Document:

Exhibit
10.1

 

[California Gross
Lease with Stops]

 

LEASE AGREEMENT

 

THIS LEASE AGREEMENT is
made this 9th day of
         March            ,
2004, between ProLogis, a Maryland Real Estate Investment Trust (“Landlord”),
and the Tenant named below.

 

	
  Tenant:

  	
   

  	
  Restoration Hardware,
  Inc.

  
	
   

  	
   

  	
   

  
	
  Tenant’s representative,

  address, and phone no.:

  	
   

  	
  Director of Real Estate

  15 Koch Road

  Corte Madera, CA 94925

  415/924-1005

  
	
   

  	
   

  	
   

  
	
  Premises:

  	
   

  	
  The Building located on
  that parcel of land more commonly known as 2900 N. MacArthur Drive, Tracy,
  CA, containing approximately 283,712 rentable square feet, as determined by
  Landlord, as shown and described on Exhibit A.

  
	
   

  	
   

  	
   

  
	
  Project:

  	
   

  	
  Building 4 (EB A01204)
  Central Valley Industrial Center

  
	
   

  	
   

  	
   

  
	
  Building:

  	
   

  	
  Building 4 (EBA01204)
  Central Valley Industrial Center

  
	
   

  	
   

  	
   

  
	
  Tenant’s Proportionate Share of Project:

  	
   

  	
  100%

  
	
   

  	
   

  	
   

  
	
  Tenant’s Proportionate Share of Building:

  	
   

  	
  100%

  
	
   

  	
   

  	
   

  
	
  Lease Term:

  	
   

  	
  Beginning on the
  Commencement Date and ending on the last day of the 88th full calendar month
  thereafter.

  
	
   

  	
   

  	
   

  
	
  Commencement Date:

  	
   

  	
  The later of
  June 1, 2004 or the Substantial Completion of the Improvements described
  in Addendum 2  to this Lease.

  
	
   

  	
   

  	
   

  
	
  Initial Monthly Base Rent:

  	
   

  	
  $0

  
	
   

  	
   

  	
   

  
	
  Base Year:

  	
   

  	
  2004

  
	
   

  	
   

  	
   

  
	
  Security Deposit:

  	
   

  	
  Cash or Letter of
  Credit in the amount of $400,000 as set forth in Addendum 5.

  
	
   

  	
   

  	
   

  
	
  Broker:

  	
   

  	
  Dave Haggerty and Duane
  Fitch, CB Richard Ellis

  
	
   

  	
   

  	
   

  
	
  Addenda:

  	
   

  	
  Addendum 1 (Rent
  Schedule), Addendum 2 (Tenant Improvements), Addendum 3 (Moving Allowance),
  Addendum 4 (Option to Renew), Addendum 5 (Letter of Credit for Security
  Deposit), Addendum 6 (Satellite Dish)

  
	
   

  	
   

  	
   

  
	
  Exhibits:

  	
   

  	
  Exhibit A (Site Plan,
  Selling Products location on Premises, Allocated Parking), Exhibit B (Floor
  Plan), Exhibit B-1 (Work Letter Agreement) Exhibit C (Legal Description) Exhibit
  D (Sign Criteria)

  

 

1.                                       Granting
Clause.  In consideration of
the obligation of Tenant to pay rent as herein provided and in consideration of
the other terms, covenants, and conditions hereof, Landlord leases to Tenant,
and Tenant takes from Landlord, the Premises, to have and to hold for the Lease
Term, subject to the terms, covenants and conditions of this Lease and hereby
grants to Tenant, its customers, guests, invitees, employees, agents and
licensees all easements, rights and privileges appurtenant thereto, including
the right free of charge to use the parking areas, driveways, roads, alleys,
means of ingress and egress and other portions of the Project, subject,
however, to matters filed of record as of the date hereof. Tenant and Tenant’s
agents, employees and contractors shall have access to the Premises 24 hours
per day, 7 days per week.  Landlord may
not change the Site Plan, Project, Premises or Building in a way which would
materially and adversely affect Tenant.

 

2.                                       Acceptance
of Premises.  Subject to
Landlord’s Substantial Completion of the Initial Improvements, Tenant shall
accept the Premises in its condition as of the Commencement Date, subject to
all applicable laws, ordinances, regulations, covenants and restrictions.  Except as otherwise provided herein,
Landlord has made no representation or warranty as to the suitability of the
Premises for the conduct of Tenant’s business, and Tenant waives any implied
warranty that the Premises are suitable for Tenant’s intended purposes.  Except as otherwise provided herein , in no
event shall Landlord have any obligation for any defects in the Premises or any
limitation on its use.  Subject to
Landlord’s Substantial Completion of the Initial Improvements, the taking of
possession of the Premises shall be conclusive evidence that Tenant accepts the
Premises and that the Premises were in good condition at the time possession
was taken except for items that are Landlord’s responsibility under Paragraph
10 and any punchlist items agreed to in writing by Landlord and Tenant.

 

3.                                       Use.  The Premises shall be used only for the
purpose of receiving, storing, shipping and Selling Products, materials and
merchandise made and/or distributed by Tenant and for such other lawful
purposes as may be incidental thereto; provided, however, with Landlord’s prior
written consent, which consent shall not be unreasonably withheld, conditioned
or delayed, Tenant may also use the Premises for light manufacturing.  “Selling Products” shall be

 

 

limited to the
approximately 10,000 square feet of space located in the northwest corner of
the Premises as shown on Exhibit A.   Tenant shall not conduct or give notice of any auction,
liquidation, or going out of business sale on the Premises.  Tenant will use the Premises in a careful,
safe and proper manner and will not commit waste, except for ordinary wear and
tear, overload the floor or structure of the Premises or subject the Premises
to use that would damage the Premises. 
Tenant shall not permit any objectionable or unpleasant odors, smoke,
dust, gas, noise, or vibrations to emanate from the Premises, or take any other
action that would constitute a nuisance or would disturb, unreasonably
interfere with, or endanger Landlord. 
Outside storage, including without limitation, storage of inoperable
trucks and other personal vehicles, is prohibited without Landlord’s prior
written consent, which consent shall not be unreasonably withheld, conditioned
or delayed.  Tenant, at its sole
expense, shall use and occupy the Premises in compliance with all laws,
including, without limitation, the Americans With Disabilities Act, orders,
judgments, ordinances, regulations, codes, directives, permits, licenses,
covenants and restrictions now or hereafter applicable to the Premises
(collectively, “Legal Requirements”), except that Landlord shall be
responsible for the compliance with such Legal Requirements as the same relate
to the structural portions of the Premises and the Project.  Tenant shall, at its expense, make any alterations
or modifications, within or without the Premises, that are required by Legal
Requirements related to Tenant’s use or occupation of the Premises, except that
Landlord shall be responsible for the compliance with such Legal Requirements
as the same relate to the structural portions of the Premises and the
Project.  Tenant will not use or permit
the Premises to be used for any purpose or in any manner that would void
Tenant’s or Landlord’s insurance, increase the insurance risk, or cause the
disallowance of any sprinkler credits unless such use has been approved by
Landlord and Tenant is responsible for all of the increased costs resulting
therefrom.  If any increase in the cost
of any insurance on the Premises or the Project is caused by Tenant’s use or
occupation of the Premises, or because Tenant vacates the Premises, then Tenant
shall pay the amount of such increase to Landlord.  Except for the payment of rent, which shall be due and payable as
of the Commencement Date, any occupation of the Premises by Tenant prior to the
Commencement Date shall be subject to all other obligations of Tenant under
this Lease.

 

Notwithstanding anything
contained herein to the contrary, Tenant’s obligations hereunder shall relate
only to the interior of the Premises and any changes to the Project that relate
solely to Tenant’s use of the Premises. 
Landlord shall make all other additions to or modifications of the
Project required from time to time in accordance with Legal Requirements.  The cost of such additions or modifications
made by Landlord shall be included in Operating Expenses pursuant to Paragraph
6 of this Lease, except for those additions or modifications which are
Landlord’s sole responsibility pursuant to Paragraph 10 of this Lease.

 

4.                                       Base Rent.  Tenant shall pay Base Rent in the amount set
forth in Addendum I.  The fifth month’s Base Rent and Security
Deposit shall be due and payable on the date hereof, and Tenant promises to pay
to Landlord in advance, without demand, deduction or set-off, monthly
installments of Base Rent on or before the first day of each calendar month
succeeding the Commencement Date. 
Payments of Base Rent for any fractional calendar month shall be
prorated.  All payments required to be
made by Tenant to Landlord hereunder (or to such other party as Landlord may
from time to time specify in writing) shall be made, at such place, within the
continental United States, as Landlord may from time to time designate to
Tenant in writing.  Except as otherwise
provided herein, the obligation of Tenant to pay Base Rent and other sums to
Landlord and the obligations of Landlord under this Lease are independent
obligations.  Tenant shall have no right
at any time to abate, reduce, or set-off any rent due hereunder except as may
be expressly provided in this Lease.  If
Tenant is delinquent in any monthly installment of Base Rent or of estimated
Excess Operating Expenses (as hereinafter defined) for more than 5 days, and
after notice as provided below, Tenant shall pay to Landlord on demand a late
charge equal to five (5.0%) percent of such delinquent sum.  Tenant shall not be obligated to pay the
late charge until Landlord has given Tenant five (5) days written notice of the
delinquent payment (which may be given at any time during the delinquency);
provided, however, that such notice shall not be required more than twice in
any 12-month period.  The provision for
such late charge shall be in addition to all of Landlord’s other rights and
remedies hereunder or at law and shall not be construed as a penalty or as
limiting Landlord’s remedies in any manner.

 

5.                                       Security
Deposit.  The Security
Deposit shall be held by Landlord as security for the performance of Tenant’s
obligations under this Lease.  The
Security Deposit is not an advance rental deposit or a measure of Landlord’s
damages in case of Tenant’s default. 
Upon each occurrence of an Event of Default (hereinafter defined),
Landlord may use all or part of the Security Deposit to pay delinquent payments
due under this Lease, and the cost of any damage, injury, expense or liability
caused by such Event of Default, without prejudice to any other remedy provided
herein or provided by law.  Tenant shall
pay Landlord on demand the amount that will restore the Security Deposit to its
original amount.  Landlord’s obligation
respecting the Security Deposit is that of a debtor, not a trustee; no interest
shall accrue thereon.  The Security
Deposit shall be the property of Landlord, but shall be paid to Tenant when
Tenant’s obligations under this Lease have been completely fulfilled.  Landlord shall be released from any
obligation with respect to the Security Deposit upon transfer of this Lease and
the Premises to a person or entity assuming Landlord’s obligations under this
Paragraph 5.

 

The Security Deposit may
be in the form of cash or an unconditional, irrevocable letter of credit from
Fleet Bank or another bank reasonably acceptable to Landlord in accordance with
Addendum 5.  If the letter of credit is
ever drawn upon by Landlord pursuant to the terms of the Lease, Tenant shall
within 10 days thereafter cause the letter of credit to be restored to the
amount required and in accordance with Addendum 5.

 

6.                                       Operating
Expense Payments.  During
each month of the Lease Term subsequent to the Base Year, on the same date that
Base Rent is due, Tenant shall pay Landlord an amount equal to 1/12 of the
annual cost, as reasonably estimated by Landlord from time to time, of Tenant’s
Proportionate Share (hereinafter defined) of Excess Operating Expenses for the
Project.  Payments thereof for any
fractional calendar month shall be prorated. 
The term “Excess Operating Expenses” means Operating Expenses for the
applicable year in excess of Operating Expenses for the

 

2

 

Base Year.  The term “Operating Expenses” means all
costs and expenses reasonably incurred by Landlord with respect to the
ownership, maintenance, and operation of the Project including, but not limited
to, without duplication of any other cost Tenant pays hereunder, costs of:
Taxes (hereinafter defined) and fees payable to tax consultants and attorneys
for consultation and contesting taxes (but only to the extent that a tax
savings is realized); insurance; 
utilities; maintenance, repair and replacement of all portions of the
Project, including without limitation, paving and parking areas, roads, roofs
(including the roof membrane), alleys, and driveways, mowing, landscaping,
exterior painting, utility lines, heating, ventilation and air conditioning
systems, lighting, electrical systems and other mechanical and building
systems; amounts paid to contractors and subcontractors for work or services
performed in connection with any of the foregoing; charges or assessments of
any association to which the Project is subject; property management fees
payable to a property manager, including any affiliate of Landlord,  not to exceed three percent (3%) of gross
rents including Operating Expenses; security services, if any; trash
collection, sweeping and removal; and additions or alterations made by Landlord
to the Project or the Building in order to comply with Legal Requirements
(other than those expressly required herein to be made by Tenant) or that are
appropriate to the continued operation of the Project or the Building as a bulk
warehouse facility in the market area, provided that the cost of additions or
alterations that are required to be capitalized for federal income tax purposes
shall be amortized on a straight line basis over a period equal to the lesser
of the useful life thereof for federal income tax purposes or 10 years.  Operating Expenses do not include costs,
expenses, depreciation or amortization for capital repairs and capital
replacements required to be made by Landlord under Paragraph 10 of this Lease,
debt service under mortgages or ground rent under ground leases, costs of
restoration to the extent of net insurance proceeds received by Landlord with
respect thereto, leasing commissions. Further, Operating Expenses shall not
include, without limitation, the following items:

 

(a)                                  The
cost of preparing any space for any tenant or prospective tenant of the
Building or costs associated with any space presently deemed to be rentable
space;

 

(b)                                 The
cost of repairs or other work required as a result of fire, windstorm, casualty
or any other occurrence covered by the insurance which Landlord is required to
obtain hereunder, including costs subject to any self-insured retention, but
excluding any deductible;

 

(c)                                  Costs
incurred in leasing or obtaining new tenants or retaining existing tenants,
including leasing commissions, attorneys; fees, or the cost of advertising and
promotion;

 

(d)                                 Attorneys’
fees incurred in enforcing the terms of any lease;

 

(e)                                  The
cost of any item or service that Landlord provides selectively to one or more
tenants of the Building, whether or not Landlord is reimbursed by such other
tenants;

 

(f)                                    Any
amount paid to an entity or individual affiliated with or otherwise related to
Landlord which exceeds the amount which would be paid for similar goods or services
on an arms-length basis between unrelated parties;

 

(g)                                 The
cost of correcting defects in the initial construction of the Building or any
of the Initial Improvements whether or not covered by any warranty;

 

(h)                                 Any
cost incurred to test, clean up, contain, abate, remove or undertake any other
remedial action as a result of the violation of any environmental law or
environmental regulation applicable to the Building;

 

(i)                                     Any
cost incurred by Landlord as a result of the gross negligence or willful misconduct
of Landlord;

 

(j)                                     Any
costs incurred in complying with the provisions of the Americans with
Disabilities Act and implementing regulations; and

 

(k)                                  Any
costs associated with the replacement of the roof.

 

Upon Tenant’s written
request (which request shall be limited to once in a calendar year), Landlord
shall provide Tenant with photocopies of invoices, bills and other verification
to substantiate the Operating Expenses for such year. If Tenant’s total
payments of Operating Expenses for any year are less than Tenant’s
Proportionate Share of Excess Operating Expenses for such year, then Tenant
shall pay the difference to Landlord within 30 days after demand, and if more,
then Landlord shall retain such excess and credit it against Tenant’s next payments
or refund to Tenant, if it is at the end of the Lease Term.  For purposes of calculating Tenant’s
Proportionate Share of Excess Operating Expenses, a year shall mean a calendar
year except the last year, which shall end on the expiration of this Lease.  For purposes of calculating Excess Operating
Expenses for the last year of the Lease Term, Operating Expenses for the Base
Year shall be reduced proportionately based upon the number of days that this
Lease is in effect during such last year. 
With respect to Operating Expenses which Landlord allocates to the
entire Project, Tenant’s “Proportionate Share” shall be the percentage set
forth on the first page of this Lease as Tenant’s Proportionate Share of the
Project as reasonably adjusted by Landlord in the future for changes in the
physical size of the Premises or the Project; and, with respect to Operating
Expenses which Landlord allocates only to the Building, Tenant’s “Proportionate
Share” shall be the percentage set forth on the first page of this Lease as
Tenant’s Proportionate Share of the Building as reasonably adjusted by Landlord
in the future for changes in the physical size of the Premises or the Building.

 

7.                                       Utilities.  Tenant shall pay for all water, gas,
electricity, heat, light, power, telephone, sewer, sprinkler services, refuse
and trash collection, and other utilities and services used on the Premises,
all maintenance charges for utilities, and any storm sewer charges or other
similar charges for utilities imposed by any governmental entity or utility
provider, together with any taxes, penalties, surcharges or the like pertaining
to Tenant’s use of the Premises. 
Landlord may cause at Tenant’s expense any utilities to be separately
metered or charged directly to Tenant by the provider.

 

3

 

Tenant shall pay its
share of all charges for jointly metered utilities based upon consumption, as
reasonably determined by Landlord.  No
interruption or failure of utilities shall result in the termination of this
Lease or the abatement of rent.  Tenant
agrees to limit use of water and sewer for normal restroom use.

 

Notwithstanding anything
to the contrary contained in this Paragraph 7 of this Lease, if an interruption
or cessation of utilities results from a cause within the Landlord’s reasonable
control and the Premises are not usable by Tenant for the conduct of Tenant’s
business as a result thereof, Base Rent and applicable Operating Expenses not
actually incurred by Tenant shall be abated for the period which commences five
(5) business days after the date Tenant gives to Landlord notice of such
interruption until such utilities are restored.

 

8.                                       Taxes.  Landlord shall pay Tenant’s Proportionate
Share of all taxes, assessments and governmental charges (collectively referred
to as “Taxes”) that accrue against the Project during the Lease Term, which
shall be included as part of the Operating Expenses charged to Tenant.  Landlord may contest by appropriate legal
proceedings the amount, validity, or application of any Taxes or liens
thereof.  If Landlord fails to contest
the real estate taxes, Tenant shall have the right to request Landlord to
contest such taxes, and Landlord shall so contest, at Tenant’s sole cost and
expense (including, without limitation, Landlord’s reasonable attorneys’ fees
and reasonable fees payable to tax consultants and attorneys for consultation
and contesting taxes), if, in Landlord’s reasonable judgment, such contest is
warranted; provided, however, Tenant’s request of such contesting of Taxes
shall be limited to one request in a calendar year.  Landlord shall cooperate in the institution and prosecution of
any such proceedings of contesting taxes and will execute any documents
reasonably required therefor.  All
reductions, refunds, or rebates of Taxes paid or payable by Tenant shall belong
to Tenant whether as a consequence of a Tenant proceeding or otherwise.  All capital levies or other taxes assessed
or imposed on Landlord upon the rents payable to Landlord under this Lease and
any franchise tax, any excise, transaction, sales or privilege tax, assessment,
levy or charge measured by or based, in whole or in part, upon such rents from
the Premises and/or the Project or any portion thereof shall be paid by Tenant
to Landlord monthly in estimated installments or upon demand, at the option of
Landlord, as additional rent; provided, however, in no event shall Tenant be
liable for any net income taxes imposed on Landlord unless such net income
taxes are in substitution for any Taxes payable hereunder.  If any such tax or excise is levied or
assessed directly against Tenant, then Tenant shall be responsible for and
shall pay the same at such times and in such manner as the taxing authority
shall require.  Tenant shall be liable
for all taxes levied or assessed against any personal property or fixtures
placed in the Premises, whether levied or assessed against Landlord or
Tenant.    Taxes shall not include (i)
federal, state or local income taxes, (ii) franchise, gift, transfer, excise,
capital stock, estate, succession, or inheritance taxes, or (iii) penalties or
interest for late payment of taxes.

 

9.                                       Insurance.  Landlord shall maintain all risk property
insurance covering the full replacement cost of the Building.  Landlord may, but is not obligated to,
maintain such other insurance and additional coverages as it may deem
necessary, including, but not limited to, commercial liability insurance and
rent loss insurance.  All such insurance
shall be included as part of the Operating Expenses charged to Tenant.  The Project or Building may be included in a
blanket policy (in which case the cost of such insurance allocable to the
Project or Building will be reasonably determined by Landlord based upon the insurer’s
cost calculations).  Tenant shall also
reimburse Landlord for any increased premiums or additional insurance which
Landlord reasonably deems necessary as a result of Tenant’s use of the
Premises.

 

Tenant, at its expense,
shall maintain during the Lease Term: 
all risk property insurance covering the full replacement cost of all
property and improvements installed or placed in the Premises by Tenant at
Tenant’s expense; worker’s compensation insurance with no less than the minimum
limits required by law; employer’s liability insurance with such limits as
required by law; and commercial liability insurance, with a minimum limit of
$1,000,000 per occurrence and a minimum umbrella limit of $1,000,000, for a
total minimum combined general liability and umbrella limit of $2,000,000
(together with such additional umbrella coverage as Landlord may reasonably
require) for property damage, personal injuries, or deaths of persons occurring
in or about the Premises.  Landlord may
from time to time require reasonable increases in any such limits.  The commercial liability policies shall name
Landlord as an additional insured, insure on an occurrence and not a
claims-made basis, be issued by insurance companies which are reasonably
acceptable to Landlord, not be cancelable unless 30 days’ prior written notice
shall have been given to Landlord, contain a hostile fire endorsement and a
contractual liability endorsement and provide primary coverage to Landlord (any
policy issued to Landlord providing duplicate or similar coverage shall be
deemed excess over Tenant’s policies). 
Such policies or certificates thereof shall be delivered to Landlord by
Tenant upon commencement of the Lease Term and upon each renewal of said
insurance.

 

The all risk property
insurance obtained by Landlord and Tenant shall include a waiver of subrogation
by the insurers and all rights based upon an assignment from its insured,
against Landlord or Tenant, their officers, directors, employees, managers,
agents, invitees and contractors, in connection with any loss or damage thereby
insured against.  Neither party nor its
officers, directors, employees, managers, agents, invitees or contractors shall
be liable to the other for loss or damage caused by any risk coverable by all
risk property insurance, and each party waives any claims against the other
party, and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage. 
The failure of a party to insure its property shall not void this
waiver.  Landlord and its agents,
employees and contractors shall not be liable for, and Tenant hereby waives all
claims against such parties for, business interruption and losses occasioned
thereby sustained by Tenant or any person claiming through Tenant resulting
from any accident or occurrence in or upon the Premises or the Project from any
cause whatsoever, including without limitation, damage caused in whole or in
part, directly or indirectly, by the negligence of Landlord or its agents,
employees or contractors.

 

4

 

Tenant and its
subtenants, assignees, invitees, employees, contractors and agents shall not be
liable for, and Landlord hereby waives all claims against Tenant and its
subtenants, assignees, invitees, employees, contractors and agents for damage
to property sustained by Landlord or any person claiming through Landlord
resulting from any accident or occurrence in or upon the Premises or in or
about the Project from any cause whatsoever, including, without limitation,
damage caused in whole or in part, directly or indirectly, by the negligence of
Tenant or its subtenants, assignees, invitees, employees, contractors or
agents; provided, however, such waiver shall only apply to claims in excess of
the commercially reasonable deductible under Landlord’s insurance policy.

 

10.                                 Landlord’s
Repairs.  Landlord shall
maintain, at its expense (without contribution by Tenant), the structural
soundness of the roof, foundation, and exterior walls of the Building in good
repair, reasonable wear and tear and damages caused by Tenant, its agents and
contractors excluded.  The term “walls”
as used in this Paragraph 10 shall not include windows, glass or plate glass,
doors or overhead doors, special store fronts, dock bumpers, dock plates or
levelers, or office entries.  Tenant
shall promptly give Landlord written notice of any repair required by Landlord
pursuant to this Paragraph 10, after which Landlord shall complete such
repair within 30 days unless such repair cannot be completed within 30 days in
which case Landlord shall complete such repair within a reasonable time
provided Landlord works diligently and continuously to complete such repair,
subject to Force Majeure event and Tenant-caused delays.

 

11.                                 Tenant’s
Repairs.  Landlord, at
Tenant’s expense as provided in Paragraph 6, shall maintain in good repair and
condition the parking areas and other areas of the Building, including, but not
limited to driveways, alleys, landscape and grounds surrounding the
Premises.  Subject to Landlord’s
obligation in Paragraph 10 and subject to Paragraphs 9 and 15, Tenant, at
its expense, shall repair, replace and maintain in good condition all portions
of the Premises and all areas, improvements and systems exclusively serving the
Premises including, without limitation, dock and loading areas, truck doors,
plumbing, water and sewer lines up to points of common connection, fire
sprinklers and fire protection systems, entries, doors, ceilings, windows,
interior walls, and the interior side of demising walls, and heating,
ventilation and air conditioning systems. 
Such repair and replacements include capital expenditures and repairs
whose benefit may extend beyond the Term, and such capital expenditures and
repairs shall be fully amortized in accordance with the Formula (defined
hereafter) over the remainder of the Lease term, without regard to any
extension or renewal option not then exercised.  The “Formula” shall mean that number, the numerator of which
shall be the number of months of the Lease term remaining after the replacement
of any such capital expenditures, and the denominator of which shall be the
lesser of the maximum amortization period (in months) allowable for determining
depreciation of such capital expenditures for federal income tax purposes or
ten (10) years.  Landlord shall pay for
such capital expenditures and repairs and Tenant shall reimburse Landlord for
its amortized share of same (determined as hereinabove set forth) in equal
monthly installments in the same manner as the payment by Tenant to Landlord of
the Operating Expenses.  Heating,
ventilation and air conditioning systems and other mechanical and building
systems serving the Premises shall be maintained at Tenant’s expense pursuant
to maintenance service contracts entered into by Tenant.  The scope of services and contractors under
such maintenance contracts shall be reasonably approved by Landlord.    If Tenant fails to perform any repair or
replacement for which it is responsible, Landlord may after notice and the expiration
of the cure period in Paragraph 23(vii) perform such work and be reimbursed by
Tenant within 30 days after demand therefor. 
Subject to Paragraphs 9 and 15, Tenant shall bear the full reasonable
cost of any repair or replacement to any part of the Building or Project that
results from damage caused by Tenant, its agents, contractors, or invitees and
any repair that benefits only the Premises.

 

12.                                 Tenant-Made
Alterations and Trade Fixtures. 
Except as otherwise provided herein, any alterations, additions, or
improvements made by or on behalf of Tenant to the Premises (“Tenant-Made
Alterations”) shall be subject to Landlord’s prior written consent, such
consent not to be unreasonably withheld, conditioned or delayed provided that
such alteration does not materially affect the structure or the roof of the
Project, or modify the utility systems of the Project.  Notwithstanding the foregoing, Tenant shall
not be required to obtain Landlord’s consent for those Tenant-Made Alterations
that are non-structural and the total aggregate cost of such non-structural
Tenant-Made Alterations do not exceed Fifteen Thousand and No/100 Dollars
($15,000).  Tenant shall cause, at its
expense, all Tenant-Made Alterations to comply with insurance requirements and
with Legal Requirements and shall construct at its expense any alteration or
modification required by Legal Requirements as a result of any Tenant-Made
Alterations.  All Tenant-Made
Alterations shall be constructed in a good and workmanlike manner by
contractors reasonably acceptable to Landlord and only good grades of materials
shall be used.  If Landlord’s consent or
approval is required for such Tenant-Made Alterations under the terms of this
Lease, all plans and specifications for any Tenant-Made Alterations shall be
submitted to Landlord for its approval, which approval shall not be
unreasonably withheld, conditioned or delayed provided that such alteration
does not materially affect the structure or the roof of the Project, or modify
the utility systems of the Project. 
Landlord may monitor construction of the Tenant-Made Alterations. Tenant
shall reimburse Landlord for its costs in reviewing plans and specifications
and in monitoring construction in an amount not to exceed $1,000.00.  Landlord’s right to review plans and
specifications and to monitor construction shall be solely for its own benefit,
and Landlord shall have no duty to see that such plans and specifications or
construction comply with applicable laws, codes, rules and regulations.  Tenant shall provide Landlord with the
identities and mailing addresses of all persons performing work or supplying
materials, prior to beginning such construction, and Landlord may post on and
about the Premises notices of non-responsibility pursuant to applicable
law.  Tenant shall complete all work
free and clear of liens and shall provide certificates of insurance for
worker’s compensation and other coverage in amounts and from an insurance
company reasonably satisfactory to Landlord protecting Landlord against
liability for personal injury or property damage during construction.  Upon completion of any Tenant-Made
Alterations, Tenant shall deliver to Landlord: 
(a) sworn statements setting forth the names of all contractors and subcontractors
who performed the Tenant-Made Alterations; and (b) final lien waivers from all
such contractors and subcontractors. 
Upon surrender of the Premises, all Tenant-Made Alterations and any
leasehold improvements constructed by Landlord or Tenant shall remain on the
Premises as Landlord’s property,

 

5

 

except to the extent
Landlord requires removal at Tenant’s expense of any such items or Landlord and
Tenant have otherwise agreed in writing in connection with Landlord’s consent
to any Tenant-Made Alterations.  Upon
Tenant’s written request, Landlord shall provide Tenant, at the time of
Tenant’s request for approval of Tenant-Made Alterations, a list of which
Tenant-Made Alterations Landlord will require Tenant to remove upon surrender
of the Premises.  Tenant shall repair
any damage caused by such removal.

 

Tenant, at its own cost
and expense and without Landlord’s prior approval, may erect such shelves,
bins, machinery and trade fixtures (collectively “Trade Fixtures”) in the
ordinary course of its business provided that such items do not alter the basic
character of the Premises, do not overload or damage the Premises, and may be
removed without injury to the Premises, and the construction, erection, and
installation thereof complies with all Legal Requirements and with Landlord’s
requirements set forth above.  Tenant
shall remove its Trade Fixtures and shall repair any damage caused by such
removal.

 

13.                                 Signs.  Tenant shall not make any changes to the
exterior of the Premises, install any exterior lights, decorations, balloons, flags,
pennants, banners, or painting, or erect or install any signs, windows or door
lettering, placards, decorations, or advertising media of any type which can be
viewed from the exterior of the Premises, without Landlord’s prior written
consent, which consent shall not be unreasonably withheld, conditioned or
delayed.  Upon surrender or vacation of
the Premises, Tenant shall have removed all signs and repair, paint, and/or
replace the building facia surface to which its signs are attached.  Tenant shall obtain all applicable
governmental permits and approvals for sign and exterior treatments and
Landlord, so long as there is no cost to Landlord, shall cooperate with Tenant
in such regard.  All signs, decorations,
advertising media, blinds, draperies and other window treatment or bars or
other security installations visible from outside the Premises shall be subject
to Landlord’s approval, which approval not shall be unreasonably withheld,
conditioned or delayed.

 

14.                                 Parking.  Tenant shall be allocated the parking areas
of the Building as more fully described on Exhibit
A.  Landlord shall not be
responsible for enforcing Tenant’s parking rights against any third parties.

 

15.                                 Restoration.  If at any time during the Lease Term the
Premises are damaged by a fire or other casualty, Landlord shall notify Tenant
within 30 days after such damage as to the amount of time Landlord reasonably
estimates it will take to restore the Premises.  If the restoration time is estimated to exceed 6 months, either
Landlord or Tenant may elect to terminate this Lease upon notice to the other
party given no later than 30 days after Landlord’s notice.  If neither party elects to terminate this
Lease or if Landlord estimates that restoration will take 6 months or less,
then, subject to receipt of sufficient insurance proceeds, Landlord shall
promptly restore the Premises excluding the improvements installed by Tenant or
by Landlord and paid by Tenant, subject to delays arising from the collection
of insurance proceeds or from Force Majeure events. Tenant at Tenant’s expense
shall promptly perform, subject to delays arising from the collection of
insurance proceeds, or from Force Majeure events, all repairs or restoration
not required to be done by Landlord and shall promptly re-enter the Premises
and commence doing business in accordance with this Lease.  Notwithstanding the foregoing, either party
may terminate this Lease if the Premises are damaged during the last year of
the Lease Term and Tenant has not exercised its option to renew, as applicable,
(as hereinafter described in Addendum 4), and Landlord reasonably estimates
that it will take more than one month to repair such damage.  Base Rent and Operating Expenses shall be
abated for the period of repair and restoration in the proportion which the
area of the Premises, if any, which is not usable by Tenant bears to the total
area of the Premises.  Such abatement
shall be the sole remedy of Tenant, and except as provided herein, Tenant waives
any right to terminate the Lease by reason of damage or casualty loss.

 

16.                                 Condemnation.    If any part of the Premises or the Project
should be taken for any public or quasi-public use under governmental law,
ordinance, or regulation, or by right of eminent domain, or by private purchase
in lieu thereof (a “Taking” or “Taken”), and the Taking would prevent or
materially interfere with Tenant’s use of the Premises or in Landlord’s
judgment would materially interfere with or impair its ownership or operation
of the Project, then upon written notice by Landlord this Lease shall terminate
and Base Rent shall be apportioned as of said date.  If part of the Premises shall be Taken, and this Lease is not
terminated as provided above, the Base Rent payable hereunder during the
unexpired Lease Term shall be reduced to such extent as may be fair and
reasonable under the circumstances.  In
the event of any such Taking, Landlord shall be entitled to receive the entire
price or award from any such Taking without any payment to Tenant, and Tenant
hereby assigns to Landlord Tenant’s interest, if any, in such award.  Tenant shall have the right, to the extent
that same shall not diminish Landlord’s award, to make a separate claim against
the condemning authority (but not Landlord) for such compensation as may be
separately awarded or recoverable by Tenant for moving expenses and damage to
Tenant’s Trade Fixtures, if a separate award for such items is made to Tenant.

 

17.                                 Assignment
and Subletting.  Without
Landlord’s prior written consent, which Landlord shall not unreasonably
withhold, condition or delay, Tenant shall not assign this Lease or sublease
the Premises or any part thereof or mortgage, pledge, or hypothecate its
leasehold interest or grant any concession or license within the Premises and
any attempt to do any of the foregoing shall be void and of no effect.  For purposes of this paragraph, a transfer
of the ownership interests controlling Tenant shall be deemed an assignment of
this Lease unless such ownership interests are publicly traded.  Notwithstanding the above, Tenant may assign
or sublet the Premises, or any part thereof, to any entity controlling Tenant,
controlled by Tenant or under common control with Tenant (a “Tenant
Affiliate”), without the prior written consent of Landlord.  Tenant shall reimburse Landlord for all of
Landlord’s reasonable out-of-pocket expenses in connection with any assignment
or sublease up to a maximum amount of $1,000. 
Upon Landlord’s receipt of Tenant’s written notice of a desire to assign
or sublet the Premises, or any part thereof (other than to a Tenant Affiliate),
Landlord may, by giving written notice to Tenant within 30 days after receipt
of Tenant’s notice, terminate this Lease with respect to the space described in
Tenant’s notice, as of the date specified in Tenant’s notice for the
commencement of the

 

6

 

proposed assignment or
sublease.  If Landlord so terminates the
Lease, Landlord may enter into a lease directly with the proposed sublessee or
assignee.  Tenant may withdraw its
notice to sublease or assign by notifying Landlord within 10 days after
Landlord has given Tenant notice of such termination, in which case the Lease
shall not terminate but shall continue.

 

Provided no default has
occurred and is continuing under this Lease, upon 10 days prior written notice
to Landlord, Tenant may, without Landlord’s prior written consent, assign this
Lease to an entity into which Tenant is merged or consolidated or to an entity
to which all or substantially all of Tenant’s assets are transferred, provided
(x) such merger, consolidation, or transfer of assets is for a good business
purpose and not principal for the purpose of transferring Tenant’s leasehold
estate, and (y) the assignee or successor entity has a net worth at least equal
to Tenant immediately prior to such merger, consolidation, or transfer.

 

It shall be reasonable
for the Landlord to withhold its consent to any assignment or sublease in any
of the following instances: (i) an Event of Default has occurred and is
continuing that would not be cured upon the proposed sublease or assignment;
(ii) the assignee does not have a tangible net worth calculated according to
generally accepted accounting principles at least equal to or greater than
$100,000,000; (iii) the intended use of the Premises by the assignee or
sublessee is not reasonably satisfactory to Landlord; (iv) the intended use of
the Premises by the assignee or sublessee would materially increase the
pedestrian or vehicular traffic to the Premises or the Project; (v) occupancy
of the Premises by the assignee or sublessee would, in Landlord’s opinion,
violate an agreement binding upon Landlord or the Project with regard to the
identity of tenants, usage in the Project, or similar matters; (vi) the identity
or business reputation of the assignee or sublessee will, in the good faith
judgment of Landlord, tend to damage the goodwill or reputation of the Project;
(vii) in the case of a sublease, the subtenant has not acknowledged that the
Lease controls over any inconsistent provision in the sublease; or (viii) the
proposed assignee or sublessee is a governmental agency.  Tenant and Landlord acknowledge that each of
the foregoing criteria are reasonable as of the date of execution of this
Lease.  The foregoing criteria shall not
exclude any other reasonable basis for Landlord to refuse its consent to such
assignment or sublease.  Any approved
assignment or sublease shall be expressly subject to the terms and conditions
of this Lease.  Tenant shall provide to
Landlord all information concerning the assignee or sublessee as Landlord may
request.

 

Notwithstanding any
assignment or subletting, Tenant shall at all times remain fully responsible
and liable for the payment of the rent and for compliance with all of Tenant’s
other obligations under this Lease (regardless of whether Landlord’s approval
has been obtained for any such assignments or sublettings).  In the event that the rent due and payable
by a sublessee or assignee exceeds the rental payable under this Lease, then
Tenant shall be bound and obligated to pay Landlord as additional rent
hereunder fifty percent (50%) of all such excess rental within 10 days
following receipt thereof by Tenant, less reimbursement of Tenant’s reasonable
costs incurred in such assignment or subletting provided that the reasonable
costs shall be paid to Tenant in equal monthly installments over the Lease
Term.

 

If this Lease be assigned
or if the Premises be subleased (whether in whole or in part) or in the event
of the mortgage, pledge, or hypothecation of Tenant’s leasehold interest or
grant of any concession or license within the Premises or if the Premises be
occupied in whole or in part by anyone other than Tenant, then upon a default
by Tenant hereunder Landlord may collect rent from the assignee, sublessee,
mortgagee, pledgee, party to whom the leasehold interest was hypothecated,
concessionee or licensee or other occupant and, except to the extent set forth
in the preceding paragraph, apply the amount collected to the next rent payable
hereunder; and all such rentals collected by Tenant shall be held in trust for
Landlord and immediately forwarded to Landlord.  No such transaction or collection of rent or application thereof
by Landlord, however, shall be deemed a waiver of these provisions or a release
of Tenant from the further performance by Tenant of its covenants, duties, or
obligations hereunder.  Nothing herein
shall prohibit Tenant herein from granting a security interest in Tenant’s
personal property in the Premises.

 

18.                                 Indemnification.  Except for the negligence or willful
misconduct of Landlord, its agents, employees or contractors, and to the extent
permitted by law, Tenant agrees to indemnify, defend and hold harmless
Landlord, and Landlord’s agents, employees and contractors, from and against
any and all losses, liabilities, damages, costs and expenses (including
reasonable attorneys’ fees) resulting from claims by third parties for injuries
to any person and damage to or theft or misappropriation or loss of property
occurring in or about the Project and arising from the use and occupancy of the
Premises or from any activity, work, or thing done, permitted or suffered by
Tenant in or about the Premises or due to any other act or omission of Tenant,
its subtenants, assignees, invitees, employees, contractors and agents.  The furnishing of insurance required
hereunder shall not be deemed to limit Tenant’s obligations under this
Paragraph 18.

 

Subject to Landlord’s
liability limitation in Paragraph 25 of this Lease, Landlord covenants and
agrees to indemnify and save Tenant, its employees and agents harmless of and
from any and all claims, costs, expenses and liabilities, including, without
limitation, reasonable attorneys’ fees, arising on account of or by reason of
claims by third parties for injuries or death to persons or damages to property
resulting from the negligence or willful misconduct of Landlord or its agents,
employees, or contractors, to the extent not attributable to any negligence of
Tenant, any assignee or subtenant of Tenant, or their respective employees,
agents, or contracts.  If a claim under
the foregoing indemnity is made against the indemnitee which the indemnitee
believes to be covered by an indemnitor’s indemnification obligations
hereunder, the indemnitee shall promptly notify the indemnitor of the claim
and, in such notice shall offer to the indemnitor the opportunity to assume the
defense of the claim within 10 business days after receipt of the notice (with
counsel reasonably acceptable to the indemnitee).  If the indemnitor timely elects to assume the defense of the
claim, the indemnitor shall have the right to settle the claim on any terms it
considers reasonable and without the indemnitee’s prior written consent, as
long as the settlement shall not require the indemnitee to render any
performance or pay any consideration, and the indemnitee shall not have the
right to settle any such claim.  If the
indemnitor fails timely to elect

 

7

 

to assume the defense of
the claim or fails to defend the claim with diligence, then the indemnitee
shall have the right to take over the defense of the claim and to settle the
claim on any terms the indemnitee considers reasonable.  Any such settlement shall be valid as
against the indemnitor.  If the
indemnitor assumes the defense of a claim, the indemnitee may employ its own
counsel but such employment shall be at the sole expense of the indemnitee.  If any such claim arises out of the
negligence of both Landlord and Tenant, responsibility for such claim shall be
allocated between Landlord and Tenant based on their respective degrees of
negligence.  This indemnity does not
cover claims arising from the presence or release of Hazardous Materials.

 

19.                                 Inspection
and Access.  Landlord and its
agents, representatives, and contractors may, upon reasonable prior notice, but
in no event less than 24 hours notice (except in the case of an emergency),
enter the Premises at any reasonable time to inspect the Premises and to make
such repairs as may be required or permitted pursuant to this Lease and for any
other business purpose.  Landlord and
Landlord’s representatives may, upon reasonable prior notice, but in no event
less than 24 hours notice, enter the Premises during business hours for the
purpose of showing the Premises to prospective purchasers and, during the last
year of the Lease Term, to prospective tenants.  Landlord may erect a suitable sign on the Premises stating the
Premises are available to let or that the Project is available for sale.  Landlord may grant easements, make public
dedications, designate common areas and create restrictions on or about the
Premises, provided that no such easement, dedication, designation or
restriction materially interferes with Tenant’s use or occupancy of the
Premises.  At Landlord’s request, Tenant
shall execute such instruments as may be necessary for such easements,
dedications or restrictions.

 

20.                                 Quiet
Enjoyment.  If Tenant shall
perform all of the covenants and agreements herein required to be performed by
Tenant, Tenant shall, subject to the terms of this Lease, at all times during
the Lease Term, have peaceful and quiet enjoyment of the Premises against any
person claiming by, through or under Landlord.

 

To Landlord’s knowledge,
(a) Landlord is the fee simple owner and record title holder of the Premises
and the Project, subject to no mortgage or deed of trust liens; (b) Landlord
has not received any notice and does not have any knowledge of any eminent
domain or similar proceeding which would affect all, or any portion, of the
Premises or Project; and (c) Landlord has the right, power and authority to
make this Lease and no joinder or approval of another person is required with
respect to Landlord’s right and authority to enter into this Lease.

 

21.                                 Surrender.  Upon termination of the Lease Term or
earlier termination of Tenant’s right of possession in accordance with this
Lease, Tenant shall surrender the Premises to Landlord in good condition, broom
clean, ordinary wear and tear and casualty loss and condemnation covered by
Paragraphs 15 and 16 excepted.  Any
Trade Fixtures, Tenant-Made Alterations and property not so removed by Tenant
as permitted or required herein shall be deemed abandoned and may be stored,
removed, and disposed of by Landlord at Tenant’s reasonable expense, and Tenant
waives all claims against Landlord for any damages resulting from Landlord’s
retention and disposition of such property except for Landlord’s gross
negligence or willful misconduct.  All obligations
of the parties hereunder not fully performed as of the termination of the Lease
Term shall survive the termination of the Lease Term, including without
limitation, indemnity obligations, payment obligations with respect to Excess
Operating Expenses and all obligations concerning the condition and repair of
the Premises.

 

22.                                 Holding Over.  If Tenant retains possession of the Premises
after the termination of the Lease Term, unless otherwise agreed in writing,
such possession shall be subject to immediate termination by Landlord at any
time, and all of the other terms and provisions of this Lease (excluding any
expansion or renewal option or other similar right or option) shall be
applicable during such holdover period, except that Tenant shall pay Landlord
from time to time, upon demand, as Base Rent for the holdover period, an amount
equal to one hundred and twenty five percent (125%) of the Base Rent in effect
on the termination date, computed on a monthly basis for each month or part
thereof during such holding over.  All
other payments shall continue under the terms of this Lease.  In addition, Tenant shall be liable for all
damages incurred by Landlord as a result of such holding over.  No holding over by Tenant, whether with or
without consent of Landlord, shall operate to extend this Lease except as
otherwise expressly provided, and this Paragraph 22 shall not be construed as
consent for Tenant to retain possession of the Premises.

 

23.                                 Events of
Default.  Each of the
following events shall be an event of default (“Event of Default”) by Tenant
under this Lease:

 

(i)                                     Tenant
shall fail to pay any installment of Base Rent or any other payment required
herein when due, and such failure shall continue for a period of 5 days after
notice from Landlord to Tenant that such payment was due; provided, however,
that landlord shall not be obligated to provide written notice of such failure
more than 2 times in any consecutive 12-month period, and the failure of Tenant
to pay an third or subsequent installment of Base Rent or any other payment
required herein when due in any consecutive 12-month period shall constitute an
Event of Default by Tenant under this Lease without the requirement of notice
or opportunity to cure.

 

(ii)                                  Tenant
shall (A) make a general assignment for the benefit of creditors; (B) commence
any case, proceeding or other action seeking to have an order for relief
entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts or seeking appointment of a receiver, trustee,
custodian or other similar official for it or for all or of any substantial
part of its property (collectively a “proceeding for relief”); (C) become the
subject of any proceeding for relief which is not dismissed within 90 days of
its filing or entry; or (D) die or suffer a legal disability (if Tenant,
guarantor, or surety is an individual) or be dissolved or

 

8

 

otherwise fail to
maintain its legal existence (if Tenant, guarantor or surety is a corporation,
partnership or other entity).

 

(iii)                               Any
insurance required to be maintained by Tenant pursuant to this Lease shall be
cancelled or terminated or shall expire or shall be reduced or materially
changed, except, in each case, as permitted in this Lease.

 

(iv)                              Tenant
shall vacate the Premises for the permitted use set forth herein, whether or
not Tenant is in monetary or other default under this Lease.  Tenant’s vacating of the Premises shall not
constitute an Event of Default if, prior to vacating the Premises, Tenant has
made arrangements reasonably acceptable to Landlord to (a) insure that Tenant’s
insurance for the Premises will not be voided or cancelled with respect to the
Premises as a result of such vacancy, (b) insure that the Premises are secured
and not subject to vandalism, and (c) insure that the Premises will be properly
maintained after such vacation.  Tenant
shall inspect the Premises at least once each month and report monthly in
writing to Landlord on the condition of the Premises.

 

(v)                                 Tenant
shall attempt or there shall occur any assignment, subleasing or other transfer
of Tenant’s interest in or with respect to this Lease except as otherwise
permitted in this Lease.

 

(vi)                              Tenant
shall fail to discharge any lien placed upon the Premises in violation of this
Lease within 30 days after any such lien or encumbrance is filed against the
Premises.

 

(vii)                           Tenant
shall fail to comply with any provision of this Lease other than those
specifically referred to in this Paragraph 23, and except as otherwise
expressly provided herein, such default shall continue for more than 30 days
after Landlord shall have given Tenant written notice of such default, or if
such default is incapable of being cured within such 30 day period, then for so
long as reasonably necessary, so long as Tenant is diligently pursuing such
cure, but in no event longer than 90 days from the date Landlord shall have
given Tenant written notice of such default.

 

24.                                 Landlord’s
Remedies.  Upon each
occurrence of an Event of Default and so long as such Event of Default shall be
continuing, Landlord may at any time thereafter at its election:
 terminate this Lease or Tenant’s right of possession, (but Tenant shall
remain liable as hereinafter provided) and/or pursue any other remedies at law
or in equity.  Upon the termination of
this Lease or termination of Tenant’s right of possession, it shall be lawful
for Landlord, without formal demand or notice of any kind, to re-enter the
Premises by summary dispossession proceedings or any other action or proceeding
authorized by law and to remove Tenant and all persons and property
therefrom.  If Landlord re-enters the
Premises, Landlord shall have the right to keep in place and use, or remove and
store, all of the furniture, fixtures and equipment at the Premises.

 

Except as otherwise
provided in the next paragraph, if Tenant breaches this Lease and abandoned the
Premises prior to the end of the term hereof (other than as provided in
Paragraph 23(iv) herein) or if Tenant’s right to possession is terminated by
Landlord because of an Event of Default by Tenant under this Lease, this Lease
shall terminate.  Upon such termination,
Landlord may recover from Tenant the following, as provided in
Section 1951.2 of the Civil Code of California: (i) the worth at the time
of award of the unpaid Base Rent and other charges under this Lease that had
been earned at the time of termination; (ii) the worth at the time of award of
the amount by which the reasonable value of the unpaid Base Rent and other
charges under this Lease 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 reasonable avoided; (iii) the worth at the time of award by
which the reasonable value of the unpaid Base Rent and other charges under this
Lease for the balance of the term of this Lease after the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonably
avoided; and (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 that in the ordinary course of things would be likely to
result therefrom.  As used herein, the
following terms are defined: (a) The “worth at the time of award” of the
amounts referred to in Sections (i) and (ii) is computed by allowing interest
at the lesser of 18 percent per annum or the maximum lawful rate.  The “worth at the time of award” of the
amount referred to in Section (iii) is 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; (b) The “time of award” as used in clauses (i),
(ii), and (iii) above is the date on which judgment is entered by a court of
competent jurisdiction; (c) The “reasonable value” of the amount referred to in
clause (ii) above is computed by determining the mathematical product of (1)
the “reasonable annual rental value” (as defined herein) and (2) the number of
years, including fractional parts thereof, between the date of termination and
the time of award.  The “reasonable value”
of the amount referred to in clause (iii) is computed by determining the
mathematical product of (1) the annual Base Rent and other charges under this
Lease and (2) the number of years including fractional parts thereof remaining
in the balance of the term of this Lease after the time of award.

 

Even though Tenant has
breached this Lease and abandoned the Premises (other than as provided in
Paragraph 23(iv) herein), this Lease shall continue in effect for so long as
Landlord does not terminate Tenant’s right to possession, and Landlord may enforce
all its rights and remedies under this Lease, including the right to recover
rent as it becomes due.  This remedy is
intended to be the remedy described in California Civil Code
Section 1951.4, and the following provision from such Civil Code
Section is hereby repeated:  “The
Lessor has the remedy described in California Civil Code Section 1951.4
(lessor may continue lease in effect after lessee’s breach and abandonment and
recover rent as it becomes due, if lessee has right to sublet or assign subject
only to reasonable limitations).”  Any
such payments due Landlord shall be made upon demand therefor from time to time
and Tenant agrees that Landlord may file

 

9

 

suit to recover any sums
falling due from time to time. 
Notwithstanding any such reletting without termination, Landlord may at
any time thereafter elect in writing to terminate this Lease for such previous
breach.

 

Exercise by Landlord of
any one or more remedies hereunder granted or otherwise available shall not be
deemed to be an acceptance of surrender of the Premises and/or a termination of
this Lease by Landlord, whether by agreement or by operation of law, it being
understood that such surrender and/or termination can be effected only by the
written agreement of Landlord and Tenant. 
Any law, usage, or custom to the contrary notwithstanding, Landlord
shall have the right at all times to enforce the provisions of this Lease in
strict accordance with the terms hereof; and the failure of Landlord at any
time to enforce its rights under this Lease strictly in accordance with same
shall not be construed as having created a custom in any way or manner contrary
to the specific terms, provisions, and covenants of this Lease or as having
modified the same.  Tenant and Landlord
further agree that forbearance or waiver by Landlord to enforce its rights
pursuant to this Lease or at law or in equity, shall not be a waiver of
Landlord’s right to enforce one or more of its rights in connection with any
subsequent default.  A receipt by
Landlord of rent or other payment with knowledge of the breach of any covenant
hereof shall not be deemed a waiver of such breach, and no waiver by Landlord
of any provision of this Lease shall be deemed to have been made unless
expressed in writing and signed by Landlord. 
To the greatest extent permitted by law, Tenant waives the service of
notice of Landlord’s intention to re-enter as provided for in any statute, or
to institute legal proceedings to that end, and also waives all right of
redemption in case Tenant shall be dispossessed by a judgment or by warrant of
any court or judge.  The terms “enter,”
“re-enter,” “entry” or “re-entry,” as used in this Lease, are not restricted to
their technical legal meanings.  Any
reletting of the Premises shall be on such terms and conditions as Landlord in
its sole discretion may reasonably determine (including without limitation a
term different than the remaining Lease Term, rental concessions, alterations
and repair of the Premises, lease of less than the entire Premises to any
tenant and leasing any or all other portions of the Project before reletting
the Premises).  Landlord shall not be
liable, nor shall Tenant’s obligations hereunder be diminished because of,
Landlord’s failure to relet the Premises or collect rent due in respect of such
reletting.  If Landlord terminates
Tenant’s right of possession without terminating the Lease after an Event of
Default, Landlord shall use commercially reasonable efforts to relet the
Premises; provided, however, (a) Landlord shall not be obligated to accept any
tenant proposed by Tenant, (b) Landlord shall have the right to lease any other
space controlled by Landlord first, and (c) any proposed tenant shall meet all
of Landlord’s reasonable leasing criteria.

 

25.                                 Tenant’s
Remedies/Limitation of Liability. 
Landlord shall not be in default hereunder unless Landlord fails to
perform any of its obligations hereunder within 30 days after written notice
from Tenant specifying such failure (unless such performance will, due to the
nature of the obligation, require a period of time in excess of 30 days, then
after such period of time as is reasonably necessary), provided Landlord works
diligently and continuously to cure such default, subject to Force Majeure
events and Tenant-caused delays.  If
such default by Landlord shall occur, Tenant shall have the right, in addition
to its other remedies, in law or equity, to take such commercially reasonable
acts as Tenant deems necessary to cure Landlord’s default and, Landlord shall
reimburse Tenant for the reasonable costs, fees and expenses incurred by Tenant
in taking such curative actions, in an amount up to but not to $50,000 with
respect to any such default, within 30 days after demand therefor, accompanied by
supporting evidence of the expenses incurred by Tenant.   All obligations of Landlord hereunder shall
be construed as covenants, not conditions; and, except as may be otherwise
expressly provided in this Lease, Tenant may not terminate this Lease for breach
of Landlord’s obligations hereunder. 
All obligations of Landlord under this Lease will be binding upon
Landlord only during the period of its ownership of the Premises and not
thereafter.  The term “Landlord” in this
Lease shall mean only the owner, for the time being of the Premises, and in the
event of the transfer by such owner of its interest in the Premises, such owner
shall thereupon be released and discharged from all obligations of Landlord
thereafter accruing, but such obligations shall be binding during the Lease
Term upon each new owner for the duration of such owner’s ownership.  Any liability of Landlord under this Lease
shall be limited solely to its interest in the Project, and in no event shall any
personal liability be asserted against Landlord in connection with this Lease
nor shall any recourse be had to any other property or assets of Landlord.

 

Any liability of Landlord
for a default by Landlord under the Lease, or a breach by Landlord of any of
its obligations under the Lease, shall be limited solely to its interest in the
Premises, and in no event shall any personal liability be asserted against
Landlord in connection with the Lease nor shall any recourse be had to any
other property or assets of Landlord. 
Landlord’s interest in the Premises shall be deemed to include:  (i) the rents or other income from the
Premises received by Landlord after Tenant obtains a final judgment against
Landlord, (ii) the net proceeds received by Landlord from the sale or other
disposition of all or any part of Landlord’s right, title and interest in the
Premises after Tenant obtains a final judgment against Landlord, (iii) the net
proceeds received by Landlord from any condemnation or conveyance in lieu of
condemnation of all or any portion of the Premises after Tenant obtains a final
judgment against Landlord, and (iv) the net proceeds of insurance received by
Landlord from any casualty loss of all or any portion of the Premises after
Tenant obtains a final judgment against Landlord.

 

26.                                 Intentionally Omitted.

 

27.                                 Subordination.  This Lease and Tenant’s interest and rights
hereunder are and shall be subject and subordinate at all times to the lien of
any mortgage, now existing or hereafter created on or against the Project or
the Premises, and all amendments, restatements, renewals, modifications,
consolidations, refinancing, assignments and extensions thereof, without the
necessity of any further instrument or act on the part of Tenant.  Tenant agrees, at the election of the holder
of any such mortgage, to attorn to any such holder.  Tenant agrees upon demand to execute, acknowledge and deliver
such instruments, confirming such subordination and such instruments of
attornment as shall be requested by any such holder.  Notwithstanding the foregoing, any such holder may at any time
subordinate its mortgage to this Lease, without Tenant’s consent, by notice in
writing to Tenant, and thereupon this Lease shall be deemed prior to

 

10

 

such mortgage without regard
to their respective dates of execution, delivery or recording and in that event
such holder shall have the same rights with respect to this Lease as though
this Lease had been executed prior to the execution, delivery and recording of
such mortgage and had been assigned to such holder.  The term “mortgage” whenever used in this Lease shall be deemed
to include deeds of trust, security assignments and any other encumbrances, and
any reference to the “holder” of a mortgage shall be deemed to include the beneficiary
under a deed of trust.  Landlord
represents to Tenant that as of the date hereof the Project is not subject to
or encumbered by a mortgage.

 

Tenant shall not be
obligated to subordinate the Lease or its interest therein to any future
mortgage, deed of trust or ground lease on the Project unless concurrently with
such subordination the holder of such mortgage or deed of trust or the ground
lessor under such ground lease agrees not to disturb Tenant’s possession of the
Premises under the terms of the Lease in the event such holder or ground lessor
acquires title to the Premises through foreclosure, deed in lieu of foreclosure
or otherwise.  Tenant shall be solely
responsible for any fees or expenses charged by the holder of such mortgage or
deed of trust in connection with the granting of such non-disturbance
agreement.

 

28.                                 Mechanic’s
Liens.  Tenant has no express
or implied authority to create or place any lien or encumbrance of any kind
upon, or in any manner to bind the interest of Landlord or Tenant in, the
Premises or to charge the rentals payable hereunder for any claim in favor of
any person dealing with Tenant, including those who may furnish materials or
perform labor for any construction or repairs. Tenant covenants and agrees that
it will pay or cause to be paid all sums legally due and payable by it on
account of any labor performed or materials furnished in connection with any
work performed on the Premises and that it will save and hold Landlord harmless
from all loss, cost or expense based on or arising out of asserted claims or
liens against the leasehold estate or against the interest of Landlord in the
Premises or under this Lease.  Tenant
shall give Landlord immediate written notice of the placing of any lien or
encumbrance against the Premises of which Tenant has actual knowledge and cause
such lien or encumbrance to be discharged within 30 days of Tenant receipt of
notice of the filing or recording thereof; provided, however, Tenant may
contest such liens or encumbrances as long as such contest prevents foreclosure
of the lien or encumbrance and Tenant causes such lien or encumbrance to be
bonded or insured over in a manner reasonably satisfactory to Landlord within
such 30 day period.

 

29.                                 Estoppel
Certificates.   Each of
Landlord and Tenant agrees, from time to time, within 21 days after request of
the other party, but no more than twice per calendar year, to execute and
deliver to such party, or such party’s designee, any estoppel certificate
reasonably requested, stating that this Lease is in full force and effect, the
date to which rent has been paid, that, to the best of that party’s knowledge,
the other party is not in default hereunder (or specifying in detail the nature
of such party’s default), the expiration date of this Lease and such other
matters pertaining to this Lease as may be reasonably requested.  Tenant’s obligation to furnish each estoppel
certificate in a timely fashion is a material inducement for Landlord’s
execution of this Lease.   No cure or
grace period shall apply to Tenant’s or Landlord’s obligations to timely
deliver an estoppel certificate, except that either Tenant or Landlord shall
have an additional 10 day grace period from expiration of the 21 day period
referenced above to deliver the requested estoppel certificate.

 

30.                                 Environmental
Requirements.  Except for
Hazardous Material contained in products used by Tenant in de minimis
quantities for ordinary cleaning and office purposes, Tenant shall not permit
or cause any party to bring any Hazardous Material upon the Premises or
transport, store, use, generate, manufacture or release any Hazardous Material
in or about the Premises without Landlord’s prior written consent.  Tenant, at its sole cost and expense, shall
operate its business in the Premises in strict compliance with all
Environmental Requirements and shall remediate in a manner satisfactory to
Landlord any Hazardous Materials released on or from the Project by Tenant, its
agents, employees, contractors, subtenants or invitees.  Tenant shall complete and certify to
disclosure statements as requested by Landlord from time to time relating to
Tenant’s transportation, storage, use, generation, manufacture or release of
Hazardous Materials on the Premises.  The
term “Environmental Requirements” means all applicable present and future
statutes, regulations, ordinances, rules, codes, judgments, orders or other
similar enactments of any governmental authority or agency regulating or
relating to health, safety, or environmental conditions on, under, or about the
Premises or the environment, including without limitation, the following:  the Comprehensive Environmental Response,
Compensation and Liability Act; the Resource Conservation and Recovery Act; and
all state and local counterparts thereto, and any regulations or policies
promulgated or issued thereunder.  The
term “Hazardous Materials” means and includes any substance, material, waste,
pollutant, or contaminant listed or defined as hazardous or toxic, under any
Environmental Requirements, asbestos and petroleum, including crude oil or any
fraction thereof, natural gas liquids, liquified natural gas, or synthetic gas
usable for fuel (or mixtures of natural gas and such synthetic gas).  As defined in Environmental Requirements,
Tenant is and shall be deemed to be the “operator” of Tenant’s “facility” and
the “owner” of all Hazardous Materials brought on the Premises by Tenant, its
agents, employees, contractors or invitees, and the wastes, by-products, or
residues generated, resulting, or produced therefrom.

 

Tenant shall indemnify,
defend, and hold Landlord harmless from and against any and all losses, claims,
demands, actions, suits, damages, expenses (including, without limitation,
remediation, removal, repair, corrective action, or cleanup expenses), and
costs (including, without limitation, actual attorneys’ fees, consultant fees
or expert fees and including, without limitation, removal or management of any
asbestos brought into the property or disturbed in breach of the requirements
of this Paragraph 30, regardless of whether such removal or management is
required by law) which are brought or recoverable against, or suffered or
incurred by Landlord as a result of any release of Hazardous Materials for
which Tenant is obligated to remediate as provided above or any other breach of
the requirements under this Paragraph 30 by Tenant, its agents, employees,
contractors, subtenants, assignees or invitees, regardless of whether Tenant
had knowledge of such noncompliance. 
The obligations of Tenant under this Paragraph 30 shall survive any
termination of this Lease.

 

11

 

Landlord shall have
access to, and a right to perform inspections and tests of, the Premises to
determine Tenant’s compliance with Environmental Requirements, its obligations
under this Paragraph 30, or the environmental condition of the Premises.  Access shall be granted to Landlord upon
Landlord’s prior notice to Tenant and at such times so as to minimize, so far
as may be reasonable under the circumstances, any disturbance to Tenant’s
operations.  Such inspections and tests
shall be conducted at Landlord’s expense, unless such inspections or tests
reveal that Tenant has not complied with any Environmental Requirement, in
which case Tenant shall reimburse Landlord for the reasonable cost of such
inspection and tests.  Landlord’s
receipt of or satisfaction with any environmental assessment in no way waives
any rights that Landlord holds against Tenant.

 

Landlord has delivered to
Tenant the Environmental reports described below.  It is understood by Tenant that Landlord has not made any
independent investigations to confirm the accuracy or completeness of the
Environmental Reports, and Landlord makes no representation or warranty as to
the accuracy or completeness of such reports. 
Tenant agrees to keep the Environmental Reports confidential and not to
disclose the contents thereof to any other party without the prior written
consent of Landlord.

 

Environmental
Reports:  Phase I Environmental Site Assessment
Report, dated October 29, 2001, prepared by Dave DeKrey, Staff Scientist
and Reviewed by D. Howe Gates, Senior Project Manager of Secor International
Incorporated.

 

Notwithstanding anything
to the contrary in this Paragraph 30, Tenant shall have no liability of any
kind to the Landlord as to Hazardous Materials on the Premises caused or
permitted by (i) Landlord, its agents, employees, contractors or invitees; or
(ii) any other person or entity located outside of the Premises.

 

Landlord shall indemnify,
defend and save Tenant harmless from any claims, fines, penalties, liabilities,
losses, damages, costs and expenses (including reasonable attorney’s fees,
expert witness fees and other costs of defense) which arise from any
environmental condition existing prior to the Commencement Date adversely
affecting the Premises and in violation of Environmental Requirements.

 

31.                                 Rules and
Regulations.  Tenant shall,
at all times during the Lease Term and any extension thereof, comply with all
reasonable rules and regulations at any time or from time to time established
by Landlord covering use of the Premises and the Project.  The current rules and regulations are
attached hereto.  In the event of any
conflict between said rules and regulations and other provisions of this Lease,
the other terms and provisions of this Lease shall control.

 

32.                                 Security
Service.  Tenant acknowledges
and agrees that, while Landlord may patrol the Project, Landlord is not
providing any security services with respect to the Premises and that Landlord
shall not be liable to Tenant for, and Tenant waives any claim against Landlord
with respect to, any loss by theft or any other damage suffered or incurred by
Tenant in connection with any unauthorized entry into the Premises or any other
breach of security with respect to the Premises except for Landlord’s gross
negligence or willful misconduct.

 

33.                                 Force
Majeure.  Except for monetary
obligations, Landlord and Tenant, as applicable, shall not be held responsible
for delays in the performance of their obligations hereunder when caused by
strikes, lockouts, labor disputes, acts of God, inability to obtain labor or
materials or reasonable substitutes therefor, governmental restrictions,
governmental regulations, governmental controls, delay in issuance of permits,
enemy or hostile governmental action, civil commotion, fire or other casualty,
and other causes beyond the reasonable control of Landlord or Tenant, as
applicable (“Force Majeure”).

 

34.                                 Entire
Agreement.  This Lease
constitutes the complete agreement of Landlord and Tenant with respect to the
subject matter hereof.  No
representations, inducements, promises or agreements, oral or written, have
been made by Landlord or Tenant, or anyone acting on behalf of Landlord or
Tenant, which are not contained herein, and any prior agreements, promises,
negotiations, or representations are superseded by this Lease.  This Lease may not be amended except by an
instrument in writing signed by both parties hereto.

 

35.                                 Severability.  If any clause or provision of this Lease is
illegal, invalid or unenforceable under present or future laws, then and in
that event, it is the intention of the parties hereto that the remainder of
this Lease shall not be affected thereby. 
It is also the intention of the parties to this Lease that in lieu of
each clause or provision of this Lease that is illegal, invalid or
unenforceable, there be added, as a part of this Lease, a clause or provision
as similar in terms to such illegal, invalid or unenforceable clause or
provision as may be possible and be legal, valid and enforceable.

 

36.                                 Brokers.   Each of Landlord and Tenant represents and
warrants that it has dealt with no broker, agent or other person in connection
with this transaction and that no broker, agent or other person brought about
this transaction, other than the broker, if any, set forth on the first page of
this Lease, and Landlord and Tenant agrees to indemnify and hold the other
harmless from and against any claims by any other broker, agent or other person
claiming a commission or other form of compensation by virtue of having dealt
with Landlord or Tenant with regard to this leasing transaction. Landlord
hereby acknowledges and agrees that the Broker referenced on Page One of this
Lease shall be entitled to a leasing commission from Landlord by virtue of this
Lease, which leasing commission shall be deemed earned and shall be paid by
Landlord to Broker in accordance with, and subject to the terms of, a separate
written agreement.

 

37.                                 Miscellaneous.  (a)  
Any payments or charges due from Tenant to Landlord hereunder shall be
considered rent for all purposes of this Lease.

 

12

 

(b)                                 If
and when included within the term “Tenant,” as used in this instrument, there
is more than one person, firm or corporation, each shall be jointly and
severally liable for the obligations of Tenant.

 

(c)                                  All
notices required or permitted to be given under this Lease shall be in writing
and shall be sent by registered or certified mail, return receipt requested, or
by a reputable national overnight courier service, postage prepaid, or by hand
delivery addressed to the parties at their addresses below, and with a copy
sent to Landlord at 14100 East 35th Place, Aurora, Colorado 80011.  Either party may by notice given aforesaid
change its address for all subsequent notices. 
Except where otherwise expressly provided to the contrary, notice shall
be deemed given upon delivery.

 

(d)                                 Except
as otherwise expressly provided in this Lease or as otherwise required by law,
Landlord right to withhold any consent or approval shall not be unreasonably
withheld, conditioned or delayed.

 

(e)                                  Intentionally
Deleted.

 

(f)                                    Neither
this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant
in any public record.  Landlord may
prepare and file, and upon request by Landlord Tenant will execute, a
memorandum of lease, in form reasonably acceptable to Tenant.

 

(g)                                 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 Lease or any exhibits or amendments hereto.

 

(h)                                 The
submission by Landlord to Tenant of this Lease shall have no binding force or
effect, shall not constitute an option for the leasing of the Premises, nor
confer any right or impose any obligations upon either party until execution of
this Lease by both parties.

 

(i)                                     Words
of any gender used in this Lease shall be held and construed to include any
other gender, and words in the singular number shall be held to include the
plural, unless the context otherwise requires. 
The captions inserted in this Lease are for convenience only and in no
way define, limit or otherwise describe the scope or intent of this Lease, or
any provision hereof, or in any way affect the interpretation of this Lease.

 

(j)                                     Any
amount not paid by a party hereto in accordance with the terms of this Lease
within five (5) days after notice from Landlord to Tenant that such payment was
due; provided, however, that Landlord shall not be obligated to provide written
notice of such failure more than 2 times in any consecutive 12-month period,
shall bear interest from such due date until paid in full at the lesser of the
highest rate permitted by applicable law or 10 percent per year.  It is expressly the intent of Landlord and
Tenant at all times to comply with applicable law governing the maximum rate or
amount of any interest payable on or in connection with this Lease.  If
applicable law is ever judicially interpreted so as to render usurious any
interest called for under this Lease, or contracted for, charged, taken ,
reserved, or received with respect to this Lease, then it is Landlord’s and
Tenant’s express intent that all excess amounts theretofore collected by
Landlord or Tenant, as applicable, be credited on the applicable obligation
(or, if the obligation has been or would thereby be paid in full, refunded to
Tenant or Landlord, as applicable), and the provisions of this Lease
immediately shall be deemed reformed and the amounts thereafter collectible
hereunder reduced, without the necessity of the execution of any new document,
so as to comply with the applicable law, but so as to permit the recovery of
the fullest amount otherwise called for hereunder.

 

(k)                                  Construction
and interpretation of this Lease shall be governed by the laws of the state in
which the Project is located, excluding any principles of conflicts of laws.

 

(l)                                     Time
is of the essence as to the performance of Tenant and Landlord’s obligations
under this Lease.

 

(m)                               All
exhibits and addenda attached hereto are hereby incorporated into this Lease
and made a part hereof.  In the event of
any conflict between such exhibits or addenda and the terms of this Lease, such
exhibits or addenda shall control.

 

(n)                                 In
the event either party initiates litigation to enforce the terms and provisions
of this Lease, the prevailing party in such action shall be reimbursed for any
and all reasonable costs incurred in prosecuting such action, including (without
limitation) attorney’s fees, filing fees, and court costs.

 

38.                                 Intentionally
Deleted.

 

39.                                 Limitation
of Liability of Trustees, Shareholders, and Officers of ProLogis.  Any obligation or liability whatsoever of
ProLogis, a Maryland real estate investment trust, which may arise at any time
under this Lease or any obligation or liability which may be incurred by it
pursuant to any other instrument, transaction, or undertaking contemplated
hereby shall not be personally binding upon, nor shall resort for the
enforcement thereof be had to the property of, its trustees, directors,
shareholders, officers, employees or agents, regardless of whether such
obligation or liability is in the nature of contract, tort, or otherwise.

 

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

 

13

 

	
  TENANT:

  	
   

  
	
   

  	
   

  
	
  Restoration Hardware,
  Inc., a Delaware corporation

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/  Patricia McKay

  	
   

  	
   

  
	
  Name:

  	
  Patricia McKay

  	
   

  
	
  Title:

  	
  CFO

  	
   

  
	
   

  	
   

  
	
  Address:

  	
   

  
	
   

  	
   

  
	
  Attn:  Director of Real Estate

  	
   

  
	
  15 Koch Road

  	
   

  
	
  Corte Madera, CA 94925

  	
   

  
	
  415/924-1005

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  LANDLORD:

  	
   

  
	
  ProLogis, a Maryland
  Real Estate Investment Trust

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Larry H. Harmsen

  	
   

  	
   

  
	
  Name:

  	
  Larry H. Harmsen

  	
   

  	
   

  
	
  Title:

  	
  Senior Vice President

  	
   

  	
   

  
	
   

  	
   

  
	
  Address:

  	
   

  
	
   

  	
   

  
	
  47775 Fremont Blvd

  	
   

  
	
   

  	
   

  
	
  Fremont, CA 94538

  	
   

  
									

 

14

 

Rules and
Regulations

 

1.                                       The
sidewalk, entries, and driveways of the Project shall not be obstructed by
Tenant, or its agents, or used by them for any purpose other than ingress and
egress to and from the Premises.

 

2.                                       Tenant
shall not place any objects, including antennas, outdoor furniture, etc., in
the parking areas, landscaped areas or other areas outside of its Premises, or
on the roof of the Project. Notwithstanding the foregoing, Tenant shall be
allowed to set up an outdoor patio or eating area, subject to plans or designs
mutually acceptable to Landlord and Tenant.

 

3.                                       Except
for seeing-eye dogs, no animals shall be allowed in the offices, halls, or
corridors in the Project.

 

4.                                       Tenant
shall not disturb the occupants of the Project or adjoining buildings by the
use of any radio or musical instrument or by the making of loud or improper
noises.

 

5.                                       If
Tenant desires telegraphic, telephonic or other electric connections in the
Premises, Landlord or its agent will direct the electrician as to where and how
the wires may be introduced; and, without such direction, no boring or cutting
of wires will be permitted.  Any such installation
or connection shall be made at Tenant’s expense.

 

6.                                       Tenant
shall not install or operate any steam or gas engine or boiler, or other
mechanical apparatus in the Premises, except as specifically approved in the
Lease.  The use of oil, gas or inflammable
liquids for heating, lighting or any other purpose is expressly
prohibited.  Explosives or other
articles deemed extra hazardous shall not be brought into the Project.

 

7.                                       Parking
any type of recreational vehicles is specifically prohibited on or about the
Project.  Except for the overnight
parking of operative vehicles, no vehicle of any type shall be stored in the
parking areas at any time.  In the event
that a vehicle is disabled, it shall be removed within 48 hours.  There shall be no “For Sale” or other
advertising signs on or about any parked vehicle.  All vehicles shall be parked in the designated parking areas in
conformity with all signs and other markings. 
All parking will be open parking, and no reserved parking, numbering or
lettering of individual spaces will be permitted except as specified by
Landlord.

 

8.                                       Tenant
shall maintain the Premises free from rodents, insects and other pests.

 

9.                                       Landlord
reserves the right to exclude or expel from the Project any person who, in the
judgment of Landlord, is intoxicated or under the influence of liquor or drugs
or who shall in any manner do any act in violation of the Rules and Regulations
of the Project.

 

10.                                 Tenant
shall not cause any unnecessary labor by reason of Tenant’s carelessness or indifference
in the preservation of good order and cleanliness.  Except as may arise out of the gross negligence or willful
misconduct of Landlord, or its agents, employees or contractors, Landlord shall
not be responsible to Tenant for any loss of property on the Premises, however
occurring, or for any damage done to the effects of Tenant by the janitors or
any other employee or person.

 

11.                                 Tenant
shall give Landlord prompt notice of any defects in the water, lawn sprinkler,
sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any
other service equipment affecting the Premises of which Tenant has knowledge.

 

12.                                 Tenant
shall not permit storage outside the Premises, including without limitation,
outside storage of inoperable trucks and other vehicles, or dumping of waste or
refuse or permit any harmful materials to be placed in any drainage system or
sanitary system in or about the Premises.

 

13.                                 All
moveable trash receptacles provided by the trash disposal firm for the Premises
must be kept in the trash enclosure areas, if any, provided for that purpose.

 

14.                                 No
auction, public or private, will be permitted on the Premises or the Project,
other than in accordance with Paragraph 3 of this Lease.

 

15.                                 No
awnings shall be placed over the windows in the Premises except with the prior
written consent of Landlord.

 

16.                                 The
Premises shall not be used for lodging, sleeping or cooking or for any immoral
or illegal purposes or for any purpose other than that specified in the
Lease.  No gaming devices shall be
operated in the Premises.

 

17.                                 Tenant
shall ascertain from Landlord the maximum amount of electrical current which
can safely be used in the Premises, taking into account the capacity of the
electrical wiring in the Project and the Premises and the needs of other
tenants, if any, and shall not use more than such safe capacity.  Landlord’s consent to the installation of
electric equipment shall not relieve Tenant from the obligation not to use more
electricity than such safe capacity.

 

18.                                 Tenant
assumes full responsibility for protecting the Premises from theft, robbery and
pilferage, except as may arise out of the gross negligence or willful
misconduct of Landlord.

 

19.                                 Tenant
shall not install or operate on the Premises any machinery or mechanical
devices of a nature not directly related to Tenant’s ordinary use of the
Premises and shall keep all such machinery free of vibration, noise and air
waves which may be transmitted beyond the Premises.

 

15

 

ADDENDUM 1

 

BASE RENT
ADJUSTMENTS

 

ATTACHED TO AND A
PART OF THE LEASE AGREEMENT

DATED
March 9th, 2004 BETWEEN

ProLogis

and

Restoration
Hardware, Inc.

 

 

Base Rent shall equal the
following amounts for the respective periods set forth below:

 

	
  Periods

  	
   

  	
  Monthly
  Base Rent

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Months
  1 (following the Commencement Date) through 4

  	
   

  	
  $

  	
  0.00

  	
   

  
	
  Months
  5 through 8

  	
   

  	
  $

  	
  68,375.00

  	
  *

  
	
  Months
  9 through 30

  	
   

  	
  $

  	
  99,300.00

  	
   

  
	
  Months
  31 through 60

  	
   

  	
  $

  	
  107,811.00

  	
   

  
	
  Months
  61 through 88

  	
   

  	
  $

  	
  117,741.00

  	
   

  

 

*  Landlord shall initially deliver 195,052
square feet (11 bays as shown on Exhibit B) and the Premises will be expanded
to 283,712 square feet as of February 1, 2005.   Notwithstanding the above rent schedule, on February 1,
2005 the Monthly Base Rent shall be increased to $99,300.00 and shall continue
at that rate until the scheduled increase on month 31 as indicated above.

 

If Tenant requires the
use of the expansion portion of the Premises prior to February 1, 2005,
the rent will be increased at the rate of $0.35 per square foot per month with
minimum increments of 17,732 square feet (1 bay).

 

16

 

ADDENDUM 2

 

 

CONSTRUCTION

(TURNKEY)

 

ATTACHED TO AND A
PART OF THE LEASE AGREEMENT

DATED March 9th, 2004, BETWEEN

Prologis

and

Restoration Hardware, Inc.

 

(a)                                  Landlord
agrees to furnish or perform at Landlord’s sole cost and expense those items of
construction and those improvements (the “Initial Improvements”)
specified below, pursuant to plans and specifications to be prepared by Landlord
and submitted to Tenant by no later than 10 days following the date of this
Lease, for Tenant’s review and approval:

 

1.               Approximately
10,000 sf of air conditioned office space constructed to Landlord’s standards
as shown on Exhibit B-1 and in
compliance with all laws and ordinances.

2.               Metal halide
warehouse lighting in a pattern a quantity sufficient to provide illumination
of 25 foot candles in the warehouse.

3.               Power distribution
to the new office area.

4.               Dock equipment as
specified by Tenant.

5.               Architectural plans
and permits for the tenant improvements.

 

Exclusions:   The Initial Improvements shall not include
the following:

 

1.               Electrical data
gathering lines and security equipment

2.               Electrical
connections and distribution to Tenant’s production equipment.

3.               Mechanical,
electrical or plumbing connections and distribution necessary for Tenant’s
equipment.

4.               Fire code issues
and/or sprinkler modifications, including without limitation, fire sprinkler
systems, fire hose racks, in-rack sprinklers, smoke curtains and type (or
quantity) of smoke vents.

5.               Compressed air and
any associated plumbing.

6.               Telephonic or other
communications equiment and cabling systems.

7.               Signage.

 

Landlord shall contribute
a Tenant Improvement Allowance of SEVEN HUNDRED AND FIFTY THOUSAND DOLLARS
($750,000) towards the construction cost of the initial improvements.  Tenant shall be responsible for any cost in
excess of the allowance and shall be paid prior to the commencement of
construction.  Please be advised that Landlord
will charge a construction management fee of 5% on any improvement cost in
excess for the Tenant Improvement Allowance.

 

(b)                                 If
Tenant shall desire any changes, Tenant shall so advise Landlord in writing and
Landlord shall determine whether such changes can be made in a reasonable and
feasible manner.  Any and all costs of
reviewing any requested changes, and any and all costs of making any changes to
the Initial Improvements which Tenant may request and which Landlord may agree
to shall be at Tenant’s sole cost and expense and shall be paid to Landlord
upon demand and before execution of the change order.

 

(c)                                  Landlord
shall proceed with and complete the construction of the Initial
Improvements.  As soon as such
improvements have been Substantially Completed, Landlord shall notify Tenant in
writing of the date that the Initial Improvements were Substantially
Completed.  Such date, unless an earlier
date is specified as the Commencement Date in this Lease or otherwise agreed to
in writing between Landlord and Tenant, shall be the “Commencement Date,”  unless the completion of such improvements
was delayed due to any act or omission of, or delay caused by, Tenant
including, without limitation, Tenant’s failure to approve plans, complete
submittals or obtain permits within the time periods agreed to by the parties,
in which case the Commencement Date shall be the date such improvements would
have been completed but for the delays caused by Tenant.  The Initial Improvements shall be deemed
substantially completed (“Substantially Completed”) when, in the
reasonable opinion of Peter Blakely, the architect of record, or his
replacement, if applicable (whether an employee or agent of Landlord or a third
party architect) (“Architect”), the Premises are substantially completed
except for punch list items which do not prevent in any material way the use of
the Premises for the purposes for which they were intended.  In the event Tenant, its employees, agents,
or contractors cause construction of such improvements to be delayed, the date
of Substantial Completion shall be deemed to be the date that, in the
reasonable opinion of the Construction Manager, Substantial Completion would
have occurred if such delays had not taken place.  Without limiting the foregoing, Tenant shall be solely
responsible for delays caused by Tenant’s request for any changes in the plans,
Tenant’s request for long lead items or Tenant’s interference with the
construction of the Initial Improvements, and such delays shall not cause a
deferral of the Commencement Date beyond what it otherwise would have
been.  After the Commencement Date
Tenant shall, upon demand, execute and deliver to Landlord a letter of
acceptance of delivery of the Premises. 
In the event of any dispute as to the Initial Improvements, including
the Commencement Date, the certificate of the Architect shall be conclusive
absent manifest error.

 

17

 

(d)                                 The
failure of Tenant to take possession of or to occupy the Premises shall not
serve to relieve Tenant of obligations arising on the Commencement Date or
delay the payment of rent by Tenant. 
Subject to applicable ordinances and building codes governing Tenant’s
right to occupy or perform in the Premises, Tenant shall be allowed to install
its tenant improvements, machinery, equipment, fixtures, or other property on
the Premises during the final stages of completion of construction provided
that Tenant does not thereby interfere with the completion of construction or
cause any labor dispute as a result of such installations, and provided further
that Tenant does hereby agree to indemnify, defend, and hold Landlord harmless
from any loss or damage to such property, and all liability, loss, or damage
arising from any injury to the Project or the property of Landlord, its
contractors, subcontractors, or materialmen, and any death or personal injury
to any person or persons arising out of such installations, unless any such
loss, damage, liability, death, or personal injury was caused by Landlord’s
negligence or willful misconduct.  Any
such occupancy or performance in the Premises shall be in accordance with the
provisions governing Tenant-Made Alterations and Trade Fixtures in the Lease,
and shall be subject to Tenant providing to Landlord satisfactory evidence of
insurance for personal injury and property damage related to such installations
and satisfactory payment arrangements with respect to installations permitted
hereunder.  Delay in putting Tenant in
possession of the Premises shall not serve to extend the term of this Lease or
to make Landlord liable for any damages arising therefrom, except for
Landlord’s gross negligence or willful misconduct.

 

(e)                                  Except
for incomplete punch list items, Tenant upon the Commencement Date shall have
and hold the Premises as the same shall then be without any liability or
obligation on the part of Landlord for making any further alterations or
improvements of any kind in or about the Premises.

 

18

 

ADDENDUM 3

 

MOVING ALLOWANCE

 

ATTACHED TO AND A
PART OF THE LEASE AGREEMENT

DATED March 9th, 2004, BETWEEN

Prologis

and

Restoration Hardware, Inc.

 

Landlord shall provide
Tenant with a moving allowance of up to $500,000.  Tenant shall provide Landlord documentation, as reasonably
determined by Landlord, including , but not limited to, third party invoices
and contracts and estimated Tenant generated labor costs (“Moving Costs”) to
substantiate Tenant’s costs in relocating from its existing facility.  Said Moving Costs may include, but are not
limited to, disassembly of rack and personal property in existing facility,
assembly of rack and personal property in the Premises, costs associated with
the setup of the telecommunications systems, labor costs (which may include
Tenant’s employees), new stationary and other related items, movers’ fees
(related to moving the furniture, office equipment, etc. from the existing
facility to the Premises) and other costs that are attributable to Tenant’s
move from its existing facility to the Premises.

 

Landlord shall pay
$120,000 of the moving allowance within 15 business day from the date of
execution of this Lease.  The remainder
shall be paid within 15 business days from the Commencement Date, provided
Landlord is in receipt of the required documentation of Moving Costs and the
Security Deposit.

 

19

 

ADDENDUM 4

 

MARKET OPTIONS

 

ATTACHED TO AND A
PART OF THE LEASE AGREEMENT

DATED
March 9th, 2004    , BETWEEN

 

Prologis

and

Restoration
Hardware, Inc.

 

(a)                                  Provided
that as of the time of the giving of the First Extension Notice and the
Commencement Date of the First Extension Term, (x) Tenant actually
occupies at least 75% of the Premises initially demised under this Lease and any
space added to the Premises, and (y) no Event of Default exists or would
exist but for the passage of time or the giving of notice, or both; then Tenant
shall have the right to extend the Lease Term for an additional term of five
(5) years (such additional term is hereinafter called the “First
Extension Term”) commencing on the day following the expiration of the
Lease Term (hereinafter referred to as the “Commencement Date of the First
Extension Term”).  Tenant shall give
Landlord notice (hereinafter called the “First Extension Notice”) of its
election to extend the term of the Lease Term at least nine (9) months, but not
more than twelve (12) months, prior to the scheduled expiration date of the
Lease Term.

 

(b)                                 Provided
that as of the time of the giving of the Second Extension Notice and the
Commencement Date of the Second Extension Term, (x) Tenant actually
occupies at least 75% of the Premises initially demised under this Lease and
any space added to the Premises, and (y) no Event of Default exists or would
exist but for the passage of time or the giving of notice, or both and provided
Tenant has exercised its option for the First Extension Term; then Tenant shall
have the right to extend the Lease Term for an additional term of five (5)  years (such additional term is hereinafter
called the “Second Extension Term”) commencing on the day following the
expiration of the First Extension Term (hereinafter referred to as the “Commencement
Date of the Second Extension Term”). 
Tenant shall give Landlord notice (hereinafter called the “Second
Extension Notice”) of its election to extend the term of the Lease Term at
least nine (9) months, but not more than twelve (12) months, prior to the
scheduled expiration date of the First Extension Term.

 

(c)                                  The
Base Rent payable by Tenant to Landlord during the First Extension Term shall
be the greater of:

 

(i)                                     The
Base Rent in effect on the expiration of the Lease Term, and

 

(ii)                                  95%
of the Fair Market Rent, as defined and determined pursuant to Paragraphs (e),
(f), and (g) below.

 

(d)                                 The
Base Rent payable by Tenant to Landlord during the Second Extension Term shall
be the greater of:

 

(i)                                     The
Base Rent in effect on the expiration of the First Extension Term, and

 

(ii)                                  95%
of the Fair Market Rent, as defined and determined pursuant to Paragraphs (e),
(f), and (g) below.

 

(e)                                  The
term “Fair Market Rent” shall mean the Base Rent, expressed as an annual rent
per square foot of floor area, which Landlord would have received from leasing
the Premises for the First Extension Term or the Second Extension Term, as
applicable, to an unaffiliated person which is not then a tenant in the
Project, assuming that such space were to be delivered in “as-is” condition,
and taking into account the rental which such other tenant would most likely
have paid for such premises, provided that Fair Market Rent shall not in any
event be less than the Base Rent for the Premises as of the expiration of the
Lease Term or the First Extension Term, as applicable.  Fair Market Rent shall not be further reduced
by reason of any costs or expenses saved by Landlord by reason of Landlord’s
not having to find a new tenant for the Premises (including without limitation
brokerage commissions, cost of improvements necessary to prepare the space for
such tenant’s occupancy, rent concession, or lost rental income during any
vacancy period).  Fair Market Rent means
only the rent component defined as Base Rent in the Lease and does not include
reimbursements and payments by Tenant to landlord with respect to Operating
Expenses and other items payable or reimbursable by Tenant under the
Lease.  In addition to its obligation to
pay Base Rent (as determined herein), Tenant shall continue to pay and
reimburse Landlord as set forth in the Lease with respect to such Operating
Expenses and other items with respect to the Premises during the First
Extension Term or the Second Extension Term, as applicable.  The arbitration process described below
shall be limited to the determination of the Base Rent and shall not affect or
otherwise reduce or modify the Tenant’s obligation to pay or reimburse Landlord
for such Operating Expenses and other reimbursable items.

 

(f)                                    No
later than 7 months prior to expiration of the Lease Term, Landlord shall
notify Tenant of its determination of the Fair Market Rent (which shall be made
in Landlord’s sole discretion and shall in any event be not less than the Base
Rent in effect as of the expiration of the Lease Term or the First Extension
Term, as applicable) for the First Extension Term or the Second Extension Term,
as applicable, and Tenant shall advise Landlord of any objection within 15
business days of receipt of Landlord’s notice. 
Failure to respond within the 15 business day period shall constitute Tenant’s
acceptance of such Fair Market Rent.  If
Tenant objects, Landlord and Tenant shall commence negotiations to attempt to
agree upon the Fair Market Rent within 30 days of Landlord’s receipt of
Tenant’s notice.  If the

 

20

 

parties cannot agree,
each acting in good faith but without any obligation to agree, then the Lease
Term shall not be extended and shall terminate on its scheduled termination
date and Tenant shall have no further right hereunder or any remedy by reason
of the parties’ failure to agree unless Tenant or Landlord invokes the
arbitration procedure provided below to determine the Fair Market Rent.

 

(g)                                 Arbitration
to determine the Fair Market Rent shall be in accordance with the Real Estate
Valuation Arbitration Rules of the American Arbitration Association.  Unless otherwise required by state law,
arbitration shall be conducted in the metropolitan area where the Project is
located by a single arbitrator unaffiliated with either party.  Either party may elect to arbitrate by sending
written notice to the other party and the Regional Office of the American
Arbitration Association within 5 business days after the 30-day negotiating
period provided in Paragraph (f) above, invoking binding arbitration provisions
of this paragraph.  Landlord and Tenant
shall each submit to the arbitrator their respective proposal of Fair Market
Rent.  The arbitrator must choose
between the Landlord’s proposal and the Tenant’s proposal and may not
compromise between the two or select some other amount.  Notwithstanding any other provision herein,
the Fair Market Rent determined by the arbitrator shall not be less than, and
the arbitrator shall have no authority to determine a Fair Market Rent less
than, the Base Rent in effect as of the scheduled expiration of the Lease Term
or the First Extension Term, as applicable. 
The decision of the arbitrator shall be final, binding and
non-appealable.  The cost of the
arbitration shall be paid by Landlord if the Fair Market Rent is that proposed
by Tenant, and by Tenant if the Fair Market Rent is that proposed by Landlord;
and shall be borne equally otherwise. 
If the arbitrator has not determined the Fair Market Rent as of the end
of the Lease Term or the First Extension Term, as applicable, Tenant shall pay
105 percent of the Base Rent in effect under the Lease as of the end of the
Lease Term or the First Extension Term, as applicable, until the Fair Market
Rent is determined as provided herein. 
Upon such determination, Landlord and Tenant shall make the appropriate
adjustments to the payments between them.

 

(h)                                 The
parties consent to the jurisdiction of any appropriate court to enforce the
arbitration provisions of this Addendum and to enter judgment upon the decision
of the arbitrator.

 

(i)                                     Except
for the Base Rent as determined above, Tenant’s occupancy of the Premises
during the First Extension Term or the Second Extension Term, as applicable,
shall be on the same terms and conditions as are in effect immediately prior to
the expiration of the initial Lease Term or the First Extension Term, as
applicable; provided, however, Tenant shall have no further right to extend the
Lease Term pursuant to this addendum or to any allowances, credits or
abatements or any options to expand, contract, renew or extend the Lease.

 

(j)                                     If
Tenant does not send the First Extension Notice or the Second Extension Notice,
as applicable, within the period set forth in Paragraphs (a) and (b) above,
Tenant’s right to extend the Lease Term shall automatically terminate.  If Tenant does not give the Second Extension
Notice within the period set forth in paragraph (b) above, Tenant’s right to
extend the Lease Term for the Second Extension Term shall automatically
terminate.  Time is of the essence as to
the giving of the First Extension Notice and Second Extension Notice, as
applicable, and the notice of Tenant’s objection under Paragraph (f) above.

 

(k)                                  Landlord
shall have no obligation to refurbish or otherwise improve the Premises for the
First Extension Term or the Second Extension Term, as applicable, but in no
event shall Landlord be relieved of its continuing repair, maintenance and
other obligations under the Lease. 
Subject to the foregoing, the Premises shall be tendered on the
Commencement Date of the First Extension Term and the Second Extension Term, as
applicable,  in “as-is” condition.

 

(l)                                     If
the Lease is extended for either the First Extension Term or Second Extension
Term, then Landlord shall prepare and Tenant shall execute an amendment to the
Lease confirming the extension of the Lease Term and the other provisions
applicable thereto (the “Amendment”).

 

(m)                               If
Tenant exercises its right to extend the term of the Lease for the First
Extension Term or the Second Extension Term, as applicable, pursuant to this
Addendum, the term “Lease Term” as used in the Lease, shall be construed to
include, when practicable, the First Extension Term and the Second Extension
Term, except as provided in (i) above.

 

21

 

ADDENDUM 5

 

LETTER OF CREDIT FOR SECURITY DEPOSIT

 

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED March 9th 2004, BETWEEN

 

ProLogis

and

Restoration Hardware, Inc.

 

The
Security Deposit set forth on the cover page of this Lease shall be in the form
of cash or an unconditional, irrevocable letter of credit from Fleet Bank
or a bank reasonably acceptable to Landlord (an example is identified as Item 1
and attached hereto).  The letter of
credit shall either provide that it does not expire until forty-five (45) days
after the end of the Lease term or, if it is for less than the full term of the
Lease, shall be renewed by Tenant at least 30 days prior to its expiration
during the term of the Lease.  The
letter of credit shall provide that it may be drawn down upon by Landlord at
any time Landlord delivers its site draft to the bank.  If Landlord sells or conveys the Premises,
Tenant shall, at Landlord’s request, cooperate in having the letter of credit
transferred to the purchaser.  If the
letter of credit is ever drawn upon by Landlord pursuant to the terms of the
Lease and this Addendum, Tenant shall within ten (10) days thereafter cause the
letter of credit to be restored to the amount required hereinbelow.

 

The
Letter of Credit shall be in the amount of four hundred thousand dollars ($400,000.00).
Provided that, (x) Tenant continues to remain liable for the obligations
herein, and (y) no Event of Default exists or would exist but for the
passage of time or both; then the letter of credit shall be reduced in
accordance with the following schedule:

 

	
  Period

  	
   

  	
  Letter of
  Credit Amount

  	
   

  
	
  Year
  1

  	
   

  	
  $

  	
  400,000.00

  	
   

  
	
  Year
  2

  	
   

  	
  $

  	
  350,000.00

  	
   

  
	
  Year
  3

  	
   

  	
  $

  	
  300,000.00

  	
   

  
	
  Year
  4

  	
   

  	
  $

  	
  250,000.00

  	
   

  
	
  Year
  5

  	
   

  	
  $

  	
  200,000.00

  	
   

  
	
  Year
  6

  	
   

  	
  $

  	
  150,000.00

  	
   

  
	
  Years
  7 through the end of the Term

  	
   

  	
  $

  	
  120,000.00

  	
   

  

 

If
Tenant meets the following financial benchmarks, as reasonably determined by
Landlord, (beginning with fiscal year 2003, ended January 31, 2004), as
documented by SEC filings, the Letter of Credit shall be reduced to $200,000:

 

(a)
achieve a 3% EBITDA (“Earnings Before Interest, Taxes, Depreciation,
Amortization, and Non-Cash Asset Impairment Charges”) margin (EBITDA divided by
net sales) or better for two consecutive fiscal years;

 

(b)
achieve an interest coverage ratio (EBITDA less capital expenditures net of
Landlord contributions divided by cash interest expense) of 3 times or better
for two consecutive years; and

 

(c)
achieve net cash provided by operating activities, as determined by generally
accepted accounting principles, of $10,000,000 or better for two consecutive
fiscal years.

 

If Tenant
satisfies (a), (b) and (c) above, as reasonably determined by Landlord, for 3
consecutive years, the Security Deposit will be reduced to $120,000.

 

If Tenant provides Landlord with written notice and
evidence, as reasonably determined by Landlord, subtantiating that Tenant has a
Standard & Poor’s rating of BB+ or higher, the Security Deposit will be
reduced to zero for such period of time as Tenant continues to provide
Landlord, at Landlord’s written request, of evidence of its continued Standard
& Poor’s rating of BB+ or higher.

 

22

 

ADDENDUM 6

 

SATELLITE DISH

 

ATTACHED TO AND A
PART OF THE LEASE AGREEMENT

DATED
March 9th, 2004 BETWEEN

 

Prologis

and

Restoration
Hardware, Inc.

 

Landlord hereby grants
Tenant the right to install, maintain and replace from time to time a satellite
dish antennae device (hereinafter “Satellite Dish”) on the roof of the
Premises, subject to the following:  (a)
applicable governmental laws; (b) the right of Landlord to supervise any roof
penetrations; (c) compliance with the conditions of any roof bond maintained by
Landlord on the Premises; and (d) the Satellite Dish not being visible at
street level.  Tenant shall be
responsible for the repair of any damage to any portion of the Premises caused
by Tenant’s installation, use or removal of the Satellite Dish.  The Satellite Dish shall remain the
exclusive property of Tenant, and Tenant shall have the right to remove same at
any time during the term of the Lease. 
Tenant shall protect, defend, indemnify and hold harmless Landlord from
and against any and all claims, damages, liabilities, costs or expenses of
every kind and nature (including without limitation reasonable attorney fees)
imposed upon or incurred against Landlord arising out of Tenant’s installation,
maintenance, use or removal of the Satellite Dish.

 

23

 

ITEM 1

 

FORM OF LETTER OF CREDIT

 

[LETTERHEAD OF LETTER OF CREDIT BANK]

 

Date of Issue:

Our Irrevocable Standby Letter of Credit No.
ASL-XXXXXXX-160XXX

Date of Expiry:

Place of Expiry: 
Atlanta, Georgia

Beneficiary: 
ProLogis

 

Attention: 
                              

 

Re:                               Irrevocable Transferable
Letter of Credit

No.

 

Beneficiary:

 

By order of our client,                                   (the “Applicant”), we
hereby establish this Irrevocable Transferable Letter of Credit No.                 in your favor for an amount
up to but not exceeding the aggregate sum of
                                      
and No/100 Dollars
($                  )
(as reduced from time to time in accordance with the terms hereof, the “Letter
of Credit Amount”), effective immediately, and expiring on the close of
business at our office at the address set forth above one year from the date
hereof unless renewed as hereinafter provided.

 

Funds under this Letter of Credit are available to you on
or prior to the expiry date against presentation by you of your (i) sight
drafts drawn on us in the form of Annex 1 hereto, indicating this Letter of
Credit number and (ii) request in the form of Annex 2 hereto (such sight draft
and request, together referred to as a “Drawing Request”), sight
draft(s), completed and signed by one of your officers.  Presentation of your Drawing Requests may be
made by you to us at the address set forth above.   You may present to us one or more Drawing Requests from time to
time prior to the expiry date in an aggregate amount not to exceed the Letter
of Credit Amount then in effect (it being understood that the honoring by us of
each Drawing Request shall reduce the Letter of Credit Amount then in effect).

 

This Letter of Credit will be automatically renewed for a
one-year period upon the expiration date set forth above and upon each
anniversary of such date, unless at least sixty (60) days prior to such
expiration date, or prior to any anniversary of such date, we notify both you
and the Applicant in writing by certified mail or by courier service that we
elect not to so renew the Letter of Credit.

 

This Letter of Credit sets forth in full the terms of our
undertaking and such undertaking shall not in any way be modified, amended or
amplified by reference to any document or instrument referred to herein or in
which this Letter of Credit is referred to or to which this Letter of Credit
relates, and no such reference shall be deemed to incorporate herein by
reference any document or instrument.

 

All bank charges and commissions incurred in this
transaction are for the Applicant’s account.

 

 

This Letter of Credit is
transferable in its entirety to any Transferee as requested by Beneficiary in
writing and approved by us.  Upon such
transfer, all references herein to the Beneficiary shall be automatically
changed to such Transferee and the draft(s) may be issued by such Transferee
rather than the Beneficiary.  The
executed transfer form in the form of Annex 3 hereto must be presented to us
with the original Letter of Credit and accompanied by payment of our customary
commission of 1/4% (minimum USD 250.00) of the face value of the Letter of
Credit.

 

Each Drawing must be
submitted during days and hours when Fleet National Bank (the “Issuing Bank”)
is open for commercial business (“Business Days”), at the office of the Issuing
Bank indicated below.  The Issuing Bank
agrees to pay the amount requested in any Drawing to the Beneficiary in
immediately available funds not later than one Business Day after the day on
which a Drawing has been submitted by the Beneficiary, provided that such
Drawing and the manner in which it is submitted is in strict compliance with
the requirements of this Letter of Credit and that such Drawing is submitted
before the expiration date.  The Issuing
Bank shall make all payments under this Letter of Credit with its own funds. “Business Day” shall mean
any day which is not a Saturday, Sunday or day on which we are required or
authorized by law to be closed in New York, New York or Atlanta, Georgia.

 

We hereby engage with you
that all drafts drawn under and in strict compliance with the terms and
conditions of this Irrevocable Letter of Credit will be duly honored upon
presentation to our Letter of Credit Department at 400

 

24

 

Galleria Parkway, Suite
1950, Atlanta, Georgia 30339.

 

To the extent not inconsistent with the express terms
hereof, this Letter of Credit shall be governed by, and construed in accordance
with, the terms of the Uniform Customs and Practice for Commercial Documentary
Credits (1993 Revision), I.C.C. Publication No. 500 (the “UCP 500”) and
as to matters not governed by the UCP 500, this Letter of Credit shall be
governed by and construed in accordance with the laws of the State of New York.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [NAME OF LETTER OF CREDIT BANK]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

25

 

ANNEX 1

 

SIGHT DRAFT

 

             ,
20      

 

For value received, at
sight pay to the order of PROLOGIS, the sum of [Amount in words] [Amount in
Figures] United States Dollars drawn under [Name of Letter of Credit Bank]
Irrevocable Transferable Letter of Credit No.
                
dated
                                  ,
20     .

 

	
   

  	
   

  	
  PROLOGIS

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   W. Scott Lamson

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  
							

 

26

 

ANNEX 2

 

DRAWING REQUEST

 

              , 200    

 

[NAME AND ADDRESS OF
LETTER

OF CREDIT BANK]

 

Re:  Irrevocable Transferable Letter of Credit
No.         (the “Letter of Credit”)

 

The undersigned (the “Beneficiary”),
hereby certifies to [Name of Letter of Credit Bank] (the “Issuer”) that:

 

(a)                                  The
Beneficiary is making a request for payment in lawful currency of the United
States of America under Irrevocable Transferable Letter of Credit No.                (the “Letter of Credit”) in
the amount of $           .

 

(b)                                 The
Letter of Credit Amount (as defined in the Letter of Credit) as of the date
hereof and prior to payment of the amount demanded in this Drawing Request is
$          .  The amount requested by this Drawing Request does not exceed the
Letter of Credit Amount.

 

[(c)  Demand is made for payment under the Letter
of Credit as a result of the occurrence and continuation of an Event of Default
(as defined in the Lease Agreement).]

 

Please wire transfer the
proceeds of the drawing to the following account of the Beneficiary at the
financial institution indicated below:

 

 

Unless otherwise defined,
all capitalized terms used herein have the meanings provided in, or by
reference in, the Letter of Credit.

 

IN WITNESS WHEREOF, the
undersigned has duly executed and delivered this Drawing Request as of the
       day of
                              ,
200    .

 

	
   

  	
  PROLOGIS

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  W. Scott Lamson

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  
					

 

27

 

ANNEX 3

 

NOTICE OF
ASSIGNMENT

 

                        ,
200      

 

[NAME AND ADDRESS OF

LETTER OF CREDIT BANK]

 

Re:  Irrevocable Transferable Letter of Credit
No.

 

The undersigned (the “Beneficiary”),
hereby notifies [Name of Letter of Credit Bank] (the “Issuer”) that it
has irrevocably assigned the above-referenced Letter of Credit to
         (the “Assignee”) with
an address at
                                
effective as of the date the Issuer receives this Notice of Assignment.  The Assignee acknowledges and agrees that
the Letter of Credit Amount may have been reduced pursuant to the terms
thereof, and that the Assignee is bound by any such reduction.

 

IN WITNESS WHEREOF, the
undersigned has duly executed and delivered this Notice of Assignment as of this
           day of
              ,
20    .

 

	
   

  	
  PROLOGIS

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:  W. Scott Lamson

  
	
   

  	
  Title:  Senior Vice President

  

 

 

Agreed:

 

[Assignee]

 

28Exhibit 10.2

 

COMPENSATION
AND SEVERANCE AGREEMENT

 

(initially effective March 21,
2001, “Effective Date”)

(amended and restated
February 5, 2004)

 

THIS COMPENSATION AND
SEVERANCE AGREEMENT (this “Agreement”), is amended and restated effective as of
the 5th day of February, 2004, by and between RESTORATION HARDWARE, INC., a
corporation incorporated under the laws of Delaware (the “Company”), and Gary
G. Friedman (“Officer”).

 

WHEREAS, the Board has
determined that it is essential and in the best interest of the Company and its
stockholders to retain the services of Officer and, in the event of a threat or
occurrence of a Change in Control, to ensure Officer’s continued dedication and
efforts in such event without undue concern for Officer’s personal financial
and employment security; and

 

WHEREAS, in order to
encourage Officer to remain in the employ of the Company, particularly in the
event of a threat or the occurrence of a Change in Control, the Company desires
to enter into this amended and restated Agreement with Officer;

 

NOW, THEREFORE, in
consideration of the respective agreements of the parties contained herein, it
is agreed as follows:

 

1. Integration with Other
Agreements. This Agreement was initially executed substantially
contemporaneously with a letter dated March 15, 2001 offering Officer
employment with the Company (“Offer Letter”), stock option agreements and
notices of grant of stock options referenced in the Offer Letter, agreements to
participate in a preferred stock financing and an agreement to purchase common
stock of the Company as described in the Offer Letter.  The provisions of Sections 11 through 17 of
this Agreement shall generally apply with respect to the Offer Letter and the
stock option agreements and the rights and obligations thereunder.

 

2. Definitions.

 

2.1. Accrued
Compensation. “Accrued Compensation” shall mean an amount which shall include
all amounts earned or accrued through the Termination Date (as hereinafter
defined) but not paid as of the Termination Date, including, without
limitation, (i) Base Salary, (ii) reimbursement for reasonable and necessary
expenses incurred by Officer on behalf of the Company during the period ending
on the Termination Date, and (iii) vacation pay.

 

2.2. Base Salary. “Base
Salary” shall mean the base salary as set forth in Section 3.1 or, on any
date, the amount of Officer’s annual base salary in effect immediately prior
thereto (or, if greater, the rate in effect immediately before a reduction in
rate that constitutes Good Reason), and shall include all amounts of Officer’s
base salary that are deferred under the qualified and non-qualified employee
benefit plans of the Company or any other agreement or arrangement.

 

2.3. Bonus Amount. “Bonus
Amount” shall mean 100% of the last annual bonus paid or payable to Officer
prior to the Termination Date or, in connection with a termination under

 

 

Section 4.1(b),
Officer’s target bonus for the fiscal year in which the Change in Control
occurs if such target bonus is greater than the last annual bonus paid to
Officer.

 

2.4. Cause. A termination
of employment is for “Cause” if Officer has been convicted of a felony
involving fraud, dishonesty, or physical harm to any person, or the termination
is evidenced by a resolution adopted in good faith by two-thirds of the Board
to the effect that Officer (i) intentionally and continually failed
substantially to perform Officer’s reasonably assigned duties with the Company
(other than a failure resulting from Officer’s incapacity due to physical or
mental illness or from Officer’s assignment of duties that would constitute
Good Reason (as hereinafter defined)), which failure continued for a period of
at least thirty (30) days after a written notice of demand for substantial
performance has been delivered to Officer specifying the manner in which
Officer has failed substantially to perform, or (ii) intentionally engaged in
conduct which is demonstrably and materially injurious to the Company;
provided, that no termination of Officer’s employment shall be for Cause as set
forth in clause (ii) above until (a) there shall have been delivered to Officer
a copy of a written notice setting forth that Officer was guilty of the conduct
set forth in clause (ii) and specifying the particulars thereof in detail, and
(b) Officer shall have been provided an opportunity to be heard in person by
the Board (with the assistance of Officer’s counsel if Officer so desires). No
act, nor failure to act, on Officer’s part shall be considered “intentional”
unless Officer has acted, or failed to act, with a lack of good faith and with
a lack of reasonable belief that Officer’s action or failure to act was in the
best interest of the Company.

 

2.5. Change in Control.
“Change in Control” shall mean any of the following:

 

(a) An acquisition
(other than directly from the Company) of any voting securities of the Company
(the “Voting Securities”) by any Person (as the term “person” is used for
purposes of Section 13 or 14 of the Securities Exchange Act of 1934, as amended
(the “1934 Act”)) immediately after which such Person has Beneficial Ownership
(as the term “beneficial ownership” is defined under Rule 13d-3 promulgated
under the 1934 Act) of fifty percent (50%) or more of the combined voting power
of the Company’s then outstanding Voting Securities; provided, that in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a Non-Control Acquisition (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A “Non-Control
Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a
trust forming a part thereof) maintained by (1) the Company or (2) any
corporation or other Person of which a majority of its voting power or its
equity securities or equity interest is owned directly or indirectly by the
Company (a “Subsidiary”), (ii) the Company or any Subsidiary, or (iii) any
Person in connection with a Non-Control Transaction (as hereinafter defined);

 

(b) The
individuals who, as of date this Agreement is approved by the Board, are
members of the Board (the “Incumbent Board”), cease for any reason to
constitute at least a majority of the Board; provided, that if the appointment,
election or nomination for election by the Company’s stockholders of any new director
was approved by a vote of at least two-thirds of the Incumbent Board, such new

 

2

 

director shall,
for purposes of this Agreement, be considered a member of the Incumbent Board;
and provided, further, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened “Election Contest” (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board (a “Proxy
Contest”) including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest;

 

(c) A merger,
consolidation or reorganization involving the Company, unless such merger,
consolidation or reorganization satisfies the conditions set forth in clauses
(1) and (2) below (any transaction(s) meeting the requirements of clauses (1)
and (1) below being referred to herein as “Non-Control Transactions”):

 

(1) the
stockholders of the Company immediately before such merger, consolidation or
reorganization own, directly or indirectly, immediately following such merger,
consolidation or reorganization, at least fifty percent (50%) of the combined
voting power of the outstanding voting securities of the corporation resulting
from such merger, consolidation or reorganization (the “Surviving Corporation”)
in substantially the same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization; and

 

(2) the
individuals who were members of the Incumbent Board immediately prior to the
execution of the agreement providing for such merger, consolidation or
reorganization constitute at least a majority of the members of the board of
directors of the Surviving Corporation; 

 

(d) A complete
liquidation or dissolution of the Company; or

 

(e) An agreement
for the sale or other disposition of all or substantially all of the assets of
the Company to any Person (other than a transfer to a Subsidiary); and

 

(f) Any other
event that at least two-thirds of the Incumbent Board in its sole discretion
shall determine constitutes a Change in Control.

 

Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the “Subject Person”) acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person;
provided, that if a Change in Control would occur (but for the operation of
this sentence) as a result of the acquisition of Voting Securities by the
Company, and after such share acquisition by the Company the Subject Person
becomes the Beneficial Owner of any additional voting Securities which
increases the percentage of the then outstanding Voting Securities Beneficially
Owned by the Subject Person, then a Change in Control shall occur; provided
further that no Change of

 

3

 

Control shall be deemed to have occurred under (a) or (c) merely
because individuals and entities who, individually, as the Effective Date have
Beneficial Ownership of at least 5% of the Voting Securities have, immediately
after the transaction described in (a) or (c) above, Beneficial Ownership, in
the aggregate, of more than 50% of the Voting Securities of the Company or
successor or parent thereof if both (i) no one such individual or entity has,
immediately after such a transaction, Beneficial Ownership of more than 50% and
(ii) the transaction does not result in the Company or successor or parent
thereof becoming a private company.

 

Notwithstanding anything
contained in this Agreement to the contrary, if Officer’s employment is
terminated prior to a Change in Control and the Board determines that such
termination (i) was at the request of a third party who has indicated an
intention or taken steps reasonably calculated to effect a Change in Control
and who subsequently effectuates a Change in Control (a “Third Party”) or (ii)
otherwise occurred in connection with, or in anticipation of, a Change in
Control which actually occurs, then, for all purposes of this Agreement, the
date of a Change in Control with respect to Officer shall mean the date
immediately prior to the date of such termination of Officer’s employment.

 

2.6. Company. The
“Company” shall mean Restoration Hardware, Inc. and shall include its
“Successors and Assigns” (as hereinafter defined).

 

2.7. Disability.
“Disability” shall mean a physical or mental infirmity which either (i) impairs
Officer’s ability to substantially perform Officer’s duties with the Company
for a period of one hundred eighty (180) consecutive days or (ii) is expected
to so impair Officer for a period of at least one year or (iii) entitles
Officer to long-term disability benefits under a long-term disability policy
maintained by the Company; provided, that Officer has not returned to Officer’s
full-time employment prior to the Termination Date as stated in the Notice of
Termination (as hereinafter defined).

 

2.8. Good Reason.

 

(a) “Good Reason”
shall mean the occurrence after a Change in Control of any of the events or
conditions described in subsections (i) through (vi) hereof:

 

(i) (A) a change
in Officer’s status, title, position or responsibilities which represents a
material adverse change from Officer’s status, title, position or
responsibilities (including reporting responsibilities) at any time within
ninety (90) days preceding the date of either such change or a Change in
Control or at any time thereafter, (B) the assignment to Officer of any duties
or responsibilities which are inconsistent with Officer’s status, title,
position or responsibilities; or (C) any removal of Officer from or failure to
reappoint or reelect Officer to any of such offices or positions, except in
connection with the termination of Officer’s employment for Disability, Cause,
as a result of Officer’s death or by Officer other than for Good Reason;
provided that changes in Officer’s responsibilities due to the fact that the
Company or its successor becomes a standalone private company or a standalone
division or subsidiary of a public company will not constitute Good Reason so
long as Officer continues as Chief

 

4

 

Executive Officer
of the Company (or successor or parent thereof, as the case may be) or such
division or subsidiary;

 

(ii) reduction in
Officer’s Base Salary to a level below that in effect at any time within ninety
(90) days preceding the date of such reduction or a Change in Control or at any
time thereafter (except to the extent such reduction is part of a comprehensive
reduction in salary applicable to employees of the Company generally so long as
the reduction applicable to Officer is comparable to the reduction applied to
other senior executives of the Company), or any failure to pay or provide
Officer any compensation or benefits, to which Officer is entitled within ten
(10) business days of the later of the date that such compensation or benefits
were due or the date that Officer gives the Company written demand to the Board
for such payment;

 

(iii) the
Company’s requiring Officer to be based at any place that is (A) outside a
40-mile radius from Officer’s prior job location or Officer’s residence prior
to implementation of such requirement or a Change in Control and (B) more than
10 miles farther from Officer’s residence than his prior job location, except
for reasonably required travel on the Company’s business which is not
materially greater than prior such required travel;

 

(iv) the failure
by the Company to (A) provide Officer with an annual bonus opportunity at least
equal to that in effect at the Effective Date or at any time within ninety (90)
days preceding the date of the Change in Control or at any time thereafter, or
(B) provide Officer with compensation and benefits (other than severance), in
the aggregate, substantially equal (in terms of benefit levels and/or reward
opportunities) to those provided for under each other employee benefit plan,
program and practice in which Officer was participating at any time within the
prior ninety (90) days or within ninety (90) days preceding the date of the
Change in Control or at any time thereafter or which are provided to other
similarly situated executives of the Company, provided in each case that
Officer is not provided with cash compensation equal to the value of the amount
by which such benefits are reduced;

 

(v) the insolvency
or the filing (by any party, including the Company) of a petition for
bankruptcy of the Company, which petition is not dismissed within sixty (60)
days;

 

(vi) the failure
of the Company to obtain an agreement from any Successors and Assigns (as
hereinafter defined) to assume and agree to perform this Agreement, as
contemplated in Section 6 hereof or any other material breach of this Agreement
by the Company or Successor or Assign.

 

(b) Any event or
condition described in this Section 2.8 which occurs prior to a Change in
Control, but which the Board determines (i) was at the request of a Third
Party, or (ii) otherwise arose in connection with, or in anticipation of, a
Change in Control which actually occurs, shall constitute Good Reason for
purposes of this Agreement notwithstanding that it occurred prior to the Change
in Control.

 

5

 

(c) Good Reason
shall also exist outside the context of a Change in Control (i) if the
Company causes Officer to cease at any time to be the Chief Executive Officer
of the Company, (ii) if the Company causes officer to cease at any time to
be a director of the Company, (iii) upon a breach by the Company of its
obligations under this Agreement after written notice from Officer and an
opportunity to cure within 15 days and if the Company has failed to timely
effect such cure, or (iv) upon any material reduction in salary or
responsibilities of Officer other than to the extent such reduction is part of
a comprehensive reduction in salary applicable to employees of the Company
generally so long as the reduction applicable to Officer is comparable to the
reduction applied to other senior executives of the Company.  For the avoidance of doubt, the foregoing
definition of “Good Reason” shall only be applicable outside the context of a
Change in Control.  If there is a Change
in Control, the definition of whether Good Reason exists shall be determined
solely by Section 2.8(a) and Section 2.8(b) of this Agreement.

 

(d) Officer’s right to terminate Officer’s employment pursuant to this
Section 2.8 shall not be affected by Officer’s incapacity due to physical or
mental illness. Any change or event that would otherwise constitute Good Reason
under this Section 2.8 shall constitute Good Reason only with respect to a
termination of employment by Officer within ninety (90) days of the later of
(i) the date of such change or event or (ii) the date that Officer receives
written notice of such change or event. 
If more than one change or event shall occur which alone or in the
aggregate constitutes Good Reason, then for purposes of the preceding sentence
Good Reason shall be deemed to have occurred on the last such change or event
to occur.

 

2.9. Notice of
Termination. “Notice of Termination” shall mean a written notice from the
Company of termination of Officer’s employment which indicates the specific
termination provision in this Agreement relied upon and which sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Officer’s employment under the provision so indicated.

 

2.10. Pro-Rata Bonus.
“Pro-Rata Bonus” shall mean an amount equal to the Bonus Amount multiplied by a
fraction the numerator of which is the number of days in the fiscal year
through the Termination Date and the denominator of which is 365.

 

2.11. Successors and
Assigns. “Successors and Assigns” shall mean a corporation or other entity
acquiring all or substantially all the assets and business of the Company
(including this Agreement), whether by operation of law or otherwise.

 

2.12. Termination Date.
“Termination Date” shall mean (i) in the case of Officer’s death, Officer’s date
of death, (ii) in the case of Good Reason, the last day of Officer’s
employment, and (iii) in all other cases, the date specified in the Notice of
Termination; provided, that if Officer’s employment is terminated by the
Company or due to Disability, the date specified in the Notice of Termination
shall be at least thirty (30) days from the date the Notice of Termination is
given to Officer; and provided, further, that in the case of Disability Officer
shall not have returned to the full-time performance of Officer’s duties during
such period of at least thirty (30) days.

 

6

 

3. Compensation and
Officer Obligations

 

3.1
Compensation.  Officer’s Base Salary
shall be $500,000 per year (less applicable withholding taxes) effective
September 3, 2003, to be paid in installments in accordance with the
Company’s standard payroll practices. 
Officer’s Base Salary may be subject to increase at least annually
during Officer’s employment. 
Adjustments will be at the sole discretion of the Board or the
Compensation Committee of the Board and may be based upon milestones that are
set by the Compensation Committee in advance. 
The first such review of Base Salary for possible increase following the
effective date of this amended and restated Agreement set forth above shall be
considered by the Board or the Compensation Committee during April of 2004.

 

3.2
Bonus.  Officer will be eligible for
annual bonus compensation in an amount up to 100% of Base Salary, with the
amount actually payable based on the level of achievement of performance goals
determined by the Board or the Compensation Committee; provided, however, that
if the Officer achieves his stretch performance goals, as determined by the
Board or the Compensation Committee, such annual bonus amount shall
automatically increase to up to 150% of Base Salary.  The Board or the Compensation Committee shall determine Officer’s
bonus, if any, for the 2003 fiscal year of the Company during April of
2004.  The performance goals and stretch
performance goals shall be based primarily upon financial performance metrics
for the Company and shall be set for each fiscal year at approximately the same
time that the Company’s annual budget for such fiscal year is established.

 

3.3
Stock Options.  In addition to those
stock options granted prior to the amendment and restatement of this Agreement,
Officer will be awarded the following stock option grants subject to approval
of the Board or the Compensation Committee as appropriate:

 

(a) A stock option to acquire 500,000 shares of the
common stock of the Company at an exercise price per share equal to the greater
of $4.50 per share and the fair market value of one share of the Company’s
common stock on the date of grant; and

 

(b) A stock option to acquire 500,000 shares of the
common stock of the Company at an exercise price per share equal to $9.00.

 

Each of the foregoing stock options shall have a ten year term and
shall vest in accordance with the Company’s standard four year vesting schedule,
subject to earlier vesting as provided in Section 4.1 of this Agreement.

 

3.4 Reimbursement of Expenses.  Officer will be entitled to reimbursement of
reasonable expenses, including attorney’s fees, incurred by Officer in
negotiating the terms of this amended and restated Agreement, not to exceed
$10,000 unless approved by the Board.

 

3.5 Officer Obligations.
During the term of this Agreement, and excluding any periods of vacation and
sick leave to which Officer is entitled, Officer agrees to devote his full time
and attention spent on business matters to the business and affairs of the
Company and, to the extent necessary to discharge the responsibilities assigned
to Officer by the Company that do not constitute Good Reason, to use Officer’s
reasonable best efforts to perform faithfully and

 

7

 

efficiently such
responsibilities; provided, that it shall not be a violation of this Agreement
for Officer to, without limitation, (i) serve on corporate, civic or charitable
boards or committees, (ii) deliver lectures, fulfill speaking engagements or
teach at educational institutions, (iii) manage personal investments and (iv)
perform such other activities as the Board may approve, so long as such
activities do not interfere materially with the performance of Officer’s
responsibilities as an employee of the Company. It is expressly understood and
agreed that to the extent that any such activities have been either (i)
conducted by Officer and disclosed to the Board prior to the Effective Date or
(ii) approved by the Board prior the date of a Change of Control, the continued
conduct of such activities (or the conduct of activities similar in nature and
scope thereto) shall not thereafter be deemed to interfere with the performance
of Officer’s responsibilities to the Company.

 

4. Termination of
Employment.

 

4.1. Termination
Benefits. If, during the term of this Agreement, Officer’s employment with the
Company shall be terminated, Officer shall be entitled to the following
compensation and benefits:

 

(a) If Officer’s
employment with the Company shall be terminated (i) by the Company for Cause or
Disability, (ii) by reason of Officer’s death, (iii) due to Officer’s
retirement pursuant to the Company’s policies applying to executive officers
generally, or (iv) by Officer other than for Good Reason, the Company shall pay
to Officer the Accrued Compensation;

 

(b) If Officer’s
employment with the Company shall be terminated other than as specified in
Section 4.1(a) within eighteen (18) months following a Change in Control,
Officer shall be entitled to the following:

 

(i) the Company
shall pay Officer all Accrued Compensation and a Pro-Rata Bonus;

 

(ii) the Company
shall pay Officer as severance pay and in lieu of any further compensation for
periods subsequent to the Termination Date, an amount in cash equal to three
(3) times the sum of (A) the Base Salary and (B) the Bonus Amount;

 

(c) If Officer’s
employment with the Company shall be terminated (i) by Officer for Good Reason
not within eighteen (18) months following a Change in Control or (ii) for any
other reason that is not specified in Section 4.1(a) or (b), Officer shall be
entitled to the following:

 

(i) the Company
shall pay Officer all Accrued Compensation and a Pro-Rata Bonus;

 

(ii) the Company
shall pay Officer as severance pay and in lieu of any further compensation for
periods subsequent to the Termination Date, continuation of

 

8

 

Officer’s Base
Salary in periodic installments in accordance with the Company’s normal payroll
practice, for 12 months following Termination Date or such longer period so
that Officer receives an aggregate minimum amount of such payments equal to
$750,000;

 

(iii) Officer
shall be entitled to continue medical benefit coverage for himself and his
eligible dependents until the later of the date that Officer becomes entitled
to medical benefits from another employer or the end of the period of Base
Salary continuation, subject to Officer’s payment of applicable premiums, if
any, at the same rate that would have applied had Officer remained an officer
of the Company;

 

(iv) Each stock
option granted to Officer by the Company on or prior to the end of the
Company’s first fiscal quarter for fiscal 2004 shall automatically accelerate
and become immediately exercisable (to the extent outstanding at the time and
not previously exercisable) for fully vested shares and any vesting repurchase
rights with respect to shares previously acquired thereunder shall lapse;

 

(v) Each stock
option granted to Executive (other than the options referred to in (iv) above)
shall automatically accelerate and become immediately exercisable (to the
extent outstanding at the time but not otherwise fully exercisable) for fully
vested shares and any vesting repurchase rights with respect to shares
previously acquired thereunder shall lapse, but in each case solely to the
extent that such options or shares would have vested during the period of Base
Salary continuation, had Executive remained employed with the company
throughout such period.

 

(vi) To the extent
that stock options that are outstanding upon such a termination vest solely by
reason of (iv) and (v) above, such options shall not remain exercisable for
longer than three months following termination of employment.

 

(d) The amounts
provided for in Sections 4.1(a) and 4.1(b)(i) shall be paid in a single lump
sum cash payment within thirty (30) days after the Termination Date (or
earlier, if required by applicable law). 
The amounts provided for in Section 4.1(b)(ii) shall be paid in twelve
(12) equal monthly installments following the Termination Date or such greater
number of additional monthly installments to yield an aggregate minimum payment
of $750,000.

 

(e) In the event
that Officer breaches this Agreement, including, but not limited to, the
provisions set forth in Section 9.1, all payments under Sections 4.1(b)(ii) and
4.1(c)(ii) shall cease after Officer has been given notice of the breach and an
opportunity to cure within 15 days of such notice and if Officer has failed to
timely effect such cure, and thereafter the Company shall have no further
obligations under Sections 4.1(b)(ii) and 4.1(c)(ii).

 

9

 

(f) Officer shall
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, and no such payment shall
be offset or reduced by the amount of any compensation or benefits provided to
Officer in any subsequent employment.

 

4.2. Other Benefit
Policies. The severance pay and benefits provided for in Section 4.1 shall be
in lieu of any other severance or termination pay to which Officer may be
entitled under any Company severance or termination plan, program, practice or
arrangement. The Officer’s entitlement to any other compensation or benefits
shall be determined in accordance with the Company’s employee benefit plans and
other applicable programs, policies and practices then in effect. The Company
may condition the payment to Officer of severance benefits pursuant to Section
4.1(b)(ii) or 4(c)(ii) upon Officer’s delivery of a reasonable form of release
in favor of the Company containing customary terms and conditions for the
release of employment related claims. Nothing in this Agreement shall alter
Officer’s status as an “at will” employee of the Company.

 

4.3 Notice of
Termination. Any purported termination of Officer’s employment by the Company
shall be communicated by Notice of Termination to Officer. For purposes of this
Agreement, no such purported termination shall be effective without such Notice
of Termination.

 

5. Change in Control
Option Acceleration.  In the event of a
Change in Control, each stock option granted to Officer by the Company shall
automatically accelerate and become immediately exercisable (to the extent
outstanding at the time and not previously exercisable and whether or not the
option will be assumed by a successor (or parent) or otherwise continued) for
fully vested shares and any vesting repurchase rights with respect to shares
previously acquired thereunder shall lapse. 
If the option is not assumed or otherwise continued following the Change
in Control, the option shall become exercisable for fully vested shares
immediately before the Change in Control.

 

6. Excise Tax Payments.

 

6.1 In the event that any
payment or benefit (within the meaning of Section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended (the “Code”)) to Officer or for Officer’s
benefit, paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise in connection with, or arising out of, Officer’s
employment with the Company or a Change in Control (a “Payment” or “Payments”),
would be subject to the excise tax imposed by Code Section 4999, or any
interest or penalties are incurred by Officer with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the “Excise Tax”), then Officer will be
entitled to receive an additional payment (a “Gross-Up Payment”) in an amount
such that after payment by Officer of all taxes (including any interest or
penalties (other than interest and penalties imposed by reason of Officer’s
failure to file timely a tax return or pay taxes shown due on Officer’s return)
imposed with respect to such taxes and the Excise Tax), including any Excise
Tax imposed upon the Gross-Up Payment, Officer retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

 

10

 

6.2 An initial
determination as to whether a Gross-Up Payment is required pursuant to this
Agreement and the amount of such Gross-Up Payment shall be made by the Company.
The Company shall provide its determination (the “Determination”), together
with detailed supporting calculations and documentation, to Officer within
fifteen (15) days of the Termination Date, if applicable, or such other time as
requested by Officer (provided Officer reasonably believes that any of the
Payments may be subject to the Excise Tax). If requested by Officer, the
Company shall furnish Officer, at the Company’s expense, with an opinion
reasonably acceptable to Officer from the Company’s accounting firm (or an
accounting firm of equivalent stature reasonably acceptable to Officer) that
there is a reasonable basis for the Determination. Any Gross-Up Payment
determined pursuant to this Section 6.2 shall be paid by the Company to Officer
within five (5) days of receipt of the Determination.

 

6.3 As a result of the
uncertainty in the application of Sections 4999 and 280G of the Code, it is
possible that a Gross-Up Payment (or a portion thereof) will be paid which
should not have been paid (an “Excess Payment”) or a Gross-Up Payment (or a
portion thereof) which should have been paid will not have been paid (an
“Underpayment”).

 

(a) An
Underpayment shall be deemed to have occurred (i) upon notice (formal or
informal) to Officer from any governmental taxing authority that Officer’s tax
liability (whether in respect of Officer’s current taxable year or in respect
of any prior taxable year) may be increased by reason of the imposition of the
Excise Tax on a Payment or Payments with respect to which the Company has
failed to make a sufficient Gross-Up Payment, (ii) upon a determination by a
court, or (iii) by reason of determination by the Company (which shall include
the position taken by the Company, together with its consolidated group, on its
federal income tax return). If an Underpayment occurs, Officer shall promptly
notify the Company and the Company shall promptly, but in any event at least
five (5) days prior to the date on which the applicable government taxing
authority has requested payment, pay to Officer an additional Gross-Up Payment
equal to the amount of the Underpayment plus any interest and penalties (other
than interest and penalties imposed by reason of Officer’s failure to file
timely a tax return or pay taxes shown due on Officer’s return) imposed on the
Underpayment.

 

(b) An Excess
Payment shall be deemed to have occurred upon a Final Determination (as
hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or
Payments (or portion thereof) with respect to which Officer had previously
received a Gross-Up Payment. A “Final Determination” shall be deemed to have
occurred when Officer has received from the applicable government taxing
authority a refund of taxes or other reduction in Officer’s tax liability by
reason of the Excise Payment and upon either (i) the date a determination is
made by, or an agreement is entered into with, the applicable governmental
taxing authority which finally and conclusively binds Officer and such taxing
authority, or in the event that a claim is brought before a court of competent
jurisdiction, the date upon which

 

11

 

a final
determination has been made by such court and either all appeals have been
taken and finally resolved or the time for all appeals has expired or (ii) the
statute of limitations with respect to Officer’s applicable tax return has
expired. If an Excess Payment is determined to have been made, the amount of
the Excess Payment shall be treated as a loan by the Company to Officer, which
loan Officer must repay to the Company together with interest at the applicable
federal rate under Code Section 7872(f)(2); provided, that no loan shall be
deemed to have been made and no amount will be payable by Officer to the
Company unless, and only to the extent that, the deemed loan and payment would
either reduce the amount on which Officer is subject to tax under Code Section
4999 or generate a refund of tax imposed under Code Section 4999.

 

6.4 Notwithstanding
anything contained in this Agreement to the contrary, in the event that,
according to the Determination, an Excise Tax will be imposed on any Payment or
Payments, the Company shall pay to the applicable government taxing
authorities, as Excise Tax withholding, the amount of the Excise Tax that the
Company has actually withheld from the Payment or Payments.

 

7. Cooperation.
Notwithstanding anything to the contrary contained herein, payment of the
amounts specified in Section 4.1(b)(ii) hereof is conditional upon Officer
cooperating with the Company in connection with any Change of Control or
proposed Change of Control and all matters relating to Officer’s employment
with the Company and assisting the Company as reasonably requested in
transitioning Officer’s responsibilities to Officer’s replacement as well as upon
Officer refraining from doing or saying anything derogatory about the Company
or its businesses or personnel; provided, that Officer shall not be required to
perform any duties or take any action that would constitute Good Reason.

 

8. Confidential Information.
Officer shall hold in confidence for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company and its
businesses, which shall have been obtained by Officer prior to or in the course
of Officer’s employment by the Company and which was not and is not public
knowledge (other than by acts by Officer in violation of this Agreement)
(“Confidential Information”). Whether before or after termination of the
Officer’s employment with the Company, Officer shall not, without the prior
written consent of the Company, communicate or divulge any Confidential
Information, other than to the Company and to those persons or entities
designated by the Company or as otherwise is reasonably necessary for Officer
to carry out his responsibilities as an executive of the Company except that
Officer may make disclosure of Confidential Information to an attorney or
advisor representing Officer in connection with the matters covered by this
Agreement solely to the extent necessary to protect Officer’s interest under
this Agreement and only if the attorney or advisor agrees to confidentiality
restrictions for the benefit of the Company that are as restrictive as those
set forth in this Agreement. In no event shall an asserted violation of the
provisions of this Section 8 constitute a basis for deferring or withholding
any amounts otherwise payable to Officer under this Agreement.

 

12

 

9.  Non-Solicitation.

 

9.1. Non-Solicitation. Officer
agrees that from the date hereof to the sooner to occur of (i) the end of the
twelfth month following the Termination Date or (ii) the second anniversary of
the date of the Change in Control, Officer will not:

 

(a) Solicit, raid,
entice or induce, either directly or through a third party, any person then
employed by the Company or who was employed by the Company within the preceding
twelve months to be employed by another person, or either directly or through a
third party hire or otherwise employ any person then employed by the Company or
who was employed by the Company within the preceding twelve months;

 

(b) Assist a
competitor or other employer in taking such action set forth in Section 9.1(a);

 

(c) Directly or
indirectly work for or make a significant investment in a Competitor including
by becoming an employee, officer, director, consultant, stockholder, partner,
consultant or other similar arrangement, unless and solely to the extent that
Officer can demonstrate that any action that otherwise would contravene this
Section 9.1(c) was done without use in any way of Confidential Information;
provided, that nothing in this Agreement shall be deemed to prohibit Officer
from owning not more than five percent (5%) of any class of publicly traded
securities of a Competitor.  
“Competitor” shall mean (a) a retail company, including without
limitation, a subsidiary or business unit of such company, where an aggregate
of 25% or more of its revenue (including revenue of any subsidiary or business
unit) is derived from the home furnishings business, including without
limitation, lighting, floor covering, furniture, hardware and tools, or hard
goods business or (b) a manufacturer, supplier or other vendor that has a
material vendor relationship with the Company.

 

9.2. Remedies.  Officer agrees that any breach or threatened
breach by Officer of Section 9.1 will entitle the Company, in addition to any
other legal remedies available to it, to apply to any court of competent jurisdiction
to enjoin the breach or threatened breach, it being acknowledged and agreed
that any such material breach will cause irreparable injury to the Company and
that any damages will not provide adequate remedies to the Company.

 

10. Exclusive Remedy.
Officer’s right to the compensation and benefits to which he may become
entitled pursuant to Section 4.1, Section 4.2, Section 5 and Section 6 shall be
Officer’s sole and exclusive remedy for any termination of Officer’s
employment. The payments, severance benefits and severance protections provided
to Officer pursuant to this Agreement are provided in lieu of any severance
payments, severance benefits and severance protections provided in any other
plan or policy of the Company, except as may be expressly provided in a written
agreement between the Company and Officer entered into after the date of this
Agreement. Notwithstanding the foregoing, nothing in this Agreement shall
prevent or limit Officer’s continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company (except for
any severance or termination policies, plans, programs or practices) and for
which

 

13

 

Officer may qualify, nor
shall anything herein limit or reduce such rights as Officer may have under any
other agreements with the Company (except for any severance or termination
agreement). Amounts which are vested benefits or which Officer is otherwise
entitled to receive under any plan or program of the Company shall be payable
in accordance with such plan or program, except as explicitly modified by this
Agreement.

 

11. Successors; Binding
Agreement.

 

11.1. This Agreement
shall be binding upon and shall inure to the benefit of the Company and its
Successors and Assigns, and the Company shall require any Successors and
Assigns to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession or assignment had taken place.

 

11.2. Neither this
Agreement nor any right or interest hereunder shall be assignable or
transferable by Officer or Officer’s beneficiaries or legal representatives,
except by will or by the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by Officer’s legal personal
representative.

 

12. Notice. Notices and
all other communications provided for in this Agreement (including the Notice
of Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other; provided, that all notices to the Company shall be directed to
the attention of the Board with a copy to the Secretary of the Company. All
notices and communications shall be deemed to have been received on the date of
delivery thereof or on the third business day after the mailing thereof, except
that notice of change of address shall be effective only upon receipt.

 

13. Settlement of Claims.
Except as expressly provided herein, the Company’s obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against Officer or others, provided that all
amounts payable hereunder shall be subject to all applicable tax withholding.

 

14. Miscellaneous. No
provision of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing and signed by Officer
and the Company. No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representation, oral or otherwise, express or
implied, with respect to the subject matter hereof has been made by either
party that is not expressly set forth in this Agreement.

 

15.  Governing Law; Arbitration

 

(a) The Company
and Officer agree that any existing or future dispute, controversy, claim or
action (“dispute” or “claim”) arising out of the hiring or employment of

 

14

 

Officer by the Company, the termination of that employment, or arising
under this Agreement shall be resolved by final and binding arbitration.  Such arbitration shall occur in accordance
with the National Rules for the Resolution of Employment Disputes of the
American Arbitration Association.

 

(b)  Scope of Disputes and Claims to Be
Arbitrated  Company and Officer
understand and agree that this Agreement shall apply to any and all disputes
arising from or relating to Officer’s hiring, employment with or termination of
employment by the Company or arising under this Agreement.  This agreement to arbitrate applies to
disputes arising in tort or contract, pursuant to statute, regulation or
otherwise, now in existence or which may in the future be enacted, amended or
judicially recognized, including but not limited to the following:

 

(i)        claims for fraudulent
inducement of contract or breach of contract or contractual obligation, whether
such alleged contract or obligation be oral, written, express, or implied by
fact or law;

 

(ii)       claims of fraud, or
wrongful termination, including violation of public policy and constructive
discharge;

 

(iii)      claims of discrimination or
harassment under any and all state and federal statutes that prohibit
discrimination in employment, as well as claims for violation of any other
state or federal statute except as set forth below;

 

(iv)      claims of non-payment or
incorrect payment of wages, commissions, bonuses, severance, Officer fringe
benefits, stock options and the like, whether such claims be pursuant to
alleged express or implied contract or obligation, equity, the California Labor
Code, the Fair Labor Standards Act, the Officer Retirement Income Securities
Act, and any other local, state or federal law concerning wages, compensation
or Officer benefits;

 

(v)       claims for infliction of
emotional distress, misrepresentation, interference with contract or
prospective economic advantage, violation of public policy, defamation, unfair
business practices, and any other tort or tort-like causes of action relating
to or arising from the employment relationship or the formation or termination
thereof; and

 

(vi)      claims arising out of or
relating to the grant, exercise, vesting and/or issuance of equity in the
Company or options to purchase equity in the Company.

 

(c)  Company
and Officer understand and agree that except for such limited post-arbitration
judicial review as may be permitted by law, arbitration of such disputes, as
provided for herein, shall be the sole and exclusive mechanism for resolving
any and all existing and future disputes, and that no other forum for dispute
resolution will be available to either party . 
The only exceptions are the claims identified below, which may be
resolved in any appropriate fora, including courts of law, as required by the
laws then in effect:

 

15

 

(i)        claims for benefits under
the workers’ compensation, unemployment insurance and state disability
insurance laws;

 

(ii)       claims concerning the
validity, infringement or enforceability of any trade secret, patent right,
copyright, trademark, or any other intellectual or confidential property right
held or sought by the Company.

 

(d)  Decision of Arbitrator Binding; Waiver of
Trial Before Court, Jury or Government Agency  Company and Officer understand and agree that arbitration shall
be instead of a trial before a court or jury, or a hearing before a government
agency.  Company and Officer understand
and agree that the decision of the arbitrator shall be final and binding on
both the Company and Officer, and it shall provide the exclusive remedy(ies)
for resolving any and all disputes between the Company and Officer, as provided
herein, and it shall be enforceable by any court having proper jurisdiction.

 

COMPANY
AND OFFICER FURTHER UNDERSTAND AND AGREE THAT BY SIGNING THIS AGREEMENT, EACH
IS EXPRESSLY WAIVING ANY AND ALL RIGHTS TO A TRIAL BEFORE A COURT OR JURY OR
BEFORE A GOVERNMENT AGENCY REGARDING ANY DISPUTE OR CLAIM WHICH EACH NOW HAS OR
MAY IN THE FUTURE HAVE, AS PROVIDED FOR HEREIN.

 

(e)  Place of Arbitration  Company and Officer understand and agree
that arbitration of disputes provided for herein shall take place in San
Francisco, California.  If, at the time
the dispute in question arises, Officer lives and works more than one hundred
(100) miles from San Francisco, California, then Officer has the option of
requesting that the arbitration take place in the county in which the Company
has an office that is nearest to Officer’s residence at the time the dispute in
question arises.

 

(f)  Costs of Arbitration  Company and Officer understand and agree
that the arbitrator’s fee will be borne solely by the Company.  Additionally, the Company will bear all
other costs related to the arbitration, assuming such costs are not expenses
that the Officer would be required to bear if he were bringing an action in a
court of law.  The Company and Officer
shall each bear their own attorneys’ fees incurred in connection with the
arbitration, and the arbitrator will not have authority to award attorneys’
fees unless a statue at issue in the dispute or other appropriate law
authorizes the award of attorneys’ fees to the prevailing party, in which case
the arbitrator shall have the authority to make an award of attorneys’ fees as
permitted by the applicable statute.

 

(g)  Governing Law/Applicable Procedures  Company and Officer understand and agree
that this Agreement, including the obligation to arbitrate, and its validity,
construction and performance shall be governed by the laws of the State of
California without regard to conflict of law principles.  The parties specifically intend that this
Agreement and the provision of benefits hereunder shall not constitute an
“employee benefit plan” subject to any of the provisions of the

 

16

 

Employee Retirement Income Security Act of 1974, as amended. the
Further, the arbitration shall be conducted in accordance with the National
Rules for the Resolution of Employment Disputes of the American Arbitration
Association.

 

(h)  Written Arbitration Decision  Company and Officer understand and agree
that, in any arbitration arising from this agreement to arbitrate, the
arbitrator will be required to issue a written arbitration decision that
clearly sets forth the essential findings on which that award is based.

 

(i)  Preservation of Remedies  Company and Officer understand and agree
that, in any arbitration arising from this agreement to arbitrate, the Officer
and the Company will preserve all remedies to which he or she would otherwise
be entitled in a court of law, except as limited under the terms of this
Agreement.

 

(j)  Necessary Minimum Standard of Discovery  Company and Officer understand and agree
that, in any arbitration arising from this agreement to arbitrate, the Company
and Officer will be entitled to discovery in accordance with the provisions of
California Code of Civil Procedure § 1283(a).

 

(k)  Knowing and Voluntary Agreement to
Arbitrate  Company and Officer have
been advised to consult with attorneys of their own choosing before agreeing to
arbitrate, and have had an opportunity to do so.

 

COMPANY AND OFFICER HAVE READ THIS AGREEMENT TO ARBITRATE
CAREFULLY AND UNDERSTAND THAT BY SIGNING IT, EACH IS WAIVING ALL RIGHTS TO A
TRIAL OR HEARING BEFORE A COURT OR JURY OR GOVERNMENT AGENCY OF ANY AND ALL DISPUTES
AS PROVIDED FOR HEREIN.

 

16. Severability. The
provisions of this Agreement shall be deemed severable, and the invalidity or
unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.

 

17. Entire Agreement.
This Agreement, as amended and restated (together with the Offer Letter, except
to the extent amended pursuant to this amended and restated Agreement, and
documents referenced herein and in the Offer Letter), constitutes the entire
agreement between the parties hereto and supersedes all prior agreements, if
any, understandings and arrangements, oral or otherwise, between the parties
hereto with respect to the subject matter hereof.

 

17

 

IN WITNESS WHEREOF, the
Company has caused this Agreement, as amended and restated, to be executed by
its duly authorized officer and Officer has executed this Agreement, as amended
and restated, as of the day and year first above written.

 

	
   

  	
  RESTORATION HARDWARE, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Patricia McKay

  	
   

  
	
   

  	
  Name:

  	
   Patricia McKay

  	
   

  
	
   

  	
  Title:

  	
  CFO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  OFFICER

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Gary G. Friedman

  	
   

  
	
   

  	
  Signature

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name: Gary
  Friedman

  	
   

  
						

 

18

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