Document:

fy2009-8k12_2008severanceex.htm

    
       

      EXHIBIT
10.1

      Tegal
Corporation

       

      Executive
Severance Plan

      (and
Summary Plan Description)

       

       

      This
Executive Severance Plan (the “Plan”)
sets forth the terms of severance benefits for certain employees of Tegal
Corporation (the “Company”)
in the event of a termination of employment with the Company under the
circumstances described below.  For purposes of this Plan, “Company”
will include any Subsidiary of the Company (as defined below) and any successor
to substantially all of the business, shares or assets of the
Company.

       

      The Plan
is an employee welfare benefit plan subject to the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”).  This
Plan document is also the summary plan description of the
Plan.  References in the Plan to “You” or “Your” are references to an
employee of the Company.

       

      1. Eligibility and
Participation.  Subject to the eligibility requirements set
forth in this Section 1 and the other terms and conditions of this Plan, the
Company shall provide severance benefits under this Plan to the individuals set
forth on Appendix
A.  The Plan Administrator (as defined below) may add or delete
individuals from Appendix
A at any time, in its sole discretion.  In order to be eligible
for benefits under this Plan, you must, immediately prior to your date of
termination, be a full-time employee of the Company who is not subject to
disciplinary action or on a formal performance improvement plan.  You
will be considered a full-time employee of the Company if you are on a
Company-approved leave of absence immediately prior to your date of termination
and you were employed full-time immediately prior to the commencement of
such leave.  You will not be eligible for
benefits under this Plan if you are a party to any individual Employment
Agreement approved by the Board or a committee thereof in effect as of the date
of your termination.

       

      2. Severance
Benefit.  If you are a participant in the Plan, and you are
discharged from employment by the Company without Cause (as defined below),
subject to your compliance with Sections 3 and 4, you will receive the benefits
set forth below:

       

      (a)           Accrued
Obligations.  On the date your employment terminates, you will
receive a lump sum payment in cash for (i) your fully earned but unpaid base
salary, through the date of termination, at the rate then in effect, and (ii)
your accrued but unused vacation through the date of termination.

       

      (b)           Base Salary Severance
Benefit.  You will receive a severance benefit (your “Base Salary
Severance Benefit”) equal to your Base Salary for the Severance Period
(as defined below).  The Base Salary Severance Benefit shall be paid
in equal installments over the Severance Period on the regular payroll dates of
the Company and subject to applicable tax withholding, beginning no later than
60 days following the date of your termination of employment.  For
purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”)
(including, without limitation, for purposes of Treasury Regulation Section
1.409A-2(b)(2)(iii)), your right to receive the foregoing installment payments
shall be treated as a right to receive a series of separate payments and,
accordingly, each installment payment shall at all times be considered a
separate and distinct payment.

       

      Your
“Base
Salary” will be the rate of your base salary from the Company as in
effect on the date of your termination of employment with the
Company.  For this purpose, your base salary will not include any
bonus, incentive compensation, benefits or expense reimbursements or equity
awards.

       

      The
“Severance
Period” will be 6 months, unless your discharge by the Company without
Cause occurs within 12 months following a Change in Control (as defined below),
in which case the Severance Period will be 12 months.

       

      In no event will you receive benefits
under this Plan in the event of a termination of your employment as a result of
your death or disability.

      

      3. Release Prior to Payment of
Benefits.  Prior to the payment of any benefits under this
Plan, and as a condition to such payment, you will be required to execute a
waiver and release of claims agreement (the “Release”)
in form and substance acceptable to the Company.  Such Release will
specifically relate to all of your rights and claims in existence at the time of
such execution and will confirm your obligations under the Company’s
Confidential Information Policy (as defined below).

       

      As
specified in the applicable Release, you will have a certain number of calendar
days to consider whether to execute such Release, and you may revoke such
Release within 7 calendar days after execution.  You must execute the
Release and not revoke the Release in order to be entitled to benefits under
this Plan.  With respect to each participant in the Plan, his or her
“Release
Effective Date” will be the day upon which the 7 day revocation period
applicable to such Release expires without a revocation of such Release by the
participant.

       

      Your
Release Effective Date must be within 55 days following the date of your
termination of employment.  If your Release Effective Date does not
occur within 55 days of your termination of employment, you will not be entitled to
benefits under this Plan.

       

      4. Restrictive
Covenants.

       

      
        	
                (a)

              	
                You
      acknowledge that you have executed and are subject to the provisions of
      all Company policies regarding confidential information and ethics
      including, but not limited to the Confidential & Proprietary
      Information and Intellectual Property/Property Rights policy, (the “Confidential
      Information Policy”).

              

      

       

      
        	
                (b)

              	
                While
      you are employed by the Company, and for any period after the date of your
      termination of employment with the Company during which you are receiving
      severance benefits pursuant to this Plan, you agree that you will not
      recruit, encourage or solicit any person who is an employee or contractor
      of the Company or any entity affiliated with the Company (the “Affiliated
      Entity”) to leave the Company’s or Affiliated Entity’s employ or
      service for any reason, or interfere in any material manner with
      employment or service relationships at the time existing between the
      Company or Affiliated Entity and the subject employee or contractor
      (except as may be required in any bona fide termination decision regarding
      any Company or Affiliated Entity employee) in order to induce such
      employee or contractor of the Company to accept other employment or a
      consulting agreement with any other person or
  entity.

              

      

       

      
        	
                (c)

              	
                If
      you breach or threaten to commit a breach of any of the provisions of this
      Section 4, the Company shall have the right to cease all payments to
      you under Section 2, in addition to any other rights and remedies
      available to the Company under law or in
equity.

              

      

       

      5. Effective Date of Plan;
Amendment. This Plan will be effective as of  December 15,
2008 (the “Effective
Date”), and shall continue until the earlier of (a) the date it is
terminated by the Compensation Committee of the Board or (b) the date on which
all benefits payable under the Plan have been paid.  The Compensation
Committee of the Board will have the power to amend or terminate this Plan from
time to time in its sole and absolute discretion; provided, however, that no
such termination or amendment shall impair your rights to benefits under the
terms and conditions of the Plan, as in effect prior to such termination or
amendment, without your written consent.

       

      6. Claims
Procedures.

       

      (a) Normally,
you do not need to present a formal claim to receive benefits payable under this
Plan.

       

      (b) If any
person (the “Claimant”)
believes that benefits are being denied improperly, that the Plan is not being
operated properly, that fiduciaries of the Plan have breached their duties, or
that the Claimant’s legal rights are being violated with respect to the Plan,
the Claimant must file a formal claim, in writing, with the Plan Administrator
(as defined in Section 7(a) below).  This requirement applies to all
claims that any Claimant has with respect to the Plan, including claims against
fiduciaries and former fiduciaries, except to the extent the Plan Administrator
determines, in its sole discretion, that it does not have the power to grant all
relief reasonably being sought by the Claimant.

       

      (c) A formal
claim must be filed within 90 days after the date the Claimant first knew or
should have known of the facts on which the claim is based, unless the Plan
Administrator in writing consents otherwise.  The Plan Administrator
will provide a Claimant, on request, with a copy of the claims procedures
established under subsection (d).

       

      (d) The Plan
Administrator has adopted procedures for considering claims (which are set forth
in Appendix B), which it
may amend from time to time, as it sees fit.  These procedures will
comply with all applicable legal requirements.  These procedures may
provide that final and binding arbitration will be the ultimate means of
contesting a denied claim (even if the Plan Administrator or its delegates have
failed to follow the prescribed procedures with respect to the
claim).  The right to receive benefits under this Plan is contingent
on a Claimant using the prescribed claims procedures to resolve any
claim.

       

      
        
          
             

          

           

        

        
           

          
            

          

        

        
           

        

      

      7. Plan
Administration.

       

      (a) The Plan
will be administered by the Compensation Committee of the Board and/or its
delegate which will be one or more senior officers of the Company (the “Plan
Administrator”).  The Plan Administrator is responsible for the
general administration and management of the Plan and will have all powers and
duties necessary to fulfill its responsibilities, including, but not limited to,
the discretion to interpret and apply the Plan and to determine all questions
relating to eligibility for benefits.  The Plan will be interpreted in
accordance with its terms and their intended meanings.  All actions
taken and all determinations made in good faith by the Plan Administrator or by
Plan fiduciaries will be final and binding on all persons claiming any interest
in or under the Plan.

       

      (b) If, due
to errors in drafting, any Plan provision does not accurately reflect its
intended meaning, as demonstrated by consistent interpretations or other
evidence of intent, or as determined by the Plan Administrator in its sole
discretion, the provision will be considered ambiguous and will be interpreted
by the Plan Administrator and all Plan fiduciaries in a fashion consistent with
its intent, as determined in the sole discretion of the Plan
Administrator.  The Plan Administrator will amend the Plan
retroactively to cure any such ambiguity.

       

      (c) No Plan
fiduciary will have the authority to answer questions about any pending or final
business decision of the Company or any affiliate that has not been officially
announced, to make disclosures about such matters, or even to discuss them, and
no person will rely on any unauthorized, unofficial disclosure. Thus, before a
decision is officially announced, no fiduciary is authorized to tell any person,
for example, that he or she will or will not be laid off or that the Company
will or will not offer exit incentives in the future. Nothing in this subsection
will preclude any fiduciary from fully participating in the consideration,
making, or official announcement of any business decision.

       

      (d) This
Section may not be invoked by any person to require the Plan to be interpreted
in a manner inconsistent with its interpretation by the Plan Administrator or
other Plan fiduciaries.

       

      8. Superseding Plan. This
Plan (a) will be the only plan with respect to which benefits may be provided to
you as a result of your discharge by the Company without Cause and (b) will
supersede any other plan previously adopted by the Company with respect to
severance benefits payable to you.  Any of your rights hereunder will
be in addition to any rights you may otherwise have under benefit plans or
agreements of the Company (other than severance plans or agreements) to which
you are a party or in which you are a participant, including, but not limited
to, any Company-sponsored employee benefit plans and equity incentive award
plans and any awards made thereunder.

       

      9. Limitation on Employee
Rights. This
Plan will not give any employee the right to be retained in the service of the
Company, nor will it interfere with or restrict the right of the Company to
discharge or otherwise terminate the employee.

       

      10.            No Third-Party
Beneficiaries. This
Plan will not give any rights or remedies to any person other than eligible
employees and the Company.

       

      11.            Successors.  This
Plan shall be binding upon and inure to the benefit of the successors of the
Company.

       

      12. Governing Law and Venue. This
Plan is a welfare plan subject to ERISA and it will be interpreted,
administered, and enforced in accordance with that law.  To the extent
that state law is applicable, the statutes and common law of the State of
California, excluding any that mandate the use of another jurisdiction’s laws,
will apply.  Any suit brought hereon shall be brought in the federal
courts sitting in the Northern District of California, and you hereby waive any
claim or defense that such forum is not convenient or proper.

       

      13.            Miscellaneous. Where
the context so indicates, the singular will include the plural and vice
versa.  Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of the
Plan.  Unless the context clearly indicates to the contrary, a
reference to a statute or document will be construed as referring to any
subsequently enacted, adopted, or executed counterpart.

       

      14. Notice.  For
purposes of this Plan, notices and all other communications provided for in this
Plan will be in writing and will be deemed to have been duly given when
delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed to the Company at its primary
office location and to an employee at such employee’s last known address as
listed on the Company’s records, provided that all notices to the Company will
be directed to the attention of its Secretary, or to such other address as
either party may have furnished to the other in writing in accordance herewith,
except that notice of change of address will be effective only upon
receipt.

       

      15. Withholding.  The
Company will be entitled to withhold from any payments or deemed payments to you
hereunder any amount of withholding required by law.

       

      16. Additional
Information.  As a participant in the Plan, you are entitled to
certain rights and protections under ERISA, as described in Appendix C.

       

      17. Section 409A of the
Code.

       

      (a) Notwithstanding
anything herein to the contrary, to the extent any payments to you pursuant to
Section 2 are treated as non-qualified deferred compensation subject to Section
409A of the Code, then (a) no amount shall be payable pursuant to such section
unless your termination of employment constitutes a “separation from service”
with the Company (as such term is defined in Treasury Regulation Section
1.409A-1(h) and any successor provision thereto) (a “Separation from
Service”), and (b) if you, at the time of your Separation from Service,
are determined by the Company to be a “specified employee” for purposes of
Section 409A(a)(2)(B)(i) of the Code and the Company determines that delayed
commencement of any portion of the termination benefits payable to you pursuant
to this Plan is required in order to avoid a prohibited distribution under
Section 409A(a)(2)(B)(i) of the Code (any such delayed commencement, a “Payment
Delay”), then such portion of your termination benefits described in
Section 2 shall not be provided to you prior to the earlier of (i) the
expiration of the six-month period measured from the date of your Separation
from Service, (ii) the date of your death or (iii) such earlier date as is
permitted under Section 409A.  Upon the expiration of the applicable
Code Section 409A(a)(2)(B)(i) deferral period, all payments deferred pursuant to
a Payment Delay shall be paid in a lump sum to you within 30 days following such
expiration, and any remaining payments due under this Plan shall be paid as
otherwise provided herein.  The determination of whether you are a
“specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code as of
the time of your Separation from Service shall made by the Company in accordance
with the terms of Section 409A of the Code and applicable guidance thereunder
(including without limitation Treasury Regulation Section 1.409A-1(i) and any
successor provision thereto).

       

      (b) Notwithstanding
Section 17(a), to the maximum extent permitted by applicable law, amounts
payable to you pursuant to Section 2 shall be made in reliance upon Treasury
Regulation Section 1.409A-1(b)(9) (with respect to separation pay plans) or
Treasury Regulation Section 1.409A-1(b)(4) (with respect to short-term
deferrals).

       

      (c)           To
the extent the payments and benefits under this Plan are subject to Section 409A
of the Code, this Plan shall be interpreted, construed and administered in a
manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of
the Code and the Treasury Regulations thereunder (and any applicable transition
relief under Section 409A of the Code).

       

      18. Definitions. For
purposes of this Plan, the following terms will have the following
meanings:

       

      (a)           “Board”
means the board of directors of Tegal Corporation.

       

      (b)           “Cause”
means that, in the reasonable determination of the Company, you:

       

      (i)           have willfully engaged in an
act or omission which is in bad faith and to the detriment of the Company, or
have engaged in misconduct, gross negligence, or willful malfeasance, in each
case that causes material harm to the Company;

       

      
        	
                (ii)

              	
                have
      materially breached any agreement between you and the Company, including
      Company policies and practices;

              

      

      

      (iii)           have
habitually neglected or materially failed to perform your duties (other than any
such failure resulting solely from your physical or mental disability or
incapacity) after a written demand for substantial performance is delivered to
you which identifies the manner in which the Company believes that you have not
performed your duties;

       

      
        	
                (iv)

              	
                have
      been convicted of a felony or any crime involving moral turpitude, have
      used drugs or alcohol in a way that either interferes with the performance
      of your duties or compromises the integrity or reputation of the Company,
      or have engaged in any act of dishonesty involving the Company;
      or

              

      

      

      
        	
                (v)

              	
                have
      disclosed Company confidential information not required by your duties, or
      have committed commercial bribery, or perpetration of
    fraud;

              

      

      

      
        	
                 
      

              	
                provided, however, that you shall
      have at least forty-five (45) calendar days to cure, if curable, any of
      the events which could lead to your termination for
  Cause.

              

      

      

      (c)           “Change in
Control” means and includes each of the following:

       

                 (i)           A
transaction or series of transactions (other than an offering of the Company’s
common stock to the general public through a registration statement filed with
the Securities and Exchange Commission) whereby any “person” or related “group”
of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) (other than the Company, any of its subsidiaries, an employee
benefit plan maintained by the Company or any of its subsidiaries or a “person”
that, prior to such transaction, directly or indirectly controls, is controlled
by, or is under common control with, the Company) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of securities of the Company possessing more than 50% of the total
combined voting power of the Company’s securities outstanding immediately after
such acquisition; or

       

      (ii)           During
any period of two consecutive years, individuals who, at the beginning of such
period, constitute the Board together with any new director(s) (other than a
director designated by a person who shall have entered into an agreement with
the Company to effect a transaction described in clause (i) above or clause (ii)
below whose election by the Board or nomination for election by the Company’s
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the two-year
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or 

       

      (iii)           The
consummation by the Company (whether directly involving the Company or
indirectly involving the Company through one or more intermediaries) of
(x) a merger, consolidation, reorganization, or business combination or
(y) a sale or other disposition of all or substantially all of the
Company’s assets in any single transaction or series of related transactions or
(z) the acquisition of assets or stock of another entity, in each case
other than a transaction:

       

      (A)           Which
results in the Company’s voting securities outstanding immediately before the
transaction continuing to represent (either by remaining outstanding or by being
converted into voting securities of the Company or the person that, as a result
of the transaction, controls, directly or indirectly, the Company or owns,
directly or indirectly, all or substantially all of the Company’s assets or
otherwise succeeds to the business of the Company (the Company or such person,
the “Successor
Entity”)) directly or indirectly, at least a majority of the combined
voting power of the Successor Entity’s outstanding voting securities immediately
after the transaction, and 

       

      (B)           After
which no person or group beneficially owns voting securities representing 50% or
more of the combined voting power of the Successor Entity; provided, however, that no
person or group shall be treated for purposes of this clause (B) as beneficially
owning 50% or more of combined voting power of the Successor Entity solely as a
result of the voting power held in the Company prior to the consummation of the
transaction; or

       

      (iv)           The
Company’s stockholders approve a liquidation or dissolution of the
Company.

       

      
        	
                 
      

              	
                The
      Plan Administrator will have full and final authority, which will be
      exercised in its discretion, to determine conclusively whether a Change in
      Control of the Company has occurred pursuant to the above definition, and
      the date of the occurrence of such Change in Control and any incidental
      matters relating thereto.

              

      

       

      

      * * * *
*

       

      
        
          
             

          

           

        

        
           

          
            

          

        

        
           

        

      

      Executed
at Petaluma, California, effective as of December 18, 2008.

       

      Tegal Corporation

      

      

      By:                                                                

      Name: Thomas R Mika

      Title: President and CEO

      

      

      
        
          
             

          

           

        

        
           

          
            

          

        

        
           

        

      

      

      Appendix
A

       

      Eligible
Employees

       

      

       

      Steve
Selbrede, Chief Technology Officer, VP Research & Development

      

      Paul
Werbaneth, Vice President Marketing & Applications

      

      Scott Brown, Vice President
North American Sales

      
        
          
             

          

           

        

        
           

          
            

          

        

        
           

        

      

      Appendix
B

       

      Detailed
Claims Procedures

       

       

      1.           Claims
Procedure.

       

      (a)           Initial Claims.  All claims will
be presented to the Plan Administrator in writing.  Within 90 days
after receiving a claim, a claims official appointed by the Plan Administrator
will consider the claim and issue his or her determination thereon in
writing.  The claims official may extend the determination period for
up to an additional 90 days by giving the Claimant written
notice.  The initial claim determination period can be extended
further with the consent of the Claimant.  Any claims that the
Claimant does not pursue in good faith through the initial claims stage will be
treated as having been irrevocably waived.

       

      (b)           Claims Decisions.  If the claim is
granted, the benefits or relief the Claimant seeks will be
provided.  If the claim is wholly or partially denied, the claims
official will, within 90 days (or a longer period, as described above), provide
the Claimant with written notice of the denial, setting forth, in a manner
calculated to be understood by the Claimant: (i) the specific reason or reasons
for the denial; (ii) specific references to the provisions on which the denial
is based; (iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, together with an explanation of
why the material or information is necessary; and (iv) appropriate information
as to the steps to be taken if the Claimant wishes to submit his or her claim
for review, including the time limits applicable to such procedures, and a
statement of the Claimant’s right to bring a civil action under Section 502(a)
of ERISA following an adverse decision upon review.  If the Claimant
can establish that the claims official has failed to respond to the claim in a
timely manner, the Claimant may treat the claim as having been denied by the
claims official.

       

      (c)           Appeals of Denied Claims.  Each Claimant
will have the opportunity to appeal the claims official’s denial of a claim in
writing to an appeals official appointed by the Plan Administrator (which may be
a person, committee, or other entity).  A Claimant must appeal a
denied claim within 60 days after receipt of written notice of denial of the
claim, or within 60 days after it was due if the Claimant did not receive it by
its due date.  The Claimant (or his or her duly authorized
representative) may review pertinent documents in connection with the appeals
proceeding and may present issues, comments and documents in writing relating to
the claim.  The review will take into account all comments, documents,
records and other information submitted by the Claimant relating to the claim,
without regard to whether such information was submitted or considered in the
initial benefit claim determination. Any claims that the Claimant does not
pursue in good faith through the appeals stage, such as by failing to file a
timely appeal request, will be treated as having been irrevocably
waived.

       

      (d)           Appeals Decisions.   The
decision by the appeals official will be made not later than 60 days after the
written appeal is received by the Plan Administrator, unless special
circumstances require an extension of time, in which case a decision will be
rendered as soon as possible, but not later than 120 days after the appeal was
filed, unless the Claimant agrees to a further extension of time.  The
appeal decision will be in writing, will be set forth in a manner calculated to
be understood by the Claimant, and will include specific reasons for the
decision, specific references to the provisions on which the decision is based,
if applicable, a statement that the Claimant is entitled to receive upon request
and free of charge reasonable access to and copies of all documents, records and
other information relevant to the Claimant’s claim for benefits, as well as a
statement of the Claimant’s right to bring an action under Section 502(a) of
ERISA.  If a Claimant does not receive the appeal decision by the date
it is due, the Claimant may deem his or her appeal to have been
denied.

       

      (e)           Procedures.  The Plan
Administrator will adopt procedures by which initial claims will be considered
and appeals will be resolved; different procedures may be established for
different claims.  All procedures will be designed to afford a
Claimant full and fair consideration of his or her claim.

       

      

       

      
        
          
             

          

           

        

        
           

          
            

          

        

        
           

        

      

      Appendix
C

       

      Additional
Information

       

      Rights
under ERISA

       

       

      As a
participant in the Plan, you are entitled to certain rights and protections
under ERISA.  ERISA provides that all Plan participants will be
entitled to:

       

      Receive Information About
Your Plan and Benefits

       

      1.           Examine,
without charge, at the Plan Administrator’s office and at certain Company
offices, all Plan documents including collective bargaining agreements, if any,
and copies of all documents filed by the Plan with the U.S. Department of Labor,
and available at the Public Disclosure Room of the Employee Benefits Security
Administration, such as annual reports and Plan descriptions.

       

      2.           Obtain,
upon written request to the Plan Administrator, copies of documents governing
the operation of the Plan, including collective bargaining agreements and copies
of the latest annual report (Form 5500 Series), if any, and updated summary plan
description.  The Plan Administrator may make a reasonable charge for
the copies.

       

      3.           Obtain
upon written request to the Plan Administrator information as to whether a
particular employer or employer organization is a sponsor of the Plan and the
address of any employer or employer organization that is a plan
sponsor.  Your beneficiaries also have a right to obtain this
information upon written request to the Plan Administrator.

       

      4.           Receive
a summary of the Plan’s annual financial report, if any.  The Plan
Administrator is required by law to furnish each participant with a copy of any
summary annual report.

       

      5.           Receive
a written explanation of why a claim for benefits has been denied, in whole or
in part, and a review and reconsideration of the claim.

       

      6.           Continue
health care coverage for yourself, spouse or dependent if there is a loss of
coverage as a result of a qualifying event.  You or your dependents
may have to pay for such coverage.  Review this Plan and summary plan
description on the rules governing your COBRA continuation coverage
rights.

       

      Prudent Actions by Plan
Fiduciaries

       

      In
addition to creating rights for Plan participants, ERISA imposes duties upon the
people who are responsible for the operation of the employee benefit plan. The
people who operate your Plan, called “fiduciaries” of the Plan, have a duty to
do so prudently and in the interest of you and other Plan participants and
beneficiaries.  No one, including the Company, your union, or any
other person, may fire you or otherwise discriminate against you in any way to
prevent you from obtaining a welfare benefit or exercising your right under
ERISA.  However, this rule neither guarantees continued employment,
nor affects the Company’s right to terminate your employment for other
reasons.

       

      Enforce Your
Rights

       

      If your
claim for a welfare benefit is denied or ignored, in whole or in part, you have
a right to know why this was done, to obtain copies of documents relating to the
decision without charge, and to appeal any denial, all within certain time
schedules.

       

      Under
ERISA, there are steps you can take to enforce the above rights.  For
instance, if you request a copy of plan documents or the latest annual report
from the Plan and do not receive them within thirty (30) days, you may file suit
in a Federal court.  In such a case, the court may require the Plan
Administrator to provide the materials and pay you up to $110 a day until you
receive the materials, unless the materials were not sent because of reasons
beyond the control of the Plan Administrator.  If you have a claim for
benefits which is denied or ignored, in whole or in part, you may file suit in a
state or Federal court.  In addition, if you disagree with the Plan’s
decision or lack thereof concerning the qualified status of a domestic relations
order or a medical child support order, you may file suit in Federal
court.  If it should happen that Plan fiduciaries misuse the Plan’s
money, or if you are discriminated against for asserting your rights, you may
seek assistance from the U.S. Department of Labor, or you may file suit in a
federal court.  The court will decide who should pay court costs and
legal fees.  If you are successful, the court may order the person you
have sued to pay these costs and fees.  If you lose, the court may
order you to pay these costs and fees, for example, if it finds your claim is
frivolous.

       

      Assistance with Your
Questions

       

      If you
have any questions about your Plan, you should contact the Plan
Administrator.  If you should have any questions about this statement
or about your rights under ERISA, or if you need assistance in obtaining
documents from the Plan Administrator, you should contact the nearest office of
the Employee Benefits Security Administration, U. S. Department of
Labor, listed in your telephone directory or the Division of Technical
Assistance and Inquires, Employee Benefits Security Administration, U. S.
Department of Labor, 200 Constitution Avenue N. W., Washington, D. C.
20210.  You may also obtain certain publications about your rights and
responsibilities under ERISA by calling the publications hotline of the Employee
Benefits Security Administration.

       

      
        
          
            

             

          

           

        

        
           

          
            

          

        

        
           

        

      

      
        	
                Administrative
      Information

                 

              
	
                Name
      of Plan:

              	
                The
      Tegal Corporation Executive Severance Plan

              
	
                Plan
      Administrator:

              	
                Compensation
      Committee of the

                Board
      of Directors of Tegal Corporation

                2201
      S. McDowell Boulevard

                Petaluma,
      CA  94954

                Tel:
      707-763-5600

              
	
                Type
      of Administration:

              	
                Self-Administered

              
	
                Type
      of Plan:

              	
                Severance
      Pay Employee Welfare Benefit Plan

              
	
                Employer
      Identification Number:

              	
                68-0370244

              
	
                Direct
      Questions Regarding the Plan to:

              	
                Chief
      Financial Officer

                Tegal
      Corporation

                2201
      S. McDowell Boulevard

                Petaluma,
      CA  94954

                Tel:
      707-763-5600

              
	
                Agent
      for Service of Legal Process:

              	
                Chief
      Financial Officer

                Tegal
      Corporation

                2201
      S. McDowell Boulevard

                Petaluma,
      CA  94954

                Tel:
      707-763-5600

                Service
      of Legal Process may also be made upon the Plan
    Administrator

              
	
                Plan
      Year:

              	
                Calendar
      Year

              
	
                Plan
      Number:

              	
                5__exv10w1

			
	
	 	Exhibit 10.1

AIR COMMERCIAL REAL ESTATE ASSOCIATION

STANDARD INDUSTRIAL/COMMERCIAL

MULTI-TENANT LEASE — GROSS

1. Basic Provisions (“Basic Provisions”).

     1.1 Parties: This Lease (“Lease”), dated for reference purposes only October 27, 2008,
is made by and between Lionshead Investments, LLC a California limited liability
company (“Lessor”) and Xenonics Holdings, Inc., a Nevada Corporation
(“Lessee”), (collectively the “Parties”, or individually a “Party”).

     1.2(a) Premises: That certain portion of the Project (as defined below), including
all improvements therein or to be provided by Lessor
under the terms of this Lease, commonly known by the street address of 3186 Lionshead Ave,
Suite 100, located in the City of Carlsbad, County of San Diego, State of California, with zip code
92010, as outlined on Exhibit A attached hereto (“Premises”) and generally described as
(describe briefly the nature of the Premises): approximately 13,226 square feet in an
industrial building totaling approximately 20,142 square feet.
In addition to Lessee’s rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to any utility raceways of the building containing the Premises
(“Building”) and to the Common Areas (as defined in Paragraph 2.7 below), but shall not have any
rights to the roof, or exterior walls of the Building or to any other buildings in the Project.
The Premises, the Building, the Common Areas, the land upon which they are located, along with
all other buildings and improvements thereon, are herein collectively referred to as the “Project.” (See also Paragraph 2)

     1.2(b) Parking: (47) Forty-seven unreserved vehicle parking spaces. (See also Paragraph 2.6)

     1.2(c) Building Power: Available 400 Amps, 277/480 volt, 3-Phase.

     1.3 Term: 5 (five) years and 2 months (“Original Term”) commencing X
on the first day of the first month following the “Commencement date” as
defined herein (“Commencement Date”) and ending
X the date that is five years and two months after such date (“Expiration Date”).
For purposes of this Lease, the
“Commencement Date” shall be the later of (i) the date that the construction of the Lessee
Improvements is complete in accordance with the terms described in Exhbit B (except for minor
punch list itms that do not materially adversely affect Lessee’s abiltiy to use the Premises for
its business
purposes) or (ii) December 1, 2008; provided however, the Commencement Date shall not occur prior
to date Landlord shall obtain a certificate of occupancy for the building, or a temporary
certificate of occupancy for that portion of the building that includes all of the Premises,
or its equivalent (except to the extent delayed attributable to (a) changes in or additions
to the Lessee-approved Lessee Improvement plans as described in Exhibit B requested by
Lessee, (b) postponement of any Lessee Improvements at the request of Lessee, (c) delay by
Lessee in the submission of information or the giving of authoriztions or approvals within
the time limits of set forth in this Lease, or (d) failure of Lessee to pay, when due, any
amounts required to be paid by Lessee pursuant to this Lease.) Lessee’s obligations to pay
Base Rent and Lessee’s share of Common Area Operating Expenses shall commence on the
Commencement Date. (See also Paragraph 3)

     1.4 Early Possession: N/A (“Early Possession Date”). (See also Paragraphs 3.2 and 3.3)

     1.5 Base Rent: $16,797.00 per month (“Base Rent”), payable on the First
day of each month commencing on the Commencement Date. (See also Paragraph 4)

þ     If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. See Paragraph 50

     1.6 Lessee’s Share of Common Area Operating Expenses: sixty five and one-half percent (65.5%)
(“Lessee’s Share”).

Lessee’s Share has been calculated by dividing the approximate square footage of the Premises by
the approximate square footage of the Project. In

			
	 	 	 
	                    
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the event that that size of the Premises and/or the Project are modified during the term of this
Lease, Lessor shall recalculate Lessee’s Share to reflect such modification.

     1.7 Base Rent and Other Monies Paid Upon Execution:

          (a) Base Rent: $16,797.00 for the period of the first month following the
Commencement Date.
            

          (b) Common Area Operating Expenses: $793.56 for the period of the first month following the
Commencement Date,             

          (c) Security Deposit: $17,590.56 (“Security Deposit”). (See also Paragraph 5)

          (d) Other: $ N/A for N/A.

          (e) Total Due Upon Execution of this Lease: $35,181.12.

     1.8 Agreed Use: Administrative and general office use, manufacturing, storage,
warehouse and distribution of of vision products. (See also Paragraph 6)

     1.9 Insuring Party. Lessor is the “Insuring Party”. (See also Paragraph 8)

     1.10 Real Estate Brokers: (See also Paragraph 15)

          (a) Representation: The following real estate brokers (the “Brokers”) and brokerage
relationships exist in this transaction (check applicable boxes):

þ     Chuck McNary, Erik McNary represents Lessor exclusively (“Lessor’s Broker”);

þ     Tina Fodor represents Lessee exclusively (“Lessee’s Broker”); or

o                                             
represents both Lessor and Lessee (“Dual Agency”).

          (b) Payment to Brokers: Upon execution and delivery of this Lease by both Parties,
Lessor shall pay to the Brokers
the brokerage fee agreed to in a separate written agreement dated September 19,
2007 (or if there is no such agreement, the sum of                     
or                      % of the total Base Rent for the brokerage services rendered by the Brokers).

     1.11 Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by                                                     
                                                                                   
                                                            
(“Guarantor”). (See also Paragraph 37)

     1.12 Attachments. Attached hereto are the following, all of which
constitute a part of this Lease:

þ     an Addendum consisting of Paragraphs 50 through 52;

þ     a site plan depicting the Premises;

o     a site plan depicting the Project;

o     a current set of the Rules and Regulations for the Project;

o     a current set of the Rules and Regulations-adopted by-the owners’ association;

o     a Work Letter;

þ     other (specify): “Exhibit B” Lessee Improvements.

2. Premises.

     2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the
Premises, for the term, at the rental, and
upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease,
or that may have been used in calculating Rent, is an approximation which the Parties agree is
reasonable and any payments based thereon are not
subject to revision whether or not the actual size is more or less. NOTE: Lessee is advised
to verify the actual size prior to executing this Lease.

     2.2 Condition. Lessor shall deliver that portion of the Premises contained within the Building
(“Unit”) to Lessee broom clean and free
of debris on the Commencement Date or the Early Possession Date, whichever first occurs (“Start Date”), and, so long as the required service
contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within
thirty days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning
systems (“HVAC”), loading doors, sump pumps, if any, and all other
such elements in the Unit, other than those constructed by Lessee, shall be in good operating
condition on said date, that the structural elements of the
roof, bearing walls and foundation of the Unit shall be free of material defects, the roof and
windows will be free of leaks, and that the Unit does not
contain hazardous levels of any mold or fungi defined as toxic or hazardous under applicable
state or federal law, or other hazardous material required
to be removed under applicable state or federal law. If a non-compliance with such warranty
exists as of the Start Date, or if one of such systems or
elements should malfunction or fail within the appropriate warranty period, Lessor shall, as
Lessor’s sole obligation with respect to such matter, except
as otherwise provided in this Lease, promptly after receipt of written notice from Lessee
setting forth with specificity the nature and extent of such

			
	 	 	 
	                    
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non-compliance, malfunction or failure, rectify same at Lessor’s expense. The warranty periods
shall be as follows: (i) 6 12 months as to the HVAC systems, and (ii) 90 30 days as to the
remaining systems and other elements of the Unit. If Lessee does not give Lessor the required
notice within the appropriate warranty period, correction of any such non-compliance, malfunction
or failure shall be the obligation of Lessee at Lessee’s sole cost and expense (except for the
repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls — see Paragraph 7).

     2.3 Compliance. Lessor warrants that to the best of its knowledge the improvements on the
Premises and the Common Areas comply
with the building codes that were in effect at the time that each such improvement, or portion
thereof, was constructed, and also with all applicable laws, covenants or restrictions of record,
including the rules and regulations of the Project’s owners’ association (“CC&Rs”), regulations,
and ordinances in effect on the Start Date (“Applicable Requirements”). Said warranty does not
apply to the use to which Lessee will put the Premises, modifications which may be required by the
Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph
49), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be
made by Lessee. NOTE: Lessee is responsible for determining whether or not the Applicable
Requirements, and especially the zoning are appropriate for Lessee’s intended use, and
acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not
comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Lessor’s expense. If Lessee does not give Lessor written
notice of a non-compliance with this warranty within 6 months following the Start Date, correction
of that non-compliance shall be the obligation of Lessee at Lessee’s sole cost and expense. If the
Applicable Requirements are hereafter changed so as to require during the term of this Lease the
construction of an addition to or an alteration of the Unit, Premises and/or Building, the
remediation of any Hazardous Substance, or the reinforcement or other physical modification of the
Unit, Premises and/or Building (“Capital Expenditure”), Lessor and Lessee shall allocate the cost
of such work as follows:

     (a) Subject
to Paragraph 2.3(c) below, if such Capital Expenditures are required as a
result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully
responsible for the cost thereof, provided, however, that if such
Capital Expenditure is required during the last 2 years of this Lease and the cost thereof
exceeds 6 months’ Base Rent, Lessee may instead terminate
this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s
termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to 6 months’ Base Rent. If
Lessee elects termination, Lessee shall immediately cease
the use of the Premises which requires such Capital Expenditure on the last day that Lessee
could legally utilize the Premises without commencing
such Capital Expenditure, and the Lease shall be terminated as of such date. Lessee shall
and deliver to Lessor written notice specifying such a
termination date as soon as Lessee is aware of it. at least 90 days thereafter. Such
termination date shall, however, in-no event be earlier-than the last
day-that Lessee could legally utilize the-Premises without commencing such Capital
Expenditure.

     (b) If such Capital Expenditure is not the result of the specific and unique use of the
Premises by Lessee (such as, governmentally
mandated seismic modifications), then Lessor shall pay for such Capital Expenditure and Lessee
shall only be obligated to pay, each month during the
remainder of the term of this Lease, on the date that on which the Base Rent is due, an amount
equal to 144th of the portion of such costs reasonably
attributable to the Premises. Lessee shall pay Interest on the balance but may prepay its
obligation at any time. If, however, such Capital Expenditure
is required during the last 2 years of this Lease or if Lessor reasonably determines that it
is not economically feasible to pay its share thereof, Lessor
shall have the option to terminate this Lease upon 90 days prior written notice to Lessee
unless Lessee notifies Lessor, in writing, within 10 days after
receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure. If
Lessor does not elect to terminate, and fails to tender its
share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with
Interest, from Rent until Lessor’s share of such costs
have been fully paid. If Lessee is unable to finance Lessor’s share, or if the balance of the
Rent due and payable for the remainder of this Lease is not
sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to
terminate this Lease upon 30 days written notice to Lessor.

     (c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended
to apply only to non-voluntary,
unexpected, and new Applicable Requirements. If the Capital Expenditures are instead
triggered by Lessee as a result of an actual or proposed
change in use, change in intensity of use, or modification to the Premises then, and in that
event, Lessee shall either: (i) immediately cease such
changed use or intensity of use and/or take such other steps as may be necessary to eliminate
the requirement for such Capital Expenditure, or (ii)
complete such Capital Expenditure at its own expense. Lessee shall not have any right to terminate this Lease.

     2.4 Acknowledgements. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to
the condition of the Premises (including but not limited to the electrical, HVAC and fire
sprinkler systems, security, environmental aspects, and
compliance with Applicable Requirements and the Americans with Disabilities Act), and their
suitability for Lessee’s intended use, (b) Lessee has made
such investigation as it deems necessary with reference to such matters and assumes all
responsibility therefor as the same relate to its occupancy of
the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral or
written representations or warranties with respect to said
matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i)
Brokers have made no representations, promises or warranties
concerning Lessee’s ability to honor the Lease or suitability to occupy the Premises, and (ii)
it is Lessor’s sole responsibility to investigate the financial
capability and/or suitability of all proposed tenants.

     2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately
prior to the Start Date Lessee was the owner or occupant of the Premises. In such event,
Lessee shall be responsible for any necessary corrective
work.

     2.6 Vehicle Parking. Lessee shall be entitled to use the number of Parking Spaces specified in Paragraph 1.2(b) on those portions of
the Common Areas designated from time to time by Lessor for parking. Lessee shall not use
more parking spaces than said number. Said parking

			
	 	 	 
	                    
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spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or
pick-up trucks, herein called “Permitted Size Vehicles.” Lessor may regulate the loading and
unloading of vehicles by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles
other than Permitted Size Vehicles may be parked in the Common Area without the prior written
permission of Lessor, In addition:

     (a) Lessee
shall not permit or allow any vehicles that belong to or are controlled by Lessee or
Lessee’s employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those
designated by Lessor for such activities.

     (b) Lessee shall not service or store any vehicles in the Common Areas.

     (c) If Lessee permits or allows any of the prohibited activities described in this
Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to remove or tow away
the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.

     2.7
Common Areas — Definition. The term
“Common Areas” is defined as all areas and facilities
outside the Premises and within the
exterior boundary line of the Project and interior utility raceways and installations within
the Unit that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor, Lessee and other tenants of the
Project and their respective employees, suppliers, shippers,
customers, contractors and invitees, including parking areas, loading and unloading areas,
trash areas, roadways, walkways, driveways and
landscaped areas.

     2.8 Common Areas — Lessee’s Rights. Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers,
contractors, customers and invitees, during the term of this Lease, the non-exclusive right to
use, in common with others entitled to such use, the
Common Areas as they exist from time to time, subject to any rights, powers, and privileges
reserved by Lessor under the terms hereof or under the
terms of any rules and regulations or restrictions governing the use of the Project. Under
no circumstances shall the right herein granted to use the
Common Areas be deemed to include the right to store any property, temporarily or permanently,
in the Common Areas. Any such storage shall be
permitted only by the prior written consent of Lessor or Lessor’s designated agent, which
consent may be revoked at any time. In the event that any
unauthorized storage shall occur, then Lessor shall have the right, without notice, in
addition to such other rights and remedies that it may have, to
remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

     2.9
Common Areas — Rules and Regulations. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control
and management of the Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable rules and
regulations (“Rules and Regulations”) for the management, safety, care, and cleanliness of the
grounds, the parking and unloading of vehicles and
the preservation of good order, as well as for the convenience of other occupants or tenants
of the Building and the Project and their invitees. Lessee
agrees to abide by and conform to all such Rules and Regulations, and
shall use its best
reasonable efforts to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be responsible
to Lessee for the non-compliance with said Rules and
Regulations by other tenants of the Project.

     2.10
Common Areas — Changes. Lessor shall have the
right, in Lessor’s sole reasonable discretion, from time to time:

     (a) To make changes to the Common Areas, including, without limitation, changes in the
location, size, shape and number of
driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and
utility raceways;

     (b) To close temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains
available;

     (c) To designate other land outside the boundaries of the Project to be a part of the Common
Areas;

     (d) To add additional buildings and improvements to the Common Areas;

     (e) To use the Common Areas while engaged in making additional improvements, repairs or
alterations to the Project, or any portion
thereof; and

     (f) To
do and perform such other acts and make such other changes in, to or with respect to
the Common Areas and Project as
Lessor may, in the exercise of sound business judgment, deem to be appropriate.

Lessor’s changes pursuant to this Paragraph 2.10 shall not materially adversly affect Lessee’s
access, accessibility and location of its parking, or entry
to or use of the Premises.

	3.	 	Term.

     3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as
specified in Paragraph 1.3.

     3.2 Early Possession. If Lessee totally or partially occupies the Premises prior to the
Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early possession. All other terms of this
Lease (including but not limited to the obligations to pay
Lessee’s Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums
and to maintain the Premises) shall be in effect
during such period. Any such early possession shall not affect the Expiration Date.

     3.3 Delay In Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to
Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession in the condition described in Exhibit B by February
1, 2009 as agreed (the “Outside Commencement Date”), Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of
this Lease but shall extend or change the Expiration Date by the period between the Outside
Commencement Date until possession of the Premises is
delivered. Lessee shall not, however, be obligated to pay Rent or perform its other
obligations until Lessor delivers possession of the Premises and any
period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of
the delivery of possession and continue for a period

			
	 	 	 
	                    
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equal to what Lessee would otherwise have enjoyed, but minus any days of delay caused by the acts
or omissions of Lessee. If possession is not delivered within
60 30 days after the Outside
Commencement Date, Lessee may, at its option, by notice in writing
within 5 10 days after the end
of such 60 30 day period, cancel this Lease, in which event Lessor shall be obligated to refund to
Lessee the first month’s base rent and common area operating expenses, and the Secruty Deposit, as
described in Paragraph 1.7 within 5 days following Lessee’s cancellation, and thereafter the
Parties shall be discharged from all obligations hereunder. If such written notice is not received
by Lessor within said 5 10 day period, Lessee’s right to cancel shall terminate. Except as
otherwise provided, if possession is not tendered to Lessee by the Start Date and Lessee does not
terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have
enjoyed shall run from the date of delivery of possession and continue for a period equal to what
Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by
the acts or omissions of Lessee. If possession of the Premises is not delivered within 4 months
after the Commencement Date, this Lease shall terminate unless other agreements are reached between
Lessor and Lessee, in writing.

     3.4 Lessee Compliance. Lessor shall not be required to tender possession of the Premises to
Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence,
Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are
satisfied.

	4.	 	Rent.

     4.1.
Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this
Lease (except for the Security Deposit) are
deemed to be rent (“Rent”).

     4.2
“Common Area Operating Expenses”. Lessee shall pay to Lessor during the term hereof, in
addition to the Base Rent, Lessee’s Share (as specified in Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter
defined, during each calendar year of the term of this Lease, in accordance with the following
provisions:

     (a) The following costs relating to the ownership and operation of the Project are
defined as “Common Area Operating Expenses” :

          (i) Costs relating to the operation, repair and maintenance, in neat, clean, good
order and condition, but not the replacement
(see subparagraph (e)), of the following:

               (aa) The Common Areas and Common Area improvements, including parking areas, loading and
unloading areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation
systems, Common Area lighting facilities, fences and gates, elevators, roofs, and roof drainage
systems.

               (bb) Exterior signs and any
tenant directories.

               (cc) 
Any fire sprinkler systems.

          (ii) The cost of irrigation water, gas, electricity and telephone to service the
Common Areas and any utilities not separately metered.

          (iii) The cost of trash disposal, pest control services, property management services comparable to similarly
situated landlords in the same geographica area, security services, owner’s association dues and
fees, and the cost to repaint the exterior of any structures
and the cost of any
environmental inspections.

          (iv) Reserves set aside for maintenance and repair of Common Areas and Common Area
equipment not to exceed $3,000 over the Original Term of the Lease, and an additional $3,000 over any extended term;
provided, however, that Lessor shall deplete the reserve for maintenance and repair of Common Areas
and Common Area equipment prior to any additional assessment for such repair and maintenance.

          (v) Any increase above the Base Real Property Taxes (as defined in Paragraph 10).

          (vi) Any “Insurance Cost Increase” (as defined in Paragraph 8).

          (vii) Any
deductible portion of an insured loss concerning the Building or the Common Areas.

          (viii) Auditors’, accountants’ and attorneys’ fees and costs related to the operation, maintenance, repair and
replacement of the Project.

          (ix) The cost of any capital improvement to the Building or the Project not covered under the provisions of
Paragraph 2.3 provided; however, that Lessor shall allocate the cost of any such capital
improvement over a 12 year period and Lessee shall not be required to pay more than Lessee’s Share
of 1/144th of the cost of such capital improvement in any given month.

          (x) The cost of any other services to be provided by Lessor that are stated elsewhere
in this Lease to be a Common Area Operating Expense.

The current monthly Common Area Operating Expenses listed at Paragraph 1.7(b) includes, among other
expenses, Lessee’s share of the owners’ association fees
currently payable under the CC&Rs, and a
portion of the reserves described in Subparagraph (iv) above, currently budgeted at $2,000.

     (b) Any
Common Area Operating Expenses and Real Property Taxes that are specifically
attributable to the Unit, the Building or to any other building in the Project or to the operation, repair and maintenance thereof, shall be
allocated entirely to such Unit, Building, or other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to
all buildings in the Project.

     (c) The inclusion of the improvements, facilities and services set forth in Subparagraph
4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those
services unless the Project already has the same, Lessor

			
	 	 	 
	                    
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already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or
some of them.

     (d) Lessee’s Share of Common Area Operating Expenses is payable monthly on the same day as
the Base Rent is due hereunder.
The amount of such payments shall be based on Lessor’s estimate of the annual Common Area
Operating Expenses. Within 60 days after written
request (but not more than once each year) Lessor shall deliver to Lessee a reasonably
detailed statement showing Lessee’s Share of the actual
Common Area Operating Expenses incurred during the preceding year. if Lessee’s payments
during such year exceed Lessee’s Share, Lessor shall
credit the amount of such over-payment against Lessee’s future payments. If Lessee’s
payments during such year were less than Lessee’s Share,
Lessee shall pay to Lessor the amount of the deficiency within 10 days after delivery by
Lessor to Lessee of the statement.

     (e) Common Area Operating Expenses shall not include the cost of replacing equipment or
capital components such as the roof, foundations, exterior walls or Common Area capital improvements, such as the parking lot
paving, elevators, fences that have a useful life for
accounting purposes of 5 years or more.

     (f) Common Area Operating Expenses shall not include any expenses paid by any tenant directly
to third parties, or as to which Lessor is otherwise reimbursed by any third party, other tenant, or insurance proceeds.

     (g) In addition, except for items specifically included herein as Common Area Operating
Expenses, Common Area Operating Expenses shall not include the following expenses:

          (i) Advertising and marketing costs;

          (ii) The cost of improving and renovating space for other tenants;

          (iii) The depreciation of the Building;

          (iv) Principal, interest, points and fees on debt or amortization payments, and late payment penalties and interest on any real
property mortgages or deeds of trust and ground lease payments, and other costs of financing or
refinancing the Building;

          (v) Legal, accounting, consulting and other related expenses associated with the
enforcement of other leases;

          (vi) Lessor’s general overhead for operating its entity and general administrative
expenses that are not in any manner related
to the operation of the Building;

          (vii) All compensation to executives, officers or partners of Lessor or to persons who
are executives or officers of partners of Lessor or to any other person at or above the level of
building manager, other than the building manager of the Building;

          (viii) Fines, penalties, and interest assessed by a third party or governmental
agency as a result of Lessor’s failure to make payments in a timely manner or to comply with
applicable laws;

          (ix) The cost of goods or services paid to Lessor, or to any subsidiary or Affiliate
(as defined in Section 12.1(a)) of Lessor, to the extent such costs exceed the costs of comparable goods or services delivered or rendered by
unaffiliated third parties;

          (x) The wages and benefits of any employee who does not devote substantially all of
his or her employed time to the Building unless such wages and benefits are prorated to reflect time spent on operating and
managing the Building.

If any dispute arises between Lessor and Lessee as to Common Area Operating Expenses, Lessee shall
have the right, upon reasonable notice, to inspect and photocopy, if desired, Lessor’s records
concerning the Common Area Operating Expenses of the Building. If, after such inspection, Lessee
continues to dispute Common Area Operating Expenses, Lessee shall be entitled to retain an
independent accountant or accountancy firm that has a specialty in auditing operating expenses to
conduct an audit. If Lessee’s audit reveals that Lessor has overcharged Lessee, after Lessor has
been afforded an opportunity to explain any contrary position on the matter to Lessee’s accounting
firm (with any disputes being resolved in good faith by the parties), then Lessee shall receive a
credit against the next month’s Rents in the amount of such overcharge until the overcharge is
recovered. If the audit reveals that Lessee was undercharged, then, within thirty (30) days after
the results of such audit are made available to Lessee, Lessee shall reimburse Lessor for the
amount of such undercharge. Lessee shall pay the cost of any audits requested by Lessee, unless
any audit reveals that Lessor’s determination of the Common Area Operating Expenses was in error
by more than ten percent (10%), in which case Lessor shall pay the cost of such audit, Lessor
shall be required to maintain records of the Common Area Operating Expenses for the three year
period following each Operating Expense Statement. Except in the event of fraud by Lessor, failure
on the part of Lessee to object to the Operating Expense Statement within two (2) years after its
receipt thereof shall be conclusively deemed Lessee’s approval of such Operating Expense Statement;

          (xi) Expenses resulting directly from the willful misconduct or negligence of Lessor
or its employees or the costs incurred due to Lessor’s violation of the Lease;

          (xii) Any bad debt reserve or rental loss reserve;

          (xiii) Expenses incurred to bring the Building or Premises into full compliance with
all applicable governmental regulations, ordinances and laws that were in effect on the effective
date of the Lease (nothing contained herein shall be construed to imply an affirmative obligation
on the part of the Lessor deliver possession of the Building or Premises fully compliant unless
expressly required to do so under the express provisions of applicable governmental regulations,
ordinances and laws); or

          (xiv) The cost to remove or otherwise remediate hazardous materials the presense
and/or removal of which is not otherwise the responsibility of the Lessee under the terms of this
Lease.

     4.3 Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of
the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is
due. All monetary amounts shall be rounded to the nearest whole dollar. In the event that any
statement or invoice prepared by Lessor is inaccurate such inaccuracy shall not constitute a waiver
and Lessee shall

			
	 	 	 
	                    
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be obligated to pay the amount set forth in this Lease. Rent for any period during the term
hereof which is for less than one full calendar month shall be prorated based upon the actual
number of days of said month. Payment of Rent shall be made to Lessor at its address stated
herein or to such other persons or place as Lessor may from time to time designate in writing.
Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s
rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating.
In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is
dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late
Charge. In the event any two (2) checks, drafts or other instruments of payment are dishonored
during any twelve-month period, and Lessor, at its option, may require all future Rent be paid
by cashier’s check. Payments will be applied first to accrued late charges and attorney’s fees,
second to accrued interest, then to Base Rent and Common Area Operating Expenses, and any
remaining amount to any other outstanding charges or costs.

5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit
as security for Lessee’s faithful performance
of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this
Lease, in either case, beyond any applicable notice and
cure pierod, Lessor may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due already due Lessor, for Rents
which will be due in the future, and/ or to reimburse or compensate Lessor for any liability,
expense, loss or damage which Lessor may suffer or incur
by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee
shall within 10 days after written request therefor deposit
monies with Lessor sufficient to restore said Security Deposit to the full amount required by this
Lease. If the Base Rent increases during the term of
this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor
so that the total amount of the Security Deposit shall
at all times bear the same proportion to the increased Base Rent as the initial Security Deposit
bore to the initial Base Rent. Should the Agreed Use be
amended to accommodate a material change in the business of Lessee or to accommodate a sublessee
or assignee, Lessor shall have the right to
increase the Security Deposit to the extent necessary, in Lessor‘s reasonable judgment, to account
for any increased wear and tear that the Premises
may suffer as a-result thereof. If a change in control of Lessee occurs during this Lease and
following such change the financial condition of Lessee is,
in Lessor’s reasonable judgment, significantly reduced, Lessee shall deposit such additional
monies with Lessor as shall be sufficient to cause the
Security Deposit to be at a commercially reasonable level based on such change in financial
condition. Lessor shall not be required to keep the
Security Deposit separate from its general accounts. Within 30 90 days after the expiration or
termination of this Lease, Lessor shall return that portion
of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be
considered to be held in trust, to bear interest or to be
prepayment for any monies to be paid by Lessee under this Lease.

6. Use.

     6.1 Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal
use which is reasonably comparable
thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises
in a manner that is unlawful, creates damage, waste or a
nuisance, or that disturbs occupants of or causes damage to neighboring premises or
properties. Other than guide, signal and seeing eye dogs, Lessee
shall not keep or allow in the Premises any pets, animals, birds, fish, or reptiles. Lessor
shall not unreasonably withhold or delay its consent to any
written request for a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the Building or the mechanical or
electrical systems therein, and/or is not significantly more burdensome to the Project. If
Lessor elects to withhold consent, Lessor shall within 7 days
after such request give written notification of same, which notice shall include an
explanation of Lessor’s objections to the change in the Agreed Use.

     6.2 Hazardous Substances.

          (a) Reportable Uses Require Consent. The term “Hazardous Substance” as used in this Lease
shall mean any product,
substance, or waste whose presence, use, manufacture, disposal, transportation, or release,
either by itself or in combination with other materials
expected to be on the Premises, is either: (i) potentially Injurious to the public health,
safety or welfare, the environment or the Premises, (ii) regulated
or monitored by any governmental authority, or (iii) a basis for potential liability of
Lessor to any governmental agency or third party under any applicable
statute or common law theory. Hazardous Substances shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, and/or crude oil or any
products, by-products or fractions thereof. Lessee shall not engage in any activity in or
on the Premises which constitutes a Reportable Use of
Hazardous Substances without the express prior written consent of Lessor and timely
compliance (at Lessee’s expense) with all Applicable
Requirements. “Reportable Use” shall mean (i) the installation or use of any above or below
ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or (iii) the
presence at the Premises of a Hazardous Substance with respect
to which any Applicable Requirements requires that a notice be given to persons entering or
occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the
Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common
household cleaning materials, so long as such use is in
compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the
Premises or neighboring property to any meaningful
risk of contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon
receiving such additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against
damage, contamination, injury and/or liability, including, but not limited to, the
installation (and removal on or before Lease expiration or termination) of
protective modifications (such as concrete encasements) and/or increasing the Security
Deposit.

          (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a
Hazardous Substance has come to
be located in, on, under or about the Premises, other than as previously consented to by
Lessor, Lessee shall immediately give written notice of such
fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other
documentation which it has concerning the presence of such
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          (c) Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be
spilled or released in, on,
under, or about the Premises (including through the plumbing or sanitary sewer system) and
shall promptly, at Lessee’s expense, comply with all
Applicable Requirements and take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for
the cleanup of any contamination of, and for the maintenance, security and/or monitoring of
the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance
brought onto the Premises during the term of this Lease, by
or for Lessee, or any third party.

          (d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents,
employees, lenders and ground
lessor, if any, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, claims, expenses, penalties, and attorneys’
and consultants’ fees arising out of or involving any Hazardous Substance brought onto the
Premises by or for Lessee, or any third party (provided,
however, that Lessee shall have no liability under this Lease with respect to underground
migration of any Hazardous Substance under the Premises
from areas outside of the Project not caused or contributed to by Lessee, or any Hazardous
Substance brought onto the Premises by anyone not
directly or indirectly related to the Lessee, or otherwise engaged, employed or hired by
Lessee, Lessee’s agents, Affiliates, vendors or service
providers,). Lessee’s obligations shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment
created or suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or
termination of this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its
obligations under this Lease with respect to Hazardous Substances, unless specifically so
agreed by Lessor in writing at the time of such agreement.

          (e) Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend,
reimburse and hold Lessee, its
employees and lenders, harmless from and against any and all environmental damages, including
the cost of remediation, which suffered as a direct
result of Hazardous Substances on the Premises prior to Lessee taking possession or which are
caused by the gross negligence or willful misconduct
of Lessor, its agents or employees. Lessor’s obligations, as and when required by the
Applicable Requirements, shall include, but not be limited to, the
cost of investigation, removal, remediation, restoration and/or abatement, and shall survive
the expiration or termination of this Lease.

          (f) Investigations and Remediations. Lessor shall retain the responsibility and pay for any
investigations or remediation
measures required by governmental entities having jurisdiction with respect to the existence
of Hazardous Substances on the Premises prior to Lessee
taking possession, unless such remediation measure is required as a result of Lessee’s use
(including “Alterations”, as defined in paragraph 7.3(a)
below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee
shall cooperate fully in any such activities at the request
of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the
Premises at reasonable times in order to carry out Lessor’s
investigative and remedial responsibilities.

          (g) Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph 9.1(e))
occurs during the term of this
Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the
investigation and remediation thereof required by the
Applicable Requirements and this Lease shall continue in full force and effect, but subject to
Lessor’s rights under Paragraph 6.2(d) and Paragraph 13),
Lessor may, at Lessor’s option, either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at
Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii)
if the estimated cost to remediate such condition exceeds 12
times the then monthly Base Rent or $100,000, whichever is greater, give written notice to
Lessee, within 30 days after receipt by Lessor of knowledge
of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this
Lease as of the date 60 days following the date of such
notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days
thereafter, give written notice to Lessor of Lessee’s
commitment to pay the amount by which the cost of the remediation of such Hazardous Substance
Condition exceeds an amount equal to 12 times the
then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within 30
days following such commitment. In such event, this Lease shall continue in full force and
effect, and Lessor shall proceed to make such remediation
as soon as reasonably possible after the required funds are available. If Lessee does not give
such notice and provide the required funds or assurance
thereof within the time provided, this Lease shall terminate as of the date specified in
Lessor’s notice of termination.

     6.3 Lessee’s Compliance with Applicable Requirements. Except as otherwise provided in this
Lease, Lessee shall, at Lessee’s
sole expense, fully, diligently and in a timely manner, materially comply with all Applicable
Requirements, and the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or
Consultants which relate in any manner to such
Requirements, without regard to whether said Requirements are now in effect or become
effective after the Start Date. Lessee shall, within 20 10 days
after receipt of Lessor’s written request, provide Lessor with copies of all permits and other
documents, and other information evidencing Lessee’s
compliance with any Applicable Requirements specified by Lessor, and shall immediately upon
receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation, warning, complaint or
report pertaining to or involving the failure of Lessee or the
Premises to comply with any Applicable Requirements. Likewise, Lessee shall promptly
immediately give written notice to Lessor of: (i) any water
damage to the Premises and any suspected seepage, pooling, dampness or other condition
conducive to the production of mold; or (ii) any mustiness
or other odors that might indicate the presence of mold in the Premises.

     6.4 Inspection; Compliance. Lessor and Lessor’s “Lender” (as defined in Paragraph 30) and consultants shall have the right to
enter into Premises at any time, in the case of an emergency, and otherwise at reasonable
times after reasonable notice, for the purpose of inspecting
the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost
of any such inspections shall be paid by Lessor, unless
a violation of Applicable Requirements, or a Hazardous Substance Condition (see Paragraph 9.1)
is found to exist or be imminent, or the inspection is
requested or ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspection, so long

			
	 	 	 
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as such inspection is reasonably related to the violation or contamination caused by the Lessee,
or otherwise the reponsibility of the Lessee under this Lease. In addition, Lessee shall provide
copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt
of written request therefor.

7.Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.

     7.1 Lessee’s Obligations.

          (a) In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3
(Lessee’s Compliance with Applicable
Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation),
Lessee shall, at Lessee’s sole expense, keep the
Premises, Utility Installations (intended for Lessee’s exclusive use, no matter where
located), and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repairs, or the means of repairing the
same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use,
the elements or the age of such portion of the Premises),
including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment,
electrical, lighting facilities, boilers, pressure vessels,
fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows,
doors, plate glass, and skylights but excluding any items which are
the responsibility of Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in
good order, condition and repair, shall exercise and perform
good maintenance practices, specifically including the procurement and maintenance of the
service contracts required by Paragraph 7.1(b) below.
Lessee’s obligations shall include restorations, replacements or renewals when necessary to
keep the Premises and all improvements thereon or a part
thereof in good order, condition and state of repair.

          (b) Service Contracts. Lessee shall, at Lessee’s sole expense, procure and maintain
contracts, with copies to Lessor, in
customary form and substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and
improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler
and pressure vessels, and (iii) clarifiers. However, Lessor
reserves the right, upon notice to Lessee, to procure and maintain any or all of such service
contracts, and Lessee shall reimburse Lessor, upon
demand, for the cost thereof.

          (c) Failure to Perform. If Lessee fails to perform Lessee’s obligations under this Paragraph
7.1, Lessor may enter upon the
Premises after 10 days’ prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such
obligations on Lessee’s behalf, and put the Premises in good order, condition and repair, and
Lessee shall promptly pay to Lessor a sum equal to 115%
110% of the cost thereof.

          (d) Replacement. Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7
below, and without relieving Lessee
of liability resulting from Lessee’s failure to exercise and perform good maintenance
practices, if an item described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing such item,
then such item shall be replaced by Lessor, and the cost
thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each
month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of multiplying the cost of
such replacement by a fraction, the numerator of which is
one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay
Interest on the unamortized balance but may prepay its
obligation at any time.

     7.2 Lessor’s Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance), 4.2 (Common Area Operating
Expenses), 6 (Use), 7.1 (Lessee’s Obligations), 9 (Damage or Destruction) and 14
(Condemnation), Lessor, subject to reimbursement pursuant to
Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls,
structural condition of interior bearing walls, exterior roof,
fire sprinkler system, Common Area fire alarm and/or smoke detection systems, fire hydrants,
parking lots, walkways, parkways, driveways,
landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof,
as well as providing the services for which there is a
Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall maintain the Parcel on
which the Premises are located in compliance with
the CC&Rs and will pay all assessments owing under the CC&Rs (subject to reimbursement as an
Common Area Operating Expense pursuant to
Paragraph 4.2). Lessor shall not be otherwise obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to
maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly
waives the benefit of any statute now or hereafter in effect
to the extent it is inconsistent with the terms of this Lease.

     7.3 Utility Installations; Trade Fixtures; Alterations.

          (a) Definitions. The term “Utility Installations” refers to all floor and window coverings,
air and/or vacuum lines, power panels,
electrical distribution, security and fire protection systems, communication cabling, lighting
fixtures, HVAC equipment, plumbing, and fencing in or on
the Premises. The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can
be removed without doing material damage to the
Premises. The term “Alterations” shall mean any modification of the improvements, other than
Utility Installations or Trade Fixtures, whether by
addition or deletion. “Lessee Owned Alterations and/or Utility Installations” are defined as
Alterations and/or Utility Installations made by Lessee
that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

          (b) Consent. Lessee shall not make any Alterations or Utility Installations to the Premises
without Lessor’s prior written consent.
Lessee may, however, make non-structural Utility Installations and cosmetic changes to the
interior of the Premises (excluding the roof) without such
consent but upon notice to Lessor, as long as they are not visible from the outside, do not
involve puncturing, relocating or removing the roof or any
existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems,
and the cumulative cost thereof during this Lease as extended
does not exceed $100,000 a sum equal to 3 month’s Base Rent in the aggregate or $50,000 a sum equal to one month’s Base Rent in any one year.
Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or
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approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to
utilize a contractor reasonably chosen and/or approved by Lessor. Any Alterations, cosmetic
changes, or Utility Installations that Lessee shall desire to make and which require the consent
of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall
be deemed conditioned upon Lessee’s: (i) acquiring all applicable governmental permits, (ii)
furnishing Lessor with copies of both the permits and the plans and specifications prior to
commencement of the work, and (iii) compliance with all conditions of said permits and other
Applicable Requirements in a prompt and expeditious manner. Any Alterations, cosmetic changes,
or Utility Installations shall be performed in a workmanlike manner with good and sufficient
materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and
specifications. For work which costs an amount in excess of $100,000 one month’s Base Rent,
Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount
equal to 150% of the estimated cost of such Alteration, cosmetic change, or Utility Installation
and/or upon Lessee’s posting an additional Security Deposit with Lessor.

          (c) Liens; Bonds. Lessee shall pay, when due, all claims for labor or materials furnished
or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims
are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any
interest therein. Lessee shall give Lessor not less than 10 days notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the
Premises against the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a
surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand,
indemnifying Lessor against liability for the same. If Lessor elects to participate in any such
action, Lessee shall pay Lessor’s attorneys’ fees and costs.

     7.4 Ownership; Removal; Surrender; and Restoration.

          (a) Ownership. Subject to Lessor’s right to require removal or elect ownership as
hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a part of the
Premises. Lessor may, at any time, elect in writing to be the
owner of all or any specified part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of
this Lease, become the property of Lessor and be
surrendered by Lessee with the Premises.

          (b) Removal. By delivery to Lessee of written notice from Lessor not earlier than 90 and not
later than 30 days prior to the end of
the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or
Utility Installations be removed by the expiration or termination of
this Lease, except that Lessee shall not be required to remove the Lessee Improvements
described on “Exhibit B” attached hereto and incorporated
herein by this reference, or any future Lessee Owned Alterations and/or Utility
Installations installed by Lessee subsequent to the Commencement Date that require Lessor’s
consent under Paragraph 7.3 and which Lessor did not require removal as a term of such
consent. Lessor may require the removal at any time of all or any part of any Lessee Owned
Alterations or Utility Installations made without the required consent.

          (c) Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any
earlier termination date, with all of
the improvements, parts and surfaces thereof broom clean and free of debris, and in good
operating order, condition and state of repair, ordinary wear
and tear excepted. “Ordinary wear and tear” shall not include any damage or deterioration
that would have been prevented by good maintenance
practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then
Lessee shall surrender the Premises in the same condition as
delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee
shall repair any damage occasioned by the installation,
maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility
Installations, furnishings, and equipment as well as the removal of
any storage tank installed by or for Lessee. Lessee shall also completely remove from the
Premises any and all Hazardous Substances brought onto
the Premises by or for Lessee, or any third party where such Hazardous Substances are
required to be removed and/or remediated in order to meet
standards under applicable state or federal law (except Hazardous Substances which were
deposited via underground migration from areas outside of
the Premises, or Hazardous Substances brought onto the Premises by anyone not directly or
indirectly related to the Lesee, or otherwise engaged,
employed or hired by Lessee, Lessee’s agents, Affiliates, vendors, or service providers)
even if such removal would require Lessee to perform or pay
for work that exceeds statutory requirements. Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee. Any personal
property of Lessee not removed on or before the Expiration Date or any earlier termination
date shall be deemed to have been abandoned by Lessee
and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to
timely vacate the Premises pursuant to this Paragraph
7.4(c) without the express written consent of Lessor shall constitute a holdover under the
provisions of Paragraph 26 below.

8. Insurance; Indemnity.

     8.1 Payment of Premium Increases.

          (a) As used herein, the term “Insurance Cost Increase” is defined as any increase in
the actual cost of the insurance
applicable to the Building and/or the Project and required to be carried by Lessor, pursuant to
Paragraphs 8.2(b), 8.3(a) and 8.3(b), ( “Required Insurance”), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. Insurance Cost Increase shall include, but not
be limited to, requirements of the holder of a mortgage or deed of trust covering the Premises,
Building and/or Project, increased valuation of the Premises, Building and/or Project, and/or a
general premium rate increase. The term Insurance Cost Increase shall not, however, include any
premium increases resulting from the nature of the occupancy of any other tenant of the Building.
The “Base Premium” shall be the annual premium applicable to the 12 month period immediately
preceding the Start Date. If, however, the Project was not insured for the entirety of such 12
month period, then the Base Premium shall be the lowest annual premium reasonably obtainable for
the Required Insurance as of the Start Date, assuming the most nominal use possible of the
Building. In no event, however, shall Lessee be responsible for any portion of the premium cost
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insurance coverage in excess of $2,000,000 procured under Paragraph 8.2(b).

          (b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant to Paragraph 4.2.
Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with
the corresponding Start Date or Expiration Date.

     8.2 Liability Insurance.

          (a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability
policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily
injury, personal injury and property damage based upon or arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall
be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an annual aggregate of not less than $2,000,000. Lessee shall add Lessor as an
additional insured by means of an endorsement at least as broad as the Insurance Service
Organization’s “Additional Insured-Managers or Lessors of Premises” Endorsement. The policy shall
not contain any intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an “insured contract” for the
performance of Lessee’s indemnity obligations under this Lease. The limits of said insurance shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. Lessee
shall provide an endorsement on its liability policy(ies) which provides that its insurance shall
be primary to and not contributory with any similar insurance carried by Lessor, whose insurance
shall be considered excess insurance only.

          (b) Carried by Lessor. Lessor shall maintain liability insurance as described in Paragraph
8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee.
Lessee shall not be named as an additional insured therein.

     8.3 Property Insurance — Building, Improvements and Rental Value.

          (a) Building and Improvements. Lessor shall obtain and keep in force a policy or policies of
insurance in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender
insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full
insurable replacement cost of the Premises, as the same shall exist from time to time, or the
amount required by any Lender, but in no event more than the commercially reasonable and available
insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and
Lessee’s personal property shall be insured by Lessee not by Lessor. If the coverage is available
and commercially appropriate, such policy or policies shall insure against, all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender),
including coverage for debris removal and the enforcement of any Applicable Requirements requiring
the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the
result of a covered loss. Said policy or policies shall also contain an agreed valuation provision
in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an
increase in the annual property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause, the deductible amount
shall not exceed $1,000 per occurrence.

          (b) Rental Value. Lessor shall also obtain and keep in force a policy or policies in the name
of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one
year with an extended period of indemnity for an additional 180 days (“Rental Value
insurance”). Said insurance shall contain an agreed valuation provision in lieu of any
coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected
Rent otherwise payable by Lessee, for the next 12 month period.

          (c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the property
insurance of the Building and for the Common Areas or other buildings in the Project if said
increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

          (d) Lessee’s Improvements. Since Lessor is the Insuring Party, Lessor shall not be required to
insure Lessee Owned Alterations and Utility Installations unless the item in question has become
the property of Lessor under the terms of this Lease.

     8.4 Lessee’s Property; Business Interruption Insurance.

          (a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee’s
personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such
insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of
personal property. Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee
shall provide Lessor with written evidence that such insurance is in force.

          (b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense
insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable
to all perils commonly insured against by prudent lessees in the business of Lessee or attributable
to prevention of access to the Premises as a result of such perils.

          (c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or
forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business
operations or obligations under this Lease.

     8.5 Insurance Policies. Insurance required herein shall be by companies duly licensed or
admitted to transact business in the state where the Premises are located, and maintaining during
the policy term a “General Policyholders Rating” of at least A-, VI, as set forth in the most
current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender.
Lessee shall not do or permit to be done anything which invalidates the required insurance
policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of
such insurance or certificates evidencing the existence and amounts of the required insurance. No
such policy shall be cancelable or subject to modification except after 30 days prior written
notice to Lessor. Lessee shall, at least 10 5 days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year,
or the length of the remaining term of this Lease,
whichever is less. If either Party shall fail to procure and maintain the insurance required to
be carried by it, the other Party may,
but shall not be

			
	 	 	 
	                    
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required to, procure and maintain the same.

     8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor
each hereby release and relieve the other, and waive their entire right to recover damages against
the other, for loss of or damage to its property arising out of or incident to the perils required
to be insured against herein. The effect of such releases and waivers is not limited by the amount
of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have
their respective property damage insurance carriers waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.

     8.7 Indemnity. Except for Lessor’s gross negligence or willful misconduct, Lessee shall
indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master
or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or
damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities
arising out of, involving, or in connection with, the-use and/or occupancy of-the
Premises-by-Lessee any claim by any third party for (1) injury to person or damage to or loss of
any property occuring on the Premises, or (2) from any injury to person or damage to or loss of
property occuring in the project but outside the Premises to the extent resulting from the
negligence or willful misconduct of Lesseee or any of its employees or agents. Lessee’s
obligations under this Paragraph shall survive the expiration or earlier termination of this Lease.
If any action or proceeding is brought against Lessor by reason of any of the foregoing matters,
Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be defended or indemnified.

     8.8 Exemption of Lessor and its Agents from Liability. Notwithstanding the negligence or
breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable under
any circumstances for: (i) injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or
about the Premises, whether such damage or injury is caused by or results from fire, steam,
electricity, gas, water or rain, indoor air quality, the presence of mold or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC
or lighting fixtures, or from any other cause, whether the said injury or damage results from
conditions arising upon the Premises or upon other portions of the Building, or from other sources
or places, (ii) any damages arising from any act or neglect of any other tenant of Lessor or from
the failure of Lessor or its agents to enforce the provisions of any other lease in the Project, or
(iii) injury to Lessee’s business or for any loss of income or profit therefrom. Instead, it is
intended that Lessee’s sole recourse in the event of such damages or injury be to file a claim on
the insurance policy(ies) that Lessee is required to maintain pursuant to the provisions of
paragraph 8.

     8.9 Failure to Provide Insurance. Lessee acknowledges that any failure on its part to obtain
or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor
to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to
ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required
insurance and/or does not provide Lessor with the required binders or certificates evidencing the
existence of the required insurance, the Base Rent shall be automatically increased, without any
requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100,
whichever is greater. The parties agree that such increase in Base Rent represents fair and
reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee’s
failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute
a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance,
prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee
of its obligation to maintain the insurance specified in this Lease.

9. Damage or Destruction.

     9.1 Definitions.

          (a) “Premises Partial Damage” shall mean damage or destruction to the improvements on the
Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be
repaired in 3 months or less from the date of the damage or destruction, and the cost thereof
does not exceed a sum equal to 6 month’s Base Rent. Lessor shall notify Lessee in writing within
30 days from the date of the damage or destruction as to whether or not the damage is Partial or
Total. Notwithstanding the foregoing, Premises Partial Damage shall not include damage to
windows, doors, and/or other similar items which Lessee has the responsibility to repair or
replace pursuant to the provisions of Paragraph 7.1.

          (b) “Premises Total Destruction” shall mean damage or destruction to the improvements on the
Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which
cannot reasonably be repaired in 3 months or less from the date of the damage or destruction
and/or the cost thereof exceeds a sum equal to 6 month’s Base Rent. Lessor shall notify Lessee in
writing within 30 days from the date of the damage or destruction as to whether or not the damage
is Partial or Total.

          (c) “Insured Loss” shall mean damage or destruction to improvements on the Premises, other
than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an
event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.

          (d) “Replacement Cost” shall mean the cost to repair or rebuild the improvements owned by
Lessor at the time of the occurrence to their condition existing immediately prior thereto,
including demolition, debris removal and upgrading required by the operation of Applicable
Requirements, and without deduction for depreciation.

          (e) “Hazardous Substance Condition” shall mean the occurrence or discovery of a condition
involving the presence of, or a contamination by, a Hazardous Substance, in, on, or under the
Premises which requires restoration.

     9.2 Partial Damage — Insured Loss. If a Premises Partial Damage that is an Insured Loss
occurs, then Lessor shall, at Lessor’s

			
	 	 	 
	                    
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expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall continue in full force
and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any
damage or destruction the total cost to repair of which is $10,000 or less, and, in such event,
Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for
that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly
contribute the shortage in proceeds as and when required to complete said repairs. In the event,
however, such shortage was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to
fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within 10 days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof
within said 10 day period, the party responsible for making the repairs shall complete them as
soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or
assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10
days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full force and effect,
or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to
reimbursement of any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3,
notwithstanding that there may be some insurance coverage, but the net proceeds of any such
insurance shall be made available for the repairs if made by either Party.

     9.3 Partial Damage — Uninsured Loss. If a Premises Partial Damage that is not an Insured
Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall
make the repairs at Lessee’s expense), Lessor may either: (i) repair such damage as soon as
reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after
receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be
effective 60 days following the date of such notice. In the event Lessor elects to terminate this
Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give
written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without
reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance
thereof within 30 days after making such commitment. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not make the required commitment,
this Lease shall terminate as of the date specified in the termination notice.

     9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total
Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage
or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall
have the right to recover Lessor’s damages from Lessee, except as provided in Paragraph 8.6.

     9.5 Damage Near End of Term. If at any time during the last 6 months of this Lease there is
damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss,
Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage
by giving a written termination notice to Lessee within 30 days after the date of occurrence of
such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a)
exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or
adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date
which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this
Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises
such option during such period and provides Lessor with funds (or adequate assurance thereof) to
cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable
expense, repair such damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option and provide such funds or assurance
during such period, then this Lease shall terminate on the date specified in the termination notice
and Lessee’s option shall be extinguished.

     9.6 Abatement of Rent; Lessee’s Remedies.

          (a) Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a
Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent
payable by Lessee for the period required for the repair, remediation or restoration of such damage
shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but
not to exceed the proceeds received from the Rental Value insurance. Impairment of 80% or more of
Lessee’s use of the Premise shall be deemed full impairment of Lessee’s use thereof. All other
obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability
for any such damage, destruction, remediation, repair or restoration except as provided herein.

          (b) Remedies. If Lessor is obligated to, or elects to repair or restore the Premises and does
not commence, in a substantial and meaningful way, such repair or restoration within 90 days after
such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or
restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of
Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of
such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30
days thereafter, this Lease shall terminate as of the date specified in said notice. If the
repair or restoration is commenced within such 30 days, this Lease shall continue in full
force and effect. “Commence” shall mean either the unconditional authorization of the preparation
of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.
Notwithstanding anything to the contrary in the Lease, in the event of damage or destruction to
the Premises that prevents or materially interferes with Lessee’s use of or access to the Premises,
and such repair is not completed within 180 days after the date of the damage, Lessee may terminate
this Lease, effective on the date of such damage or destruction.

     9.7 Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph
6.2(g) or Paragraph 9, an equitable

			
	 	 	 
	                    
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adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has
not been, or is not then required to be, used by Lessor.

10. Real Property Taxes.

     10.1 Definitions.

          (a) “Real Property Taxes.” As used herein, the term “Real Property Taxes” shall include any
form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax
(other than inheritance, personal income or estate taxes); improvement bond; and/or license fee
imposed upon or levied against any legal or equitable interest of Lessor in the Project, Lessor’s
right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the
direct or indirect power to tax and where the funds are generated with reference to the Project
address and where the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Project is located. The term “Real Property
Taxes” shall also include any tax, fee, levy, assessment or charge, or any increase therein: (i)
imposed by reason of events occurring during the term of this Lease, including but not limited to,
a change in the ownership of the Project, (ii) a change in the improvements thereon, and/or (iii)
levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.
With respect to any assessments or taxes for which Lessor has the right to elect to make a lump
sum payment, or cause such assessment or tax to be amortized and paid over a period of time, Lessor
shall include in the definition of Common Area Operating Expenses only the amortized portion
(calculated at the longest period of time permitted by such taxing authority) of such taxes and
assessments (regardless of any applicable interest charges).

          (b) “Base Real Property Taxes.” As used herein, the term “Base Real Property Taxes” shall
be the amount of Real Property Taxes, which are assessed against the Premises, Building, Project or
Common Areas in the calendar year during which the Lease is executed. In calculating Real
Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be
included in the calculation of Real Property Taxes for such calendar year based upon the number of
days which such calendar year and tax year have in common.

     10.2 Payment of Taxes. Except as otherwise provided in Paragraph 10.3, Lessor shall pay the
Real Property Taxes applicable to the Project, and said payments shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2.

     10.3 Additional Improvements. Common Area Operating Expenses shall not include Real
Property Taxes specified in the tax assessor’s records and work sheets as being caused by
additional improvements placed upon the Project by other tenants or by Lessor for the exclusive
enjoyment of such other Tenants. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay
to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety
of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures
or Utility Installations placed upon the Premises by Lessee or at Lessee’s request or by reason of
any alterations or improvements to the Premises made by Lessor subsequent to the execution of this
Lease by the Parties.

     10.4 Joint Assessment. If the Building is not separately assessed, Real Property Taxes
allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of
the land and improvements included within the tax parcel assessed, such proportion to be determined
by Lessor from the respective valuations assigned in the assessor’s work sheets or such other
information as may be reasonably available. Lessor’s reasonable determination thereof, in good
faith, shall be conclusive.

     10.5 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed
against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures,
furnishings, equipment and all personal property of Lessee contained in the Premises. When,
possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade
Fixtures, furnishings, equipment and all other personal property to be assessed and billed
separately from the real property of Lessor. If any of Lessee’s said property shall be assessed
with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property
within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s
property.

11. Utilities and Services. Lessee shall pay for all water, gas, heat, light, power, telephone,
trash disposal and other utilities and services supplied to the Premises, together with any taxes
thereon. Notwithstanding the provisions of Paragraph 4.2, if at any time in Lessor’s sole
judgment, Lessor determines that Lessee is using a disproportionate amount of water, electricity or
other commonly metered utilities, or that Lessee is generating such a large volume of trash as
to require an increase in the size of the trash receptacle and/or on increase in-the number of
times per month-that it is emptied, then Lessor may increase Lessee’s Base Rent by an
amount equal to such increased costs. Lessee shall contract and pay for Lessee’s trash disposal.
Lessee shall pay for all water (excluding landscaping in paragraph 4.2) to the building. When the
remainder of the building is leased, the water cost shall be prorated based upon each lessee’s use.
There shall be no abatement of Rent and Lessor shall not be liable in any respect whatsoever for
the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot,
strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable
control or in cooperation with governmental request or directions.

12. Assignment and Subletting.

     12.1 Lessor’s Consent Required.

          (a) Except for an assignment or sublease to an Affiliate, Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment”) or
sublet all or any
part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written
consent. Lessor shall not unreasonably withold, condition or delay its consent to an assignment or
sublease. If Lessor has not responded to a request for consent to an assignment or sublease within
twnety (20) days of receipt of request, with all required infromation, Lessor shall be deemed to
have refused consent to the request. For purposes of this Lease, an “Affiliate” means any person
directly or indirectly controlling, controlled by or under common control with another person.

			
	 	 	 
	                    
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          (b) Unless Lessee is a corporation and its stock is publicly traded on a national stock
exchange, a change in the control of Lessee
shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25%
or more of the voting control of Lessee shall constitute a
change in control for this purpose.

          (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by
way of merger, sale, acquisition,
financing, transfer, leveraged buy out or otherwise), whether or not a formal assignment
or-hypothecation of this Lease or Lessee’s assets occurs,
which results or will result in a reduction of the Net Worth of Lessee by an amount greater
than 25% of such Net Worth as it was represented at the
time of the execution of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, whichever-was or is greater,
shall be considered an assignment of this Lease to which Lessor
may with hold its consent. “Net Worth of Lessee” shall-mean the net worth-of-Lessee
(excluding-any-guarantors) established under generally accepted
accounting principles. Notwithstanding anything to the contrary contained in this Lease,
Lessee shall have the right, without first obtaining the consent
of the Lessor, to assign this Lease or sublease the Premises or otherwise share or transfer
use or occupancy of the Premises to (a) any entity resulting
from a merger or consolidation of Lessee with any organization; (b) any entity purchasing
substantially all of the stock or assets of Lessee; and (c) any
entity succeeding to the business and assets of Lessee.

          (d) An assignment or subletting without consent shall, at Lessor’s option, be a Default
curable after notice per Paragraph 13.1(c), or
a noncurable Breach without the necessity of any notice and grace period. If Lessor elects
to-treat such unapproved assignment or subletting as a
noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days-written
notice, increase the monthly Base Rent to 110% of the Base
Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by
Lessee-shall be subject to similar adjustment to 110% of the price previously in effect,
and-(ii) all fixed and non-fixed rental adjustments scheduled
during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted
rent.

          (e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to
compensatory damages and/or injunctive relief.

          (f) Lessor may reasonably withhold consent to a proposed assignment or subletting if Lessee is
in Default beyond any applicable
notice and cure period at the time consent is requested.

          (g) Notwithstanding the foregoing, allowing a de minimis portion of the Premises, ie. 20
square feet or less, to be used by a third
party vendor in connection with the installation of a vending machine or payphone shall not
constitute a subletting.

     12.2 Terms and Conditions Applicable to Assignment and Subletting.

          (a) Regardless of Lessor’s consent, no assignment or subletting shall: (i) be effective
without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee
of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other obligations to
be performed by Lessee.

          (b) Lessor may accept Rent or performance of Lessee’s obligations from any person other than
Lessee pending approval or
disapproval of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of Rent or performance shall
constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s
Default or Breach.

          (c) Lessor’s consent to any assignment or subletting shall not constitute a consent to
any subsequent assignment or subletting.

          (d) In the event of any uncurable Default or Breach by Lessee, Lessor may proceed directly
against Lessee, any Guarantors or
anyone else responsible for the performance of Lessee’s obligations under this Lease,
including any assignee or sublessee, without first exhausting
Lessor’s remedies against any other person or entity responsible therefore to Lessor, or any
security held by Lessor.

          (e) Each request for consent to an assignment or subletting shall be in writing, accompanied
by information relevant to Lessor’s
determination as to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to
the intended use and/or required modification of the Premises, if any, together with a fee of
$500 as consideration for Lessor’s considering and
processing said request. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably
requested. (See also Paragraph 36)

          (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such
assignment, entering into such sublease, or entering into possession of the Premises or any portion
thereof, be deemed to have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by Lessee during the term of
said assignment or sublease, other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

          (g) Lessor’s consent to any assignment or subletting shall not transfer to the
assignee or sublessee any Option granted to the original Lessee by this Lease unless such
transfer-is-specifically consented to by Lessor in writing. (See Paragraph 30.2)

     12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and
conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:

          (a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent
payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s
obligations under this Lease; provided, however, that until a Breach shall occur in the
performance of Lessee’s obligations, Lessee may collect said Rent. In the event that the amount
collected by Lessor exceeds Lessee’s then outstanding obligations any such excess shall be
refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such
sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any
failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee. Lessee
hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice
from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this
Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee

			
	 	 	 
	                    
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shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any
obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from
Lessee to the contrary.

          (b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to
Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the time of the exercise
of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit paid by such
sublessee to such sublessor or for any prior Defaults or
Breaches of such sublessor.

          (c) Any matter requiring the consent of the sublessor under a sublease shall also
require the consent of Lessor.

          (d) No sublessee shall further assign or sublet all or any part of the Premises
without Lessor’s prior written consent.

          (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who
shall have the right to cure the
Default of Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and
against Lessee for any such Defaults cured by the sublessee.

13. Default; Breach; Remedies.

     13.1 Default; Breach. A “Default” is defined as a failure by the Lessee to comply with or
perform any of the terms, covenants,
conditions or Rules and Regulations under this Lease. A “Breach” is defined as the occurrence
of one or more of the following Defaults, and the failure
of Lessee to cure such Default within any applicable grace period:

          (a) The abandonment of the Premises as determined pursuant to Section 1951.3 of the California
Civil Code; or the vacating
of the Premises without providing a commercially reasonable level of security, or where the
coverage of the property insurance described in Paragraph
8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize
potential vandalism.

          (b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be
made by Lessee hereunder,
whether to Lessor or to Lessor’s agent, a third-party, when due, to provide reasonable
evidence of insurance or surety bond, or to fulfill any obligation
under this Lease which endangers or threatens life or property, where such failure continues
for a period of 3 5 business days following written notice to
Lessee. THE ACCEPTANCE BY LESSOR OF A PARTIAL PAYMENT OF RENT OR SECURITY DEPOSIT SHALL NOT
CONSTITUTE A WAIVER OF
ANY OF LESSOR’S RIGHTS, INCLUDING LESSOR’S RIGHT TO RECOVER POSSESSION OF THE PREMISES.

          (c) The failure of Lessee to allow Lessor and/or its agents access to the Premises or the
commission of waste, act or acts
constituting public or private nuisance, and/or an illegal activity on the Premises by Lessee,
where such actions continue for a period of 3 5 business
days following written notice to Lessee.

          (d) The failure by Lessee to provide (i) reasonable written evidence of compliance with
Applicable Requirements, (ii) the
service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an
Estoppel Certificate or financial statements, (v) a requested
subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document
requested under Paragraph 41, (viii) material data safety
sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where
any such failure continues for a period of 10 15 days following written notice to Lessee.

          (e) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or
of the rules adopted under
Paragraph 2.9 hereof, other than those described in subparagraphs 13.1(a), (b), (c) or (d),
above, where such Default continues for a period of 30 days
after written notice; provided, however, that if the nature of Lessee’s Default is such that
more than 30 days are reasonably required for its cure, then it
shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and
thereafter diligently prosecutes such cure to
completion.

          (f) The occurrence of any of the following events: (i) the making of any general arrangement
or assignment for the benefit of
creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. § 101 or any successor statute
thereto (unless, in the case of a petition filed against Lessee,
the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee’s assets located at
the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee
within 30 days; or (iv) the attachment, execution or other
judicial seizure of substantially all of Lessee’s assets located at the Premises or of
Lessee’s interest in this Lease, where such seizure is not discharged
within 30 days; provided, however, in the event that any provision of this subparagraph is
contrary to any applicable law, such provision shall be of no
force or effect, and not affect the validity of the remaining provisions.

          (g) The discovery that any financial statement of Lessee or of-any Guarantor given to
Lessor was materially false.

          (h) If the performance of Lessee’s obligations under this Lease is guaranteed: (i)
the death of a Guarantor, (ii) the
termination of a Guarantor’s liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy
filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its
guaranty obligation on an anticipatory basis, and Lessee’s failure, within 60 days following
written notice of any such event, to provide written alternative assurance or security, which,
when coupled with the then existing resources of Lessee, equals or exceeds the combined financial
resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

     13.2 Remedies. If Lessee fails to perform any of its affirmative duties or obligations, within
10 days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or obligation on
Lessee’s behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits or approvals.
Lessee shall pay to Lessor an amount equal to 115% of
the costs and expenses incurred by Lessor in such performance upon receipt of an invoice
therefor. In the event of a Breach, Lessor may, with or
without further notice or demand, and without limiting Lessor in the exercise of any right or
remedy which Lessor may have by reason of such Breach:

			
	 	 	 
	                    
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          (a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case
this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee
proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to
compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in
connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of
the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District
within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this
Lease shall not waive Lessor’s right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy
of unlawful detainer. Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously
given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required
by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently,
and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach
of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

          (b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes
due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to
relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

          (c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of
the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee’s right
to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee’s occupancy of the Premises.

     13.3 Inducement Recapture. Any agreement for free or abated rent or other charges, or for
the giving or paying by Lesser to or for Lessee of any cash or other bonus, inducement or consideration for Lessee’s entering into this
Leas, all of which concessions are hereinafter referred to as “Inducement Provisions”, shall be deemed conditioned upon Lessee’s full and faithful
performance a of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement provision shall
automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding
any subsequent cure of said Broach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this
paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

     13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender.
Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall immediately pay to Lessor a one-time late charge
equal to 10 7% of each such overdue amount or $100, whichever is greater. The
parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment.
Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s
option, become due and payable quarterly in advance.

     13.5 Interest. Any monetary payment due Lessor hereunder, other than late charges, not
received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was
due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to
non-scheduled payments. The interest (“Interest”) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law.
Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

     13.6 Breach by Lessor.

          (a) Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails
within a reasonable time to perform an obligation required to be performed by Lessor. For
purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after
receipt by Lessor, and any Lender whose name and address shall have been furnished to Lessee in
writing for such purpose, of written notice specifying wherein such obligation of Lessor has not
been performed; provided, however, that if the nature of Lessor’s obligation is such that more
than 30 days are reasonably required for its performance, then Lessor shall not be in breach if
performance is commenced within such 30 day period and thereafter diligently pursued to
completion. In the case of emergency or imminent danger to person or property, Lessor shall cure
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          (b) Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender
cures said breach within 30 days after receipt of said notice, or if having commenced said cure
they do not diligently pursue it to completion, then Lessee may elect to cure said breach at
Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure,
provided however, that such offset shall not exceed an amount equal to the greater of one month’s
Base Rent or the Security Deposit, reserving Lessee’s right to reimbursement from Lessor for any
such expense in excess of such offset. Lessee shall document the cost of said cure and supply said
documentation to Lessor.

14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent
domain or sold under the threat of the exercise of said power (collectively “Condemnation”), this Lease shall terminate as to the part taken as of
the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the Unit, or more than
25% of the parking spaces is taken by Condemnation,
Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have
given Lessee written notice of such taking (or in the
absence of such notice, within 10 days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and
effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in
proportion to the reduction in utility of the Premises
caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor,
whether such award shall be made as
compensation for diminution in value of the leasehold, the value of the part taken, or for
severance damages; provided, however, that Lessee shall be
entitled to any compensation paid by the condemnor for Lessee’s relocation expenses, loss of
business goodwill and/or Trade Fixtures, without regard
to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All
Alterations and Utility Installations made to the Premises by
Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and
Lessee shall be entitled to any and all compensation
which is payable therefor. In the event that this Lease is not terminated by reason of the
Condemnation, Lessor shall repair any damage to the
Premises caused by such Condemnation.

15. Brokerage Fees.

     15.1 Additional Commission. In addition to the payments owed pursuant to Paragraph 1.10
above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee
or anyone affliated with Lessee acquires from Lessor any rights to the Premises or other premises
owned by Lessor and located within the Project, (c) if Lessee remains in possession of the Promises,
with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is
increased, whether by agreement or operation of an escalation clause herein, then;
Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the
time of the execution of this Lease.

     15.2 Assumption of Obligations. Any buyer or transferee of Lessor’s interest in this Lease
shall be deemed to have assumed Lessor’s obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs
1.10, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees
pertaining to this Lease when duo, then such amounts shall accrue interest. In addition, if Lessor
fails to pay any amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to
Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after
said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In
addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission
agreement entered into by and/or between Lessor and Lessor’s Broker for the limited purpose of
collecting any brokerage fee owed.

     15.3 Representations and Indemnities of Broker Relationships. Lessee and Lessor each
represent and warrant to the other that it has had no dealings with any person, firm, broker or
finder (other than the Brokers, if any) in connection with this Lease, and that no one other than
said named Brokers is entitled to any commission or finder’s fee in connection herewith. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from
and against liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of the indemnifying
Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.
Lessor shall pay the fees payable to the Brokers pursuant to written agreement dated September
19, 2007 and indemnify the Lessee against claims arising out of the breach of this obligation.

16. Estoppel Certificates.

          (a) Each
Party (as “Responding Party”) shall within
10 15 days after written notice from the
other Party (the “Requesting Party”) execute, acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current “Estoppel Certificate” form published by the AIR Commercial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting Party.

          (b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within
such 10 15 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance,
and (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon
the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said
Certificate.

          (c) In
the event Lessee is no longer publicly traded, if if Lessor desires to finance,
refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall within 10 days after written notice from Lessor
deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser,
including but not limited to Lessee’s financial statements for the past 3 years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17. Definition of Lessor. The term “Lessor” as used herein shall mean the owner or owners at the
time in question of the fee title to the

 
			
	 	 	 
	                    
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Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease. In the event of
a transfer of Lessor’s title or interest in the Premises or this
Lease. Lessor shall deliver to
the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Upon
such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or covenants under this
Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined. Lessor shall have the right to assign its interest in the Lease without the
consent of the Lessee.

18. Severability. The invalidity of any provision of this Lease, as determined by a court of
competent jurisdiction, shall in no way affect
the validity of any other provision hereof.

19. Days. Unless otherwise specifically indicated to the contrary, the word “days” as used in this
Lease shall mean and refer to calendar days.

20. Limitation on Liability. The obligations of Lessor under this Lease shall not constitute
personal obligations of Lessor, or its partners,
members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no
other assets of Lessor, for the satisfaction of any liability
of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners,
members, directors, officers or shareholders, or any of their
personal assets for such satisfaction.

21. Time of Essence. Time is of the essence with respect to the performance of all obligations to
be performed or observed by the Parties under
this Lease.

22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between
the Parties with respect to any matter
mentioned herein, and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and
warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to
the nature, quality, character and financial responsibility
of the other Party to this Lease and as to the use, nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or
with respect to any default or breach hereof by either Party.

23. Notices.

     23.1 Notice Requirements. All notices required or permitted by this Lease or
applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be
sent by regular, certified or registered mail or reputable national overnight delivery service U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission with receipt
acknowledgment, and shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease shall be that
Party’s address for delivery or mailing of notices. Either Party may by written notice to the other
specify a different address for notice, except that upon Lessee’s taking possession of the
Premises, the Premises shall constitute Lessee’s address for notice. A copy of all notices to
Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may
from time to time hereafter designate in writing.

     23.2 Date of Notice. Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt card, or if no
delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed
given upon the date of receipt 72 hours after the same is addressed as required herein and mailed
with postage prepaid. Notices delivered by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal
Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed
delivered upon telephone confirmation of receipt (confirmation report from fax machine is
sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a
Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24. Waivers.

     (a) No
waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by
Lessee, shall be deemed awaiver of any other term, covenant or condition hereof, or of any
subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition
hereof. Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be
construed as the basis of an estoppel to enforce the provision or provisions of this Lease
requiring such consent.

     (b) The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by
Lessee. Any payment by Lessee may be accepted by Lessor on account of monies or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection
therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

     (c) THE PARTIES AGREE THAT THE TERMS OF THIS LEASE SHALL GOVERN WITH REGARD TO ALL MATTERS
RELATED THERETO AND HEREBY WAIVE THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE TO THE EXTENT THAT
SUCH STATUTE IS INCONSISTENT WITH THIS LEASE.

25. Disclosures Regarding The Nature of a Real Estate Agency Relationship.

     (a) When entering into a discussion with a real estate agent regarding a real estate
transaction, a Lessor or Lessee should from the outset understand what type of agency
relationship or representation it has with the agent or agents in the transaction. Lessor
and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

          (i) Lessor’s Agent. A Lessor’s agent under a listing agreement with the
Lessor acts as the agent for the Lessor only. A Lessor’s agent or subagent has the following affirmative obligations: To the Lessor: A
fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor.
To the Lessee and the Lessor: a. Diligent exercise of reasonable skills and care in
performance of the agent’s duties. b. A

			
	 	 	 
	                    
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duty of
honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent
materially affecting the value or desirability of the property that are not known to, or within
the diligent attention and observation of, the Parties. An agent is not obligated to reveal to
either Party any confidential information obtained from the other Party which does not involve the
affirmative duties set forth above.

          (ii) Lessee’s Agent. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the
Lessor’s agent, even if by agreement the agent may receive compensation for services rendered,
either in full or in part from the Lessor. An agent acting only for a Lessee has the following
affirmative obligations. To the Lessee: A fiduciary duty of utmost care, integrity,
honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor: a.
Diligent exercise of reasonable skills and care in performance of the agent’s duties. b. A duty of
honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent
materially affecting the value or desirability of the property that are not known to, or within
the diligent attention and observation of, the Parties. An agent is not obligated to reveal to
either Party any confidential information obtained from the other Party which does not involve the
affirmative duties set forth above.

          (iii) Agent Representing Both Lessor and Lessee. A real estate agent, either
acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only
with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the
agent has the following affirmative obligations to both the Lessor and the Lessee: a. A fiduciary
duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the
Lessee. b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii).
In representing both Lessor and Lessee, the agent may not without the express permission of the
respective Party, disclose to the other Party that the Lessor will accept rent in an amount less
than that indicated in the listing or that the Lessee is willing to pay a higher rent than that
offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or
Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully
read all agreements to assure that they adequately express their understanding of the transaction.
A real estate agent is a person qualified to advise about real estate. If legal or tax advice is
desired, consult a competent professional.

     (b) Brokers have no responsibility with respect to any default or breach hereof by either
Party. The Parties agree that no lawsuit or other legal proceeding involving any breach of
duty, error or omission relating to this Lease may be brought against Broker more than one year
after the Start Date and that the liability (including court costs and attorneys’ fees), of any
Broker with respect to any such lawsuit and/or legal proceeding shall not exceed the fee received
by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each
Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such
Broker.

     (c) Lessor and Lessee agree to identify to Brokers as “Confidential” any communication or
information given Brokers that is considered by such Party to be confidential.

26. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part
thereof beyond the expiration or termination of
this Lease, In the event that Lessee holds over, then the Base Rent shall be increased to 150% of
the Base Rent applicable immediately preceding the
expiration or termination. No holdover penalty shall be charged for the first ten (10) days after
the Expiration Date. Nothing contained herein shall be
construed as consent by Lessor to any holding over by Lessee.

27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all
other remedies at law or in equity.

28. Covenants and Conditions; Construction of Agreement. All provisions of this Lease to be
observed or performed by Lessee are both
covenants and conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a
part of this Lease. Whenever required by the context, the singular shall include the plural and
vice versa. This Lease shall not be construed as if
prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both
Parties had prepared it.

29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties, their personal
representatives, successors and assigns and
be governed by the laws of the State in which the Premises are located. Any litigation between
the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.

30. Subordination; Attornment; Non-Disturbance.

     30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate
to any ground lease, mortgage, deed of trust, or other hypothecation
or security device (collectively, “Security Device”), now or
hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof.
Lessee agrees that the holders of any such Security Devices (in this
Lease together referred to as “Lender”) shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of
its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device,
notwithstanding the relative dates of the documentation or recordation thereof. Lessor shall cause its current Lender to deliver to
Lessee either a commercially reasonable subordination, non-disturbance and attornment agreement (“SNDA”) or a written election to have this Lease
deemed prior to such Security Device on or before July 1, 2009, and deliver such SNDA or election to Lessee. In the event Lessor shall refinance the
loan of its current Lender in a transaction that extinguishes such Lender’s Security Device on or before July 1, 2009, the Lessor shall be deemed to have
performed its obligation under this Paragraph 30.1.

     30.2 Attornment. In the event that Lessor transfers title to the Premises by deed in lieu, or
the Premises are acquired by another upon the foreclosure or termination of a Security Devise to which this Lease is subordinated (i)
Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing
all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of the new owner, this
Lease will automatically become a new lease between Lessee and such new owner, and (ii) Lessor shall thereafter be relieved of any further obligations
hereunder and such new owner shall assume all of Lessor’s

 
			
	 	 	 
	                    
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obligations, except that such new owner shall not: (a) be liable for any act or omission of any
prior lessor or with respect to events occurring prior to acquisition of ownership, but upon
acquisition will cure any existing defaults; (b) be subject to any offsets or defenses which
Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month’s
rent, or (d) be liable for the return of any security deposit paid to any prior lessor which was
not paid or credited to such new owner.

     30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the
execution of this Lease, Lessee’s
subordination of this Lease shall be subject to receiving a commercially reasonable
non-disturbance agreement (a “Non-Disturbance Agreement”)
from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the
Premises, and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns
to the record owner of the Premises. Further, within 60
days after the execution of this Lease, Lessor shall, if requested by Lessee, use its
commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured by the
Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee’s option, directly
contact Lender and attempt to negotiate for the
execution and delivery of a Non-Disturbance Agreement.

     30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents;
provided, however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and
Lessor shall execute such further writings as may be reasonably required to
separately document any subordination, attornment and/or
Non-Disturbance Agreement provided for herein.

31.
Attorneys’ Fees. If any Party or Broker brings an action or proceeding involving the Premises
whether founded in tort, contract or equity, or
to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable
attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit,
whether or not such action or proceeding is pursued to
decision or judgment. The term, “Prevailing Party” shall include, without limitation, a Party or
Broker who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the
other Party or Broker of its claim or defense.
The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but
shall be such as to fully reimburse all attorneys’ fees
reasonably incurred. In addition, Lessor shall be entitled to attorneys’ fees, costs and expenses
incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action is subsequently
commenced in connection with such Default or resulting
Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

32.
Lessor’s Access; Showing Premises; Repairs. Showing Premises; Repairs. Lessor and Lessor’s
agents shall have the right to enter the
Premises at any time, in the case of an emergency, and otherwise at reasonable times after
reasonable prior notice for the purpose of showing the
same to prospective purchasers, lenders, or tenants, and making such alterations, repairs,
improvements or additions to the Premises as Lessor may
deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes
and conduits through the Premises and/or other
premises as long as there is no material adverse effect on Lessee’s use of the Premises. All such
activities shall be without abatement of rent or
liability to Lessee.

33. Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises
without Lessor’s prior written consent.
Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to
permit an auction.

34. Signs. Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary “For
Lease” signs during the last 6 months of
the term hereof. Except for ordinary “For Sublease” signs which may be placed only on the Premises,
Lessee shall not place any sign upon the Project
without Lessor’s prior written consent. All signs must comply with all Applicable Requirements.
Lessee shall have the right to exterior building signage
on a monument erected by Lessor. The costs associated with the purchase, installation,
maintenance and eventual removal of such signage (but
excluding the removal of the monument) shall be borne exclusively by Lessee, subject to Lessee’s
right to the improvement allowance for such
expenses as described in Exhibit B.

35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary
or other surrender of this Lease by Lessee, the
mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee,
shall automatically terminate any sublease or lesser
estate in the Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor’s failure within 10 days
following any such event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor’s election to have
such event constitute the termination of such interest.

36. Consents. Except as otherwise provided herein, wherever in this Lease the consent of a Party is
required to an act by or for the other Party,
such consent shall not be unreasonably withheld or delayed. Lessor’s actual reasonable costs and
expenses (including but not limited to architects’,
attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response
to, a request by Lessee for any Lessor consent,
including but not limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee upon
receipt of an invoice and supporting documentation therefor. Lessor’s consent to any act,
assignment or subletting shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or
Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such
consent. The failure to specify herein any particular
condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of
such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being given. In the event
that either Party disagrees with any determination
made by the other hereunder and reasonably requests the reasons for such determination, the
determining party shall furnish its reasons in writing and
in reasonable detail within 10 business days following such request.

			
	 	 	 
	                    
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37. Guarantor.

     37.1 Execution. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real
Estate Association,.

     37.2 Default. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on Guarantor’s behalf
to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors authorizing the making
of such guaranty, (b) current financial statements, (c) an
Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

38. Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of the
covenants, conditions and provisions on
Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and
quiet enjoyment of the Premises during the term
hereof.

39.
Options. If Lessee is granted an option, as defined below, then the following provisions shall
apply.

     39.1 Definition. “Option”  shall mean: (a) the right to extend or reduce the term of or renew
this Lease or to extend or reduce the term
of or renew any lease that Lessee has on other property of Lessor; (b) the right of first
refusal or first offer to lease either the Premises or other property
of Lessor; (c) the right to purchase, the right of first offer to purchase or the right of
first refusal to purchase the Premises or other property of Lessor.

     39.2
Options Personal To Original Lessee. Any Option granted-to-Lessee in this Lease is
personal to the original-Lessee, and cannot
be assigned or exercised by anyone-other than said original Lessee and only while the original
Lessee-is in full-possession of the Premises-and, if
requested by Lessor, with Lessee certifying that Lessee has no
intention of thereafter assigning or subletting.

     39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be
exercised unless the prior Options have been validly exercised.

     39.4 Effect of Default on Options.

          (a) Lessee
shall have no right to exercise an Option: (i) during the period commencing with
the giving of any notice of Default and
continuing until said Default is cured, (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee), (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been
given 3 or more notices of separate Default, whether or not
the Defaults are cured, during the 12 month period immediately preceding the exercise of the
Option.

          (b) The period of time within which an Option may be exercised shall not be extended or
enlarged by reason of Lessee’s inability to
exercise an Option because of the provisions of Paragraph 39.4(a); provided, however, the
Option period shall be extended to the end of any Default
cure period for purposes of (ii) and (iii).

          (c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s
due and timely exercise of the Option, if,
after such exercise and prior to the commencement of the extended term or completion of the
purchase, (i) Lessee fails to pay Rent for a period of 30
days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or
(ii) if Lessee commits a Breach of this Lease.

40. Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does
not include the cost of guard service or
other security measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of
the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

41. Reservations. Lessor reserves the right: (i) to grant, without the consent or joinder of
Lessee, such easements, rights and dedications that
Lessor deems necessary, (ii) to cause the recordation of parcel maps and restrictions, and (iii) to
create and/or install new utility raceways, so long as
such easements, rights, dedications, maps, restrictions, and utility raceways do not unreasonably
interfere with the use of the Premises by Lessee.
Lessee agrees to sign any documents reasonably requested by Lessor to effectuate such rights.

42. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of
money to be paid by one Party to the other
under the provisions hereof, the Party against whom the obligation to pay the money is asserted
shall have the right to make payment “under protest”
and such payment shall not be regarded as a voluntary payment and there shall survive the right on
the part of said Party to institute suit for recovery of
such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to
pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally required to pay. A Party who
does not initiate suit for the recovery of sums paid
“under protest” within 6 months shall be deemed to
have waived its right to protest such payment.

43. Authority.; Multiple Parties; Execution.

          (a) If either Party hereto is a corporation, trust, limited liability company, partnership,
or similar entity, each individual executing this
Lease on behalf of such entity represents and warrants that he or she is duly authorized to
execute and deliver this Lease on its behalf. Each Party
shall, within 30 days after request, deliver to the other Party satisfactory evidence of such
authority.

          (b) If this Lease is executed by more than one person or entity as “Lessee”, each such person
or entity shall be jointly and severally
liable hereunder. It is agreed that any one of the named Lessees shall be empowered to
execute any amendment to this Lease, or other document
ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all
of the named Lessees had executed such document.

          (c) This Lease may be executed by the Parties in counterparts, each of which shall be deemed
an original and all of which together
shall constitute one and the same instrument.

44. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or
handwritten provisions shall be controlled by the
typewritten or handwritten provisions.

45. Offer. Preparation of this Lease by either party or their agent and submission of same to the
other Party shall not be deemed an offer to

			
	 	 	 
	                    
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lease to the other Party. This Lease is not intended to be binding until executed and delivered
by all Parties hereto.

46. Amendments. This Lease may be modified only in writing, signed by the Parties in interest
at the time of the modification. As long as they
do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be
reasonably required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.

47. Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY
IN ANY ACTION OR
PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT .

48. Mediation and Arbitration of Disputes. An Addendum requiring the Mediation and/or the
Arbitration of all disputes between the Parties
and/or Brokers arising out of this Lease o is o is not attached to this Lease.

49.
Americans with Disabilities Act. Since compliance with the Americans with Disabilities Act
(ADA) is dependent upon Lessee’s specific use
of the Premises, Lessor makes no warranty or representation as to whether or not the Premises
comply with ADA or any similar legislation. In the
event that Lessee’s use of the Premises requires modifications or additions to the Premises in
order to be in ADA compliance, Lessee agrees to make
any such necessary modifications and/or additions at Lessee’s expense.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION
CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT
THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS
LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE
WITH RESPECT TO THE PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE
ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF
THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID
INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS
SUBSTANCES, THE ZONING OF
THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS,
COMPLIANCE WITH THE
AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF
THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES
ARE LOCATED.

The parties hereto have executed this Lease at the place and on the dates specified above their
respective signatures.

	 	 	 	 	 	 	 	 	 	 	 	 
	Executed at:	 	 	 	Executed:	 	 
	On:

	 	 	 	 	 	On:	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By LESSOR:	 	 	 	By LESSEE:
	Lionshead Investments, LLC	 	Xenonics Holdings, Inc.
	A California Limited Liability Company	 	A Nevada Corporation
	 
	 	 	 	 	 	 	 	 	 	 
	By:	 	 	 	 	 	By:	 	/s/ Chuck Hunter
	 	 	 	 	 	 	 
	 

	 	Name Printed:
	 	Russell Wallis
	 	 	 	Name Printed:
	 	Chuck Hunter
	 

	 	Title:	 	Manager
	 	 	 	Title:
	 	CEO
	 
	 	 	 	 	 	 	 	 	 	 
	By:	 	 	 	 	 	By:	 	/s/ Richard Kay
	 	 	 	 	 	 	 
	 

	 	Name Printed:
	 	Don Eklund
	 	 	 	Name Printed:
	 	Richard Kay
	 

	 	Title:
	 	Manager
	 	 	 	Title:
	 	CFO
	 

	 	Address:
	 	3874 Catamarca Drive
	 	 	 	Address:
	 	2236 Rutherford Rd., Suite 123
	 

	 	 	 	San Diego, CA 92124
	 	 	 	 	 	Carlsbad, CA 92008
	 
	 

	 	Telephone:
	 	(858) 277-1232
	 	 	 	Telephone:
	 	(760) 448-9700
	 

	 	Facsimile:
	 	(858) 951-0205
	 	 	 	Facsimile:
	 	(760) 929-7570
	 

	 	Federal ID No.
	 	 	 	 	 	Federal ID No.	 	 
	 

	 	 	 	 
	 	 	 	 	 	 

			
	 	 	 
	                    
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PAGE 23 OF 24

 

	 	 	 	 	 	 	 	 	 	 	 
	BROKER:

	 	 	 	 	 	BROKER:	 	 	 	 
	Colliers International	 	 	 	CBRE Commercial	 	 
	Att:

	 	Chuck McNary & Erik McNary
	 	 	 	Att:
	 	Tina Fodor	 	 
	Title:

	 	Senior Vice President/Associate
	 	 	 	Title:
	 	Associate	 	 
	Address:

	 	5930 Priestly Drive
	 	 	 	Address:
	 	5780 Fleet Street, Suite 300	 	 
	 

	 	Carlsbad, CA 92008
	 	 	 	 	 	Carlsbad, CA 92008	 	 
	Telephone:

	 	(760) 930-7904
	 	 	 	Telephone:
	 	(760) 438-8500	 	 
	Facsimile:

	 	(760) 438-8925
	 	 	 	Facsimile:
	 	(760) 438-8592	 	 
	Federal ID No.

	 	 	 	 	 	Federal ID No.	 	 	 	 
	 

	 	 

	 	 	 	 	 	 

	 	 

NOTICE: These forms are often modified to meet changing requirements of law and industry needs.
Always write or call to make sure you are utilizing the most current form: AIR Commercial Real
Estate Association, 800 W 6th Street, Suite 800, Los Angeles, CA 90017. Telephone No. (213)
687-8777. Fax No.: (213) 687-8616.

(c)Copyright 1998 By AIR Commercial Real Estate Association.

All rights reserved.

No part of these works may be reproduced in any form without
permission in writing.

			
	 	 	 
	                    
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PAGE 24 OF 24

 

RENT ADJUSTMENT (S)

STANDARD LEASE ADDENDUM

	 	 	 	 	 
	 

	 	Dated
	 	October 27, 2008
	 
	 	 	 	 
	 

	 	By and Between (Lessor)
	 	Lionshead Investments, LLC a California limited liability company
	 
	 	 	 	 
	 

	 	(Lessee)          
	 	Xenonics Holdings, Inc., a Nevada corporation
	 
	 	 	 	 
	 

	 	Address of Premises:
	 	3186 Lionshead Avenue,
Suite 100 Carlsbad, CA 92101

Paragraph 50

A. RENT ADJUSTMENTS :

     The monthly rent for each month of the adjustment period(s) specified below shall be
increased using the method(s) indicated below:

(Check Method(s) to be Used and Fill in Appropriately)

o      I. Cost of Living Adjustment(s) (COLA)

     a. On (Fill in COLA Dates):                                                                 
                                                                                  

      

 

the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the
Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select
one): o CPI W (Urban Wage Earners and Clerical Workers) or o CPI U (All Urban Consumers). for (Fill
in Urban Area):

      

 

                                                
                                    
                                                                              
                     .
All Items

(1982 1984 = 100), herein referred to as “CPI”.

     b. The monthly rent payable in accordance with paragraph A.I.a . of this
Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5
of the attached Lease, shall be multiplied by a fraction the numerator of which
shall be the CPI of the calendar month 2 months prior to the month(s) specified in
paragraph A.I.a. above during which the adjustment is to take effect, and the
denominator of which shall be the CPI of the calendar month which is 2 months prior
to (select one): the o first month of the term of this Lease as set forth in
paragraph 1.3 (“Base Month”) or o (Fill in Other “Base
Month”):                                                                               
                             
           . The sum so calculated shall constitute the new
monthly rent hereunder, but in no event, shall any such new monthly rent be less
than the rent payable for the month immediately preceding the rent adjustment.

     c. In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the CPI shall be used to make
such calculation. In the event that the Parties cannot agree on such alternative
index, then the matter shall be submitted for decision to the American Arbitration
Association in accordance with the then rules of
said Association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitration shall be paid equally by the Parties.

			
	 	 	 
	                    
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PAGE 1 OF 2

 

o      II. Market Rental Value Adjustment(s) (MRV)

     a. On (Fill in MRV Adjustment Date)(s):                                                         
             
             
    
             
             
                    

      

 

the Base Rent shall be adjusted to the “Market Rental Value” of the property as follows:-

          (1)
Four months prior to each Market Rental Value Adjustment Date
described above, the
Parties shall attempt to agree upon what the new MRV will be on the adjustment date. If agreement
cannot be reached within thirty days, then:

               (a) Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or broker
to establish the new MRV within the next 30 days. Any associated costs will be split
equally between the Parties, or

               (b) Both Lessor and Lessee shall each immediately make a reasonable determination of the
MRV and submit such determination, in writing, to arbitration in accordance with the
following provisions:

                    (i)
Within 15 days thereafter, Lessor and Lessee shall each select
an o appraiser or
o broker
(“Consultant” check one) of their choice to act as an arbitrator. The two arbitrators so
appointed shall immediately select a third mutually acceptable Consultant to act as a third
arbitrator.

                    (ii) The 3 arbitrators shall within 30 days of the appointment of the third arbitrator reach a
decision as to what the actual MRV for the Promises is, and whether Lessor’s or Lessee’s submitted
MRV is the closest thereto. The decision of a majority of the arbitrators shall be binding on the
Parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter
be used by the Parties.

                    (iii) if either of the Parties fails to appoint an arbitrator within the specified 15 days, the
arbitrator timely appointed by one of them shall reach a decision on his or her own, and said
decision shall be binding on the Parties.

                    (iv) The entire cost of such arbitration shall be paid by the party whose submitted MRV is not
selected, i.e., the one that is NOT the closest to the actual MRV.

          2) Notwithstanding the foregoing, the new MRV shall not be less than the rent payable
for the month immediately preceding the rent adjustment.

     b. Upon the establishment of each New Market Rental Value:

          (1) the new MRV will become the new “Base Rent” for the purpose of calculating any
further Adjustments, and -

          (2) the first month of each Market Rental Value term shall become the new ‘Base Month’
for the purpose of calculating any further Adjustments.

þ      III. Fixed Rental Adjustment(s) (FRA)

The Base Rent shall be increased to the following amounts on the dates set forth below:

	 	 	 	 	 
	On (Fill in FRA Adjustment Date(s)):	 	The New Base Rent shall be:
	1st anvsy of Commencement Date

	 	$	17,385.00	 
	2nd “ ”

	 	$	17,993.00	 
	3rd “ ”

	 	$	18,623.00	 
	4th “ ”

	 	$	19,275.00	 
	5th “ ”

	 	$	19,950.00	 

B. NOTICE:

     Unless specified otherwise herein, notice of any such adjustments, other than Fixed
Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.

C. BROKER’S FEE:

     The Brokers shall be paid a Brokerage Fee for each adjustment specified above in
accordance with paragraph 15 of the Lease.

NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most current
form: AIR Commercial Real Estate Association, 800 W 6th Street, Suite 800,
Los Angeles, CA 90017.

Telephone No. (213) 687-8777. Fax No.: (213) 687-8616.

			
	 	 	 
	                    
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PAGE 2 OF 2

 

ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL

MULT-TENANT LEASE-GROSS

THIS ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-GROSS (“Addendum”) is made and
entered into by and between Lionshead Investments, LLC, a California limited liability company
(“Lessor”), and Xenonics Holdings, Inc., a Nevada corporation (“Lessee”), as of the date set forth
in the first page of that certain Standard Industrial/Commercial Multi-Tenant Lease-Gross (the
“Lease”) between Lessor and Lessee to which this Addendum is attached and incorporated. The terms,
covenants and conditions set forth herein are intended to and shall have the same force and effect
as if set forth at length in the body of the Lease. To the extent that the provisions of this
Addendum are inconsistent with any provisions of the Lease, the provisions of this Addendum shall
supersede and control.

51. Base Rent Abatement. As long as Lessee is not in Default beyond any applicable notice
and cure period, Lessee shall receive two (2) months Base Rent Abatement. Base Rent Abatement
shall occur the second and third months following the Commencement Date. Lessee shall pay the
Common Area Operating Expenses during the Base Rent Abatement period. The Base Rent Abatement
shall be conditioned upon (a) Lessee not being evicted from the Premises as a result of a Breach
of the Lease and (b) Lessee not abandoning the Lease prior to the expiration of the Original Term
or Option Term (if the Option to Extend is exercised). In the event Lessee shall be evicted as a
result of Lessee’s Breach of the Lease, and as a result of an eviction for such Breach, or as a
result of Lessee’s abandonment of the Premises, Lessee shall no longer be in possession of the
Premises prior to the expiration of the Original Term or Option Term (if the Option to Extend is
exercised), this Paragraph 51 shall be automatically be deemed deleted from this Lease and of no
further force and effect, and the Base Rent Abatement shall be immediately due and payable to
Lessor by Lessee.

[Illegible]

[Illegible]

 

 

OPTION(S) TO EXTEND

STANDARD LEASE ADDENDUM

	 	 	 	 	 
	 

	 	Dated
	 	October 27, 2008
	 
	 	 	 	 
	 

	 	By and Between (Lessor)
	 	Lionshead Investments, LLC a California limited liability company
	 

	 	By and Between (Lessee)
	 	Xenonics Holdings, Inc., a Nevada corporation
	 
	 	 	 	 
	 

	 	Address of Premises:
	 	3186 Lionshead Avenue,
Suite 100 Carlsbad, CA 92101

Paragraph 52

A. OPTION(S) TO EXTEND:

Lessor
hereby grants to Lessee the option to extend the term of this Lease for one (1) additional
sixty (60) month period(s) commencing when the prior term expires upon each and all of the
following terms and conditions:

          (i) In order to exercise an option to extend, Lessee must give written notice of such election
to Lessor and Lessor must receive the same at least 6 but not more than 12 months prior to the date
that the option period would commence, time being of the essence. If proper notification of the
exercise of an option is not given and/or received, such option shall automatically expire. Options
(if there are more than one) may only be exercised consecutively.

          (ii) The provisions of paragraph 39, including those relating to Lessee’s Default set forth in
paragraph 39.4 of this Lease, are conditions of this Option.

          (iii) Except for the provisions of this Lease granting an option or options to extend the
term, all of the terms and conditions of this Lease except where specifically modified by this
option shall apply.

          (iv) This
Option is personal to the original Lessee, and cannot be assigned or exercised by
anyone other than said original Lessee and only while the original Lessee is in full possession of
the Premises and without the intention of thereafter assigning or subletting.

          (v) The monthly rent for each month of the option period shall be calculated as follows, using
the method(s) indicated below: (Check Method(s) to be Used and Fill in Appropriately)

o
I. Cost of Living Adjustment(s) (COLA)

     a.
On (Fill in COLA Dates):
                                                                          
            
                                            
  

                      
                      
                      
                       
                      
                      
                      
                      
                                     
       
the Base Rent shall be adjusted by the change, if any,
from the Base Month specified below, in the Consumer Price Index of
the Bureau of Labor Statistics
of the U.S. Department of Labor for (select one): o CPI W (Urban Wage Earners and Clerical Workers)
or o CPI U (All Urban Consumers), for (Fill in Urban Area):

 

 

All
Items (1982 1984 - 100), herein referred to as “CPI”.

     b. The monthly rent payable in accordance with paragraph A.I.a. of this Addendum shall be
calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be
multiplied by a fraction the numerator of which shall be the CPI of the calendar month 2 months
prior to the month(s) specified in paragraph A.I.a. above during which the adjustment is to take
effect, and the denominator of which shall be the CPI of the

			
	 	 	 
	                    
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calendar month which is 2 months prior to (select one): o the first month of the term of this
Lease as set forth in paragraph 1.3 (“Base Month”) or o (Fill in Other “Base Month”):

      

 

The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall any
such new monthly rent be less than the rent payable for the month immediately proceding the rent
adjustment.

     c. In the event the compilation and/or publication of the CPI shall be transferred to any other
governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the CPI shall be used to make such
calculation. In the event that the Parties cannot agree on such alternative index, then the
matter shall be submitted for decision to the American Arbitration Association in accordance with
the then rules of said Association and the decision of the arbitrators shall be binding upon the
parties. The cost of said-Arbitration shall be paid equally by the Parties.

þ II. Market Rental Value Adjustment(s) (MRV)

     a. On (Fill in MRV Adjustment Date(s)) the first day of the Option period
the Base Rent shall be adjusted to the “Market Rental Value” of the property as follows:

     1) Four months prior to each Market Rental Value Adjustment Date described above, the Parties
shall attempt to agree upon what the new MRV will be on the adjustment date. If agreement cannot be
reached, within thirty days, then;

          (a) Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or broker to
establish the new MRV within the next 30 days. Any associated costs will be split equally between
the Parties, or

          (b) Both Lessor and Lessee shall each immediately make a reasonable determination of the MRV
and submit such determination, in writing, to arbitration in accordance with the following
provisions:

               (i) Within
15 days thereafter, Lessor and Lessee shall each select an
þ appraiser or �
broker (“Consultant” — check one) of their choice to act as an arbitrator. The two arbitrators so
appointed shall immediately select a third mutually acceptable Consultant to act as a third
arbitrator.

               (ii) The 3 arbitrators shall within 30 days of the appointment of the third arbitrator reach
a decision as to what the actual MRV for the Premises is, and whether Lessor’s or Lessee’s
submitted MRV is the closest thereto. The decision of a majority of the arbitrators shall be
binding on the Parties. The submitted MRV which is determined to be the closest to the actual MRV
shall thereafter be used by the Parties.

               (iii) If either of the Parties fails to appoint an arbitrator within the specified 15 days,
the arbitrator timely appointed by one of them shall reach a decision on his or her own, and said
decision shall be binding on the Parties.

               (iv) The entire cost of such arbitration shall be paid by the party whose submitted MRV is
not selected, ie. the one that is NOT the closest to the actual MRV.

     2) Notwithstanding the foregoing, the new MRV shall not be less than the rent payable for the
month immediately preceding the rent
adjustment.

     b. On the anniversary date of the MRV Adjustment Date of each succeeding year of the extended
term of the Lease, the Base Rent shall be
increased by 3.5%. Upon the establishment of each New Market
Rental Value:

          1) the new MRV will become the-new “Base Rent” for the purpose of calculating any further
Adjustments, and

          2) the first-month of each Market Rental Value term shall become the new “Base Month” for the
purpose of calculating any further
Adjustments.

o III. Fixed Rental Adjustment(s) (FRA)

The Base Rent shall be increased to the following amounts on the dates set forth below:

	 	 	 
	On (Fill in FRA Adjustment Date(s)):

	 	The New Base Rent shall be:
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 

B. NOTICE:

          Unless specified otherwise herein, notice of any rental adjustments, other than Fixed Rental
Adjustments, shall be made as specified in paragraph 23 of the Lease.

			
	 	 	 
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3

 

     C. BROKER’S FEE:

     The
Brokers shall be paid a Brokerage Fee for each adjustment specified above in accordance with
paragraph 15 of the Lease.

NOTICE: These forms are often modified to meet changing requirements of law and industry needs.
Always write or call to make sure you are utilizing the most current form: AIR Commercial Real
Estate Association, 800 W 6th Street, Suite 800, Los Angeles, CA 90017. Telephone No. (213)
687-8777. Fax No.: (213) 687-8616.

			
	 	 	 
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	INITIALS
	 	INITIALS
	 	 	 
	©2000 — AIR COMMERCIAL REAL ESTATE ASSOCIATION
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PAGE 3 OF 3

 

3186 LIONSHEAD, SUITE 100, CARLSBAD, CA

			
	 	 	 
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	Initials
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Exhibit A

 

EXHIBIT B

Lessor shall at Lessor’s sole cost and expense, demise the Premises and construct the Lessee
Improvements outlined below and as directed on the floor plan. Upon completion of the Lessee
Improvement plan the Lessee shall approve the plan within fourteen (14) days with a corresponding
extension of time to deliver occupancy on a day-for day basis each day after 7 days.

Lessor shall pay for the cost of any owners’ association design review fees, required space plans
and final construction plans for the Premises. Lessor’s construction of the Lessee Improvements
shall be in compliance with all applicable laws and requirements, including without limitation the
CC&Rs, and shall be performed with qualified, experienced, and if required, licensed contractors.
All work shall be performed with new materials and first class workmanship and in accordance with
the plans agreed to by the parties. Lessor shall obtain and pay for all necessary permits and
inspections.

Lessor shall obtain from its contractors commercially reasonable warranties for the labor and
material used in the Lessee Improvements, and shall, upon request of Lessee, enforce such
warranties for the benefit of Lessee.

Office Area (approximately 8,000 sf)

	 	•	 	All walls per plan shall be insulated with R-11 and finished with level 3 textured
finish. Lessee may select paint colors, one base color and one accent color.
	 
	 	•	 	Existing exterior concrete walls in office area to be furred where necessary and drywalled. Finish shall be same as all other office area walls.
	 
	 	•	 	The 4 restrooms per plan shall be finished with Kohler fixtures, sheet vinyl flooring
and FRP wainscot. Insta-Hot electric hot water heater shall be provided.
	 
	 	•	 	All office area shall be 9 foot dropped ceiling with 2 x 4 Second Look white tiles
with 2 x 4 lights with prismatic lenses.
	 
	 	•	 	Doors to be clear finish birch in metal frames as shown on the plan. Door hardware
shall be lever type Falcon or equal.
	 
	 	•	 	Windows (sidelights) will be installed in six locations.
	 
	 	•	 	Cabinets in Break Rooms (8’) and Coffee Bar (4’) shall be plastic laminate with
stainless steel sink. Lessee may select color/finish from standard Formica colors.
	 
	 	•	 	Lessee shall select new flooring and base. All flooring shall be glue down commercial
grade carpet with top set vinyl base. Lessor will pay the cost of the standard flooring as
indicated on the sample board at the property, Lessee to pay for upgrades, if any.
	 
	 	•	 	Fire Protection per code.
	 
	 	•	 	Lessor shall design and install a new air conditioning system using multiple split
system units. Design shall be based on standard office loads.
	 
	 	•	 	Interior of all exterior windows shall be washed and cleaned.

Production Area (approximately 2,000 sf)

	 	•	 	All walls per plan shall be insulated with R-11 and finished with level 3 textured
finish. Lessee may select paint color.
	 
	 	•	 	All production area shall be 10 foot dropped ceiling with 2 x 4 Second Look white tiles
with 2 x 4 lights with prismatic lenses.
	 
	 	•	 	Double doors to Warehouse to be paint grade hardboard doors in metal frames as shown
on the plan. Door hardware shall be lever type Falcon or equal.

[Illegible]

[Illegible]

 

 

	 	•	 	All flooring shall be glue down VCT tiles with top set vinyl base. Lessee shall select
color.
	 
	 	•	 	Fire Protection per code for light manufacturing.
	 
	 	•	 	Lessor shall design and install a new air conditioning system using multiple split
system units. Design shall be based on standard office loads.
	 
	 	•	 	Lessor will provide ten (10) 110 volt 20 amp dedicated circuits for production tools.

Warehouse Area (approximately 3,500 sf)

	 	•	 	Demising Partition shall be fired taped and painted to match concrete walls.
	 
	 	•	 	All concrete walls shall be painted
	 
	 	•	 	Lighting in the hi-bay shall be 400 watt MH with prismatic lenses.
	 
	 	•	 	Existing exterior & roll-up doors shall remain unchanged.
	 
	 	•	 	Concrete floor shall as-is.

Additional Allowance: Landlord shall provide an additional allowance of up to $20,000.00 for:

	 	•	 	Data/Telco Wiring — Lessee shall be responsible for the design and construction.
	 
	 	•	 	Compressed Air Piping — Lessee shall be responsible for the design and Lessor shall
construct the improvements.
	 
	 	•	 	Monument Sign — Lessor shall construct the monument sign in accordance with the
project CC&R’s and City Code.
	 
	 	•	 	The Lessee is solely responsible for delegating the funds and there will be no other
funds available to Lessee if they exceed the $20,000.00 allowance.

The following work shall be paid for by the Tenant.

	 	•	 	Appliances at Break Room and Coffee Bar
	 
	 	•	 	Tenant shall be responsible for any and all signage in accordance with local codes
and the CCRs.
	 
	 	•	 	Tenant shall be responsible for all phone, data and security systems if any.
	 
	 	•	 	Air compressor
	 
	 	•	 	Window Coverings

[Illegible]

[Illegible]

 

 

	 	 	 	

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[Illegible]

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