

  	
   

  
	
  37

  	
   

  	
  Interpretation

  	
   

  	
  26

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 38

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ENTIRE
  INSTRUMENT

  	
   

  	
   

  	
   

  
	
  38

  	
   

  	
  Entire Instrument

  	
   

  	
  26

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 39

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EASEMENTS

  	
   

  	
   

  	
   

  
	
  39

  	
   

  	
  Easements

  	
   

  	
  26

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 40

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SALE BY LANDLORD

  	
   

  	
   

  	
   

  
	
  40

  	
   

  	
  Sale by Landlord

  	
   

  	
  27

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 41

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CANCELLATION BY
  LANDLORD

  	
   

  	
   

  	
   

  
	
  41

  	
   

  	
  Cancellation by
  Landlord

  	
   

  	
  27

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 42

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  RESERVED

  	
   

  	
   

  	
   

  
	
  42

  	
   

  	
  Reserved

  	
   

  	
  27

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 43

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  WAIVER OF TRIAL
  BY JURY

  	
   

  	
   

  	
   

  
	
  43

  	
   

  	
  Waiver of Trial by Jury

  	
   

  	
  27

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 44

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  HAZARDOUS
  SUBSTANCES

  	
   

  	
   

  	
   

  
	
  44.1

  	
   

  	
  Indemnity

  	
   

  	
  27

  	
   

  
	
  44.2

  	
   

  	
  Covenant

  	
   

  	
  27

  	
   

  
	
  44.3

  	
   

  	
  Definitions

  	
   

  	
  28

  	
   

  
	
  44.4

  	
   

  	
  Breach of Obligations

  	
   

  	
  28

  	
   

  
	
  44.5

  	
   

  	
  Handling; Notices

  	
   

  	
  28

  	
   

  
	
  44.6

  	
   

  	
  Landlord’s
  Representations

  	
   

  	
  29

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 45

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  AUTHORITY

  	
   

  	
   

  	
   

  
	
  45

  	
   

  	
  Authority

  	
   

  	
  29

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE 46

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  BROKERS

  	
   

  	
   

  	
   

  
	
  46

  	
   

  	
  Brokers

  	
   

  	
  29

  	
   

  

 

Exhibit
10.13

MERRILL CREEK CENTER

LEASE AGREEMENT

RECITALS

A.   Landlord and Tenant are parties to that
certain Lease Agreement dated August 2, 2004 (the “Existing Lease”) along with
the First Amendment dated June 21, 2005 and the Second Amendment dated November
11, 2005, under which Tenant currently leases from Landlord space located at
the project commonly known as Merrill Creek Center.

B.   Tenant desires to lease additional space (“Building
C”) from Landlord at Merrill Creek Center on the terms and conditions set forth
in this Lease Agreement.

NOW, THEREFORE, Landlord
hereby leases to Tenant and Tenant hereby leases and accepts from Landlord the
premises hereinafter described in the terms and conditions set forth in this
Lease Agreement, hereinafter called “this Lease”.  Upon the Lease Commencement Date, this Lease
Agreement shall supersede and replace in its entirety the Existing Lease.

BASIC
LEASE PROVISIONS

	
  A.

  	
  Lease Date:

  	
  October 2, 2006

  
	
   

  	
   

  	
   

  
	
  B.

  	
  Landlord:

  	
  Merrill Creek Center, LLC

  
	
   

  	
   

  	
   

  
	
  C.

  	
  Tenant:

  	
  Zumiez, Inc., a Washington Corporation

  
	
   

  	
   

  	
   

  
	
  D.

  	
  Development:

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

  
	
   

  	
   

  	
   

  
	
  E

  	
  Premises:

  	
  The area shown by hatch-marks on Exhibit “B,” containing 124,700
  rentable square feet (“RSF”) comprised of the space currently leased by
  Tenant containing  87,350 RSF (the
  “Existing Premises”) and the 30 foot clear warehouse building under
  construction containing 37,350 RSF (“Building C”), subject to a
  mutually-agreed on final measurement.  
  The Existing Premises combined with Building C shall be deemed the
  “Premises”.

  
	
   

  	
   

  	
   

  
	
  F.

  	
  Use of Premises:

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

  
	
   

  	
   

  	
   

  
	
  G.

  	
  Initial Term:

  	
  One Hundred Twenty Six (126) months, with one (5)
  five-year Option

  
	
   

  	
   

  	
   

  
	
  H.

  	
  Minimum Monthly Rent:

  	
   

  

 

	
  Lease Months

  	
   

  	
  Minimum Monthly

  Rent (NNN)

  	
   

  
	
  1

  	
   

  	
  $33,648.00

  	
   

  
	
  2-6

  	
   

  	
  $38,346.00

  	
   

  
	
  7-13

  	
   

  	
  $61,503.00

  	
   

  
	
  14-18

  	
   

  	
  $62,557.52

  	
   

  
	
  19-25

  	
   

  	
  $63,136.44

  	
   

  
	
  26-30

  	
   

  	
  $64,219.95

  	
   

  
	
  31-37

  	
   

  	
  $64,813.35

  	
   

  
	
  38-42

  	
   

  	
  $65,926.66

  	
   

  
	
  43-49

  	
   

  	
  $66,534.90

  	
   

  
	
  50-54

  	
   

  	
  $67,678.82

  	
   

  
	
  55-61

  	
   

  	
  $68,302.26

  	
   

  
	
  62-66

  	
   

  	
  $69,477.65

  	
   

  
	
  67-78

  	
   

  	
  $71,324.38

  	
   

  
	
  79-90

  	
   

  	
  $73,220.30

  	
   

  
	
  91-102

  	
   

  	
  $75,166.72

  	
   

  
	
  103-114

  	
   

  	
  $77,164.99

  	
   

  
	
  115-126

  	
   

  	
  $79,216.49

  	
   

  
	
  127-186 (if Option is
  Exercised by Tenant)

  	
   

  	
  Fair Market Rent (See Section 4.1(c))

  	
   

  

 

 

 

	
  I.

  	
  Initial Security Deposit:

  	
  N/A

  
	
   

  	
   

  	
   

  
	
  J.

  	
  Landlord’s Address

  	
   

  
	
   

  	
  for Notices:

  	
  Merrill Creek Holdings, LLC

  
	
   

  	
   

  	
  600 University Street, Suite 2800

  
	
   

  	
   

  	
  Seattle, Washington 98101

  
	
   

  	
   

  	
  Attention: Mark Barbieri

  
	
   

  	
   

  	
   

  
	
  K.

  	
  Tenant’s Current

  	
   

  
	
   

  	
  Address for Notices:

  	
  Zumiez, Inc

  
	
   

  	
   

  	
  6300 Merrill Creek Parkway

  
	
   

  	
   

  	
  Suite B

  
	
   

  	
   

  	
  Everett, WA 98203

  
	
   

  	
   

  	
  Attention: Brenda Morris

  
	
   

  	
   

  	
   

  
	
   

  	
  Tenant’s Address for Notices On

  	
   

  
	
   

  	
  and After the Commencement

  	
   

  
	
   

  	
  Date:

  	
  The Premises

  
	
   

  	
   

  	
   

  
	
  L.

  	
  Landlord’s Broker:

  	
  N/A

  
	
   

  	
   

  	
   

  
	
  M.

  	
  Tenant’s Broker:

  	
  N/A

  
	
   

  	
   

  	
   

  
	
  N.

  	
  Tenant Improvement

  	
   

  
	
   

  	
  Allowance:

  	
  Landlord shall provide Tenant with a $65,000 tenant improvement
  allowance to upgrade Building C.

  

 

ARTICLE
1

PREMISES

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

1.2   Location.  The parties acknowledge that Exhibit “B” describes the current
perimeter of the Development before the dedication or grant of easements for
highways, streets, and public ways.  Exhibit “B” sets forth a general layout
of the Development, and shall not be deemed a representation by Landlord that
the Development shall always be constructed as indicated thereon or that any
tenants or occupants designated by name or nature of business thereon shall
conduct business in the Development during the term of this Lease; and, subject
to compliance with all applicable laws and governmental requirements and
provided that there is reasonable access to the Premises, Landlord may in its
sole discretion increase, decrease or change the location, and dimensions of
the buildings within the Development outside the 

 2
 

 

Premises, driving lanes, driveways, walkways, parking
places and other improvements shown on Exhibit
“B,” and Landlord reserves the right to make additions and
alterations  to all buildings constructed
in the Development, and to change the name of the Development from time to
time, provided that such changes, additions and alterations do not unreasonably
interfere with pedestrian and vehicular access to the Premises (including
without limitation access between the parking area and the main entrance to the
Premises) or the utility of garbage pickup areas and shipping, receiving, and
loading dock areas.  The parties shall
signify their approval of Exhibit “B”
by signing or initialing Exhibit “B,”
and such Exhibit is hereby made a part of this Lease.  References to “this Lease” include all
exhibits and matters incorporated by reference as part of this Lease.

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

1.4   Right of
First Offer.  Provided that Tenant
has not been in material default under the terms and conditions of this Lease,
Tenant shall have, during the initial Term, a right of first offer to lease
additional space in the Development (the “ROFO Space”).  Tenant’s right of first offer shall be
subject and subordinate to all leases, options and rights of other third
parties in existence as of the date of mutual execution hereof.  If at any time during the Term of this Lease,
Landlord shall receive a bona fide offer from any third party to lease all or
any part of the ROFO Space, which offer Landlord shall desire to accept, then
Landlord shall promptly notify Tenant of the existence of such offer by e-mail
and by mail and shall provide Tenant with a summary of all relevant economic
terms of the third party offer.  Tenant
may, within ten (10) business days thereafter, elect by written notice to
Landlord to lease the ROFO Space on the same terms and conditions as those as
provided in the bona fide offer.  If
Tenant fails to respond within such 10-business day period, Landlord shall use
reasonable efforts to contact, orally or in writing, Tenant to confirm such
non-election.  Failure of Tenant to
exercise the foregoing right within the prescribed time period above shall
constitute a waiver of Tenant’s right as to that offer with respect to the ROFO
Space mentioned in Landlord’s notice and Landlord shall have the right to lease
the ROFO Space in Landlord’s sole discretion. 
In the event the bonafide third party offer does not materialize into a
lease or upon termination of the third party tenant’s lease, the ROFO will be
reinstated .  If Tenant duly elects to
exercise its right of first offer as aforesaid, Landlord shall prepare, and
Tenant shall promptly execute, an amendment to this Lease to memorialize such
election, provided, however, that failure of Tenant to execute such amendment
shall not affect the binding nature of Tenant’s election to exercise the right
of first offer as aforesaid.  All rights
of Tenant under the provisions of this right of first offer shall terminate and
be of no further force or effect even after Tenant’s due and timely exercise of
the right of first offer, if after such exercise, but prior to the occupancy of
the ROFO Space, Tenant is in material default hereunder.  The right described in this paragraph is
personal to originally-named Tenant or to an assignee or transferee permitted
outright pursuant to this Lease without Landlord’s consent and may not be
exercised or be assigned, voluntarily or involuntarily, by or to any person or
entity other than Tenant, and is not assignable separate and apart from this
Lease.

1.5   Parking.  
Tenant and its employees, customers, suppliers and invitees shall have
the right to use, for no additional rent, a total of 290 parking spaces (250
associated with the Existing Premises and 40 associated with Building C) as
depicted on Exhibit “B” attached hereto.
Furthermore, Tenant shall have the right to use 2.5 spaces of additional
parking for each 1,000 RSF of additional Premises leased by Tenant for office
use at the Development and the right to use 1.0 spaces of additional parking
for each 1,000 RSF of additional Premises leased by Tenant for warehouse use at
the Development.  Landlord shall have the right to relocate any
of such parking spaces to areas reasonably convenient to the Premises.

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

Exhibit “A” - Bldg C Construction Plans and Specifications

Exhibit “B” - Site Plan

Exhibit “C” - Rules and Regulations

Exhibit “D” - Delivery of Premises

 3
 

 

ARTICLE 2

BUSINESS RIGHTS AND RESTRICTIONS

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

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

ARTICLE
3

TERM

3.1   Duration;
Early Possession.  The initial term
of this Lease shall commence on January 1, 2007 (the “Lease Commencement Date”). 
Prior to the Lease Commencement Date, Tenant shall continue to pay Rent
pursuant to the Existing Lease. 
Notwithstanding the foregoing, in the event Landlord receives a Certificate
of Occupancy for Building C prior to the Lease Commencement Date, Tenant may
occupy Building C prior to the Lease Commencement Date (“Early Possession Date”)
but shall not be obligated to pay Fixed Minimum Rent with respect to Building
C, however, Tenant shall be responsible for those Common Area Expenses
associated with Building C during this Early Possession period.  Commencing on the date Landlord tenders
delivery of possession to Tenant (the “Early Possession
Date”), Tenant and Landlord shall comply with each and every term,
covenant, condition and provision of this Lease, excepting only those
provisions pertaining to Tenant’s obligation to pay Fixed Minimum Rent, which
obligation shall commence in accordance with Article 4 below.  In connection therewith, Tenant acknowledges
and agrees that certain obligations under various articles hereof shall
commence prior to the Lease Commencement Date (i.e., payment of certain
charges, construction obligations, hold harmless, liability insurance, etc.),
and the parties agree to be bound by these articles prior to the Lease
Commencement Date.

3.2   Option to Extend.  Subject to the provisions of this Lease and
provided that on the date of exercise of the option by Tenant and on the
scheduled date of commencement of the Extended Term (as defined below):  (i) Tenant shall not then be in default under
the terms of this Lease; (ii) the original Tenant shall be in direct occupancy
of the Premises; and (iii) this Lease shall be in full force and effect; then,
the term of this Lease may be extended by Tenant for up to one (1) additional
period of five (5) years (the “Extended Term”),
upon the same terms and conditions as contained in this Lease upon compliance
with the notice provisions set forth herein. Tenant shall exercise its option,
if at all, only with respect to the immediately succeeding Extended Term, by
delivering written notice of its election thereof to Landlord, sent certified
mail, return receipt requested (the “Option
Notice”), not more than 360 days nor less than 180 days prior to the
expiration of the then-effective Term.  
The option to extend the term of this Lease is only exercisable by the
original named Tenant or to an assignee or transferee permitted outright
pursuant to this Lease without Landlord’s consent.

3.3   Intentionally
Omitted.

ARTICLE 4

RENT

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

 4
 

 

designated as such. 
Landlord’s acceptance of Tenant’s bank check or other funds shall not be
deemed a waiver of Landlord’s right to thereafter demand and receive timely
payment in immediately available funds.

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

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

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

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

(2)   If Landlord
and Tenant cannot agree upon the Fair Market Rental Value of the Premises
within twenty (20) days after Landlord’s receipt of Tenant’s notice exercising
the Extended Term option, then Landlord and Tenant shall agree within ten (10)
days thereafter on one real estate appraiser (who shall be a Member of the
American Institute of Real Estate Appraisers or equivalent) who will determine
the Fair Market Rental Value of the Premises. 
If Landlord and Tenant cannot mutually agree upon an appraiser within
said ten (10) day period, then one M.A.I. qualified appraiser shall be
appointed by Tenant and one M.A.I. qualified appraiser shall be appointed by
Landlord within ten (10) days of notice by one party to the other of such
disagreement.  The two appraisers shall
determine the Fair Market Rental Value of the Premises within twenty (20) days
of their appointment; provided, however, if either party fails to appoint an
appraiser within such ten (10) day period, then the determination of the
appraiser first appointed shall be final, conclusive and binding upon both
parties.  The appraisers appointed shall
proceed to determine Fair Market Rental Value within twenty (20) days following
such appointment.  The conclusion shall
be final, conclusive and binding upon both Landlord and Tenant.  If said appraisers should fail to agree, but
the difference in their conclusions as to Fair Market Rental Value is ten
percent (10%) or less of the lower of the two appraisals, the Fair Market
Rental Value shall be deemed the average of the two.

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

4.2   Intentionally
Omitted. 

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

ARTICLE
5

COMMON AREA

5.1   Definition.  The “Common
Area” is that area within the Development which is neither occupied
by buildings (excluding roof overhangs 

 5
 

 

and canopies, columns supporting roof overhangs and
canopies, and subsurface foundations) nor devoted permanently to the exclusive
use of a particular tenant, except that areas containing pylon signs and
buildings or subsurface utilities which are used with respect to the operation
of the Common Area shall be deemed to be a part of the Common Area.  The Common Area includes each area designated
as a building area on Exhibit “B”
..

5.2   Reserved.

5.3   Use.  During the Lease term Tenant, its subtenants,
concessionaires, licensees, invitees, customers, and employees shall have the
nonexclusive right to use the Common Area with Landlord, other owners of
portions of the Development, other tenants, and their respective subtenants,
concessionaires, licensees, invitees, customers, and employees, subject to the
provisions of this Lease.  Tenant shall
also have the right to use the western 3 exterior covered docks on an exclusive
basis.

5.4   Maintenance
and Operation.  “Common Area Expenses” shall include, but
not be limited to, the reasonable and customary costs and expenses without
markup of operating, managing, lighting, repairing, replacing (when repairing
will be uneconomic), painting, and 
maintaining the Common Area and the Development in good and sanitary
order, condition, and repair, including without limitation, the costs and
expenses, accounted for based on GAAP, of the following:  (l) managing; (2) cleaning and removing
rubbish and dirt; (3) labor costs for personnel performing services in
connection with the operation, repair and maintenance of the Common Area or
Development and the payroll taxes and benefits related thereto; (4) all utility
services utilized in connection with the Common Area and Development which are
not separately metered to the tenants, including but not limited to heating,
ventilation, and air conditioning, electricity, gas, water charges, sewer
charges, hook-up fees, and cost of installing, maintaining and repairing the
Development’s intrabuilding network cabling, repair and/or installation of any
fire protection systems, security alarm systems, lighting systems, electrical
systems and any other utility systems; (5) maintaining, repairing, replacing,
and re-marking paved and unpaved surfaces, curbs, signs, landscaping, lighting
and electrical facilities, drainage, elevators, meters, breakers, security
systems, life  safety systems, irrigation
systems, fences and gates, wiring, and repairs, modifications, additions and
replacements to the foregoing whether or not necessitated by any present or
future law, statute, regulation, or directive of any governmental agency, and
other similar items; (6) all premiums on, deductibles, retentions, and claims
not covered by, worker’s compensation, casualty, public liability, property
damage, loss of rent, fire and extended coverage, and other insurance on the
Common Area and Development obtained by Landlord pursuant to Article 9, or otherwise (Tenant is to
pay its pro-rata share of the costs in connection with such insurance) (7)
rental of or cost of tools, machinery, and equipment used in connection with
managing and maintaining the Common Area; (8) all real property and personal
property taxes and assessments levied or assessed against the Development or
the Common Area, including without limitation, transport fees, trip fees,
metro-rail fees or assessments, school fees, fees assessed by air quality
management districts or any governmental agency regulating air pollution or
commercial rental taxes; (9) the cost of all janitors, gardeners, security
personnel and equipment performing services on the Common Area; (10) any
regulatory fee or surcharge or similar imposition imposed by governmental
requirements based upon or measured by the number of parking spaces or the
areas devoted to parking in the Common Area; (11) the cost of other capital
improvements to the Common Area, amortized over their useful life based on
GAAP, to the extent that the improvement provides increased utility and
functionality to the Tenant or operations and maintenance of the Common areas;
and (12)   Notwithstanding the foregoing,
following shall be excluded from Common Area Expenses:  costs incurred due to Landlord’s negligence;
promotional and advertising expenses; real estate commissions, legal fees,
depreciation and amortization, except as provided herein and except on
materials, tools, supplies and vendor-type equipment purchased by Landlord to
enable Landlord to supply services Landlord might otherwise contract for with a
third party where such depreciation and amortization would otherwise have been
included in the charge for such third party’s services and when depreciation or
amortization is permitted or required, the item shall be amortized over its
reasonably anticipated useful life

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

5.6   Tenant’s
Contribution.    From and after the
Commencement Date of this Lease, and during the entire Lease term and any
Extended Term(s), Tenant shall pay to Landlord with Fixed Minimum Rent on the
first day of each month (subject to 3 day grace period), Tenant’s pro rata
share of the amount of all Common Area Expenses based on, at Landlord’s
election, either:  (a) the amount of such
expenses actually incurred during the billing period; or (b) equal periodic
installments which have been estimated in advance by Landlord for a particular
period. Landlord may revise such estimates upward or downward at any time
without prior notice to Tenant.  If
Landlord elects to bill Tenant based upon estimates, Landlord shall, within
sixty (60) days after the end of the calendar year, or as soon thereafter as
possible, forward to Tenant a written statement (the “annual reconciliation statement”) which adjusts the 

 6
 

 

estimated expenses to reflect the actual expenses
incurred for such year.  If the annual
reconciliation statement shows the actual expenses to have exceeded the
estimated expenses, then Tenant’s share of such additional amount shall be paid
by Tenant to Landlord within thirty (30) days of receipt of the annual
reconciliation statement; if the annual reconciliation statement shows the
actual expenses to have been less than the estimated expenses, Landlord shall
credit Tenant’s share against the sums next due hereunder from Tenant to
Landlord (or against any outstanding sums then due).Tenant’s pro rata share
shall be equal to the ratio which Tenant’s rentable ground floor area bears to
the total rentable ground floor area which has the benefit of, or participates
in, the expense(s) or service(s) for which Tenant is being charged.

5.7   Operation
and Control.  Landlord shall have
control and non-exclusive possession of the entire Common Area and may from
time to time adopt rules and regulations pertaining to the use thereof.  Landlord shall, except as otherwise provided
herein, operate and maintain the Common Area during the Lease term.  Landlord reserves the right to use the Common
Area, so long as reasonable pedestrian and vehicular access to the Premises
continue to be provided and provided that pedestrian and vehicular access to
the Premises (including without limitation access between the parking area and
the main entrance to the Premises) and the utility of garbage pickup areas and
shipping, receiving, and loading dock areas are not thereby unreasonably
interfered with, for such promotions, exhibitions and similar uses as Landlord
reasonably deems in the best interests of the Development and its tenants.  Landlord may temporarily close parts of the
Common Area for such periods of time as may be necessary for (i) temporary use
as a work area in connection with the construction of buildings or other
improvements within the Development or contiguous property; (ii) repairs or
alterations in or to the Common Area to any utility facilities; (iii)
preventing the public from obtaining prescriptive rights in or to the Common
Area; (iv) emergency or added safety reasons; or (v) performing such other acts
as in Landlord’s reasonable judgment are appropriate for the proper operation
or maintenance of the Development. 
Landlord shall have the sole and exclusive control of the Common
Area.  Landlord’s rights shall include,
but not be limited to, the right to (vii) restrain the use of the Common Area
by unauthorized persons; (viii) utilize from time to time any portion of the
Common Area for promotional, entertainment and related matters; (ix) reserved;
(x) temporarily close any portion of the Common Area for repairs, improvements
or alterations, to discourage non-customer use, to prevent dedication or an
easement by prescription, or for any other reason deemed sufficient in Landlord’s
judgment; and (xi) change the shape and size of the Common Area, add, eliminate
or change the location of improvements to the Common Area, including, without
limitation, buildings, lighting, parking areas, roadways and curb cuts, and
construct buildings on the Common Area. 
Landlord may determine the nature, size and extent of the Common Area;
as well as make changes to the Common Area from time to time which in Landlord’s
opinion are deemed desirable for the Development.  The manner in which the Common Area shall be
operated and maintained and the expenditures therefor shall be in Landlord’s
sole discretion.  Landlord reserves the
right to appoint a substitute operator, including but not limited to, any
tenant in the Development, to carry out any or all of Landlord’s rights and
duties with respect to the Common Area as provided in this Lease; and Landlord
may enter into a contract either by a separate document or in a Lease agreement
with such operator on such terms and conditions and for such period as Landlord
shall deem proper.

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

ARTICLE
6

TAXES

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

6.2   Real
Property Taxes.

(a)   Definition;
Payment.  Tenant shall pay to
Landlord as additional rent, in the manner set forth in Paragraph 5.6, any and all real
property taxes, excises, license and permit fees, utility levies and charges,
and other governmental charges and assessments, general and special, ordinary
and extraordinary, unforeseen as well as foreseen, of any kind and nature
whatsoever, and installments thereof (including any business and occupation tax
imposed on Landlord or the Development, and any tax imposed on the rents
collected therefrom or on the income generated thereby, whether or not
substituted in whole or in part for real property taxes, as well as assessments
and any license fee imposed by a local governmental body on the collection of
rent), which shall be levied or assessed against all or any portion of the
Premises, or imposed on Landlord for any period during the term of this Lease,
including the costs 

 7
 

 

of any appeals or protests thereof (provided that any
tax reductions effected by any such appeal or protest shall be offset against
taxes otherwise assessed pursuant to this paragraph).  Said real property taxes and assessments
attributable to the years that this Lease commences and terminates shall, if
necessary, be prorated and apportioned between Landlord and Tenant to coincide
with the commencement and expiration of the Lease term.  Landlord agrees to appeal the current tax
assessment and provide Tenant copies of documentation and Tenant shall benefit
by any reduction in real estate taxes and NNN charges in accordance with this
Section.

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

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

(d)   Tenant’s
Use.  Notwithstanding any other
provisions of this Paragraph 6.2,
in the event that Tenant’s use of the Premises or any action undertaken by
Tenant causes an increase in real property taxes assessed against the
Development or the Premises as a result of any tax reassessment or reappraisal,
Tenant shall be solely liable for, and shall pay, in addition to all other sums
payable under this Paragraph 6.2
or elsewhere in the Lease, the entire amount of the increase in real property
taxes over the amount of real property taxes for the Development or the
Premises had such reassessment or reappraisal not occurred.  Tenant shall not be required to pay increases
in taxes caused by other tenants’ uses of portions of the Development.

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

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

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

ARTICLE
7

UTILITIES

In addition to all
other sums Tenant is required to pay pursuant to this Lease, Tenant shall be
solely responsible for and shall pay as additional rent prior to delinquency
all charges for electricity, telephone, water, gas (if any), heat and any other
utilities used or consumed on the Premises from and after the date Tenant first
takes possession of the Premises.  If the
Premises are separately metered by the utility service company Tenant agrees to
pay all charges therefor attributable to the Lease term directly to the
appropriate utility service company before delinquency, whether the statement
or invoice therefor is delivered to Tenant during, or after expiration of, the
Lease term.  If the Premises are
separately metered by the Landlord, Tenant agrees to pay all charges therefore
attributable to the Lease term directly to Landlord before delinquency, whether
the statement or invoice therefore is delivered to Tenant during, or 

 8
 

 

after expiration of, the
Lease term.  Tenant shall pay to Landlord
before delinquency its pro-rata share of the costs of any utility services that
are not separately metered.  Tenant’s
pro-rata share shall be equal to the ratio which Tenant’s rentable ground floor
area bears to the total rentable ground floor area which has the benefit of, or
receives, the expense or utility service for which Tenant is being
charged.  Nothing contained in this Lease
shall limit Landlord in any way from granting or using easements on, across, over,
and under the Development for the purpose of providing utility services for
Tenant or others.  In no event shall
Landlord be responsible for any loss, cost, liability or expense of any person
or entity resulting from any interruption of utility services to Tenant and/or
the Premises, nor shall rent be offset as a result of any such interruption,
unless any such utility interruption is due to the Landlord’s gross negligence
or intentional misconduct and continues for forty-eight (48) hours or more
after Tenant provides written notice thereof to Landlord.

ARTICLE
8

REPAIRS AND ALTERATIONS

8.1   Landlord’s
Repairs.  The Basic Building Systems
(e.g. plumbing, electrical, mechanical, etc.) will be in functional working
order upon Lease Commencement Date.  Landlord
shall keep in good condition and repair the structure, foundation, bearing
walls, roof system, exterior utility lines serving the Building at Tenant’s
cost which shall be amortized over the reasonably estimated useful life thereof
if a capital expense and prorated and paid by Tenant in accordance with
Paragraph 5.6.  Unless Landlord has
elected to require Tenant to maintain the HVAC system, Landlord shall maintain
the HVAC system of the Premises, at Tenant’s cost (which shall be paid solely
by Tenant in the event that the repair or replacement relates solely to the
Premises or is necessitated by Tenant’s actions, or if not, which shall be
prorated and paid by Tenant in accordance with Paragraph 5.6), except that Landlord shall not be required
to make any such repairs or replacements occasioned by the act or negligence of
Tenant, its agents, employees, invitees, licensees, representatives or
contractors.  In addition to the
foregoing, Landlord may, at its election, employ qualified companies to provide
regular inspection, maintenance and repair of the walls, roof, utility lines,
fire sprinklers and HVAC system, the costs of which shall be included in Common
Area Expenses pursuant to Paragraph 5.4,
and paid by Tenant in accordance with Paragraph
5.6. For purposes of this particular proration, the floor area
of any buildings not included in such service contracts shall be excluded from
the denominator.  Nothing contained in
this Paragraph 8.1 shall
limit Landlord’s right to reimbursement from Tenant for maintenance, repair
costs and replacement costs provided elsewhere in this Lease.  Notwithstanding the foregoing, Tenant
acknowledges that Building C does not contain an air conditioning system, but,
at Tenant’s request, Landlord shall install air conditioning and associated
improvements in Building C at Tenant’s sole cost and expense.

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

8.3   Alterations.

(a)   Tenant’s
Alterations.  Tenant shall not make
any alterations, installations or improvements (collectively, “Tenant Changes”) in, to, or about the
interior or exterior of the Premises without obtaining the prior written
consent of Landlord, which shall not be unreasonably withheld or delayed.  Tenant’s request for Landlord’s consent to
perform any Tenant Changes which affect structural components, the electrical
or HVAC system or cause penetration through the roof or walls of the building,
must be accompanied by plans and specifications (to be prepared by Tenant at Tenant’s
sole cost) for the proposed Tenant Change in detail reasonably satisfactory to
Landlord, together with notice of the identity of the licensed contractor which
Tenant has or will engage to perform such work, plus reimbursement of Landlord’s
third party costs associated with reviewing such plans and specifications.
Landlord shall grant 

 9
 

 

or withhold its approval of such plans and
specifications within fifteen (15) business days after Tenant makes request
therefor in the manner provided herein; provided, however, if Landlord needs to
consult with an outside consultant or expert with respect thereto, Landlord’s
consent shall be granted or denied within a reasonable time after the
expiration of such 15-day period.  All
such work shall be accomplished at Tenant’s sole risk, and Tenant shall
indemnify, defend and hold harmless Landlord from and against any and all loss,
cost, liability and expense (including consequential damages) relating to or
arising from the Tenant Changes. All permanent, nonmovable Tenant Changes shall
become a part of the realty upon installation thereof.

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

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

(a)   Contractors.  Tenant shall use the contractors and
mechanics then appearing on Landlord’s approved list, which shall include at
least three independent, qualified contractors, if the Tenant Changes involve
changes to the building’s systems and/or structural elements. With respect to
Non-Structural Changes, Tenant shall use such contractors and mechanics which
Landlord approves of in writing prior to their use, which approval shall not be
unreasonably withheld. All contractors used by Tenant shall be licensed
contractors who are experienced in the type of work to be performed.

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

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

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

ARTICLE
9

INSURANCE

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

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

 

 10

 

limits may be achieved through the
use of umbrella liability insurance otherwise meeting the requirements of this
paragraph.

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

9.4   Property
Insurance/Business Income.

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

(b)   Tenant’s
Insurance. Tenant shall pay for and shall maintain in full force and effect
during the term of this Lease Property insurance
covering its leasehold improvements to the Premises, furniture,
fixtures, equipment, inventory and other personal property located on the
Premises in an amount of not less than one
hundred percent (100%) insurable replacement value with no coinsurance
penalty,   Tenant shall also obtain and
maintain Business Income and Extra Expense coverage for a period of
twelve (12) months.  Tenant may
self-insure personal property and leasehold improvements (but not inventory).

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

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

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

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

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

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

[List names of Additional
Insured Entities]

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

(d)   Notice
of Cancellation.  Not be subject to
cancellation or reduction in coverage except upon at least thirty (30) days
prior written notice to each additional insured.  The policies of 

 11
 

 

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

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

ARTICLE
10

DAMAGE AND RESTORATION

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

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

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

10.2 Damage or
Destruction of Development.

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

(b)   If Landlord
does not elect to terminate this Lease in accordance with the terms of Paragraph 10.2(a), Landlord shall,
following such destruction or damage, commence diligently to reconstruct,
rebuild, or repair, if necessary, that part of the Development which is
necessary, in Landlord’s sole judgement, to create an economically viable
unit.  However, Landlord shall
reconstruct, rebuild, or repair the Premises and the Development to the extent
only of proceeds received by Landlord from its insurers.  Further, if Landlord elects to repair,
reconstruct, or rebuild the Development, or any part thereof, Landlord may use
plans, specifications, and working drawings other than those used in the 

 12
 

 

original construction of the Development and shall
only be obligated to restore the damaged portions thereof to a reasonably
operative condition similar to that which existed prior to the event of damage
or destruction, provided that the ultimate reconstruction does not unreasonably
impair Tenant use, occupancy and enjoyment of the Premises as the same existed
prior to such event.

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

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

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

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

ARTICLE
11

FLOOR AREA DEFINED

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

ARTICLE
12

EMINENT DOMAIN

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

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

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

12.4 Common
Area Taking.  If so much of the
Common Area is taken that in the commercially reasonable judgement of Landlord
the Development will be rendered unsuitable for the continued use thereof for
the purposes for which it was intended, Landlord, or Tenant, if such
taking  

 13
 

 

significantly negatively impacts Tenant’s
business,  may elect to terminate this
Lease by giving the other party written notice of such election within sixty
(60) days after the date that title to the portion so taken vests in the
condemnor or transferee.  If either
party  fails to give such notice, this
Lease shall remain in full force and effect. If any part of the Development is
taken, but no part of the Premises is taken, and Landlord does not elect to
terminate this Lease, the rent payable hereunder shall not be reduced, nor
shall Tenant be entitled to any part of the award made therefor.  In the event of termination, all fixed
minimum rent and other amounts due under this Lease shall be paid by Tenant to
the date of such termination.

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

12.6 Award.  In the event of any taking, Landlord shall be
entitled to the entire award of compensation or settlement in such proceedings,
whether for a total or partial taking or for diminution in the value of the
leasehold or for the fee. Any such amounts shall belong to and be the property
of Landlord. Without in any way diminishing the rights of Landlord under the
preceding sentence, Tenant shall be entitled to recover from the condemnor such
compensation as may be separately awarded by the condemnor to Tenant or recoverable
from the condemnor by Tenant in its own right for the taking of trade fixtures
and equipment owned by Tenant (meaning personal property, whether or not
attached to real property, which may be removed without injury to the Premises)
and for the expense of removing and relocating them, and for loss of goodwill,
but only to the extent that the compensation awarded to Tenant shall be in
addition to and shall not diminish the compensation awarded to Landlord as
provided above.

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

ARTICLE
13

INDEMNITY; WAIVER

13.1 Indemnification
and Waivers.

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

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

 14
 

 

broker or agent with respect to this Lease by, through
or, under Landlord.

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

(c)   Definitions.  For purposes of this Article 13: (i) the term “Tenant Parties” means Tenant, and Tenant’s
officers, members, partners, agents, employees, sublessees, licensees, invitees
and independent contractors, and all persons and entities claiming through any
of these persons or entities; (ii) the term “Landlord
Parties” means Landlord and the members, partners, venturers,
trustees and ancillary trustees of Landlord and the respective officers,
directors, shareholders, members, parents, subsidiaries and any other
affiliated entities, personal representatives, executors, heirs, assigns,
licensees, invitees, beneficiaries, agents, servants, employees and independent
contractors of these persons or entities; (iii) the term “Indemnify” means indemnify, defend (with
counsel reasonably acceptable to Landlord) and hold free and harmless for, from
and against; (iv) the term “Claims”
means all liabilities, claims, damages (including consequential damages),
losses, penalties, litigation, demands, causes of action (whether in tort or
contract, in law or at equity or otherwise), suits, proceedings, judgments,
disbursements, charges, assessments, and expenses (including attorneys’ and
experts’ fees and expenses incurred in investigating, defending, or prosecuting
any litigation, claim, or proceeding); (v) the term “Waives” means that the Tenant Parties waive and knowingly and
voluntarily assume the risk of; and (vi) the terms “Bodily Injury”, “Personal Injury” and “Property Damage” will have the same
meanings as in the form of commercial general insurance policy issued by
Insurance Services Office, Inc. most recently prior to the date of the injury
or loss in question.

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

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

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

(g)   Waiver
of Immunity. EACH OF LANDLORD AND TENANT HEREBY WAIVES ITS IMMUNITY WITH
RESPECT TO THE PARTIES INDEMNIFIED UNDER THE PRECEDING PARAGRAPHS UNDER THE
INDUSTRIAL INSURANCE ACT (RCW TITLE 51) AND/OR THE LONGSHOREMAN’S AND
HARBORWORKER’S ACT AND/OR ANY EQUIVALENT ACTS AND 

 15
 

 

EXPRESSLY AGREES TO ASSUME POTENTIAL LIABILITY FOR
ACTIONS BROUGHT AGAINST AN INDEMNIFIED PARTY BY THE INDEMNIFYING PARTY’S
EMPLOYEES.  THIS WAIVER HAS BEEN
SPECIFICALLY NEGOTIATED BY THE PARTIES TO THIS LEASE AND EACH PARTY HAS HAD THE
OPPORTUNITY TO, AND HAS BEEN ENCOURAGED, TO CONSULT WITH INDEPENDENT COUNSEL
REGARDING THIS WAIVER.

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

ARTICLE
14

OPERATION OF BUSINESS

Tenant shall (a)
keep the Premises and interior portions of windows, doors and all other glass
or plate glass fixtures in a neat, clean, sanitary and safe condition; (b)
refrain from burning any papers or refuse of any kind in the Development; (c)
store in the area designated by Landlord all trash and garbage in neat and
clean containers so as not to be visible to members of the public and arrange
for the regular pick-up and cartage of such trash or garbage at Tenant’s
expense, or cooperate in the employment of a trash removal contractor
designated by Landlord, as long as at the same rate or lower rates of other
third party providers, if Landlord deems it desirable to have all waste
materials removed by one contractor; (d) observe and promptly comply with all
governmental requirements and insurance requirements affecting the Premises or
any part of the Common Area which is under Tenant’s exclusive control and
promulgated during the term of this Lease; and (e) not use or suffer or permit
the Premises or any part thereof to be used for any use other than the use set
forth in the Basic Lease Provisions or in any manner that will constitute a
nuisance or unreasonable annoyance to the public, to other occupants of the
Development or to Landlord, or that will injure the reputation of the
Development, or for any extra hazardous purpose or in any manner that will
impair the structural strength of the building of which the Premises are a
part.

ARTICLE
15

SIGNS AND ADVERTISING

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

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

 16
 

 

ARTICLE 16

LIENS

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

ARTICLE
17

RIGHT OF ENTRY

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

ARTICLE
18

DELAYING CAUSES

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

ARTICLE
19

ASSIGNMENT AND SUBLEASE

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

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

 17
 

 

assumption of this Lease by the assignee shall have
been delivered to Landlord, and further, provided that:

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

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

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

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

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

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

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

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

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

19.3 Intentionally
Omitted.

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

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

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

19.5 Reserved.

19.6 Transfer
Pursuant to Bankruptcy Code. 
Anything to the contrary notwithstanding, if this Lease is assigned (or
all or a portion of the Premises is sublet) to any person or entity pursuant to
the provisions of the Bankruptcy Code, 11 U. S. C. 101 et. seq. (the “Bankruptcy Code”), any and all monies or
other consideration payable or otherwise to be delivered in connection with
such assignment or 

 18
 

 

subletting shall be paid or delivered to Landlord,
shall be and remains the exclusive property of Landlord and shall not
constitute property of Tenant or of its estate within the meaning of the
Bankruptcy Code.  Any and all monies or
other consideration constituting Landlord’s property under the preceding
sentence not paid or delivered to Landlord shall be held in trust for the
benefit of Landlord and be promptly paid or delivered to Landlord.  Any assignee pursuant to the Bankruptcy Code
shall be deemed to have assumed all of Tenant’s obligations under this
Lease.  Any such assignee shall on demand
by Landlord execute and deliver to Landlord a written instrument confirming
such assumption.

ARTICLE
20

NOTICES

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

ARTICLE
21

SURRENDER OF POSSESSION

21.1 Surrender.  At the expiration of the tenancy created
hereunder, whether by lapse of time or otherwise, Tenant shall surrender the
Premises broom clean and in good condition and repair. This obligation of
Tenant shall include the repair of any damage occasioned by the installation,
maintenance or removal of Tenant’s alterations or Tenant’s Changes,
furnishings, and equipment, as well as the removal of any storage tank
installed by or for Tenant (whether or not the installation was consented to by
Landlord), and the removal, replacement, or remediation of any soil, material
or ground water contaminated by Tenant’s Permittees, all as may then be
required by applicable Laws.

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

ARTICLE
22

QUIET ENJOYMENT

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

ARTICLE
23

SUBORDINATION

Unless otherwise
required by a lender, this Lease shall be subordinate to any mortgage or deed
of trust held by any lender, now or hereafter in force against the Premises or
the Development or any part thereof, and to all advances make or to be made
upon the security thereof. If any proceedings are brought for foreclosure, or
in the event of the exercise of the power of sale under any mortgage or deed of
trust made by Landlord, Tenant shall, at the option of the lender or other
purchaser at any such foreclosure or 

 19
 

 

sale, attorn
to and recognize the purchaser as the Landlord under this Lease.  Although the subordination in the immediately
preceding sentence shall be self-operating, Tenant agrees, within ten (10)
business days following the request of Landlord, to execute such documents or
instruments as may be requested by Landlord or its lender(s) to confirm such
subordination, provided that such mortgagees or beneficiaries agree in writing
not to disturb Tenant’s possession of the Premises in the event of foreclosure
if Tenant is not in default.  The failure
of Tenant to so timely execute any such instrument or other such document shall
constitute a non-monetary default hereunder. 
If Tenant fails to execute and deliver such instrument or other document
within said ten (10) business day period, Landlord shall use reasonable efforts
to contact, orally or in writing, Tenant to confirm such non-election,
whereafter Tenant hereby appoints Landlord as Tenant’s attorney-in-fact for the
purpose of completing, executing and delivering the same to the person or firm
requesting it.

ARTICLE
24

ESTOPPEL CERTIFICATE; FINANCIAL STATEMENTS

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

Tenant acknowledges
that it has provided Landlord with certain financial statement(s) as a material
inducement to Landlord’s agreement to lease the Premises to Tenant, and that
Landlord has relied on the accuracy of such financial statement(s) in entering
into this Lease.  Tenant represents and
warrants that the information contained in such financial statement(s) is true,
complete and correct in all material respects. 
Within twenty (20) days from a written request by Landlord, Tenant will
make available to Landlord or to any prospective purchaser or lender of the
Development, the most recent audited financial statements of Tenant and any
guarantor, provided, if Tenant is not a publicly traded entity, that Landlord
or any such prospective purchaser or lender agrees to maintain such statements
and information in confidence. 
Notwithstanding the foregoing, so long as the named Tenant herein is a
publicly traded corporation and its financial information is readily available
to the public, Tenant will not be required to deliver additional financial
statements to Landlord.

ARTICLE
25

DEFAULT

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

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

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

(c)   Abandonment of the Premises; or

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

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

(f)    Reserved; or

 

 20

 

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

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

25.2  Remedies.

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

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

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

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

(b)    Express
Termination Required.  Should
Landlord have reentered the Premises under the provisions of Paragraph 25.2(a)(2) above, Landlord
shall not be deemed to have terminated this Lease, or the liability of Tenant
to pay any fixed minimum rent, Common Area Expenses, Additional Rent or other
charges thereafter accruing, or to have terminated Tenant’s liability for
damages under any of the provisions of this Lease, by any such reentry or by
any action, in unlawful detainer or otherwise, to obtain possession of the
Premises, unless Landlord shall have notified Tenant in writing that Landlord
had elected to terminate this Lease. 
Tenant further covenants that the service by Landlord of any notice
pursuant to the unlawful detainer statutes of the State where the Development
is situated and the surrender of possession pursuant to such notice shall not
(unless Landlord elects to the contrary at the time of or at any time
subsequent to the serving of such notices and such election is evidenced by a
written notice to Tenant) be deemed to be a termination of this Lease.

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

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

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

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

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

 21
 

 

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

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

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

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

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

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

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

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

(g)    Reserved.

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

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

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

 22
 

 

ARTICLE
26

INSOLVENCY

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

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

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

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

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

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

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

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

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

26.5   Landlord’s Remedies.

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

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

 23
 

 

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

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

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

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

ARTICLE 27

REMEDIES CUMULATIVE

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

ARTICLE 28

ATTORNEY’S FEES

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

ARTICLE 29

WAIVER OF DEFAULT

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

ARTICLE 30

NO PARTNERSHIP

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

 24
 

 

ARTICLE
31

SUBTENANCIES

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

ARTICLE 32

SUCCESSORS

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

ARTICLE 33

REMOVAL OF TENANT’S PROPERTY

Upon the expiration of the term of this Lease or upon
any earlier termination thereof, Tenant shall remove at its own expense all
trade fixtures, equipment, inventory, and personal property (collectively
called “Tenant’s property”) in
this Lease which were installed by Tenant or any subtenant, concessionaire or
licensee in or upon the Premises.  All
equipment and personal property which existed in the Premises prior to the
Lease Commencement shall remain thereon.  
In case of any injury or damage to the building or any portion of the
Premises resulting from the removal of Tenant’s property, Tenant shall promptly
pay to Landlord the cost of repairing such injury or damage, excepting normal
wear and tear over the term of the lease. 
Tenant shall also remove at its own expense all of its racking and mezzanine
storage equipment, and shall repair, or promptly reimburse Landlord for the
cost of repairing, all damage done to the Premises or the Building by such
removal.  Tenant shall complete all of
the foregoing repairs, restoration and removal by the time provided in the
first sentence of this Article
33 unless prevented from so doing by a delaying cause, or Landlord
may, at Landlord’s option, retain any or all of Tenant’s property, and title
thereto shall thereupon vest in Landlord without the execution of documents or
sale or conveyance by Tenant; or Landlord may remove any or all items of Tenant’s
property from the Premises and dispose of them in any manner Landlord sees fit,
and Tenant shall pay upon demand to Landlord the actual expense of such removal
and disposition together with interest from the date of payment by Landlord
until repayment by Tenant.

Notwithstanding the foregoing, with regards to Tenant’s
Existing Premises including the 3,000 SF office addition as well as the 1,500
SF office build out within Building C, Tenant shall not be required to remove
such office improvements upon expiration of this Lease.  With regards to future ROFO Space, if
Landlord has approved improvements requested by Tenant and at the time of
approval Landlord has not requested that those improvements be removed at lease
expiration, Landlord shall waive the requirement for Tenant to remove said
improvements upon termination of this Lease.

ARTICLE 34

EFFECT OF CONVEYANCE

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

ARTICLE 35

LANDLORD’S DEFAULT; NOTICE TO LENDER

35.1   Landlord’s Default.  In the case of a default by Landlord,
Landlord shall commence promptly to cure such default immediately after receipt
of written notice from Tenant specifying the nature of such default and shall
complete such cure within thirty (30) days thereafter, provided that if the 

 25
 

 

nature of such
default is such that it cannot be cured within said thirty (30) day period,
Landlord shall not be in default hereunder if Landlord shall commence to cure
such breach and thereafter rectifies and cures such breach with due diligence.

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

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

ARTICLE 36

CONSENT

In consideration of each covenant made elsewhere under
this Lease wherein one of the parties agrees not to unreasonably withhold its
consent or approval, the requesting party hereby releases the other and waives
all claims for any damages arising out of or connected with any alleged or
claimed unreasonable withholding or consent or approval, and the requesting
party’s sole remedy shall be to have the consent granted.

ARTICLE 37

INTERPRETATION

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

ARTICLE 38

ENTIRE INSTRUMENT

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

ARTICLE 39

EASEMENTS

This Lease is made
expressly subject to:

 26
 

 

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

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

ARTICLE 40

SALE BY LANDLORD

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

ARTICLE 41

CANCELLATION BY LANDLORD

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

ARTICLE 42

RESERVED

ARTICLE 43

WAIVER OF TRIAL BY JURY

Tenant hereby waives trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto on any
matters whatsoever arising out of or in any way connected with this Lease,
including without limitation, the relationship of Landlord and Tenant, Tenant’s
use or occupancy of the Premises, or any claim of injury or damage, or the
enforcement of any remedy under any law, statute, or regulation.

ARTICLE 44

HAZARDOUS SUBSTANCES

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

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

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

 27
 

 

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

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

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

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

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

44.4   Breach of Obligations.  If Tenant breaches the obligations set forth
in Paragraphs 44.1 and 44.2 of this Lease, or if the presence
of Hazardous Substances in, upon, under or about the Premises, excluding
pre-existing Hazardous Substances not released by Tenant or its agents,
employees or contractors, caused or permitted by Tenant’s Permittees results in
contamination of the Premises or any other property, or if contamination of the
Premises or any other property by Hazardous Substances otherwise occurs or
exists at any time during or after the term of this Lease, resulting from
Tenant’s Permittee’s use of the Premises, then Tenant shall indemnify, defend
and hold Landlord harmless from and against any and all liabilities, costs,
expenses, claims, judgments, damages, penalties, fines or losses (including
without limitation, damages for the loss or restriction on use of rentable or
usable space or of any amenity of the Premises or the Development, claims by
any government agency or other third parties, and sums paid in settlement of
claims, attorneys’ fees, consultants’ fees, experts’ fees and the like) which
arise at any time during the term of this Lease or after the term of this Lease
as a direct result therefrom.  This
obligation of Tenant to indemnify, defend and hold Landlord harmless shall
survive and extend beyond the expiration or earlier termination of this Lease
and includes, without limitation, indemnification against all costs incurred in
connection with any investigation of site conditions or any studies, testing,
reports, monitoring, clean-up, detoxification, decontamination, repairs, replacements,
restoration and remedial work required by any federal, state or local
governmental agency, authority or political subdivision because of any
Hazardous Substance present in soil, ground water, air, buildings or other
improvements or otherwise in, upon, under or about the Premises or the adjacent
Development or any other property, air or water.  Without limiting the foregoing, if the
presence of any Hazardous Substance in, on, under or about the Premises or the
Development due to the Handling of Hazardous Substances by Tenant’s Permittees
results in contamination of the Premises or the Development or any other
property, air or water, Tenant shall immediately take all actions at its sole
cost and expense as are necessary or appropriate to return the Premises and the
Development to the condition existing prior to the Handling, provided that
Tenant obtains Landlord’s prior written approval of such actions and of the
contractors and other persons performing such actions, which approval shall not
be unreasonably withheld, so long as such actions would not potentially have
any materially adverse long-term or short-term effect on the Premises or the
Development.  In any event, any and all
actions by Tenant to return the Premises and the Development to the condition
existing prior to the Handling of any such Hazardous Substance shall be done in
compliance with all Laws, and in such a manner and at such times as to avoid
interference with and/or inconvenience to any or all other tenants, occupants,
contractors and invitees of any adjacent property to the maximum extent
possible.  It is the intent of Landlord
and Tenant (and Landlord and Tenant hereby agree) that Landlord shall have no
liability whatsoever for the existence or presence of Hazardous Substances in, upon,
under or about the Premises resulting from the Handling of any Hazardous
Substances in connection with Tenant’s occupancy or use of the Premises, and
that Tenant shall have sole and absolute responsibility for the existence or
presence of Hazardous Substances in, upon, under or about the Premises and
shall fully indemnify and hold Landlord harmless from and against any
liabilities, costs, expenses (including attorneys’ fees), claims, judgments,
damages, demand, penalties, fines and losses arising from or in connection with
the existence or presence of Hazardous Substances in, upon, under or about the
Premises or the migration thereof from or to the Premises resulting from the
Handling of any Hazardous Substances in connection with Tenant’s occupancy or
use of the Premises.  Tenant’s
obligations under this Article shall survive the termination of this Lease.

44.5   Handling; Notices.  Without in any way diminishing or waiving the
limitations on and obligations of Tenant set forth in this Article 44, if Tenant’s Permittees
Handle Hazardous Substances in,

 28
 

 

upon, under or
about the Premises, such Handling shall be done in full compliance with all
Laws.  In that connection, Landlord and
its agents and representatives shall have the right, but not the obligation, at
Tenant’s cost, to enter onto and to inspect the Premises and conduct
investigations, studies, tests, reports, monitoring and analysis of the
Premises and any and all Hazardous Substances at any and all reasonable times
to determine whether Tenant is complying with its obligations under this Lease;
provided, however, that before Landlord enters the Premises to conduct any such
tests or investigations, Landlord shall provide Tenant with at least five (5)
working days’ prior notice.  Furthermore,
Tenant shall immediately upon receipt thereof, provide to Landlord written
notice of the following:

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

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

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

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

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

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

ARTICLE 45

AUTHORITY

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

ARTICLE 46

BROKERS

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

 29
 

 

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

LANDLORD:

MERRILL
CREEK HOLDINGS, LLC

By:   WASHINGTON REAL ESTATE HOLDINGS, LLC

By:                                                                                          

Name:                                                                                     

Its:                                                                                          

Date:                                                                                       

TENANT:

ZUMIEZ,
INC., A WASHINGTON CORPORATION

By:                                                                                                          

Name:                                                                                                     

Its:                                                                                                          

Date:                                                                                                       

 30
 

 

 

	
  STATE OF WASHINGTON

  	
   

  
	
   

  	
   

  
	
   

  	
     ss.

  
	
   

  	
   

  
	
  COUNTY OF KING

  	
   

  

 

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

Dated this _________________________ day of _________________________,
2006.

 

                                                                                                                

(Signature of Notary)

                                                                                                                

(Legibly Print or
Stamp Name of Notary)

Notary public in and for
the state of Washington,

residing at                                                                                             

My appointment expires                                                                     

 

 

	
  STATE OF WASHINGTON

  	
   

  
	
   

  	
   

  
	
   

  	
     ss.

  
	
   

  	
   

  
	
  COUNTY OF KING

  	
   

  

 

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

Dated this
_________________________ day of _________________________, 2006.

 

                                                                                                                

(Signature of Notary)

                                                                                                                

(Legibly Print or
Stamp Name of Notary)

Notary public in and for
the state of Washington,

residing at                                                                                             

My appointment expires                                                                     

 

 31

 

EXHIBIT
“A”

BUILDING
C CONSTRUCTION PLANS AND SPECIFICATIONS

Plans
set:

Plans
dated 4/21/06 “Owner Revisions”

Sheets
- A1.0, A1.1,A2.0, A2.1, A3.0, A4.0, A4.1, A4.2, A5.0, S0.1, S1.1, S1.2, S2.1,
S2.2, S3.1, S3.2, S4.1, S4.2, S4.3, D1.0, D1.1, C1.0, C2.0, C3.0, C3.1, C4.0,
CS1, L-1and L-2.

Specifications
Building C - by Lance Mueller and Associates, dated March, 2006

The following
improvements, should Tenant elected to install in Building C, shall be part of
the tenant improvements paid for by Tenant and Tenant’s Allowance whether shown
in the plans and specifications or not:

1.                     Office space build out

2.                     Bathroom buildout

3.                     Air conditioning

4.                     Two additional dock doors with seals

5.                     Five additional dock levelers

6.                     Motor drives on dock doors (power will be installed
to all dock door locations)

7.                     Entrance canopy(s)

8.                     Door security or card key access and electric
strike door hardware (power will be installed to all door locations)

9.                     All costs associated with the architectural and
engineering work, permits, City fees and Washignton State Sales Tax required
for the above items.

Any tenant improvement
work in Building C performed by SGA and completed on or before the latter of
November 15, 2006 or the date of the Certificate of Occupancy for the Building
C shell construction, shall not have a general conditions costs charge to the
applicable Tenant Improvement work.

 

 A-1

 

 

EXHIBIT
“B”

SITE
PLAN

 B-1

 

 

EXHIBIT
“C”

RULES
AND REGULATIONS

Dated:                           ,
2006.

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

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

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

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

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

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

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

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

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

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

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

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

 C-1

 

 

EXHIBIT
“D”

DELIVERY
OF PREMISES

	
  NAME OF DEVELOPMENT:

  	
  MERRILL CREEK CENTER

  
	
   

  	
   

  
	
  NAME OF TENANT:

  	
  ZUMIEZ, INC.

  
	
   

  	
   

  
	
  PREMISES ADDRESS:

  	
  6300 Merrill Creek Parkway

  
	
   

  	
  Everett, WA 98203

  

 

ACKNOWLEDGEMENT

As stipulated
under Paragraph 3.1 (“Term”)
of the Lease Agreement executed by Landlord and Tenant herein for the
above-referenced demised Premises, Tenant does hereby acknowledge that Tenant
is in receipt of the keys to said Existing Premises and shall receive keys to
Building C upon receipt of the Certificate of Occupancy.  Tenant shall have the right to Early
Possession and can begin tenant improvement work as approved by Landlord when
contracted to do so.

 

	
   

  	
  TENANT:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZUMIEZ, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Its:

  	
   

  
	
   

  	
  Date:

  	
   

  
							

 

 

 D-1EXHIBIT 10.1

TORREYPINES THERAPEUTICS, INC. 

2006 EQUITY INCENTIVE PLAN

APPROVED BY
THE BOARD:  JULY 24, 2006

APPROVED BY
THE STOCKHOLDERS: SEPTEMBER 28,  2006

TERMINATION DATE:  JULY 23, 2016

1.             GENERAL.

(a)           Eligible Award Recipients.  The persons eligible to receive Awards are
Employees, Directors and Consultants.

(b)           Available Awards.  The Plan provides for the grant of the
following Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options,
(iii) Restricted Stock Awards, (iv) Restricted Stock Unit Awards, (v) Stock
Appreciation Rights, (vi) Performance Stock Awards, (vii) Performance Cash
Awards, and (viii) Other Stock Awards.

(c)           Purpose.  The Company, by means of the Plan, seeks to
secure and retain the services of the group of persons eligible to receive
Awards as set forth in Section 1(a), to provide incentives for such persons to
exert maximum efforts for the success of the Company and any Affiliate, and to
provide a means by which such eligible recipients may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
Stock Awards.

2.             ADMINISTRATION.

(a)           Administration
by Board.  The Board shall administer
the Plan unless and until the Board delegates administration of the Plan to a
Committee or Committees, as provided in Section 2(c).

(b)           Powers
of Board.  The Board shall have the
power, subject to, and within the limitations of, the express provisions of the
Plan:

(i)            To
determine from time to time (A) which of the persons eligible under the Plan
shall be granted Awards; (B) when and how each Award shall be granted; (C) what
type or combination of types of Award shall be granted; (D) the provisions of
each Award granted (which need not be identical), including the time or times
when a person shall be permitted to receive cash or Common Stock pursuant to a
Stock Award; and (E) the number of shares of Common Stock with respect to which
a Stock Award shall be granted to each such person.

(ii)           To
construe and interpret the Plan and Awards granted under it, and to establish,
amend and revoke rules and regulations for its administration.  The Board, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan or in any Stock Award
Agreement or in the written terms of a Performance Cash Award, in a manner and
to the extent it shall deem necessary or expedient to make the Plan or Award
fully effective.

(iii)         To
settle all controversies regarding the Plan and Awards granted under it.

 1
 

 

(iv)          To
accelerate the time at which a Stock Award may first be exercised or the time
during which an Award or any part thereof will vest in accordance with the
Plan, notwithstanding the provisions in the Award stating the time at which it
may first be exercised or the time during which it will vest.

(v)            To suspend or terminate the Plan at
any time.  Suspension or termination of
the Plan shall not impair rights and obligations under any Stock Award granted
while the Plan is in effect except with the written consent of the affected
Participant.

(vi)          To amend the Plan in
any respect the Board deems necessary or advisable, including, without
limitation, relating to Incentive Stock Options and certain nonqualified
deferred compensation under Section 409A of the Code and/or to bring the Plan
or Stock Awards granted under the Plan into compliance therewith, subject to
the limitations, if any, of applicable law. However, except as provided in
Section 9(a) relating to Capitalization Adjustments, stockholder approval shall be required for any amendment of the Plan
that either (A) materially increases the number of shares of Common Stock
available for issuance under the Plan, (B) materially expands the class of
individuals eligible to receive Awards under the Plan, (C) materially increases
the benefits accruing to Participants under the Plan or materially reduces the
price at which shares of Common Stock may be issued or purchased under the
Plan, (D) materially extends the term of the Plan, or (E) expands the types of
Awards available for issuance under the Plan, but only to the extent required
by applicable law or listing requirements. Except as provided above, rights
under any Award granted before amendment of the Plan shall not be impaired by
any amendment of the Plan unless (1) the Company requests the consent of the
affected Participant, and (2) such Participant consents in writing.

(vii)         To submit any amendment to the Plan
for stockholder approval, including, but not limited to, amendments to the Plan
intended to satisfy the requirements of (A) Section 162(m) of the Code and the
regulations thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
Covered Employees, (B) Section 422 of the Code regarding Incentive Stock
Options, or (C) Rule 16b-3.

(viii)        To
approve forms of Award Agreements for use under the Plan and to amend the terms
of any one or more Awards, including, but not limited to, amendments to provide
terms more favorable to the Participant than previously provided in the Award
Agreement, subject to any specified limits in the Plan that are not subject to
Board discretion; provided however, that, the Participant’s
rights under any Award shall not be impaired by any such amendment unless (A)
the Company requests the consent of the affected Participant, and (B) such
Participant consents in writing. 
Notwithstanding the foregoing, subject to the limitations of applicable
law, if any, and without the affected Participant’s consent, the Board may
amend the terms of any one or more Awards if necessary to maintain the
qualified status of the Award as an Incentive Stock Option or to bring the
Award into compliance with Section 409A of the Code and the related guidance
thereunder.

(ix)          Generally,
to exercise such powers and to perform such acts as the Board deems necessary
or expedient to promote the best interests of the Company and that are not in
conflict with the provisions of the Plan or Awards.

 2
 

 

(x)           To
adopt such procedures and sub-plans as are necessary or appropriate to permit
participation in the Plan by Employees, Directors or Consultants who are
foreign nationals or employed outside the United States.

(c)           Delegation
to Committee.

(i)            General.  The Board may delegate the administration of
some or all of the provisions of the Plan to a Committee or Committees.  If administration of the Plan is delegated to
a Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board that have been
delegated to the Committee, including the power to delegate to a subcommittee
of the Committee any of the administrative powers the Committee is authorized
to exercise (and references in this Plan to the Board shall thereafter be to
the Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board.  The Board may retain
the authority to concurrently administer the Plan with the Committee and may,
at any time, revest in the Board some or all of the powers previously
delegated.

(ii)           Section 162(m) and Rule 16b-3 Compliance.  In the sole discretion of the Board, the
Committee may consist solely of two (2) or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two (2) or more
Non-Employee Directors, in accordance with Rule 16b-3.  In addition, the Board or the Committee, in
its sole discretion, may (A) delegate to a Committee who need not be Outside
Directors the authority to grant Awards to eligible persons who are either (I)
not then Covered Employees and are not expected to be Covered Employees at the
time of recognition of income resulting from such Stock Award, or (II) not
persons with respect to whom the Company wishes to comply with Section 162(m)
of the Code, and/or (B) delegate to a Committee who need not be Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.

(d)           Delegation to Officers.  The Board may delegate to one (1) or more
Officers the authority to do one or both of the following (i) designate
Employees who are not Officers
to be recipients of Options (and, to the extent permitted by applicable law,
other Stock Awards) and the terms thereof, and (ii) determine the number of
shares of Common Stock to be subject to such Stock Awards granted to such
Employees; provided, however, that
the Board resolutions regarding such delegation shall specify the total number
of shares of Common Stock that may be subject to the Stock Awards granted by
such Officer and that such Officer may not grant a Stock Award to himself or
herself.  Notwithstanding anything to the
contrary in this Section 2(d), the Board may not delegate to an Officer
authority to determine the Fair Market Value of the Common Stock pursuant to
Section 13(v)(i) below.

(e)           Effect of Board’s Decision. All
determinations, interpretations and constructions made by the Board in good
faith shall not be subject to review by any person and shall be final, binding
and conclusive on all persons.

 3
 

 

3.             SHARES SUBJECT TO THE PLAN.

(a)           Share
Reserve.  Subject to the provisions
of Section 9 relating to adjustments upon changes in stock, the aggregate
number of shares of Common Stock that may be issued pursuant to Stock Awards
after the Effective Date shall not exceed fifteen million (15,000,000) shares,
plus an annual increase to be added on the first day of the fiscal year of the
Company for a period of ten (10) years, commencing on January 1, 2007 and
ending on (and including) January 1, 2016 (each such day, a “Calculation Date”),
equal to the lesser of (i) two percent (2%) of the shares of Common Stock
outstanding on each such Calculation Date (rounded down to the nearest whole
share); or (ii) five million (5,000,000) shares of Common Stock.
Notwithstanding the foregoing, the Board may act, prior to the first day of any
fiscal year of the Company, to increase the share reserve by such number of
shares of Common Stock as the Board shall determine, which number shall be less
than each of (i) and (ii).  For clarity,
the limitation in this Section 3(a) is a limitation in the number of shares of Common
Stock that may be issued pursuant to the Plan. 
Accordingly, this subsection 3(a) does not limit the granting of Stock Awards
except as provided in Section 7(a). 
Shares may be issued in connection with a merger or acquisition as
permitted by NASD Rule 4350(i)(1)(A)(iii) or, if applicable, NYSE Listed
Company Manual Section 303A.08, or AMEX Company Guide Section 711 and such
issuance shall not reduce the number of shares available for issuance under the
Plan.  Furthermore, if a Stock Award (A)
expires or otherwise terminates without having been exercised in full or (B) is
settled in cash (i.e., the holder of the Stock
Award receives cash rather than stock), such expiration, termination or
settlement shall not reduce (or otherwise offset) the number of shares of Common
Stock that may be issued pursuant to the Plan.

(b)           Reversion
of Shares to the Share Reserve. If any shares of Common Stock issued
pursuant to a Stock Award are forfeited back to or repurchased by the Company
because of the failure to meet a contingency or condition required to vest such
shares in the Participant, then the shares which are forfeited or repurchased shall
revert to and again become available for issuance under the Plan.  Also, any shares reacquired by the Company
pursuant to subsection 8(g) or as consideration for the exercise of any Stock
Award shall again become available for issuance under the Plan.  Notwithstanding the provisions of this
subsection 3(b), any such shares shall not be subsequently issued pursuant to
the exercise of Incentive Stock Options.

(c)           Section 162(m) Limitation on Annual Grants.  Subject to the provisions of Section 9(a) relating
to Capitalization Adjustments, at such time as the Company may be subject to
the applicable provisions of Section 162(m) of the Code, no Employee shall be
eligible to be granted during any calendar year Options or Stock Appreciation
Rights covering more than fifteen million (15,000,000) shares of Common Stock.

(d)           Source
of Shares.  The stock issuable under
the Plan shall be shares of authorized but unissued or reacquired Common Stock,
including shares repurchased by the Company on the open market.

4.             ELIGIBILITY.

(a)           Eligibility
for Specific Stock Awards.  Incentive
Stock Options may be granted only to employees of the Company or a “parent
corporation” or “subsidiary corporation” (as such

 4
 

 

terms are defined in Sections 424(e) and 424(f) of the
Code).  Stock Awards other than Incentive
Stock Options may be granted to Employees, Directors and Consultants.

(b)           Ten
Percent Stockholders.  A Ten Percent
Stockholder shall not be granted an Incentive Stock Option unless the exercise
price of such Option is at least one hundred ten percent (110%) of the Fair
Market Value of the Common Stock on the date of grant and the Option is not
exercisable after the expiration of five (5) years from the date of grant.

(c)           Consultants. 
A Consultant shall be eligible for the grant of a Stock Award
only if, at the time of grant, a Form S-8 Registration Statement under the
Securities Act (“Form S-8”)
is available to register either the offer or the sale of the Company’s
securities to such Consultant because of the nature of the services that the
Consultant is providing to the Company, because the Consultant is a natural
person, or because of any other rule governing the use of Form S-8.

5.             OPTION PROVISIONS.

Each Option shall be in such form and shall contain
such terms and conditions as the Board shall deem appropriate.  All Options shall be separately designated
Incentive Stock Options or Nonstatutory Stock Options at the time of grant,
and, if certificates are issued, a separate certificate or certificates shall
be issued for shares of Common Stock purchased on exercise of each type of
Option. If an Option is not specifically designated as an Incentive Stock
Option, then the Option shall be a Nonstatutory Stock Option. The provisions of
separate Options need not be identical; provided,
however, that each Option Agreement shall include (through
incorporation of provisions hereof by reference in the Option Agreement or
otherwise) the substance of each of the following provisions:

(a)           Term.  Subject to the provisions of Section 4(b)
regarding Ten Percent Stockholders, no Option shall be exercisable after the
expiration of ten (10) years from the date of its grant or such shorter period
specified in the Option Agreement.

(b)           Exercise
Price.  Subject to the provisions of
Section 4(b) regarding Ten Percent Stockholders, the exercise price of each
Option shall be not less than one hundred percent (100%) of the Fair Market
Value of the Common Stock subject to the Option on the date the Option is
granted.  Notwithstanding the foregoing,
an Option may be granted with an exercise price lower than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option if
such Option is granted pursuant to an assumption of or substitution for another
option in a manner consistent with the provisions of Section 424(a) of the Code
(whether or not such options are Incentive Stock Options).

(c)           Consideration.  The purchase price of Common Stock acquired
pursuant to the exercise of an Option shall be paid, to the extent permitted by
applicable law and as determined by the Board in its sole discretion, by any
combination of the methods of payment set forth below.  The Board shall have the authority to grant
Options that do not permit all of the following methods of payment (or otherwise
restrict the ability to use certain methods) and to grant Options that require
the consent of the Company to utilize a particular method of payment.  The methods of payment permitted by this
Section 6(c) are:

(i)            by
cash, check, bank draft or money order payable to the Company;

 5
 

 

(ii)           pursuant
to a program developed under Regulation T as promulgated by the Federal Reserve
Board that, prior to the issuance of the stock subject to the Option, results
in either the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate exercise price to the Company
from the sales proceeds;

(iii)         by
delivery to the Company (either by actual delivery or attestation) of shares of
Common Stock;

(iv)          by
a “net exercise” arrangement pursuant to which the Company will reduce the
number of shares of Common Stock issued upon exercise by the largest whole
number of shares with a Fair Market Value that does not exceed the aggregate
exercise price; provided, however,
that the Company shall accept a cash or other payment from the Participant to
the extent of any remaining balance of the aggregate exercise price not
satisfied by such reduction in the number of whole shares to be issued; provided, further, that shares of Common
Stock will no longer be outstanding under an Option and will not be exercisable
thereafter to the extent that (A) shares are used to pay the exercise price
pursuant to the “net exercise,” (B) shares are delivered to the Participant as
a result of such exercise, and (C) shares are withheld to satisfy tax
withholding obligations;  or

(v)            in
any other form of legal consideration that may be acceptable to the Board.

(d)           Transferability
of Options.  The Board may, in its
sole discretion, impose such limitations on the transferability of Options as
the Board shall determine.  In the
absence of such a determination by the Board to the contrary, the following
restrictions on the transferability of Options shall apply:

(i)            Restrictions
on Transfer.  An Option shall not be
transferable except by will or by the laws of descent and distribution and
shall be exercisable during the lifetime of the Optionholder only by the
Optionholder; provided, however, that the Board
may, in its sole discretion, permit transfer of the Option in a manner
consistent with applicable tax and securities laws upon the Optionholder’s
request.

(ii)           Domestic
Relations Orders.  Notwithstanding
the foregoing, an Option may be transferred pursuant to a domestic relations
order, provided, however, that an Incentive
Stock Option may be deemed to be a Nonstatutory Stock Option as a result of
such transfer.

(iii)         Beneficiary
Designation.  Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the Company,
in a form provided by or otherwise satisfactory to the Company and any broker
designated by the Company to effect Option exercises, designate a third party
who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.  In the
absence of such a designation, the executor or administrator of the
Optionholder’s estate shall be entitled to exercise the Option.

(e)           Vesting
of Options Generally.  The total
number of shares of Common Stock subject to an Option may vest and therefore
become exercisable in periodic installments that may or may not be equal.  The Option may be subject to such other terms
and conditions on the time or times when it may or may not be exercised (which
may be based on the satisfaction of

 6
 

 

Performance Goals or
other criteria) as the Board may deem appropriate.  The vesting provisions of individual Options
may vary.  The provisions of this Section
5(e) are subject to any Option provisions governing the minimum number of
shares of Common Stock as to which an Option may be exercised.

(f)            Termination of Continuous Service.  Except as otherwise provided in the
applicable Option Agreement or other agreement between the Optionholder and the
Company, in the event that an Optionholder’s Continuous Service terminates
(other than for Cause or upon the Optionholder’s death or Disability), the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise such Option as of the date of termination
of Continuous Service) but only within such period of time ending on the
earlier of (i) the date three (3) months following the termination of the
Optionholder’s Continuous Service (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement.  If,
after termination of Continuous Service, the Optionholder does not exercise his
or her Option within the time specified herein or in the Option Agreement (as
applicable), the Option shall terminate.

(g)           Extension of Termination Date.  An Optionholder’s Option Agreement may
provide that if the exercise of the Option following the termination of the
Optionholder’s Continuous Service (other than for Cause or upon the
Optionholder’s death or Disability) would be prohibited at any time solely
because the issuance of shares of Common Stock would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of a period of three (3) months after the
termination of the Optionholder’s Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements, or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement.

(h)           Disability of Optionholder.  In the event that an Optionholder’s
Continuous Service terminates as a result of the Optionholder’s Disability, the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise such Option as of the date of termination
of Continuous Service), but only within such period of time ending on the
earlier of (i) the date twelve (12) months following such termination of
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in
the Option Agreement.  If, after
termination of Continuous Service, the Optionholder does not exercise his or
her Option within the time specified herein or in the Option Agreement (as
applicable), the Option shall terminate.

(i)            Death of Optionholder.  In the event that (i) an Optionholder’s
Continuous Service terminates as a result of the Optionholder’s death, or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder’s Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder’s estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder’s death, but only within the period ending on the
earlier of (i) the date eighteen (18) months following the date of death (or
such longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of such Option as set forth in the Option
Agreement.  If, after the 

 7
 

 

Optionholder’s death, the Option is not exercised
within the time specified herein or in the Option Agreement (as applicable),
the Option shall terminate.

(j)            Termination for Cause.  Except as explicitly provided otherwise in an
Optionholder’s Option Agreement, in the event that an Optionholder’s Continuous
Service is terminated for Cause, the Option shall terminate upon the
termination date of such Optionholder’s Continuous Service, and the
Optionholder shall be prohibited from exercising his or her Option from and
after the time of such termination of Continuous Service.

(k)           Non-Exempt Employees.  No Option granted to an Employee that is a
non-exempt employee for purposes of the Fair Labor Standards Act shall be first
exercisable for any shares of Common Stock until at least six (6) months
following the date of grant of the Option. 
The foregoing provision is intended to operate so that any income
derived by a non-exempt employee in connection with the exercise or vesting of
an Option will be exempt from his or her regular rate of pay.

6.             PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

(a)           Restricted
Stock Awards.  Each Restricted Stock
Award Agreement shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. 
To the extent consistent with the Company’s Bylaws, at the Board’s election,
shares of Common Stock may be (x) held in book entry form subject to the
Company’s instructions until any restrictions relating to the Restricted Stock
Award lapse; or (y) evidenced by a certificate, which certificate shall be
held in such form and manner as determined by the Board.  The terms and conditions of Restricted Stock
Award Agreements may change from time to time, and the terms and conditions of
separate Restricted Stock Award Agreements need not be identical; provided, however, that each Restricted
Stock Award Agreement shall include (through incorporation of the provisions
hereof by reference in the agreement or otherwise) the substance of each of the
following provisions:

(i)            Consideration.  A Restricted Stock Award may be awarded in consideration
for (A) past or future services actually or to be rendered to the Company or an
Affiliate, or (B) any other form of legal consideration that may be acceptable
to the Board in its sole discretion and permissible under applicable law.

(ii)           Vesting.  Shares of Common Stock awarded under a
Restricted Stock Award Agreement may be subject to forfeiture to the Company in
accordance with a vesting schedule to be determined by the Board.

(iii)         Termination
of Participant’s Continuous Service. 
In the event a Participant’s Continuous Service terminates, the Company
may receive via a forfeiture condition, any or all of the shares of Common
Stock held by the Participant which have not vested as of the date of
termination of Continuous Service under the terms of the Restricted Stock Award
Agreement.

(iv)          Transferability.  Rights to acquire shares of Common Stock
under the Restricted Stock Award Agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the Restricted
Stock Award Agreement, as the Board shall

 8
 

 

determine in its sole
discretion, so long as Common Stock awarded under the Restricted Stock Award
Agreement remains subject to the terms of the Restricted Stock Award Agreement.

(b)           Restricted Stock Unit Awards.  Each Restricted Stock Unit Award
Agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate.  The
terms and conditions of Restricted Stock Unit Award Agreements may change from
time to time, and the terms and conditions of separate Restricted Stock Unit
Award Agreements need not be identical; provided,
however, that each Restricted Stock Unit Award Agreement shall
include (through incorporation of the provisions hereof by reference in the agreement
or otherwise) the substance of each of the following provisions:

(i)            Consideration.  At the time of grant of a Restricted Stock
Unit Award, the Board will determine the consideration, if any, to be paid by
the Participant upon delivery of each share of Common Stock subject to the
Restricted Stock Unit Award. The consideration to be paid (if any) by the
Participant for each share of Common Stock subject to a Restricted Stock Unit
Award may be paid in any form of legal consideration that may be acceptable to the
Board in its sole discretion and permissible under applicable law.

(ii)           Vesting. 
At the time of the grant of a Restricted Stock Unit Award,
the Board may impose such restrictions or conditions to the vesting of the
Restricted Stock Unit Award as it, in its sole discretion, deems appropriate.

(iii)         Payment.  A Restricted Stock Unit Award may be settled
by the delivery of shares of Common Stock, their cash equivalent, any
combination thereof or in any other form of consideration, as determined by the
Board and contained in the Restricted Stock Unit Award Agreement.

(iv)          Additional Restrictions.  At the time of the grant of a
Restricted Stock Unit Award, the Board, as it deems appropriate, may impose
such restrictions or conditions that delay the delivery of the shares of Common
Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to a
time after the vesting of such Restricted Stock Unit Award.

(v)            Dividend Equivalents.  Dividend equivalents may be
credited in respect of shares of Common Stock covered by a Restricted Stock
Unit Award, as determined by the Board and contained in the Restricted Stock
Unit Award Agreement.  At the sole
discretion of the Board, such dividend equivalents may be converted into
additional shares of Common Stock covered by the Restricted Stock Unit Award in
such manner as determined by the Board. 
Any additional shares covered by the Restricted Stock Unit Award
credited by reason of such dividend equivalents will be subject to all the
terms and conditions of the underlying Restricted Stock Unit Award Agreement to
which they relate.

(vi)          Termination of Participant’s Continuous
Service.  Except as otherwise
provided in the applicable Restricted Stock Unit Award Agreement, such portion
of the Restricted Stock Unit Award that has not vested will be forfeited upon
the Participant’s termination of Continuous Service.

(vii)         Compliance with Section 409A of the Code.  Notwithstanding anything to the contrary set
forth herein, any Restricted Stock Unit Award granted under the Plan that is

 9
 

 

not exempt from the
requirements of Section 409A of the Code shall contain such provisions so that
such Restricted Stock Unit Award will comply with the requirements of Section
409A of the Code.  Such restrictions, if
any, shall be determined by the Board and contained in the Restricted Stock
Unit Award Agreement evidencing such Restricted Stock Unit Award.  For example, such restrictions may include,
without limitation, a requirement that any Common Stock that is to be issued in
a year following the year in which the Restricted Stock Unit Award vests must
be issued in accordance with a fixed pre-determined schedule.

(c)           Stock Appreciation Rights.  Each Stock Appreciation Right Agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate.  Stock
Appreciation Rights may be granted as stand-alone Stock Awards or in tandem
with other Stock Awards.  The terms and
conditions of Stock Appreciation Right Agreements may change from time to time,
and the terms and conditions of separate Stock Appreciation Right Agreements
need not be identical; provided, however,
that each Stock Appreciation Right Agreement shall include (through
incorporation of the provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:

(i)            Term.  No Stock Appreciation Right shall be
exercisable after the expiration of ten (10) years from the date of its grant
or such shorter period specified in the Stock Appreciation Right Agreement.

(ii)           Strike Price. Each Stock
Appreciation Right will be denominated in shares of Common Stock
equivalents.  The strike price of each
Stock Appreciation Right shall not be less than one hundred percent (100%) of
the Fair Market Value of the Common Stock equivalents subject to the Stock
Appreciation Right on the date of grant.

(iii)         Calculation of Appreciation.  The appreciation distribution payable on the
exercise of a Stock Appreciation Right will be not greater than an amount equal
to the excess of (A) the aggregate Fair Market Value (on the date of the
exercise of the Stock Appreciation Right) of a number of shares of Common Stock
equal to the number of shares of Common Stock equivalents in which the
Participant is vested under such Stock Appreciation Right, and with respect to
which the Participant is exercising the Stock Appreciation Right on such date,
over (B) the strike price that is determined by the Board on the date of grant
of the Stock Appreciation Right.

(iv)          Vesting. 
At the time of the grant of a Stock Appreciation Right, the
Board may impose such restrictions or conditions to the vesting of such Stock
Appreciation Right as it, in its sole discretion, deems appropriate.

(v)            Exercise.  To exercise any outstanding Stock
Appreciation Right, the Participant must provide written notice of exercise to
the Company in compliance with the provisions of the Stock Appreciation Right
Agreement evidencing such Stock Appreciation Right.

(vi)          Payment.  The appreciation distribution in respect of a
Stock Appreciation Right may be paid in Common Stock, in cash, in any
combination of the two or in

 10
 

 

any other form of
consideration, as determined by the Board and set forth in the Stock
Appreciation Right Agreement evidencing such Stock Appreciation Right.

(vii)         Termination of Continuous Service.  In the event that a Participant’s Continuous
Service terminates (other than for Cause), the Participant may exercise his or
her Stock Appreciation Right (to the extent that the Participant was entitled
to exercise such Stock Appreciation Right as of the date of termination of
Continuous Service) but only within such period of time ending on the earlier
of (A) the date three (3) months following the termination of the Participant’s
Continuous Service (or such longer or shorter period specified in the Stock
Appreciation Right Agreement), or (B) the expiration of the term of the Stock
Appreciation Right as set forth in the Stock Appreciation Right Agreement.  If, after termination of Continuous Service,
the Participant does not exercise his or her Stock Appreciation Right within
the time specified herein or in the Stock Appreciation Right Agreement (as
applicable), the Stock Appreciation Right shall terminate.

(viii)        Termination for Cause.  Except as explicitly provided otherwise in an
Participant’s Stock Appreciation Right Agreement, in the event that a
Participant’s Continuous Service is terminated for Cause, the Stock
Appreciation Right shall terminate upon the termination date of such
Participant’s Continuous Service, and the Participant shall be prohibited from
exercising his or her Stock Appreciation Right from and after the time of such
termination of Continuous Service.

(ix)          Compliance with Section 409A of the Code.  Notwithstanding anything to the contrary
set forth herein, any Stock Appreciation Rights granted under the Plan that are
not exempt from the requirements of Section 409A of the Code shall contain such
provisions so that such Stock Appreciation Rights will comply with the
requirements of Section 409A of the Code. 
Such restrictions, if any, shall be determined by the Board and
contained in the Stock Appreciation Right Agreement evidencing such Stock
Appreciation Right.  For example, such
restrictions may include, without limitation, a requirement that a Stock
Appreciation Right that is to be paid wholly or partly in cash must be
exercised and paid in accordance with a fixed pre-determined schedule.

(d)           Performance Awards.

(i)            Performance Stock Awards.  A Performance Stock Award is a Stock Award that
may be granted, may vest or may be exercised based upon the attainment during a
Performance Period of certain Performance Goals.  A Performance Stock Award may, but need not,
require the completion of a specified period of Continuous Service. The length
of any Performance Period, the Performance Goals to be achieved during the
Performance Period, and the measure of whether and to what degree such
Performance Goals have been attained shall be conclusively determined by the
Committee in its sole discretion.  The
maximum number of shares that may be granted to any Participant in a calendar
year attributable to Stock Awards described in this Section 6(d)(i) shall not
exceed fifteen million (15,000,000) shares of Common Stock.  In addition, to the extent permitted by applicable
law and the applicable Award Agreement, the Board may determine that cash may
be used in payment of Performance Stock Awards.

 11
 

 

(ii)           Performance Cash Awards.  A Performance Cash Award is a cash award that
may be granted upon the attainment during a Performance Period of certain
Performance Goals.  A Performance Cash
Award may also require the completion of a specified period of Continuous
Service.  The length of any Performance
Period, the Performance Goals to be achieved during the Performance Period, and
the measure of whether and to what degree such Performance Goals have been
attained shall be conclusively determined by the Committee in its sole
discretion.  The maximum value that may
be granted to any Participant in a calendar year attributable to cash awards
described in this Section 6(d)(i) shall not exceed five million dollars ($5,000,000).  The Board may provide for or, subject to such
terms and conditions as the Board may specify, may permit a Participant to
elect for, the payment of any Performance Cash Award to be deferred to a
specified date or event.  The Committee
may specify the form of payment of Performance Cash Awards, which may be cash
or other property, or may provide for a Participant to have the option for his
or her Performance Cash Award, or such portion thereof as the Board may
specify, to be paid in whole or in part in cash or other property.  In addition, to the extent permitted by
applicable law and the applicable Award Agreement, the Board may determine that
Common Stock authorized under this Plan may be used in payment of Performance
Cash Awards, including additional shares in excess of the Performance Cash
Award as an inducement to hold shares of Common Stock.

(e)           Other Stock Awards.  Other forms of Stock Awards valued in whole
or in part by reference to, or otherwise based on, Common Stock may be granted
either alone or in addition to Stock Awards provided for under Section 5 and
the preceding provisions of this Section 6. 
Subject to the provisions of the Plan, the Board shall have sole and
complete authority to determine the persons to whom and the time or times at
which such Other Stock Awards will be granted, the number of shares of Common
Stock (or the cash equivalent thereof) to be granted pursuant to such Other
Stock Awards and all other terms and conditions of such Other Stock Awards.

7.             COVENANTS OF THE COMPANY.

(a)           Availability
of Shares.  During the terms of the
Stock Awards, the Company shall keep available at all times the number of
shares of Common Stock required to satisfy such Stock Awards.

(b)           Securities
Law Compliance.  The Company shall
seek to obtain from each regulatory commission or agency having jurisdiction
over the Plan such authority as may be required to grant Stock Awards and to
issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require
the Company to register under the Securities Act the Plan, any Stock Award or
any Common Stock issued or issuable pursuant to any such Stock Award.  If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
that counsel for the Company deems necessary for the lawful issuance and sale
of Common Stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell Common Stock upon exercise of such
Stock Awards unless and until such authority is obtained.  A participant shall not be eligible for the
grant of a Stock Award of the subsequent issuance of Common Stock pursuant to
the Stock Award if such grant or issuance would be in violation of any
applicable securities laws.

 12

 

(c)           No Obligation to Notify.  The Company shall have no
duty or obligation to any holder of a Stock Award to advise such holder as to
the time or manner of exercising such Stock Award.  Furthermore, the Company shall have no duty
or obligation to warn or otherwise advise such holder of a pending termination
or expiration of a Stock Award or a possible period in which the Stock Award
may not be exercised.  The Company has no
duty or obligation to minimize the tax consequences of a Stock Award to the
holder of such Stock Award.

8.             MISCELLANEOUS.

(a)           Use of Proceeds.  Proceeds
from the sale of shares of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.

(b)           Corporate Action Constituting Grant of Stock Awards.  Corporate action constituting a grant by the
Company of a Stock Award to any Participant shall be deemed completed as of the
date of such corporate action, unless otherwise determined by the Board,
regardless of when the instrument, certificate, or letter evidencing the Stock
Award is communicated to, or actually received or accepted by, the Participant.

(c)           Stockholder Rights.  No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of Common Stock subject to such Stock Award unless and until such Participant
has exercised the Stock Award pursuant to its terms and the Participant shall
not be deemed to be a stockholder of record until the issuance of the Common
Stock pursuant to such exercise has been entered into the books and records of
the Company.

(d)           No Employment or Other Service
Rights.  Nothing in the
Plan, any Stock Award Agreement or other instrument executed thereunder or in
connection with any Award granted pursuant to the Plan shall confer upon any
Participant any right to continue to serve the Company or an Affiliate in the
capacity in effect at the time the Award was granted or shall affect the right
of the Company or an Affiliate to terminate (i) the employment of an Employee
with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant’s agreement with the
Company or an Affiliate, or (iii) the service of a Director pursuant to the
Bylaws of the Company or an Affiliate, and any applicable provisions of the
corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.

(e)           Incentive Stock Option $100,000
Limitation.  To the
extent that the aggregate Fair Market Value (determined at the time of grant)
of Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by any Optionholder during any calendar year (under all
plans of the Company and any Affiliates) exceeds one hundred thousand dollars
($100,000), the Options or portions thereof that exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options, notwithstanding any contrary provision of the applicable Option
Agreement(s).

(f)            Investment Assurances.  The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant’s
knowledge and experience in financial and

 13
 

 

business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring Common
Stock subject to the Stock Award for the Participant’s own account and not with
any present intention of selling or otherwise distributing the Common
Stock.  The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if (x)
the issuance of the shares upon the exercise or acquisition of Common Stock
under the Stock Award has been registered under a then currently effective
registration statement under the Securities Act, or (y) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws.  The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to
comply with applicable securities laws, including, but not limited to, legends
restricting the transfer of the Common Stock.

(g)           Withholding Obligations.  Unless prohibited by the terms of a Stock
Award Agreement, the Company may, in its sole discretion, satisfy any federal,
state or local tax withholding obligation relating to an Award by any of the
following means (in addition to the Company’s right to withhold from any
compensation paid to the Participant by the Company) or by a combination of
such means: (i) causing the Participant to tender a cash payment;
(ii)  withholding shares of Common Stock from the shares of Common
Stock issued or otherwise issuable to the Participant in connection with the
Award; provided, however, that no shares of
Common Stock are withheld with a value exceeding the minimum amount of tax
required to be withheld by law (or such lower amount as may be necessary to
avoid classification of the Stock Award as a liability for financial accounting
purposes); (iii) withholding cash from an Award settled in cash; (iv)
withholding payment from any amounts otherwise payable to the Participant; or (v)
by such other method as may be set forth in the Stock Award Agreement.

(h)           Electronic Delivery.  Any reference herein to a “written” agreement
or document shall include any agreement or document delivered electronically or
posted on the Company’s intranet.

(i)            Deferrals.  To
the extent permitted by applicable law, the Board, in its sole discretion, may
determine that the delivery of Common Stock or the payment of cash, upon the
exercise, vesting or settlement of all or a portion of any Award may be
deferred and may establish programs and procedures for deferral elections to be
made by Participants.  Deferrals by
Participants will be made in accordance with Section 409A of the Code.
Consistent with Section 409A of the Code, the Board may provide for
distributions while a Participant is still an employee.  The Board is authorized to make deferrals of
Stock Awards and determine when, and in what annual percentages, Participants
may receive payments, including lump sum payments, following the Participant’s
termination of employment or retirement, and implement such other terms and
conditions consistent with the provisions of the Plan and in accordance with
applicable law.

(j)            Compliance with Section 409A of the
Code.  To the extent
that the Board determines that any Award granted under the Plan is subject to
Section 409A of the Code, the

 14
 

 

Award Agreement evidencing such Award shall
incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of
the Code.  To the extent
applicable, the Plan and Award Agreements shall be interpreted in accordance
with Section 409A of the Code and Department of Treasury regulations and other
interpretive guidance issued thereunder, including without limitation any such
regulations or other guidance that may be issued or amended after the Effective
Date.  Notwithstanding any provision of
the Plan to the contrary, in the event that following the Effective Date the
Board determines that any Award may be subject to Section 409A of the Code and
related Department of Treasury guidance (including such Department of Treasury
guidance as may be issued after the Effective Date), the Board may adopt such
amendments to the Plan and the applicable Award Agreement or adopt other
policies and procedures (including amendments, policies and procedures with
retroactive effect), or take any other actions, that the Board determines are
necessary or appropriate to (1) exempt the Award from Section 409A of the Code
and/or preserve the intended tax treatment of the benefits provided with
respect to the Award, or (2) comply with the requirements of Section 409A of
the Code and related Department of Treasury guidance.

9.             ADJUSTMENTS
UPON CHANGES IN COMMON STOCK; OTHER CORPORATE EVENTS.

(a)           Capitalization Adjustments.  In the event of a Capitalization Adjustment,
the Board shall appropriately adjust: (i) the class(es) and maximum number of
securities subject to the Plan pursuant to Section 3(a), (ii) the
class(es) and maximum number of securities that may be awarded to any person
pursuant to Section 3(c) and 6(d)(i), and (iii) the class(es) and number of
securities and price per share of stock subject to outstanding Stock
Awards.  The Board shall make such
adjustments, and its determination shall be final, binding and conclusive.

(b)           Dissolution or Liquidation.  Except as otherwise provided in the Stock
Award Agreement, in the event of a dissolution or liquidation of the Company,
all outstanding Stock Awards (other than Stock Awards consisting of vested and
outstanding shares of Common Stock not subject to the Company’s right of
repurchase) shall terminate immediately prior to the completion of such
dissolution or liquidation, and the shares of Common Stock subject to the
Company’s repurchase option may be repurchased by the Company notwithstanding
the fact that the holder of such Stock Award is providing Continuous Service, provided, however, that the Board may, in
its sole discretion, cause some or all Stock Awards to become fully vested,
exercisable and/or no longer subject to repurchase or forfeiture (to the extent
such Stock Awards have not previously expired or terminated) before the
dissolution or liquidation is completed but contingent on its completion.

(c)           Corporate Transaction.  The following provisions shall apply to Stock
Awards in the event of a Corporate Transaction unless otherwise provided in the
instrument evidencing the Stock Award or any other written agreement between
the Company or any Affiliate and the holder of the Stock Award or unless
otherwise expressly provided by the Board at the time of grant of a Stock
Award.

(i)            Stock Awards May Be Assumed.  Except as otherwise stated in the Stock Award
Agreement, in the event of a Corporate Transaction, any surviving corporation
or acquiring corporation (or the surviving or acquiring corporation’s parent
company) may assume or continue any or all Stock Awards outstanding under the
Plan or may substitute similar stock

 15
 

 

awards for Stock Awards
outstanding under the Plan (including but not limited to, awards to acquire the
same consideration paid to the stockholders of the Company pursuant to the
Corporate Transaction), and any reacquisition or repurchase rights held by the
Company in respect of Common Stock issued pursuant to Stock Awards may be
assigned by the Company to the successor of the Company (or the successor’s
parent company, if any), in connection with such Corporate Transaction.  A surviving corporation or acquiring corporation
(or its parent) may choose to assume or continue only a portion of a Stock
Award or substitute a similar stock award for only a portion of a Stock
Award.  The terms of any assumption,
continuation or substitution shall be set by the Board in accordance with the
provisions of Section 2.

(ii)           Stock Awards Held by Current Participants.  Except as otherwise stated in the Stock Award
Agreement, in the event of a Corporate Transaction in which the surviving
corporation or acquiring corporation (or its parent company) does not assume or
continue such outstanding Stock Awards or substitute similar stock awards for
such outstanding Stock Awards, then with respect to Stock Awards that have not
been assumed, continued or substituted and that are held by Participants whose
Continuous Service has not terminated prior to the effective time of the
Corporate Transaction (referred to as the “Current Participants”), the vesting of such
Stock Awards (and, if applicable, the time at which such Stock Awards may be
exercised) shall (contingent upon the effectiveness of the Corporate
Transaction) be accelerated in full to a date prior to the effective time of
such Corporate Transaction as the Board shall determine (or, if the Board shall
not determine such a date, to the date that is five (5) days prior to the
effective time of the Corporate Transaction), and such Stock Awards shall
terminate if not exercised (if applicable) at or prior to the effective time of
the Corporate Transaction, and any reacquisition or repurchase rights held by
the Company with respect to such Stock Awards shall lapse (contingent upon the
effectiveness of the Corporate Transaction).

(iii)         Stock Awards Held by Persons other than Current Participants.  Except as otherwise stated in the Stock Award
Agreement, in the event of a Corporate Transaction in which the surviving
corporation or acquiring corporation (or its parent company) does not assume or
continue such outstanding Stock Awards or substitute similar stock awards for
such outstanding Stock Awards, then with respect to Stock Awards that have not
been assumed, continued or substituted and that are held by persons other than
Current Participants, the vesting of such Stock Awards (and, if applicable, the
time at which such Stock Award may be exercised) shall not be accelerated and
such Stock Awards (other than a Stock Award consisting of vested and
outstanding shares of Common Stock not subject to the Company’s right of
repurchase) shall terminate if not exercised (if applicable) prior to the
effective time of the Corporate Transaction; provided,
however, that any reacquisition or repurchase rights held by the
Company with respect to such Stock Awards shall not terminate and may continue
to be exercised notwithstanding the Corporate Transaction.

(1)           Payment for Stock Awards in Lieu of
Exercise. 
Notwithstanding the foregoing, in the event a Stock Award will terminate
if not exercised prior to the effective time of a Corporate Transaction, the
Board may provide, in its sole discretion, that the holder of any Stock Award
that is not exercised prior to such effective time will receive a payment, in
such form as may be determined by the Board, equal in value to the excess, if
any, of (A) the value of the property the holder of the Stock Award would have
received upon the

 16
 

 

exercise of the Stock
Award, over (B) any exercise price payable by such holder in connection with
such exercise.

(d)           Change in Control.  A Stock Award may be subject to additional
acceleration of vesting and exercisability upon or after a Change in Control as
may be provided in the Stock Award Agreement for such Stock Award or as may be
provided in any other written agreement between the Company or any Affiliate
and the Participant.  A Stock Award may
vest as to all or any portion of the shares subject to the Stock Award (i)
immediately upon the occurrence of a Change in Control, whether or not such
Stock Award is assumed, continued, or substituted by a surviving or acquiring
entity in the Change in Control, or (ii) in the event a Participant’s
Continuous Service is terminated, actually or constructively, within a
designated period following the occurrence of a Change in Control.  In the absence of such provisions, no such
acceleration shall occur.

10.          TERMINATION
OR SUSPENSION OF THE PLAN.

(a)           Plan Term.  Unless sooner terminated by the Board
pursuant to Section 2, the Plan shall automatically terminate on the day before
the tenth (10th) anniversary of the earlier of (i) the date the Plan is adopted
by the Board, or (ii) the date the Plan is approved by the stockholders of the
Company.  No Awards may be granted under
the Plan while the Plan is suspended or after it is terminated.

(b)           No Impairment of Rights.  Suspension or termination of the Plan shall
not impair rights and obligations under any Award granted while the Plan is in
effect except with the written consent of the affected Participant.

11.          EFFECTIVE
DATE OF PLAN.

This Plan shall become effective on the Effective
Date.

12.          CHOICE
OF LAW.

The law of the State of California shall govern all
questions concerning the construction, validity and interpretation of this
Plan, without regard to that state’s conflict of laws rules.

13.          DEFINITIONS.

As used in the Plan, the following definitions shall
apply to the capitalized terms indicated below:

(a)           “Affiliate” means, at the time of
determination, any “parent” or “subsidiary” as such terms are defined in Rule
405 of the Securities Act.  The Board
shall have the authority to determine the time or times at which “parent” or “subsidiary”
status is determined within the foregoing definition.

(b)           “Award” means a Stock Award or a
Performance Cash Award.

(c)           “Board” means the Board of Directors
of the Company.

 17
 

 

(d)           “Capitalization Adjustment” means any
change that is made in, or other events that occur with respect to, the Common
Stock subject to the Plan or subject to any Stock Award after the Effective
Date without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock dividend,
dividend in property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate structure or
other transaction not involving the receipt of consideration by the Company.  Notwithstanding the foregoing, the conversion
of any convertible securities of the Company shall not be treated as a
transaction “without receipt of consideration” by the Company.

(e)           “Cause” means with
respect to a Participant, the occurrence of any of the following events:  (i) such Participant’s commission of any
felony or any crime involving fraud, dishonesty or moral turpitude under the
laws of the United States or any state thereof; (ii) such Participant’s
attempted commission of, or participation in, a fraud or act of dishonesty
against the Company; (iii) such Participant’s intentional, material violation
of any contract or agreement between the Participant and the Company or of any
statutory duty owed to the Company; (iv)  such Participant’s
unauthorized use or disclosure of the Company’s confidential information or
trade secrets; or (v) such Participant’s gross misconduct. The determination
that a termination of the Participant’s Continuous Service is either for Cause
or without Cause shall be made by the Company in its sole discretion.  Any determination by the Company that the
Continuous Service of a Participant was terminated by reason of dismissal
without Cause for the purposes of outstanding Awards held by such Participant
shall have no effect upon any determination of the rights or obligations of the
Company or such Participant for any other purpose.

(f)            “Change in Control” means the
occurrence, in a single transaction or in a series of related transactions, of
any one or more of the following events:

(i)            any Exchange Act
Person becomes the Owner, directly or indirectly, of securities of the Company
representing more than fifty percent
(50%) of the combined voting power of the Company’s then outstanding
securities other than by virtue of a merger, consolidation or similar transaction.  Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur (A) on account
of the acquisition of securities of the Company by an investor, any affiliate
thereof or any other Exchange Act Person from the Company in a transaction or
series of related transactions the primary purpose of which is to obtain
financing for the Company through the issuance of equity securities or (B)
solely because the level of Ownership held by any Exchange Act Person (the “Subject Person”) exceeds the designated percentage
threshold of the outstanding voting securities as a result of a repurchase or
other acquisition of voting securities by the Company reducing the number of
shares outstanding, provided that if a Change in Control would occur (but for
the operation of this sentence) as a result of the acquisition of voting
securities by the Company, and after such share acquisition, the Subject Person
becomes the Owner of any additional voting securities that, assuming the
repurchase or other acquisition had not occurred, increases the percentage of
the then outstanding voting securities Owned by the Subject Person over the
designated percentage threshold, then a Change in Control shall be deemed to
occur;

(ii)           there is
consummated a merger, consolidation or similar transaction involving (directly
or indirectly) the Company and, immediately after the consummation of such

 18
 

 

merger, consolidation or
similar transaction, the stockholders of the Company immediately prior thereto
do not Own, directly or indirectly, either (A) outstanding voting securities
representing more than fifty percent
(50%) of the combined outstanding voting power of the surviving Entity
in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined
outstanding voting power of the parent of the surviving Entity in such merger,
consolidation or similar transaction, in each case in substantially the same
proportions as their Ownership of the outstanding voting securities of the
Company immediately prior to such transaction;

(iii)         the stockholders of
the Company approve or the Board approves a plan of complete dissolution or
liquidation of the Company, or a complete dissolution or liquidation of the
Company shall otherwise occur, except for a liquidation into a parent
corporation;

(iv)          there is consummated
a sale, lease, exclusive license or other disposition of all or substantially
all of the consolidated assets of the Company and its Subsidiaries, other than
a sale, lease, license or other disposition of all or substantially all of the
consolidated assets of the Company and its Subsidiaries to an Entity, more than
fifty percent (50%) of the
combined voting power of the voting securities of which are Owned by
stockholders of the Company in substantially the same proportions as their
Ownership of the outstanding voting securities of the Company immediately prior
to such sale, lease, license or other disposition; or

(v)            individuals who,
on the date this Plan is adopted by the Board, are members of the Board (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the members of the
Board; provided, however, that if the
appointment or election (or nomination for election) of any new Board member
was approved or recommended by a majority vote of the members of the Incumbent
Board then still in office, such new member shall, for purposes of this Plan,
be considered as a member of the Incumbent Board.

For avoidance of doubt, the term Change in Control
shall not include a sale of assets, merger or other transaction effected
exclusively for the purpose of changing the domicile of the Company.

Notwithstanding the foregoing or any other provision
of this Plan, the definition of Change in Control (or any analogous term) in an
individual written agreement between the Company or any Affiliate and the
Participant shall supersede the foregoing definition with respect to Awards
subject to such agreement; provided,
however, that if no definition of Change in Control or any analogous
term is set forth in such an individual written agreement, the foregoing
definition shall apply.

(g)           “Code” means the Internal Revenue
Code of 1986, as amended.

(h)           “Committee” means a committee of one
(1) or more Directors to whom authority has been delegated by the Board in
accordance with Section 2(c).

(i)            “Common Stock” means the common stock
of the Company.

(j)            “Company” means TorreyPines
Therapeutics, Inc., a Delaware corporation.

 19
 

 

(k)           “Consultant”
means any person, including an advisor, who is (i) engaged by the Company or an
Affiliate to render consulting or advisory services and is compensated for such
services, or (ii) serving as a member of the board of directors of an Affiliate
and is compensated for such services. 
However, service solely as a Director, or payment of a fee for such
service, shall not cause a Director to be considered a “Consultant” for
purposes of the Plan.

(l)            “Continuous Service” means that the
Participant’s service with the Company or an Affiliate, whether as an Employee,
Director or Consultant, is not interrupted or terminated.  A change in the capacity in which the
Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant’s service with the Company or an Affiliate, shall not terminate
a Participant’s Continuous Service; provided, however,
if the Entity for which a Participant is rendering services ceases to qualify
as an “Affiliate” as determined by the Board in its sole discretion, such
Participant’s Continuous Service shall be considered to have terminated on the
date such Entity ceases to qualify as an Affiliate.  For example, a change in status from an
employee of the Company to a consultant to an Affiliate or to a Director shall
not constitute an interruption of Continuous Service. To the extent permitted
by law, the Board or the chief executive officer of the Company, in that party’s
sole discretion, may determine whether Continuous Service shall be considered
interrupted in the case of: (i) any leave of absence approved by the Board of
the chief executive officer of the Company, including sick leave, military
leave or any other personal leave; or (ii) transfers between the Company, an
Affiliate, or their successors. 
Notwithstanding the foregoing, a leave of absence shall be treated as
Continuous Service for purposes of vesting in a Stock Award only to such extent
as may be provided in the Company’s leave of absence policy, in the written
terms of any leave of absence agreement or policy applicable to the
Participant, or as otherwise required by law.

(m)          “Corporate Transaction” means the
occurrence, in a single transaction or in a series of related transactions, of
any one or more of the following events:

(i)            a sale or other disposition of all or substantially all, as
determined by the Board in its sole discretion, of the consolidated assets of
the Company and its Subsidiaries;

(ii)           a sale or other
disposition of at least ninety percent
(90%) of the outstanding securities of the Company;

(iii)         the consummation of a
merger, consolidation or similar transaction following which the Company is not
the surviving corporation; or

(iv)          the consummation of
a merger, consolidation or similar transaction following which the Company is
the surviving corporation but the shares of Common Stock outstanding
immediately preceding the merger, consolidation or similar transaction are
converted or exchanged by virtue of the merger, consolidation or similar
transaction into other property, whether in the form of securities, cash or
otherwise.

(n)           “Covered Employee” shall have the
meaning provided in Section 162(m)(3) of the Code and the regulations
promulgated thereunder.

 20
 

 

(o)           “Director” means a member of the
Board.

(p)           “Disability” means, with respect to a
Participant,  the inability of such
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less
than twelve (12) months, as provided in Section 22(e)(3) and 409A(a)(2)(c)(i)
of the Code.

(q)           “Effective Date” means
the effective date of this Plan document, which is the ‘Effective Time’ of the ‘Merger’,
as such terms are defined in the Agreement and Plan of Merger and
Reorganization entered into on June 7, 2006 by and among TorreyPines
Therapeutics, Inc. a Delaware corporation, Autobahn Acquisition, Inc., a
Delaware corporation, and the Company.

(r)           “Employee”
means any person employed by the Company or an Affiliate.  However, service solely as a Director, or
payment of a fee for such services, shall not cause a Director to be considered
an “Employee” for purposes of the Plan.

(s)           “Entity” means a corporation,
partnership, limited liability company or other entity.

(t)            “Exchange Act” means the Securities
Exchange Act of 1934, as amended.

(u)           “Exchange Act Person” means any natural person, Entity or
“group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act),
except that “Exchange Act Person” shall not include (i) the Company or any
Subsidiary of the Company, (ii) any employee benefit plan of the Company or any
Subsidiary of the Company or any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any Subsidiary of the Company,
(iii) an underwriter temporarily holding securities pursuant to an offering of
such securities, (iv) an Entity Owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
Ownership of stock of the Company; or (v) any natural person, Entity or “group”
(within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of
the Effective Date as set forth in Section 11, is the Owner, directly or
indirectly, of securities of the Company representing more than fifty percent
(50%) of the combined voting power of the Company’s then outstanding
securities.

(v)            “Fair Market Value” means, as of any
date, the value of the Common Stock determined as follows:

(i)            If the Common
Stock is listed on any established stock exchange or traded on the Nasdaq
Global Market or the Nasdaq Capital Market, the Fair Market Value of a share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in the Common Stock) on
the date of determination, as reported in The Wall Street Journal or such other source as the Board deems
reliable.  Unless otherwise provided by
the Board, if there is no closing sales price (or closing bid if no sales were
reported) for the Common Stock on the date of determination, then the Fair
Market Value shall be the closing selling price (or closing bid if no sales
were reported) on the last preceding date for which such quotation exists.

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(ii)           In the absence of
such markets for the Common Stock, the Fair Market Value shall be determined by
the Board in good faith and in accordance with Section 409A of the Code.

(w)           “Incentive Stock Option” means an Option
which qualifies as an “incentive stock option” within the meaning of
Section 422 of the Code and the regulations promulgated thereunder.

(x)           “Non-Employee Director” means a Director who either (i) is not a current employee
or officer of the Company or an Affiliate, does not receive compensation,
either directly or indirectly, from the Company or an Affiliate for services rendered
as a consultant or in any capacity other than as a Director (except for an
amount as to which disclosure would not be required under Item 404(a) of
Regulation S-K promulgated pursuant to the Securities Act (“Regulation S-K”)),
does not possess an interest in any other transaction for which disclosure
would be required under Item 404(a) of Regulation S-K, and is not engaged in a
business relationship for which disclosure would be required pursuant to
Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee
director” for purposes of Rule 16b-3.

(y)           “Nonstatutory Stock Option” means an
Option that does not qualify as an Incentive Stock Option.

(z)           “Officer” means a person who is an
officer of the Company within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.

(aa)         “Option”
means an Incentive Stock Option or a Nonstatutory Stock Option to purchase
shares of Common Stock granted pursuant to the terms and conditions of Section
5 of the Plan.

(bb)         “Option
Agreement” means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an Option grant.  Each Option Agreement shall be subject to the
terms and conditions of the Plan.

(cc)         “Optionholder”
means a person to whom an Option is granted pursuant to the Plan or, if applicable,
such other person who holds an outstanding Option.

(dd)         “Other Stock Award”
means an award based in whole or in part by reference to the Common Stock which
is granted pursuant to the terms and conditions of Section 6(d).

(ee)         “Other Stock Award Agreement” means a
written agreement between the Company and a holder of an Other Stock Award
evidencing the terms and conditions of an Other Stock Award grant.  Each Other Stock Award Agreement shall be
subject to the terms and conditions of the Plan.

(ff)           “Outside Director” means a Director
who either (i) is not a current employee of the Company or an “affiliated
corporation” (within the meaning of Treasury Regulations promulgated under
Section 162(m) of the Code), is not a former employee of the Company or an “affiliated
corporation” who receives compensation for prior services (other than benefits
under a tax-qualified retirement plan) during the taxable year, has not been an
officer of the Company or

 22
 

 

an “affiliated corporation,” and does not receive
remuneration from the Company or an “affiliated corporation,” either directly
or indirectly, in any capacity other than as a Director, or (ii) is otherwise
considered an “outside director” for purposes of Section 162(m) of the Code.

(gg)         “Own,”
“Owned,” “Owner,”
“Ownership”  A person or Entity shall be deemed
to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership”
of securities if such person or Entity, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has or shares
voting power, which includes the power to vote or to direct the voting, with
respect to such securities.

(hh)         “Participant”
means a person to whom an Award is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Stock Award.

(ii)           “Performance Cash Award” means an
award of cash granted pursuant to the terms and conditions of Section 6(d)(ii).

(jj)           “Performance Criteria”
means the one or more criteria that the Board shall select for purposes of
establishing the Performance Goals for a Performance Period.  The Performance Criteria that shall be used
to establish such Performance Goals may be based on any one of, or combination
of, the following: (i) earnings per share; (ii) earnings before interest, taxes
and depreciation; (iii) earnings before interest, taxes, depreciation and
amortization (EBITDA); (iv) total stockholder return; (v) return on equity;
(vi) return on assets, investment, or capital employed; (vii) operating margin;
(viii) gross margin; (ix) operating income; (x) net income (before or after
taxes); (xi) net operating income; (xii) net operating income after tax; (xiii)
pre- and after-tax income; (xiv) pre-tax profit; (xv) operating cash flow;
(xvi) sales or revenue targets; (xvii) orders and revenue; (xviii) increases in
revenue or product revenue; (xix) expenses and cost reduction goals; (xx)
improvement in or attainment of expense levels; (xxi) improvement in or
attainment of working capital levels; (xxii) economic value added (or an
equivalent metric); (xxiii) market share; (xxiv) cash flow; (xxv) cash flow per
share; (xxvi) share price performance; (xxvii) debt reduction; (xxviii)
implementation or completion of projects or processes; (xxix) customer
satisfaction; (xxx) stockholders’ equity; (xxxi) quality measures; and (xxxii) to the extent that an Award is not intended
to comply with Section 162(m) of the Code, other measures of performance
selected by the Board.  Partial
achievement of the specified criteria may result in the payment or vesting
corresponding to the degree of achievement as specified in the Stock Award
Agreement or the written terms of a Performance Cash Award.  The Board shall, in its sole discretion,
define the manner of calculating the Performance Criteria it selects to use for
such Performance Period.

(kk)        “Performance Goals”
means, for a Performance Period, the one or more goals established by the Board
for the Performance Period based upon the Performance Criteria.  Performance Goals may be based on a
Company-wide basis, with respect to one or more business units, divisions,
Affiliates, or business segments, and in either absolute terms or relative to
the performance of one or more comparable companies or the performance of one
or more relevant indices.  At the time of
the grant of any Award, the Board is authorized to determine whether, when
calculating the attainment of Performance Goals for a Performance Period: (i)
to exclude restructuring and/or other nonrecurring charges; (ii) to exclude
exchange rate effects, as applicable, for non-U.S. dollar denominated net sales
and operating earnings; (iii) to exclude the

 23
 

 

effects of changes to generally accepted accounting
standards required by the Financial Accounting Standards Board; (iv) to exclude
the effects of any statutory adjustments to corporate tax rates; and (v) to
exclude the effects of any “extraordinary items” as determined under generally
accepted accounting principles.  In
addition, the Board retains the discretion to reduce or eliminate the
compensation or economic benefit due upon attainment of Performance Goals.

(ll)           “Performance Period”
means the period of time selected by the Board over which the attainment of one
or more Performance Goals will be measured for the purpose of determining a
Participant’s right to and the payment of a Stock Award or a Performance Cash
Award.  Performance Periods may be of
varying and overlapping duration, at the sole discretion of the Board.

(mm)       “Performance
Stock Award” means a Stock Award granted under the terms and
conditions of Section 6(d)(i).

(nn)         “Plan”
means this TorreyPines Therapeutics, Inc. 2006 Equity Incentive Plan, as
amended in accordance with its terms.

(oo)         “Restricted Stock Award”
means an award of shares of Common Stock which is granted pursuant to the terms
and conditions of Section 6(a).

(pp)         “Restricted Stock Award Agreement”
means a written agreement between the Company and a holder of a Restricted
Stock Award evidencing the terms and conditions of a Restricted Stock Award
grant.  Each Restricted Stock Award
Agreement shall be subject to the terms and conditions of the Plan.

(qq)         “Restricted Stock Unit Award” means a right
to receive shares of Common Stock which is granted pursuant to the terms and
conditions of Section 6(b).

(rr)         “Restricted Stock Unit Award
Agreement” means a written agreement between the Company
and a holder of a Restricted Stock Unit Award evidencing the terms and
conditions of a Restricted Stock Unit Award grant.  Each Restricted Stock Unit Award Agreement
shall be subject to the terms and conditions of the Plan.

(ss)         “Rule
16b-3” means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

(tt)           “Securities Act” means the Securities
Act of 1933, as amended.

(uu)         “Stock Appreciation Right”
means a right to receive the appreciation on Common Stock that is granted
pursuant to the terms and conditions of Section 6(c).

(vv)          “Stock Appreciation Right Agreement”
means a written agreement between the Company and a holder of a Stock
Appreciation Right evidencing the terms and conditions of a Stock Appreciation
Right grant.  Each Stock Appreciation
Right Agreement shall be subject to the terms and conditions of the Plan.

 24
 

 

(ww)        “Stock Award”
means any right to receive Common Stock granted under the Plan, including an
Option, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock
Appreciation Right, a Performance Stock Award, or any Other Stock Award.

(xx)         “Stock Award Agreement”
means a written agreement between the Company and a Participant evidencing the
terms and conditions of a Stock Award grant. 
Each Stock Award Agreement shall be subject to the terms and conditions
of the Plan.

(yy)         “Subsidiary”
means, with respect to the Company, (i) any corporation of which more than
fifty percent (50%) of the outstanding capital stock having ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, Owned by
the Company, and (ii) any partnership,
limited liability company or other entity in which the Company has a
direct or indirect interest (whether in the form of voting or participation in
profits or capital contribution) of more than fifty percent (50%).

(zz)         “Ten
Percent Stockholder” means a person who Owns (or is deemed to
Own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Affiliate.

 25

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