Document:

EXHIBIT 10.20

 

LEASE

 

SORRENTO
WATERIDGE PARTNERS, L.P.,

a California limited partnership

 

Landlord

 

AMERICAN
RESIDENTIAL INVESTMENT TRUST, INC.,

a Maryland corporation

 

Tenant

 

 

TABLE OF CONTENTS

 

	
  ARTICLE
  I  TERM OF LEASE

  
	
  1.1

  	
  Initial
  Term

  
	
  1.2

  	
  Infogate Contingency.

  
	
  1.3

  	
  Early Occupancy.

  
	
  1.2

  	
  Option to Extend

  
	
   

  	
   

  
	
  ARTICLE
  II  PREMISES; CONDITION

  
	
  2.1

  	
  Condition
  Upon Delivery

  
	
  2.2

  	
  Condition of Premises

  
	
  2.3

  	
  Square Foot Verification

  
	
  2.4

  	
  Expansion Option

  
	
   

  	
   

  
	
  ARTICLE
  III  RENT

  
	
  3.1

  	
  Base
  Rent

  
	
  3.2

  	
  Base Rent During Option Term

  
	
  3.3

  	
  Additional Rent

  
	
  3.4

  	
  Delinquent Rental Payments

  
	
   

  	
   

  
	
  ARTICLE
  IV  USE
  OF DEMISED PREMISES

  
	
  4.1

  	
  Permitted
  Use

  
	
  4.2

  	
  Preservation of Demised Premises

  
	
  4.3

  	
  Hazardous Substances

  
	
   

  	
   

  
	
  ARTICLE
  V  UTILITIES
  AND SERVICES

  
	
  5.1

  	
  Standard Tenant Services

  
	
  5.2

  	
  Overstandard Tenant Use

  
	
  5.3

  	
  Interruption of Use

  
	
  5.4

  	
  Additional Services

  
	
  5.5

  	
  Utility Deregulation

  
	
  5.5.1

  	
  Landlord Controls Selection

  
	
  5.5.2

  	
  Tenant Shall Give Landlord Access

  
	
  5.6

  	
  Interruption of Utilities

  
	
   

  	
   

  
	
  ARTICLE
  VI  OPERATING
  EXPENSES

  
	
  6.1

  	
  Payment of Operating Expenses

  
	
  6.2

  	
  Definition of Operating Expenses

  
	
  6.3

  	
  Definition of Real Property Taxes and
  Assessments

  
	
  6.4

  	
  Payment of Operating Expenses; Estimate
  Statement

  
	
  6.5

  	
  Actual Statement

  
	
  6.6

  	
  No
  Release

  
	
  6.7

  	
  Tenant’s Percentage

  
	
  6.8

  	
  Inspection of Operating Expenses

  
	
   

  	
   

  
	
  ARTICLE
  VII  INSURANCE

  
	
  7.1

  	
  Tenant’s Insurance

  

 

i

 

	
  7.2

  	
  Landlord’s Insurance

  
	
  7.3

  	
  Form of Policies

  
	
  7.4

  	
  Waiver of Subrogation

  
	
  7.5

  	
  Blanket Insurance Coverage

  
	
  7.6

  	
  Indemnification and Waiver

  
	
   

  	
   

  
	
  ARTICLE
  VIII  ROOF RIGHTS

  
	
   

  
	
  ARTICLE
  IX  REPAIRS

  
	
  9.1

  	
  Landlord’s Repair Obligations

  
	
  9.2

  	
  Tenant’s Repair Obligations

  
	
  9.3

  	
  Prohibition Against Waste

  
	
   

  	
   

  
	
  ARTICLE
  X  COMPLIANCE
  WITH APPLICABLE LAWS AND RESTRICTIONS

  
	
  10.1

  	
  Compliance with Applicable Laws and
  Restrictions

  
	
  10.2

  	
  Tenant’s Right to Contest Laws and
  Ordinances

  
	
   

  	
   

  
	
  ARTICLE
  XI  MECHANIC’S LIENS AND
  OTHER LIENS

  
	
  11.1

  	
  Mechanic’s Liens

  
	
  11.2

  	
  Landlord’s Indemnification

  
	
  11.3

  	
  Removal of Liens

  
	
  11.4

  	
  Equipment and Trade Fixtures

  
	
   

  	
   

  
	
  ARTICLE
  XII  DEFAULTS OF
  TENANT

  
	
  12.1

  	
  Events of Default

  
	
  12.2

  	
  Landlord’s Remedies

  
	
  12.3

  	
  Right to Collect Rent as Due

  
	
  12.4

  	
  New Lease Following Termination

  
	
  12.5

  	
  Cumulative Rights; No Waiver

  
	
  12.6

  	
  Surrender of Demised Premises

  
	
  12.7

  	
  Interest on Unpaid Amounts

  
	
   

  	
   

  
	
  ARTICLE
  XIII  DESTRUCTION AND RESTORATION

  
	
  13.1

  	
  Repair of Damage to Demised Premises by
  Landlord

  
	
  13.2

  	
  Landlord’s Option to Repair

  
	
  13.3

  	
  Landlord’s or Tenant’s Option to Terminate

  
	
  13.4

  	
  Waiver of Statutory Provisions

  
	
  13.5

  	
  Damage Near End of Term

  
	
   

  	
   

  
	
  ARTICLE
  XIV  CONDEMNATION

  
	
  14.1

  	
  Condemnation of Entire Demised Premises

  
	
  14.2

  	
  Partial Condemnation/Termination of Lease

  
	
  14.3

  	
  Partial Condemnation/Continuation of Lease

  
	
  14.4

  	
  Continuance of Obligations

  
	
  14.5

  	
  Adjustment of Rent

  

 

ii

 

	
  ARTICLE
  XV  ASSIGNMENT, SUBLETTING,
  ETC.

  
	
  15.1

  	
  Restriction on Transfer

  
	
  15.2

  	
  Transfer to Affiliates; Sale or Merger

  
	
  15.3

  	
  Restriction Against Further Assignment

  
	
  15.4

  	
  Transfer Premium

  
	
   

  	
  15.4.1

  	
  Definition of Transfer Premium

  
	
   

  	
  15.4.2

  	
  Payment of Transfer Premiums

  
	
   

  	
  15.4.3

  	
  Calculations of Rent

  
	
  15.5

  	
  Landlord’s Recapture Option

  
	
  15.6

  	
  Tenant’s Failure to Comply

  
	
   

  	
   

  
	
  ARTICLE
  XVI  SUBORDINATION,
  NONDISTURBANCE, NOTICE TO MORTGAGEE AND ATTORNMENT

  
	
  16.1

  	
  Subordination by Tenant

  
	
  16.2

  	
  Landlord’s Default

  
	
  16.3

  	
  Attornment

  
	
   

  	
   

  
	
  ARTICLE
  XVII  SIGNS

  
	
  17.1

  	
  General

  
	
  17.2

  	
  Tenant’s Exterior Signage Rights

  
	
  17.3

  	
  Tenant’s Interior Signage Rights

  
	
   

  	
   

  
	
  ARTICLE
  XVIII  FINANCIAL STATEMENTS OF
  TENANT

  
	
   

  
	
  ARTICLE
  XIX 
  CHANGES AND ALTERATIONS

  
	
   

  	
  (a)

  	
  Permits

  
	
   

  	
  (b)

  	
  Compliance with Plans and Specifications

  
	
   

  	
  (c)

  	
  Value Maintained

  
	
   

  	
  (d)

  	
  Compliance with Laws

  
	
   

  	
  (e)

  	
  Property of Landlord

  
	
   

  	
  (f)

  	
  Removal of Improvements

  
	
   

  	
  (g)

  	
  Reasonable Consent

  
	
   

  	
  (h)

  	
  Notice to Landlord

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XX  ATTORNEYS’ FEES

  
	
   

  
	
  ARTICLE
  XXI  BROKERS

  
	
   

  
	
  ARTICLE
  XXII  SECURITY
  DEPOSIT

  
	
   

  
	
  ARTICLE
  XXIII  TENANT PARKING

  
	
   

  
	
  ARTICLE
  XXIV  [INTENTIONALLY
  DELETED]

  
	
   

  
	
  ARTICLE
  XXV  MISCELLANEOUS
  PROVISIONS

  
	
  25.1

  	
  Entry by Landlord

  

 

iii

 

	
  25.2

  	
  Exhibition of Demised Premises

  
	
  25.3

  	
  Workout Facility

  
	
  25.4

  	
  Notices

  
	
  25.5

  	
  Quiet Enjoyment

  
	
  25.6

  	
  Landlord’s Continuing Obligations

  
	
  25.7

  	
  Estoppel

  
	
  25.8

  	
  Delivery of Corporate Documents

  
	
  25.9

  	
  Intentionally Omitted

  
	
  25.10

  	
  Severability

  
	
  25.11

  	
  Successors and Assigns

  
	
  25.12

  	
  Captions

  
	
  25.13

  	
  Relationship of Parties

  
	
  25.14

  	
  Entire Agreement

  
	
  25.15

  	
  No
  Merger

  
	
  25.16

  	
  Possession and Use

  
	
  25.17

  	
  Surrender of Demised Premises

  
	
  25.18

  	
  Holding
  Over

  
	
  25.19

  	
  Survival

  
	
  25.20

  	
  Applicable
  Law

  
	
  25.21

  	
  Counterparts

  

 

	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit
  “A”

  	
  -

  	
  Legal Description of Land

  
	
  Exhibit
  “B”

  	
  -

  	
  Site
  Plan

  
	
  Exhibit
  “C”

  	
  -

  	
  Proposed Space Plan

  
	
  Exhibit
  “D”

  	
  -

  	
  Intentionally Omitted

  
	
  Exhibit
  “E”

  	
  -

  	
  Tenant’s
  Signage Plans

  

 

iv

 

LEASE

 

THIS LEASE (“Lease”) is made this
          day of November,
2001, by and between SORRENTO WATERIDGE PARTNERS, L.P., a California limited
partnership (“Landlord”), and AMERICAN RESIDENTIAL INVESTMENT TRUST, INC., a
Maryland corporation (“Tenant”).

 

WITNESSETH:

 

“Land”
means that certain real property located at the southeast corner of Lusk
Boulevard and Wateridge Vista Drive, in San Diego, California, consisting of
approximately 9.455 acres, and more particularly described in Exhibit ”A”
attached hereto and made a part hereof.

 

“Project”
means that certain project known as Wateridge Technology Center, with Project
includes the Land and the buildings, improvements and facilities located on the
Land from time to time, including, without limitation, the Buildings described
below.

 

“Business
Park” means Wateridge Business Park, of which the
Project is a part.

 

“Buildings”
mean, collectively, the “Northern Building” and the “Southern Building” as
defined below.

 

“Northern
Building” means that certain two-story office building
containing approximately 64,148 “rentable square feet,” as generally depicted
on the site plan attached hereto as Exhibit ”B” (“Site Plan”).

 

“Southern
Building” means that certain two-story office building
containing approximately 64,148 rentable square feet, as more particularly
depicted on the Site Plan.  As more
particularly provided below, the Demised Premises will be located in the
Southern Building.

 

“usable
area” or “usable square footage” means the usable
area as determined in accordance with the Standard Method for Measuring Floor
Area in Office Buildings, ANSI/BOMA Z65.1-1996 (the “BOMA” Standard).

 

“rentable
area” or “rentable square footage” means the rentable
area measured in accordance with the BOMA Standard.  The rentable square footage of the Demised Premises shall be
calculated pursuant to BOMA Standards.

 

“Project
Common Areas” mean those portions of the Project not
leased or designated for lease to tenants that are provided for use in common
by Landlord, Tenant and other tenants of the Project (or by the sublessees,
agents, employees, customers, invitees, or licensees of any such party),
whether or not those areas are open to the general public.  Project Common Areas include, without
limitation, the Workout Facility described in Section 25.3 below, any
fixtures, systems, decor, facilities and landscaping contained, maintained or
used in connection with those areas, and shall be deemed to include any city
sidewalks adjacent to the Project, any pedestrian walkway system, or other
facilities located on the Project and open to the general public.

 

1

 

“Building
Common Areas” mean the common areas other than the
Project Common Areas appurtenant to the Southern Building including, without
limitation, the (i) common entrances, lobbies, restrooms (whether on
multi-tenant or single-tenant floors), elevators, stairways and accessways,
loading docks, ramps, drives and platforms and any passageways or serviceways
thereto to the extent not exclusively serving another tenant or contained
within another tenant’s premises; and the common pipes, conduits, wires and
appurtenant equipment serving the Demised Premises, and (ii) the parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways and landscaped areas appurtenant to the Southern Building.

 

“Common
Areas” mean, collectively, the Building Common Areas
and Project Common Areas.

 

“Base
Year” means the calendar year 2002.

 

“Demised
Premises” means approximately 23,985 rentable square feet, plus
Tenant’s non-exclusive rights to use the Common Areas, as more particularly
provided below.  The Demised Premises
are located on the second floor of the Southern Building.

 

“Space
Plan” means that certain Space Plan and Specifications
Sheet for the Demised Premises prepared by Smith Consulting Architects and
dated August 12, 1999, a copy of which is attached hereto as Exhibit ”C.”  Landlord and Tenant have heretofore mutually
approved the Space Plan.

 

“Improvements”
mean the improvements which have been or will be constructed by Landlord
pursuant to this Lease, including the Southern Building and the Demised
Premises, as such terms are defined below.

 

Landlord, for and in consideration of the rents, covenants and
agreements hereinafter reserved, mentioned and contained on the part of Tenant,
its successors and assigns, to be paid, kept, observed and performed under this
Lease, hereby leases, rents, lets and demises to Tenant, and upon and subject
to the conditions and limitations expressed in this Lease, Tenant takes and
hires from Landlord, the Demised Premises.

 

ARTICLE I

 

TERM OF
LEASE

 

1.1                                 Initial
Term.  This Lease shall be
effective and binding upon the parties hereto upon mutual execution hereof (the
“Effective Date”).  The term of this Lease (the “Initial Term”) shall commence on the date
(“Commencement Date”) upon which
Landlord delivers possession of the Demised Premises to Tenant, but which shall
be no sooner than December 1, 2001, and shall terminate on
December 9, 2005, subject to extension pursuant to Section 1.2,
below.  Notwithstanding any provision of
this Lease to the contrary, if for any reason Landlord cannot deliver
possession of the Demised Premises to Tenant by December 15, 2001, Tenant
may terminate this Lease at Tenant’s election upon written notice to
Landlord.  Landlord shall be deemed to
have delivered possession of the Demised Premises to Tenant when Tenant is able
to occupy the Premises, free of any occupancy or right of occupancy by the
existing tenant

 

2

 

occupying the Demised Premises, Infogate,
Inc. (“Infogate”), regardless of whether the Demising Wall
(as defined below) or any improvements Tenant desires to construct in or to the
Demised Premises have been completed, including, without limitation, the
Demising Wall described in Section 2.1 of this Lease.

 

1.2                                 Infogate Contingency.  The parties acknowledge and agree that the
effectiveness of this Lease is contingent upon the execution of an amendment (“Amendment”) to that certain lease between
Entrypoint, Inc., predecessor in interest to Infogate, Inc. (“Infogate”), and Landlord dated
September 1999 (“Infogate Lease”)
and the execution of an agreement between Tenant and Infogate (“Infogate
Agreement”).  Notwithstanding anything
herein, if the Amendment and the Infogate Agreement are not fully executed by
November 30, 2001, Tenant may terminate this Lease at Tenant’s election
upon written notice to Landlord.

 

1.3                                 Early Occupancy.  Subject to the terms set forth herein, Tenant may arrange with
Infogate, and Landlord shall allow, Tenant and Tenant’s agents, employees and
contractors access to the Building prior to the Commencement Date, so that
Tenant may move and install its furniture, trade fixtures, data and
telecommunications wiring and equipment and other business equipment in to the
Demised Premises (but not to commence business operations at the Demised
Premises).  Tenant acknowledges that
Section 20.3 below shall apply with respect to any and all claims which
may arise as a result of the entry by Tenant, its agents, employees and
contractors on the Demised Premises in accordance with this
Section 1.3.  Tenant’s
responsibilities under Section 7.1 of this Lease shall commence upon such
early occupancy as opposed to the Commencement Date.

 

1.4                                 Option to Extend.  Tenant shall have one (1) option to extend (the “Extension Options”) the Initial Term for a
five (5) year period (the foregoing option term shall be referred to
hereinafter sometimes as the “Option Term”),
by delivering a binding written notice of exercise to Landlord (“Extension Notice”), so that Landlord
receives the Extension Notice with respect to the Option Term at least one
hundred eighty (180) days prior to the end of the Initial Term.  Tenant may exercise the Extension Option
only if this Lease is in full force and effect and there is no Event of Default
which remains uncured beyond the applicable cure period at the time of exercise
of the right of renewal or at the time of the commencement of the Option Term,
but Landlord shall have the right at its sole discretion to waive the
non-default conditions herein.  The
Initial Term, together with any Option Term, are referred to in this Lease as
the “Term.”

 

ARTICLE II

DEMISED PREMISES; CONDITION

 

2.1                                 Demising
Wall.  Landlord shall, as
expeditiously as reasonably possible, but in any event by December 31, 2001,
construct, in a good and workmanlike manner, a demising wall for demising the
Demised Premises from the Infogate Premises (the “Demising Wall”).  Such
Demising Wall shall be constructed in conformance with plans prepared by
Landlord, subject to the mutual approval of Tenant, such approval not to be
unreasonably withheld or delayed, and shall be in compliance with all then
applicable building laws, ordinances, orders, rules, regulations and
requirements of all federal, state and municipal governments with
jurisdictional authority over the development of the Land and the construction
of the Improvements, including,

 

3

 

but not limited to, rules and regulations of
the Board of Fire Underwriters and requirements under the Americans With
Disabilities Act and Title 24 (the “Applicable
Land Use Laws and Restrictions”). 
Notwithstanding Section 9.1 of this Lease or anything herein to the
contrary, if Landlord has failed to complete the Demising Wall by December 31,
2001, Tenant shall have the right, but not the obligation, as its sole and
exclusive remedy, to incur any expense reasonably necessary to construct and/or
complete the Demising Wall and deduct such expense from the Rent or other
charges next becoming due.

 

2.2                                 Condition of Demised Premises.  Landlord shall deliver the Demised Premises
in the condition in which they are as of the date of this Lease, subject to the
construction of the Demising Wall described above, which may or may not be
complete as of the Commencement Date. 
Other than the Demising Wall described above, Tenant shall be
responsible for the construction of all tenant improvements.  Tenant’s Space Plan is attached hereto as Exhibit ”C.”  Landlord warrants that the Demised Premises
(as of the Commencement Date) have been constructed in a good and workmanlike
manner.  Landlord further warrants that
the structural, interior and exterior portions of the Demised Premises, the
roof, the plumbing, electrical, gas, the HVAC and other utilities servicing the
Demised Premises are in good working condition and order on the date of this
Lease and are in compliance with all existing laws, codes, regulations and
ordinances of any governmental authorities. 
Tenant shall have a period of thirty (30) days from the Commencement
Date to provide Landlord with a list of any aspects in which the Demised
Premises do not meet these standards of condition.  Landlord shall be obligated within a reasonable amount of time
(not to exceed thirty (30) days, or the time reasonably needed to cure) to cure
such Punchlist Items.

 

2.3                                 Square Foot Verification.  Landlord and Tenant hereby acknowledge and
agree that this Lease has been executed based on the assumption that the
Demised Premises consist of twenty-three thousand nine hundred eighty-five
(23,985) rentable square feet.  All such
references to rentable square footage regarding the Demised Premises and the
Buildings are based upon the Building Owners and Managers Association (“BOMA”) standard method of measurement.  Within ten (10) days after the construction
of the Demising Wall, Landlord shall, at Landlord’s sole cost and expense, have
the measurement of the Demised Premises verified by a licensed architect, using
BOMA standard method of measurement, and, in the event that the rentable square
footage or usable square footage of the Buildings or Demised Premises are
different from those set forth in this Lease, all amounts, percentages and
figures appearing or referred to in this Lease based upon such incorrect amount
(including, without limitation, Base Rent, Tenant’s Percentage and parking
rights) shall be modified in accordance with such determination.  Such measurement shall occur promptly
following the completion of the construction of the Demising Wall, and promptly
thereafter Landlord and Tenant shall execute an amendment to this Lease
confirming the changed amounts of square footage, Base Rent, Security Deposit,
Tenant’s Percentage and Tenant’s parking rights to the extent necessary.

 

2.4                                 Expansion Option.  Tenant shall have the right to expand into and lease the Infogate
Premises, upon at least one hundred thirty (130) days’ prior written notice to
Landlord (“Expansion Notice”);
provided, however, in no event shall Tenant have the right to commence
occupying the Infogate Premises prior to September 1, 2002.  Landlord shall deliver the Infogate Premises
to Tenant in a vacant, broom-clean condition, and thereupon, the Demised
Premises, as so expanded, shall consist of approximately thirty-two thousand
seventy-four (32,074) rentable

 

4

 

square feet. 
Within thirty (30) days after receipt of the Expansion Notice, Landlord
shall prepare an amendment to this Lease to include the Infogate Premises as
part of the Demised Premises, and the rentable square feet, Base Rent (based
upon the same Base Rent per square foot then payable under the Infogate Lease,
subject to increases as set forth herein), Tenant’s Percentage and Tenant’s
parking rights shall be increased appropriately to reflect the Infogate
Premises.  Landlord shall be responsible
for causing Infogate to vacate the Infogate Premises within the one hundred
thirty (130) day period set forth herein.

 

ARTICLE III

 

RENT

 

3.1                                 Base
Rent.  In consideration of the
lease of the Demised Premises evidenced by this Lease, Tenant covenants to pay
Landlord, without previous demand therefor and without any right of set-off or
deduction whatsoever except as expressly provided in this Lease, at the office
of Landlord at:

 

Sorrento Wateridge Partners, L.P.

c/o The Allen Group

6005 Hidden Valley Road, Suite 150

Carlsbad, California 92009

Attention:  Accounts Payable

 

or at such other place as Landlord may from time to time designate in
writing, a rental for the Initial Term of this Lease as hereinafter set forth,
payable monthly, in advance, in equal installments as hereinafter set forth,
with the first payment due on the Commencement Date (the “Rent Commencement Date”), and
continuing on the first day of each month thereafter for the succeeding months
during the balance of the Term base rent (“Base Rent”) as provided hereinbelow.

 

Initial Base Rent payable hereunder shall equal $1.55 per rentable
square foot of the Demised Premises. 
Commencing with the 13th month of the Term and every 12
months thereafter, the then applicable Base Rent shall be increased by a factor
of three percent (3%).

 

In the event the Commencement Date or the commencement of Tenant’s
obligation to pay Base Rent pursuant to clauses (ii) and/or (iii) above occurs
on other than the first (1st) day of a month, the amount of the first and last
monthly payment of Base Rent shall be apportioned to account for the fact that
the last month of the Initial Term shall be less than a full calendar month.

 

3.2                                 Base Rent During Option Term.  The initial Base Rent during the Option Term
(“Option Term Base Rent”) shall be
an amount equal to the greater of (i) the then fair market rental value of
the Demised Premises (“Fair Market Rental
Value”), as stated on a monthly basis and determined pursuant to
this Section 3.2, or (ii) 103% of the Base Rent during the last month
of the Initial Term.  The initial Option
Term Base Rent payable during the Option Term shall thereafter be increased as
of the first day of the 13th month of the Option Term and every 12
months thereafter during the Option Term (i.e., as of the first day of the
second, third, fourth and

 

5

 

fifth years of the Option Term) by factor of
three percent (3%).  Upon receipt by
Landlord of Tenant’s Extension Notice under Section 1.2, above, Landlord
and Tenant shall meet in an effort to negotiate, in good faith, the Option Term
Base Rent which shall become effective as of the first day of the Option Term
(“Option Term Commencement Date”).  If Landlord and Tenant have not agreed upon
the Option Term Base Rent within thirty (30) days after the delivery of Tenant’s
Extension Notice, the Option Term Base Rent shall be determined as follows:

 

(a)                                  Landlord
and Tenant shall attempt to agree in good faith upon a single appraiser not
later than thirty-five (35) days after delivery of Tenant’s Extension
Notice.  If Landlord and Tenant are
unable to agree upon a single appraiser within such time period, then Landlord
and Tenant shall each appoint one appraiser not later than five (5) days after
the deadline for selecting a single appraiser. 
Landlord and Tenant shall each give written notice to the other as to
the name of the appraiser it has selected, as soon as the selection is
made.  Within ten (10) days thereafter,
the two appointed appraisers shall appoint a third appraiser.  All appraisers shall be independent from,
and disinterested in, both Landlord and Tenant.

 

(b)                                 The
only task which the appraiser(s) shall perform shall be forming and reporting
to Landlord and Tenant an opinion of the Fair Market Rental Value of the
Demised Premises for use in determining the Option Term Base Rent.

 

(c)                                  If
either Landlord or Tenant fails to appoint its appraiser within the prescribed
time period, the single appraiser appointed shall determine the Fair Market
Rental Value of the Demised Premises. 
If both parties fail to appoint appraisers within the prescribed time
periods, then the first appraiser thereafter selected by a party shall
determine the Fair Market Rental Value of the Demised Premises.

 

(d)                                 Each
party shall bear the cost of its own appraiser and the parties shall share equally
the cost of any single or third appraiser, if applicable.  All appraisers so designated herein shall
have at least five (5) years’ experience in the appraisal of commercial
properties similar to the Demised Premises in San Diego County, California and
shall be members of professional organizations such as MAI or its equivalent.

 

(e)                                  For
the purpose of such appraisal and this subsection (d), the term “Fair Market Rental Value” shall mean the
price that a ready and willing single tenant would pay, as of the Option Term
Commencement Date, as annual rent to a ready and willing landlord of a
Comparable Property on the terms of this Lease, if such Comparable Property
were exposed for lease on the open market for a reasonable period of time.  As used in this Lease, a “Comparable Property” or “Comparable Properties” shall mean two-story
concrete tilt-up office buildings located in the Sorrento Mesa area of the City
of San Diego, California (the “Market Area”),
of comparable quality to the Buildings, with improvements similar in age and
character to the Demised Premises, which has been improved with the tenant
improvements comparable to those constructed in the Demised Premises; provided,
however, that the appraisal shall disregard the value of Tenant’s and any other
improvements paid for by Tenant.  The
appraiser shall give appropriate consideration to all relevant factors,
including, without limitation, (i) rental concessions and tenant
improvement allowances generally being offered by landlords of comparable properties,
(ii) the age of the Improvements, (iii) rental market conditions then
in existence, (iv) whether Landlord will or will not be required to pay a
real estate brokerage

 

6

 

commission in connection with Tenant’s
exercise of the Extension Option, and (v) the fact that the Tenant will be
accepting the Demised Premises in an “As-Is” condition.

 

(f)                                    If
a single appraiser is chosen, then such appraiser shall determine the Fair
Market Rental Value of the Demised Premises. 
Otherwise, the Fair Market Rental Value of the Demised Premises shall be
the arithmetic average of the two (2) appraisals which are closest in amount,
and the third appraisal shall be disregarded.

 

(g)                                 Landlord
and Tenant shall instruct the appraiser(s), in writing, to complete their
written determination of the Fair Market Rental Value not later than thirty
(30) days after their selection.  If the
Fair Market Rental Value has not been determined by such date, then the Fair
Market Rental Value shall be determined thereafter, and if it has not been
determined by the Option Term Commencement Date, then Tenant shall continue to
pay Landlord monthly installments of Annual Rent in the amount applicable to
the Demised Premises immediately prior to the Option Term Commencement Date
until the Fair Market Rental Value is determined.  When the Fair Market Rental Value of the Demised Premises is
determined, Landlord shall deliver notice thereof to Tenant, and Tenant shall
pay to Landlord, within ten (10) days after receipt of such notice, the
difference between the monthly installments of Base Rent actually paid by
Tenant to Landlord subsequent to the Option Term Commencement Date and the new
monthly installments of Base Rent which are determined to have been actually
owing during such period in accordance with this Section 3.2.

 

3.3                                 Additional Rent.  Any amounts referred to in this Lease as additional rent are
referred to collectively as “Additional Rent.”  “Rent,”
as used herein, means all Base Rent and Additional Rent.

 

3.4                                 Delinquent Rental Payments.  All payments of Base Rent and Additional
Rent shall be payable without previous demand therefor and without any right of
set-off or deduction whatsoever (except as expressly provided in this Lease),
and in case of nonpayment of any item of Additional Rent by Tenant when the
same is due (subject to any applicable notice and cure period), Landlord shall
have, in addition to all its other rights and remedies, all of the rights and
remedies available to Landlord under the provisions of this Lease or by law in
the case of nonpayment of Base Rent. 
The performance and observance by Tenant of all the terms, covenants,
conditions and agreements to be performed or observed by Tenant hereunder shall
be performed and observed by Tenant at Tenant’s sole cost and expense.  Any installment of Base Rent or Additional
Rent or any other charges payable by Tenant under the provisions hereof which
shall not be paid within five (5) days after they are due shall, (i) be
subject to a late charge of five percent (5%) of the amount due and not timely
paid, and (ii) bear interest from and after the sixth (6th) day
after such payment was due at the lesser of (A) the default rate of
interest under Landlord’s most senior debt obligation encumbering the Demised
Premises, or (B) an annual rate of twelve percent (12%) per annum, but in
no event in excess of the maximum lawful rate permitted to be charged by
Landlord against Tenant.  Said rate of
interest is sometimes hereinafter referred to as the “Maximum Rate of Interest.”  Notwithstanding the foregoing provisions of
this Section 3.4, if any mortgagee under any mortgage, beneficiary under
any deed of trust, or ground lessor under any ground lease, which encumbers the
Land (a “Lender”), imposes fees,
charges, penalties or interest on Landlord for late payments under such
instrument which fees, charges, penalties or interest are less in amount than
those described in this

 

7

 

Section 3.4, Landlord will not impose
any late payment charge or interest which is greater than the amounts charged
by such Lender.

 

ARTICLE IV

 

USE OF
DEMISED PREMISES

 

4.1                                 Permitted
Use.  Tenant shall use the
Demised Premises for general office purposes, and incidental purposes thereto,
and for no other purposes without first securing the prior written consent of
Landlord, which consent shall not be unreasonably withheld.  Tenant shall not use or occupy the same, or
knowingly permit them to be used or occupied, contrary to any statute, rule,
order, ordinance, requirement or regulation applicable thereto, or in any
manner which would violate any certificate of occupancy affecting the same, or
which would make void or voidable any insurance then in force with respect
thereto (provided Tenant has received a copy of the policy) or which would make
it impossible to obtain fire or other insurance thereon required to be
furnished hereunder by Tenant, or which would cause structural injury to the
improvements, or which would constitute a public or private nuisance or waste,
and Tenant agrees that it will promptly, upon discovery of any such use, take
all necessary steps to compel the discontinuance of such use.  During the Term of this Lease, Tenant shall
have the nonexclusive right to use in common with the other tenants of the
Project, and subject to reasonable rules and regulations promulgated by
Landlord from time to time, the Common Areas. 
Landlord reserves the right from time to time to use any of the Common
Areas and do any of the following, as long as such acts do not unreasonably
interfere with Tenant’s use of or access to the Demised Premises or Tenant’s
parking rights as set forth in Article XXIII:

 

(a)                                  Make
any changes, additions, improvements, repairs or replacements in or to the
Project, the Land, the Common Areas and/or the Buildings, and the fixtures and
equipment thereof, including, without limitation (i) maintenance,
replacement and relocation of pipes, ducts, conduits, wires and meters and
(ii) changes in the location, size, shape and number of driveways,
entrances, stairways, elevators, loading and unloading areas, ingress, egress,
direction of traffic, landscaped areas and walkways and, subject to
Article XXIII below, parking spaces and parking areas;

 

(b)                                 Close
temporarily any of the Common Areas while engaged in making repairs,
improvements or alterations to the Project, Land and/or Buildings; and

 

(c)                                  Perform
such other acts and make such other changes with respect to the Project, Land,
Common Areas and/or Buildings, as Landlord may, in the exercise of good faith
business judgment, as deemed to be appropriate.

 

4.2                                 Preservation of Demised Premises.  Tenant shall not use, or permit the Demised
Premises, or any portion thereof, to be used by Tenant, any third party or the
public in such manner as might reasonably tend to impair Landlord’s title to
the Demised Premises, or any portion thereof, or in such manner as might
reasonably make possible a claim or claims of adverse usage or adverse
possession by the public, as such, or third persons, or of implied dedication
of the Demised Premises, or any portion thereof.  Nothing contained in this Lease, and no action or inaction by
Landlord, shall be deemed or construed to mean that Landlord has

 

8

 

granted to Tenant any right, power or
permission to do any act or make any agreement that may create, or give rise to
or be the foundation for any right, title, interest, lien, charge or other
encumbrance upon the estate of Landlord in the Demised Premises other than as
expressly set forth in this Lease.

 

4.3                                 Hazardous Substances.

 

(a)                                  Except
for any ordinary and general office supplies, such as copier toner, liquid
paper, glue, ink and common household cleaning materials (some or all of which
may constitute “Hazardous Materials” as defined in this Lease), Tenant agrees
not to cause or permit any Hazardous Materials to be brought upon, stored,
used, handled, generated, released or disposed of on, in, under or about the
Demised Premises, the Land, the Buildings, the Common Areas or any other
portion of the Project by Tenant, its agents, employees, subtenants, assignees,
licensees, contractors or invitees (collectively, “Tenant’s Parties”), without the prior written consent of
Landlord, which consent Landlord may withhold in its sole and absolute
discretion.  In the event of any release
of Hazardous Materials caused or permitted by Tenant or any of Tenant’s
Parties, Landlord shall have the right, but not the obligation, to cause Tenant
to immediately take all steps Landlord deems necessary or appropriate to
remediate such release and prevent any similar future release to the
satisfaction of Landlord and Landlord’s mortgagee(s).  Subject to Section 4.3(e), Tenant shall at all times and in
all respects comply with all federal, state and local laws, ordinances and
regulations (“Hazardous Materials Laws”)
relating to the industrial hygiene, environmental protection or the use,
analysis, generation, manufacture, storage, presence, disposal or transportation
of any oil, flammable explosives, asbestos, urea formaldehyde, polychlorinated
biphenyls, radioactive materials or waste, or other hazardous, toxic,
contaminated or polluting materials, substances or wastes, including without
limitation any “hazardous substances,” “hazardous wastes,” “hazardous
materials” or toxic substances” under any such laws, ordinances or regulations
(collectively, “Hazardous Materials”)
at the Demised Premises.

 

(b)                                 Subject
to Section 4.3(e), Tenant shall at its own expense procure (other than a
certificate of occupancy), maintain in effect and comply with all conditions of
any and all permits, licenses and other governmental and regulatory approvals
required for Tenant’s use of the Demised Premises for any permitted uses other
than general office purposes, including, without limitation, discharge of
(appropriately treated) materials or waste into or through any sanitary sewer
system serving the Demised Premises. 
Tenant shall in all respects handle, treat, deal with and manage any and
all Hazardous Materials in, on, under or about the Demised Premises in complete
conformity with all applicable Hazardous Materials Laws and prudent industry
practices regarding the management of such Hazardous Materials.  Upon expiration or earlier termination of
this Lease and subject to Section 4.3(e), Tenant shall cause all Hazardous
Materials (as defined in 22 CCR 66261.3) caused or permitted by Tenant or any
of the Tenant Parties to be removed from the Demised Premises and transported
for use, storage or disposal in accordance with and in complete compliance with
all applicable Hazardous Materials Laws. 
Tenant shall not take any remedial action in response to the presence of
any Hazardous Materials in, on, about or under the Demised Premises or in any
Improvements situated on the Land other than in the normal course of Tenant’s
business operations as now contemplated in accordance with all Hazardous
Materials Laws or as necessitated by emergency considerations in accordance
with all applicable Hazardous Materials Laws, nor enter into any settlement
agreement, consent 

 

9

 

decree or other compromise in respect to any
claims relating to any Hazardous Materials in any way connected with the Demised
Premises or the Improvements on the Land without first notifying Landlord of
Tenant’s intention to do so and affording Landlord ample opportunity to appear,
intervene or otherwise appropriately assert and protect Landlord’s interest
with respect thereto. In addition, at Landlord’s request, at the expiration of
the term of this Lease, Tenant shall remove all tanks or fixtures which were
placed on the Demised Premises by Tenant or any of the Tenant Parties during
the term of this Lease and which contain, have contained or are contaminated
with Hazardous Materials.

 

(c)                                  Tenant
shall immediately notify Landlord in writing of (i) any enforcement,
cleanup, removal or other governmental or regulatory action instituted,
completed or threatened pursuant to any Hazardous Materials Laws of which
Tenant has actual knowledge; (ii) any claim of which Tenant has actual
knowledge made or threatened by any person against Landlord or the Demised
Premises relating to damage, contribution, cost recovery, compensation, loss or
injury resulting from or claimed to result from any Hazardous Materials; and
(iii) any non-routine reports made to any environmental agency arising out
of or in connection with any Hazardous Materials in, on or about the Demised
Premises or with respect to any Hazardous Materials removed from the Demised
Premises, including any complaints, notices, warnings, reports or asserted
violations in connection therewith. 
Tenant shall also provide to Landlord, as promptly as possible, and in
any event within five (5) business days after Tenant first receives or sends
the same, copies of all claims, reports, complaints, notices, warnings or
asserted violations from any governmental agency of any Hazardous Materials
Laws relating in any way to the Demised Premises or Tenant’s use thereof.  Upon written request of Landlord (to enable
Landlord to defend itself from any claim or charge related to any Hazardous
Materials Laws), Tenant shall promptly deliver to Landlord notices of hazardous
waste manifests, if any, reflecting the legal and proper disposal of all such
Hazardous Materials caused or permitted by Tenant or the Tenant Parties removed
from the Demised Premises.  Subject to
Section 4.3(e), all such manifests, if any, relating to Hazardous
Materials caused or permitted by Tenant or any of the Tenant Parties shall list
the Tenant or its agent as a responsible party and in no way shall attribute
responsibility for any such Hazardous Materials caused or permitted by Tenant
or the Tenant Parties to Landlord.

 

(d)                                 Subject
to Section 4.3(e), Tenant shall indemnify, defend (with counsel reasonably
acceptable to Landlord), protect and hold Landlord and each of Landlord’s
officers, directors, partners, shareholders, affiliates, employees, agents,
attorneys, successors and assigns free and harmless from and against any and
all claims, liabilities, damages, costs, penalties, forfeitures, losses or
expenses (including attorneys’ fees) for death or injury to any person or
damage to any property whatsoever (including water tables and atmosphere) to
the extent arising or resulting from the presence or discharge of Hazardous
Materials in, on, under, upon or from the Demised Premises or the Improvements
located thereon or from the transportation or disposal of Hazardous Materials
to or from the Demised Premises to the extent such Hazardous Materials are
present as the result of acts of Tenant, its officers, agents or employees,
contractors or subcontractors (whether or not they are negligent, intentional,
willful or unlawful).  Subject to
Section 4.3(e), Tenant’s obligations hereunder shall include, without
limitation, and whether foreseeable or unforeseeable, all costs of any required
or necessary repairs, clean-up or detoxification or decontamination of the
Demised Premises or the Improvements, and the presence and implementation of
any closure, remedial action or other required plans in

 

10

 

connection therewith, and shall survive the
expiration of or early termination of the term of this Lease.

 

(e)                                  Landlord
represents and warrants that as of the date of this Lease there are, and as of
the Commencement Date there will be, no Hazardous Materials present on the
Demised Premises other than an as required for the normal operation of the Demised
Premises and in accordance with all Hazardous Materials Laws.  Landlord shall indemnify, defend (with
counsel reasonably acceptable to Tenant), protect and hold Tenant and each of
Tenant’s officers, directors, partners, shareholders, affiliates, employees,
agents, attorneys, successors and assigns free and harmless from and against
any and all claims, liabilities, damages, costs, penalties, forfeitures, losses
or expenses (including attorneys’ fees) for death or injury to any person or
damage to any property whatsoever (including water tables and atmosphere)
arising or resulting in whole or in part, directly or indirectly, from the
presence of Hazardous Materials in, on, under, upon or from the Demised
Premises or the Project unless such Hazardous Materials are present as the
result of the acts of Tenant, its officers, employees or agents.

 

For purposes of the indemnity provided herein, any act or omission of
Landlord or its agents, employees, contractors or subcontractors (whether or
not they are negligent, intentional, willful or unlawful) shall be strictly
attributable to Landlord.  Landlord’s
obligations hereunder shall include, without limitation, and whether
foreseeable or unforeseeable, all costs of any required or necessary repairs,
clean-up or detoxification or decontamination of the Demised Premises or the
Project, and the presence and implementation of any closure, remedial action or
other required plans in connection therewith, and shall survive the expiration
of or early termination of the term of this Lease.

 

(f)                                    The
obligations of Landlord and Tenant under this Section 4.3 shall survive
the expiration or earlier termination of this Lease.

 

ARTICLE V

 

UTILITIES
AND SERVICES

 

5.1                                 Standard Tenant Services.  Except as provided below, Landlord shall
provide, to the Demised Premises (or portions thereof, as noted below), the
following services on all days (unless otherwise stated below) during the Lease
Term:

 

5.1.1                        Subject to
all governmental rules, regulations and guidelines applicable thereto, Landlord
shall provide heating, ventilation and air conditioning (“HVAC”) when necessary for normal comfort
for normal office use in the Demised Premises from Monday through Friday,
during the period from 7:00 A.M. to 7:00 P.M. and on Saturday during
the period from 9:00 A.M. to 1:00 P.M. (the “Building Hours”), except for the date of
observation of New Year’s Day, Presidents Day, Independence Day, Labor Day,
Memorial Day, Thanksgiving Day, Christmas Day and, at Landlord’s discretion,
other locally or nationally recognized holidays (collectively, the “Holidays”).

 

5.1.2                        Notwithstanding
anything to the contrary contained herein, Tenant shall be solely responsible
for and shall promptly pay all charges for HVAC operations, gas, electricity or

 

11

 

any other utility that is separately metered
to the Demised Premises at the rates charged by supplying utility companies
and/or Landlord.  Should Landlord elect
to supply any or all of such utilities, Tenant agrees to purchase and pay for
the same Additional Rent as is reasonably apportioned by Landlord.  The rate to be charged by Landlord to Tenant
shall not exceed the rate charged to Landlord by any supplying utility.  Tenant shall, as Additional Rent, reimburse
Landlord within fifteen (15) days of billing for any utility costs supplied by
Landlord to the Demised Premises which are charged to Landlord by local utility
companies.  This charge will increase or
decrease with current charges being levied against Landlord, the Demised
Premises or the Buildings by the local utility company, and will be due as
Additional Rent.  Tenant shall pay the
cost of maintenance and repair of separate meters to the Demised Premises.  Notwithstanding anything herein, if Tenant
shares such separate meter with another tenant or other tenants of the Southern
Building, and such other tenant(s) fails to pay utility charges shared under
the separate meter with Tenant, Landlord shall be responsible for the payment
of such charges to avoid the interruption of such utilities.  Tenant shall bear the cost of replacement of
lamps, starters and ballasts for lighting fixtures within the Demised Premises.

 

5.1.3                        Landlord
shall, as an Operating Expense, provide city water from the regular Building
outlets for normal office drinking, lavatory and toilet purposes.

 

5.1.4                        Landlord
shall, as an Operating Expense, provide janitorial service to the Southern
Building and Project Common Areas and the Demised Premises five (5) days per
week except the date of observation of the Holidays, and exterior window
washing services in a manner consistent with other Comparable Properties.

 

Tenant shall cooperate fully with Landlord at all times and abide by
all regulations and requirements that Landlord may reasonably prescribe for the
proper functioning and protection of the HVAC, electrical, mechanical and
plumbing systems (collectively, “Building Systems and Equipment”).  As more particularly provided in
Section 9.1 below, Landlord shall maintain the Building Systems and Equipment
(including, but not limited to, the HVAC system) as an Operating Expense.

 

5.2                                 Overstandard Tenant Use.  Tenant shall not, without Landlord’s prior
written consent, which shall not be unreasonably withheld or delayed, use
machines other than normal office machines, or equipment or lighting other than
Building standard lights in the Demised Premises.  If Tenant uses HVAC in the portion of the Demised Premises
located in the Southern Building during hours other than those for which
Landlord is obligated to supply such HVAC utilities pursuant to the terms of
Section 5.1.1 of this Lease, Tenant shall pay to Landlord Landlord’s
actual hourly cost to provide the same, as reasonably determined by Landlord
(which shall include overhead and accounting costs).  Amounts payable by Tenant to Landlord for such use of additional
use of HVAC shall be deemed Additional Rent hereunder and shall be paid in the
manner provided in this Section 5.2 above.

 

5.3                                 Interruption of Use.  Except as set forth in Section 5.6
below, Landlord shall not be liable under any circumstances for a loss of, or
injury to, property or for injury to, or interference with, Tenant’s business,
including, without limitation, loss of profits, however occurring, through or
in connection with or incidental to a failure to furnish any of the services or
utilities as set forth in this Article V.

 

12

 

5.4                                 Additional Services.  Landlord shall provide to Tenant any
additional services which may be reasonably requested by Tenant, including,
without limitation, locksmithing, lamp replacement, additional janitorial
service, and additional repairs and maintenance, provided that Tenant shall pay
to Landlord within fifteen (15) days after receipt of written notice from
Landlord upon billing, the sum of all costs to Landlord of such additional
services plus a reasonable administration fee. 
Charges for any service for which Tenant is required to pay from time to
time hereunder shall be deemed Additional Rent hereunder and shall be billed on
a monthly basis.

 

5.5                                 Utility Deregulation.

 

5.5.1                        Landlord Controls Selection  Landlord has advised Tenant that presently
San Diego Gas & Electric (“Electric
Service Provider”) is the utility company selected by Landlord to
provide electricity service for the Project. 
Notwithstanding the foregoing, if permitted by Law, Landlord shall have
the right at any time and from time to time during the Lease Term to either
contract for service from a different company or companies providing electricity
service (each such company shall hereinafter be referred to as an “Alternate Service Provider”) or continue to
contract for service from the Electric Service Provider.  In no event shall Landlord’s selection of an
Alternate Service Provider result in Tenant paying a higher cost for such
electricity than if Landlord elected to continue to contract for such service
from the Electric Service Provider.

 

5.5.2                        Tenant Shall Give Landlord Access.  Tenant shall cooperate with Landlord, the
Electric Service Provider, and any Alternate Service Provider during
non-business hours (except in the event of an emergency) and, as reasonably
necessary, shall allow Landlord, Electric Service Provider, and any Alternate
Service Provider reasonable access to the Building’s electric lines, feeders,
risers, wiring and any other machinery within the Premises, provided, that
Landlord shall use Landlord’s commercially reasonable efforts to ensure that
there shall be no interference with Tenant’s use and enjoyment of the Demised
Premises.

 

5.6                                 Interruption of Utilities.  Except in the case of an emergency, Landlord
shall not intentionally interrupt any utilities to the Premises without five
(5) business days’ prior written notice from Landlord to Tenant.  In the event that there is any interruption
of the utilities due to the negligence or willful misconduct of Landlord or its
authorized representatives and such interruption shall continue for more than
two (2) consecutive days rendering any portion of the Premises unusable for Tenant’s
normal business operations, then all Rent payable under this Lease shall be
abated retroactively to the time of the interruption.  Further, if such interruption of utilities continues for more
than thirty (30) consecutive days, Tenant shall have the right to terminate
this Lease.

 

ARTICLE VI

 

OPERATING
EXPENSES

 

6.1                                 Payment of Operating Expenses.  In addition to the Base Rent required to be
paid by Tenant pursuant to Section 3.1 above, commencing on
January 1, 2003, and during each month thereafter during the Term of this
Lease, Tenant shall pay for each Expense Year (as

 

13

 

defined below) to Landlord “Tenant’s
Percentage” of “Operating Expenses” (as such terms are defined in this
Article VI below), which are in excess of the amount of Operating Expenses
applicable to the Base Year, in the manner and at the times set forth in the
following provisions of this Article VI. 
Notwithstanding the foregoing, (i) in no event shall any decrease
in any Operating Expenses for any Expense Year below Operating Expenses for the
Base Year entitle Tenant to any decrease in any Base Rent or any credit against
sums due under this Lease, or (ii) no increase in CCR Assessments (as
defined in Section 6.2, below) exceeding three percent (3%) during any
Expense Year shall be included in the calculation of Tenant’s Percentage of
Operating Expenses for any Expense Year. 
As used herein, “Expense Year”
shall mean each calendar year in which any portion of the Lease Term falls, through
and including the calendar year in which the Lease Term expires.

 

6.2                                 Definition of Operating Expenses.  As used in this Lease, the term “Operating Expenses” shall consist of all
costs and expenses incurred or reasonably reserved (based on the reasonable
practices of landlord’s of Comparable Properties) by or on behalf of Landlord
in connection with the ownership, operation, maintenance, repair and
replacement of the Southern Building and Common Areas as determined by standard
accounting practices including the following costs by way of illustration but
not limitation:  (a) Real Property
Taxes and Assessments (as defined in Section 6.3 below) and any taxes or
assessments imposed in lieu thereof; (b) any and all assessments imposed
with respect to the Southern Building, Land Common Areas and/or Project
pursuant to any covenants, conditions and restrictions (“CCR’s) affecting the
Project, Common Areas or Southern Building including, but not limited to, the
CCR’s for the Business Park (“CCR Assessments”); (c) water and sewer
charges and the costs of electricity, HVAC and other utilities, excluding those
which are furnished to the Demised Premises and other leased premises within
the Southern Building which are separately metered and paid separately by the tenants,
including Tenant (provided that Tenant’s Percentage thereof shall be reduced to
reflect any portion of the Demised Premises that is separately metered);
(d) utilities surcharges and any other costs, levies or assessments
resulting from statutes or regulations promulgated by any government authority
in connection with the use or occupancy of the Southern Building, Land or the
Demised Premises or the parking facilities serving the Southern Building, Land
or Demised Premises; (e) costs of insurance obtained by Landlord pursuant
to Article VII of this Lease to the extent allocable to the Southern
Building; (f) waste disposal and janitorial services; (g) security;
(h) costs incurred in the management of the Southern Building, Land and
Common Areas, including, without limitation: 
(1) wages and salaries (and payroll taxes and similar governmental
charges related thereto) of employees used in the operation and maintenance of
the Southern Building, Land and Common Areas, and (2) a
management/administrative fee not to exceed 2.5 percent (2.5%) of the annual
base rent of the Southern Building; (i) supplies, materials, equipment and
tools to the extent used with respect to the Project; (j) repair and
maintenance of the elevators and any other Building Systems and Equipment
installed or furnished by Landlord; (k) maintenance costs and upkeep of
all Common Areas (including, but not limited to, the Workout Facility); (l)
amortization on a straight-line basis over the actual useful life together with
interest at ten percent (10%) per annum on the unamortized balance of all costs
of a capital nature (including, without limitation, capital improvements,
capital replacements, capital repairs, capital equipment and capital
tools):  (l) reasonably intended to
produce a reduction in Operating Expenses or energy consumption; or
(2) required after the date of this Lease under any governmental law or
regulation that was not applicable to the Southern Building at the time they
were originally constructed; or (3) for repair

 

14

 

or replacement of any equipment or
improvements needed to operate and/or maintain the Southern Building, Land,
and/or the Common Areas, provided, however, to the extent Landlord has
previously reserved funds for any such capital item, Landlord shall first apply
such reserved funds against the cost of such capital item; (m) maintenance
of signs (other than signs of tenants of the Project); (n) personal
property taxes levied on or attributable to personal property used in
connection with the Southern Building, Land, and/or the Common Areas; and
(o) costs and expenses of repairs, resurfacing, repairing, maintenance,
painting, lighting, cleaning, refuse removal and similar items; provided,
however, in no event shall Landlord include within Operating Expenses the cost
for resurfacing or replacing the parking areas more than once every five (5)
years (further provided, however, that such limitations shall not be deemed to
include the cost of reslurring, patching and/or restriping of such parking
areas as and when reasonably necessary).

 

Notwithstanding the foregoing, for purposes of this Lease, Operating
Expenses shall not, however, include:

 

(a)                                  costs,
including legal fees, space planners’ fees, and brokerage fees incurred in
connection with the original construction or development, or original or future
leasing or marketing of the Project, and costs, including permit, license and
inspection costs, incurred with respect to the installation of tenant
improvements made for new tenants in the Project or incurred in renovating or
otherwise improving, decorating, painting or redecorating vacant space for
tenants or other occupants of the Project (excluding, however, such costs
relating to any Common Areas of the Project or parking facilities);

 

(b)                                 amount
paid as ground rental for the Project by the Landlord;

 

(c)                                  costs
for which the Landlord is reimbursed by any tenant or occupant of the Project
or by insurance by its carrier or any tenant’s carrier or by anyone else, and electric
power costs for which any tenant directly contracts with the local public
service company;

 

(d)                                 any
bad debt loss, rent loss, or reserves for bad debts or rent loss;

 

(e)                                  the
wages and benefits of any employee who does not devote substantially all of his
or her employed time to the Project unless such wages and benefits are prorated
to reflect time spent on operating and managing the Project vis-à-vis time
spent on matters unrelated to operating and managing the Project; provided,
that in no event shall Operating Expenses for purposes of this Lease include
wages and/or benefits attributable to personnel above the level of Project
manager or Project engineer;

 

(f)                                    any
compensation paid to clerks, attendants or other persons in commercial
concessions operated by the Landlord, provided that any compensation paid to
any “day porter” with respect to the Southern Building shall be includable as
an Operating Expense;

 

(g)                                 rentals
and other related expenses incurred in leasing air conditioning systems, elevators
or other equipment which if purchased the cost of which would be excluded from
Operating Expenses as a capital cost, except equipment not affixed to the
Project which is used in providing janitorial or similar services and, further
excepting from this exclusion such equipment rented or leased to remedy or
ameliorate an emergency condition in the Project;

 

15

 

(h)                                 all
items and services for which Tenant or any other tenant in the Project
reimburses Landlord or which Landlord provides selectively to one or more
tenants (other than Tenant) without reimbursement;

 

(i)                                     any
costs expressly excluded from Operating Expenses elsewhere in this Lease;

 

(j)                                     costs
incurred to comply with laws relating to the removal of Hazardous Materials
except to the extent such costs are incurred by Landlord for the removal of
Hazardous Materials which are present solely as the result of the acts of
Tenant, its officers, employees or agents;

 

(k)                                  costs
arising from Landlord’s charitable or political contributions or marketing
costs;

 

(l)                                     depreciation,
interest and principal payments on mortgages or other debt costs, if any,
penalties and interest and, except as provided in the first paragraph of this
Section 6.2 above, costs of capital repairs and alterations and costs of
capital improvements and equipment;

 

(m)                               except
for Landlord’s permitted management/administrative fee (as set forth in the
first paragraph of this Section 6.2 above), Landlord’s general corporate
overhead or other management or administrative costs, expenses or fees;

 

(n)                                 costs
incurred by Landlord in performing Landlord’s warranty and guaranty enforcement
obligations pursuant to Sections 2.8 and 2.9 above and any costs covered
by warranties or guarantees provided by any contractor, design professional or
material provider;

 

(o)                                 amounts
paid to any affiliate of Landlord in excess of commercially reasonable market
rates;

 

(p)                                 costs
reimbursed by the proceeds of any insurance maintained or required under this
Lease to be maintained by Landlord;

 

(q)                                 any
costs associated with the operation, repair, maintenance or replacement of the
Northern Building or the Common Areas exclusively serving the Northern
Building;

 

(r)                                    costs
for any structural repair, maintenance, replacement or redesign of any
structural elements (i.e., foundation, roof, walls and exterior portions of the
Buildings); and

 

(s)                                  assessments
imposed pursuant to the CCR’s for which Landlord is entitled to be reimbursed
or which would duplicate any costs, fees or expenses billed to Tenant as an
Operating Expense pursuant to this Section 6.2.

 

If Landlord is not furnishing any particular work or service (the cost
of which, if performed by Landlord, would be included in Operating Expenses) to
a tenant who has undertaken to perform such work or service in lieu of the
performance thereof by Landlord, then Operating Expenses

 

16

 

shall be deemed to be increased by an amount equal to the additional
Operating Expenses which would reasonably have been incurred during such period
by Landlord if it had at its own expense furnished such work or service to such
tenant.  If the Project is not at least
ninety-five percent (95%) occupied during all or a portion of the Base Year or
any Expense Year, Landlord shall make an appropriate adjustment to the
components of Operating Expenses for such year to determine the amount of
Operating Expenses that would have been paid had the Project been ninety-five
percent (95%) occupied; and the amount reasonably so determined shall be deemed
to have been the amount of Operating Expenses for such year.  Operating Expenses for the Base Year shall
not include market-wide labor-rate increases due to extraordinary circumstances,
including, but not limited to, boycotts and strikes, or utility rate increases
due to extraordinary circumstances including, but not limited to, conservation
surcharges, boycotts, embargoes or other shortages (unless such labor rate or
utility rate increases remain in effect after the Base Year, in which event the
Operating Expenses for the Base Year shall be adjusted when the labor rate
increases or utility rate increases adjust following the cessation of the
extraordinary circumstances causing such increases in the first place), or
amortized costs relating to capital improvements.

 

If Landlord
incurs Operating Expenses during any Expense Year for any expense category that
was not incurred during the Base Year or expands the scope of any expense
category beyond the scope during the Base Year, then the amount of Operating
Expenses for the Base Year shall be adjusted to an amount equal to the
Operating Expenses that would have been incurred during the Base Year if such
new expense category or such additional scope of any expense category had been
included in the Base Year.

 

6.3                                 Definition of Real Property Taxes
and Assessments.  As used in
this Lease, the term “Real Property Taxes and
Assessments” shall mean:  any
form of assessment, license fee, license tax, business license fee, commercial
rental tax, levy, charge, improvement bond, tax or similar imposition imposed
by any authority having the direct power to tax, including any city, county,
state or federal government, or any school, agricultural, lighting, drainage or
other improvement or special assessment district thereof, as against any legal
or equitable interest of Landlord in the Demised Premises, Buildings, Common
Areas, Land or Project, including the following by way of illustration but not
limitation:

 

(a)                                  any
tax on Landlord’s “right” to rent or “right” to other income from the Demises
Premises or as against Landlord’s business of leasing the Demised Premises;

 

(b)                                 any
assessment, tax, fee, levy or charge in substitution, partially or totally, of
any assessment, tax, fee, levy or charge previously included within the
definition of real property tax, it being acknowledged by Tenant and Landlord
that Proposition 13 was adopted by the voters of the State of California in the
June 1978 election and that assessments, taxes, fees, levies and charges may be
imposed by governmental agencies for such services as fire protection, street,
sidewalk and road maintenance, refuse removal and for other governmental
services formerly provided without charge to property owners or occupants.  It is the intention of Tenant and Landlord
that all such new and increased assessments, taxes, fees, levies and charges be
included within the definition of “Real Property Taxes and Assessments” for the
purposes of this Lease;

 

17

 

(c)                                  any
assessment, tax, fee, levy or charge allocable to or measured by the area of
the Demised Premises or other premises in the Buildings or the rent payable by
Tenant hereunder or other tenants of the Buildings, including, without
limitation, any gross receipts tax or excise tax levied by state, city or
federal government, or any political subdivision thereof, with respect to the
receipt of such rent, or upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Demised Premises, or any portion thereof but not on Landlord’s
other operations;

 

(d)                                 any
assessment, tax, fee, levy or charge upon this transaction or any document to
which Tenant is a party, creating or transferring an interest or an estate in
the Demised Premises; and/or

 

(e)                                  any
assessment, tax, fee, levy or charge by any governmental agency related to any
transportation plan, fund or system (including assessment districts) instituted
within the geographic area of which the Buildings are a part.  In addition, if Landlord sells, contributes
or otherwise transfers the Southern Building, the Project or any portion
thereof to Kilroy Realty, L.P. or any of its affiliates or successors or
assigns (“Kilroy”), then the amount of Real Property Taxes and Assessments for
the Base Year shall be increased by an amount equal to the Real Property Taxes
and Assessments that would have applied during the Base Year had such sale,
contribution or other transfer to Kilroy occurred during the Base Year.

 

Notwithstanding
the foregoing provisions of this Section 6.3 to the contrary, “Real
Property Taxes and Assessments” shall not include Landlord’s federal or state
income, franchise, inheritance or estate taxes.

 

If in any
Expense Year subsequent to the Base Year (the “Adjustment Year”), the amount
of Real Property Taxes and Assessments decreases below the amount of Real
Property Taxes and Assessments for the Base Year, then, the Operating Expenses
for the Base Year shall be decreased by an amount equal to such decrease in
assessed value or direct assessments, as applicable in the Adjustment
Year.  Such decrease in the Operating
Expenses for the Base Year shall only apply for so long as, and only to the
extent that, the decrease remains in effect and shall be increased for purposes
of calculating the Excess for any Expense Year to the extent the decrease is no
longer in effect.

 

6.4                                 Payment of Operating Expenses;
Estimate Statement.  If for any
Expense Year during the Lease Term, Tenant’s Percentage of Operating Expenses
for such Expense Year exceeds Tenant’s Percentage of Operating Expenses
applicable to the Base Year, then Tenant shall pay Landlord, in the manner set
forth in this Section 6.4 below, as Additional Rent, an amount equal to
the excess (the “Excess”).  By the first day of April of each Lease Year
during the Term of this Lease, Landlord shall endeavor to deliver to Tenant a
statement (“Estimate Statement”)
estimating the Operating Expenses for the current Lease Year and the estimated
Excess (the “Estimated Excess”),
as calculated by comparing the Operating Expenses for such Expense Year, which
shall be based upon the estimate of the Estimate Statement, to the amount of
Operating Expenses for the Base Year. 
Landlord shall have the right no more than once during each Lease Year
to deliver a revised Estimate Statement showing the Operating Expenses and
Estimated Excess for such Lease Year if Landlord determines that the Operating
Expenses are greater than those set forth in the original Estimate Statement
(or previously delivered revised

 

18

 

Estimate Statement) for such Lease Year.  The Estimated Excess shown on the Estimate
Statement (or revised Estimate Statement, as applicable) shall be divided into
twelve (12) equal monthly installments, and Tenant shall pay to Landlord,
within thirty (30) days following the receipt of the Estimate Statement (or
revised Estimate Statement, as applicable), an amount equal to one (1) monthly
installment of such Estimated Excess multiplied by the number of months from
January in the Lease Year in which such statement is submitted to the month of
such payment, both months inclusive (less any amounts previously paid by Tenant
with respect to any previously delivered Estimate Statement or revised Estimate
Statement for such Lease Year). 
Subsequent installments shall be paid concurrently with the regular
monthly Base Rent payments for the balance of the Lease Year and shall continue
until the next Lease Year’s Estimate Statement (or current Lease Year’s revised
Estimate Statement) is received.  Each
Estimate Statement and each Actual Statement (as defined below) will include a
detailed breakdown of all Operating Expenses with a comparison on a line item
basis to the Operating Expenses for the Base Year.  In addition, each Estimate Statement and each Actual Statement
will include a reasonably detailed description of any significant increases in
any line item of Operating Expenses.

 

6.5                                 Actual Statement   By the first day of April of each succeeding Lease Year during the
Term of this Lease, Landlord shall endeavor to deliver to Tenant a statement (“Actual Statement”) of the actual Operating
Expenses for the immediately preceding Lease Year and which shall indicate the
amount of the Excess.  The failure of
Landlord to timely furnish the Statement for any Expense Year shall not
prejudice Landlord or Tenant from enforcing its rights under this Article IV.  Even though the Lease Term has expired and
Tenant has vacated the Demised Premises, when the final determination is made
of Tenant’s Percentage of Operating Expenses for the Expense Year in which this
Lease terminates, is an Excess if present, Tenant shall pay to Landlord such
amount within thirty (30) days, and if Tenant paid more as Estimated Excess
than the actual Excess, Landlord shall, within thirty (30) days, deliver a
check payable to Tenant in the amount of the overpayment. Upon receipt of the
Actual Statement for each Expense Year commencing or ending during the Lease
Term, if an Excess is present, Tenant shall pay, within thirty (30) days after
Tenant’s receipt of such Actual Statement, the full amount of the Excess for
such Expense Year, less the amounts, if any, paid during such Expense Year as
Estimated Excess, and if Tenant paid more as Estimated Excess than the actual
Excess, Tenant shall receive a credit in the amount of Tenant’s overpayment
against Rent next due under this Lease. 
Such obligation will be a continuing one which will survive the
expiration or earlier termination of this Lease.

 

6.6                                 No
Release.  Any delay or failure
by Landlord in delivering any Estimate or Actual Statement pursuant to this
Article VI shall not constitute a waiver of Landlord’s rights under this
Article VI, except that Tenant shall not be obligated to make any payments
based on such Estimate or Actual Statement until thirty (30) business days
after receipt of such statement nor shall Landlord be permitted to require
Tenant to pay any Operating Expenses for which Landlord has not included in an
Estimate Statement or Actual Statement or otherwise billed Tenant on or before
December 31 of the Lease Year next following the Lease Year in which such
Operating Expense was incurred.

 

6.7                                 Tenant’s Percentage.  As used herein, “Tenant’s Percentage” (i) with respect to Operating
Expenses attributable to the Southern Building, including the Southern Building

 

19

 

Common Areas, shall equal the percentage
which the total rentable square footage of the Demised Premises bears to the
total rentable square footage of the Southern Building and (ii) with
respect to the Operating Expenses attributable to the Project Common Areas,
shall equal the percentage which the total rentable square footage of the
Demised Premises bears to the total rentable square footage of the
Project.  Tenant’s Percentage shall be
adjusted based on the actual rentable square footage of the Southern Building,
the Project and Demised Premises located therein as confirmed by Landlord’s
Architect promptly after Substantial Completion pursuant to Section 3.1
above.

 

6.8                                 Inspection of Operating Expenses.  Within one (1) year after receipt of any
Actual Statement by Tenant (“Review Period”), Tenant may, after reasonable
notice to Landlord and during normal business hours, inspect at Landlord’s
offices Landlord’s books and records that relate to Operating Expenses for the
period represented by any such Actual Statement and Landlord’s books and
records that relate to Operating Expenses for the Base Year, provided, that
Tenant shall maintain all information contained in Landlord’s books and records
in strict confidence.  If after such
inspection, Tenant disputes such Additional Rent as set forth in such Actual
Statement, a certification as to the proper amount shall be made, at Tenant’s
expense (except as provided below), by an independent certified public
accountant selected by Tenant and reasonably approved by Landlord.  Landlord shall cooperate with Tenant to
provide Tenant with the information upon which the certification is based;
provided that if such certification proves that the Operating Expenses set
forth in any such Actual Statement were overstated by more than five percent
(5%), then the reasonable cost of such certification shall be paid for by
Landlord.  Promptly following the
parties’ receipt of such certification, the parties shall make such appropriate
payments or reimbursements, as the case may be, to each other, as are
determined to be owing pursuant to such certification.  In the event Tenant has not challenged any
Actual Statement within said one (1) year period, Tenant shall have no further
right to inspect or challenge the accuracy of such Actual Statement.  Landlord shall be required to maintain records
of all such Operating Expenses for a minimum of two (2) years following
Landlord’s delivery to Tenant of each Actual Statement and shall be required to
maintain records of all such Operating Expenses for the Base Year for a minimum
of two (2) years following the expiration or earlier termination of the Lease
Term.

 

ARTICLE VII

 

INSURANCE

 

7.1                                 Tenant’s Insurance.  Tenant shall, at Tenant’s sole cost and expense, maintain the
following coverages in the following amounts:

 

7.1.1                        Commercial
General Liability Insurance covering the insured against claims of bodily
injury, personal injury and property damage arising out of Tenant’s operations,
assumed liabilities or use of the Demised Premises, including a Broad Form
endorsement (if applicable) covering the insuring provisions of this Lease and
the performance by Tenant of the indemnity agreements set forth in
Section 7.6 of this Lease, for limits of liability not less than Two
Million Dollars ($2,000,000) per occurrence and Five Million Dollars ($5,000,000)
in the aggregate, naming Landlord as an additional insured.  Notwithstanding the foregoing, such

 

20

 

required coverage may be maintained by Tenant
pursuant to an “umbrella” policy covering the Demised Premises.

 

7.1.2                        Physical
Damage Insurance covering (i) all office furniture, trade fixtures, office
equipment, merchandise and all other items of Tenant’s property on the Demised
Premises installed by, for, or at the expense of Tenant, and (ii) all
other improvements, alterations and additions to the Demised Premises.  Such insurance shall be written on an “all
risks” of physical loss or damage basis, for the full replacement cost value
new without deduction for depreciation of the covered items and in amounts that
meet any co-insurance clauses of the policies of insurance and shall include a
vandalism and malicious mischief endorsement, sprinkler leakage coverage and
earthquake sprinkler leakage coverage.

 

7.1.3                        Worker’s
Compensation and Employer’s Liability Insurance, with a waiver of subrogation
endorsement, in statutory amounts and limits.

 

7.1.4                        Business
Interruption, loss of income and extra expense insurance in an amount not less
than one (1) year of Base Rent to reimburse Tenant for direct or indirect loss
of earnings attributable to all perils commonly insured against by prudent
tenants or attributable to prevention of access to the Demised Premises or to
the Buildings as a result of such perils.

 

7.2                                 Landlord’s Insurance.  At all times from and after the Commencement
Date, Landlord shall, as an Operating Expense, 
maintain in effect a policy or policies of insurance providing
protection for the following liabilities and/or risks:  (a) public liability for bodily injury
and property damage arising from Landlord’s ownership and/or operation of the
Project with coverage limits at least equal to those Tenant is required to
maintain in accordance with Section 7.1, (b) any peril, in Landlord’s
reasonable discretion, insurable under an “all risks” policy covering the
Buildings of which the Demised Premises are a part and the tenant improvements,
exclusive of any items insured by Tenant pursuant to Section 7.1, in an
amount equal to each Building’s and the Improvements’ full replacement cost
(exclusive of the cost of excavations, foundation and footings) and
(c) rent loss insurance in an amount equal to not more than twelve (12)
months’ of the Building’s estimated gross receipts.  Landlord’s obligation to carry the “all risks” insurance provided
for in this Section 7.2 may be satisfied by inclusion of said building
within the coverage of any blanket policy or policies of insurance carried and
maintained by Landlord, provided that the coverage afforded will not be reduced
or diminished by reason of the use of such blanket policies of insurance.  Tenant shall neither use the Premises for
other than general office purposes nor permit the Premises to be used or acts
to be done therein to the extent such use or acts would (i) increase the
premium of any insurance carried by Landlord with respect to the Project;
(ii) cause a cancellation of or be in conflict with any such insurance
policies; or (iii) result in a refusal by insurance companies of good
standing to insure the Project in amounts reasonably satisfactory to Landlord.  Tenant shall, at Tenant’s expense, comply as
to the Premises with all insurance company requirements pertaining to the use
of the Premises.  If Tenant’s conduct or
use of the Premises for other than general office purposes causes any increase
in the premium for such insurance policies then Tenant shall reimburse Landlord
for any such increase. Tenant, at Tenant’s expense, shall comply with all
rules, orders, regulations or requirements of the American Insurance
Association (formerly the National Board of Fire Underwriters) and with any
similar body to the extent applicable to Tenant’s use of the Premises.  As provided in Section 6.3 above, if
Landlord obtains any insurance coverage or

 

21

 

expanded scope of coverage that was not
included in the insurance policies maintained during the Base Year, the
Operating Expenses for the Base Year shall be adjusted to an amount equal to
the Operating Expenses that would have been incurred had such coverage been
maintained during the Base Year.

 

7.3                                 Form of Policies.  The minimum limits of policies of insurance required of Landlord
and Tenant under this Lease shall in no event limit the liability of Landlord
and Tenant under this Lease.  All
insurance shall (i) be issued by an insurance company having a rating of
not less than A- VIII in Best’s Insurance Guide or which is otherwise
acceptable to Landlord and licensed to do business in the State of California;
and (ii) provide that said insurance shall not be canceled or coverage
changed unless thirty (30) days’ prior written notice shall have been given to
the other party and any mortgagee or ground or underlying lessor of
Landlord.  In addition, the insurance
described in Section 7.3.1 above shall (a) name Landlord, and any
other party specified by Landlord, as an additional insured;
(b) specifically cover the liability assumed by Tenant under this Lease
including, but not limited to, Tenant’s obligations under Section 7.1 of
this Lease; (c) be primary insurance as to all claims thereunder and
provide that any insurance required by Landlord is excess and is
non-contributing with any insurance requirement of Tenant; and (d) contain
a cross-liability endorsement or severability of interest clause acceptable to
Landlord.  Tenant shall deliver said
policy or policies or certificates thereof to Landlord upon execution of this
Lease and at least thirty (30) days before the expiration dates thereof.  In the event Tenant shall fail to procure
such insurance, or to deliver such certificate, Landlord may, at its option,
procure such policies for the account of Tenant, and the costs of it shall be
paid to Landlord as Additional Rent within fifteen (15) days after delivery to
Tenant of bills therefor.

 

7.4                                 Waiver of Subrogation.  Landlord and Tenant hereby mutually waive
any and all rights of recovery against one another for real or personal
property loss or damage occurring to the Demised Premises, or any part thereof,
or any personal property therein from perils insured (or required to be
insured) against under the insurance maintained hereunder for the benefit of
the respective parties, and to the extent the proceeds of such insurance are
actually recovered, and each shall use commercially reasonable efforts to
assure that such insurance permits waiver of liability and contains a waiver of
subrogation.

 

7.5                                 Blanket Insurance Coverage.  Nothing in this Article VI shall
prevent Tenant from taking out insurance of the kind and in the amount provided
for under the preceding paragraphs of this Article VII under a blanket
insurance policy or policies (and certificates thereof reasonably satisfactory
to Landlord shall be delivered to Landlord) which may cover other properties
owned, leased or operated by Tenant as well as the Demised Premises; provided,
however, that any such policy of blanket insurance of the kind provided for
shall not contain any clause which would result in the insured thereunder being
required to carry any insurance with respect to the property covered thereby in
an amount not less than any specific percentage of the Full Replacement Cost of
such property in order to prevent the insured therein named from becoming a
co-insurer of any loss with the insurer under such policy; and further
provided, however, that such policies of blanket insurance shall, as respects
the Demised Premises, contain the various provisions required of such an
insurance policy by the foregoing provisions of this Article VII.

 

22

 

7.6                                 Indemnification and Waiver.  To the extent not prohibited by law, and
except as otherwise provided in this Lease, Landlord, its partners, subpartners
and their respective officers, agents, servants, employees, and independent
contractors (collectively, “Landlord Parties”)
shall not be liable for, any damage either to person or property or resulting
from the loss of use thereof, which damage is sustained by Tenant or the Tenant
Parties.  Tenant shall indemnify,
defend, protect, and hold harmless Landlord Parties from any and all loss,
cost, damage, expense and liability, (including without limitation court costs
and reasonable attorneys’ fees) (collectively, “Claims”) incurred in connection with or arising from any cause
in, on or about the Demised Premises, either prior to, during, or after the
expiration of the Lease Term, provided that the terms of the foregoing
indemnity shall not apply to the negligence or willful misconduct of Landlord
or its agents, contractors, servants, employees or licensees in connection with
Landlord’s activities in the Project (except for damage to the Tenant’s
personal property, fixtures, furniture and equipment in the Premises, to the
extent Tenant is required to obtain the requisite insurance coverage pursuant
to this Lease) and Landlord hereby agrees to indemnify, defend, protect and
hold harmless Tenant and the Tenant Parties from any such Claims.  The provisions of this Section 7.6
shall survive the expiration or sooner termination of this Lease with respect
to any claims or liability occurring prior to such expiration or termination.

 

ARTICLE VIII

 

ROOF RIGHTS

 

Subject to all governmental laws, rules and regulations, and compliance
with the CCR’s, Tenant and Tenant’s contractors (which shall first be approved
by Landlord) shall have the nonexclusive right and access, without further
payment of Rent to Landlord, to install, repair, replace, remove, operate and
maintain satellite dishes and/or microwave dishes, and other radio transmitting
and receiving antennae, together with all necessary cable, wiring, conduits and
related equipment (collectively, “Communication Equipment”), for the purpose of
receiving and sending telephone and other communication signals, at a location
on the roof of the Southern Building as reasonably requested by Tenant and reasonably
approved by Landlord in writing. 
Tenant’s installation and operation of the Communication Equipment shall
be governed by the following terms and conditions:

 

(a)                                  Tenant’s
right to install, replace, repair, remove, operate and maintain the Communication
Equipment shall be subject to all governmental laws, rules and regulations and
Landlord makes no representations that such laws, rules and regulations permit
such installation and operation.

 

(b)                                 The
exact size, quality, materials and aesthetics of, and any required screening
for, the Communication Equipment shall be subject to Landlord’s prior written
consent which shall not be unreasonably withheld or delayed.

 

(c)                                  All
costs of installation, operation and maintenance of the Communication Equipment
and any necessary related equipment (including, without limitation, costs of
obtaining any necessary permits and of connections to the Southern Building’s
electrical system) shall be borne by Tenant. 
All such Communication Equipment shall be screened to commercially
reasonable standards and to prevent visual impairment.

 

23

 

(d)                                 Tenant
shall use the Communication Equipment so as not to cause any unreasonable
interference (i) with any other communications from or to the Project or
(ii) to other existing tenants or occupants in the Project who may use the
communication facilities located at the Project and/or related facilities.

 

(e)                                  Landlord
shall not have any obligations with respect to the Communication Equipment.  Landlord makes no representation that the
Communication Equipment will be able to receive or transmit communication
signals without interference or disturbance and Tenant agrees that Landlord
shall not be liable to Tenant therefor.

 

(f)                                    Tenant
shall not be permitted to allow any third party (other than a Transferee
permitted under Section 15.2 or a Transferee approved by Landlord) to use
any portion of the Roof for Communication Equipment or otherwise without
Landlord’s consent, which shall not be unreasonably withheld.

 

(g)                                 Tenant
shall (i) be solely responsible for any damage caused as a result of the
Communication Equipment (including but not limited to the installation,
maintenance, repair and/or removal thereof), (ii) promptly pay any tax,
license or permit fees charged pursuant to any laws or regulations in
connection with the installation, maintenance or use of the Communication
Equipment and comply with all precautions and safeguards recommended by all
governmental authorities, and (iii) pay for all necessary repairs,
replacements to or maintenance of the Communication Equipment.

 

(h)                                 The
Communication Equipment shall remain the sole property of Tenant.  Tenant shall remove the Communication
Equipment and related equipment at Tenant’s sole expense upon the expiration or
sooner termination of this Lease with respect to the Southern Building or upon
the imposition of any governmental law or regulation which may require removal,
and shall repair the Southern Building upon such removal to the extent required
by such work of removal.  If Tenant
fails to remove the Communication Equipment and repair the Southern Building
within thirty (30) days after the expiration or earlier termination of this
Lease with respect to the Southern Building, Landlord may do so at Tenant’s
expense.

 

Landlord reserves the right to use portions of the roof space on the
Southern Building or lease roof space on the Southern Building to other
parties; provided, however, any party to which Landlord leases such roof space
shall be subject to similar restrictions as set forth in this
Article XIII.

 

ARTICLE IX

 

REPAIRS

 

9.1                                 Landlord’s Repair Obligations.  Subject to Articles XIII and XIV of
this Lease, Landlord shall repair, maintain and replace, as necessary
(a) at Landlord’s sole cost and expense, the structural portions of the
Demised Premises and the Southern Building (including the structural elements
of the roof, structural walls, underground utilities, concrete subflooring and
foundations), (b) as part of the Operating Expenses (except to the extent
otherwise excluded pursuant to Sections 6.2 and 6.8 above or this
Section 9.1 below), (i) the Building Systems and

 

24

 

Equipment (but not any above standard
improvements installed in the Premises such as, for example, but by way of
limitation, custom lighting, special or supplementary HVAC or plumbing systems
or distribution extensions, special or supplemental electrical panels or
distribution systems, or kitchen or restroom facilities and appliances to the
extent such facilities and appliances are intended for the exclusive use of
Tenant), (ii) the Building Common Areas with respect to the Southern
Building and (iii) the Project Common Areas; provided, however, to the
extent such maintenance, repairs or replacements are required as a result of
any act, neglect, fault or omission of Tenant or any of the Tenant Parties,
Tenant shall pay to Landlord, as Additional Rent, the cost of any such
maintenance, repairs or replacements. 
Landlord shall not be liable to Tenant for failure to perform any such
maintenance, repairs or replacements, unless Landlord shall fail to make such
maintenance, repairs or replacements and such failure shall continue for a
reasonable time following written notice from Tenant to Landlord of the need
therefor.  Without limiting the
foregoing, Tenant waives the right to make repairs at Landlord’s expense under
any law, statute or ordinance now or hereafter in effect (including the
provisions of California Civil Code section 1942 and any successive
sections or statutes of a similar nature). 
Notwithstanding the foregoing or anything in this Lease to the contrary,
the costs incurred by Landlord in maintaining the structural portions of the
Southern Building (as described in Section 9.1(a) above) shall be at
Landlord’s sole cost and expense and not be included in Operating Expenses.

 

9.2                                 Tenant’s Repair Obligations.  Except for Landlord’s obligations
specifically set forth in this Lease, Tenant shall at all times and at Tenant’s
sole cost and expense, keep, maintain, clean, repair, preserve and replace, as
necessary, the Demised Premises and all parts thereof including, without
limitation, all Improvements, alterations, all special or supplemental HVAC
systems, electrical systems, pipes and conduits located within the Demised
Premises, all fixtures, furniture and equipment, Tenant’s signs, locks, closing
devices, security devices, windows, window sashes, casements and frames, floors
and floor coverings, shelving, kitchen facilities and appliances located within
the Demised Premises to the extent such facilities and appliances are intended
for the exclusive use of Tenant, custom lighting, and any alterations,
additions and other property located within the Demised Premises, in
first-class condition and repair, reasonable wear and tear excepted.  Tenant shall replace, at its expense, any
and all glass in and about the Demised Premises which is damaged or broken from
any cause whatsoever except due to the negligence or willful misconduct of
Landlord, its agents or employees.  Such
maintenance and repairs shall be performed with due diligence, lien-free and in
a first-class and workmanlike manner, by licensed contractor(s) which are
selected by Tenant and approved by Landlord, which approval Landlord shall not
unreasonably withhold or delay.  Except
as otherwise expressly provided in this Lease, Landlord shall have no
obligation to alter, remodel, improve, repair, renovate, redecorate or paint
all or any part of the Demised Premises.

 

9.3                                 Prohibition Against Waste.
Tenant shall not do or suffer any waste, damage, disfigurement or injury to the
Demised Premises, or any improvements hereafter erected thereon, or to the
fixtures or equipment therein, or permit or suffer any overloading of the
floors or other use of the Improvements that would place an undue stress on the
same or any portion thereof beyond that for which the same was designed.

 

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ARTICLE X

 

COMPLIANCE WITH APPLICABLE LAWS AND

RESTRICTIONS

 

10.1                           Compliance with Applicable Laws and Restrictions.  Subject to Landlord’s obligations under
Article II, Section 9.1 and Article IV of this Lease, or as
expressly provided under any other provision hereof, throughout the Term of
this Lease, and at Tenant’s sole cost and expense (except as provided in
Sections 2.8 and 9.1 above), Tenant shall promptly comply or cause
compliance with or remove or cure any violation caused by Tenant of any and all
present and future laws, rules and regulations applicable to the Demised
Premises and the orders, rules and regulations of the Board of Fire
Underwriters where the Demised Premises are situated (provided Tenant shall be
required to make any alterations to the Demised Premises in connection therewith
only if the non-compliance was the result of alterations made to the Premises
by Tenant or at Tenant’s election or direction, including the alterations made
to the Premises in preparation of Tenant’s occupancy hereunder, but excluding,
however, any alterations required in connection with or as a result of the
Demising Wall), or any other governmental body now or hereafter constituted
exercising lawful or valid authority over the Demised Premises, or any portion
thereof, or exercising authority (“Applicable
Requirements”) solely to the extent such Applicable Requirements
relate to Tenant’s specific use of, tenant improvements or alterations to, the
Demised Premises.  Notwithstanding the
foregoing or anything to the contrary contained in this Lease, Landlord hereby
warrants to Tenant that each Building, as of the Commencement Date, shall be in
compliance with the Americans With Disabilities Act (“ADA”) and all other laws in effect as of the Commencement
Date and each Delivery Date.  Landlord
will be fully responsible for making all alterations and repairs to each such
Building, at Landlord’s cost (which shall not be included in Operating
Expenses) resulting from or necessitated by the failure of Landlord or
Landlord’s contractors to comply with the foregoing warranty.  All exterior areas of the Demised Premises,
parking areas, walkways, ramps, exterior of the Buildings and ingress to and
egress from the Demised Premises shall be constructed and maintained by
Landlord at all times during the Term of this Lease and any renewal(s) in
strict compliance with the ADA requirements.

 

10.2                           Tenant’s Right to Contest Laws and
Ordinances.  After prior written
notice to Landlord, Tenant, at its sole cost and expense and without cost or
expense to Landlord, shall have the right to contest the validity or
application of any law in the name of Tenant or Landlord, or both, by
appropriate legal proceedings diligently conducted but only if compliance with
the terms of any such law or ordinance pending the prosecution of any such proceeding,
may legally be delayed without incurring of any lien, charge or liability of
any kind against the Demised Premises, or any portion thereof, and without
subjecting Landlord or Tenant to any liability, civil or criminal, for failure
so to comply therewith until the final determination of such proceeding;
provided, however, if any lien, charge or civil liability would be incurred by
reason of any such delay, Tenant nevertheless, on the prior written consent of
Landlord, which consent shall not be unreasonably withheld, may contest as
aforesaid and delay as aforesaid, provided that such delay would not subject
Tenant or Landlord to criminal liability and Tenant (a) furnishes Landlord
security, reasonably satisfactory to Landlord, against any loss or injury by
reason of any such contest or delay, (b) prosecutes the contest with due
diligence and in good faith, and (c) agrees to indemnify, defend and hold
harmless Landlord and the Demised Premises from any charge,

 

26

 

liability or expense whatsoever.  The security furnished to Landlord by Tenant
may be in the form of a cash deposit or a Certificate of Deposit (“CD”) issued
by a national bank or federal savings and loan association payable to
Landlord.  Landlord shall be entitled to
apply such security against an uncured Event of Default hereunder and, if
during the continuance of such proceedings, Landlord shall, from time to time,
reasonably deem the amount deposited, as aforesaid, insufficient, Tenant shall
upon demand of Landlord make additional deposits of such additional sums of
money or such additional CD’s as Landlord may reasonably request.  If Tenant is required to make such
additional deposits hereunder and Tenant fails to make same, the amount theretofore
deposited may be applied by Landlord to the payment, removal or discharge of
such liability, and the interest, fines and penalties in connection therewith,
and any costs, fees (including attorneys’ fees) and other liability (including
costs incurred by Landlord) accruing in any such proceedings.  Upon resolution of any such contest,
Landlord shall return all amounts or CD’s previously deposited with Landlord
with respect to the contest of such laws, less any amounts applied by Landlord
as aforesaid.  During the time when any
such CD is on deposit with Landlord, and prior to the time when the same is
returned to Tenant or applied against the payment, removal or discharge of such
liabilities, as above provided, Tenant shall be entitled to receive all
interest paid thereon.  Cash deposits
shall not bear interest.

 

If necessary or proper to permit Tenant so to contest the validity or
application of any such law or ordinance, Landlord shall, at Tenant’s sole cost
and expense, including reasonable attorneys’ fees incurred by Landlord, execute
and deliver any appropriate papers or other documents; provided, however, that
Landlord shall not be required to execute any document or consent to any
proceeding which would result in the imposition of any cost, charge, expense or
penalty on Landlord or the Demised Premises.

 

ARTICLE XI

 

MECHANIC’S
LIENS AND OTHER LIENS

 

11.1                           Mechanic’s
Liens.

 

(a)                                  Tenant
shall keep the Demised Premises free from any liens arising out of work
performed, materials furnished and obligations incurred by Tenant.  Tenant covenants and agrees that any
mechanic’s lien filed against the Demised Premises for work claimed to have
been done for, or materials claimed to have been furnished to, Tenant shall be
discharged by Tenant, by bond or otherwise, within thirty (30) days after the
filing thereof, at the sole cost and expense of Tenant.  This provision does not apply to any claim
or lien arising out of the original construction of the Demised Premises by
Landlord pursuant to this Lease.

 

(b)                                 Tenant
shall have the right to contest with due diligence the validity or amount of
any lien or claimed lien created by Tenant if Tenant shall give to Landlord
such security as Landlord may reasonably require to insure payment thereof and
prevent any sale, foreclosure or forfeiture of the Demised Premises or any
portion thereof by reason of such nonpayment. 
On final determination of the lien or claim for lien, Tenant shall
immediately pay any judgment rendered with all proper costs and charges and
shall have the lien released or judgment satisfied at Tenant’s own expense, and
if Tenant shall fail to do so, Landlord may at its option, pay any such final
judgment and clear the Demised Premises therefrom. If Tenant shall

 

27

 

fail to contest with due diligence the
validity or amount of any such lien or claimed lien created by Tenant, or to
give Landlord security as hereinabove provided, Landlord may, but shall not be
required to, contest the validity or amount of any such lien or claimed lien or
settle or compromise the same without inquiring into the validity of the claim
or the reasonableness of the amount thereof. 
Should any lien be filed against the Demised Premises or should any
action of any character affecting the title thereto be commenced, Tenant shall
give to Landlord written notice thereof as soon as notice of such lien or
action comes to the knowledge of Tenant.

 

(c)                                  Should
Tenant fail to discharge any such lien, Landlord may, at Landlord’s election,
pay such claim or post a bond or otherwise provide security to eliminate the
lien as a claim against title, and the cost thereof shall be immediately due
from Tenant as Additional Rent.  Tenant
shall not suffer or permit any mechanic’s lien or other lien to be filed
against the Demised Premises, or any portion thereof, by reason of work, labor,
skill, services, equipment or materials supplied or claimed to have been
supplied to the Demised Premises at the request of Tenant, or anyone holding
the Demised Premises, or any portion thereof, through or under Tenant.

 

(d)                                 All
materialmen, contractors, artisans, mechanics, laborers and any other person
now or hereafter furnishing any labor, services, materials, supplies or
equipment to Tenant with respect to the Demised Premises, or any portion
thereof, are hereby charged with notice that they must look exclusively to
Tenant to obtain payment for the same. 
Notice is hereby given that Landlord shall not be liable for any labor, services,
materials, supplies, skill, machinery, fixtures or equipment furnished or to be
furnished to Tenant upon credit, and that no mechanic’s lien or other lien for
any such labor, services, materials, supplies, machinery, fixtures or equipment
shall attach to or affect the estate or interest of Landlord in and to the
Demised Premises or any portion thereof.

 

11.2                           Landlord’s Indemnification.  The provisions of Section 11.1 above
shall not apply to any mechanic’s lien or other lien for labor, services,
materials, supplies, machinery, fixtures or equipment furnished to the Demised
Premises in the performance of Landlord’s obligations to construct the
Improvements required by the provisions of Article II hereof or in the
performance of Landlord’s other obligations under this Lease, and Landlord does
hereby agree to indemnify and defend Tenant against and save Tenant and the
Demised Premises and any portion thereof harmless from all losses, costs,
damages, expenses, liabilities and obligations, including, without limitation,
reasonable attorneys’ fees resulting from the assertion, filing, foreclosure or
other legal proceedings with respect to any such mechanic’s lien or other lien.

 

11.3                           Removal
of Liens.  Except as otherwise
provided for in this Article XI, Tenant shall not create, permit or
suffer, and shall promptly discharge and satisfy of record, any other lien,
encumbrance, charge, security interest or other right or interest which shall
be or become a lien, encumbrance, charge or security interest upon the Demised
Premises, or any portion thereof, or the income therefrom, or on the interest
of Landlord or Tenant in the Demised Premises, or any portion thereof, if such
lien, encumbrance, charge, security interest or other right or interest shall
result from the actions of Tenant or others acting on the behalf of or for
Tenant (other than Landlord).

 

28

 

11.4                           Equipment and Trade Fixtures.  Landlord expressly waives and disclaims any
lien which it may have by statute or otherwise on the equipment and trade
fixtures which Tenant brings to the Demised Premises.  In addition, Landlord acknowledges that Tenant may, from time to
time, offer all or portions of such equipment and trade fixtures as collateral
for obligations to lenders.  Landlord
will promptly execute such reasonable documentation as Tenant may request in
order to evidence to any such lender Landlord’s lack of any claim to such
equipment and trade fixtures.

 

ARTICLE XII

 

DEFAULTS OF
TENANT

 

12.1                           Events
of Default.  Any one or more of
the following events shall be an event of default by Tenant (“Event of
Default”) under this Lease:

 

(a)                                  Tenant
fails to pay any Base Rent or Additional Rent or any other sum required by this
Lease to be paid by Tenant, within five (5) days after notice from Landlord
that such Rent is due;

 

(b)                                 Tenant
fails to perform or comply with any other term hereof, and such failure shall
continue for more than thirty (30) days after notice thereof from Landlord, and
Tenant shall not within such period commence with due diligence and thereafter
dispatch the curing of such default, or, having so commenced, shall thereafter
fail or neglect to prosecute or complete with due diligence and dispatch the
curing of such default;

 

(c)                                  Tenant
makes a general assignment for the benefit of creditors or admits in writing
its inability to pay its debts as they become due or files a petition in
bankruptcy, or is adjudicated as bankrupt or insolvent, or files a petition
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statutes, law or
regulation, or files an answer admitting or fails to reasonably contest the
material allegations of a petition filed against it in any such proceeding, or
seeks or consents to or acquiesces in the appointment of any trustee, receiver
or liquidator of Tenant or any material part of its properties (provided,
however, that this Section 12.1(c) shall apply only to the extent it is
enforceable under applicable law); or

 

(d)                                 Within
ninety (90) days after the commencement of any 
proceeding against Tenant seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such proceeding has not been
dismissed, or if, within ninety (90) days after the appointment without the
consent or acquiescence of Tenant of any trustee, receiver or liquidator of
Tenant or of any material part of its properties, such appointment has not been
vacated (provided, however, that this Section 12.1(d) shall apply only to
the extent it is enforceable under applicable law); or

 

(e)                                  Tenant
permits the abandonment or nonoccupancy of the entire Demised Premises (except
for temporary vacancies or portions thereof, or to the extent caused by damage,
destruction or condemnation).

 

29

 

12.2                           Landlord’s
Remedies.  Upon the occurrence
of an Event of Default, Landlord, at its option, without further notice or
demand to Tenant, shall have, in addition to all other rights and remedies
provided in this Lease, at law or in equity, the option to pursue any one or
more of the following remedies, each and all of which shall be cumulative and
nonexclusive, without any notice or demand whatsoever:

 

(a)                                  Terminate
this Lease, in which event Tenant shall immediately surrender the Demised
Premises to Landlord, and if Tenant fails to do so, Landlord may, without
prejudice to any other remedy which it may have for possession or arrearages in
Base Rent or Additional Rent, enter upon and take possession of the Demised
Premises and expel or remove Tenant and any other person who may be occupying
the Demised Premises or any part thereof, without being liable for prosecution
or any claim or damages therefor; and Landlord may recover from Tenant the
following:

 

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

 

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

 

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

 

(iv)                              Any
other amount necessary to compensate Landlord for all the detriment proximately
caused by Tenant’s failure to perform its obligations under this Lease or which
in the ordinary course of things would be likely to result therefrom; and

 

(v)                                 Such
other amounts in addition to or in lieu of the 
foregoing as may be permitted from time to time by applicable law.

 

The term “Rent” as used in this Section 12.2
shall be deemed to be and to mean all sums of every nature required to be paid
by Tenant pursuant to the terms of this Lease, whether to Landlord or to
others.  As used in subsections (i)
and (ii), above, the “worth at the time of award” shall be
computed at the Maximum Rate of Interest. 
As used in subsection (iii), above, the “worth at the time of award”
shall be computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).  Nothing herein shall be deemed to
relieve Landlord of its obligation to mitigate its damages following an Event
of Default.

 

12.3                           Right to Collect Rent as Due.  Landlord shall have the remedy described in
California Civil Code Section 1951.4 (Landlord may continue lease in
effect after Tenant’s breach and abandonment and recover rent as it becomes
due, if Tenant has the right to sublet or assign, subject only to reasonable
limitations).  Accordingly, if Landlord
does not elect to terminate this Lease on account of any default by Tenant,
Landlord may, from time to time,

 

30

 

without terminating this Lease, enforce all
of its rights and remedies under this Lease, including the right to recover all
Base Rent and Additional Rent as they become due.

 

12.4                           New Lease Following Termination.  In the event Landlord elects to terminate
this Lease and relet the Premises, it may execute any new lease in its own
name.  Tenant hereunder shall have no
right or authority whatsoever to collect any Base Rent, Additional Rent or
other sums from such tenant.  The
proceeds of any such reletting shall be applied as follows:

 

(a)                                  First,
to the payment of any indebtedness other than Base Rent or Additional Rent due
hereunder from Tenant to Landlord, including but not limited to storage charges
or brokerage commissions owing from Tenant to Landlord as the result of such
reletting;

 

(b)                                 Second,
to the payment of the costs and expenses of reletting the Premises, including
alterations and repairs which Landlord deems reasonably necessary and
advisable, and reasonable attorneys’ fees incurred by Landlord in connection
with the retaking of the Demised Premises and such reletting;

 

(c)                                  Third,
to the payment of Base Rent, Additional Rent and other charges due and unpaid
hereunder; and

 

(d)                                 Fourth,
to the payment of future Base Rent, Additional Charges and other damages payable
by Tenant under this Lease.

 

12.5                           Cumulative Rights; No Waiver.  All rights, options and remedies of Landlord
contained in this Lease shall be construed and held to be non-exclusive and
cumulative.  Landlord shall have the
right to pursue any or all of such remedies or any other remedy or relief which
may be provided by law, whether or not stated in this Lease.  No waiver of any Event of Default of Tenant
hereunder shall be implied from the acceptance by Lender of any payments due
hereunder (except with respect to the amount 
so collected) or any omission by Landlord party to take any action on
account of such Event of Default if such Event of Default persists or is
repeated, and no express waiver shall affect defaults other than as specified
in said waiver.

 

12.6                           Surrender of Demised Premises.  Upon any expiration or termination of this
Lease, Tenant shall quit and peaceably surrender the Demised Premises and all
portions thereof to Landlord, and Landlord may, upon or at any time after any
such expiration or termination and without further notice, enter upon and
reenter the Demised Premises and all portions thereof and possess and repossess
itself thereof by force, summary proceeding, ejectment or otherwise, and may
dispossess Tenant and remove Tenant and all other persons and property from the
Demised Premises and all portions thereof and may have, hold and enjoy the
Demised Premises and the right to receive all rental and other income of and
from the same.

 

12.7                           Interest on Unpaid Amounts.  If Tenant shall commit an Event of
Default, Landlord may cure the same, but shall not be required to do so, as
provided in, and subject to, Section 11.1 above, and in exercising any
such right, may employ counsel and pay necessary and incidental costs and expenses,
including reasonable attorneys’ fees. 
All reasonable sums so paid by Landlord, and all reasonable and
necessary costs and expenses, including reasonable attorneys’ fees, in
connection with the performance of any such act by Landlord, together with
interest thereon at the Maximum Rate of Interest from the date of making such
expenditure by

 

31

 

Landlord, shall be deemed Additional Rent
hereunder and, except as is otherwise expressly provided herein, shall be payable
to Landlord within ten (10) days after written demand, and Tenant covenants to
pay any such sum or sums, with interest as aforesaid, and Landlord shall have,
in addition to any other right or remedy of Landlord, the same rights and
remedies in the event of nonpayment thereof by Tenant as in the case of default
by Tenant in the payment of monthly Base Rent. 
Landlord shall not be limited in the proof of any damages which Landlord
may claim against Tenant arising out of or by reason of Tenant’s failure to
provide and keep in force insurance as aforesaid, to the amount of the
insurance premium or premiums not paid or not incurred by Tenant, and which
would have been payable upon such insurance, but Landlord shall also be
entitled to recover as damages for such breach the uninsured amount of any loss
(to the extent of any deficiency between the dollar limits of insurance
required by the provisions of this Lease and the dollar limits of the insurance
actually carried by Tenant) and reasonable costs and expenses, including
reasonable attorneys’ fees, suffered or incurred by reason thereof occurring
during any period when Tenant shall have failed or neglected to provide
insurance as aforesaid.

 

ARTICLE XIII

 

DESTRUCTION
AND RESTORATION

 

13.1                           Repair of Damage to Demised Premises
by Landlord.  Tenant shall
promptly notify Landlord of any damage to the Demised Premises or other portion
of the Project resulting from fire or any other casualty.  If Demised Premises or any Common Areas
serving or providing access to the Demised Premises shall be damaged by fire or
other casualty, Landlord shall promptly and diligently, subject to reasonable
delays for insurance adjustment or other matters beyond Landlord’s reasonable
control, and subject to all other terms of this Article XIII, restore the
Shell and Core Improvements of the Southern Building, the Improvements and such
Common Areas and such restoration shall be to substantially the same condition
of the Shell and Core Improvements, the Improvements and the Common Areas prior
to the casualty and substantially in accordance with the Plans and
Specifications, except for modifications required by zoning and building codes
and other laws or by the holder of a mortgage on such the Buildings or Project.
Landlord shall not be liable for any inconvenience or annoyance to Tenant or
its visitors, or injury to Tenant’s business resulting in any way from such
damage or the repair thereof; provided however, that if such fire or other
casualty shall have damaged the Demised Premises or Common Areas necessary to
Tenant’s use, access or occupancy, Landlord shall allow Tenant a proportionate
abatement of Base Rent to the extent Landlord is reimbursed from the proceeds
of rental interruption insurance purchased (or required to be purchased) by
Landlord as part of Operating Expenses, during the time and to the extent the
Demised Premises cannot be reasonably used (and is not used) for the operation
of Tenant’s business, and not occupied by Tenant as a result thereof for the
conduct of Tenant’s business.

 

13.2                           Landlord’s Option to Repair.  Notwithstanding the terms of
Section 13.1 of this Lease, Landlord may elect not to rebuild and/or
restore the Demised Premises, Southern Building and/or Project Common Areas;
and instead terminate this Lease by notifying Tenant in writing of such
termination within ninety (90) days after the date Landlord learns of the
necessity for repairs as the result of damage, such notice to include a
termination date giving Tenant ninety (90) days to vacate the Demised Premises,
but Landlord may so elect only if (i) the Southern

 

32

 

Building or Project Common Areas shall be
damaged by fire or other casualty or cause, and the damage not fully covered,
except for deductible amounts (which deductible amounts shall be an Operating
Expense), by Landlord’s insurance policies carried or required to be carried by
Lender under this Lease exceeds $50,000 (“Landlord’s Threshold”) and
(ii) Tenant is not willing to fund Tenant’s Percentage of the amount of
the shortfall in excess of Landlord’s Threshold. Notwithstanding the foregoing,
if this Lease is terminated by Landlord pursuant to this Section 13.2, and
Landlord shall thereafter elect, within six (6) months after the date of such
termination, to rebuild the Southern Building, Tenant shall have the right to
reinstate this Lease by written notice to Landlord within ten (10) days after
Tenant’s receipt of notice from Landlord that Landlord has so elected to
rebuild.  Tenant’s failure to so notify
Landlord within such 10-day period shall be deemed to constitute Tenant’s
waiver of the right to so reinstate this Lease.

 

13.3                           Landlord’s or Tenant’s Option to
Terminate.  Notwithstanding the
terms of Section 13.1 of this Lease, either Landlord or Tenant may elect
to terminate this Lease by notifying the other in writing of such termination
within ninety (90) days after the date Landlord learns of the necessity of
repairs as a result of such damage in the case of Landlord or within thirty
(30) days of the date Tenant receives Landlord’s written estimate of the time
to complete such repairs in the case of Tenant, such notice to include a
termination date giving Tenant ninety (90) days to vacate the Demised Premises,
but Landlord or Tenant, whichever is the case, may so elect only if the Demised
Premises shall be damaged by fire or other casualty or cause and the repairs
cannot reasonably be substantially completed within one hundred eighty (180)
days after the date Landlord learns of the necessity for repairs as a result of
the damage (when such repairs are made without the payment of overtime or other
premiums).  In addition, Tenant shall
also have the right to terminate this Lease in the event Landlord does not,
subject to Force Majeure,  commence such
repairs within ninety (90) days after the date that Landlord learns of the
necessity of repairs as a result of such damage or, subject to Force Majeure,
Landlord does not substantially complete such repairs within one hundred eighty
(180) days after the date Landlord learns of the necessity for repairs as a
result of such damage, such termination to be effective if notice thereof is
delivered in writing to Landlord at any time prior to the date Landlord has
commenced or substantially completed (as the case may be) such repairs prior to
receipt of Tenant’s termination notice.

 

13.4                           Waiver of Statutory Provisions.  The provisions of this Lease, including this
Article XIII, constitute an express agreement between Landlord and Tenant
with respect to any and all damage to, or destruction of, all or any part of
the Demised Premises, the Buildings or the Project, and any statute or
regulation of the State of California, including, without limitation,
Sections 1932(2) and 1933(4) of the California Civil Code, with respect to
any rights or obligations concerning damage or destruction in the absence of an
express agreement between the parties, and any other statute or regulation, now
or hereafter in effect, shall have no application to this Lease or any damage
or destruction to all or any part of the Demised Premises, the Southern
Building or the Project.

 

13.5                           Damage
Near End of Term.  In the event
that the Demised Premises, the Southern Building, or the Project Common Areas
are destroyed or damaged to any substantial extent during the last twelve (12)
months of the Lease Term, then notwithstanding anything contained in this
Article XIII, Landlord shall have the option to terminate this Lease and,
to the extent such

 

33

 

damage or destruction was not caused as a
result of the negligence or willful misconduct of Tenant or any of Tenant
Parties, Tenant shall have the option to terminate this Lease by giving written
termination notice to Landlord of the exercise of such option within thirty
(30) days after Landlord learns of the necessity for repairs as the result of
such damage or destruction or thirty (30) days after Tenant received notice
from Landlord of the expected time to complete such repairs.  If either Landlord or Tenant exercises such
option to terminate this Lease as provided above, (i) this Lease shall
cease and terminate as of the date of such notice, (ii) Tenant shall pay
the Base Rent and Additional Rent due, properly apportioned up to such date of
termination, and (iii) both parties hereto shall thereafter be freed and
discharged of all further obligations hereunder, except as provided for in
provisions of this Lease which by their terms survive the expiration or earlier
termination of the Lease Term.  Notwithstanding
the foregoing, if Tenant exercises an Extension Option, Landlord shall not have
any right to terminate this Lease under this Section 13.5.

 

ARTICLE XIV

 

CONDEMNATION

 

14.1                           Condemnation of Entire Demised
Premises.  If, during the
Initial Term of this Lease or any extension or renewal thereof, the entire
Demised Premises shall be taken as the result of the exercise of the power of
eminent domain (hereinafter referred to as the “Proceedings”), this Lease and all right, title and interest of
Tenant hereunder shall cease and come to an end on the date of vesting of title
pursuant to such Proceedings.

 

In any taking of the Demised Premises, or any portion thereof,  whether or not this Lease is terminated as
in this Article provided, Tenant shall not be entitled to any portion of the
award for the taking of the Demised Premises or damage to the Improvements,
except as otherwise provided in Section 14.3 with respect to the
restoration of the Improvements, and Tenant hereby waives any right it now has
or may have under present or future law to receive any separate award of
damages for its interest in the Demised Premises or any portion thereof, except
that  Tenant shall have, nevertheless,
the limited right to prove in the Proceedings and to receive any award which
may be made for damages to or condemnation of Tenant’s movable trade fixtures
and equipment, for goodwill and for Tenant’s relocation costs in connection
therewith.

 

14.2                           Partial Condemnation/Termination
of Lease.  If, during the Term
of this Lease an amount less than the entire Demised Premises shall be taken in
such Proceedings with the result that it will materially and adversely
interfere with Tenant’s enjoyment and intended use (as described in
Section 4.1, hereof), as reasonably determined by Tenant, Tenant may, at
its option, terminate this Lease as to the remainder of the Demised
Premises.  Tenant shall not have the
right to terminate this Lease pursuant to the preceding sentence unless
(a) the business of Tenant conducted in the portion of the Demised
Premises taken cannot reasonably be carried on with substantially the same
utility and efficiency in the remainder of the Demised Premises, and
(b) Landlord does not construct or secure in the Project, within ninety
(90) days after the vesting of title or possession in such Proceedings,
substantially similar space to the space so taken and as a substantially
integrated whole with the remaining portion of the Demised Premises.  Such termination as to the remainder of the
Demised Premises shall be effected by notice in writing given not more than
sixty (60) days after the date of vesting of title in such Proceedings, and

 

34

 

shall specify a date no more than sixty (60)
days after the giving of such notice as the date for such termination.  Upon the date specified in such notice, the
Term of this Lease, and all right, title and interest of Tenant hereunder,
shall cease and come to an end.  If this
Lease is terminated as provided in this Section 14.2, Landlord shall be
entitled to and shall receive the total award made in such Proceedings, Tenant
hereby assigning any interest in such award, damages, and compensation to
Landlord, and Tenant hereby waiving any right Tenant now has or may have under
present or future law to receive any separate award of damages for its interest
in the Demised Premises or any portion thereof or its interest in this Lease,
except as otherwise provided in Section 14.1.  The right of Tenant to terminate this Lease as provided in this
Section 14.2, shall not cure or otherwise release Tenant from any then
existing breach of Tenant’s performance of any of the terms, covenants or
conditions of this Lease on its part to be performed.  In the event that Tenant elects not to terminate this Lease as to
the remainder of the Demised Premises, the rights and obligations of Landlord
and Tenant shall be governed by the provisions of Section 14.3 hereof.

 

14.3                           Partial Condemnation/Continuation
of Lease.  If this Lease is not
terminated as provided in Section 14.2 hereof, then this Lease shall, upon
vesting of title or possession in the Proceedings, terminate as to the parts so
taken, and Tenant shall have no claim or interest in the award, damages,
consequential damages and compensation, or any part thereof except as otherwise
provided in Section 14.1, Tenant hereby waiving any right Tenant now has
or may have under present or future law to receive any separate award of
damages for its interest in the Demised Premises or any portion thereof or its
interest in this Lease, except as otherwise provided in Section 14.1 and
except that Tenant shall have the right to apply to Landlord for reimbursement
as hereinafter provided from such funds as specified in this Section 14.3.  The net amount of the award (after deduction
of all costs and expenses, including attorneys’ fees) shall be held by Landlord
(or Landlord’s lender) and applied as hereinafter provided.  Landlord, in such case, covenants and
agrees, at Landlord’s sole cost and expense promptly to restore that portion of
the Improvements on the Demised Premises not so taken to a complete
architectural and mechanical unit for the use and occupancy of Tenant as
provided in this Lease.  In the event
that the net amount of the award (after deduction of all costs and expenses,
including attorneys’ fees) that may be received by Landlord in any such
Proceedings for physical damage to the Improvements as a result of such taking,
and held by Landlord (or Landlord’s lender) for restoration of the Demised
Premises, is insufficient to pay all costs of such restoration work, Landlord
shall pay the difference. Tenant shall not be liable for any additional sum.

 

14.4                           Continuance of Obligations.  In the event of any termination of this
Lease or any part thereof as a result of any such Proceedings, Tenant shall pay
to Landlord all Base Rent, all Additional Rent and other charges payable
hereunder with respect to that portion of the Demised Premises so taken in such
Proceedings with respect to which this Lease shall have terminated justly
apportioned to the date of such termination. 
From and after the date of vesting of possession in such Proceedings,
Tenant shall continue to pay the Base Rent, Additional Rent and other charges
payable hereunder as in this Lease provided to be paid by Tenant, subject to an
abatement of a just and proportionate part of the Base Rent according to the
extent and nature of such taking as provided for in Sections 14.3 and 14.5
hereof in respect to the Demised Premises remaining after such taking.

 

35

 

14.5                           Adjustment
of Rent.  In the event of a
partial taking of the Demised Premises and/or Common Areas under
Sections 14.2 or 14.3 hereof in which  case this Lease is not terminated, the Base Rent for the period
from and after the date of vesting of title or possession in such Proceedings,
until the termination of this Lease with respect to such portion of the Demised
Premises, shall be reduced to a sum equal to the product of the Base Rent
provided for herein multiplied by a fraction, the numerator of which is the
value of the Demised Premises after such taking (and once any restoration is
complete, the value after the same shall have been restored to a complete
architectural unit), and the denominator of which is the value of the Demised
Premises prior to such taking.

 

ARTICLE XV

 

ASSIGNMENT, SUBLETTING, ETC.

 

(a)                                  Restriction on Transfer.  Tenant shall not sublet the Demised Premises
or any portion thereof, nor assign, mortgage, pledge, transfer or otherwise
encumber or dispose of this Lease or any interest therein, or in any manner
assign, mortgage, pledge, transfer or otherwise encumber or dispose of its
interest or estate in the Demised Premises or any portion thereof without
obtaining Landlord’s prior written consent in each and every instance.  Landlord’s consent to an assignment or
subletting under this Section 15.1 shall not be unreasonably withheld or
delayed, provided at the time of any assignment or subletting and at the time
Tenant requests Landlord’s written consent thereto, this Lease must be in full
force and effect and Tenant shall not be in material default under this Lease
beyond any applicable cure periods.

 

(b)                                 Any
such assignee shall assume, by written, recordable instrument, in form and
content satisfactory to Landlord, the due performance of all of Tenant’s
obligations under this Lease from and after the time of the effective date of
the assignment, and such assumption agreement shall state that the same is made
by the assignee for the express benefit of Landlord as a third party
beneficiary thereof.  A copy of the
assignment and assumption agreement, both in form and content satisfactory to
Landlord, fully executed and acknowledged by assignee, together with a
certified copy of a properly executed corporate resolution (if the assignee be
a corporation) authorizing the execution and delivery of such assumption
agreement, shall be sent to Landlord ten (10) days after the effective date of
such assignment.

 

(c)                                  In
the case of a subletting, a copy of any sublease fully executed and
acknowledged by Tenant and the sublessee shall be mailed to Landlord ten (10)
days after to the effective date of such subletting, which sublease shall be in
form and content acceptable to Landlord.

 

(d)                                 Each
sublease permitted under this Section 15.1 shall contain provisions to the
effect that (i) such sublease is only for actual use and occupancy by the
sublessee; (ii) such sublease is subject and subordinate to all of the
terms, covenants and conditions of this Lease and to all of the rights of
Landlord thereunder; and (iii) in the event this Lease shall terminate
before the expiration of such sublease, the sublessee thereunder will, at
Landlord’s option, attorn to Landlord and waive any rights the sublessee may
have to terminate the sublease or to surrender possession thereunder as a
result of the termination of this Lease.

 

36

 

(e)                                  Tenant
agrees to pay on behalf of Landlord any and all reasonable costs of Landlord,
including reasonable attorneys’ fees paid or payable to outside counsel,
occasioned by such assignment or subletting, but not to exceed One Thousand
Dollars ($1,000.00).

 

15.2                           Transfer to Affiliates; Sale or Merger.  Notwithstanding the foregoing provisions of
Section 15.1, Tenant shall be permitted to assign or sublet the Demised
Premises or Tenant’s rights under this Lease, without Landlord’s prior consent,
in connection with (i) an initial public offering of Tenant’s stock,
(ii) the sale or transfer of substantially all of the assets of Tenant or
the merger or consolidation of Tenant into or with another entity, provided the
buyer, transferee or merged entity has an owner’s equity which, as of the date
of such sale or transfer, is at least as much as is Tenant’s as of the date of
this Lease; or (iii) to an Affiliate (as defined below) of Tenant,
provided, that in any such case Tenant shall be required to give Landlord
written notice of that assignment or subletting within thirty (30) days thereafter,
including written evidence of the identity of the assignee or sublessee (actual
or deemed) and its affiliation with Tenant. 
In no event shall such transfer be permitted under this Article XV
be a subterfuge by Tenant to avoid its obligations under this Lease.  The term “Affiliate” means an entity that
controls, is controlled by, or is under common control with Tenant and the term
“control” shall mean the ownership, directly or indirectly, of at least fifty
percent (50%) of the outstanding voting interests of an entity.

 

15.3                           Restriction Against Further
Assignment.  Notwithstanding
anything contained in this Lease to the contrary and notwithstanding any
consent by Landlord to any sublease of the Demised Premises or any portion
thereof or to any assignment of this Lease or of Tenant’s interest or estate in
the Demised Premises, except as provided in Section 15.2 above, no
sublessee shall assign its sublease nor further sublease the Demised Premises
or any portion thereof, and no assignee shall further assign its interest in
this Lease or its interest or estate in the Demised Premises or any portion
thereof, nor sublease the Demised Premises or any portion thereof, without
Landlord’s prior written consent in each and every instance, which consent
shall not be unreasonably withheld or unduly delayed.  No such assignment or subleasing (including any such assignment
or subletting permitted under Section 15.2 above) shall relieve Tenant
from any of Tenant’s obligations contained in this Lease.

 

15.4                           Transfer
Premium.

 

15.4.1                  Definition of Transfer Premium.  If Landlord consents (or is deemed to have
consented) to an assignment, subletting, or other transfer by Tenant
(collectively, “Transfer”), as a condition thereto which the parties hereby
agree is reasonable, Tenant shall pay, except as otherwise provided in this
Article XV, pay to Landlord fifty percent (50%) of any “Transfer Premium,”
as that term is defined in this Section 15.4, received by Tenant from any
such transferee (“Transferee”).  This
Section 15.4 shall not be applicable with respect to any transfer
permitted under Section 15.2 above. 
“Transfer Premium” shall
mean all rent, additional rent or other consideration payable by such
Transferee in excess of the Base Rent and Additional Rent payable by Tenant under
this Lease on a per rentable square foot basis if less than all of the Demised
Premises is transferred, after deducting the reasonable expenses incurred by
Landlord or Tenant for (i) any changes, alterations and improvements to
the Demised Premises in connection with the Transfer, and (ii) any
brokerage commissions, reasonable attorneys’ and architectural fees, reasonable
advertising costs and other reasonable costs incurred

 

37

 

in connection with the Transfer
(collectively, the “Subleasing Costs”).  “Transfer Premium” shall also include, but
not be limited to, key money and bonus money paid by Transferee to Tenant in
connection with such Transfer, and any payment in excess of fair market value
for services rendered by Tenant to Transferee.

 

15.4.2                  Payment of Transfer Premiums.  The determination of the amount of the
Transfer Premium shall be made on an annual basis in accordance with the terms
of this Section 15.4.2, but an estimate of the amount of the Transfer
Premium shall be made each month and one-twelfth of such estimated amount shall
be paid to Landlord promptly, but in no event later than the next date for
payment of Base Rent hereunder, subject to an annual reconciliation on each
anniversary date of the Transfer.  If
the payments to Landlord under this Section 15.4.2 during the twelve (12)
months preceding each annual reconciliation exceed the amount of Transfer
Premium determined on an annual basis, then Landlord shall credit the
overpayment against Tenant’s future obligations under this Section 15.4.2
or if the overpayment occurs during the last year of the Transfer in question,
refund the excess to Tenant.  If Tenant
has underpaid the Transfer Premium, as determined by such annual
reconciliation, Tenant shall pay the amount of such deficiency to Landlord
promptly, but in no event later than the next date for payment of Basic Rent
hereunder.  For purposes of calculating
the Transfer Premium on an annual basis, Tenant’s Subleasing Costs shall be deemed
to be offset against the first Base Rent, Additional Rent or other
consideration payable by the Transferee, until such Subleasing Costs are
exhausted.

 

15.4.3                  Calculations of Rent.  In the calculation of the Rent, as it
relates to the Transfer Premium calculated under Section 15.4.1 above, the
Rent paid during each annual period for the Subject Space by Tenant, shall be
computed after adjusting such rent to the actual effective rent to be paid,
taking into consideration any and all leasehold concessions granted in
connection therewith, including, but not limited to, any rent credit and tenant
improvement allowance.  For purposes of
calculating any such effective rent, all such concessions shall be amortized on
a straight-line basis over the relevant term.

 

15.5                           Landlord’s Recapture Option.  Notwithstanding anything to the contrary
contained in this Article XV, in the event that, following any proposed
Transfer, Tenant would not occupy at least fifty percent (50%) of the rentable
square footage of the original Demised Premises, Landlord shall have the
option, by giving written notice to Tenant within twenty (20) days after
receipt of any Transfer notice, to recapture the space Tenant proposes to
Transfer (“Subject Space”).  Such recapture shall cancel and terminate
this Lease, with respect to the Subject Space as of the effective date of the
proposed Transfer until the last day of the term of the Transfer as set forth
in such Transfer notice.  This
Section 15.5 shall not apply to any Transfer pursuant to Section 15.2.  In the event of a recapture by Landlord, if
this Lease shall be canceled with respect to less than the entire Demised
Premises, the Rent reserved herein shall be prorated on the basis of the number
of rentable square feet retained by Tenant in proportion to the number of
rentable square feet contained in the Demised Premises, and this Lease as so
amended shall continue thereafter in full force and effect, and upon request of
either party, the parties shall execute written confirmation of the same.  If Landlord declines, or fails to timely
elect to recapture the Subject Space under this Section 15.4, then,
provided Landlord has consented to the proposed Transfer, Tenant shall be
entitled to transfer the Subject Space to the proposed Transferee, subject to
the provisions of this Article XV. 
Notwithstanding the 

 

38

 

foregoing, in the event Landlord elects to
recapture the Subject Space, Tenant shall have the right, by delivering written
notice to Landlord within five (5) days after Tenant’s receipt of Landlord’s
termination notice, to withdraw Tenant’s request for such Transfer in which
event Tenant shall have no right to transfer the Subject Space to the proposed
Transferee and Landlord’s termination rights under this Section 15.5 shall
be of no further force and effect with respect to such proposed Transfer.

 

15.6                           Tenant’s Failure to Comply.  Tenant’s failure to comply  with all of the foregoing provisions and
conditions of this Article XV shall, at Landlord’s option, render any
purported assignment or subletting null and void and of no force and effect.

 

ARTICLE XVI

 

SUBORDINATION, NONDISTURBANCE, NOTICE TO

MORTGAGEE AND ATTORNMENT

 

16.1                           Subordination by Tenant.  This Lease and all rights of Tenant therein
and all interest or estate of Tenant in the Demised Premises or any portion
thereof shall be subject and subordinate to the lien of any mortgage, deed of
trust, security instrument or other document of like nature (collectively, “Mortgage”), which at any time after the
date of this Lease may be placed upon the Demised Premises or any portion
thereof, and to each and every advance made under any such Mortgage.  Tenant agrees at any time hereafter, to
execute and deliver to Landlord any instruments, releases or other documents
that may be reasonably required for the purpose of subjecting and subordinating
this Lease to the lien of any such Mortgage. 
It is agreed, nevertheless, that so long as Tenant is not in material
default under this Lease beyond any applicable cure periods, that such
subordination agreement or other instrument, release or document shall not
interfere with, hinder or molest Tenant’s right to quiet enjoyment under this
Lease, shall not modify the terms of this Lease, nor the right of Tenant to
continue to occupy the Demised Premises and all portions thereof, and to
conduct its business thereon in accordance with the covenants, conditions,
provisions, terms and agreements of this Lease.  The lien of any such Mortgage shall not cover Tenant’s trade
fixtures or other personal property located in or on the Demised Premises.  Landlord shall deliver to Tenant a
commercially reasonably nondisturbance agreement executed by all lenders having
a lien on the Demised Premises within thirty (30) days after the date of this
Lease as a condition precedent in Tenant’s favor, and from each future lender
as a condition to Tenant’s subordination or attornment hereunder.

 

16.2                           Landlord’s
Default.  In the event of any
act or omission of Landlord constituting a default by Landlord, other than
Landlord’s failure to have the Improvements substantially completed on a timely
basis as provided in Article II and to make the same fully available to
Tenant as therein provided, Tenant shall not exercise any remedy until Tenant
has given Landlord and any mortgagee whose name and address have been
previously provided to Tenant prior written notice of such act or omission and
until a 30-day period of time to allow Landlord or the mortgagee to remedy such
act or omission shall have elapsed following the giving of such notice;
provided, however,  if such act or
omission cannot with due diligence and in good faith be remedied within such
30-day period, Landlord and/or mortgagee shall be allowed such further period
of time as may be reasonably necessary provided that it shall have commenced
remedying the same with due diligence and in good faith within said 30-day
period.  In the event any act or

 

39

 

omission of Landlord which constitutes a
Landlord’s default hereunder results in an immediate threat of bodily harm to
Tenant’s employees, agents or invitees or damage to Tenant’s property, or
exposes Tenant to criminal liability, Tenant may proceed to cure the default
without prior notice to Landlord or its mortgagee; provided, however, in that
event Tenant shall give written notice to Landlord and its mortgagee as soon as
possible after commencement of such cure. 
Nothing herein contained shall be construed or interpreted as requiring
any mortgagee to remedy such act or omission.

 

16.3                           Attornment.  Subject to Section 16.1 above, if any
mortgagee shall succeed to the rights of Landlord under this Lease or to
ownership of the Demised Premises, whether through possession or foreclosure or
the delivery of a deed to the Demised Premises, then, upon the written request
of such mortgagee so succeeding to Landlord’s rights hereunder, Tenant shall
attorn to and recognize such mortgagee as Tenant’s landlord under this Lease,
and shall promptly execute and deliver any instrument that such mortgagee may
reasonably request to evidence such attornment (whether before or after making
of the mortgage).  In the event of any
other transfer of Landlord’s interest hereunder, upon the written request of
the transferee and Landlord, Tenant shall attorn to and recognize such
transferee as Tenant’s landlord under this Lease and shall promptly execute and
deliver any instrument that such transferee and Landlord may reasonably request
to evidence such attornment.

 

ARTICLE XVII

 

SIGNS

 

17.1                           General.  Tenant shall have no right to install or
maintain any Tenant identification signs (or any other signs, banners or other
such displays) in any location on any Building or in the Project which may be
visible from the exterior of any Building, unless such signs (i) shall
have been expressly approved by Landlord (which approval shall not be
unreasonably withheld or delayed) prior to the installation thereof, and (ii)
are consistent and compatible with (a) all governmental regulations and
requirements and (b) the signage criteria for the Business Park and
Project (“Signage Criteria”) in
the form attached to the Business Park CCR’s, and (c) the CCR’s for the
Business Park.

 

17.2                           Tenant’s Exterior Signage Rights.  Provided the conditions set forth in
Section 17.1 above have been satisfied, Tenant shall, at Tenant’s sole
cost and expense, have the following rights during the Lease Term with respect
to Tenant’s Signs:  (i) the right
to install identity signage on the top of the front facade of the exterior of
the Southern Building in the one (1) location depicted on Exhibit ”E” attached
hereto and (ii) have the nonexclusive right to have its professional
name displayed on the Southern Building monument sign in the location depicted
on Exhibit ”E” attached hereto. 
As used herein, “Tenant’s Signs”
shall mean all signage rights granted to Tenant pursuant to this
Article XVII.  The specifications,
plans and elevations for Tenant’s Signs (including the graphics, materials,
color, design, lettering, height, lighting, size and quality) shall be subject
to Landlord’s approval, which shall not be unreasonably withheld or delayed and
shall be consistent with the Signage Criteria for the Business Park and
Project.  Tenant shall, at Tenant’s sole
cost and expense, remove any existing exterior signage replaced by Tenant’s
Signs placed on the exterior of the Southern Building.  Tenant’s Signs shall be installed under the
supervision of Landlord by a contractor approved by Landlord and shall be installed
in

 

40

 

a lien-free manner in accordance with the
provisions of the Lease.  Tenant’s Signs
shall be maintained, at the sole cost and expense of Tenant, pursuant to a
maintenance program approved and supervised by Landlord.  Tenant shall, at Tenant’s sole cost and
expense (subject to Landlord’s supervision), cause Tenant’s Signs to be removed
and the Southern Building and the Project to be restored to the condition
existing prior to the placement of such Tenant’s Signs at the expiration or
earlier termination of Tenant’s Lease (or such earlier time as Tenant elects or
is required to remove any such Tenant Signs). 
If Tenant fails to remove Tenant’s Signs and restore the Southern
Building and the Project as provided above within thirty (30) days following
Landlord’s demand therefor, then Landlord may perform such work and all costs
and expenses incurred by Landlord in so performing such work shall be
reimbursed by Tenant to Landlord within fifteen (15) days following Landlord’s
delivery to Tenant of an invoice therefor.

 

17.3                           Tenant’s Interior Signage Rights.  Tenant shall have the nonexclusive right, at
Tenant’s sole cost and expense, to have its identity displayed on the lobby
directory or marquee of the Southern Building. 
Tenant shall also have the right to install other signage identifying
Tenant on the second floor of the Southern Building which interior signage
shall be in compliance with the Signage Criteria.  Such second floor identifying signage shall be provided by
Landlord, at Tenant’s cost, and such signage shall be comparable to that used
by Landlord for other similar floors in the Buildings and shall comply with
Landlord’s Building standard signage program. 
Any signs, notices, logos, pictures, names or advertisements which are
installed and that have not been separately approved by Landlord may be removed
without notice by Landlord at the sole expense of Tenant.  Any signs, window coverings, or blinds (even
if the same are located behind the Landlord-approved window coverings for the
Demised Premises), or other items visible from the exterior of the Demised
Premises or the Project, shall be subject to the prior approval of Landlord, in
its reasonable discretion.

 

ARTICLE
XVIII

 

FINANCIAL
STATEMENTS OF TENANT

 

Not more often
than once in any twelve (12) month period or at any time during the continuance
of an Event of Default, at Landlord’s request, Tenant shall provide Landlord
with Tenant’s most recent financial statements in form and content reasonably
satisfactory to Landlord and Landlord’s lenders (which, if Tenant is an entity
which files periodic financial disclosures to securities regulatory
authorities, shall be those which are periodically filed with those
authorities).  Landlord may provide
copies of those financial statements to current and prospective lenders,
investors and buyers, identified in writing to Tenant, for examination and
review.  Landlord shall keep all such
financial statements strictly confidential and may provide copies of such
financial statements to such other parties only upon receiving in return a
covenant from each recipient that such recipient shall keep the financial
statements confidential except with the prior written consent of Tenant.

 

41

 

ARTICLE XIX

 

CHANGES AND ALTERATIONS

 

Tenant shall have the right at any time, and from time to time during
the Term of this Lease, to make such changes and alterations to the interior of
the Demised Premises as Tenant shall deem necessary or desirable in connection
with the requirements of its business, which changes and alterations (other
than changes or alterations of Tenant’s movable trade fixtures and equipment)
shall be made in all cases subject to the following conditions, which Tenant
covenants to observe and perform:

 

(a)                                  Permits.  No
change or alteration shall be undertaken until Tenant shall have procured and
paid for, so far as the same may be required from time to time, all municipal,
state and federal permits and authorizations of the various governmental bodies
and departments having jurisdiction thereof, and Landlord agrees to join in the
application for such permits or authorizations whenever such action is
necessary, all at Tenant’s sole cost and expense, provided such applications do
not cause Landlord to become liable for any cost, fees or expenses.

 

(b)                                 Compliance with Plans and
Specifications.  Before
commencement of any change, alteration, restoration or construction
(hereinafter sometimes referred to as “Work”)
involving an estimated cost of more than Ten Thousand Dollars ($10,000.00), or
which, (i) in Landlord’s reasonable judgment, would affect any Building
Systems and Equipment, (ii) require structural changes to the Demised
Premises or any portion of the Southern Building, (iii) are visible from
the exterior of the Demised Premises or (iv) would, in Landlord’s
reasonable judgment, materially increase the maintenance and repair obligations
of Landlord hereunder, Tenant shall (i) furnish Landlord with detailed
plans and specifications of the proposed change or alteration; (ii) obtain
Landlord’s prior written approval of a licensed architect or licensed
professional engineer selected and paid for by Tenant who shall approve any
such work (hereinafter referred to as “Alterations
Architect or Engineer”); and (iii) obtain Landlord’s prior
written approval (which shall not be unreasonably withheld or delayed) of
detailed plans and specifications prepared and approved in writing by said
Alterations Architect or Engineer and of each amendment and change thereto.

 

(c)                                  Value Maintained.  Any change or alteration shall, when completed, be of such
character so as not to reduce the value of the Demised Premises or the
Buildings to which such change or alteration is made below its value or utility
to Landlord immediately before such change or alteration, nor shall such change
or alteration reduce the area or cubic content of the Demised Premises or
Buildings to use without Landlord’s express written consent.

 

(d)                                 Compliance with Laws.  All Work done in connection with any change
or alteration shall be done promptly and in a good and workmanlike manner and
in compliance with all building and zoning laws of the place in which the
Demised Premises are situated, and in compliance with all laws, ordinances,
orders, rules, regulations and requirements of all federal, state and municipal
governments and appropriate departments, commissions, boards and officers
thereof, and in accordance with the orders, rules and regulations of the Board
of Fire Underwriters where the Demised Premises are located or any other body
exercising similar functions.  The cost
of any such change or alteration shall be paid in cash so that the Demised

 

42

 

Premises and all portions thereof shall at
all times be free of liens for labor and materials supplied to the Demised
Premises or any portion thereof.  The
Work or any change or alteration shall be prosecuted with reasonable dispatch,
delays due to strikes, lockouts, acts of God, inability to obtain labor or
materials, governmental restrictions or similar causes beyond the control of
Tenant excepted.  Tenant or Tenant’s
contractor or subcontractor shall obtain and maintain at its sole cost and
expense during the performance of the Work workers’ compensation insurance
covering all persons employed in connection with the Work and with respect to
which death or injury claims could be asserted against Landlord or Tenant or
against the Demised Premises or any interest therein, together with
comprehensive general liability insurance for the mutual benefit of Landlord
and Tenant with limits of not less than One 
Million Dollars ($1,000,000.00) in the event of injury to one person,
One Million Dollars ($1,000,000.00) in respect to any one accident or
occurrence, and Five Hundred Thousand Dollars ($500,000.00) for property
damage, and the fire insurance with “extended coverage” endorsement required by
Section 6.1 hereof shall be supplemented with “builder’s risk” insurance on
a completed value form or other comparable coverage on the Work if the cost of
such work will be in excess of Fifty Thousand Dollars ($50,000.00).  All such insurance shall be in a company or
companies authorized to do business in the state in which the Demised Premises
are located and reasonably satisfactory to Landlord, and all such policies of
insurance or certificates of insurance shall be delivered to Landlord endorsed
“Premium Paid” by the company or agency issuing the same, or with other evidence
of payment of the premium satisfactory to Landlord.

 

(e)                                  Property of Landlord.  All improvements and alterations (other than
Tenant’s movable trade fixtures, furniture and equipment) made or installed by
Tenant shall, immediately upon completion or installation thereof, become the
property of Landlord without payment therefor by Landlord, and shall be
surrendered to Landlord on the expiration of the Term of this Lease unless and
to the extent Tenant is required or permitted to remove the same upon termination
or expiration of the Term as provided in subsection (g), below, in which
event they shall become the property of Tenant, provided that Tenant shall be
required to restore the Demised Premises in accordance with Section 19(g),
below.

 

(f)                                    Removal of Improvements.  As a condition to granting approval for any
changes or alterations, Landlord may require Tenant, by written notice to
Tenant given at or prior to the time of granting such approval, to remove any
improvements, additions or installations installed by Tenant in the Demised
Premises at Tenant’s sole cost and expense at the end of the term of this Lease
and repair and restore any damage caused by the installation and removal of
such improvements, additions, or installations; provided, however, the only
improvements, additions or installations which Tenant shall remove shall be
those specified in such notice.  All
improvements, additions or installations installed by Tenant which did not
require Landlord’s prior approval shall be removed by Tenant as provided for in
this Section 19(f), unless such improvements, additions or installations
do not adversely affect Landlord’s ability to re-lease the Demised
Premises.  Prior to making any
improvements, additions or alterations that do not require Landlord’s approval,
Tenant may request Landlord to specify whether Landlord considers such
improvements, additions or installations to be of the type that would adversely
affect Landlord’s ability to re-lease the Demised Premises if not removed by
Tenant.  Notwithstanding anything to the
contrary contained herein, Tenant shall have the right to remove any
improvements, additions or alterations installed by Tenant and at its expense
upon expiration or earlier termination of the Term so long as Tenant repairs
any damage

 

43

 

caused by such removal at its sole cost and
expense and returns the applicable portion of the Demised Premises to its
original condition prior to the installation of such improvement, addition or
alteration.

 

(g)                                 Reasonable Consent.  All consents required of Landlord under this Article XIX
shall not be unreasonably withheld or delayed by Landlord.

 

(h)                                 Notice to Landlord.  Regardless of whether Landlord’s consent is required to any
change or alteration to the Demised Premises made or to be made by Tenant, such
changes or alterations shall not be commenced until two (2) business days
notice after Landlord has received notice from Tenant stating the date such
changes or alterations are to commence so that Landlord can post and record an
appropriate notice of nonresponsibility.

 

ARTICLE XX

 

ATTORNEYS’
FEES

 

In the event of any litigation, arbitration, mediation or any other
action taken by either party to this Lease to enforce any provision of this
Lease, enforce any remedy available upon default under this Lease, or seek a
declaration of the rights of a party under this Lease, the prevailing party
shall be entitled to recover in such action such attorneys’ fees and costs as
may be reasonably incurred, including, without limitation, the costs of
reasonable investigation, preparation and professional or expert consultation,
travel expenses, costs on appeal, court reporter fees and expenses, incurred by
reason of such litigation, arbitration or other action.  All other attorneys’ fees and cost relating
to the negotiation and documentation of this Lease and the transactions
described herein shall be borne by the party incurring the same.

 

ARTICLE XXI

 

BROKERS

 

Tenant and Landlord represent that they have dealt only with Colliers
International, as broker, in connection with this Lease.  Landlord shall be responsible for paying the
commissions owing to such broker under a separate written agreement between
Landlord and such broker.  Tenant and
Landlord will indemnify, defend and hold the other harmless from and against
any loss, cost or expense, including, but not limited to, reasonable attorneys’
fees and court costs, resulting from any claim for a fee or commission by any
other broker or finder resulting from their own actions.

 

ARTICLE XXII

 

SECURITY
DEPOSIT

 

Concurrent with Tenant’s execution of this Lease, Tenant shall deposit
with Landlord a security deposit (the “Security Deposit”) in the amount of One
Hundred Eleven Thousand Five Hundred Thirty and 25/100 Dollars
($111,530.25).  Provided Tenant has not
at any time during the Term of this Lease been delinquent in the payment of
Rent for more than five (5) days after receipt of the written notice referenced
in Section 12.1(a) hereof:  (a)
Thirty-Seven Thousand

 

44

 

One Hundred Seventy-Six and 75/100 Dollars ($37,176.75) of the Security
Deposit shall be credited toward the payment of Rent for the thirteenth (13th)
month of the Initial Term and (b) an additional Thirty-Seven Thousand One
Hundred Seventy-Six and 75/100 Dollars (37,176.75) of the Security Deposit
shall be credited toward the payment of Base Rent for the twenty-fifth (25th)
month of the Initial Term. The Security Deposit shall be held by Landlord as
security for the faithful performance by Tenant of all the terms, covenants,
and conditions of this Lease to be kept and performed by Tenant during the
Lease Term.  If Tenant defaults with
respect to any provisions of this Lease, including, but not limited to, the
provisions relating to the payment of Rent, Landlord may, but shall not be
required to, use, apply or retain all or any part of the Security Deposit for
the payment of any Rent or any other sum in default, or for the payment of any
amount that Landlord may spend or become obligated to spend by reason of
Tenant’s default, or to compensate Landlord for any other loss or damage that
Landlord may suffer by reason of Tenant’s default.  If any portion of the Security Deposit is so used or applied,
Tenant shall, within five (5) days after written demand therefor, deposit cash
with Landlord in an amount sufficient to restore the Security Deposit to its
original amount (as may be increased hereunder), and Tenant’s failure to do so
shall be a default under this Lease.  If
Tenant shall fully and faithfully perform every provision of this Lease to be
performed by it, the Security Deposit, or any balance thereof, shall be
returned to Tenant, or, at Landlord’s option, to the last assignee of Tenant’s
interest hereunder, within thirty (30) days following the expiration of the
Lease Term.  Tenant shall not be
entitled to any interest on the Security Deposit. Notwithstanding the
foregoing, in lieu of cash, Tenant shall have the right at any time to deliver
the Security Deposit in the form of either (a) an irrevocable letter of
credit in favor of Landlord in the amount of the Security Deposit and issued by
a financial institution and otherwise in a form and substance reasonably
acceptable to Landlord or (b) a CD payable to Landlord issued by a
national bank or federal savings and loan association in the amount of Security
Deposit, in which case Landlord shall, within five (5) days thereafter, return
to Tenant the amount of any cash Security Deposit previously delivered by Tenant.  In the event Tenant elects to deliver the
Security Deposit in the form of a CD, any interest earned upon such CD shall
belong to Tenant, so long as there is no uncured Event of Default by Tenant
under this Lease.  Landlord may apply
the CD as if it were cash in the manner described in this Article XII
above.

 

ARTICLE
XXIII

 

TENANT
PARKING

 

Commencing on
the Commencement Date, Tenant shall have the right, at no cost to Tenant during
the Lease Term, to four (4) parking privileges for each 1,000 usable square
feet of the Demised Premises, which parking privileges shall pertain to the
Project parking facilities.  Such
parking privileges shall permit Tenant and its employees to use, on a
nonexclusive, as-available basis, together with other tenants and their
respective employees, any undesignated, unreserved spaces available in such
parking facility from time to time. 
Tenant’s continued right to use the parking privileges is conditioned
upon Tenant abiding by all reasonable, nondiscriminatory rules and regulations
which are prescribed from time to time for the orderly operation and use of the
Project parking facility and upon Tenant’s cooperation in seeing that Tenant’s
employees and visitors also comply with such rules and regulations.  Such rules and regulations shall provide
that Tenant shall pay Landlord’s then current charge for any replacement of any
Tenant parking pass card, if any, which is lost, stolen, damaged or destroyed

 

45

 

Landlord may delegate its responsibilities hereunder to a parking
operator in which case such parking operator shall have all the rights of
control attributed hereby to the Landlord. 
Tenant’s parking privileges under this Article XXIII are provided
to Tenant solely for use by Tenant’s own personnel and its guests, customers
and invitees and, except as provided in Section 15.2, such privileges may
not be transferred, assigned, subleased or otherwise alienated by Tenant
without Landlord’s prior approval.  The
parking privileges allocated to Tenant are not for long term (i.e., more than
48 hours) storage of automobiles, or for short or long term storage of boats,
trailers, recreational vehicles, motorcycles or other vehicles or equipment.

 

ARTICLE XXIV

 

[INTENTIONALLY
DELETED]

 

ARTICLE XXV

 

MISCELLANEOUS
PROVISIONS

 

25.1                           Entry
by Landlord.  Tenant agrees to
permit Landlord and  authorized
representatives of Landlord to enter upon the Demised Premises at all
reasonable times during ordinary business hours upon at least two (2) business
day’s advance notice to Tenant for the purpose of inspecting the same and
making any repairs required to be made thereto by Landlord under the terms of
this Lease, or as required to be made thereto by Tenant under the terms of this
Lease provided that Landlord shall have first given written notice to Tenant to
make such repairs and Tenant shall have failed to make such repairs within
thirty (30) days after notice; provided, however, Tenant shall be allowed such
further period of time as may be provided in Section 12.1(b); and,
provided further, that Landlord shall be allowed to enter upon the Demised
Premises during an emergency.  Nothing
herein contained shall imply any duty upon the part of Landlord to do any such
work which, under any provision of this Lease, Tenant may be required to
perform, and the performance thereof by Landlord shall not constitute a waiver
of Tenant’s default in failing to perform the same.  Landlord may, during the progress of any work, keep and store
upon the Demised Premises all necessary materials, tools and equipment in areas
designated by Tenant.  Landlord shall
not in any event be liable for inconvenience, annoyance, disturbance, loss of
business or other damage to Tenant by reason of making such repairs or the
performance of any such work in or about the Demised Premises or on account of
bringing material, supplies and equipment into, upon or through the Demised
Premises during the course thereof, and the obligations of Tenant under this
Lease shall not be thereby affected in any manner whatsoever; except that
Landlord shall use its best efforts to not unreasonably interfere with Tenant’s
use of the Demised Premises, or any portion thereof, by reason of Landlord’s
making such repairs or the performance of any such work in or about the Demised
Premises or on account of bringing materials, supplies and equipment into, upon
or through the Demised Premises during the course thereof.  Tenant may accompany Landlord on any
inspection or entry by Landlord. 
Notwithstanding anything to the contrary contained herein, Tenant shall
have the right to have its representative accompany Landlord and any other
party entering the Demised Premises at all times during any entry upon the
Demised Premises permitted by this Section or any other provision of this
Lease.  In addition, Landlord agrees
that it will comply with any reasonable precautions required by Tenant to
protect Tenant’s trade secrets, intellectual property

 

46

 

and other confidential or proprietary
documents and information during any such entry upon the Demised Premises.

 

25.2                           Exhibition of Demised Premises.  Landlord is hereby given the right during
usual business hours upon at least two (2) business days’ advance notice to
Tenant at any time during the Term of this Lease to enter upon the Demised
Premises and to exhibit the same for the purpose of mortgaging or selling the
same.  During the final year of the
Term, Landlord shall be entitled (i) to display on the Demised Premises in
such manner as to not unreasonably interfere with Tenant’s business, signs
reasonably approved as to design and location by Tenant indicating that the
Demised Premises are for rent and/or sale and suitably identifying Landlord or
its agent, and (ii) upon at least two (2) business days’ advance notice to
Tenant, to exhibit the Demised Premises to prospective tenants.

 

25.3                           Workout
Facility.  The Shell and Core
Improvements shall include a workout facility (“Workout Facility”), which
Workout Facility will be located in the Southern Building.  Fifty percent (50%) of the square footage of
the Workout Facility shall be allocated to and be included in the rentable
square footage of the Southern Building and, as a result thereof, the Base Rent
payable with respect to the Southern Building shall be increased to reflect the
portion of the Demised Premises located in the Southern Building’s prorata
share of such additional rentable square footage.  The cost of maintaining and repairing the Workout Facility
(including, but not limited to, the maintenance, repair and replacement of all
exercise machines and equipment) shall be an Operating Expense.  The Workout Facility shall be considered a
Project Common Area available for use by Tenant and, at Landlord’s discretion,
any other tenants of the Project.

 

25.4                           Notices.  All notices, demands and requests which may
be or are required to be given, demanded or requested by either party to the
other shall be in writing, and shall be sent by United States registered or
certified mail, postage prepaid, by an independent overnight courier service
marked for next business day delivery, or by telephonic facsimile transmission
with automatic written time and date confirmation of delivery transmitted
between the hours of 9:00 A.M. and 5:00 P.M. (time zone of recipient,
but only if confirmed within two (2) business days by receipt of a mailed or
personally delivered copy), and addressed as follows:

 

Sorrento Wateridge Partners, L.P.

c/o The Allen Group

6005 Hidden Valley Road, Suite 150

Carlsbad, California  92009

Attention:  Kevin A. Noell

Facsimile:  (760) 707-1909

 

To Tenant:

 

American Residential Investment Trust, Inc.

10421 Wateridge Circle

San Diego, CA  92121

Attention:  Ken Walker

Facsimile:  (858) 350-6484

 

47

 

or at such other place as a party hereto may from time to time
designate by written notice thereof to the other.  Notices, demands and requests which shall be served upon Landlord
by Tenant, or upon Tenant by Landlord, in the manner aforesaid, shall be deemed
received three (3) days after delivery to United States mail, one (1) business
day after delivery to an overnight courier service, or at the time such notice,
demand or request shall be transmitted by facsimile (if confirmed as written
above).

 

25.5                           Quiet
Enjoyment.  Landlord covenants
and agrees that Tenant, upon paying the Base Rent and Additional Rent and upon
observing and keeping the covenants, agreements and conditions of this Lease on
its part to be kept, observed and performed, shall lawfully and quietly hold,
occupy and enjoy the Demised Premises (subject to the provisions of this Lease)
during the Term of this Lease without hindrance or molestation by Landlord or
by any person or persons claiming under Landlord.

 

25.6                           Landlord’s Continuing Obligations.  The term “Landlord,”
as used in this Lease, so far as covenants or obligations on the part of
Landlord are concerned, shall be limited to mean and include only the owner or
owners at the time in question of the fee of the Demised Premises, and in the
event of any transfer or transfers or conveyance, the then grantor shall be
automatically freed and relieved from and after the date of such transfer or
conveyance of all liability as respects the performance of any covenants or
obligations on the part of Landlord contained in  this Lease thereafter to be performed, provided that any funds in
the hands of such landlord or the then grantor at the time of such transfer, in
which Tenant has an interest, shall be turned over to the grantee, and any
amount then due and payable to Tenant by Landlord or the then grantor under any
provision of this Lease, shall be paid to Tenant, and further provided that the
new Landlord expressly assumes in writing for the benefit of Tenant all obligations
of Landlord under this Lease.  The
covenants and obligations contained in this Lease on the part of Landlord
shall, subject to the aforesaid, be binding on Landlord’s successors and
assigns during and in respect of their respective successive periods of
ownership.  Nothing herein contained
shall be construed as relieving Landlord of its obligations under
Article II of this Lease or releasing Landlord from any obligation to
complete the cure of any breach by Landlord during the period of its ownership
of the Demised Premises.  However,
Tenant agrees to look solely to Landlord’s interest in the Land, the Buildings
and the Improvements for the recovery of any judgment from Landlord, it being
agreed that, if Landlord is a partnership, Landlord’s partners, whether general
or limited, or if Landlord is a corporation, its directors, officers and
shareholders, shall never be personally liable for any such judgments or
damages.  Notwithstanding the foregoing,
Landlord and its general partner shall be fully and personally liable for
claims by Tenant relating to Landlord’s obligations under Sections 2.1
(the Improvements), 2.6 (Liquidated Damages for Delay in Substantial
Completion), and 2.9 (Condition of Demised Premises; Limited Warranty),
provided that such personal liability under Section 2.9 for defects in the
Improvements for any Phase shall only apply with respect to defects of which
Tenant gives Landlord notice within one (1) year after the Commencement Date or
applicable Delivery Date for such Phase.

 

25.7                           Estoppel.  Either party shall, without charge at any
time and from time to time, within ten (10) business days after written request
by the other party, certify by written instrument, duly executed, acknowledged
and delivered to any mortgagee, assignee of a

 

48

 

mortgagee, proposed mortgagee, purchaser or
proposed purchaser, or any other person dealing with such other party:

 

(a)                                  That
this Lease (and all guaranties, if any) is unmodified and in full force and
effect (or, if there have been modifications, that the same is in full force
and effect, as modified and stating the modifications);

 

(b)                                 The
dates to which the Base Rent or Additional Rent have been paid in advance.

 

(c)                                  Whether
or not there are then existing any breaches or defaults by such party or the
other party known by such party under any of the covenants, conditions,
provisions, terms or agreements of this Lease, and specifying such breach or
default, if any, or any set-offs or defenses against the enforcement of any
covenant, condition, provision, term or agreement of this Lease upon the part
of Landlord or Tenant, as the case may be, to be performed or complied with
(and, if so, specifying the same and the steps being taken to remedy the same);
and

 

(d)                                 Such
other statements or certificates as Landlord or any mortgagee may reasonably
request.

 

It is the intention of the parties hereto that any statement delivered
pursuant to this Section 25.7 may be relied upon by any of such parties
dealing with Landlord or the Demised Premises. 
Failure by Tenant to timely respond to such request shall be deemed
Tenant’s certification of the accuracy of such matters.

 

25.8                           Delivery of Corporate Documents.  In the event that Tenant is a corporation or
similar business entity (e.g., limited partnership, limited liability company
or limited liability partnership), Tenant shall, without charge to Landlord,
not more than once in any twelve (12) month period or any time during the
continuance of an Event of Default, within ten (10) business days after written
request by Landlord, deliver to Landlord, in connection with any proposed sale
or mortgage of the Demised Premises, the following instruments and documents:

 

(a)                                  Certificate
of Good Standing in the state of incorporation of Tenant and in the state in
which the Demised Premises are located issued by the appropriate state
authority and bearing a current date;

 

(b)                                 A
copy of Tenant’s articles of incorporation and by-laws (or partnership or
operating agreement, as the case may be) and any amendments or modifications
thereof certified by the secretary or assistant secretary (or managing partner
or member, as the case may be) of Tenant;

 

(c)                                  A
written and certified confirmation from the secretary or assistant secretary
(or managing partner or member, as the case may be) that (i) this Lease
has been duly authorized by all necessary corporate action and is a valid and
binding agreement enforceable in accordance with its terms; and
(ii) Tenant is a duly organized and validly existing corporation under the
laws of its state of incorporation, is duly authorized to carry on its
business, and is in good standing under the laws of the state in which the
Demised Premises are located, if different from the state of incorporation.

 

49

 

25.9                           Intentionally Omitted.

 

25.10                     Severability.  If any covenant, condition, provision, term
or agreement of this Lease shall, to any extent, be held invalid or
unenforceable, the remaining covenants, conditions, provisions, terms and
agreements of this Lease shall not be affected thereby, but each covenant,
condition, provisions, term or agreement of this Lease shall be valid and in
force to the fullest extent permitted by law.

 

25.11                     Successors
and Assigns.  The covenants and
agreements herein contained shall bind and inure to the benefit of Landlord,
its successors and assigns, and Tenant and its permitted successors and
assigns.

 

25.12                     Captions.  The caption of each article of this Lease is
for convenience and reference only, and in no way defines, limits or describes
the scope or intent of such article or of this Lease.

 

25.13                     Relationship
of Parties.  This Lease does not
create the relationship of principal and agent, partnership, joint
venture,  or any association or
relationship between Landlord and Tenant, the sole relationship between
Landlord and Tenant being that of landlord and tenant.

 

25.14                     Entire
Agreement.  All preliminary and
contemporaneous negotiations are merged into and incorporated in this
Lease.  This Lease, together with the
exhibits attached hereto, contains the entire agreement between the parties and
shall not be modified or amended in any manner except by any instrument in
writing executed by the parties hereto.

 

25.15                     No Merger.  There shall be no merger of this Lease or of
the leasehold estate created by this Lease with any other estate or interest in
the Demised Premises by reason of the fact that the same person, firm,
corporation or other entity may acquire, hold or own, directly or indirectly,
(a) this Lease or the leasehold interest created by this Lease or any
interest therein, and (b) any such other estate or interest in the Demised
Premises, or any portion thereof.  No
such merger shall occur unless and until all persons, firms, corporations or
other entities having an interest (including a security interest) in
(1) this Lease or the leasehold estate created thereby, and (2) any
such other estate or interest in the Demised Premises, or any portion thereof,
shall join in a written instrument expressly affecting such merger and shall
duly record the same.

 

25.16                     Possession
and Use.  Tenant acknowledges
that the Demised Premises are the property of Landlord and that Tenant has only
the right to possession and use thereof upon the covenants, conditions,
provisions, terms and agreements set forth in this Lease.

 

25.17                     Surrender
of Demised Premises. 
Subject to the other provisions of this Lease, at the expiration of the
Term of this Lease, Tenant shall surrender the Demised Premises in the same
condition as they were in upon delivery of possession thereto at the
Commencement Date or applicable Delivery Date, reasonable wear and tear,
casualty and condemnation excepted, and shall surrender all keys to the Demised
Premises to Landlord at the place then fixed for the payment of Base Rent, and
shall inform Landlord of all combinations on locks, safes and vaults, if
any.  Tenant shall at such time remove
all of its property therefrom and all alterations and improvements placed
thereon by Tenant if so requested by Landlord, or otherwise allowed, subject to
Sections 19(e) and (f).  Tenant
shall repair any damage to the Demised Premises

 

50

 

caused by such removal, and any and all such
property not so removed shall, at Landlord’s option, become the exclusive
property of Landlord or be disposed of by Landlord, at Tenant’s cost and
expense, without further notice to or demand upon Tenant, subject to applicable
law and Sections 19(e) and (f).

 

All property of Tenant not removed on or before the last day of  the Term of this Lease shall be deemed
abandoned in accordance with, and subject to, applicable law.

 

25.18                     Holding
Over.  In the event Tenant
remains in possession of the Demised Premises after expiration of this Lease
and without the execution of a new lease, it shall be deemed to be occupying
the Demised Premises as a tenant from month-to-month, subject to all the
provisions, conditions and obligations of this Lease insofar as the same can be
applicable to a month-to-month tenancy, except that the Base Rent shall be
escalated to one hundred and twenty five percent (125%) of the then current
Base Rent for the Demised Premises for the first three (3) months of such
tenancy and one hundred and fifty percent (150%) of such amount thereafter, and
from and after such three (3) month period, Tenant shall indemnify, defend and
hold Landlord harmless against loss or liability resulting from the delay by
Tenant in so surrendering the Demised Premises, including without limitation
any claim made by any succeeding occupant founded on such delay.  Tenant’s obligation to observe or perform
this covenant shall survive the expiration or other termination of this Lease.

 

25.19                     Survival.  All obligations of either party (together
with interest or money obligations at the Maximum Rate of Interest) accruing
prior to expiration of the Term of this Lease shall survive the expiration or
other termination of this Lease.

 

25.20                     Applicable
Law.  This Lease shall be
governed and interpreted in accordance with the laws of the State of
California.

 

51

 

25.21                     Counterparts.  This Lease may be executed in one or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute a single instrument.

 

IN WITNESS WHEREOF, each of the parties hereto have caused this Lease
to be duly executed as of the day and year first above-written.

 

	
  LANDLORD:

  
	
   

  
	
  SORRENTO WATERIDGE PARTNERS, L.P.,

  
	
  a California limited partnership

  
	
   

  
	
  By:

  	
  Allen Development of Southern 

  
	
   

  	
  California, LLC, a Delaware limited

  
	
   

  	
  liability company, General Partner

  
	
   

  
	
   

  	
  By:

  	
   /s/ Richard S. Allen

  	
   

  
	
   

  	
  Richard S. Allen,

  
	
   

  	
  Chief Executive Officer

  
	
   

  
	
   

  	
  By:

  	
   /s/ Kevin A. Noell

  	
   

  
	
   

  	
   

  	
  Kevin A. Noell,

  
	
   

  	
   

  	
  President

  
	
   

  
	
  TENANT:

  
	
   

  
	
  AMERICAN RESIDENTIAL INVESTMENT

  
	
  TRUST, INC., a Maryland 
  corporation

  
	
   

  
	
  By:

  	
    /s/ Jay M. Fuller

  	
   

  
	
  Name:

  	
    Jay M. Fuller

  	
   

  
	
  Title:

  	
    President

  	
   

  
	
   

  	
   

  
	
  By:

  	
    /s/ Clay Strattmatter

  	
   

  
	
  Name:

  	
   Clay Strattmatter

  	
   

  
	
  Title:

  	
     V.P. Finance

  	
   

  
								

 

52

 

EXHIBIT
“A”

 

LEGAL DESCRIPTION OF
LAND

 

A-1

 

EXHIBIT “B”

 

SITE PLAN

 

[TO
BE ATTACHED]

 

B-1

 

EXHIBIT “C”

 

PROPOSED SPACE PLAN

 

C-1

 

EXHIBIT “D”

 

INTENTIONALLY OMITTED

 

D-1

 

EXHIBIT “E”

 

TENANT’S SIGNAGE
PLANS

 

E-1

 

SECOND AMENDMENT TO LEASE

 

This SECOND
AMENDMENT TO LEASE (“Amendment”) is entered into as of December 4, 2002, by and
between SORRENTO WATERIDGE PARTNERS, L.P., a California limited partnership
(“Landlord”) and AMERICAN RESIDENTIAL INVESTMENT TRUST, INC., a Maryland
corporation (“Tenant”), with reference to the following facts:

 

R  E  C  I  T  A
L  S :

 

A.                                   Landlord
and Tenant entered into that certain Lease dated September 2001 (the “Lease”),
as amended by a First Amendment thereto dated November 29, 2001 (the “First
Amendment”), for certain premises located with the project commonly known as
“Wateridge Technology Center” (the “Demised Premises”), as more particularly
described in the Lease. Capitalized terms used in this Amendment and not
otherwise defined herein shall have meaning ascribed to them in the Lease.

 

B.                                     In
accordance with Section 2.4 of the Lease (as set forth in the First Amendment),
Tenant has delivered the Expansion Notice relating to Tenant’s right to expand
into and lease the Infogate Premises. 
Landlord and Tenant now desire to amend the Lease to confirm and
document the revisions thereto resulting from the Expansion Notice.

 

NOW,
THEREFORE, for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Landlord and Tenant hereby agree to amend the Lease as
follows:

 

1.                                       Expansion
of Demised Premises.  Commencing on
December 1, 2002 (the “Expanded Premises Commencement Date”), the Demised
Premises shall be the 23,985 rentable square feet originally demised under the
Lease, plus Suite 200 in the Southern Building, consisting of 8,089 rentable
square feet (the “Expanded Premises”) (for a total of 32,074 rentable square
feet), plus Tenant’s non-exclusive rights to use the Common Areas, as more particularly
provided in the Lease.  Landlord shall
be responsible for causing Infogate to vacate the Expanded Premises, and shall
deliver the Expanded Premises to Tenant in a vacant, broom-clean condition on
the Expanded Premises Commencement Date.

 

2.                                       Base
Rent.  The Base Rent for the
Expanded Premises shall initially be $1,803 per rentable square foot.  On December 14, 2002, and every twelve (12)
months thereafter during the Initial Term, the then-applicable Base Rent shall
be increased by a factor of three percent (3%).  Base Rent for the Expanded Premises during the Option Term shall
be as set forth in Section 3.2 of the Lease.

 

3.                                       Operating
Expenses; Tenant’s Parking.  As of
the Expanded Premises Commencement Date, Tenant’s Percentage and Tenant’s
parking privileges shall be recalculated to reflect the increased size of the
Demised Premises.  The “Base Year” for
the Expanded Premises shall be the calendar year 2002.

 

 

4.                                       Commencement
Date.  Landlord and Tenant hereby
acknowledge that the Commencement Date of the Lease occurred on December 14,
2001.

 

5.                                       Counterparts.  This Amendment may be executed in multiple
counterparts, all of which together shall constitute one and the same
Amendment.

 

6.                                       Effect
of Amendment.  This Amendment and
all terms herein are effective as of the date hereof subject to the terms and
conditions set forth herein.  Except as
expressly amended hereby, all terms and conditions of the Lease shall continue
in full force and effect throughout the Lease Term.  The Lease, as amended hereby and by the First Amendment,
constitutes the entire agreement of the parties and no further modification of
the Lease shall be binding or effective unless evidenced by an amendment in
writing, signed by both Landlord and Tenant.

 

IN WITNESS
WHEREOF, Landlord and Tenant have executed this Amendment as of the date first
written above.

 

	
  “Landlord”

  	
  SORRENTO
  WATERIDGE PARTNERS, L.P.,

  a California limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Allen
  Development of Southern California LLC, a Delaware limited liability company,

  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Kevin A.
  Noell

  
	
   

  	
   

  	
  Name:  Kevin A. Noell

  
	
   

  	
   

  	
  Title:  President

  
	
   

  	
   

  	
   

  
	
  “Tenant”

  	
  AMERICAN
  RESIDENTIAL INVESTMENT

  TRUST, INC., a Maryland corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Judith
  A. Berry

  	
   

  
	
   

  	
  Name:

  	
  Judith A.
  Berry

  	
   

  
	
   

  	
  Title: 

  	
  Executive
  Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Clay
  Strittmatter

  	
   

  
	
   

  	
  Name:

  	
  Clay
  Strittmatter

  	
   

  
	
   

  	
  Title: 

  	
  SENIOR VICE
  PRESIDENT

  	
   

  
					

 

2Exhibit
10.21

 

EXECUTIVE
EMPLOYMENT AGREEMENT

 

This Executive Employment
Agreement (“Agreement”) is made effective as of January 1, 2003 (“Effective Date”), by and between American
Mortgage Network, Inc., a Delaware corporation, and a subsidiary of American
Residential Investment Trust, Inc., a Maryland corporation (“Company”) and Lisa
Faulk (“Executive”).

 

The parties agree as
follows:

 

1.                                       Employment.  Company hereby employs Executive, and Executive hereby accepts such
employment, upon the terms and conditions set forth herein.

 

2.                                       Duties.

 

2.1                                 Position.  Executive is employed as Executive Vice President, Operations and
shall have the duties and responsibilities assigned by Company both upon
initial hire and as may be reasonably assigned from time to time.  Executive shall perform faithfully and
diligently all duties assigned to Executive. 
Company reserves the right to modify Executive’s position and duties at
any time in its sole and absolute discretion, provided that the duties assigned
are consistent with the position of a senior executive and that Executive
continues to report to the Chief Executive Officer (“CEO”).

 

2.2                                 Best
Efforts/Full-time.  Executive will
expend Executive’s best efforts on behalf of Company, and will abide by all
policies and decisions made by Company, as well as all applicable federal,
state and local laws, regulations or ordinances.  Executive will act in the best interest of Company at all
times.  Executive shall devote
Executive’s full business time and efforts to the performance of Executive’s
assigned duties for Company, unless Executive notifies the Company’s CEO in
advance of Executive’s intent to engage in other paid work and receives the
CEO’s express written consent to do so.

 

2.3                                 Work
Location.  Executive’s principal
place of work shall be located at 12041 Wateridge Circle, San Diego, California, or such other
location as the parties may agree upon from time to time.

 

3.                                       Term.  The employment relationship pursuant to this
Agreement shall be for a term commencing on the Effective Date set forth above
and continuing for a period of one year
following such date, unless sooner terminated in accordance with
paragraph 7 below.

 

4.                                       Compensation.

 

4.1                                 Base
Salary.  As compensation for
Executive’s performance of Executive’s duties hereunder, Company shall pay to
Executive an initial Base Salary of Two
Hundred Thousand Seventy-Seven Dollars and Sixty-Seven Cents ($200,077.67)
per year, payable in accordance with the normal payroll practices of Company,
less required deductions for state and federal withholding tax, social security
and all other employment taxes and payroll deductions.  In the event Executive’s employment under
this Agreement is terminated by either party, for any reason, Executive will
earn the Base Salary prorated to the date of termination.

 

4.2                                 Bonus.  Executive will be eligible to earn a bonus
of up to 100 percent of Executive’s Base Salary based on achievement of
targeted goals and objectives, including net

 

 

income,
established by management and approved by the Company’s Board of Directors
(“Board of Directors”).

 

4.3                                 Performance
and Salary Review.  Company will
periodically review Executive’s performance. 
Adjustments to salary or other compensation, if any, will be made by
Company in its sole and absolute discretion.

 

5.                                       Customary
Fringe Benefits.  Executive will be
eligible for all customary and usual fringe benefits generally available to
executives of Company subject to the terms and conditions of Company’s benefit
plan documents.  In addition, Executive
shall be eligible to accrue 27 days of Paid Time Off (“PTO”) per year and
receive reimbursement of up to $2000 per year for a physical examination.  Company reserves the right to change or
eliminate the fringe benefits on a prospective basis, at any time, effective
upon notice to Executive.

 

6.                                       Business
Expenses.  Executive will be
reimbursed for all reasonable, out-of-pocket business expenses incurred in the
performance of Executive’s duties on behalf of Company.  To obtain reimbursement, expenses must be
submitted promptly with appropriate supporting documentation in accordance with
Company’s policies.

 

7.                                       Termination
of Executive’s Employment.

 

7.1                                 Termination
for Cause by Company.  Although
Company anticipates a mutually rewarding employment relationship with
Executive, Company may terminate Executive’s employment immediately at any time
for Cause.  For purposes of this
Agreement, “Cause” is defined as: (i) acts or omissions constituting gross
negligence, recklessness or willful misconduct on the part of Executive with
respect to Executive’s obligations or otherwise relating to the business of
Company; (ii) Executive’s material breach of this Agreement or Company’s
Confidentiality Agreement; (iii) Executive’s conviction or entry of a plea
of nolo contendere for fraud, misappropriation or embezzlement, or any felony
or crime of moral turpitude; (iv) Executive’s willful neglect of duties as
determined in the sole and exclusive discretion of the Board of Directors; or
(v) Executive’s chemical dependence, as certified by a licensed physician,
resulting in impairment of Executive’s abilities to perform her duties
hereunder or substantial damage to the reputation of Company.  Notwithstanding the foregoing, the
termination of Executive’s employment shall not constitute termination for
Cause unless Company first provides Executive with written notice of the breach
and Executive fails to cure the breach (if possible) within 30 days of the
notice.  During this 30 day notice
period, Executive shall be afforded the opportunity to make a presentation to
the Board of Directors regarding the matters referred to in the notice of
breach.  In the event Executive’s
employment is terminated in accordance with this subparagraph 7.1, Executive shall
be entitled to receive only the Base Salary then in effect and any amounts
payable pursuant to paragraphs 5 and 6, prorated to the date of
termination (“Standard Entitlements”). 
All other Company obligations to Executive pursuant to this Agreement
will become automatically terminated and completely extinguished.  Executive will not be entitled to receive
the Severance Package described in subparagraph 7.2 below.

 

7.2                                 Termination
Without Cause by Company/Severance. 
Company may terminate Executive’s employment under this Agreement
without Cause at any time on 30 days’  advance written notice to Executive.  In the event of such termination, Executive
will receive the Standard Entitlements and will be eligible to receive a
“Severance Package” as described in subparagraph (a) below, provided
Executive complies with all the conditions set forth in

 

2

 

subparagraph (b)
below.  All other Company obligations to
Executive will be automatically terminated and completely extinguished.

 

(a)                                  Severance
Package.  The Severance Package will
consist of the following:

 

(i)                                     Severance
Payment.  Executive will receive a
Severance Payment equivalent to one year
of Executive’s Base Salary then in effect on the date of termination,
less required deductions for state and federal withholding tax, social security
and all other employment taxes and payroll deductions, payable in accordance
with Company’s regular payroll cycle.

 

(ii)                                  Bonus
Payment.  Executive will receive a
Bonus Payment equivalent to the amount of Executive’s bonus for the immediately
preceding year, less required deductions for state and federal
withholding tax, social security and all other employment taxes and payroll
deductions, payable in a lump sum payment within three months of the date of
termination.

 

(iii)                               Continuation of Group
Health Benefits.  Executive will
continue to receive group health insurance benefits on the same terms as during
Executive’s employment for one year following the date of termination, provided
Company’s insurance carrier allows
for such benefits continuation.  In the
event  Company’s insurance carrier does not
allow such coverage continuation,  Company  agrees
to pay the premiums required to continue Executive’s group health care coverage for the one-year period,
under the applicable provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (“COBRA”), provided that Executive elects to continue and remains eligible for these
benefits under COBRA, and does not obtain health coverage through another
employer during this period.

 

(b)                                 Conditions
to Receive Severance Package. 
Executive will be eligible for the Severance Package provided that
Executive: (a) complies with all surviving provisions of this Agreement as
specified in subparagraph 14.8 below; and (b) executes a full general
release, releasing all claims, known or unknown, that Executive may have
against Company arising out of or any way related to Executive’s employment or
termination of employment with Company. 
All other Company obligations to Executive will be automatically
terminated and completely extinguished.

 

7.3                                 Voluntary
Resignation by Executive for Good Reason/Severance.  Executive may voluntarily resign Executive’s
position with Company for Good Reason at any time on 30 days’  advance
written notice to Company.  Executive
will be deemed to have resigned for Good Reason if resignation is made within
six (6) months following the occurrence of any of the following
circumstances:  (i) Company’s
material breach of this Agreement; (ii) Executive’s Base Salary is reduced
by more than 10% below Executive’s salary as provided for in this Agreement,
unless the reduction is due to a voluntary change of Executive’s
responsibilities; (iii) Executive’s
position and/or duties are modified so that Executive’s duties are no longer
consistent with the position of a senior executive or Executive no longer
reports to the CEO; or (iv) Company relocates Executive’s principal
place of work to a location more than thirty (30) miles from the location
specified in subparagraph 2.3, without Executive’s prior written approval.  Notwithstanding the foregoing, the
termination of Executive’s employment under this subparagraph 7.3 shall
not constitute voluntary resignation for Good

 

3

 

Reason unless
Executive first provides Company with written notice of the breach and Company
fails to cure the breach (if possible) within 30 days of the notice.  In the event of Executive’s resignation for
Good Reason, Executive will be entitled to receive the Standard Entitlements
and the Severance Package described in subparagraph 7.2(a) above, provided
Executive complies with all of the conditions in subparagraph 7.2(b)
above.  All other Company obligations to
Executive pursuant to this Agreement will become automatically terminated and
completely extinguished.

 

7.4                                 Voluntary
Resignation by Executive Without Good Reason.  Executive may voluntarily resign Executive’s position with
Company Without Good Reason at any time on 30 days’ advance written
notice.  In the event of Executive’s
resignation Without Good Reason, Executive will be entitled to receive only the
Standard Entitlements and no other amount. 
All other Company obligations to Executive pursuant to this Agreement
will become automatically terminated and completely extinguished.  In addition, Executive will not be entitled
to receive the Severance Package described in subparagraph 7.2 above.

 

7.5                                 Termination
Upon Death.  Executive’s employment
will terminate immediately on Executive’s death.  In the event of such termination, Company shall provide a death
benefit equal to: (i) Executive’s Base Salary then in effect, prorated for
the current year to the date of Executive’s death; (ii) an amount equal to
the bonus paid to Executive the previous year, prorated for the current year to
the date of Executive’s death; and (iii) any amounts payable pursuant to
paragraphs 5 and 6 that at the date of Executive’s death, are accrued but
unpaid (collectively “Death Benefit”). 
The Death Benefit shall be made in a lump sum payment within 90 days of
Executive’s death to such person as Executive shall designate in a notice filed
with Company or, if no such notice is filed, the Death Benefit shall be paid to
Executive’s estate.

 

7.6                                 Termination
Upon Disability.  Executive’s
employment may be terminated by Company as a result of Executive’s inability to
perform the essential functions of Executive’s position, with or without
reasonable accommodation, if required by law, due to a mental or physical
disability.  In no event will
Executive’s employment be terminated pursuant to this subparagraph 7.6
until 180 consecutive days of paid leave have elapsed and Company has provided
30 days’ written notice in advance of termination.  In the event of termination pursuant to this subparagraph 7.6,
Executive shall be entitled to receive only the Standard Entitlements.  All other Company obligations to Executive
pursuant to this Agreement will become automatically terminated and completely
extinguished.  Executive will not be
entitled to receive the Severance Package described in subparagraph 7.2 above.

 

7.7                                 Termination
Upon Expiration of Agreement.  If
Executive’s employment is not terminated in accordance with
subparagraphs 7.1-7.6, this Agreement will expire exactly one year from
the Effective Date.  In the event of
expiration of this Agreement, Executive shall be entitled to receive only the
Standard Entitlements earned through the date of expiration.  All other Company obligations to Executive
pursuant to this Agreement will become automatically terminated and completely
extinguished.  Executive will not be
entitled to receive the Severance Package described in subparagraph 7.2 above.

 

8.                                       Consultant
After Termination.  In the event
Executive’s employment is terminated pursuant to subparagraphs 7.1, 7.4 or
7.7, Executive agrees to act as a
consultant for Company, if requested to do so by Company.  Executive will be paid a fixed monthly fee
equal to 25 percent of Executive’s monthly base salary in effect at the
time of termination for up to  six (6)
months following the termination of the employment relationship (“Consultant
Payments”).  Consultant Payments shall
be made in arrears on or before the last business day of each month during
which Executive has acted as a consultant. 
Company may elect, in its sole and absolute discretion, to terminate the
Consultant Payments at any time upon 10 days’ advance written notice to
Executive.

 

4

 

9.                                       No
Conflict of Interest.  During the
term of Executive’s employment with Company and during any period Executive is
receiving payments from Company pursuant to this Agreement, Executive must not
engage in any work, paid or unpaid, that creates an actual conflict of interest
with Company.  Such work shall include,
but is not limited to, directly competing with Company in any way, or acting as
an officer, director, employee, consultant, stockholder, volunteer, lender, or
agent of any business enterprise of the same nature as, or which is in direct
competition with, the business in which Company is now engaged or in which
Company becomes engaged during the term of Executive’s employment with Company,
as may be determined by the Board of Directors in its sole discretion.  If the Board of Directors believes such a conflict
exists during the term of this Agreement, the Board of Directors may ask
Executive to choose to discontinue the other work or resign employment with
Company.  If the Board of Directors
believes such a conflict exists during any period in which Executive is
receiving payments pursuant to this Agreement, the Board of Directors may ask
Executive to choose to discontinue the other work or forego the remaining
payments.  In addition, Executive agrees
not to refer any client or potential client of Company to competitors of
Company, without obtaining Company’s prior written consent, during the term of
Executive’s employment and during any period in which Executive is receiving
payments from Company pursuant to this Agreement.  Notwithstanding the foregoing, Executive may work or perform
services for Company and its affiliates or a financial institution or similar
entity that is involved in the mortgage business so long as such entity is not
engaged primarily in managing real estate investment trusts or originating
and/or selling mortgages, and Executive may own securities in any publicly held
corporation, but only to the extent Executive does not own of record or
beneficially more than 1 percent of the outstanding beneficial ownership of
such corporation.

 

10.                                 Confidentiality
Agreement and Return of Company Property. 
Executive agrees to read, sign and abide by Company’s Confidentiality
Agreement, which is provided with this Agreement and incorporated herein by
reference.  Executive further agrees
that upon termination or expiration of Executive’s employment, Executive will
return all Company property, including all confidential and proprietary
information as described in the Confidentiality Agreement, all materials and
documents containing trade secrets and copyrighted materials, all
correspondence, management studies and any other materials or data relating to
or connected with Executive’s employment, including all copies and excerpts of
the same.

 

11.                                 Indemnification.  Company agrees to defend and indemnify Executive
to the fullest extent provided by California Labor Code section 2802
and/or Company’s Directors’ and Officers’ liability insurance policy.

 

12.                                 Injunctive
Relief.  Executive acknowledges that
Executive’s breach of the covenants contained in paragraphs 9-7.2 (collectively
“Covenants”) would cause irreparable injury to Company and agrees that in the
event of any such breach, Company shall be entitled to seek temporary,
preliminary and permanent injunctive relief without the necessity of proving actual
damages or posting any bond or other security.

 

13.                                 Agreement
to Arbitrate.  To the fullest extent
permitted by law, Executive and Company agree to arbitrate any controversy,
claim or dispute between them arising out of or in any way related to this Agreement,
the employment relationship between Company and Executive and any disputes upon
termination of employment, including but not limited to breach of contract,
tort, discrimination, harassment, wrongful termination, demotion, discipline,
failure to accommodate, family and medical leave, compensation or benefits
claims, constitutional claims; and any claims for violation of any local, state
or federal law, statute, regulation or ordinance or common law.  By executing this Agreement, Executive and
Company are both waiving the right

 

5

 

to a jury trial
with respect to any such disputes.  For
the purpose of this agreement to arbitrate, references to “Company” include all
parent, subsidiary or related entities and their employees, supervisors,
officers, directors, agents, pension or benefit plans, pension or benefit plan
sponsors, fiduciaries, administrators, affiliates and all successors and
assigns of any of them, and this agreement shall apply to them to the extent
Executive’s claims arise out of or relate to their actions on behalf of
Company.

 

13.1                           Consideration.  The mutual promise by Company and Executive
to arbitrate any and all disputes between them rather than litigate them before
the courts or other bodies, provides the consideration for this agreement to
arbitrate.

 

13.2                           Initiation
of Arbitration.  Either party may
exercise the right to arbitrate by providing the other party with written
notice of any and all claims forming the basis of such right in sufficient
detail to inform the other party of the substance of such claims.  In no event shall the request for
arbitration be made after the date when institution of legal or equitable
proceedings based on such claims would be barred by the applicable statute of
limitations.

 

13.3                           Arbitration
Procedure.  The arbitration will be
conducted in San Diego, California
by a single neutral arbitrator and in accordance with the then current rules
for resolution of employment disputes of the American Arbitration Association
(“AAA”).  The parties are entitled to
representation by an attorney or other representative of their choosing.  The arbitrator shall have the power to enter
any award that could be entered by a judge of the trial court of the State of
California, and only such power, and shall follow the law.  The parties agree to abide by and perform
any award rendered by the arbitrator. 
The arbitrator shall issue the award in writing and therein state the
essential findings and conclusions on which the award is based.  Judgment on the award may be entered in any
court having jurisdiction thereof.

 

13.4                           Costs
of Arbitration.  Company shall bear
the costs of the arbitrator, forum and filing fees.

 

14.                                 General
Provisions.

 

14.1                           Successors
and Assigns.  The rights and
obligations of Company under this Agreement shall inure to the benefit of and
shall be binding upon the successors and assigns of Company.  Executive shall not be entitled to assign
any of Executive’s rights or obligations under this Agreement.

 

14.2                           Waiver.  Either party’s failure to enforce any
provision of this Agreement shall not in any way be construed as a waiver of
any such provision, or prevent that party thereafter from enforcing each and
every other provision of this Agreement.

 

14.3                           Attorneys’
Fees.  Each side will bear its own
attorneys’ fees in any dispute unless a statutory section at issue, if any,
authorizes the award of attorneys’ fees to the prevailing party.

 

14.4                           Severability.  In the event any provision of this Agreement
is found to be unenforceable by an arbitrator or court of competent
jurisdiction, such provision shall be deemed modified to the extent necessary
to allow enforceability of the provision as so limited, it being intended that
the parties shall receive the benefit contemplated herein to the fullest extent
permitted by law.  If a deemed
modification is not satisfactory in the judgment of such arbitrator

 

6

 

or court, the
unenforceable provision shall be deemed deleted, and the validity and
enforceability of the remaining provisions shall not be affected thereby.

 

14.5                           Interpretation;
Construction.  The headings set
forth in this Agreement are for convenience only and shall not be used in
interpreting this Agreement.  This Agreement
has been drafted by legal counsel representing Company, but Executive has
participated in the negotiation of its terms. 
Furthermore, Executive acknowledges that Executive has had an
opportunity to review and revise the Agreement and have it reviewed by legal
counsel, if desired, and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement.

 

14.6                           Governing
Law.  This Agreement will be
governed by and construed in accordance with the laws of the United States and
the State of California.  Each party
consents to the jurisdiction and venue of the state or federal courts in San Diego,  California, if applicable,
in any action, suit, or proceeding arising out of or relating to this
Agreement.

 

14.7                           Notices.  Any notice required or permitted by this
Agreement shall be in writing and shall be delivered as follows with notice
deemed given as indicated:  (i) by
personal delivery when delivered personally; (ii) by overnight courier
upon written verification of receipt; (iii) by telecopy or facsimile
transmission upon acknowledgment of receipt of electronic transmission; or
(iv) by certified or registered mail, return receipt requested, upon
verification of receipt.  Notice shall
be sent to the addresses set forth below, or such other address as either party
may specify in writing.

 

14.8                           Survival.  Sections 9 (“No Conflict of Interest”), 7.2
(“Confidentiality Agreement”), 12 (“Injunctive Relief”), 13 (“Agreement to
Arbitrate”), 13 (“General Provisions”) and 15 (“Entire Agreement”) of this
Agreement shall survive Executive’s employment by Company.

 

THE
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK

 

7

 

15.                                 Entire
Agreement.  This Agreement,
including the Company’s Confidentiality Agreement incorporated herein by
reference, constitutes the entire agreement between the parties relating to
this subject matter and supersedes all prior or simultaneous representations,
discussions, negotiations, and agreements, whether written or oral.  This Agreement may be amended or modified
only with the written consent of Executive and the CEO of Company.  No oral waiver, amendment or modification
will be effective under any circumstances whatsoever.

 

THE PARTIES TO THIS
AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY
PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT
ON THE DATES SHOWN BELOW.

 

	
   

  	
   

  	
  Lisa Faulk

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
    3/31/03

  	
   

  	
            /s/ Lisa Faulk

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  American Mortgage Network, Inc.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
    3/31/03

  	
   

  	
  By:

  	
       /s/ John Robbins

  
	
   

  	
   

  	
  John Robbins

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  	
  10421 Wateridge Circle, Ste. 250

  
	
   

  	
   

  	
  San Diego, CA 92121

  
						

 

8

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