-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K5T9Z6Dvqp1rNppmkSDPW/dh774N39IJH8S+wKe+Ufoo3wuIh8plAgV9U9wJgkjI MB2qYiSmN1a6RqZ49qzokg== 0000950149-95-000673.txt : 19951027 0000950149-95-000673.hdr.sgml : 19951027 ACCESSION NUMBER: 0000950149-95-000673 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19951026 FILED AS OF DATE: 19951026 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CISCO SYSTEMS INC CENTRAL INDEX KEY: 0000858877 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 770059951 STATE OF INCORPORATION: CA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18225 FILM NUMBER: 95584449 BUSINESS ADDRESS: STREET 1: 170 W TASMAN DR CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4085264000 MAIL ADDRESS: STREET 1: 170 WEST TASMAN DRIVE CITY: SAN JOSE STATE: CA ZIP: 95134-1706 10-K 1 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark one) /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended July 30,1995 / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 0-18225 CISCO SYSTEMS, INC. (Exact name of registrant as specified in its charter) California 77-0059951 - ---------------------------------------- -------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 170 West Tasman Drive San Jose, California 95134 - ---------------------------------------- --------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (408) 526-4000 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- ---------------------- None Nasdaq National Market
Securities registered pursuant to Section 12(g) of the Act: Common Stock - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / As of October 2, 1995, the approximate aggregate market value of voting stock held by non-affiliates of the registrant was $16,746,720,000 (based upon the closing price for shares of the Registrant's Common Stock as reported by the National Market System of the National Association of Securities Dealers Automated Quotation System on that date). Shares of Common Stock held by each officer, director, and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of October 2, 1995, 273,931,124 shares of registrant's common stock were outstanding. Designated portions of the Cisco Systems, Inc. Proxy Statement for the 1995 Annual Meeting of Shareholders to be held on November 14, 1995, are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. 2 PART I ITEM 1. BUSINESS GENERAL Cisco Systems, Inc. develops, manufactures, markets and supports high-performance, multiprotocol internetworking systems that link geographically dispersed local-area and wide-area networks (LANs and WANs) to form a single, seamless information infrastructure. Cisco products include a wide range of routers, LAN and Asynchronous Transfer Mode (ATM) switches, dial-up access servers, and network management software solutions. The common thread running through these products is the Cisco Internetwork Operating System (Cisco IOS(TM)) software, which today provides the native intelligence for more than 450,000 installed Cisco units and is an integral part of the products of more than two dozen global partners. When Cisco shipped its first commercial multiprotocol router in 1986, it created a new part of the information technology industry - internetworking. Since then the market has changed greatly, and Cisco has kept pace with that change. In addition to enhancing its core business of routers, the Company has developed or acquired technology and products in all major categories of internetworking, including LAN switching, ATM, and network access for remote offices and mobile workers, incorporating the Cisco IOS software across all product lines. These changes have allowed Cisco to continue to grow at or above the rate of the overall market and to maintain leading market share in all the segments in which it participates. The Cisco IOS software is a sophisticated suite of networking capabilities that provides network connectivity, security and interoperability for all of today's standard data protocols, media access methods and products from leading Information Service vendors. This software resides at the heart of Cisco's internetworking products and within the hardware of more than two dozen vendor partners including Alcatel, Cabletron Systems, Compaq Computers, LanOptics, NEC, Northern Telecom and Sun Microsystems. Cisco's modular hardware and software architecture allows products to be configured in a wide variety of ways to suit customers' specific needs. The Company expanded the Cisco IOS feature set by moving aggressively into new markets and technologies. These include a range of remote access products, as well as switching products. In 1994 the Company introduced the CiscoFusion(TM) architecture, which blends the capabilities of today's routed internetworks with the emerging technologies of ATM, LAN workgroup switches and virtual LANs. Cisco sells its products in approximately 75 countries through a combination of direct sales, distributors, and direct and indirect resellers. Cisco's worldwide Original Equipment Manufacturer (OEM) customers and resellers include Alcatel, AT&T, British Telecom, Cabletron Systems, Digital Equipment Corporation, Ericsson, Hewlett-Packard, MCI, NEC Corporation, Olivetti, Siemens, Sprint, Unisys and US West. Cisco has established technology partnerships with a number of companies to address specialized segments of the internetworking marketplace, and has partnered with leading WAN technology and service providers to offer flexible options to customers. The Company offers customer service and support through Technical Assistance Centers in California, North Carolina, Australia and Belgium, and provides onsite hardware maintenance on a worldwide basis through IBM, AT&T, and Hewlett-Packard. 2 3 Beginning in fiscal year 1994, Cisco began entering new markets and broadening its product offerings through a series of acquisitions. The following acquisitions have been, or soon will be, integrated into the ATM, Access, or Workgroup business units, which are more fully described later in the "Products" section of this report. In September 1993, the Company acquired Crescendo Communications, Inc. ("Crescendo"), a privately held networking company that provides high-performance workgroup solutions. The Company issued approximately 3,400,000 shares of common stock for all the outstanding stock of Crescendo in a transaction accounted for as a pooling of interests. The Company also assumed options and warrants to purchase Crescendo stock of which the options remain outstanding to purchase approximately 280,000 shares of the Company's common stock. In August 1994, the Company purchased Newport Systems Solutions(TM), Inc. ("Newport"), a privately held networking company providing software-based routers for remote network sites. The Company issued approximately 3,300,000 shares of common stock for all the outstanding stock of Newport in a transaction also accounted for as a pooling of interests. In addition, the Company assumed options to purchase Newport stock that remain outstanding as options to purchase approximately 190,000 shares of the Company's common stock. In December 1994, the Company acquired Kalpana(R), Inc. ("Kalpana"), a privately held manufacturer of Ethernet switches. Under the terms of the agreement, the Company issued approximately 6,800,000 shares of common stock for all the outstanding stock of Kalpana in a transaction also accounted for as a pooling of interests. In connection with this transaction, the Company assumed options to purchase Kalpana stock that remain outstanding as options to purchase approximately 500,000 shares of the Company's common stock. In January 1995, the Company acquired substantially all of the assets and assumed the liabilities of LightStream(R) Corporation ("LightStream") for $120,000,000 in cash and related acquisition costs of approximately $500,000. LightStream was a developer of enterprise-class ATM switching technology. This acquisition was accounted for as a purchase. In September 1995, the Company acquired Combinet Inc. ("Combinet"), a privately held manufacturer of remote access networking products. The Company issued approximately 1,750,000 shares of common stock for all the outstanding stock of Combinet in a transaction also accounted for as a pooling of interests. In addition, the Company assumed options and warrants to purchase Combinet stock that remain outstanding as options to purchase approximately 250,000 shares of the Company's common stock. Additionally, in September 1995, the Company acquired Internet Junction, Inc., a developer of Internet gateway software that connects desktop users with the Internet. The Company issued 81,000 shares of stock for the net assets of Internet Junction in a transaction accounted for as a purchase. On September 27, 1995, the Company entered into an agreement to acquire Grand Junction Networks, Inc., a privately held manufacturer and the inventor of Fast Ethernet (100BaseT) and Ethernet desktop switching products. The agreement calls for the Company to issue approximately 5,000,000 shares to acquire all the equity of Grand Junction, including outstanding options and warrants. The transaction is subject to several closing conditions and, if consummated, will be accounted for as a pooling of interests. 3 4 The Company expects to make future acquisitions where it believes that it can acquire new products and channels of distribution or otherwise rapidly enter new or emerging markets. Mergers and acquisitions of high-technology companies are inherently risky, and no assurance can be given that the foregoing or any future acquisitions will be successful and will not adversely affect the Company's financial condition or results of operations. Cisco was incorporated in California in December 1984. The Company's executive offices are located at 170 West Tasman Drive, San Jose, California 95134, and its telephone number at that location is (408)526-4000. As used in this Form 10-K, the terms "Cisco" and "the Company" refer to Cisco Systems, Inc., and its subsidiaries. PRODUCTS Cisco's breadth of product offerings and modular system design enable the Company to configure media interfaces, protocol software and port capacity to match customer needs for networks of varying sizes and complexity. Many of the Company's products, particularly its core products, are expandable, offering customers the option to upgrade their internetworks with existing equipment as their needs grow. In May 1995, Cisco created five internal business units that reflect the Company's major product groups. Each of the five business units - Core, ATM Enterprise, Access, Workgroup and InterWorks - has its own marketing and engineering staffs. The Cisco IOS software and network management products support all five business units, serving as the foundation upon which Cisco's internetworking solutions are built. CORE Cisco's core routing strength is provided by the Cisco 7000 family, which includes the high-end Cisco 7500 series, the Cisco 7000 and the compact Cisco 7010. The Cisco 7000 family offers users connectivity to ATM networks, channelized T1/E1 connections, mainframe attachment, and a unique packet-switching architecture that easily handles the demands of large internetworks running many diverse protocols and applications. With the March 1995 introduction of a new Fast Ethernet Interface Processor (FEIP), the Cisco 7000 became the industry's only router family to support all three of the key high-bandwidth networking technologies on the market. The Cisco 7000 series has supported 100-Mbps Fiber Distributed Data Interface (FDDI) since early 1993 and 155-Mbps ATM since June 1994. ATM ATM has gained wide acceptance by customers as the strategic technology of choice for long-term networking decisions. Cisco Systems is the first internetworking vendor to offer a complete, end-to-end ATM solution, including enterprise ATM switches, workgroup/campus ATM switches, ATM interface cards for internetwork routers and LAN switches, and ATM adapters for desktop systems and servers. The LightStream 2020 enterprise ATM multiservice switch provides LAN and WAN internetworking for campus environments or global networks. The LightStream 100 workgroup/campus ATM switch supports up to 16 155-Mbps ATM interfaces. ACCESS Cisco's access routers are designed to improve productivity by extending the enterprise network beyond the boundaries of corporate headquarters to regional sales groups, small satellite offices and individual telecommuters. 4 5 The Cisco 4000 series delivers a high-performance, modular solution that can expand to meet the needs of large offices and regional sites. The Cisco 2500 series is available in 13 models customized for the needs of small branch offices. The Cisco 1000 series provides low-cost remote LAN attachment to corporate networks or Internet services for small offices and home offices. The AS5100 dial-up access server enables the large-scale deployment of telecommuting over standard telephone lines, integrating routing and modem-based technologies. All Cisco access products can be centrally configured and managed from headquarters, reducing the need for internetworking expertise in the field. WORKGROUP Cisco's LAN switching products include the Catalyst(TM) and Kalpana families. Cisco's Catalyst family of LAN switches link network resources with maximum modularity, performance and flexibility in LAN switching, and include embedded Cisco IOS functionality to meet future needs as switched internetworks evolve. The newest member of the Catalyst family, the Catalyst 5000, delivers dedicated bandwidth to users through multiple-media switching options such as 10-Mbps Ethernet, 100-Mbps Ethernet, and ATM with future capability for switched FDDI and switched Token Ring. The Kalpana EtherSwitch family is a high-performance stackable switching platform. The Kalpana ProStack, also announced this year, consists of the EtherSwitch Pro16 and ProStack Matrix, and allows users to expand network capacity as bandwidth demands dictate. High-speed connectivity to routers or other switches is achieved with Fast Ethernet and ATM modules. Switch management is achieved through the CiscoWorks(TM) software, a comprehensive suite of network management applications. INTERWORKS A major area of market opportunity is the integration of legacy networks built around large-scale IBM computers and their networking framework called Systems Network Architecture (SNA). To address this market, Cisco has a separate business unit, InterWorks, which focuses on integrating the large number of SNA-based computing environments with newer multiprotocol networks. Cisco has a comprehensive suite of capabilities for this market, including TCP/IP encapsulation of SNA data; integrated Synchronous Data Link Control (SDLC) support; mixed-media bridging, translation and conversion; enhanced data link switching; Frame Relay connectivity; Token Ring router interfaces and switching; Advanced Peer-to-Peer Networking (APPN); and direct channel attachment of Cisco 7000 routers to IBM mainframes. The CiscoWorks Blue network management support enables operators visibility into and control over Cisco routers from either IBM NetView operator consoles or Simple Network Management Protocol (SNMP) network management stations. NETWORK MANAGEMENT The CiscoWorks software is a suite of standards-based applications that allow users to manage their Cisco devices from a single integrated console. CiscoWorks software provides applications for internetworking products in three major areas: monitoring and diagnostics; troubleshooting and administration tasks; and a management series for implementation and change to administration tasks and planning and optimization for offline analysis of network traffic patterns and trends. CiscoWorks supports the HP OpenView, NetView AIX, SunNet Manager and Microsoft Windows platforms. 5 6 CUSTOMERS AND MARKETS Cisco's customers include corporations of all sizes, utilities, educational and research institutions, and government agencies. Internetworking needs are influenced most strongly by the size and complexity of a customer's information systems, and therefore Cisco's business is not concentrated in any particular industry. An important trend influencing demand for the Company's products is the worldwide phenomenon of the Internet. The Internet is a network of networks, consisting of thousands of subnetworks and computer resources linked together. Cisco's high-performance routers are widely used in the "backbone" infrastructure of the Internet, and the Company believes that 80 percent or more of all routers on the Internet are its products. In addition, the demand by companies, institutions and individuals for access to the Internet is spurring demand for remote access, switching and routing products of all kinds. The Company also benefits from the Internet phenomenon through its alliance relationships with numerous Internet service providers. Another significant factor affecting internetworking is the global trend toward deregulated telecommunications and the resulting increase in use of higher-performance telecommunications services. Cisco has alliance relationships with a majority of the world's telecommunications carriers. Cisco is the first U.S.-based manufacturer to receive self-certification approval from the British Approvals Board for Telecommunications, which allows Cisco to more quickly bring products to the European Union. The Company markets its internetworking products in the United States primarily through its direct sales force and resellers, and internationally, through distributors, Value-Added Resellers ("VARs"), OEMs, resellers, and its direct sales force in subsidiary companies. In addition, the Company sells to system integrators, both domestic and international, who resell the Company's internetworking products along with other computer and communications equipment. This multiple-channel approach allows customers to select the one that addresses their specific needs and provides the Company with broad coverage of worldwide markets. At September 25, 1994, the Company's worldwide direct sales organization consisted of 1375 individuals, including managers, sales representatives, and technical support personnel. The Company has approximately 69 field sales offices providing coverage in the following metropolitan areas: Atlanta, Boston, Chicago, Cincinnati, Cleveland, Dallas, Denver, Durham, Honolulu, Houston, Indianapolis, Los Angeles, Miami, New Orleans, New York, Orlando, Phoenix, Pittsburgh, Portland (Oregon), Princeton, Salt Lake City, San Antonio, San Diego, San Francisco, San Jose, Seattle, St. Louis, and Washington, D.C., among others. The Company's international sales are currently being made through multiple channels including approximately 75 international distributors and resellers in Africa, Asia, Australia, Canada, Europe, Latin America, Mexico and South America. The international distributors provide system installation, technical support, and follow-on service to local customers. Generally, the Company's international distributors have nonexclusive, country-wide agreements. International sales through the various channels, including the Company's subsidiaries, accounted for approximately 39.0% of total sales in fiscal 1993, 41.9% in fiscal 1994, and 42.4% in fiscal 1995. Sales to international customers and distributors generally have been made in United States dollars. 6 7 The Company has sales support subsidiaries worldwide. New subsidiaries formed in fiscal 1995 include Brazil, Korea, South Africa, Sweden, Switzerland, and Venezuela. No individual subsidiary has had direct sales that have been material to date. Patterns of both revenue growth and types of products sold are affected by various conditions in geographic regions. As a general rule, adoption of internetworking technology in Europe tends to be 1 to 2 years behind the United States, while Japan follows another 1 to 2 years later. Less-developed economies tend to lag even farther in technology adoption, although the Company has noted a recent tendency in some newly opened Eastern European economies to leapfrog intermediate technologies and purchase products with the most advanced technology. In November 1994, Cisco announced a joint venture with 13 leading Japanese technology companies to expand the internetworking market in Japan. BACKLOG The Company's backlog on September 24, 1995, was approximately $278,800,000 compared with an approximate backlog of $88,200,000 at September 25, 1994. The Company includes in its backlog only orders confirmed with a purchase order for products to be shipped within six months to customers with approved credit status. Because of the generally short cycle between order and shipment, and occasional customer changes in delivery schedules or cancellation of orders (which are made without significant penalty), the Company does not believe that its backlog as of any particular date is necessarily indicative of actual net sales for any future period. COMPETITION The networking market is characterized by rapid growth, technological change, and a convergence of technologies. These market factors represent both an opportunity and at the same time a competitive threat to Cisco. The Company faces competition from customers it licenses technology to and suppliers that it transfers technology from. The inherent nature of networking is such that Cisco must compete, and at the same time, co-operate with these companies. At a minimum these relationships exist to achieve interoperability. Optimally, these relationships are synergistic and mutually beneficial, resulting in growth for the industry. 3Com, Alantec, Ascend, Bay Networks, Cabletron, Fore, IBM, and Shiva exemplify companies that compete with Cisco. Some companies compete across all of Cisco's product lines, while others do not offer as wide a breadth of networking solutions. Cisco estimates that it competes with over 70 vendors in Access, over 40 vendors in Core, over 50 vendors in Workgroup, over 30 vendors in ATM, and over 40 vendors in InterWorks. Cisco expects that the overall number of vendors will grow in these markets because of its attractive growth opportunities. The Company also expects that overall increases to the number of competitors will be partially offset by mergers and acquisitions, as companies seek synergies and market presence. Over the past year, the networking industry has experienced some consolidation. This has primarily been achieved through mergers and acquisitions, and to a lesser extent, through joint technology agreements. Remaining competitors are broadening their product offerings and attempting to strengthen their positions in emerging and high-growth markets including remote access, high-speed switching, and ATM technologies. 7 8 The principal competitive factors in the market for internetworking products are performance, price, value-added features, reliability, conformance to industry standards, service, and market presence. The Company promotes its CiscoFusion architecture and Cisco IOS software as providing the premier internetworking solutions in the industry. These solutions offer many competitive advantages in the areas described above. Cisco believes that it will continue to provide solutions that offer competitive advantages and exceed end-users' buying criteria in the computer networking market. RESEARCH AND DEVELOPMENT The market for the Company's products is characterized by rapidly changing technology, evolving industry standards, and frequent new product introductions. Management believes that the Company's future success depends in large part upon its ability to continue to enhance its existing products and to develop new products that maintain technological competitiveness. The Company closely monitors, through electronic mail and onsite visits by engineering personnel, customers' needs for additional products, and works actively with innovators of internetworking products, including universities, laboratories, and corporations. The Company intends to remain dedicated to industry standards and to continue to support important protocol standards as they emerge. The Company is focusing development efforts around its five internal business units in the following areas: high-speed switching and ATM technologies, remote access and ISDN connectivity, improving overall system performance, expanding its network management capabilities, and IBM and WAN services connectivity. Cisco's development efforts continue to be guided by its CiscoFusion architecture announced in 1994, with the Cisco IOS software serving as the underlying common thread. There can be no assurance, however, that the Company's product development efforts will result in commercially successful products, or that the Company's products will not be rendered obsolete by changing technology or new product announcements by others. The Company has announced several new products, including a wide range of remote access products and a new line of high-end routers. Although the Company has announced its expected shipment dates for some of these products, schedules for high-technology products are inherently difficult to predict, and there can be no assurance that the Company will achieve its expected initial shipments dates of these or any other new or enhanced products developed by the Company. Because timely availability of new and enhanced products and their acceptance by customers are critical to the success of the Company, delays in availability of these products or lack of market acceptance of such products could have a material adverse effect on the Company. In fiscal 1995, 1994, and 1993, the Company's research and development expenditures were $164,819,000, $88,753,000, and $44,254,000, respectively. All of the Company's expenditures for research and development costs, including purchased research and development of $95,760,000 in fiscal 1995, have been expensed as incurred. MANUFACTURING The Company's manufacturing operations consist primarily of quality assurance of materials, components and subassemblies, final assembly, and test. The Company presently uses a variety of independent third-party contract assembly companies to perform printed circuit board assembly, in circuit test, and product repair. The Company installs its proprietary software on electronically programmable memory chips installed in its systems in order to configure products to customer needs and to maintain quality control and security. The manufacturing process enables the 8 9 Company to configure the hardware and software in unique combinations to meet a wide variety of individual customer requirements. The Company uses automated testing equipment and "burn-in" procedures, as well as comprehensive inspection, testing, and statistical process control to assure the quality and reliability of its products. The Company's manufacturing processes and procedures are ISO 9001 certified. To date, the Company has not experienced significant customer returns of its products. PATENTS, INTELLECTUAL PROPERTY AND LICENSING The Company generally relies upon patents, copyright, trademark, and trade secret laws to establish and maintain its proprietary rights in its technology and products. However, it may be technologically possible for competitors to reverse-engineer the Company's products. Because the internetworking industry is characterized by rapid technological change, the Company believes that its success is more dependent upon its expertise in internetworking than its proprietary rights. The Company has, from time to time, established strategic distribution and technology transfer relationships with other companies involved in the computer and communications industries. The Company intends to continue to explore strategic relationships and expects to enter into other such relationships in the future. The Company has a program to file applications for and obtain patents in the United States and in selected foreign countries where a potential market for the Company's products exists. The Company has been issued several patents; other patent applications are currently pending. There can be no assurance that any of these patents would be upheld as valid if litigated or that any patent applications will result in issued patents. While the Company believes that its patents and applications have value, it also believes that its competitive position depends primarily on the innovative skills, technological expertise and management abilities of its employees. Many of the Company's products are designed to include software or other intellectual property licensed from third parties. From time to time, the Company receives notices from third parties regarding patent claims. While it may be necessary in the future to seek or renew licenses relating to various aspects of its products, the Company believes that based upon past experience and standard industry practice, such licenses generally could be obtained on commercially reasonable terms. Because of the existence of a large number of patents in the networking field and the rapid rate of issuance of new patents, it is not economically practical to determine in advance whether a product or any of its components infringe patent rights of others. In the event of any infringement, the Company believes that based upon industry practice, any necessary license or rights under such patents may be obtained on terms that would not have a material adverse effect on the Company's financial condition or its results of operations. However, there can be no assurance in this regard. OTHER RISK FACTORS The Company's business and stock is subject to a number of risks. Some of those risks are described below. Other risks are presented elsewhere in this report. See, in particular, the last four paragraphs of "Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of 1994 and 1995." 9 10 Potential Fluctuations in Quarterly Results The Company's operating results may be subject to quarterly fluctuations as a result of a number of factors. These factors include the integration of people, operations, and products from acquired businesses and technologies; increased competition, which the company expects; the introductions and market acceptance of new products, including high-speed switching and ATM technologies; variations in sales channels, product costs, or mix of products sold; the timing of orders and manufacturing lead times; and changes in general economic conditions, any of which could have an adverse impact on operations and financial results. For example, in the second quarter of fiscal 1995, the Company acquired substantially all of the assets of LightStream and incurred an expense of approximately $95 million associated with purchased research and development, which resulted in net income being significantly lower than in the prior quarter. Additionally, the dollar amount of large orders for the Company's products have been increasing, and therefore the operating results for a quarter could be materially adversely affected if a number of large orders are either not received or are delayed, due for example, to cancellations, delays or deferrals by customers. Further, the Company's expense levels are required, in part, to generate future revenues. If revenue levels are below expectations, operating results are likely to be adversely affected. Net income may be disproportionately affected by a reduction in revenues because a proportionately smaller amount of the Company's expenses varies with its revenues. Dependence on New Product Development; Rapid Technological and Market Change The markets for the Company's products are characterized by rapidly changing technology, evolving industry standards, frequent new product introductions and evolving methods of building and operating networks. The Company's operating results will depend to a significant extent on its ability to continue to successfully introduce new products on a timely basis and to reduce costs of existing products. In particular, in August 1992, the Company broadened its product line by introducing its first network access product. Since that time, sales of these products, which are generally lower priced and carry lower margins than the Company's core products, have increased more rapidly than sales of the core products. In addition, in 1994, Cisco announced its CiscoFusion architecture, that provides a method of merging router-based networks with emerging technologies such as Asynchronous Transfer Mode and LAN switches. While some elements of the CiscoFusion architecture have been introduced, others are still in development. The success of these and other new products is dependent on several factors, including proper new product definition, product cost, timely completion and introduction of new products, differentiation of new products from those of the Company's competitors and market acceptance of these products. The Company has addressed the need to develop new products through its internal development efforts and through joint developments with other companies and through acquisitions. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies and products of the acquired companies, the diversion of management's attention from other business concerns, risks of entering markets in which the Company has no or limited direct prior experience and where competitors in such markets have stronger market positions, and the potential loss of key employees of the acquired company. There can be no assurance that the Company will successfully identify new product opportunities and develop and bring new products to market in a timely manner, or that products or technologies developed by others will not render the Company's products or technologies obsolete or noncompetitive. The failure of the Company's new product development efforts could have a 10 11 material adverse effect on the Company's business and results of operations. Manufacturing Risks Although the Company generally uses standard parts and components for its products, certain components are presently available only from a single source or limited sources. The Company has generally been able to obtain adequate supplies of all components in a timely manner from existing sources, or where necessary, from alternative sources of supply. A reduction or interruption in supply or a significant increase in the price of one or more components would adversely affect the Company's operating results and could damage customer relationships. For example, recent shortages in the supply of semiconductors has resulted in price increases and has limited the Company's ability to obtain price reductions with respect to such components. These developments could result in lower gross margins. The Company expects that it will continue to be dependent on single or limited source supplier relationships in the future. Volatility of Stock Price The Company's Common Stock has experienced substantial price volatility, particularly as a result of variations between the Company's actual or anticipated financial results and the published expectations of analysts and as a result of announcements by the Company and its competitors. In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market price of many technology companies in particular and that have often been unrelated to the operating performance of these companies. These broad market fluctuations, as well as general economic and political conditions, may adversely affect the market price of the Company's Common Stock. EMPLOYEES As of September 24, 1995, the Company employed 4086 persons, including 427 in manufacturing, 1092 in domestic sales and marketing, 525 in customer service, 1016 in engineering, 405 in finance and administration, and 621 employees in international locations. The Company also employs a number of temporary and contract employees, and during fiscal 1995 the Company employed between 473 and 742 such people at any one time. None of the employees is represented by a labor union, and the Company considers its relations with its employees to be positive. The Company has experienced no work stoppages. Competition for technical personnel in the Company's industry is intense. To date, the Company believes that it has been successful in recruiting qualified employees, but there is no assurance that it will continue to be as successful in the future. The Company believes that its future success depends in part on its continued ability to hire, assimilate, and retain qualified personnel. ITEM 2. PROPERTIES The Company's principal corporate offices are located at sites in Santa Clara and San Jose, California. The Santa Clara facilities are leased through December 1996 and have approximately 120,000 square feet of office space. The Company's main headquarters are situated on 46 acres of leased land in San Jose, California. Eight buildings are located at this site, one of which is the Company's manufacturing facility. The San Jose headquarters consist of approximately 825,000 square feet of leased office space at the 11 12 present time. To meet its anticipated needs at its main headquarters, the Company has leased an additional 36 acres of land at two nearby sites where it will eventually lease facilities to be constructed on each site. Construction has started at one of the sites on a series of office buildings which, when completed, will have approximately 575,000 square feet. Occupancy is expected to begin prior to the end of calendar 1996. In addition to the California facilities, the Company leases approximately 45 acres of land in Research Triangle Park, North Carolina, where the InterWorks Business Unit, as well as a Technical Assistance Center, telesales, and various other support functions, are located. One building of approximately 80,000 square feet has been constructed and is currently occupied under a lease that expires in July 1999. A 120,000-square-foot building at this location is currently under construction and should be occupied before the end of the 1996 fiscal year. This site can accommodate one additional building. The Company's ATM Business Unit occupies approximately 50,000 square feet of leased office space in Billerica, Massachusetts. The Company also leases various small offices throughout the U.S. and on a worldwide basis. See Note 6 to the Consolidated Financial Statements for additional information regarding the Company's obligations under leases. Management believes that suitable additional space will be available to accommodate expansion of the Company's operations on commercially reasonable terms. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
POSITION NAME AGE POSITION HELD SINCE - ----------------------- --- ------------------------------------------------------- ---------- Larry R. Carter 52 Vice President, Finance and Administration, Chief 1995 Financial Officer, and Secretary Mr. Carter joined the Company in January 1995 in his present position. From July 1992 to January 1995, he was Vice President and Corporate Controller for Advanced Micro Devices. Prior to that, he was with V.L.S.I. Technology, Inc. for four years where he held the position of Vice President, Finance and Chief Financial Officer. John T. Chambers 46 President, Chief Executive Officer and Director 1995 (1)(4)(5) Mr. Chambers has been a member of the Board of Directors since November 1993. He joined the Company as Senior Vice President in January 1991 and became Executive Vice President in June 1994. Mr. Chambers became President and Chief Executive Officer of the Company as of January 31, 1995. Prior to that, he was with Wang Laboratories for eight years, most recently as Senior Vice President of U.S. Operations.
12 13
POSITION NAME AGE POSITION HELD SINCE - ----------------------- --- ------------------------------------------------------- ---------- Dr. Michael S. Frankel 49 Director 1992 (2)(3)(5) Dr. Frankel has been a member of the Board of Directors since May 1992. He has been Vice President and Division Director of SRI International since January 1989 and became Center Director of SRI International in 1986. Dr. James F. Gibbons 64 Director 1992 (2)(4)(5) Dr. Gibbons has been a member of the Board of Directors since May 1992. He has been Dean of the Stanford University School of Engineering since September 1984. Dr. Gibbons also currently serves on the Board of Directors of Lockheed Martin Corporation, Raychem Corporation, Centigram Corporation, and El Paso Natural Gas. Edward R. Kozel 40 Vice President, Business Development, and Chief 1995 Technical Officer Mr. Kozel joined the Company in March 1989 as Market Development Manager. From 1992-1993 he was Director of Field Operations/Business Development. In February 1993 he became Vice President of Business Development and in May 1995 also became Chief Technical Officer. Donald A. LeBeau 48 Senior Vice President, Worldwide Sales 1994 Mr. LeBeau joined the Company as Vice President of North American Sales in July 1992 and became Senior Vice President of Worldwide Sales in August 1994. From May 1989 to July 1992, he was Vice President of Western Operations at Wang Laboratories. From August 1985 to May 1989 he was with United Research Company, most recently as Senior Vice President. Frank J. Marshall 48 Vice President and General Manager, Core Business Unit 1995 Mr. Marshall joined the Company as Vice President of Engineering in April 1992 and became Vice President and General Manager of the Core Business Unit in May 1995. Prior to that, he was at Convex Computer Corporation for 10 years, most recently as Senior Vice President of Engineering. John P. Morgridge 62 Chairman of the Board of Directors 1995 (1)(5) Mr. Morgridge joined the Company as President and Chief Executive Officer and was elected to the Board of Directors in October 1988. Mr. Morgridge became Chairman of the Board on January 31, 1995. From 1986 to 1988 he was President and Chief Operating Officer at GRiD Systems, a manufacturer of laptop computer systems. Robert L. Puette 53 Director 1991 (2)(3)(4) Mr. Puette has been a member of the Board of Directors since January 1991. He has been President, Chief Executive Officer and on the Board of Directors of NetFRAME Systems, Inc. since January 1995. He was a consultant from November 1993 to December 1994. Prior to that, he was Senior Vice President of Apple Computer, Inc. and President of Apple USA Division from June 1990 to October 1993. Mr. Puette also currently serves on the Board of Directors of Quality Semiconductor.
13 14
POSITION NAME AGE POSITION HELD SINCE - ----------------------- --- ------------------------------------------------------- ---------- Carl Redfield 48 Vice President, Manufacturing 1993 Mr. Redfield joined the Company in August 1993 as Director, Supply/Demand of Manufacturing and became Vice President of Manufacturing in September 1993. Prior to joining Cisco, he spent eighteen years at Digital Equipment Company, most recently as Group Manufacturing and Logistics Manager of the PC Group. Masayoshi Son 38 Director 1995 Mr. Son has been a member of the Board of Directors since July 1995. He has been the President and Chief Executive Officer of SOFTBANK Corporation for more than fifteen years. Donald T. Valentine 63 Vice Chairman of the Board of Directors 1995 (1)(5) Mr. Valentine has been a member of the Board of Directors of the Company since December 1987, and was elected Chairman of the Board of Directors in December 1988. He became Vice Chairman of the Board on January 31, 1995. He has been a general partner of Sequoia Capital, a venture capital firm that was an investor in the Company, since 1974. Mr. Valentine currently serves as Chairman of the Board of Directors of C-Cube Microsystems, Inc., a semiconductor video compression company, and serves on the Board of Directors of Sierra Semiconductor, Inc., a communications semiconductor company.
- ------- (1) Member of the Executive Committee (2) Member of the Compensation/Stock Option Committee (3) Member of the Audit Committee (4) Member of the Nomination Committee (5) Member of the Acquisition Committee TRANSFER AGENT AND REGISTRAR INDEPENDENT ACCOUNTANTS Bank of Boston Coopers & Lybrand L.L.P. 50 Royal Street Ten Almaden Boulevard Canton, MA 92021 San Jose, CA 95113 LEGAL COUNSEL Brobeck, Phleger & Harrison 2200 Geng Road Palo Alto, CA 94303 14 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS STOCK MARKET INFORMATION Price range of the Company's common stock that reflects the two-for-one splits effective March 1993 and March 1994:
1995 1994 1993 High Low High Low High Low ------- ------- ------- ------- ------- ------- First Quarter $ 30.00 $ 20.87 $ 29.37 $ 20.87 $ 14.78 $ 11.25 Second Quarter 36.62 30.12 35.37 24.75 23.12 14.62 Third Quarter 40.75 32.56 40.37 29.00 23.94 20.22 Fourth Quarter 58.62 39.37 32.50 19.06 28.12 20.19
Cisco Systems' common stock (Nasdaq symbol CSCO) is traded on the Nasdaq National Market. The table above reflects the range of high and low closing prices for each period indicated. The Company has never paid cash dividends on the common stock and has no present plans to do so. There were approximately 4917 shareholders of record on October 2, 1995. ITEM 6. SELECTED FINANCIAL DATA FIVE YEARS ENDED JULY 30, 1995 (In thousands, except per-share amounts)
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Net sales $1,978,916 $ 1,242,975 $ 649,035 $ 339,623 $183,184 ========== =========== =========== =========== ======== Net income $ 421,008 $ 314,867 $ 171,955 $ 84,386 $ 43,189 ========== =========== =========== =========== ======== Net income per common share $ 1.52 $ 1.19 $ .67 $ .33 $ .17 ========== =========== =========== =========== ======== Shares used in per-share calculation 277,298 265,051 258,133 254,072 250,320 ========== =========== =========== =========== ======== Total assets $1,757,279 $ 1,053,694 $ 595,213 $ 323,933 $154,145 ========== =========== =========== =========== ========
15 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparison of 1994 and 1995: Net sales grew from $1,243.0 million in 1994 to $1,978.9 million in 1995. The 59.2% increase in net sales during the year was primarily a result of increasing unit sales of the Cisco 7010, the Cisco 7000, and the Cisco 2500 product family, sales of new products including the Cisco 4500, as well as the initial market acceptance of the Company's high-speed switching products. These increases were partially offset by decreasing unit sales of the Company's older product lines, comprising the AGS+ as well as the Cisco 2000 and Cisco 3000 product families. Sales to international customers were 42.4% of net sales in 1995 compared with 41.9% in 1994. This moderate increase reflects the Company's continued expansion into new geographic markets. Gross margins increased from 66.8% of net sales in 1994 to 67.4% in 1995. Gross margins have improved as a result of several factors, including lower material costs achieved through volume and prompt payment discounts, certain manufacturing overhead efficiencies, and a decrease in warranty expenses from 2.0% of net sales in 1994 to 1.5% in 1995. This was partially offset by the continued shift in revenue mix to the Company's lower-margin remote access products. In the future, the Company expects its gross margins to decrease, because it believes that the market for lower-margin remote access and high-speed switching products will continue to increase at a faster rate than the market for the Company's higher- margin router products. The Company is attempting to improve manufacturing efficiencies, but there can be no assurance that it will be able to do so, or that any efficiencies attained will be sufficient to maintain gross margins. Research and development expenses increased $76.1 million from 1994 to 1995, an increase from 7.1% of net sales in 1994 to 8.3% in 1995. The increase reflects the Company's ongoing research and development efforts, including the further development of its CiscoFusion architecture, as well as the acquisition of technologies to bring a broad range of products to market in a timely fashion. A significant portion of the increase was due to the addition of new personnel, primarily from hiring and to a lesser extent through acquisitions, as well as higher material costs for prototypes and depreciation on new equipment. All of the Company's research and development costs are expensed as incurred. The Company is primarily developing new technologies internally, and because of this, research and development as a percentage of sales is expected to increase. When appropriate, the Company may acquire other businesses or license technology from other businesses as an alternative to internal research and development. Sales and marketing expenses increased $148.9 million in 1995, an increase from 16.6% to 17.9% of net sales. The increase in these expenses resulted from an increase in the size of the Company's direct sales force and its commissions, additional marketing programs to support the launch of new products, the entry into new markets both domestic and international, and expansion of distribution channels. General and administrative expenses rose $29.0 million from 1994 to 1995 which represents an increase from 3.8% of net sales in 1994 to 3.9% in 1995. The increase in these expenses reflects increased personnel costs, implementation of the Company's new information system, and the amortization of goodwill since the date of the acquisition of the assets and assumption of the liabilities of LightStream (see note 2). 16 17 The amount expensed to purchased research and development arose from the acquisition of the assets and assumption of the liabilities of LightStream (see note 2). Interest and other income, net, was $21.4 million in 1994 and $36.1 million in 1995. Interest income rose as a result of additional investment income on the Company's increasing investment balances. During March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires the Company to review for impairment long-lived assets, certain identifiable intangibles, and goodwill related to those assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In certain situations, an impairment loss would be recognized. Statement No. 121 will be effective for the Company's fiscal year 1997. The Company has studied the implications of the statement, and based on its initial evaluation, does not expect it to have a material impact on the Company's financial condition or results of operations. Future Growth Subject to Risks The Company's growth is dependent upon market growth and its ability to enhance its existing products and introduce new products on a timely basis. The Company must also maintain its ability to manage any such growth effectively. In this regard, in May 1995 the Company completed an internal reorganization, which it believes will better enable it to address its markets. No assurance can be given that this reorganization will achieve its objectives. Failure to manage growth effectively could materially and adversely affect the Company's business and operating results. The Company's growth and ability to meet customer demand also depend, in part, on its ability to have stable supplies of parts from its suppliers. Many of these parts, particularly semiconductor parts, may be in short supply. An inability to obtain these parts could have a material and adverse affect on the Company's growth. The Company expects that in the future, its net sales will grow at a slower rate than was experienced in previous periods and that on a quarter-to-quarter basis, the Company's growth in net sales may be significantly lower than its historical quarterly growth rate. The Company has been experiencing longer sales cycles for its core products resulting from larger order sizes and believes that some customers may be deferring purchases in order to complete detailed reviews of their overall network plans. In addition, in response to customer demand, the Company has, from time to time, reduced its product manufacturing lead times and its backlog of orders. To the extent that backlog is reduced during any particular period, it would result in more variability and less predictability in the Company's quarter-to-quarter net sales and operating results. The Company also expects that gross margins may be adversely affected by increases in material or labor costs, heightened price competition, and by changes in channels of distribution or in the mix of products sold. In particular, the Company broadened its product line by introducing its first network access product in August 1992. Since that time, sales of these products, which are generally lower-priced and carry lower gross margins than the Company's core products, have increased more rapidly than the sales of the core products. The Company also expects that its operating margins may decrease as it continues to hire additional personnel and to increase other operating 17 18 expenses to support its business. The results of operations for 1995 are not necessarily indicative of results to be expected in future periods, and the Company's operating results may be subject to quarterly fluctuations as a result of a number of factors. These factors include the integration of people, operations, and products from acquired businesses and technologies; increased competition, which the Company expects; the introduction and market acceptance of new products, including high-speed switching and ATM technologies; variations in sales channels, product costs, or mix of products sold; the timing of orders and manufacturing lead times; and changes in general economic conditions, any of which could have an adverse impact on operations and financial results. Comparison of 1993 and 1994: Net sales grew from $649.0 million in 1993 to $1,243.0 million in 1994. The 91.5% increase in net sales during the year was primarily a result of increasing unit sales of the Cisco 3000, the Cisco 4000, and the Cisco 7000, sales of new products including the Cisco 2500 and the Cisco 7010, and growth in sales of add-on boards, which provide increased functionality. Sales to international customers were 41.9% of net sales in 1994, compared with 39.0% in 1993. This increase reflects the Company's continued expansion into new geographic markets. Gross margins decreased from 67.6% of net sales in 1993 to 66.8% in 1994. Gross margins decreased as a result of the increasing unit sales of lower-margin products, principally the Cisco 3000 and the Cisco 4000, and from the sales of new products, primarily the Cisco 2500. Warranty expenses increased slightly from 1.7% of net sales in 1993 to 2.0% in 1994, reflecting the new product introductions. In the future, the Company expects its gross margins to decrease, because the Company believes that the market for lower-margin remote access and high-speed switching products will increase at a faster rate than the market for the Company's higher-margin router products. Decreases could be partially offset by various measures employed to lower the cost of raw materials purchased. Research and development expenses increased $44.5 million from 1993 to 1994, primarily as a result of additions to engineering personnel, including Crescendo Communications personnel, depreciation on new engineering equipment, material costs for prototypes, and increased facilities expenses. These expenses increased from 6.8% of net sales in 1993 to 7.1% in 1994. All of the Company's research and development costs are expensed as incurred. The Company is primarily developing new technologies internally, and because of this, research and development as a percentage of sales is expected to increase. When appropriate, the Company may acquire other businesses or license technology from other businesses as an alternative to internal research and development. Sales and marketing expenses increased $96.1 million in 1994 as a result of increased marketing and sales personnel and support costs, including commissions, in both the U.S. and the Company's international subsidiaries. Sales and marketing expenses decreased slightly as a percentage of net sales, from 16.9% in 1993 to 16.6% in 1994. However, management expects sales expenditures to increase as a percentage of net sales as the Company penetrates new markets. General and administrative expenses rose $26.5 million from 1993 to 1994, which represents an increase from 3.2% of net sales in 1993 to 3.8% in 1994. The increase in these expenses was due primarily to increased personnel costs, legal and tax fees as the Company expands internationally, costs associated with the Crescendo acquisition, and charitable contributions. 18 19 Interest and other income, net, was $11.6 million in 1993 and $21.4 million in 1994. Interest income rose as a result of additional investment income on the Company's increasing investment balances. International operating income as a percentage of net international sales decreased from 4.8% in 1993 to 1.5% in 1994. International operating income consists of net operating income of the Company's international subsidiaries, which have various distribution arrangements with the Company. The decrease from 1993 to 1994, in percentage terms, can be attributed to a shifting mix of intercompany arrangements and higher organizational expenditures associated with expanding international operations through new and existing entities. LIQUIDITY AND CAPITAL RESOURCES Cash, short-term investments, and investments increased by $289.1 million from 1994 to 1995, primarily as a result of cash generated by operations, cash received in connection with the exercise of employee stock options, and proceeds received from minority shareholders in the Company's Japanese subsidiary (see note 7). The increase was partially offset by the cash paid to acquire the assets and assume the liabilities of LightStream (see note 2) and repurchases of the Company's common stock. Accounts receivable rose 61.7% from 1994 to 1995, while sales grew by 59.2%. Days sales outstanding in receivables were 56 days at the end of the year, versus 59 days at July 31, 1994. Inventories increased 155.1% from 1994 to 1995 because of production planning associated with higher sales levels. In addition, inventory levels were unusually low at July 31, 1994 because of the planned delay in raw material receipts to accommodate the manufacturing operations move to the Company's new headquarters. As a result, inventory turnover decreased from 16.1 turns at July 31, 1994 to 13.0 turns at July 30, 1995. Accounts payable increased 42.6% from 1994 to 1995 because of increases in capital expenditures, operating expenses, and material purchases to support the growth in net sales. The 82.8% increase in accrued payroll and related expenses is primarily a result of personnel additions made during the year. Other accrued liabilities increased by 61.2% from 1994 to 1995, primarily because of increases in the warranty accrual and deferred service contracts. At July 30, 1995, the Company had a line of credit totaling $100.0 million, which expires April 1998. There have been no borrowings under this agreement. The Company has entered into certain lease arrangements in San Jose, California, and Research Triangle Park, North Carolina, where it has established its headquarters operations and certain research and development and customer support activities. In connection with these transactions, the Company pledged $173.1 million of its investments as collateral for certain obligations of the leases. The restricted investments balance will continue to increase as the Company phases in operations at these lease sites. Under the Company's ongoing stock repurchase program, shares have been purchased periodically and retired. During the year ended July 30, 1995, the Company purchased and retired approximately 2.1 million shares for an aggregate price of $69.9 million. As of July 30, 1995, the Company was authorized to repurchase up to an additional 4.9 million shares of its common stock in the open market or through privately negotiated transactions. 19 20 The Company's management believes that its current cash and equivalents, short-term investments, line of credit, and cash generated from operations will satisfy its expected working capital and capital expenditure requirements through 1996. 20 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CISCO SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (In thousands)
July 30, July 31, 1995 1994 ---------- ---------- ASSETS Current assets: Cash and equivalents $ 204,846 $ 53,567 Short-term investments 234,681 129,219 Accounts receivable, net of allowance for doubtful accounts of $13,305 in 1995 and $8,077 in 1994 384,242 237,570 Inventories 71,160 27,896 Deferred income taxes 75,297 46,739 Prepaid expenses and other current assets 25,743 12,686 ---------- ---------- Total current assets 995,969 507,677 Investments 403,855 371,494 Restricted investments 173,073 85,900 Property and equipment, net 136,635 77,449 Other assets 47,747 11,174 ---------- ---------- Total assets $1,757,279 $1,053,694 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 45,205 $ 31,708 Income taxes payable 71,583 42,958 Accrued payroll and related expenses 84,695 46,334 Other accrued liabilities 136,273 84,512 ---------- ---------- Total current liabilities 337,756 205,512 Commitments (Note 6) Minority interest 40,792 Shareholders' equity: Preferred stock, no par value, 5,000 shares authorized: none issued or outstanding in 1995 and 1994 Common stock, no par value, 320,000 shares authorized: 272,246 shares issued and outstanding in 1995 and 257,697 shares in 1994 362,292 227,835 Retained earnings 959,657 620,135 Unrealized gain on marketable securities 50,933 Cumulative translation adjustments 5,849 212 ---------- ---------- Total shareholders' equity 1,378,731 848,182 ---------- ---------- Total liabilities and shareholders' equity $1,757,279 $1,053,694 ========== ==========
The accompanying notes are an integral part of these financial statements. 21 22 CISCO SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per-share amounts)
Years Ended --------------------------------------- July 30, July 31, July 25, 1995 1994 1993 ---------- ---------- -------- Net sales $1,978,916 $1,242,975 $649,035 Cost of sales 644,152 412,824 210,528 ---------- ---------- -------- Gross margin 1,334,764 830,151 438,507 Expenses: Research and development 164,819 88,753 44,254 Sales and marketing 354,722 205,797 109,717 General and administrative 76,524 47,485 20,965 Purchased research and development 95,760 ---------- ---------- -------- Total operating expenses 691,825 342,035 174,936 ---------- ---------- -------- Operating income 642,939 488,116 263,571 Interest and other income, net 36,107 21,377 11,557 ---------- ---------- -------- Income before provision for income taxes 679,046 509,493 275,128 Provision for income taxes 258,038 194,626 103,173 ---------- ---------- -------- Net income $ 421,008 $ 314,867 $171,955 ========== ========== ======== Net income per common share $ 1.52 $ 1.19 $ .67 ========== ========== ======== Shares used in per-share calculation 277,298 265,051 258,133 ========== ========== ========
The accompanying notes are an integral part of these financial statements. 22 23 CISCO SYSTEMS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands)
Common Stock ---------------------- Unrealized Total Number gain on Cumulative Share- of Retained marketable translation holders' Shares Amount Earnings securities adjustments Equity ------- -------- -------- ---------- ----------- ---------- Balances, July 26, 1992 240,444 $ 98,940 $146,168 $ 502 $ 245,610 Issuance of common stock under stock option and purchase plans 6,972 18,621 18,621 Tax benefits related to disqualifying dispositions of stock options 39,622 39,622 Amortization of deferred compensation resulting from stock options issued 296 296 Net income 171,955 171,955 Translation adjustments (923) (923) ------- -------- -------- -------- ------ ---------- Balances, July 25, 1993 247,416 157,479 318,123 (421) 475,181 Issuance of common stock under stock option and purchase plans 6,885 23,407 23,407 Tax benefits related to disqualifying dispositions of stock options 35,654 35,654 Pooling-of-interests with Crescendo Communications, Inc. 3,396 11,295 (12,855) (1,560) Net income 314,867 314,867 Translation adjustments 633 633 ------- -------- -------- -------- ------ ---------- Balances, July 31, 1994 257,697 227,835 620,135 212 848,182 Issuance of common stock under stock option and purchase plans 6,560 47,401 47,401 Tax benefits related to disqualifying dispositions of stock options 55,756 55,756 Common stock repurchases (2,094) (2,073) (67,808) (69,881) Pooling-of-interests with Newport Systems Solutions, Inc. 3,262 6,805 1,603 8,408 Pooling-of-interests with Kalpana, Inc. 6,821 26,568 (15,281) 11,287 Unrealized gain on marketable securities $ 50,933 50,933 Net income 421,008 421,008 Translation adjustments 5,637 5,637 ------- -------- -------- -------- ------ ---------- Balances, July 30, 1995 272,246 $362,292 $959,657 $ 50,933 $5,849 $1,378,731 ======= ======== ======== ======== ====== ==========
The accompanying notes are an integral part of these financial statements. 23 24 CISCO SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Years Ended --------------------------------------- July 30, July 31, July 25, 1995 1994 1993 --------- --------- --------- Cash flows from operating activities: Net income $ 421,008 $ 314,867 $ 171,955 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 58,510 30,812 13,583 Provision for doubtful accounts 10,429 4,562 6,421 Provision for inventory allowances 42,482 14,608 3,900 Deferred income taxes (65,665) (30,715) (6,645) Change in operating assets and liabilities: Accounts receivable (154,324) (113,023) (74,272) Inventories (85,662) (19,004) (18,258) Prepaid expenses and other current assets (13,040) (5,705) (2,005) Accounts payable 12,186 6,964 8,482 Income taxes payable 84,381 60,816 42,310 Accrued payroll and related expenses 38,361 19,878 9,227 Other accrued liabilities 47,089 33,476 21,312 --------- --------- --------- Total adjustments (25,253) 2,669 4,055 --------- --------- --------- Net cash provided by operating activities 395,755 317,536 176,010 Cash flows from investing activities: Purchases of short-term investments (276,463) (135,186) (139,606) Proceeds from sales of short-term investments 153,032 71,787 148,448 Maturities of short-term investments 89,147 46,753 71,753 Purchases of investments (277,239) (560,090) (280,563) Proceeds from sales of investments 228,680 348,123 66,213 Purchases of restricted investments (160,396) (74,343) (70,800) Proceeds from sales of restricted investments 55,619 52,341 31,900 Maturities of restricted investments 44,853 Acquisition of property and equipment (111,922) (59,589) (33,942) Acquisition of business, net of cash acquired and purchased research and development (17,920) Other 4,428 (5,052) 181 --------- --------- --------- Net cash used by investing activities (268,181) (315,256) (206,416) --------- --------- --------- Cash flows from financing activities: Issuance of common stock 47,401 23,407 18,621 Common stock repurchases (69,881) Proceeds from sale of subsidiary stock 40,548 Other 5,637 633 (923) --------- --------- --------- Net cash provided by financing activities 23,705 24,040 17,698 --------- --------- --------- Net increase (decrease) in cash and equivalents 151,279 26,320 (12,708) Cash and equivalents, beginning of period 53,567 27,247 39,955 --------- --------- --------- Cash and equivalents, end of period $ 204,846 $ 53,567 $ 27,247 ========= ========= ========= Non-cash investing and financing activities in fiscal year 1995: Transfers of securities to restricted investments $27,249 Unrealized gain on marketable securities 82,689
The accompanying notes are an integral part of these financial statements. 24 25 CISCO SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except exercise prices and percentages) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year. The Company's fiscal year is the 52 or 53 weeks ending on the last Sunday in July. The fiscal years ended July 30, 1995, July 31, 1994, and July 25, 1993 comprised 52, 53, and 52 weeks, respectively. Principles of Consolidation. The consolidated financial statements include the accounts of Cisco Systems, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Cash and Equivalents. The Company considers all highly liquid investments purchased with a maturity of less than three months to be cash equivalents. Substantially all of its cash and equivalents are maintained with two major financial institutions. Short-Term Investments. The Company's short-term investments comprise U.S., state, and municipal government obligations, and foreign and corporate obligations. These investments are carried at market value and have maximum maturities of one year. Prior to adoption of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", in fiscal year 1995, the Company's short-term investments were carried at cost, which approximated market value at July 31, 1994. Nearly all short-term investments are held in the Company's name and maintained with one large financial institution. Inventories. Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. Investments. Investments consist of U.S., state, and municipal government obligations, foreign and corporate obligations, and corporate securities with maturities of more than one year. These investments are carried at market value. Prior to adoption of Statement No. 115 in fiscal year 1995, the Company's investments were carried at cost, which approximated market value at July 31, 1994. Investments are held in the Company's name and maintained with one large financial institution. Restricted Investments. Restricted investments consist of U.S. governmental obligations with maturities of more than one year. These investments are carried at market value at July 30, 1995 and are restricted as to withdrawal (see Note 6). Prior to adoption of Statement No. 115 in fiscal year 1995, the Company's restricted investments were carried at cost, which approximated market value at July 31, 1994. Restricted investments are held in the Company's name and maintained with one large financial institution. Revenue Recognition. The Company recognizes product revenue upon shipment of product. Revenue from service obligations is deferred and recognized over the lives of the contracts. Depreciation and Amortization. Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. Such lives vary from two and one-half to five years. 25 26 CISCO SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except exercise prices and percentages) Income Taxes. The Company accounts for income taxes using the liability method to calculate deferred income taxes. The realization of deferred tax assets is based on historical tax positions and expectations about future taxable income. Computation of Net Income Per Common Share. Net income per common share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options. Foreign Currency Translation. The Company's international subsidiaries use their local currencies as their functional currencies. Assets and liabilities are translated at exchange rates in effect at the balance sheet date and income and expense accounts at average exchange rates during the year. Resulting translation adjustments are recorded directly to a separate component of shareholders' equity. Forward Exchange Contracts. The Company enters into forward exchange contracts to minimize the short-term impact of foreign currency fluctuations on the asset and liability positions of its international subsidiaries. Gains and losses on these contracts are recognized in net income in the period in which exchange rate changes occur. Recent Accounting Pronouncements. During March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires the Company to review for impairment long-lived assets, certain identifiable intangibles, and goodwill related to those assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In certain situations, an impairment loss would be recognized. Statement No. 121 will be effective for the Company's fiscal year 1997. The Company has studied the implications of the statement, and, based on its initial evaluation, does not expect it to have a material impact on the Company's financial condition or results of operations. 26 27 CISCO SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except exercise prices and percentages) 2. BUSINESS COMBINATIONS In September 1993, the Company acquired Crescendo Communications, Inc., a networking company that provides high-performance workgroup solutions. The Company issued approximately 3400 shares of common stock for all the outstanding stock of Crescendo in a transaction that was accounted for as a pooling of interests. The Company also assumed options and warrants to purchase Crescendo stock of which the options remain outstanding to purchase approximately 280 shares of the Company's common stock. On August 8, 1994, the Company acquired Newport Systems Solutions, Inc., a privately held networking company providing software-based routers for remote network sites. The Company issued approximately 3300 shares of common stock for all the outstanding stock of Newport in a transaction also accounted for as a pooling of interests. The Company also assumed options to purchase Newport stock that remain outstanding as options to purchase approximately 190 shares of the Company's common stock. On December 6, 1994, the Company acquired Kalpana, Inc., a privately held manufacturer of Ethernet switches. Under the terms of the agreement, the Company issued approximately 6800 shares of common stock for all the outstanding stock of Kalpana in a transaction also accounted for as a pooling of interests. In connection with this transaction, the Company assumed options to purchase Kalpana stock that remain outstanding as options to purchase approximately 500 shares of the Company's common stock. The aggregated historical operations of Crescendo, Newport and Kalpana are not material to the Company's consolidated operations and financial position. Therefore, prior period statements have not been restated. Effective January 11, 1995, the Company acquired substantially all of the assets and assumed the liabilities of LightStream Corporation for $120,000 in cash and related acquisition costs of approximately $500. LightStream was a developer of enterprise-class Asynchronous Transfer Mode (ATM) switching technology. The acquisition was accounted for as a purchase. Accordingly, the results of operations of the acquired business and the fair market values of the acquired assets and assumed liabilities were included in the Company's financial statements as of the effective date. The purchase price was allocated to the acquired assets and assumed liabilities based on fair market values as follows: Cash $ 6,320 Accounts receivable 2,777 Other current assets 101 Property and equipment 1,815 Purchased research and development 95,760 Goodwill 19,710 Current liabilities (5,983) ---------- $ 120,500 ==========
27 28 CISCO SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except exercise prices and percentages) The amount allocated to purchased research and development was determined through known valuation techniques in the high-technology communications industry. Amounts allocated to goodwill will be amortized on a straight-line basis over periods ranging from two to five years. The following summary, prepared on a pro forma basis, combines the results of operations as if LightStream had been acquired as of the beginning of the periods presented. The summary includes the impact of certain adjustments such as goodwill amortization and estimated changes in interest income due to cash outlays associated with the transaction and the related income tax effects (in thousands, except per-share amounts):
Twelve months ended ----------------------------- July 30, July 31, 1995 1994 ---------- ---------- (Unaudited) Sales $1,987,310 $1,244,863 Net income $ 410,456 $ 299,676 Net income per share $ 1.48 $ 1.13
The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect for the entire periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be achieved from the combined operations. 28 29 CISCO SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except exercise prices and percentages) 3. BALANCE SHEET DETAIL Inventories:
1995 1994 --------- --------- Raw materials $ 33,555 $ 13,724 Work in process 16,913 8,649 Finished goods 9,373 2,090 Demonstration systems 11,319 3,433 --------- --------- Total $ 71,160 $ 27,896 ========= ========= Property and equipment, net: Leasehold improvements $ 16,170 $ 11,154 Computer equipment and related software 126,331 71,281 Production and engineering equipment 49,695 25,067 Office equipment, furniture, fixtures, and other 50,682 24,297 --------- --------- 242,878 131,799 Less accumulated depreciation and amortization (106,243) (54,350) --------- --------- Total $ 136,635 $ 77,449 ========= ========= Accrued payroll and related expenses: Accrued wages, paid time off, and related expenses $ 56,623 $ 32,020 Accrued bonuses 28,072 14,314 --------- --------- Total $ 84,695 $ 46,334 ========= ========= Other accrued liabilities: Deferred revenue $ 55,984 $ 30,981 Accrued warranties 38,731 22,962 Other liabilities 41,558 30,569 --------- --------- Total $ 136,273 $ 84,512 ========= =========
29 30 CISCO SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except exercise prices and percentages) 4. INVESTMENTS Effective August 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This statement requires the Company to classify debt and equity securities into one of three categories: held-to-maturity, trading, or available-for-sale. At July 30, 1995, substantially all of the Company's investments were classified as available-for-sale, and the difference between the cost and fair market value of those securities, net of the tax effect, is shown as a separate component of shareholders' equity. The following table summarizes the Company's securities at July 30, 1995:
Gross Gross Amortized Unrealized Unrealized Market Issue Cost Gains (Losses) Value - ------------------------------- --------- ---------- ---------- -------- U.S. government notes and bonds $200,902 $ 665 $ (2,963) $198,604 State, municipal, and county government notes and bonds 425,225 1,599 (4,995) 421,829 Foreign government notes and bonds 38,841 433 39,274 Corporate notes and bonds 61,052 77 (242) 60,887 Corporate equity securities 2,900 88,115 91,015 -------- -------- --------- -------- $728,920 $ 90,889 $ (8,200) $811,609 ======== ======== ========= ========
Gross realized gains and losses on the sale of securities are calculated using the specific identification method and were not material to the Company's consolidated results of operations. 5. LINE OF CREDIT On May 22, 1995, the Company entered into a syndicated credit agreement under the terms of which a syndication of banks has committed a maximum of $100,000 on an unsecured basis for cash borrowings and letters of credit. The commitments made under this agreement expire on April 30, 1998. During the commitment period, the Company is obligated to pay annual fees of approximately $150. Outstanding borrowings under these arrangements bear interest at the London Interbank Offered Rate plus .31%, or other alternative rates. The agreement specifies various financial covenants, including a variable floor on tangible net worth, all of which the Company has met. There have been no borrowings under this agreement. 6. COMMITMENTS LEASES The Company leases office space for its U.S. and international sales offices. The Company also leases buildings at its headquarters in Santa Clara and San Jose, California. The Santa Clara lease expires December 1996. 30 31 CISCO SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except exercise prices and percentages) In February 1993, the Company entered into an agreement to lease 46 acres of land located in San Jose, California, where it has established its headquarters operations. In July 1994, the Company entered into an agreement to lease 45 acres of land located in Research Triangle Park, North Carolina, where it expanded certain research and development and customer support activities. In February and April 1995, the Company entered into agreements to lease an additional 36 acres of land in San Jose, California, where it will further expand its headquarters operations. All of the leases have initial terms of five years and options to renew for an additional five years, subject to certain conditions. At any time during the terms of these land leases, the Company may purchase the land. If the Company elects not to purchase the land at the ends of the leases, the Company has guaranteed a residual value of approximately $55.9 million. In May 1993, August 1994, and May 1995, the Company entered into agreements to lease certain buildings to be constructed on the land described above. The lessors of the buildings have committed to fund up to a maximum of $114.0 million (subject to reductions based on certain conditions in the lease) for the construction of the buildings, with the portion of the committed amount actually utilized to be determined by the Company. Rent obligations for the buildings will commence on varying dates and will expire at the same time as the land leases. The Company has an option to renew the building leases for an additional five years, subject to certain conditions. The Company may, at its option, purchase the buildings during the terms of the leases at approximately the amount expended by the lessors to construct the buildings. If the Company does not exercise the purchase options at the ends of the leases, the Company will guarantee a residual value of the buildings as determined at the lease inception date of each agreement (approximately $69.3 million at July 30, 1995). As part of the above lease transactions, the Company restricted $173.1 million of its securities as collateral for specified obligations of the lessor under the leases. These securities will be restricted as to withdrawal and will be managed by the Company subject to certain limitations, under its investment policy. In addition, the Company must maintain a minimum consolidated tangible net worth of $750.0 million. Future annual minimum lease payments under all noncancelable operating leases as of July 30, 1995, are as follows: 1996 $18,887 1997 14,365 1998 8,901 1999 4,522 2000 2,028 Thereafter 1,468 ------- Total minimum lease payments $50,171 =======
31 32 CISCO SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except exercise prices and percentages) Rent expense totaled $19,157, $12,399, and $7,243 for 1995, 1994, and 1993, respectively. FORWARD EXCHANGE CONTRACTS The Company enters into forward exchange contracts to reduce its exposure to potentially adverse changes in foreign currency exchange rates. The contracts hedge certain balance sheet exposures and intercompany balances against future movements in foreign exchange rates. The Company does not hold these financial instruments for trading purposes. Foreign exchange contracts outstanding, primarily in European, Canadian, and Australian currencies, amounted to $44.5 million and $21.8 million at July 30, 1995 and July 31, 1994, respectively. Gains and losses on the contracts are included in other income, which offset foreign exchange gains or losses from revaluation of intercompany balances. The maturity dates of the contracts outstanding at July 30, 1995 extended to approximately one month. The Company's forward exchange contracts contain an element of risk that the other parties may be unable to meet the terms of the agreements. However, the Company minimizes such risk exposure by limiting the other parties to major financial institutions. In addition, the amount of agreements entered into with any one party is also monitored. Management does not expect any significant losses as a result of default by the other parties. 7. MINORITY INTEREST In October 1994, the Company's Japanese subsidiary, Nihon Cisco Systems, K.K., completed the sale of preferred stock to a group of outside investors in a private placement. Aggregate proceeds to Nihon Cisco Systems, K.K. were approximately $40.5 million. The investors received 26.8% of the voting rights. The Company retains ownership of all issued and outstanding common stock of its subsidiary, amounting to 73.2% of the voting rights. Each share of preferred stock is convertible into one share of common stock at any time, at the option of the holder. 8. SHAREHOLDERS' EQUITY The Company's common stock was split two-for-one on March 5, 1993 and March 4, 1994. All applicable share and per-share data in these financial statements have been restated to give effect to these stock splits. Under the terms of the Company's Articles of Incorporation, the Board of Directors may determine the rights, preferences, and terms of the Company's authorized preferred stock. 32 33 CISCO SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except exercise prices and percentages) 9. EMPLOYEE STOCK PURCHASE PLAN The Company has an Employee Stock Purchase Plan (the Purchase Plan) under which 4800 shares of common stock have been reserved for issuance. Eligible employees may designate not more than 10% of their cash compensation to be deducted each pay period for the purchase of common stock under the Purchase Plan, and participants may purchase not more than $25 worth of common stock in any one calendar year. On the last business day of each calendar quarter, shares of common stock are purchased with the employees' payroll deductions over six months, at a price per share of 85% of the lesser of the market price of the common stock on the purchase date or the market price on the first day of the period. The Purchase Plan will terminate no later than January 3, 2000. In 1995, 1994, and 1993, 579, 387, and 344 shares were issued under the Purchase Plan, respectively. At July 30, 1995, 2142 shares were available for issuance under the Purchase Plan. 10. STOCK OPTION PLANS The Company established a Stock Option Plan in 1987 under which it has reserved a total of 91,640 shares of common stock for issuance to employees, officers, directors, consultants, and independent contractors. Both incentive and nonqualified stock options have been granted at prices not less than fair market value at the date of grant as determined by the Board of Directors. Although the Board has the authority to set other terms, the options are generally 25% exercisable one year from the date of grant and then ratably over the following 36 months. A summary of option activity follows:
Options Outstanding -------------------------------------------------------------------- Options Available Exercise for Grant Options Prices Amount ---------------- ----------------- ------------------------------- ---------------- Balances, July 26, 1992 3,388 25,196 $ .01 $12.12 87,522 Options granted (3,234) 3,234 12.87 - 26.87 67,869 Options exercised (6,628) .01 - 12.12 (14,375) Options canceled 376 (376) .01 - 26.87 (2,218) Additional shares reserved 4,000 ---------------- ----------------- -------------- -------------- ----------------- Balances, July 25, 1993 4,530 21,426 .01 - 26.87 138,798 Options granted (4,779) 4,779 20.12 - 37.00 113,641 Options exercised (6,498) .01 - 22.69 (14,836) Options canceled 684 (684) .16 - 37.00 (9,762) Additional shares reserved 4,000 ---------------- ----------------- -------------- -------------- ----------------- Balances, July 31, 1994 4,435 19,023 .01 - 37.00 227,841 Options granted and assumed (15,265) 15,265 8.15 - 57.75 557,523 Options exercised (5,981) .01 - 37.00 (33,567) Options canceled 1,067 (1,067) .16 - 43.00 (25,651) Additional shares reserved 6,237 ---------------- ----------------- -------------- -------------- ----------------- Balances, July 30, 1995 (3,526) 27,240 $ .01 - $57.75 $726,146 ================ ================= ============== ============== =================
At July 30, 1995, approximately 9287 outstanding options were exercisable. Options granted for approximately 4000 shares reflected in the 1995 fiscal year are subject to shareholder approval of a 19,000 increase to the number of shares made available for issuance under the plan. 33 34 CISCO SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except exercise prices and percentages) The Company has, in connection with the acquisition of Crescendo, Newport, and Kalpana, assumed the stock option plans of each acquired company. A total of 2,237 shares of the Company's common stock has been reserved for issuance under those assumed plans. 11. EMPLOYEE BENEFIT PLAN The Company has adopted a plan to provide retirement and incidental benefits for its employees, known as the Cisco Systems, Inc. 401(k) Plan (the Plan). As allowed under Section 401(k) of the Internal Revenue Code, the Plan provides tax deferred salary deductions for eligible employees. Employees may contribute from 1% to 15% of their annual compensation to the Plan, limited to a maximum amount as set by the Internal Revenue Service. The Company matches employee contributions dollar for dollar, up to a maximum of $1.5 per year. In addition, the Plan provides for discretionary contributions as determined by the Board of Directors. Such contributions to the Plan are allocated among eligible participants in the proportion of their salaries to the total salaries of all participants. Company matching contributions to the Plan totaled $3,456 in 1995, $1,796 in 1994, and $1,015 in 1993. No discretionary contributions were made in 1995, 1994, or 1993. 12. INCOME TAXES The provision for income taxes consists of:
1995 1994 1993 -------------------- -------------------- -------------------- Federal: Currently payable $ 260,874 $ 176,314 $ 85,125 Deferred (54,955) (24,084) (5,387) -------------------- -------------------- -------------------- 205,919 152,230 79,738 State: Currently payable 56,108 44,718 22,444 Deferred (9,132) (4,909) (1,258) -------------------- -------------------- -------------------- 46,976 39,809 21,186 Foreign: Currently payable 6,721 4,309 2,249 Deferred (1,578) (1,722) -------------------- -------------------- -------------------- 5,143 2,587 2,249 -------------------- -------------------- -------------------- $ 258,038 $ 194,626 $ 103,173 ==================== ==================== ====================
The Company paid income taxes of $240.7 million, $164.3 million, and $63.3 million, in 1995, 1994, and 1993, respectively. 34 35 CISCO SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except exercise prices and percentages) The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes follow:
1995 1994 1993 ------------------ ------------------ ------------------ Federal statutory rate 35.0% 35.0% 34.0% Effect of: State rates, net of federal benefits 4.4 4.7 4.9 Foreign Sales Corporation benefit (2.6) (2.5) (2.0) Tax-exempt interest (0.8) (1.1) (1.0) Tax credits (0.8) (0.6) Other 2.8 2.7 1.6 ------------------ ------------------ ------------------ 38.0% 38.2% 37.5% ================== ================== ==================
The components of the deferred income tax provision are as follows:
1995 1994 1993 ------------------ ------------------ ------------------ Purchased research and development $(36,310) Inventory allowances and capitalization (12,145) $ (5,640) $ (2,677) Warranty accruals 1,446 (3,764) (883) Accrued state franchise tax (3,816) (3,395) Allowance for doubtful accounts and returns 101 (2,783) (874) Depreciation (1,486) (3,034) (88) Deferred revenue (2,141) (857) (339) Royalty accruals (499) (746) (689) Other nondeductible accruals (10,815) (10,496) (1,095) ------------------ ------------------ ------------------ $(65,665) $(30,715) $ (6,645) ================== ================== ==================
The components of the deferred income tax assets follow:
1995 1994 ----------------- ------------------ Purchased research and development $ 36,310 Unrealized gain on marketable securities (31,756) Inventory allowances and capitalization 25,114 $ 13,273 Warranty accruals 7,429 9,651 Accrued state franchise tax 7,211 3,395 Allowance for doubtful accounts and returns 7,020 5,913 Depreciation 4,882 4,392 Deferred revenue 3,800 1,800 Royalty accruals 2,414 1,690 Other nondeductible accruals 24,278 12,679 ----------------- ------------------ $ 86,702 $ 52,793 ================= ==================
The noncurrent portion of the deferred income tax assets, which totaled $11,405 at July 30, 1995, and $6,054 at July 31, 1994, is included in other assets. The Company's income taxes currently payable for both federal and state purposes have been reduced by the tax benefit derived from the disqualifying dispositions of incentive and nonqualified stock options. This benefit, which totaled $55,756 in 1995 and $35,654 in 1994, was credited directly to common stock. 35 36 CISCO SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except exercise prices and percentages) 13. GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS The Company operates in a single industry segment encompassing the design, development, manufacture, marketing, and technical support of internetworking products and services. In 1995, 1994, and 1993, no customers accounted for 10% or more of the Company's net sales. International sales, primarily in Europe, the Pacific region, and Canada, were $838.3 million in 1995, $520.5 million in 1994, and $252.9 million in 1993. Export sales, primarily to these regions, were $661.6 million in 1995, $376.2 million in 1994, and $166.3 million in 1993. Summarized financial information by geographic region for 1995, 1994, and 1993 is as follows:
1995 1994 1993 ------------------------ -------------------- ------------------- Net sales: United States $1,948,098 $1,240,585 $ 629,747 International 176,715 144,277 86,600 Eliminations (145,897) (141,887) (67,312) ------------------------ -------------------- ------------------- Total $1,978,916 $1,242,975 $ 649,035 ======================== ==================== =================== Operating income: United States $ 638,167 $ 489,659 $ 260,131 International 2,515 2,231 4,122 Eliminations 2,257 (3,774) (682) ------------------------ -------------------- ------------------- Total $ 642,939 $ 488,116 $ 263,571 ======================== ==================== =================== Identifiable assets: United States $1,638,984 $1,009,243 International 141,280 61,027 Eliminations (22,985) (16,576) ------------------------ -------------------- Total $1,757,279 $1,053,694 ======================== ====================
14. SUBSEQUENT EVENT On August 10, 1995, the Company entered into an agreement to acquire Combinet Inc., a privately held manufacturer of remote access networking products. The agreement calls for the Company to issue approximately 2000 shares to acquire all the equity of Combinet, including outstanding options and warrants. The transaction is subject to several closing conditions and, if consummated, will be accounted for as a pooling of interests. 36 37 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Shareholders Cisco Systems, Inc. San Jose, California We have audited the accompanying consolidated balance sheets of Cisco Systems, Inc. and its subsidiaries as of July 30, 1995 and July 31, 1994 and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended July 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cisco Systems, Inc. and its subsidiaries as of July 30, 1995 and July 31, 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended July 30, 1995 in conformity with generally accepted accounting principles. /s/Coopers & Lybrand L.L.P. San Jose, California August 15, 1995 37 38 SUPPLEMENTARY FINANCIAL DATA 1995 AND 1994 BY QUARTER (Unaudited) (in thousands, except per-share amounts) (In thousands, except per-share amounts)
July 30, Apr. 30, Jan. 29, Oct. 30, July 31, May 1, Jan. 30, Oct. 24, 1995 1995 1995 1994 1994 1994 1994 1993 -------------------------------------------------------------------------------------------------- Net Sales $621,184 $509,910 $454,897 $392,925 $361,159 $331,193 $302,166 $248,457 Gross margin 418,727 344,388 306,693 264,956 242,755 222,052 200,644 164,700 Operating income 222,076 190,876 78,316 151,671 138,718 131,587 119,924 97,887 Income before provision for income taxes 231,812 201,661 86,266 159,307 144,929 136,479 125,359 102,726 Net income $143,723 $125,030 $ 53,485 $ 98,770 $ 89,566 $ 84,344 $ 77,472 $ 63,485 Net income per common share $ .51 $ .45 $ .19 $ .37 $ .34 $ .32 $ .29 $ .24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding Directors appearing under the caption "Election of Directors" in the Company's proxy statement to be mailed to Shareholders on or before October 2, 1995, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information appearing at the end of Part I and under the caption "Executive Compensation" in the Company's proxy statement to be mailed to Shareholders on or before October 2, 1995, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information appearing under the captions "Election of Directors" and "Ownership of Securities" in the Company's proxy statement to be mailed to Shareholders on or before October 2, 1995, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information appearing under the caption "Ownership of Securities" and "Certain Relationships and Related Transactions" in the Company's proxy statement to be mailed to Shareholders on or before October 2, 1995, is incorporated herein by reference. 38 39 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The financial statements listed in Item 14(a) are filed as part of this annual report. 2. Financial Statement Schedules The financial statement schedules listed in Item 14(a) are filed as part of this annual report. 3. Exhibits The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this annual report. (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of fiscal 1995. 39 40 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of California on this 17th day of October, 1995. Cisco Systems, Inc. /s/ John T. Chambers ------------------------------------- (John T. Chambers, President and Chief Executive Officer) Pursuant to the requirements of the Securities Act of 1933, this Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date President and Chief Executive Officer /s/ John T. Chambers (Principal Executive October 17, 1995 - ------------------------------------------- Officer and Director) John T. Chambers Vice President, Finance and Administration, Chief Financial Officer and /s/ Larry R. Carter Secretary October 17, 1995 - ------------------------------------------- (Principal Financial and Larry R. Carter Accounting Officer) /s/ John Morgridge Chairman of the October 17, 1995 - ------------------------------------------- Board and Director John P. Morgridge Vice Chairman of the - ------------------------------------------- Board and Director Donald T. Valentine /s/ Michael S. Frankel Director October 17, 1995 - ------------------------------------------- Dr. Michael S. Frankel /s/ James F. Gibbons Director October 17, 1995 - ------------------------------------------- Dr. James F. Gibbons /s/ Robert L. Puette Director October 17, 1995 - ------------------------------------------- Robert L. Puette /s/ Masayoshi Son Director October 17, 1995 - ------------------------------------------- Masayoshi Son
40 41 CISCO SYSTEMS, INC. ------------- INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES ITEM 14(A)
Page ---- Consolidated balance sheets at July 30, 1995 and July 31, 1994 ................. 21 Consolidated statements of operations for each of the three years in the period ended July 30, 1995........................................................... 22 Consolidated statements of shareholders' equity for each of the three years in the period ended July 30, 1995................................................ 23 Consolidated statements of cash flows for each of the three years in the period ended July 30, 1995........................................................... 24 Notes to consolidated financial statements...................................... 25 Report of Independent Accountants............................................... 37 Supplementary financial data: Fiscal years 1995 and 1994 by quarter (unaudited)............................. 38 Report of Independent Accountants............................................... 42 Schedule: II Valuation and qualifying accounts 43
All other schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements or notes thereto. 41 42 REPORT OF INDEPENDENT ACCOUNTANTS Our report on the consolidated financial statements of Cisco Systems, Inc. and its subsidiaries is included on page 37 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page 41 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. San Jose, California August 15, 1995 42 43 CISCO SYSTEMS, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Balance at Balance at Beginning Charged to End of of Period Expenses Deductions Period -------------------- -------------------- -------------------- ------------------- Year ended July 25, 1993: Allowance for doubtful accounts $ 2,905 $ 6,421 $ 4,412 $ 4,914 Allowance for excess and obsolete inventory 3,590 3,900 2,965(1) 4,525 Year ended July 31, 1994: Allowance for doubtful accounts 4,914 4,562 1,399 8,077 Allowance for excess and obsolete inventory 4,525 14,608 2,027(1) 17,106 Year ended July 30, 1995: Allowance for doubtful accounts 8,077 10,429 5,201 13,305 Allowance for excess and obsolete 17,106 42,482 21,779(1) 37,809 inventory
(1) Deductions principally relate to charges for standards changes. 43 44 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following exhibits are filed herewith.
Exhibit Number Exhibit Table - ------- ------------- 2.01** Agreement and Plan of Reorganization dated as of September 20, 1993 among the Company, Crescendo Communications Inc., and Co Acquisition Corporation 2.02** Agreement of Merger among the Company, Crescendo Communications Inc., and Co Acquisition Corporation 2.03# Agreement and Plan of Reorganization dated as of July 11, 1994 among the Company, Newport Systems Solutions, Inc. and New Acquisition Corporation 2.04+ Agreement and Plan of Reorganization dated as of October 21, 1994 among the Company, Kalpana, Inc. and Pan Acquisition Corporation 2.05++ Asset Purchase Agreement dated as of December 8, 1994 among the Company and LightStream Corporation 3.01* The Company's Restated Articles of Incorporation, as currently in effect 3.02* The Company's Bylaws, as currently in effect 4.01## The Company's 1987 Stock Option Plan, as currently in effect 4.02* Form of Incentive Stock Option Agreement for granting incentive stock options under the Company's 1987 Stock Option Plan 4.03* Series A Preferred Stock Purchase Agreement between the Company and certain investors dated December 22, 1987, as amended 10.05* Form of Restricted Stock Purchase Agreement for sales of Common Stock to employees, officers, directors and consultants 10.10* License Agreement between the Company and Network Equipment Technologies Inc dated February 14, 1989 10.12* License Agreement between the Company and The Board of Trustees of Leland Stanford Junior University dated April 15, 1987, as amended 10.13* 1989 Employee Stock Purchase Plan 10.14 Fiscal Year 1995 Management Incentive Plan 10.16* Agreement between the Company and American Telephone and Telegraph Company dated February 1, 1990 10.19* Letter of Employment between the Company and John T. Chambers dated January 9, 1991 10.20* Letter of Employment between the Company and John P. Morgridge dated October 17, 1988 10.21* Letter of Employment between the Company and Donald A. LeBeau dated July 15, 1992 10.22* Letter of Employment between the Company and Frank J. Marshall dated March 31, 1992 10.23* Lease Agreement between the Company and SGA Development Partnership, Ltd., dated February 19, 1993, for the Company's site in San Jose, California 10.24* Lease Agreement between the Company and Sumitomo Bank Leasing and Finance, Inc., dated May 13, 1993 for the Company's facilities in San Jose, California 10.25* Lease Agreement between the Company and SGA Development Partnership, Ltd., dated February 19, 1993, for the Company's site in San Jose, California 10.26* Lease Agreement between the Company and the State of California Public Employees' Retirement System dated March 11, 1993, for the Company's facilities at 3100 Smoketree Court 10.27* Lease Agreement between the Company and Sumitomo Bank Leasing and Finance, Inc., dated July 11, 1994 for the Company's site in Wake County, North Carolina 10.28* Lease Agreement between the Company and Sumitomo Bank Leasing and Finance, Inc., dated August 12, 1994 for the Company's facilities in Wake County, North Carolina
44 45
Exhibit Number Exhibit Table - ------- ------------- 10.29 Lease (Buildings "I" and "J") by and between Sumitomo Bank of New York Trust Company ("SBNYTC"), as trustee under that certain Trust Agreement dated May 22, 1995 between Sumitomo Bank Leasing and Finance, Inc. and SBNYTC ("SB Trust"), as Landlord, and the Company, as tenant, dated May 22, 1995 10.30 First Amendment to Lease (Buildings "I" and "J") between SB Trust and the Company, dated July 18, 1995 10.31 Lease (Buildings "K" and "L") by and between SB Trust and the Company, dated May 22, 1995 10.32 First Amendment to Lease (Buildings "K" and "L") between SB Trust and the Company, dated July 18, 1995 10.33 Lease (Improvements Phase "C") by and between SB Trust and the Company, dated May 22, 1995 10.34 First Amendment to Lease (Improvements Phase "C") between SB Trust and the Company, dated July 18, 1995 10.35 Ground Lease (Parcel 2 and Lot 54) by and between Irish Leasing Corporation ("Irish"), as Landlord, and the Company, as Tenant, dated February 28, 1995 for the Company's site in San Jose, California 10.36 First Amendment to Lease (Parcel 2 and Lot 54) by and between Irish and the Company dated as of May 1, 1995 10.37 Second Amendment to Lease (Parcel 2 and Lot 54) by and between Irish and the Company dated as of May 22, 1995 10.38 Ground Lease (Lots 58 and 59) by and between Irish and the Company dated February 28, 1995 for the Company's site in San Jose, California 10.39 First Amendment to Lease (Lots 58 and 59) by and between Irish and the Company dated as of May 1, 1995 10.40 Second Amendment to Lease (Lots 58 and 59) by and between Irish and the Company dated as of May 22, 1995 10.41 Ground Lease (Tasman Phase C) by and between Irish and the Company dated April 12, 1995 for the Company's site in San Jose, California 10.42 First Amendment to Lease (Tasman Phase C) by and between Irish and the Company dated as of May 1, 1995 10.43 Second Amendment to Lease (Tasman Phase C) by and between Irish and the Company dated as of May 22, 1995 10.44 Credit Agreement between the Company, the Banks Listed Herein, Bank of America National Trust and Savings Association, as Administrative Agent, Morgan Guaranty Trust Company of New York, as Documentation Agent and Bank of America National Trust and Savings Association, as Issuing Bank dated as of May 22, 1995 11.01 Statement Regarding Computation of Net Income Per Share 21.01 Subsidiaries of the Company 23.02 Consent of Independent Accountants 27 Financial Data Schedule
(b) The following financial statement schedules are filed herewith
Schedule - -------- II Valuation and qualifying accounts
- -------------- * Previously filed with registrant's registration statements (File #33-32778) ** Previously filed with registrant's Form 8-K dated October 8, 1993 + Previously filed with registrant's Form 8-K dated December 9, 1994 ++ Previously filed with registrant's Form 8-K dated January 25, 1995 # Previously filed with registrant's Form 8-K dated August 19, 1994 ## Previously filed with registrant's Proxy statement dated October 2, 1995 45 EX-10.14 2 MANAGEMENT INCENTIVE PLAN 1 CISCO SYSTEMS, INC. MANAGEMENT BONUS PLAN---LEVELS A - D FY 1995 I. INTRODUCTION A. THE OBJECTIVE OF THE MANAGEMENT BONUS PLAN is to financially reward Senior Managers for their contributions to the success of Cisco Systems, Inc. B. PARTICIPANTS: This plan applies to Cisco Systems, Inc. senior management staff in the following positions with the respective levels: LEVEL POSITION ----- -------- A President B Vice Presidents C All Directors D Managers, Grade 12 and above Any exceptions to the above will need to be approved by the President. Participation requires that the manager be employed on or before the first day of the last fiscal quarter. Participants in the Plan with less than one year of service will be eligible for a prorated bonus amount. Participants in this Plan are not eligible for Company Performance Awards. C. EFFECTIVE DATE: The Plan is effective for the Fiscal Year 1995, beginning August 1, 1994 through July 30, 1995. D. CHANGES IN PLAN: The Company presently has no plan to change the Management Bonus Plan during the fiscal year. The Company reserves the right to modify the Management Bonus Plan in total or in part, at any time. Any such change must be in writing and signed by the President. E. ENTIRE AGREEMENT: This Plan and attachments are the entire agreement between Cisco Systems, Inc. and the employee regarding the subject matter of this Plan and supersede all prior compensation or incentive plans or any written or verbal representations regarding the subject matter of this Plan. II. BONUS PLAN ELEMENTS A. BASE SALARY is determined by the participant's manager. The annual Base Salary in effect at the end of the fiscal year represents the basis for the bonus calculation. B. BONUS BASIS PERCENTAGE is a percentage level of Base Salary determined by the position.
LEVEL POSITION BONUS % ----- -------- ------- A President 45% B Vice President 40% C All Directors 35% D Managers, Grade 12 and above 30% CISCO CONFIDENTIAL
2 Management Bonus Plan Page 2 of 4 C. COMPANY PERFORMANCE FACTOR consists of two elements: 50% based upon achieving an established Revenue target and 50% based upon achieving a Profit Before Interest and Tax (PBIT) target per the current plan. 80% of each objective must be achieved for any bonus to be paid. COMPANY PERFORMANCE FACTOR
REVENUE PBIT ------- ---- Less than 80% 0 Less than 80% 80 - 100% 80 - 100% 80 - 100% Greater than 100% 2% for each 1% Greater than 100 above 100%
COMPANY PERFORMANCE FACTOR = (REVENUE + PBIT ) / 2 Example: Actual Revenue Performance is 110% of goal Actual PBIT Performance is 120% of goal REVENUE PBIT ------- ---- 100% 100% +20% +40% 120% 140% COMPANY PERFORMANCE FACTOR: (120 + 140) / 2 = 130% D. INDIVIDUAL PERFORMANCE FACTOR is based upon individual goal achievement for the fiscal year and is determined by the participant's manager. This factor may range from 1.00-1.20 with the following guidelines used:
FISCAL YEAR '95 INDIVIDUAL PERFORMANCE EVALUATION PERFORMANCE FACTOR 5 1.16 - 1.20 4 1.11 - 1.15 3 1.00 - 1.10
Employees who are on a Written Warning and/or are performing at a level of 1 or 2 at the end of the fiscal year are not eligible to receive a bonus. Any exceptions to this must be in writing and approved by the President. E. CUSTOMER SATISFACTION FACTOR is based upon a comparison of the current fiscal year customer satisfaction survey rating to last fiscal year's rating. This factor may range from 1.00 -1.10.
COMPARISON FACTOR ---------- ------ Current rating as compared Decrease 1.00 to last year's rating No Change 1.05 Increase 1.10
CISCO CONFIDENTIAL 3 Management Bonus Plan Page 3 of 4 F. PRORATION FACTOR accounts for the number of calendar days during the fiscal year that the employee was in the bonus-eligible position. For example, the Proration Factor for an employee who has been on the Plan the entire year will be "1.00". For an employee who has been on the plan for 6 months, this factor will be ".50". Employees in the following situations will have a Proration Factor of less than "1.00": - Participants in the Plan who transferred to a new position not governed by any incentive plan. - Employees who transferred from one bonus-eligible position to another bonus-eligible position. Employees in this situation will have their bonus prorated based on length of time in each position. - Employees who have been on the Plan less than 12 months (such as a new hire). - Employees who have been on a leave of absence greater than 14 calendar days. - Employees who have been on the Plan, terminated their employment, and returned to a bonus-eligible position all in the same fiscal year. G. BONUS FORMULA AND CALCULATION EXAMPLE: Assume a level C participant with a Base Salary of $105,000 at the 35% level, a Company Performance Factor of 1.30, an Individual Performance Factor of 1.15, a Customer Satisfaction Factor of 1.10 and a Proration Factor of 1.00. SAMPLE CALCULATION:
BONUS COMPANY INDIVIDUAL CUSTOMER BASE BASIS PERFORMANCE PERFORMANCE SATISFACTION PRORATION TOTAL SALARY PERCENTAGE FACTOR FACTOR FACTOR FACTOR BONUS ------ ---------- ------ ------ ------ ------ ----- $105,000 x .35 x 1.30 x 1.15 x 1.10 x 1.00 = $60,435.38
In this example, the Total Bonus equals approximately 58% of Base Salary. III. PROCEDURES AND PRACTICES A. PROCEDURE: 1. A list of eligible employees will be sent by Human Resources to the Executive Staff for review at the beginning of the fiscal year. Additions, deletions or other changes to the list will be made and the approved list will be returned to Human Resources. 2. Once the list is confirmed, a copy of the Plan will be sent to each participant. 3. Each eligible new hire and employees promoted into eligible positions will receive a copy of the plan during the fiscal year. 4. A month before fiscal year end, a list of eligible employees with all changes made during the year will again be sent to the Executive Staff for final review and approval. CISCO CONFIDENTIAL 4 Management Bonus Plan Page 4 of 4 5. Following year-end, Human Resources will distribute bonus worksheets to management and the Executive Staff will review and approve the final bonus amounts. 6. Human Resources will review bonus recommendations and transfer relevant information to Payroll to process the bonus checks. The checks will be sent to the appropriate Vice President for distribution, generally within 30 days following the end of the fiscal year. B. BUSINESS CONDUCT: It is the established policy of Cisco Systems, Inc. to conduct business with the highest standards of business ethics. Cisco employees may not offer, give, solicit or receive any payment that could appear to be a bribe, kickback or other irregular type of payment from anyone involved in any way with an actual or potential business transaction. Gifts, favors and entertainment are allowed such that they are consistent with our business practice, do not violate any applicable laws, are of limited value ($50.00 or less) and would not embarrass Cisco if publicly disclosed. C. TRANSFERS AND TERMINATIONS: Employees who are participants in the Management Bonus Plan and who transfer to a new position not governed by this Plan will be eligible on a pro-rata basis for the applicable period and paid as defined by the Plan. Any exceptions to the Plan must be designated in writing and approved by the President. A participant must be employed as of the last day of the fiscal year to be eligible for the bonus. If an employee terminates during the fiscal year, the employee is not eligible for the bonus. D. EMPLOYMENT AT WILL: The employment of all Plan participants at Cisco Systems, Inc. is for an indefinite period of time and is terminable at any time, with or without cause being shown or advance notice by either party. This Plan shall not be construed to create a contract of employment for a specified period of time between Cisco Systems, Inc. and any Plan participant. EX-10.29 3 LEASE, I AND J 5/22/95 1 LEASE (BUILDINGS "I" AND "J") By and Between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC as Landlord and CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION as Tenant for Premises located in San Jose, California THIS LEASE IS NOT INTENDED TO CONSTITUTE A TRUE LEASE FOR INCOME TAX PURPOSES. SEE SECTION 21.2 2 TABLE OF CONTENTS
Page ARTICLE 1 BASIC LEASE PROVISIONS............................................................................. 1 1.1 Date of Lease...................................................................................... 1 1.2 Landlord........................................................................................... 1 1.3 Tenant............................................................................................. 1 1.4 Land............................................................................................... 1 1.5 Premises........................................................................................... 1 1.6 Term............................................................................................... 2 1.7 Rent Commencement Date............................................................................. 2 1.8 Base Rent.......................................................................................... 3 1.9 Addresses for Notices.............................................................................. 3 1.10 Address for Rent Payments.......................................................................... 3 ARTICLE 2 DEFINITIONS........................................................................................ 4 2.1 Additional Rent.................................................................................... 4 2.2 Advance............................................................................................ 5 2.3 Approval Plans..................................................................................... 5 2.4 Authorized Loan.................................................................................... 5 2.5 Authorized Plans................................................................................... 5 2.6 Base Rent.......................................................................................... 5 2.7 Building........................................................................................... 5 2.8 Building Leases.................................................................................... 5 2.9 Capitalized Interest............................................................................... 5 2.10 Collateral......................................................................................... 5 2.11 Construction Period................................................................................ 5 2.12 Contractor......................................................................................... 5 2.13 Coverage Test...................................................................................... 6 2.14 Default............................................................................................ 6 2.15 Default Rate....................................................................................... 6 2.16 Entity............................................................................................. 6 2.17 Equity Contribution................................................................................ 6 2.18 Equity Funded Amount............................................................................... 6 2.19 Equity Rent Component.............................................................................. 6 2.20 Event of Major Default............................................................................. 7 2.21 Extension Fee...................................................................................... 7 2.22 Extension Term..................................................................................... 7 2.23 Fee Mortgage....................................................................................... 7 2.24 Funded Amount...................................................................................... 7 2.25 Guaranteed Residual Value.......................................................................... 7 2.26 HSBC............................................................................................... 8 2.27 Improvements....................................................................................... 8 2.28 Improvements Loan.................................................................................. 8 2.29 Initial Term....................................................................................... 8 2.30 ILC................................................................................................ 8 2.31 Land............................................................................................... 8 2.32 Land Lease......................................................................................... 8 2.33 Land Lease Deed of Trust........................................................................... 8 2.34 Land Loan.......................................................................................... 9 2.35 Landlord Affiliate................................................................................. 9 2.36 Landlord Deed of Trust............................................................................. 9 2.37 Lease Inception Date............................................................................... 9
i. 3 2.38 Legal Requirements................................................................................. 9 2.39 Lenders............................................................................................ 9 2.40 Lenders Deed of Trust.............................................................................. 9 2.41 LIBOR Business Day................................................................................. 9 2.42 LIBOR Rate. ...................................................................................... 10 2.43 Monthly Calculation................................................................................ 10 2.44 Mortgage........................................................................................... 10 2.45 Mortgagee.......................................................................................... 10 2.46 New Loan........................................................................................... 10 2.47 Nominal Rate....................................................................................... 10 2.48 Notes.............................................................................................. 10 2.49 Notice............................................................................................. 10 2.50 Official Records................................................................................... 10 2.51 Permitted Exceptions............................................................................... 10 2.52 Premises........................................................................................... 11 2.53 Real Estate Taxes.................................................................................. 11 2.54 Rent............................................................................................... 11 2.55 Rent Commencement Date............................................................................. 11 2.56 Rent Payment Date.................................................................................. 11 2.57 Rent Period........................................................................................ 11 2.58 Required Permits................................................................................... 11 2.59 SBNYTC............................................................................................. 11 2.60 Security Deposit................................................................................... 11 2.61 Senior Funded Amount............................................................................... 11 2.62 Senior Rent Component.............................................................................. 11 2.63 Site Plan.......................................................................................... 12 2.64 Sumitomo........................................................................................... 12 2.65 Taking............................................................................................. 12 2.66 Tenant Deed of Trust............................................................................... 12 2.67 Term............................................................................................... 12 ARTICLE 3 DEMISE............................................................................................. 12 3.1 Premises........................................................................................... 12 ARTICLE 4 TERM............................................................................................... 12 4.1 Initial Term....................................................................................... 12 4.2 Extension Term..................................................................................... 12 4.3 Holding Over....................................................................................... 13 ARTICLE 5 RENT............................................................................................... 13 5.1 Base Rent.......................................................................................... 13 5.2 Proration.......................................................................................... 16 5.3 No Abatement of Rent............................................................................... 16 5.4 Delinquent Rent.................................................................................... 16 5.5 Equity Funding..................................................................................... 16 5.6 Exhibits Reflecting Initial Advance and Rent Commencement Date.................................................................................. 17 5.7 Security Deposit................................................................................... 18 5.8 Additional Rent.................................................................................... 19 ARTICLE 6 TAXES.............................................................................................. 19 6.1 Real Estate Taxes.................................................................................. 19 6.2 Personal Property Taxes............................................................................ 20 6.3 Right to Contest................................................................................... 20
ii. 4 6.4 Withholding Taxes.................................................................................. 21 6.5 Additional Provisions Relating to Taxes............................................................ 21 ARTICLE 7 INSURANCE.......................................................................................... 22 7.1 Liability Insurance................................................................................ 22 7.2 Builders' Risk Insurance........................................................................... 23 7.3 All-Risk Insurance................................................................................. 23 7.4 General Requirements............................................................................... 23 7.5 Waiver of Subrogation.............................................................................. 24 7.6 Indemnity.......................................................................................... 24 ARTICLE 8 USE................................................................................................ 25 8.1 Use................................................................................................ 25 8.2 Contest of Legal Requirements...................................................................... 28 8.3 Indemnification.................................................................................... 28 ARTICLE 9 UTILITIES AND SERVICES............................................................................. 29 9.1 Services to the Premises........................................................................... 29 ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES................................................. 29 10.1 Tenant Obligations................................................................................. 29 10.2 Surrender of the Premises.......................................................................... 29 ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS....................................................................... 30 11.1 Tenant's Rights to Construct Improvements.......................................................... 30 11.2 Request for Construction Funding; Landlord Obligation to Fund................................................................................. 30 11.3 Conditions Precedent to Landlord's Obligation to Fund Initial Advances.............................................................................. 30 11.4 Conditions Precedent to Landlord's Obligation to Fund Subsequent Advances........................................................................... 33 11.5 Conditions Precedent to Landlord's Obligation to Fund Final Advance................................................................................. 34 11.6 Additional Provisions Regarding Advances........................................................... 34 11.7 Required Permits, Easements, etc................................................................... 35 11.8 Alterations........................................................................................ 35 11.9 Title to and Nature of Improvements................................................................ 35 11.10 Tenant as Landlord's Construction Agent............................................................ 36 11.11 Tenant's Release of Funding Commitment............................................................. 36 ARTICLE 12 LIENS.............................................................................................. 36 ARTICLE 13 ASSIGNMENT BY LANDLORD............................................................................. 36 13.1 Further Mortgages or Encumbrances by Landlord; Authorized Loans................................................................................... 36 13.2 Landlord's Right to Sell........................................................................... 39 13.3 Transfer of Funds and Property..................................................................... 39 ARTICLE 14 ASSIGNMENT AND SUBLEASING.......................................................................... 40 14.1 Right to Assign.................................................................................... 40 14.2 Right to Sublet.................................................................................... 40 14.3 Tenant's Right to Mortgage......................................................................... 41
iii. 5 ARTICLF 15 EMINENT DOMAIN..................................................................................... 41 15.1 Total or Substantial Taking........................................................................ 41 15.2 Partial Taking..................................................................................... 41 15.3 Temporary Taking................................................................................... 41 15.4 Damages............................................................................................ 42 15.5 Notice and Execution............................................................................... 42 ARTICLE 16 DAMAGE OR DESTRUCTION.............................................................................. 42 16.1 Casualty........................................................................................... 42 16.2 Termination of Lease............................................................................... 42 16.3 Insurance Proceeds................................................................................. 43 ARTICLE 17 DEFAULT............................................................................................ 45 17.1 Default............................................................................................ 45 17.2 Event of Major Default............................................................................. 45 17.3 Contest by Tenant.................................................................................. 47 17.4 Remedies........................................................................................... 47 17.5 No Waiver.......................................................................................... 48 17.6 Effect of Assignment............................................................................... 48 17.7 Landlord Cure Right................................................................................ 49 17.8 Landlord's Default................................................................................. 49 ARTICLE 18 QUIET ENJOYMENT.................................................................................... 50 ARTICLE 19 TENANT'S OPTION TO PURCHASE........................................................................ 51 19.1 Option To Purchase Premises........................................................................ 51 19.2 Mandatory Purchase/Sale of Premises................................................................ 53 19.3 Survival........................................................................................... 55 ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD................................................................... 55 20.1 Title and Subdivision.............................................................................. 55 20.2 Land Use........................................................................................... 55 20.3 Transfer of Property Interests..................................................................... 56 20.4 Trust Equity; No Other Asset....................................................................... 56 20.5 Default Under Authorized Loan...................................................................... 56 ARTICLE 21 MISCELLANEOUS...................................................................................... 57 21.1 Relationship....................................................................................... 57 21.2 Form of Transaction; Certain Tax Matters........................................................... 57 21.3 Notices............................................................................................ 58 21.4 Severability of Provisions......................................................................... 58 21.5 Entire Agreement; Amendment........................................................................ 58 21.6 Approvals and Consents............................................................................. 58 21.7 Terminology........................................................................................ 59 21.8 Memorandum of Lease................................................................................ 59 21.9 Successors and Assigns............................................................................. 59 21.10 Commissions........................................................................................ 59 21.11 Attorneys' Fees.................................................................................... 60 21.12 Governing Law...................................................................................... 60 21.13 Counterparts....................................................................................... 60 21.14 Time Is of the Essence............................................................................. 60 21.15 No Third Party Beneficiaries....................................................................... 60 21.16 Limitations on Recourse............................................................................ 60 21.17 Estoppel Certificates.............................................................................. 60
iv. 6 21.18 Collateral......................................................................................... 61 21.19 Landlord's Continuing Obligation to Sell........................................................... 61 21.20 As-Is Lease........................................................................................ 62 21.21 Net Lease.......................................................................................... 62 21.22 Representations and Warranties..................................................................... 62 21.23 Appraisal Procedure................................................................................ 62 21.24 Financial Reporting................................................................................ 64 21.25 Appraisal.......................................................................................... 64
List of Exhibits Exhibit A Description of Land Exhibit B Permitted Exceptions Exhibit C Site Plan Exhibit D Pre-Approved Approval Plans Exhibit E Memorandum of Lease Exhibit F Form of Contractor's Certificate Exhibit G Initial Advance Memorandum Exhibit H Rent Commencement Date Memorandum Exhibit I Draw Request Form Exhibit J Closing Costs and Fees to be Included in Funded Amount Exhibit K Notice of Interest Rate Period Selection Exhibit L Description of Additional Property Owned by Landlord v. 7 LEASE THIS LEASE ("Lease") by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC., AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"), is entered into as of the date set forth in Article 1 and shall be effective and binding upon the parties hereto as of such date. Capitalized terms used in this Lease shall have the definitions set forth in Article 2 or in the text of this Lease. In consideration of the Base Rent reserved herein, and the terms, covenants and conditions set forth below, Landlord and Tenant hereby agree as follows: ARTICLE 1 BASIC LEASE PROVISIONS 1.1 DATE OF LEASE: May 22, 1995. 1.2 LANDLORD: Sumitomo Bank of New York Trust Company, ("SBNYTC"), as trustee under that certain trust agreement dated May 22, 1995 between Sumitomo Bank Leasing and Finance, Inc. and SBNYTC. 1.3 TENANT: Cisco Systems, Inc., a California corporation. 1.4 LAND: That certain tract of land located in the City of San Jose, Santa Clara County, California, consisting of two (2) parcels and more particularly described on Exhibit A attached hereto, together with all easements, rights of way, appurtenances and other rights and benefits belonging or pertaining to such land. The Land does not include the Improvements. Landlord makes no representations as to the accuracy of the description of the Land. 1.5 PREMISES: The Improvements which Tenant may elect to construct, as agent for Landlord, on the Land pursuant to the terms of this Lease. The Premises does not include any portion of the Land itself. 1. 8 1.6 TERM: The initial term ("Initial Term") of this Lease shall commence on the Date of Lease set forth in Section 1.1 above and shall expire on May 21, 2000. Subject to the Extension Conditions contained in Section 4.2, upon at least ninety (90) days' prior written notice to Landlord, Tenant may extend the Initial Term for one (1) additional period of five (5) years ("Extension Term"). The Initial Term and (if exercised by Tenant) the Extension Term shall be referred to collectively herein as the "Term." The Term shall cease upon, and shall not refer to any period of time after, termination of this Lease (whether pursuant to the terms of the Lease, by operation of law, or otherwise). 1.7 RENT COMMENCEMENT DATE: Tenant's obligation to pay Base Rent shall commence on a Building-by-Building basis. With respect to any particular Building, the rent commencement date ("Rent Commencement Date") shall be the first LIBOR Business Day of the next calendar month which commences immediately following the earlier to occur of: (a) the date Tenant receives from the applicable governmental authority a final Certificate of Occupancy for the Building in question; or (b) eighteen (18) months following the first Advance by Landlord for the foundation for the Building in question. If Tenant shall elect to construct certain Improvements in a phase of Buildings, then on or before the Lease Inception Date for such phase of Buildings, Landlord and Tenant shall execute a memorandum of understanding that construction is taking place on a phased basis, and in that event, the Rent Commencement Date for such phase of Buildings shall be the first LIBOR Business Day of the next calendar month which commences immediately following the earlier to occur of: (i) the date Tenant receives a final Certificate of Occupancy for the phase in question from the applicable governmental authority; or 2. 9 (ii) eighteen (18) months after the first Advance by Landlord for the foundation for the phase in question. 1.8 BASE RENT: As described in Section 2.6. 1.9 ADDRESSES FOR NOTICES: LANDLORD: TENANT: Sumitomo Bank of New York Cisco Systems, Inc. Trust Company Treasury Department 277 Park Avenue 3535 Garrett Drive New York, NY 10172 Santa Clara, CA 95054 Attn: Corporate Trust Attention: Eugene Hill Department With a copy to: With a copy to: Landels, Ripley & Diamond Cisco Systems, Inc. Hills Plaza 3535 Garrett Drive 350 Steuart Street Santa Clara, CA 95054 San Francisco, CA 94105 Attention: Nancy Bareilles Attn: Bruce W. Hyman, Esq. and Todd J. Anson, Esq. Brobeck, Phleger & Harrison 550 West C Street Suite 1300 San Diego, CA 92101 1.10 ADDRESS FOR RENT PAYMENTS: Equity Rent Component: Sumitomo Bank of New York Trust Company 277 Park Avenue New York, NY 10172 Attn: Corporate Trust Department 3. 10 Senior Rent Component: One half (1/2) of the Senior Rent Component (as defined in Section 2.62) shall be payable at the following address: The Hongkong and Shanghai Banking Corporation Limited 160 Sansome Street San Francisco, CA 94104 Attn: Loan Administration Department and one half (1/2) of the Senior Rent Component (as defined in Section 2.62) shall be payable at the following address: The Sumitomo Bank, Limited 555 California Street Suite 3350 San Francisco, CA 94104 Attn: Mr. Dave Kubiak This Article 1 is intended to supplement and/or summarize the provisions set forth in the balance of this Lease. If there is any conflict between any provisions contained in this Article 1 and the balance of this Lease, the balance of this Lease shall control. ARTICLE 2 DEFINITIONS For purposes of this Lease, the following defined terms shall have the meanings set forth in this Article 2. 2.1 ADDITIONAL RENT. "Additional Rent" shall mean any amounts other than Base Rent payable by Tenant to Landlord or to other Entities on Landlord's behalf as required under this Lease, including, without limitation, interest accrued on past due Base Rent and on other past due Additional Rent amounts owing to Landlord hereunder (including interest on the past due amounts payable by Landlord to Lenders under the Improvements Loan, as described in Section 21.21, excluding interest on interest) at the Default Rate (to be compounded annually), costs and expenses to be paid or reimbursed by Tenant hereunder (including any amounts which Tenant owes to Landlord pursuant to the terms of Section 17.7 or Section 21.21), any charges, fees or other amounts due under the Improvements Loan and any other Authorized Loan, amounts due pursuant to Tenant's indemnity obligations hereunder, Real Estate Taxes, Tenant's obligation to pay condemnation proceeds to Landlord pursuant to Section 15.4, Tenant's obligation to pay insurance proceeds to Landlord pursuant to Section 16.3, Tenant's obligation to pay the Purchase Price under Section 19.2, and Tenant's obligation, if any, to pay the "Margin Increase" (as defined in that certain side letter regarding "Management of Collateral 4. 11 Account" between Tenant and HSBC, of even date herewith). Except as provided in this Section, Additional Rent shall not include interest charged on interest. 2.2 ADVANCE. "Advance" shall mean any payment by Landlord for Improvements which has been requested by Tenant and paid pursuant to the terms of Article 11. 2.3 APPROVAL PLANS. "Approval Plans" shall have the meaning set forth in Section 11.3(c). 2.4 AUTHORIZED LOAN. "Authorized Loan" shall have the meaning set forth in Section 13.1(b). 2.5 AUTHORIZED PLANS. "Authorized Plans" shall have the meaning set forth in Section 11.3(c). 2.6 BASE RENT. "Base Rent" shall mean, as of a Rent Payment Date, the sum of the following for any Building for which the Rent Commencement Date has occurred: (1) the Senior Rent Component; and (2) the Equity Rent Component. 2.7 BUILDING. "Building" shall mean any individual building which constitutes an Improvement. 2.8 BUILDING LEASES. "Building Leases" shall mean this Lease and those two (2) certain lease agreements by and between Landlord and Tenant for premises located in San Jose, California, dated the date hereof, collectively. 2.9 CAPITALIZED INTEREST. "Capitalized Interest" shall mean: (1) the Senior Rent Component incurred by Landlord to Lenders under the Notes on Advances during the construction of any Building or phase prior to the Rent Commencement Date for such Building or phase; and (2) the Equity Rent Component as a result of Advances made by Landlord pursuant to Section 5.5 during the construction of any Building or phase prior to the Rent Commencement Date for such Building or phase. 2.10 COLLATERAL. "Collateral" shall have the meaning set forth in Section 21.18. 2.11 CONSTRUCTION PERIOD. "Construction Period" for each Building or phase shall mean that period beginning on the date of the first Advance for the foundation of the Building or phase and ending on the Rent Commencement Date for the Building or phase. 2.12 CONTRACTOR. "Contractor" shall mean the general contractor hired to construct any Improvements, which contractor shall be selected by Tenant in Tenant's capacity as agent for Landlord, and shall be subject to Landlord's approval, which shall not be unreasonably withheld or delayed. Landlord hereby approves Devcon Construction, Inc. 5. 12 2.13 COVERAGE TEST. "Coverage Test" shall mean a requirement, wherever referenced in the Lease, that the fair market value of the Land and the Improvements together be at least three (3) times Equity Funded Amount. 2.14 DEFAULT. "Default" shall have the meaning set forth in Section 17.1. 2.15 DEFAULT RATE. "Default Rate" means that weighted average of the interest rates of (i) the Senior Rent Component as set forth in Section 2.62 and (ii) the Equity Rent Component set forth in Section 2.19, plus two percent (2.0%), or the highest rate permitted by applicable law (if any), whichever is less. Mathematically, the Default Rate shall be: (3/86 x Equity Rent Component rate) + (83/86 x Senior Rent Component rate) + 2% Each change in the Default Rate due to a change in such interest rates under the Notes shall take effect simultaneously with such change in such interest rates, without Notice to either party. Notwithstanding the foregoing, in the event that the foregoing Default Rate shall be in violation of any usury or similar law, then the Default Rate shall be reduced to the extent necessary to cause the Default Rate to comply with any usury or similar law. 2.16 ENTITY. "Entity" shall mean any person, corporation, partnership (general or limited), joint venture, association, joint stock company, trust or other business entity or organization. 2.17 EQUITY CONTRIBUTION. "Equity Contribution" shall mean that portion of the Funded Amount equal to three percent (3%) of the Funded Amount, which Landlord has paid as Landlord's equity contribution to the Funded Amount (subject, however, to Tenant's adjusted Base Rent payments in the forty-ninth (49th) and fiftieth (50th) months of the Term, as set forth in Section 5.1(a) below). 2.18 EQUITY FUNDED AMOUNT. "Equity Funded Amount" shall mean that portion of the Funded Amount equal to the amount which Landlord has paid pursuant to the terms of Section 5.5. The Equity Funded Amount shall be the sum of the Equity Contribution plus the Security Deposit. In no event shall the Equity Funded Amount exceed the difference between the Funded Amount minus the aggregate Guaranteed Residual Value. In no event shall the aggregate of the Equity Funded Amounts of the Building Leases exceed Nineteen Million Three Hundred Eighty Thousand Dollars ($19,380,000). 2.19 EQUITY RENT COMPONENT. "Equity Rent Component" shall mean the quotient equal to the product of the Equity Contribution (at the time of the relevant calculation of the Equity Rent Component) multiplied by the LIBOR Rate plus 4.05%, divided by 6. 13 the Monthly Calculation. Mathematically, the Equity Rent Component shall be: [(Equity Contribution) x (LIBOR Rate + 4.05%)] [ Monthly Calculation ] 2.20 EVENT OF MAJOR DEFAULT. "Event of Major Default" shall have the meaning set forth in Section 17.2. 2.21 EXTENSION FEE. "Extension Fee" shall have the meaning set forth in the Section 4.2. 2.22 EXTENSION TERM. "Extension Term" shall have the meaning set forth in the Basic Lease Provisions. 2.23 FEE MORTGAGE. "Fee Mortgage" shall mean any Mortgage, other than the Improvements Loan, at any time given by Landlord, and remaining uncancelled on the Official Records, encumbering all or any portion of Landlord's right, title and estate in Improvements. 2.24 FUNDED AMOUNT. "Funded Amount" shall mean the aggregate amount of any Advances requested and actually paid by Landlord pursuant to the terms of Section 11 (including Capitalized Interest) and the closing costs and fees set forth in Exhibit J attached hereto (which shall be attributable to the first Building or phase of the Lease), less any reductions in the principal amount of the Improvements Loan or any New Loan or in the Equity Funded Amount, whether such principal reduction or reduction in the Equity Funded Amount is accomplished by payment to Lenders or the holder of a New Loan, the application of the Collateral or other collateral by Lenders or the holder of a New Loan, the payment of insurance proceeds, condemnation awards, or otherwise (subject, however, to Tenant's obligation to adjust its Base Rent payments in the forty-ninth (49th) and fiftieth (50th) months of the Term, as set forth in Section 5.1(a) below). 2.25 GUARANTEED RESIDUAL VALUE. "Guaranteed Residual Value" shall be calculated on each Building or phase, and shall mean that amount necessary to cause the present value of the Minimum Lease Payments under this Lease, including the present value of the Guaranteed Residual Value, to approximately equal, but not exceed, eighty nine and 9/10 percent (89.9%) of the estimated Funded Amount, computed at the Lease Inception Date and discounted to present value as of the expected Rent Commencement Date using the interest rate implicit in the Lease (or Tenant's best available incremental borrowing rate as communicated by Tenant to Landlord, if lower), all as calculated and determined pursuant to Statement of Financial Accounting Standards Number 13. "Minimum Lease Payments" shall mean the Base Rent payable over the Initial Term and the Extension Term, plus imputed interest on the Security Deposit imputed at the one month LIBOR rate of interest, plus the Guaranteed Residual Value, plus the following to the extent paid in cash: the fees listed on Exhibit J, the Extension Fee and 7. 14 reimbursed costs of Landlord paid by Tenant deemed to meet the definition of Minimum Lease Payments under SFAS No. 13. During the Construction Period for each Building, the Guaranteed Residual Value shall not exceed an amount determined by multiplying the then existing Funded Amount for such Building by a fraction, the numerator of which is the estimated Guaranteed Residual Value to be allocated to such Building as of the Rent Commencement Date for such Building and the denominator of which is the estimated Funded Amount to be allocated to such Building as of such Rent Commencement Date. If, at any time prior to the determination of the Guaranteed Residual Value for any Building or phase, the Financial Accounting Standards Board, Emerging Issues Task Force, or the Securities Exchange Commission, releases any pronouncements which modify FAS 13, paragraph 7(d) which outlines the criteria for the determination of the Guaranteed Residual Value, this Section 2.25 shall be modified to insure compliance with the new standards. 2.26 HSBC. "HSBC" shall mean The Hongkong and Shanghai Banking Corporation Limited, a Hong Kong banking corporation, acting through its San Francisco branch. 2.27 IMPROVEMENTS. "Improvements" shall mean any and all improvements which Tenant may elect, as construction agent for Landlord, to erect, construct or situate upon the Land or any part thereof during the Term under and pursuant to the terms of, and using funding provided by or through Landlord pursuant to Article 11 of this Lease. Any improvements constructed, erected or situated on the Land which are not funded by or through Landlord pursuant to the terms of Article 11 of this Lease shall be and remain the property of Tenant, and shall not be subject to the terms of this Lease. 2.28 IMPROVEMENTS LOAN. "Improvements Loan" shall have the meaning set forth in Section 13.1(b). 2.29 INITIAL TERM. "Initial Term" shall have the meaning set forth in the Basic Lease Provisions. 2.30 ILC. "ILC" shall mean Irish Leasing Corporation, a Texas corporation, or a successor landlord under the Land Lease. 2.31 LAND. "Land" shall have the meaning set forth in the Basic Lease Provisions. 2.32 LAND LEASE. "Land Lease" shall mean that certain Ground Lease dated as of February 28, 1995 by and between Tenant and ILC, by which Tenant leases the Land from ILC. 2.33 LAND LEASE DEED OF TRUST. "Land Lease Deed of Trust" shall mean that certain fourth priority deed of trust, junior only to the lien of the Lenders Deed of Trust, the Landlord Deed of Trust and the Tenant Deed of Trust, by ILC, as trustor, in favor of Tenant, as beneficiary, dated May 1, 1995 and recorded on 8. 15 May 1, 1995 in the Official Records as Instrument No. 12877066, and as more fully described in Section 13.1(g). 2.34 LAND LOAN. "Land Loan" shall mean that loan funded by Union Bank of Switzerland, a Swiss banking corporation, acting through its Los Angeles branch, or any other loan authorized pursuant to the terms of the Land Lease for purposes of ILC's purchase of the Land, as more particularly described in the Land Lease. 2.35 LANDLORD AFFILIATE. "Landlord Affiliate" shall mean any Entity which controls or is controlled by or is under the common control of Landlord or its beneficiary. 2.36 LANDLORD DEED OF TRUST. "Landlord Deed of Trust" shall mean that certain second priority deed of trust, securing Tenant's obligations under this Lease, and junior only to the lien of the Lenders Deed of Trust, to be executed by Tenant in favor of Landlord and recorded in the Official Records as of the Date of Lease, as more fully described in Section 13.1(e). 2.37 LEASE INCEPTION DATE. "Lease Inception Date" shall mean, for the first Building or phase constructed (i.e., Building "J" as depicted in the Site Plan attached hereto as Exhibit C), the date of this Lease. For subsequent Buildings or phases, "Lease Inception Date" shall be that date when Tenant's Approval Plans for such Building or phase are approved by Landlord pursuant to Section 11.3(c). 2.38 LEGAL REQUIREMENTS. "Legal Requirements" shall mean all statutes, codes, laws, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all federal, state, county, municipal and other governments, departments, commissions, boards, courts, authorities, officials and officers, which now or at any time hereafter are applicable to Tenant or this Lease or applicable to and enforceable against the Premises, the Improvements or any part thereof, as applicable. 2.39 LENDERS. "Lenders" shall mean HSBC and Sumitomo, collectively. Individually, the Lenders are sometimes hereinafter referred to as a Lender. 2.40 LENDERS DEED OF TRUST. "Lenders Deed of Trust" shall mean that certain first priority deed of trust to be executed by Landlord and Tenant in favor of HSBC and Sumitomo jointly and recorded in the Official Records as of the Date of Lease, as more fully described in Section 13.1(d). 2.41 LIBOR BUSINESS DAY. "LIBOR Business Day" shall have the same meaning as "Business Day" is defined in the Notes or other Authorized Loan. 9. 16 2.42 LIBOR RATE. "LIBOR Rate" shall mean the LIBOR Rate as defined in the Notes, or a subsequent Authorized Loan, as selected in accordance with Section 5.1(d). 2.43 MONTHLY CALCULATION. "Monthly Calculation" shall mean the quotient resulting from dividing three hundred sixty (360) by the number of days in any applicable calendar month. The applicable calendar month shall be the month for which the calculation involving this Monthly Calculation is being done. 2.44 MORTGAGE. "Mortgage" shall mean any mortgage, deed of trust, or other instrument in the nature thereof at any time and from time to time constituting a lien, charge or encumbrance upon any interest or estate of Tenant or Landlord in the Premises or in this Lease. 2.45 MORTGAGEE. "Mortgagee" shall mean the record holder (as reflected in the Official Records) from time to time of, or the record beneficiary (as reflected in the Official Records) from time to time under, a Mortgage. 2.46 NEW LOAN. "New Loan" shall have the meaning set forth in Section 13.1(b). 2.47 NOMINAL RATE. "Nominal Rate" shall mean the operative and relevant rate (or rates) of interest under the Notes from time to time, or if the Improvements Loan has been replaced by an Authorized Loan, then the relevant rate of interest under the promissory note evidencing such Authorized Loan, all subject to the terms of Section 13.1(b). 2.48 NOTES. "Notes" shall have the meaning set forth in Section 13.1(b). 2.49 NOTICE. "Notice" shall mean a written advice, request, demand or notification required or permitted by this Lease, as more particularly provided in Section 21.3. 2.50 OFFICIAL RECORDS. "Official Records" shall mean the official records of Santa Clara County, California. 2.51 PERMITTED EXCEPTIONS. "Permitted Exceptions" shall mean the following: (1) the exceptions set forth in Exhibit B; (2) any exceptions created or caused by Tenant or to which Tenant consents in writing; (3) taxes and assessments not yet due and payable; (4) the Lenders Deed of Trust (or, if the Lenders Deed of Trust has been reconveyed and removed from title, then a deed of trust that secures an Authorized Loan); (5) the Landlord Deed of Trust; (6) the Tenant Deed of Trust; (7) the Land Lease Deed of Trust; (8) all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way, and restrictive covenants and conditions affecting the Land unless any of the foregoing arise as a result of Landlord's actions or with Landlord's written consent (unless such 10. 17 actions taken or consent given by Landlord are requested in writing by Tenant); and (9) this Lease. 2.52 PREMISES. "Premises" shall have the meaning set forth in the Basic Lease Provisions. It is the intention of the parties that the Premises consist only of the Improvements, and in no event shall the Premises consist of any portion of the Land. 2.53 REAL ESTATE TAXES. "Real Estate Taxes" shall have the meaning set forth in Section 6.1(b). 2.54 RENT. "Rent" shall mean Base Rent and Additional Rent. 2.55 RENT COMMENCEMENT DATE. "Rent Commencement Date" shall have the meaning set forth in the Basic Lease Provisions. 2.56 RENT PAYMENT DATE. "Rent Payment Date" shall have the meaning set forth in Section 5.1. 2.57 RENT PERIOD. "Rent Period" shall mean each period equal to one calendar month occurring during the Term hereof, except that the first Rent Period shall be a partial calendar month commencing on the Rent Commencement Date and ending on the last day of such calendar month and the last Rent Period shall be a partial calendar month commencing on the first LIBOR Business Day of the last calendar month of the Term and ending on the last day of the Term. 2.58 REQUIRED PERMITS. "Required Permits" shall mean each and every building and development permit including, without limitation, demolition permits, site permits and addenda thereto (including, without limitation, foundation permits and structural permits), temporary and final occupancy permits and any other governmental or quasi-governmental approvals which must be issued by any governmental authority, department, commission, board, official or officer as a condition precedent to construction and occupancy of any Improvements. 2.59 SBNYTC. "SBNYTC" shall mean Sumitomo Bank of New York Trust Company. 2.60 SECURITY DEPOSIT. "Security Deposit" shall have the meaning set forth in Section 5.7. 2.61 SENIOR FUNDED AMOUNT. "Senior Funded Amount" of this Lease shall mean that amount equal to the Funded Amount minus the Equity Funded Amount, which amount shall not exceed the Guaranteed Residual Value. 2.62 SENIOR RENT COMPONENT. "Senior Rent Component" shall mean the quotient equal to the product of the Senior Funded Amount (at the time of the relevant calculation of the Senior Rent 11. 18 Component) multiplied by the Nominal Rate, divided by the Monthly Calculation. Mathematically, the Senior Rent Component shall be: [ Senior Funded Amount x Nominal Rate ] [ Monthly Calculation ] 2.63 SITE PLAN. "Site Plan" shall mean the Site Plan attached hereto as Exhibit C. 2.64 SUMITOMO. "Sumitomo" shall mean The Sumitomo Bank, Limited, a Japanese banking corporation, acting through its San Francisco branch. 2.65 TAKING. "Taking" shall have the meaning set forth in Section 15.1. 2.66 TENANT DEED OF TRUST. "Tenant Deed of Trust" shall mean that certain third priority deed of trust, securing (i) Landlord's obligation to return Tenant's Security Deposit under this Lease and (ii) Landlord's obligation to convey the Premises to Tenant pursuant to Article 19 of this Lease, and shall be junior only to the liens of the Lenders Deed of Trust and the Landlord Deed of Trust, to be executed by Landlord, as trustor, in favor of Tenant, as beneficiary, and recorded in the Official Records as of the Date of Lease, as more fully described in Section 13.1(f). 2.67 TERM. "Term" shall have the meaning set forth in the Basic Lease Provisions. ARTICLE 3 DEMISE 3.1 PREMISES. Subject to the terms, covenants and conditions contained herein, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, together with all rights, privileges, easements and appurtenances relating to the Premises. ARTICLE 4 TERM The Term of this Lease shall consist of the Initial Term, and if exercised by Tenant, the Extension Term, as follows: 4.1 INITIAL TERM. The Initial Term of this Lease is specified in Article 1. 4.2 EXTENSION TERM. Upon Notice of the extension given to Landlord in accordance with Article 1, so long as the "Extension Conditions" (defined below) are satisfied at the time of such Notice of extension, Tenant may extend the Term for the Extension Term specified in Article 1. All provisions of this Lease shall 12. 19 remain in full force and effect for the Extension Term, including, without limitation, the Base Rent payable hereunder, except that Tenant shall have no further right to extend the Term of this Lease, and except that the Base Rent during the Extension Term may be adjusted only to reflect any actual change in the rate of interest (that is, the spread over LIBOR) charged pursuant to the Authorized Loan. The "Extension Conditions" shall consist of the following: (1) Tenant shall satisfy the "Financial Tests" (defined below) at the time of such Notice and as of the expiration of the Initial Term; (2) Tenant shall pay to Landlord no later than thirty (30) days before the first day of the Extension Term an amount equal to the product of the outstanding Funded Amount as of the end of the fifty-seventh (57th) full calendar month of the Initial Term times 0.25% ("Extension Fee"); (3) there shall exist no ongoing and uncured Event of Major Default at the time of such Notice and as of the expiration of the Initial Term; (4) the Improvements Loan shall have been refinanced or repaid as of the commencement of the Extension Term (the refinancing or repayment of which shall be subject to the terms of Section 13.1(c)) and (5) the Land and the Improvements shall satisfy the Coverage Test at the time of the Notice and as of the expiration of the Initial Term. The "Financial Tests" shall consist of the following: (a) Tenant shall have a minimum tangible net worth (total assets minus intangible assets minus total liabilities, as calculated in accordance with generally accepted accounting principles) ("Tangible Net Worth") of not less than Seven Hundred Fifty Million Dollars ($750,000,000); (b) Tenant's leverage (the ratio of funded debt to Tangible Net Worth) shall not exceed a ratio of 1:1; and (3) Tenant shall not have incurred any net losses in excess of Ten Million Dollars ($10,000,000) per year during the two complete fiscal years immediately preceding such Notice of extension. 4.3 HOLDING OVER. If Tenant remains in possession of the Premises after the expiration of the Term without executing a new lease, such holding over shall be construed as a tenancy from month-to-month, subject to all terms, covenants and conditions herein contained, and at the Base Rent required to be paid by Tenant pursuant to the terms hereof during the last month of the Term. ARTICLE 5 RENT 5.1 BASE RENT. (a) PAYMENT. Base Rent shall accrue in the manner set forth below commencing on the Rent Commencement Date. Tenant's obligation to pay Base Rent, with respect to any Building, shall commence accruing on the Rent Commencement Date for such Building, and shall be payable monthly in arrears thereafter on the first LIBOR Business Day of each successive month, except that the last installment of Base Rent shall be payable on the last day of the last month during the Term (each such date shall be a "Rent Payment 13. 20 Date"). Tenant's obligation to pay Base Rent on account of Advances made for any Building shall not commence accruing until the Rent Commencement Date for that Building. No sooner than thirty (30) days prior to the due date for any installment of Base Rent hereunder, Landlord shall deliver to Tenant a Notice indicating the exact dollar amount of the Base Rent that is due on such due date ("Invoice"). The Base Rent payment due on the first LIBOR Business Day of the forty-ninth (49th) month of the Term shall be deemed paid entirely to Landlord to be applied first to the Equity Rent Component then due and the balance to be applied to the reduction of the Equity Funded Amount. The amount of the Senior Rent Component that would otherwise have been due but for the preceding sentence shall be added to the Senior Funded Amount. The Base Rent payment due on the first LIBOR Business Day of the fiftieth (50th) month of the Term shall be deemed paid entirely to Lenders under the Improvements Loan to the extent of the Senior Rent Component for the immediately preceding month and the balance shall be applied to the reduction of the Senior Funded Amount (excluding any prepayment premium thereon). Tenant shall pay Base Rent as follows: The Senior Rent Component shall be paid to Lenders as set forth in the Basic Lease Provisions, and the Equity Rent Component shall be paid to Landlord at the Address for Rent set forth in the Basic Lease Provisions (or, if the Improvements Loan has been replaced by a New Loan or Replacement Loan, then the Senior Rent Component shall be paid directly to the holder of such New Loan or Replacement Loan) or at such other place as Landlord and Tenant may from time to time mutually agree upon, in their respective sole and absolute discretion. With the exception of payments made pursuant to the Clearinghouse Debit Account and Clearinghouse Credit Account, established by Tenant in accordance with the requirements of this Section 5.1(b) and (c), as set forth below, Tenant shall pay Base Rent by wire transfer or by check. Landlord, Lenders or such other holder of a New Loan or Replacement Loan, as the case may be, shall supply Tenant with such bank account information as Tenant shall require to enable payment by wire transfer. The parties agree that Tenant is paying the Senior Rent Component of Base Rent directly to Lenders for the convenience of the parties in order to satisfy Landlord's obligations to pay interest under the Improvements Loan for the period of time corresponding to the Term of this Lease; all Base Rent payments shall be deemed payments to Landlord to the extent of the Equity Rent Component and payments of the interest due to Lenders under the Improvements Loan to the extent of the Senior Rent Component. (b) CLEARINGHOUSE CREDIT ACCOUNT.At any time, and from time to time, during the Term of the Lease, Tenant shall have the right to request in writing that a Lender designate a clearinghouse credit account at a financial institution legally authorized to receive funds on behalf of the Lender ("Clearinghouse Credit Account") for Tenant's payment of the Senior Rent Component due and payable to the Lender (as set forth in the Basic Lease Provisions) on a Rent Payment Date. At any time, and from time to 14. 21 time, after a Lender's designation of a Clearinghouse Credit Account, Tenant may, but shall not be obligated to, deposit funds on a Rent Payment Date in the exact amount of the Senior Rent Component due and payable to the Lender who has established such a Clearinghouse Credit Account and any payment by Tenant of a portion of the Senior Rent Component due a Lender by payment directly into a Lender's Clearinghouse Credit Account shall not prevent Tenant from making future payments of rent by any other means permitted in this Section 5.1. A Lender's designation of a Clearinghouse Credit Account for deposit of Tenant's payment of the Lender's portion of the Senior Rent Component shall be deemed that Lender's approval of Tenant's payment of the Lender's Senior Rent Component into the Clearinghouse Credit Account. Tenant's ability to deposit a Lender's portion of the Senior Rent Component into a Clearinghouse Credit Account shall not alleviate Landlord's obligation to deliver to Tenant an Invoice as set forth above. (c) CLEARINGHOUSE DEBIT ACCOUNT. At any time, and from time to time, during the Term of the Lease, Tenant and HSBC may agree that Tenant's payment of HSBC's portion of the Senior Rent Component as set forth in the Basic Lease Provisions shall be paid to HSBC by funds available to HSBC in a clearinghouse debit account at a financial institution reasonably acceptable to HSBC ("Clearinghouse Debit Account"). If Tenant and HSBC agree to payment of HSBC's portion of the Senior Rent Component through a Clearinghouse Debit Account, Tenant shall provide written notice of such agreement to Landlord, and shall indicate the account number and location of the Clearinghouse Debit Account. The Clearinghouse Debit Account shall be terminable by Tenant at will, without advance notice to Landlord or HSBC. During any portion of the Term in which the Clearinghouse Debit Account is available for and contains sufficient funds to cover the amount of HSBC's portion of the Senior Rent Component due and payable to HSBC on a Rent Payment Date, interest shall not accrue on (nor shall Tenant be deemed in default hereunder for failure to pay) any of HSBC's portion of the Senior Rent Component due hereunder which is not collected on a Rent Payment Date due to any failure by HSBC to collect its portion of the Senior Rent Component in a timely manner. HSBC's ability to collect its portion of the Senior Rent Component from the Clearinghouse Debit Account shall not alleviate Landlord's obligation to deliver to Tenant an Invoice as set forth above. Notwithstanding anything to the contrary in this Lease, the Clearinghouse Debit Account shall not be used for the payment of any amounts (whether or not payable under the Lease) other than HSBC's portion of the Senior Rent Component as set forth in the Basic Lease Provisions and which are due and payable on the then-current Rent Payment Date. (d) INTEREST RATE SELECTION. The parties acknowledge that the interest rate applicable under the Improvements Loan (or other Authorized Loan) and the Equity Rent Component shall affect the amount of Base Rent payable by Tenant hereunder. Therefore, Tenant shall have the right, by written notice to Landlord in the form of Exhibit K (which notice may be 15. 22 transmitted to Landlord by facsimile), to designate the interest period to be selected from time to time by Landlord pursuant to the terms of the Notes (or other Authorized Loan) as the interest period then in effect for interest rate of the Improvements Loan (or other Authorized Loan) and the Equity Rent Component. Tenant acknowledges that the rates available to be selected as the LIBOR Rate after the first partial calendar month of the Term are 1, 3, 6, 9 or 12-month LIBOR rates. In the event that Tenant fails to give such written notice to Landlord prior to the applicable deadline for selection of such interest period pursuant to the terms of the Notes (or other Authorized Loan), Landlord shall select the same interest period then in effect for the Improvements Loan (or other Authorized Loan) and for the Equity Rent Component. Notwithstanding the foregoing, the interest rate applicable during the Construction Period for each Building or phase shall be the one-month LIBOR rate. 5.2 PRORATION. If the Term expires or is otherwise terminated on a day other than the day before the first LIBOR Business Day of a calendar month, then Base Rent for such Rent Period shall be prorated on the basis of actual days elapsed on the basis of a thirty (30) day month. 5.3 NO ABATEMENT OF RENT. Except as a consequence of a reduction in the Funded Amount or the terms of Section 15 (Taking), Tenant shall not be entitled to any abatement, diminution, reduction, setoff or postponement of Base Rent as a consequence of any inconvenience to, interruption of, cessation of or loss of Tenant's use or enjoyment of the Premises or as a result of any reason whatsoever. 5.4 DELINQUENT RENT. Any Base Rent not paid on the due date shall accrue interest at the Default Rate from the date such Base Rent was originally due until the date such Base Rent is paid. All interest accrued on past due Base Rent shall be due and payable to Landlord at the time the Base Rent is paid, or upon demand by Landlord, if earlier. 5.5 EQUITY FUNDING. (a) For each Building (as such term is defined in Section 5.6 for purposes of this Section 5.5), after the appraisal described in Section 21.25 has been received by Landlord, Landlord shall itself fund any Advances on a proportionate basis based upon a fraction of the total amount of the Advance, the numerator of which is the difference between the total estimated Funded Amount (as of completion of construction, as reasonably estimated by Tenant) for the Building or phase less the Guaranteed Residual Value for such Building, and the denominator of which is the total estimated Funded Amount (as of completion) for such Building or phase; provided that the Equity Funded Amount of Advances for a Building shall be deemed to be paid on a proportionate basis out of those funds held by Landlord as Tenant's Security Deposit and out of Landlord's Equity Contribution. In no event shall Landlord be 16. 23 required to do any of the following: (a) pay the Equity Funded Amount of Advances for a Building resulting in such payment exceeding the difference between the Funded Amount for such Building minus the Guaranteed Residual Value for such Building; (b) make Advances such that the aggregate Funded Amounts of the Building Leases exceeds One Hundred Fourteen Million Dollars ($114,000,000) or the aggregate Equity Funded Amounts of the Building Leases exceeds Nineteen Million Three Hundred Eighty Thousand Dollars ($19,380,000); or (c) make Advances such that the Funded Amount under this Lease exceeds Thirty Two Million Dollars ($32,000,000). (b) Notwithstanding the foregoing, in the event: (1) Contractor fails to complete any Building or phase on account of either the insolvency or bankruptcy of the Contractor or a dispute with the Contractor concerning an alleged default by the Contractor; and (2) Tenant elects to have Landlord enter into a construction contract with another contractor for the purpose of completing such Building or phase; and (3) completion of such incomplete Building or phase by another contractor requires funds in excess of the funds that would have been required had Contractor not become insolvent or bankrupt or had such dispute not existed (excluding change orders), then Landlord's obligation for funding for such Building or phase under this Section 5.5 shall be equal to the amount that Landlord would have been required to fund under this Section 5.5 absent such insolvency, bankruptcy or dispute plus the amount of any change orders. At least two (2) days prior to making such equity Advance to Tenant, Landlord shall submit to Tenant and shall have obtained Tenant's prior written approval of the amount of such payment and the basis upon which such amount has been calculated. Tenant may withhold Tenant's consent to such payment if Tenant's accountant in good faith disagrees with such amount or the manner in which it was calculated. 5.6 EXHIBITS REFLECTING INITIAL ADVANCE AND RENT COMMENCEMENT DATE. Within thirty (30) days after the initial Advance for the foundation for any Building and within thirty (30) days after the initial Advance under this Lease, Landlord and Tenant shall execute the "Initial Advance Memorandum" in the form attached hereto as Exhibit G. With respect to the initial Advance under this Lease, the Initial Advance Memorandum shall also indicate to which Building such Advance applies. Within thirty (30) days after the Rent Commencement Date for any Building under this Lease, Landlord and Tenant shall execute the "Rent Commencement Date Memorandum" in the form attached hereto as Exhibit H. If the Rent Commencement Date for any Building under this Lease occurs prior to the completion or occupancy of such Building, then the parties shall, within thirty (30) days after the completion or occupancy of such Building, enter into a memorandum, which shall reflect the Guaranteed Residual Value for such Building (the parties acknowledge that, except as provided in Section 19.2, they will not reflect the Guaranteed Residual Value for any Building until such Building has been completed or occupied). Guaranteed Residual Value for any Building during construction and 17. 24 after construction shall be determined by multiplying the Guaranteed Residual Value percentage, calculated pursuant to Section 2.25, by the Funded Amount for any Building at the date of calculation. Whenever the term "Building" is used in this Lease in connection with the calculation of the Guaranteed Residual Value during a construction period, in connection with Landlord's equity funding under Section 5.5 or in connection with Tenant's Security Deposit funding under Section 5.7, such term shall mean a particular construction phase of the Improvements. 5.7 SECURITY DEPOSIT. On the date of initial Advance for a Building, Tenant shall deliver to Landlord a security deposit ("Security Deposit") in an amount equal to fourteen percent (14%) of the estimated Funded Amount for the Building as stated in the Initial Advance Memorandum for the Building in the form attached hereto as Exhibit G. Landlord may use and commingle the Security Deposit with other funds of Landlord and the Security Deposit shall not bear interest. On the Rent Commencement Date, the amount of the Security Deposit shall be increased or decreased to an amount equal to the difference between the Funded Amount minus the sum of the Landlord's Equity Contribution and the Guaranteed Residual Value (as of such date, as determined pursuant to the Rent Commencement Date Memorandum for the Building in the form attached hereto as Exhibit H). Mathematically, the Security Deposit as of the Rent Commencement Date shall be: Funded Amount - (Guaranteed Residual Value + Equity Contribution) The Security Deposit shall be held by Landlord as security solely for the payment of Base Rent and Additional Rent by Tenant pursuant to this Lease. If at any time during the Term any Base Rent shall be overdue, then Landlord may at its election (but shall not be required to) appropriate and apply any portion of the Security Deposit to the payment of any such overdue Base Rent. Should the entire Security Deposit, or any portion thereof, be appropriated and applied by Landlord as provided herein, then Tenant shall immediately, after receipt of written demand by Landlord, pay to Landlord a sufficient sum in cash to restore the Security Deposit to the amount of the Security Deposit as of the Rent Commencement Date. In the event that the Equity Funded Amount is reduced for any reason, including without limitation by reason of a sale of any portion of the Premises or the application of the proceeds of a condemnation award to reduce the Equity Funded Amount (it being understood that the Equity Funded Amount will only be reduced in the event and to the extent that the net proceeds of such condemnation award exceeds the Senior Funded Amount, with such award proceeds to be applied first to the Senior Funded Amount pursuant to Section 15.4 hereof), the amount of the Security Deposit required hereunder shall be reduced by a like amount, and any such excess funds held by Landlord shall immediately be returned to Tenant. The entire Security Deposit (other than amounts withheld against Base Rent and Additional Rent due hereunder) shall be returned to Tenant at the end of the Term. 18. 25 5.8 ADDITIONAL RENT. Tenant agrees to pay all Additional Rent when it becomes due and payable under this Lease. ARTICLE 6 TAXES 6.1 REAL ESTATE TAXES. (a) From and after the Rent Commencement Date Tenant shall pay directly to the appropriate taxing authority all Real Estate Taxes. If the Rent Commencement Date occurs or the Term expires or otherwise terminates at any time other than the beginning or end of a taxable year, Tenant's obligation to pay Real Estate Taxes shall be prorated on the basis of a 365-day year, so as to include only that portion of the taxable year which is a part of the Term. Unless a termination of the Lease results from a purchase of the Land pursuant to Article 19, any Real Estate Taxes levied against the Land which accrue during the Term of this Lease but which would not be due and payable to the appropriate taxing authority until after the expiration of the Term of this Lease (as the same may be extended) shall be paid by Tenant to Landlord upon such termination. Landlord shall pay such amounts to the appropriate taxing authority on a timely basis. (b) Except to the extent that Real Estate Tax bills and statements are sent directly to Tenant by the taxing authority, upon receipt by Landlord of the tax bills or statements, Landlord will use reasonable efforts to promptly advise Tenant in writing of all Real Estate Taxes and shall deliver copies of all applicable tax bills or statements to Tenant. Tenant shall pay directly to the taxing authority all Real Estate Taxes prior to the later of (i) thirty (30) days after receipt by Tenant from Landlord of a copy of such bills and statements referred to above, or (ii) five (5) days prior to delinquency. As used herein, the term "Real Estate Taxes" shall mean any and all taxes, governmental fees and similar charges or assessments levied or assessed against the Improvements and/or the Land including, without limitation, ad valorem taxes and special assessments applicable to real property; provided, however, that Real Estate Taxes shall not include any Landlord Income Taxes. Real Estate Taxes shall also include any and all documentary, transfer, sales, mortgage, recording or similar taxes imposed on Landlord or Tenant in connection with (i) the original acquisition of the Premises by Landlord, (ii) any transfer of the Premises to Tenant pursuant to the terms of this Lease, or (iii) any sale of the Premises to a third party pursuant to the terms of this Lease. As used herein, the term "Landlord Income Taxes" shall mean any and all income, franchise, gains, gift, succession, excess profits, gross receipts, revenue, estate, rental, or similar taxes or taxes in lieu thereof imposed upon Landlord or any party other than Tenant (or an affiliate thereof) and any withholding tax imposed as a collection device for, in lieu of, or otherwise related to any of the foregoing without regard to whether such tax is required to be collected by Tenant and without 19. 26 regard to whether Tenant would be liable for such withholding tax in the event it failed to so withhold. For purposes of the foregoing, an income tax shall include, without limitation, any tax imposed under the United States Internal Revenue Code or the California Bank and Corporation Tax Law as well as any tax which could qualify as an "income tax" under United States Treasury Regulation Section 1.901-2 (except to the extent any such statute or regulation is subsequently modified to include a tax or other governmental charge of a materially different type and nature from the taxes currently described therein) and any income tax which may be payable under the laws of any jurisdiction either now or in the future. Real Estate Taxes for any given tax year shall exclude assessment installments that are not due and payable during such tax year. 6.2 PERSONAL PROPERTY TAXES. Tenant shall pay directly to the appropriate taxing authorities prior to delinquency any and all taxes and assessments levied or assessed during the Term upon or against Tenant's furniture, equipment, trade fixtures and any other personal property in the Premises. 6.3 RIGHT TO CONTEST. Tenant shall not be required to pay any Real Estate Taxes or any other taxes for which Tenant is liable hereunder (including, without limitation, any taxes for which Tenant is required to indemnify Landlord under Section 6.5) (including penalties and interest), so long as (i) Tenant shall contest the same or the validity thereof by appropriate legal proceedings in such a manner to prevent the tax sale of any portion of the Premises and (ii) the position to be taken by Tenant pursuant to such contest would have a realistic possibility of success if litigated. For purposes of this Lease, Tenant may conclusively establish that a position to be taken in a contest would have a realistic possibility of success if litigated by providing to Landlord a letter from counsel stating an opinion to such effect. In the event of any such contest, Tenant shall, within thirty (30) days after the final determination thereof, pay and discharge the amounts determined to be due in accordance therewith and with the provisions of this Lease, together with any penalties, fines, interest, costs and expenses that may have accrued thereon or that may have resulted from Tenant's contest. Tenant also shall have a right to contest any taxes for which it is liable hereunder, but with regard to which the position to be taken pursuant to such contest would not have a realistic possibility of success if litigated, provided that Tenant pays such taxes on or prior to the date upon which such taxes are asserted to be due by the relevant governmental authority. Notwithstanding the foregoing provisions of this Section 6.3, Tenant shall have an unconditional right to contest (without prior payment) any taxes imposed by law upon Tenant rather than upon Landlord. Tenant's decision to pay any taxes prior to contesting its or another party's underlying liability therefore shall not be deemed to imply or suggest that the position to be taken in such contest would not have a realistic possibility of success if litigated. Landlord shall cooperate fully with Tenant in connection with the exercise of Tenant's right 20. 27 of contest contained herein, and in the event that applicable law shall require that Landlord, rather than Tenant, pursue legal proceedings for such contest, Landlord will initiate and pursue such contest upon Tenant's request and in accordance with Tenant's instructions (including, without limitation, Tenant's instructions as to the selection of legal counsel and matters of strategy or settlement); provided, however, that Landlord shall not be subject to any liability for the payment of any costs or expenses in connection with any such contest or proceedings, and Tenant will indemnify and save harmless Landlord from any such costs and expenses (including, without limitation, reasonable attorneys' fees, costs of court and appraisal costs), reimbursing Landlord therefor upon demand (or paying such costs and expenses directly when due, all as directed by Landlord). Tenant shall be entitled to any refund of any taxes and penalties or interest from any governmental authority to the extent the refund represents monies paid to the governmental authority by Tenant or paid by Landlord and reimbursed by Tenant. 6.4 WITHHOLDING TAXES. Subject to Section 6.5, but notwithstanding any other provision of this Lease to the contrary, Tenant may withhold from any payments under this Lease any Landlord Income Taxes, without obligation to gross-up, indemnify or otherwise increase payments in consequence thereof, to the extent required by applicable law. Upon the date hereof or upon the date a party becomes a Landlord or a transferee of any portion of the Landlord's interest in the Premises or this Lease, and within thirty (30) days following the first day of each calendar year or if otherwise requested from time to time by Tenant, Landlord and each transferee, if organized under the laws of a jurisdiction outside the United States, shall provide Tenant with three counterparts of each of the forms prescribed by the Internal Revenue Service of the United States (Form 1001 or 4224, or successor form(s), as the case may be) certifying as to Landlord's or such transferee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to such person. Without limitation upon the foregoing, unless Tenant has received such forms or other documents reasonably satisfactory to it indicating that payments under this Lease are not subject to withholding tax, Tenant is authorized to and shall withhold taxes from such payments at the applicable statutory rate. Subject to Section 6.5, but notwithstanding any other provision of this Lease to the contrary, any withholding by Tenant under the preceding sentence shall not give rise to any gross-up, indemnification or other payment obligation on the part of Tenant. Landlord and each transferee, if organized under the laws of the United States or any State thereof, shall timely provide Tenant with duplicate documents conforming to the requirements of Treasury Regulation 1.1441-5(b) or any successor thereto (which statement may be made on a Form W-9). 6.5 ADDITIONAL PROVISIONS RELATING TO TAXES. Notwithstanding anything in this Section 6 to the contrary, Tenant shall protect and defend Landlord from and against all criminal 21. 28 prosecution regarding and shall indemnify and hold Landlord harmless from and against any and all losses, costs, liabilities or damages (including reasonable attorneys' fees and disbursements and court costs) arising by reason of: (a) Any and all U.S. Federal, state or local income taxes imposed upon Landlord in consequence of Landlord being treated as the owner or lessor of the Premises (or any part thereof) for such tax purposes (provided that Landlord has fully complied with its obligations under Section 21.2(b)); (b) Any and all taxes imposed upon Tenant (except to the extent that such taxes are imposed upon Tenant as a result of Landlord's failure to comply with its obligations under this Lease); (c) Any and all taxes required to be withheld from payments made by Tenant to a third party not related to or affiliated with Landlord, HSBC or Sumitomo; (d) Any and all Real Estate Taxes; (e) Any and all taxes owed by Landlord as a result of payment made by Tenant to Landlord pursuant to Tenant's indemnity obligations under this Section 6.5; and (f) Any and all costs, liabilities or damages (including reasonable attorneys' fees) incurred by Landlord in obtaining indemnification payments from Tenant under the provisions of this Section 6.5. Tenant's obligation to reimburse or indemnify Landlord for any taxes, governmental fees, penalties, interest or other supplemental tax charges under this Lease shall be reduced by the value of any related or offsetting tax benefits derived or realized by Landlord. Tenant's duty to indemnify Landlord under this Section 6.5 shall apply only to taxes arising during the Term (whether or not due and payable at the conclusion of the Term), but shall otherwise survive the expiration or earlier termination of this Lease. ARTICLE 7 INSURANCE 7.1 LIABILITY INSURANCE. At all times during the Term, Tenant shall obtain at Tenant's sole cost and expense a policy or policies of comprehensive general liability insurance on an "occurrence" basis against claims for "personal injury" liability, including bodily injury, death or property damage liability. The liability insurance policy shall contain coverage limits no less than the following: (1) Three Million Dollars ($3,000,000) per person; (2) Five Million Dollars ($5,000,000) per incident; and (3) One Million Dollars ($1,000,000) for property damage. 22. 29 7.2 BUILDERS' RISK INSURANCE. With respect to any Improvements which may be under construction and not yet covered by insurance under the terms of Section 7.3, Tenant shall maintain or cause to be maintained a policy or policies of builders' risk insurance in an amount equal to the value upon completion of the work (exclusive of land, foundation, excavation, grading, landscaping, architectural and development fees and other items customarily excluded from such coverage), insuring against the risks customarily insured against under such insurance, including fire, vandalism, malicious mischief, sprinkler leakage, lightning, and windstorm. 7.3 ALL-RISK INSURANCE. With respect to any completed Improvements, prior to the termination of the builders' risk insurance required by Section 7.2, and at all times thereafter, Tenant shall, at Tenant's sole cost and expense, obtain and maintain, or cause to be obtained and maintained: (a) a policy or policies of all-risk insurance covering the Improvements, providing coverage against loss or damage by fire, vandalism, malicious mischief, sprinkler leakage, lightning, windstorm and other insurable perils, as, under good insurance practice, from time to time are insured against under all-risk coverage for properties of similar character, age and location in an amount or amounts not less than one hundred percent (100%) of the then actual replacement cost (exclusive of land, foundation, excavations, grading, landscaping, architectural and development fees and other items customarily excluded from such coverage and without any deduction for depreciation); and (b) a policy or policies of difference in conditions insurance covering the Improvements, providing coverage against loss or damage by earthquake and flood as, under good insurance practice, from time to time are insured against under earthquake coverage for properties of similar character, age and location in an amount or amounts not less than the lesser of (i) one hundred percent (100%) of the then actual replacement cost (exclusive of land, foundation, excavations, grading, landscaping, architectural and development fees and other items customarily excluded from such coverage and without any deduction for depreciation) or (ii) the amount of the Equity Funded Amount. 7.4 GENERAL REQUIREMENTS. The insurance required under this Article 7 may be furnished under a "primary" policy and an "umbrella" policy or policies. Landlord and the holder of any Authorized Loan shall be named as an additional insured under Tenant's policy of insurance required under Section 7.1; Landlord, Tenant and the holder of any Authorized Loan shall each be named as the loss payees under the policies of insurance required under Sections 7.2 and 7.3; and such policies shall contain an endorsement for cross-liability coverage. Tenant shall furnish Landlord with certificates from Tenant's insurers with respect to the insurance required to be carried hereunder on or before the date such insurance is required to be carried. The certificates shall state that such insurance is in full force and effect and that coverage will not be reduced in any amount or otherwise limited or cancelled without twenty (20) days' prior written notice 23. 30 to Landlord. Renewal certificates shall be furnished to Landlord not less than thirty (30) days prior to the expiration of each such policy. Any blanket insurance policy or policies that insure Tenant against the risks and for the amounts herein specified shall be deemed to satisfy the obligation of Tenant hereunder, provided that any such policy of blanket insurance shall specify the amount of the total insurance allocated to the risks required to be insured hereunder and such allocated amount meets the requirements of this Article 7. All insurance required by this Article 7 shall be with an insurance company licensed to do business in the State of California, with a general policyholder's rating, as rated by the most current available "Bests" Insurance Reports, no less than A-III,and shall be primary and non-contributing. 7.5 WAIVER OF SUBROGATION. Notwithstanding anything to the contrary contained herein, to the extent permitted by law and so long as any insurance coverage maintained by Tenant is not diminished by reason thereof, Tenant hereby (a) releases and waives any rights it may have against Landlord and its officers, agents and employees on account of any loss or damages occasioned to Tenant, its property or the Premises, and arising from any risk covered by any fire and extended coverage insurance maintained by Tenant, whether or not due to the negligence of Landlord, its agents, employees, contractors, licensees, invitees or other persons, and (b) waives on behalf of any insurer providing such insurance to Tenant any right of subrogation that any such insurer may have or acquire against Landlord or such persons by virtue of payment of any loss under such insurance. Tenant shall use its best efforts to cause its insurance policies to contain a waiver of subrogation clauses in accordance with the foregoing. 7.6 INDEMNITY. Tenant shall protect, defend, indemnify, hold and save Landlord harmless from and against any and all losses, costs, liabilities or damages (including reasonable attorneys' fees and disbursements and court costs) arising by reason of: (i) any and all injury or death of persons or damage to property against which Tenant is obligated to maintain insurance for the benefit of Landlord pursuant to this Article 7; (ii) the failure to obtain the waiver of subrogation clause required by Section 7.5 hereof where such clause could have been obtained through the exercise of Tenant's best efforts; or (iii) the invalidation of such insurance policy required to be obtained by Tenant hereunder by Tenant's insurer. Tenant's duty to indemnify Landlord under this Section 7.6 shall survive the expiration or earlier termination of this Lease with respect to events occurring during the Term. 24. 31 ARTICLE 8 USE 8.1 USE. (a) PERMITTED USES. Tenant may use the Premises for any lawful purpose. (b) ENVIRONMENTAL COMPLIANCE. (i) DEFINED TERMS. The term "Applicable Environmental Laws" shall mean any applicable laws, regulations or ordinances pertaining to health or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 or otherwise (as amended, hereinafter called "CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, the Hazardous and Solid Waste Amendments of 1984 or otherwise (as amended, hereinafter called "RCRA"), and California Health & Safety Code Section 25501(j). The terms "hazardous substance" and "release" as used in this Lease shall have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have the meanings specified in RCRA; provided, in the event either CERCLA or RCRA is amended or superseded by other laws so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment or other laws; and, provided further, to the extent that the laws of the State of California establish a meaning for "hazardous substance", "release", "solid waste", or "disposal" which is broader than that specified in either CERCLA or RCRA, such broader meaning shall apply. The term "Pre-existing Agricultural Contamination" means concentrations of any chemical, compound or substance existing in soil and groundwater on the Land as disclosed in that certain Phase I Preliminary Environmental Site Assessment and Phase II Soil and Ground Water Quality Evaluation for Vista Montana and Tasman Drive Parcels, San Jose, California, performed by Lowney Associates and dated February 1995. (ii) TENANT'S COVENANTS. Tenant will not cause or permit the Premises or the Improvements to be in violation of, or do anything or permit anything to be done which subjects Landlord, Tenant or the Premises to any remedial obligations under or which creates a claim or cause of action under, any Applicable Environmental Laws, including, without limitation, CERCLA, RCRA, and the California Health & Safety Code ss. 25501(j), assuming disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to the Premises and the Improvements, and Tenant will promptly notify Landlord in writing of any existing, pending or threatened investigation, claim or inquiry of which Tenant has knowledge by any governmental authority in connection with any Applicable Environmental Laws. Tenant shall obtain any permits, licenses or 25. 32 similar authorizations to construct, occupy, operate or use any Improvements, fixtures and equipment at any time located on the Premises by reason of any Applicable Environmental Laws. Tenant will not use the Premises or the Improvements in a manner which will result in the unlawful disposal or other unlawful release of any hazardous substance or solid waste on or to the Premises or the Improvements and covenants and agrees to keep or cause the Premises and the Improvements to be kept free of any unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (including, without limitation, friable asbestos and any substance containing asbestos deemed hazardous and unlawful by any Applicable Environmental Law) and to remove the unlawful amounts of the same (or if removal is prohibited by law, to take whatever action is required by law) promptly upon discovery at Tenant's sole expense. Tenant shall promptly notify Landlord in writing of any unlawful disposal or other unlawful release of any hazardous substance, environmental contaminants or solid wastes on or to the Premises or the Improvements. Notwithstanding the foregoing, Landlord and Tenant acknowledge that Pre-existing Agricultural Contamination exists on the Land due to agricultural operations of prior owners and that Tenant has no further obligation to notify Landlord regarding such Pre-existing Agricultural Contamination. In the event Tenant fails to comply with or perform any of the foregoing covenants and obligations, after thirty (30) days' prior written Notice to Tenant, Landlord may, but shall be under no obligation to, cause the Premises and the Improvements to be freed from the unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (or if removal is prohibited by law, to take whatever action is required by law) and the reasonable cost of the removal or such other action shall be a demand obligation owing by Tenant to Landlord pursuant to this Lease; provided, however, that this sentence shall not apply to Pre-existing Agricultural Contamination. Notwithstanding the foregoing, Landlord shall have no right to cause the removal of such materials so long as Tenant both: (1) is diligently and in good faith proceeding to comply with Tenant's obligation to remove the unlawful amounts of such materials; and (2) has the financial ability to so comply. Subject to the foregoing, Tenant grants to Landlord and Landlord's agents and employees access to the Premises and the Improvements, and the license to remove the unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (or if removal is prohibited by law, to take whatever action is required by law), and agrees to indemnify and save Landlord harmless from all reasonable costs and expenses involved and from all claims (including consequential damages) asserted or proven against Landlord by any party in connection therewith. Upon Landlord's reasonable request for "good cause" (defined below), at any time and from time to time during the Term, Tenant will provide at Tenant's sole expense an inspection or audit of the Premises and the Improvements from an engineering or consulting firm approved by Landlord, indicating the presence or absence of any hazardous substance, solid waste or environmental contaminants located on the Premises; provided, however that this provision shall not apply to Pre-existing Agricultural Contamination. If Tenant fails to 26. 33 provide same after sixty (60) days' notice, Landlord may order same, and Tenant grants to Landlord and Landlord's employees and agents access to the Premises and the Improvements and a license to undertake any testing reasonably required to obtain such inspection or audit. The reasonable cost of obtaining such inspection or audit and any expenses incurred by Landlord in connection therewith, shall be a demand obligation owing by Tenant to Landlord pursuant to this Lease. For purposes of this Section 8.1(b)(ii), "good cause" shall mean that Landlord shall have reasonable grounds to believe that an unlawful release or unlawful disposal of hazardous substances or solid wastes has occurred on the Premises or the Improvements, but shall not include Pre-existing Agricultural Contamination. (iii) TENANT'S INDEMNITY. Tenant agrees to indemnify and hold Landlord harmless from and against, and to reimburse Landlord with respect to, any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses (including attorneys' fees and court costs), fines and/or penalties of any and every kind or character, known or unknown, fixed or contingent, asserted or potentially asserted against or incurred by Landlord at any time and from time to time by reason of, in connection with or arising out of (A) the failure of Tenant to perform any obligation herein required to be performed by Tenant regarding Applicable Environmental Laws, (B) any violation of any Applicable Environmental Law by Tenant or with respect to the Premises or the Improvements, or any disposal or other release by Tenant or with respect to the Premises or the Improvements of any hazardous substance, environmental contaminants or solid waste on or to the Premises or the Improvements, whether or not resulting in a violation of any Applicable Environmental Law, (C) any act, omission, event or circumstance by Tenant or with respect to the Premises or the Improvements which constitutes or has constituted a violation of any Applicable Environmental Law with respect to the Premises or the Improvements, regardless of whether the act, omission, event or circumstance constituted a violation of any Applicable Environmental Law at the time of its existence or occurrence, and (D) any and all claims or proceedings (whether brought by private party or governmental agencies) for bodily injury, property damage, abatement or remediation, environmental damage or impairment or any other injury or damage resulting from or relating to any hazardous or toxic substance or contaminated material located upon or migrating into, from or through the Premises or the Improvements (whether or not the release of such materials was caused by Tenant, a subtenant, or prior owner of the Premises, or any other Entity) which Landlord may incur. Tenant's duty to indemnify Landlord under this Section 8.1 shall survive the expiration or earlier termination of the Lease with respect to events occurring during, or prior to the Term or after the Term while Landlord has record title to and Tenant is occupying the Premises. 27. 34 (c) COMPLIANCE WITH LEGAL REQUIREMENTS. Tenant shall at all times comply with all material Legal Requirements applicable to the Land or the Improvements and/or the use thereof. 8.2 CONTEST OF LEGAL REQUIREMENTS. Tenant shall have the right at its sole cost and expense to contest the validity of any Legal Requirements applicable to the Premises by appropriate proceedings diligently conducted in good faith; and upon the request of Tenant and at Tenant's sole cost and expense, Landlord will join and cooperate with Tenant in such proceedings. Subject to Section 6.3, any other provision of this Lease to the contrary notwithstanding, Tenant's right to contest Legal Requirements must be exercised in such a manner as to avoid any exposure of the Premises or any part thereof to foreclosure or execution sale or exposure of Landlord to civil or criminal penalties arising from Tenant's non-compliance with such Legal Requirements. Tenant shall defend and indemnify Landlord against, and hold Landlord harmless from, any and all liability, loss, cost, damage, injury or expense (including, without limitation, attorneys' fees and costs) which Landlord may sustain or suffer by reason of Tenant's failure or delay in complying with, or Tenant's contest of, any such Legal Requirements (or Landlord's contest, if requested in writing by Tenant), and Tenant's duty to indemnify Landlord under this Section 8.2 shall survive the expiration or earlier termination of this Lease. 8.3 INDEMNIFICATION. Tenant will defend, protect, indemnify and save harmless Landlord from and against all liabilities, obligations, claims, damages, causes of action, costs and expenses, imposed upon or incurred by Landlord by reason of the occurrence or existence of any of the following during the Term, except to the extent caused by the willful misconduct, gross negligence, or willful breach of contract of Landlord or its agents or contractors (but excluding from the term contractors the Contractor and any subcontractors of the Contractor): (1) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Premises or Improvements; (2) performance of any labor or services or the furnishing of any materials or other property in respect of the Premises or the Improvements; (3) the negligence or willful misconduct on the part of Tenant or any of its agents, invitees, employees or contractors or any other persons entering onto the Premises or the Improvements at the request, behest or with the permission of Tenant; (4) the construction, use or occupancy of the Improvements which Tenant may elect to construct; (5) the use of the Land; or (6) any breach by the "Owner" under the construction contracts entered into by Tenant as Landlord's agent pursuant to the terms of Section 11.10. Tenant's duty to indemnify Landlord under this Section 8.3 shall survive the expiration or earlier termination of this Lease with respect to events occurring during the Term or after the Term while Landlord has record title to and Tenant is occupying the Premises. 28. 35 ARTICLE 9 UTILITIES AND SERVICES 9.1 SERVICES TO THE PREMISES. At Tenant's sole cost and expense, Tenant shall make its own arrangements for the provision of all utilities and services to be provided to or consumed on the Premises, including, without limitation, air conditioning, ventilation, heating, electric power, telephone, water (both domestic and fire protection), sanitary sewer, storm drain, natural gas and janitorial services, including for the installation, maintenance and repair of service lines and meters to measure Tenant's consumption of such utilities. ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES 10.1 TENANT OBLIGATIONS. Except as otherwise provided in this Lease, Tenant shall maintain the Premises and the Improvements in good repair, normal wear and tear, casualty and Takings (as defined in Section 15.1) excepted. All maintenance that Tenant is obligated to perform under this Section 10.1 shall be at the sole expense of Tenant, except to the extent that repairs are made necessary because of the gross negligence or willful misconduct of Landlord, its agents, employees or contractors (but excluding from the term contractor the Contractor and any subcontractors of the Contractor). 10.2 SURRENDER OF THE PREMISES. Except as provided in Section 19, upon the expiration or earlier termination of the Term, Tenant shall surrender the Premises to Landlord in its then "AS-IS" condition, including, without limitation, any condition resulting from: (i) wear and tear; (ii) obsolescence and damage by fire or other casualty, act of God or the elements (subject to the terms of Article 16); (iii) damage that is caused by Landlord, its agents, employees or contractors; (iv) Takings; and (v) any improvements, alterations, additions, repairs, replacements, or decorations in, to or of the Premises or on the Land which are not Improvements but which Tenant may elect to remain on the Land or the Premises. Title to all improvements, furniture, furnishings, fixtures, trade fixtures and personal property of Tenant which have not been funded by Landlord pursuant to the terms of Article 11 and located in or upon the Premises or the Land, whether or not affixed to the realty, shall be and remain in Tenant throughout the Term, and at any time during the Term of this Lease, the same may be removed by Tenant, or, at Tenant's election, surrendered with the Premises, in which event title to such surrendered property shall, if Landlord so elects in Landlord's sole discretion, be deemed transferred to Landlord. Any of such property that is not removed from the Premises or the Improvements on or prior to the expiration or earlier termination of this Lease shall be considered abandoned and Landlord may deal with it as Landlord elects. 29. 36 ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS 11.1 TENANT'S RIGHTS TO CONSTRUCT IMPROVEMENTS. As of the date of this Lease, no improvements exist on the Land. Tenant shall be under no obligation whatsoever to construct any Improvements. Tenant shall have the right, in Tenant's sole discretion, to construct on the Land with Tenant's own funds, improvements, buildings, and/or alterations to Improvements, without the necessity of obtaining any approval from Landlord. In addition, Tenant shall have the right, in Tenant's sole discretion, subject to the terms of this Article 11, to require Landlord to pay for the construction of the Improvements which Tenant desires. With respect to any construction which Tenant may elect to have performed in accordance with this Article 11, Landlord hereby irrevocably appoints Tenant as Landlord's construction agent. Landlord shall have no right to construct any improvements, buildings, and/or alterations on the Land unless Tenant specifically requests that such be constructed, and then only in accordance with the terms and conditions of this Article 11. 11.2 REQUEST FOR CONSTRUCTION FUNDING; LANDLORD OBLIGATION TO FUND. At any time during the first forty-eight (48) months of the Initial Term, Tenant may request Landlord to provide funding for the construction of Improvements, which may consist of one or more Buildings or phases, or for the alteration of any existing Buildings. Each such request shall be in writing and shall generally describe the nature of the Improvements. Landlord shall fund amounts for: (1) the costs of construction or alteration of the Improvements pursuant to the terms and conditions set forth in this Article 11; (2) architectural, engineering, testing, permitting, professional fees and any other soft costs relating to such Buildings; (3) any Capitalized Interest; and (4) the amounts described in Exhibit J. If Tenant reduces the Funded Amount by making payment to Landlord or the holder of any Authorized Loan, except as provided in Articles 15 and 16, the amount so paid shall not later be available to Tenant in the form of Advances for construction work. Landlord shall have no obligation to make Advances to a Mortgagee of Tenant's interest under this Lease, if any, which Mortgagee has foreclosed on Tenant's interest under this Lease and is then the "Tenant" under this Lease. Landlord shall have no obligation to make Advances for any Building or phase after the last day of the twenty-fourth (24th) month after the initial Advance for such Building or phase. 11.3 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATION TO FUND INITIAL ADVANCES. The obligation of Landlord to make an initial Advance hereunder in respect of each Building shall be subject to the following conditions precedent: (a) NO EVENT OF MAJOR DEFAULT. No Event of Major Default shall exist and be continuing at the time of the initial Advance. 30. 37 (b) APPRAISAL. Landlord shall have approved the appraisal delivered pursuant to Section 21.25 hereof. (c) LANDLORD APPROVAL OF APPROVAL PLANS. Landlord shall have approved in accordance with the terms of this Section 11.3(c) (except as otherwise permitted or already approved pursuant to Section 11.1), Tenant's proposed site plans (showing the locations and orientations of any proposed buildings) and exterior shell plans (showing exterior building sections) (collectively, "Approval Plans") of the Building(s) which Tenant may elect to construct. Tenant shall deliver a letter to Landlord along with any submitted Approval Plans in which Tenant states that the submitted Approval Plans do not violate any Legal Requirements. Landlord may only withhold Landlord's approval to any such Approval Plans to the extent that the Approval Plans violate any material Legal Requirements, and Landlord may not withhold its consent on any other ground. At the option of Tenant, the foregoing documentation may be submitted to Landlord for approval in stages as Tenant completes it. Landlord shall have a period of ten (10) days from the date of receipt of each component of the documentation within which to approve or reject it. The Approval Plans, as approved from time to time by Landlord pursuant to this Section 11.3(c) shall constitute the "Authorized Plans." Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of any Approval Plans (not to exceed One Thousand Dollars ($1,000) per approval). Tenant hereby certifies to Landlord that the Approval Plans attached hereto as Exhibit C and Exhibit D do not violate any Legal Requirements. Landlord hereby approves the Approval Plans attached hereto as Exhibit C and Exhibit D. Landlord's approval of any Authorized Plans does not constitute any representation or warranty by Landlord with respect to such Authorized Plans, and Landlord hereby specifically disclaims any such representations and warranties. (i) FURTHER APPROVALS; PROPOSED CHANGES. Subsequent to Landlord's approval of any Authorized Plans pursuant to Section 11.3(c), Tenant shall only be obligated to submit to Landlord for approval documentation showing any proposed material change to the Authorized Plans (but no approval shall be required with respect to construction or design matters that are not contained in or addressed by the Authorized Plans), and only to the extent such change is materially inconsistent with the Authorized Plans. Landlord shall have a period of ten (10) days from receipt of each material change within which to approve or reject it. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of any such changes (not to exceed One Thousand Dollars ($1,000) per approval). Tenant shall have the right, without further approval of Landlord, to construct Improvements not materially inconsistent with the Authorized Plans together with such changes thereto as may be requested or required to comply with Legal Requirements. 31. 38 (II) FAILURE TO DISAPPROVE. The failure by Landlord to disapprove any portion of the proposed Approval Plans submitted pursuant to this Section 11.3(c) within the specified approval period shall be deemed to constitute approval thereof as submitted, and such Approval Plans shall thereupon become Authorized Plans. Any disapproval by Landlord of any portion of the proposed Approval Plans shall be in writing and shall specify with particularity the basis for the disapproval. (d) LANDLORD APPROVAL OF CONSTRUCTION AGREEMENT. Landlord shall have approved in accordance with the terms of this Section 11.3(d) (except as otherwise permitted or already approved pursuant to Section 11.1), Tenant's proposed construction agreement with Contractor (collectively, "Construction Agreement") of the Building(s) which Tenant may elect to construct. Landlord may only withhold Landlord's approval to any such Construction Agreement to the extent that the Construction Agreement violates any material Legal Requirements or is not a form of agreement which includes a guaranteed maximum price and a date certain of completion of the Improvements, and Landlord may not withhold its consent on any other ground. Landlord shall have a period of ten (10) days from the date of receipt of the Construction Agreement within which to approve or reject it. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of the Construction Agreement (not to exceed One Thousand Dollars ($1,000) per approval). Landlord acknowledges that Landlord has received and approved the Construction Agreement between Tenant and Contractor for the Improvements to be constructed pursuant to this Lease. Landlord's approval of any Construction Agreement does not constitute any representation or warranty by Landlord with respect to such Construction Agreement, and Landlord hereby specifically disclaims any such representations and warranties. (e) DRAW REQUEST. Landlord shall have received a written request from Tenant or its agent requesting the Advance ("Draw Request") in the form attached hereto as Exhibit I. The submission of a Draw Request by Tenant shall be deemed to be Tenant's approval of the Capitalized Interest which is to be included in the Funded Amount during the period covered by such Draw Request pursuant to the terms of Section 2.24. (f) PLANS AND SPECIFICATIONS. Landlord shall have received a copy of the plans and specifications for the Building in question. Landlord acknowledges that Landlord's only approval right with respect to the plans and specifications is as specified in Section 11.3 (c) above. (g) CONSTRUCTION AGREEMENT. Landlord shall have received a copy of Tenant's construction agreement with Contractor for the Building or phase in question. Landlord acknowledges that Landlord's only approval right with respect to the plans and specifications is as specified in Section 11.3(d) above. 32. 39 (h) BUILDING PERMITS. With respect to any portion of an Advance going toward hard costs for any Building, Landlord shall have received a copy of all building permits and approvals then required for the construction of the subject Building. (i) CONTRACTOR'S CERTIFICATE. With respect to any portion of an Advance going toward hard costs for any Building, Landlord shall have received a certificate from the Contractor in the form attached hereto as Exhibit F for the Advance in question ("Contractor's Certificate"). 11.4 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATION TO FUND SUBSEQUENT ADVANCES. Landlord's obligation to make any Advance for a Building after the initial Advance for such Improvement shall be subject to the satisfaction of the following conditions: (a) NO EVENT OF MAJOR DEFAULT. No Event of Major Default shall exist and be continuing at the time of such subsequent Advance, and no "major and material" violations of code or law shall exist with respect to the portions of such Building which have been constructed as of the date of the Advance in question. For purposes of this Section 11.4(a), the term "major and material" shall mean a violation that presents a material risk to the health and safety of the occupants of the Building in question. (b) DRAW REQUEST. With respect to any portion of an Advance going toward hard costs for any Building, Landlord shall have received a Draw Request for the Advance in question. (c) CONTRACTOR'S CERTIFICATE. With respect to any portion of an Advance going toward hard costs for any Building, Landlord shall have received a Contractor's Certificate for the Advance in question in the form attached hereto as Exhibit F. (d) LIEN WAIVERS. Landlord shall have received conditional lien waivers and releases upon progress payment from Contractor and any "Major Subcontractor" (defined below) scheduled to receive payment from such Advance. The term "Major Subcontractor" shall mean any subcontractor which has executed a subcontract calling for aggregate payments to the subcontractor in excess of Two Hundred Fifty Thousand Dollars ($250,000). (e) CHANGES TO AUTHORIZED PLANS. Landlord shall have approved any material change to the Authorized Plans pursuant to Section 11.3(c)(i) 33. 40 11.5 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATION TO FUND FINAL ADVANCE. Landlord's obligation to make the final Advance for a Building shall be subject to the satisfaction of the following conditions: (a) SECTION 11.4 CONDITIONS. All of the conditions precedent set forth in Section 11.4 shall have been satisfied with respect to the final Advance in question. (b) CERTIFICATE OF OCCUPANCY. Landlord shall have received a copy of the certificate of occupancy or its equivalent issued by the appropriate governmental authority for the Building in question. 11.6 ADDITIONAL PROVISIONS REGARDING ADVANCES. (a) TIMING AND METHOD OF DISBURSEMENT. Advances to be made hereunder shall not be made more frequently than monthly. For any calendar month during which Tenant desires to receive an Advance, Tenant shall submit a Draw Request on or before the date that is five (5) days prior to the first LIBOR Business Day of such month, and if Tenant submits such Draw Request by such date, then Landlord shall make the Advance as requested in such Draw Request to the party(ies) designated by Tenant on the first LIBOR Business Day of such month (subject to the conditions to funding described in Sections 11.3, 11.4 and 11.5). The Advances shall be made to parties identified by Tenant, which parties may include Tenant. At the option of Tenant, Landlord shall make such Advances to one (1) or more parties. (b) RETAINAGE. Disbursements for construction costs shall be subject to a ten percent (10%) retainage. The retainage shall be paid to Tenant or to any Entities designated by Tenant along with the payment of the Final Advance with respect to any Building. Notwithstanding the foregoing, Tenant may require Landlord to pay any retainage on account of particular subcontractors prior to the payment of a final Advance if: (1) Tenant is able to achieve cost savings as a result of such early payment; and (2) Contractor delivers to Landlord a letter of credit in the amount of the retainage to be paid out prematurely. The parties will enter into an agreement with respect to the letter of credit, which agreement shall reflect the parties' agreement that: (a) Landlord shall only be entitled to draw on the letter of credit if and to the extent necessary to complete the work that the subcontractor receiving the early payment of the retainage was required to perform and failed to perform; and (b) the letter of credit be returned to Tenant at the time that the retainage would have been paid pursuant to the second sentence of this Section 11.6(b). The total retainage shall be reduced by the amount of such retainage paid early pursuant to the terms of the preceding sentence. 34. 41 11.7 REQUIRED PERMITS, EASEMENTS, ETC. From time to time, upon request of Tenant, Landlord (as holder of record of title to the Improvements) shall execute such reasonable documents, petitions, applications and authorizations, easements and rights of way (which have been prepared at Tenant's expense) and shall appear at and participate in such public hearings, staff meetings and similar gatherings, in each case as may in the reasonable and good-faith opinion of Tenant be necessary or appropriate for the purpose of obtaining any Required Permits or private easements or rights of way or utility services for the Improvements or to remove any title encumbrances on the Land which may interfere with Tenant's construction of the Improvements. Tenant shall immediately reimburse Landlord on demand (or pay directly) for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 11.7. 11.8 ALTERATIONS. Tenant shall notify Landlord in writing in advance of any alteration to the Improvements which would either cost more than Five Hundred Thousand Dollars ($500,000), or cause the Land and the Improvements to fail the Coverage Test. At any time and from time to time, and without the necessity for obtaining Landlord's approval or giving Notice thereof to Landlord (except as otherwise specifically provided in this Section 11.8), Tenant shall have the right, at its expense, to make any improvements, alterations, additions, repairs, replacements or decorations in, to or of the Premises which do not materially change the exterior design scope of the Improvements as previously approved by Landlord pursuant to any Authorized Plans. In constructing any such improvements, alterations, additions, repairs, replacements or decorations, Tenant shall do so in a manner which does not violate any applicable and material Legal Requirements. If, in connection with any alterations which Tenant may desire to construct, either: (1) the performance of such alterations would cause the Land and Improvements together to fail the Coverage Test; or (2) such alterations would materially change the exterior design scope of the Improvements as previously approved by Landlord pursuant to Authorized Plans, then such alterations shall be subject to the prior written approval of Landlord, which shall not be unreasonably withheld or delayed. In the event that the parties disagree as to whether or not performing such alterations would cause the Land and the Improvements to fail the Coverage Test, such matter shall be subject to the appraisal provision contained in Section 21.23. 11.9 TITLE TO AND NATURE OF IMPROVEMENTS. By virtue of Tenant's rights under the Land Lease, Tenant hereby grants to Landlord the right to own and construct the Improvements which Tenant elects to cause to be constructed with Landlord's funds under this Article 11, and Tenant hereby grants, conveys and transfers to Landlord all of Tenant's right, title and interest in and to the Improvements (whether now existing or hereafter constructed), and Tenant agrees that any and all Improvements of whatever nature at any time constructed, placed or maintained upon any part of the Land shall be and remain the property of Landlord, 35. 42 subject to Tenant's rights under Section 19 and elsewhere in this Lease. Any improvements on the Land other than the Improvements shall be and remain the property of Tenant, subject to the terms of Section 10.2. The severance of fee title to the Land and Improvements shall not change the character of the Improvements as real property. 11.10 TENANT AS LANDLORD'S CONSTRUCTION AGENT. Tenant shall function as Landlord's agent for purposes of the construction of any Improvements. In this role, Tenant shall have the authority, on Landlord's behalf, to oversee and direct the construction of all Improvements, including but not limited to, approval of building, site and other plans, obtaining building and other permits, negotiating construction contracts, monitoring construction and making periodic inspections, approval of Contractor's invoice for payment, and submission of Draw Requests. Within a reasonable time after Tenant's request, Landlord shall execute construction contracts negotiated by Tenant for the construction of Improvements on the Land; Landlord shall not amend, modify or terminate any such construction contract without the prior written approval of Tenant, which may be withheld in Tenant's sole discretion. Landlord's appointment of Tenant as Landlord's agent under this Section 11.10 shall be irrevocable unless this Lease is terminated pursuant to the terms of Section 17.4(b) in connection with an Event of Major Default. 11.11 TENANT'S RELEASE OF FUNDING COMMITMENT. At any time during the term, Tenant may elect in its sole discretion to release Landlord from its obligation to fund construction of all or any portion of the Improvements by written notice to Landlord and Lenders; provided, however, that Tenant has substantially completed construction of each Building on which construction has commenced. ARTICLE 12 LIENS Except for claims that Tenant is contesting in good faith in such manner as to avoid any exposure of the Premises or any part thereof to foreclosure or execution sale, Tenant shall promptly pay and discharge all claims for work or labor done, supplies furnished or services rendered to the Premises, and shall keep the Premises free and clear of all mechanics' and materialmen's liens in connection therewith. ARTICLE 13 ASSIGNMENT BY LANDLORD 13.1 FURTHER MORTGAGES OR ENCUMBRANCES BY LANDLORD; AUTHORIZED LOANS. (a) PROHIBITION. Except for the Lenders Deed of Trust, the Landlord Deed of Trust, the Tenant Deed of Trust and the 36. 43 Land Lease Deed of Trust (which are hereby approved by Tenant) and as specifically permitted in Section 11.7 or 13.1(b) or 20, Landlord shall not cause or create any mortgages, deeds of trust, encumbrances or other exceptions to title (collectively, "New Encumbrances") to exist with respect to the Premises at any time, and any such encumbrance not authorized in writing by Tenant shall be null and void. The term "New Encumbrances" shall also include any bonds or assessments affecting the Premises to which Landlord consents in writing without the prior written approval of Tenant (which may be withheld in Tenant's sole and absolute discretion). Without the prior written consent of Tenant (which may be withheld in Tenant's sole and absolute discretion), Landlord shall not make or join in an application or other document which requests or authorizes any bonds or assessments to affect the Premises. Landlord recognizes that any New Encumbrance may irreparably harm Tenant in connection with one or more of the following: (1) construction which Tenant may desire to perform; (2) the use of the Premises; (3) Tenant's rights pursuant to the Purchase Option in Section 19; (4) the amount of assessments which Tenant is required to pay; or (5) other matters. (b) AUTHORIZED LOAN. Tenant has approved the loans to Landlord ("Improvements Loan") from Lenders which is evidenced by that certain Promissory Note dated as of the Date of Lease by Landlord in favor of HSBC and that certain Promissory Note dated as of the Date of Lease by Landlord in favor of Sumitomo (collectively, the "Notes"), and further evidenced and/or secured by (a) that certain Pledge Agreement made by Tenant in favor of Lenders, as it may be amended and supplemented from time to time ("Pledge Agreement"), dated as of the Date of Lease; (b) the Lenders Deed of Trust (c) that certain Loan Disbursement Agreement dated as of the Date of Lease; (d) that certain Absolute Assignment of Leases dated as of the Date of Lease; (e) that certain UCC Financing Statement; and (f) that certain Environmental Indemnity Agreement dated as of the Date of Lease. In addition, upon the maturity or prepayment of the Improvements Loan (whether by its terms, by acceleration or otherwise), Landlord may (but, subject to the terms of Section 13.1(c), shall not be obligated to) enter into a new loan (such authorized loan shall be the "New Loan"), provided Landlord first obtains Tenant's written consent (which consent shall not be unreasonably withheld), and so long as: (i) the Improvements Loan is paid off with the proceeds of such New Loan and all documents securing or reflecting the Improvements Loan are assigned to the lender who makes the New Loan or are released and satisfied; (ii) the principal amount of the New Loan does not exceed the principal amount of the Improvements Loan existing at the time the Improvements Loan is repaid; (iii) the interest rate and payment provisions under the New Loan would not result in higher monthly payments than the method under the Improvements Loan, and all such monthly payments shall be interest only; and (iv) the New Loan documents do not contain terms and conditions which differ from the Improvements Loan documents in any material respect (including provisions relating to the Collateral as defined in Section 21.18). The Improvements Loan and the New Loan 37. 44 authorized pursuant to the preceding sentence and the Replacement Loan described in Section 13.1(c) below shall be the "Authorized Loan"; provided that only one Authorized Loan may exist at any one point in time. Landlord may not modify the terms of an Authorized Loan without the prior written consent of Tenant, which Tenant shall not unreasonably withhold (but may be withheld in Tenant's sole and absolute discretion based upon any of the matters identified in subitems (i) through (v) above in this Section 13.1(b)). (c) REPLACEMENT LOAN. Subject to Landlord's prior written consent (which consent shall not be unreasonably withheld or delayed), at the request of Tenant, Landlord shall execute loan documents evidencing and/or securing a new loan to Landlord, the proceeds of which would be used to retire the Improvements Loan (such loan requested by Tenant shall be a "Replacement Loan"). Landlord shall only be entitled to refuse to consent to such new loan if (1) the maturity date of the Replacement Loan is a date on or after the expiration date of the Extension Term; (2) the principal amount of the Replacement Loan exceeds the principal amount of the Improvements Loan plus any accrued interest and fees payable at the time the Improvements Loan is repaid; (3) the interest rate structure under the Replacement Loan is materially higher than market conditions would justify at the time; (4) there are prepayment prohibitions, penalties or other restrictions which would limit rights to retire the Replacement Loan or require additional payment to do so; or (5) the Replacement Loan documents contain terms and conditions which differ from the Improvements Loan documents in any material respect (including provisions relating to the Collateral as defined in Section 21.18). If Tenant requests and provides the funds, Landlord shall make all arrangements necessary for, and shall pay down any Authorized Loan in the amount requested by Tenant, and shall arrange for all documentation reasonably requested by Tenant to reflect the reduction or elimination of such Authorized Loan. (d) LENDERS DEED OF TRUST. On the Date of Lease, Landlord and Tenant shall execute, acknowledge, and cause to be recorded in the Official Records, a deed of trust in form acceptable to Lenders and Tenant ("Lenders Deed of Trust"). The Lenders Deed of Trust shall be a first priority lien against the premises (as defined in the Lenders Deed of Trust). (e) LANDLORD DEED OF TRUST. On the Date of Lease, Tenant shall execute, acknowledge, and cause to be recorded in the Official Records, a deed of trust in form acceptable to Landlord ("Landlord Deed of Trust"), which Landlord Deed of Trust shall secure Tenant's obligations under this Lease. The Landlord Deed of Trust shall be junior only to the Lenders Deed of Trust as a second priority lien against the premises (as defined in the Landlord Deed of Trust). 38. 45 (f) TENANT DEED OF TRUST. On the Date of Lease, Landlord shall execute, acknowledge, and cause to be recorded in the Official Records, a deed of trust in form acceptable to Tenant ("Tenant Deed of Trust"), which Tenant Deed of Trust shall secure Landlord's obligations under this Lease (i) to return the Security Deposit pursuant to the terms of this Lease and (ii) to convey the Premises to Tenant as required pursuant to Article 19 hereof. The Tenant Deed of Trust shall be junior only to the Lenders Deed of Trust and the Tenant Deed of Trust as a third priority lien against the premises (as defined in the Tenant Deed of Trust). (g) LAND LEASE DEED OF TRUST. The Land Lease Deed of Trust secures ILC's obligations under the Land Lease (i) to return the security deposits set forth in the Land Lease pursuant to the terms of the Land Lease, (ii) to convey the Premises to Tenant as required pursuant to Article 19 thereof, and (iii) to comply with Sections 20.3, 20.4 and 20.5 of the Land Lease. The Tenant Deed of Trust shall be junior only to the Lenders Deed of Trust, the Landlord Deed of Trust and the Tenant Deed of Trust and shall be a fourth priority lien against the premises (as defined in the Land Lease Deed of Trust). 13.2 LANDLORD'S RIGHT TO SELL. Subject to Tenant's Purchase Option and the mandatory purchase set forth in Article 19 and the terms of Section 13.1 and Article 20, nothing contained in this Lease shall be deemed in any way to limit, restrict or otherwise affect the right of Landlord at any time and from time to time to sell or transfer all or any portion of its right, title and estate in the Premises to: (1) a financial institution with a capitalization in excess of One Hundred Million Dollars ($100,000,000) and investments in other leased assets of at least Twenty Five Million Dollars ($25,000,000); (2) a trust established by such an institution; or (3) if an Event of Major Default has occurred and is continuing at the time of such sale or transfer, to any Entity; provided, however, that such Entity shall assume, in a manner consistent with Landlord's obligations under this Lease and the Improvements Loan documents, the Improvements Loan or any other Authorized Loan concurrently with acquisition of the Premises, after first obtaining Lenders' written consent thereto. Landlord shall give Tenant prior written notice of any sale or transfer pursuant to this Section 13.2 together with written evidence of compliance with the terms hereof. Any sale or transfer by Landlord whatsoever shall by its express terms recognize and confirm the right of possession of Tenant to the Premises and Tenant's other rights arising out of this Lease shall not be affected or disturbed in any way by any such sale, transfer, assignment or conveyance (except for any disturbance resulting from a foreclosure sale conducted pursuant to the laws of the State of California at which independent third party bids were permitted, pursuant to the Lenders Deed of Trust, all subject to the terms of Section 19.2). 13.3 TRANSFER OF FUNDS AND PROPERTY. At each time Landlord sells, assigns, transfers or conveys the entire right, title and estate of Landlord in the Premises and in this Lease, 39. 46 Landlord shall turn over to the transferee any funds or other property then held by Landlord under this Lease and thereupon all the liabilities and obligations on the part of the Landlord under this Lease arising after the effective date of such sale, assignment, transfer or conveyance shall terminate as to the transferor and be binding upon the transferee. ARTICLE 14 ASSIGNMENT AND SUBLEASING 14.1 RIGHT TO ASSIGN. (a) TENANT'S RIGHT. Tenant shall have the right, at any time and from time to time during the Term, to assign all or any portion of its right, title and estate in the Premises and in this Lease without approval by Landlord. Any such assignee, immediate or remote, shall have the same right of assignment. Any such assignment shall be evidenced by a written instrument, properly executed and acknowledged by all parties thereto and, at Tenant's election, duly recorded in the Official Records, wherein and whereby the assignee assumes all of the obligations of Tenant under this Lease. Notwithstanding any such assignment and assumption or any sublease permitted under Section 14.2 hereof, Tenant shall remain primarily liable for all obligations and liabilities on the part of Tenant theretofore or thereafter arising under this Lease. (b) NOTICE. Tenant shall, promptly after execution of each assignment, notify Landlord of the name and mailing address of the assignee and shall, on demand, permit Landlord to examine and copy the assignment agreement. 14.2 RIGHT TO SUBLET. (a) TENANT'S RIGHT. Tenant shall have the right, at any time and from time to time during the Term, to sublet all or any portion of the Premises and to extend, modify or renew any sublease without the approval of Landlord. (b) NOTICE. Tenant shall, promptly after execution of each sublease, notify Landlord of the name and mailing address of the subtenant and shall, on demand, permit Landlord to examine and copy the sublease. (c) NON-DISTURBANCE AGREEMENT. Upon Tenant's request, Landlord shall enter into a "landlord agreement" with any subtenant of Tenant. Such agreement shall provide that Landlord shall recognize the sublease and not disturb the subtenant's possession thereunder so long as such subtenant shall not be in default under its sublease, and an Event of Major Default is not then in existence and continuing under this Lease. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of- 40. 47 pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 14.2(c). 14.3 TENANT'S RIGHT TO MORTGAGE. (a) RIGHT OF TENANT. Tenant shall have the right from time to time and at any time, without obtaining the approval of Landlord, to mortgage, pledge or otherwise encumber all or any portion of the right, title and estate of Tenant in the Premises or in this Lease. (b) NOTICE. Tenant shall, promptly after execution of any Mortgage, notify Landlord of the name and mailing address of the Mortgagee thereunder and shall, on demand, permit Landlord to examine and copy the Mortgage. ARTICLE 15 EMINENT DOMAIN 15.1 TOTAL OR SUBSTANTIAL TAKING. If title or access is taken for any public or quasi-public use, or under any statute or by right of condemnation or eminent domain, or by sale in lieu thereof (a "Taking") with respect to all of the Premises, or if title to so much of the Premises or access thereto is Taken, or if the Premises or access thereto is damaged, blocked or impaired by the Taking, so that, in Tenant's sole discretion, the Premises or access thereto, even after a reasonable amount of reconstruction thereof, will no longer be suitable for Tenant's (and/or Tenant's subtenants') continued occupancy for the conduct of Tenant's (and/or Tenant's subtenants') business in a manner consistent with the conduct of such business prior to such Taking, then in any such event, this Lease shall terminate on the date of such Taking. 15.2 PARTIAL TAKING. If any part of the Premises, or access thereto, shall be Taken, and the Premises or the remaining part thereof and access thereto will be, in Tenant's sole discretion, suitable for Tenant's (and/or Tenant's subtenants') continued occupancy for the conduct of Tenant's (and/or Tenant's subtenants') business in a manner consistent with the conduct of such business prior to such Taking, all of the terms, covenants and conditions of this Lease shall continue, except that Base Rent shall be adjusted to reflect the decreased Funded Amount remaining after application thereto of the award made to Landlord for such Taking. 15.3 TEMPORARY TAKING. If the whole or any part of the Premises is Taken for temporary use or occupancy, this Lease shall not terminate by reason thereof and Tenant shall continue to pay, in the manner and at the times herein specified, the full amount of the Base Rent payable by Tenant hereunder, and, except only to the extent that Tenant may be prevented from so doing by reason of such Taking, Tenant shall continue to perform and observe all of the other terms, covenants and conditions hereof on the part of Tenant 41. 48 to be performed and observed, as though the Taking had not occurred. In the event of any such temporary Taking, Tenant shall be entitled to receive the entire amount of the award made for the Taking, whether paid by way of damages, rent or otherwise. If the temporary Taking is for a term in excess of thirty (30) days, then the Taking shall be treated as a permanent Taking and be governed by Section 15.1 or 15.2, as applicable. 15.4 DAMAGES. The compensation attributable to the Improvements (in each case the compensation or value shall be determined as of the date of the Taking) awarded or paid upon any Taking (other than a temporary Taking, which shall be governed by Section 15.3), whether awarded to Landlord, Tenant, or both of them, shall be held by the Escrow Agent described in Section 16.3(b) and distributed in the same manner as insurance proceeds pursuant to Section 16.3. For purposes of this Section 15.4, references to the term "casualty" or similar terms in Section 16.3 shall be deemed to refer to "Taking." 15.5 NOTICE AND EXECUTION. Immediately upon service of process upon Landlord or Tenant in connection with any Taking relating to the Premises or any portion thereof or access thereto, each party shall give the other Notice thereof. Each party agrees to execute and deliver to the other all instruments that may be required to effectuate the provisions of this Article 15. Tenant reserves the right to appear in and to contest any proceedings in connection with any such Taking. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 15.5. ARTICLE 16 DAMAGE OR DESTRUCTION 16.1 CASUALTY. If any Improvements are damaged or destroyed by fire or other casualty (including, but not limited to earthquake), except as provided to the contrary in Section 16.2, this Lease shall continue in full force and effect without any abatement or reduction in Base Rent, and Tenant, at Tenant's election, shall either (a) restore the Improvements substantially to their condition prior to the damage or destruction, or such other condition as Tenant shall elect in its sole and absolute discretion, subject to Landlord's approval rights set forth in Section 11.3(c), or (b) not restore the Improvements, but perform, or cause to be performed, at Tenant's sole cost and expense, any work or service required by any Legal Requirement for the protection of persons or property from any risk, or for the abatement of any nuisance, created by or arising from the casualty or the damage or destruction caused thereby. 16.2 TERMINATION OF LEASE. In the case of: (a) any damage or casualty of any Building or Buildings, which in the good faith judgment of Tenant's Board of Directors would render such 42. 49 Building either unsuitable or uneconomic for restoration or continued use by Tenant; (b) the damage or destruction of all or substantially all (as determined in good faith by Tenant's Board of Directors) of any Building or Buildings; or (c) the damage or destruction of any Building or Buildings where restoration cannot (as determined in good faith by Tenant's Board of Directors) reasonably be completed either within 365 days or prior to the expiration of the Initial Term or the Extension Term, then Tenant may elect to terminate this Lease either as to the Building(s) in question or as to the Lease in its entirety. In the event Tenant terminates the Lease pursuant to the preceding sentence, Tenant shall purchase Landlord's interest in the Building(s) in question for a purchase price equal to the Purchase Price for the Building(s) in question, as such Purchase Price is defined in Section 19.1. The purchase of Landlord's interest in such Building(s) shall be pursuant to the terms of Section 19.1, as applicable to such Building(s). Upon the completion of such purchase, this Lease and all obligations hereunder in respect of such Building(s) shall terminate. This Lease shall remain in full force and effect with respect to all remaining Buildings which Tenant does not elect to purchase pursuant to this Section 16.2, and such remaining Building(s) shall constitute the "Improvements" for purposes of this Lease. 16.3 INSURANCE PROCEEDS. In the event of any fire or other casualty, the proceeds of any insurance policies maintained by Tenant pursuant to Section 7.2 or 7.3 shall be held, applied and dealt with as follows: (a) Any proceeds (per occurrence) of such policies attributable to the Improvements below the amount of Five Hundred Thousand Dollars ($500,000) shall be paid directly to Tenant and applied and used as Tenant may direct in its sole discretion for any construction, restoration or reconstruction purposes in connection with any improvements located on the Land which were destroyed, damaged or affected by such casualty. Any portion of such proceeds which Tenant does not want to use (subject to the terms of Section 16.3(d)) for any construction, restoration or reconstruction shall be paid as follows (the order of payment as set forth below shall be the "Distribution Formula"): (1) to Lenders, or to any other holder of an Authorized Loan, and to Landlord, pro rata in proportion to the ratio that the then-existing Senior Funded Amount bears to the then-existing Funded Amount as compared to the ratio that the then-existing Equity Funded Amount bears to the then-existing Funded Amount (provided, however, that in no event shall the amount paid to Landlord exceed the difference between the Funded Amount and the Guaranteed Residual Value); and (2) with any remaining excess to be paid to Tenant. (b) Any proceeds (per occurrence) of such policies attributable to the Improvements greater than Five Hundred Thousand Dollars ($500,000) shall be paid to an escrow agent ("Escrow Agent") mutually agreeable to the parties (but such escrow agent 43. 50 shall not be a party which is related to or affiliated with either of the parties to this Lease). Such proceeds shall be invested by the Escrow Agent as Tenant may direct; provided, however, that such proceeds shall not be invested in the stock or obligations of Tenant. Such proceeds shall be paid by the Escrow Agent to Tenant (or to third parties as Tenant may direct), as Tenant may direct from time to time as restoration, construction or rebuilding progresses to pay the cost of any restoration, construction or rebuilding which Tenant elects to take place on the Land or any Improvements located upon the Land, but only upon the written request of Tenant, and so long as Landlord reasonably determines that the following conditions are satisfied at the time of such request for payment by Tenant: (i) the sum requested has been paid or is then due and payable or will become due and payable within thirty (30) days; (ii) Tenant has the financial ability (taking into account the insurance proceeds held by the Escrow Agent) to complete the restoration, construction or rebuilding which Tenant has elected to perform; (iii) Landlord has approved the Approval Plans, if any, relating to the restoration of Improvements, pursuant to the terms of Article 11; and (iv) in Landlord's reasonable judgment, such restoration work which Tenant desires to perform in connection with the Improvements can be completed prior to the expiration of the Initial Term (or, if Tenant has exercised, or within one hundred twenty (120) days after reaching final written settlement with all insurance companies regarding the amount of proceeds to be paid for the casualty in question, exercises its right to extend for the Extension Term, then prior to the expiration of the Extension Term). Landlord shall promptly upon request instruct the Escrow Agent to make the payments requested by Tenant unless one of the conditions described above is not satisfied at the time of such request. Any excess insurance proceeds existing after either Tenant's completion of the restoration, construction or rebuilding which Tenant elects to perform or Tenant's failure to comply with the funding condition described in subitems (ii), (iii) and (iv) immediately above in this Section 16.3(b), shall be paid pursuant to the Distribution Formula. If Tenant elects to terminate this Lease as to one or more Buildings, Tenant may use any insurance proceeds to pay the purchase price described in Section 16.2, and all rights of Landlord in insurance proceeds not used to pay the purchase price shall be assigned to Tenant by Landlord at the time Tenant purchases Landlord's interest in any such Building(s). (c) Any proceeds of such policies attributable to improvements or buildings on the Land other than the Improvements shall promptly be paid directly to Tenant. (d) If either: (1) Tenant has not delivered written notice to Landlord within one hundred twenty (120) days after reaching final written settlement with all insurance companies regarding the amount of proceeds to be paid for the casualty in question, pursuant to which notice Tenant elects to either exercise some or all of its termination rights under Section 16.2 and/or to fully or partially repair or restore 44. 51 pursuant to Section 16.1; or (2) Landlord reasonably believes that Tenant has abandoned reconstruction or restoration work which Tenant may have elected to perform (and Tenant shall have failed to diligently recommence reconstruction or restoration work which Tenant is then able to perform within thirty (30) days after Tenant's receipt from Landlord of a Notice of Landlord's belief of Tenant's abandonment of the reconstruction or restoration work); then, in either case, the proceeds attributable to the Improvements shall be paid pursuant to the Distribution Formula. (e) Any insurance proceeds paid to Landlord, Lenders or holder of any Authorized Loan under this Article 16 shall automatically reduce the Funded Amount by a like amount. ARTICLE 17 DEFAULT 17.1 DEFAULT. The following event shall constitute a default ("Default") by Tenant: (a) DEFAULT OTHER THAN EVENT OF MAJOR DEFAULT. Tenant's failure to perform or comply with any of the terms, covenants or conditions contained in this Lease other than those referred to in Section 17.2, where such failure shall continue for a period of thirty (30) days after Notice thereof from Landlord to Tenant, or in the case of a failure which cannot with due diligence be cured within the period of thirty (30) days, Tenant's failure to proceed promptly and with due diligence to cure the failure and thereafter to prosecute the curing of the failure with all due diligence, it being intended that in connection with a failure not susceptible of being cured with due diligence within thirty (30) days, the time of Tenant within which to cure the failure shall be extended for such period as may be reasonably necessary to complete the cure with all due diligence. 17.2 EVENT OF MAJOR DEFAULT. Each of the following events shall constitute an event of major default ("Event of Major Default") by Tenant: (a) FAILURE TO PAY BASE RENT. Tenant's failure to pay any Base Rent within ten (10) days after the later to occur of the due date or Tenant's receipt from Landlord of the Invoice required pursuant to Section 5.1; (b) FAILURE TO PAY ADDITIONAL RENT. Tenant's failure to pay any Additional Rent which is due to Landlord within the later to occur of the due date under this Lease or ten (10) days after Tenant's receipt of Notice thereof from Landlord that such Additional Rent is due; 45. 52 (c) FAILURE TO COMPLY WITH PURCHASE OBLIGATION UNDER SECTION 19.2. Tenant's failure to comply with Tenant's obligation to purchase the Premises pursuant to Section 19.2 within the period required in Section 19.2; (d) FAILURE TO CARRY INSURANCE. Tenant's failure to carry the insurance required by Article 7, if such failure continues ten (10) days after Tenant's receipt of Notice thereof from Landlord that Tenant is not carrying such required insurance (provided, however, that it shall not be an Event of Major Default under this Section 17.2 if Tenant is carrying when required the basic form policies required by Article 7 with respect to the perils addressed therein and in the amounts required by Article 7, notwithstanding some other noncompliance); (e) INSOLVENCY. Subject to Section 17.3, the occurrence of: (i) an assignment by Tenant for the benefit of creditors generally; or (ii) the filing of a voluntary or involuntary petition by or against Tenant under any present or future applicable federal, state or other statute or law having for its purpose the adjudication of Tenant as a bankrupt; (iii) the appointment of a receiver, liquidator or trustee for all or a substantial portion of the Premises by reason of the insolvency or alleged insolvency of Tenant; or (iv) the taking of possession by any department of city, county, state or federal government, or any officer thereof duly authorized, of all or a substantial portion of the Premises by reason of the insolvency or alleged insolvency of Tenant; and Tenant's failure to timely give any Notice it is permitted to give pursuant to Section 17.3 (or, in the event Tenant gives timely Notice and pursues a contest under Section 17.3, Tenant's failure to finally prevail in the contest). (f) FAILURE TO REPLENISH UNDER PLEDGE AGREEMENT. Tenant's failure to replenish the collateral account as required under the Pledge Agreement (as defined in Section 13.1(b)) after the notice and cure periods provided in Pledge Agreement; (g) FAILURE TO REFINANCE THE IMPROVEMENT LOAN. Tenant's failure to refinance, or repay, the Improvement Loan prior to the Extension Term; (h) DEFAULT UNDER OTHER CREDIT FACILITY. Tenant's suffering or permitting any of the following defaults: (i) A payment default (after applicable notice and cure periods) under any credit facility of Tenant which equals or exceeds Twenty Million Dollars ($20,000,000); (ii) An Event of Major Default (after applicable notice and cure periods) under that certain lease agreement by and between SGA Development Partnership, Ltd., a Texas limited partnership, and Tenant, for premises located in San Jose, California, dated February 25, 1993, as amended; (iii) An Event of Major Default (after applicable notice and cure periods) under that certain lease agreement by and between Sumitomo Bank Leasing and Finance, Inc., a Delaware corporation ("SBLF"), and Tenant, for premises located in San Jose, California, dated May 20, 1993, as 46. 53 amended; (iv) An Event of Major Default (after applicable notice and cure periods) under that certain lease agreement by and between SBLF and Tenant for premises located in Raleigh, North Carolina, dated July 11, 1994, as amended; or (v) An Event of Major Default (after applicable notice and cure periods) under that certain lease agreement by and between SBLF and Tenant for premises located in Raleigh, North Carolina, dated August 12, 1994; or (vi) An Event of Major Default (after applicable notice and cure periods) under any of the Building Leases; (i) TANGIBLE NET WORTH. Tenant's Tangible Net Worth shall fall below Seven Hundred Fifty Million Dollars ($750,000,000.00); (j) FRAUD/INTENTIONAL MISREPRESENTATION. Fraud or intentional misrepresentation by Tenant in connection with the representations and warranties set forth in Section 21.22 hereof; or (k) DEFAULT UNDER LAND LEASE. An Event of Major Default under the Land Lease. 17.3 CONTEST BY TENANT. If upon the filing of any involuntary petition of the type described in Section 17.2(e) or upon the appointment of a receiver, other than a receiver appointed in any voluntary proceeding referred to in Section 17.2(e), or the taking of possession of all or a substantial portion of the Premises by any department of the city, county, state or federal government, or any officer thereof duly authorized, by reason of the alleged insolvency of Tenant without the consent or over the objection of Tenant, should Tenant desire to contest the same in good faith, Tenant shall, within ninety (90) days after the filing of the petition or after the appointment or taking of possession, give Notice to Landlord that Tenant proposes to make the contest, and the same shall not constitute an Event of Major Default so long as Tenant shall prosecute the proceedings with due diligence and no part of the Premises shall be exposed to sale by reason of the continuance of the contest. 17.4 REMEDIES. Landlord shall have the remedies specified below, the parties hereby acknowledging that the remedies described in Section 17.4(b) may be exercised by Landlord only upon the occurrence of an Event of Major Default. Tenant shall at all times have the right to exercise and carry out the terms of the Purchase Option in Section 19.1, notwithstanding the occurrence or existence of any Default or Event of Major Default under this Lease, and Landlord shall have the obligation to comply with Landlord's obligations under Section 19.1 notwithstanding any Default or Event of Major Default. (a) CONTINUE LEASE. In connection with a Default or an Event of Major Default, Landlord shall have the right to enforce, by suit or otherwise, all other covenants and conditions hereof to be performed or complied with by Tenant and to exercise 47. 54 all other remedies permitted by Section 1951.4 of the California Civil Code, or any amendments thereof or any successor laws which replace such Section 1951.4. Landlord has the remedy described in California Civil Code Section 1951.4 (Landlord may continue the Lease in effect after Tenant's breach and abandonment and recover Base Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitation). Upon application by Landlord, a receiver may be appointed to take possession of the Premises and exercise all rights granted to Landlord as set forth in this Section 17.4(a); and (b) TERMINATE LEASE. In connection with an Event of Major Default (but not a Default), Landlord shall have the right to terminate this Lease, by giving Tenant Notice thereof, at any time after the occurrence of such Event of Major Default and whether or not Landlord has also exercised any right under Section 17.4(a). In such event, Tenant shall, within thirty (30) days after receipt of Notice from Landlord, purchase the Premises pursuant to Section 19.2. Landlord shall also have its other remedies at law (including its rights under the Landlord Deed of Trust), provided, however, that Tenant's right to purchase the Improvements pursuant to Section 19.1 shall survive any termination of this Lease up through the date of foreclosure sale under the Lenders Deed of Trust, the Landlord Deed of Trust or any deed of trust securing an Authorized Loan. 17.5 NO WAIVER. No failure by Landlord or Tenant to insist upon the strict performance of any term, covenant or condition of this Lease or to exercise any right or remedy consequent upon a breach thereof and no acceptance of full or partial Rent during the continuance of any breach shall constitute a waiver of any such breach or of the term, covenant, or condition. No term, covenant or condition of this Lease to be performed or complied with by Tenant or Landlord, and no breach thereof, shall be waived, terminated, altered or modified except by a written instrument executed by Landlord and Tenant. No waiver of any breach shall affect or alter this Lease, but each and every term, covenant, and condition of this Lease shall continue in full force and effect with respect to any other then existing subsequent breach thereof. 17.6 EFFECT OF ASSIGNMENT. Notwithstanding an Entity's prior assignment or transfer of its interest as Tenant under this Lease, so long as Landlord has been given Notice of such assignment pursuant to Sections 14.1(b) and 21.3, Landlord shall give such Entity copies of all Notices required by this Article 17 in connection with any Default or Event of Major Default, and such Entity shall have the period granted hereunder to Tenant to cure such Default or Event of Major Default, unless such Entity shall have been released from all obligations arising under this Lease. Landlord may not assert any rights against such Entity in the absence of such Notice and opportunity to cure, so long as Landlord has been given Notice of such assignment pursuant to Sections 14.1(b) and 21.3. 48. 55 17.7 LANDLORD CURE RIGHT. If Tenant fails to perform any covenant or agreement to be performed by Tenant under this Lease, and if the failure or default continues for thirty (30) days after Notice to Tenant and to any Mortgagee who has requested in writing notice thereof from Landlord (except for emergencies and except for payment of any lien or encumbrance threatening the imminent sale of the Premises or any portion thereof, in which case payment or cure may be made as soon as necessary to minimize the damage to person or property caused by such emergency or to prevent any such sale), Landlord may, but shall have no obligation to, pay the same and cure such default on behalf of and at the expense of Tenant and do all reasonably necessary work and make all reasonably necessary payments in connection therewith including, but not limited to, the payment of reasonable attorneys' fees and disbursements incurred by Landlord. Notwithstanding the foregoing, Landlord shall have no right to cure any such failure to perform by Tenant so long as Tenant both: (1) is diligently and in good faith attempting to cure such matter; and (2) has the financial ability to so comply, unless Tenant has failed to substantially cure such matter within ninety (90) days after Tenant's receipt of Notice thereof from Landlord, in which case Landlord may commence in a reasonable and customary manner and in good faith to attempt to cure such matter (except that Landlord shall not have a right to attempt to cure matters addressed in Section 8.1(b) unless specifically authorized to do so pursuant to Section 8.1(b)). Notwithstanding anything to the contrary in this Lease, in no event shall Landlord have a right to cure any matters relating to the Improvements unless Landlord reasonably believes that the failure to cure such matter could lead to criminal prosecution against Landlord (except as specifically permitted in Section 8.1(b)). Upon demand, Tenant shall reimburse Landlord for the reasonable amount so paid, together with interest at the Default Rate from the date incurred until the date repaid. Tenant shall defend, indemnify, and hold Landlord harmless from and against any and all losses, costs, expenses, liabilities, claims, causes of action and damages of all kinds that may result to Landlord, including reasonable attorneys' fees and disbursements incurred by Landlord, arising because of any failure by Tenant to perform any of its obligations under this Lease. Tenant's duty to indemnify Landlord under this Section 17.7 shall survive the expiration or earlier termination of this Lease. 17.8 LANDLORD'S DEFAULT. (a) LANDLORD'S FAILURE TO PERFORM. If Landlord fails to perform any covenant or agreement to be performed by Landlord under Article 11, Section 13.1, Section 15.4, Article 20, or Section 21.10 of this Lease (including, but not limited to, Landlord's failure to keep the Premises free of any and all liens created by or through Landlord except as approved by Tenant in writing), and if the failure or default continues for thirty (30) days after Notice to Landlord and to any holder of an Authorized Loan who has requested in writing notice thereof from Tenant (except for emergencies, a default under Section 20.5 or payment of 49. 56 any lien or encumbrance threatening the imminent sale of the Premises or any portion thereof, in which case payment or cure may be made as soon as necessary to minimize the damage to person or property caused by such emergency, to prevent foreclosure on the Collateral or to prevent any such sale), Tenant may, but shall have no obligation to, pay the same and cure such default on behalf of and, so long as such failure to perform arises due to Landlord's gross negligence, willful misconduct, or willful breach of this Lease, at the expense of Landlord and do all reasonably necessary work and make all reasonably necessary payments in connection therewith including, but not limited to, the payment of reasonable attorneys' fees and disbursements incurred by Tenant. Notwithstanding the foregoing, Tenant shall have no right to cure any such failure to perform by Landlord so long as Landlord both: (1) is diligently and in good faith attempting to cure such matter; and (2) has the financial ability to so comply. To the extent that Landlord's failure to perform arises due to its gross negligence, willful misconduct or willful breach of this Lease, upon demand, Landlord shall reimburse Tenant for the reasonable amount so paid, together with interest at the Default Rate from the date incurred until the date repaid. To the extent that Landlord's failure to perform arises due to its gross negligence, willful misconduct or willful breach of this Lease, Landlord shall defend, protect, indemnify, and hold Tenant harmless from and against any and all losses, costs, expenses, liabilities, claims, causes of action and damages of all kinds that may result to Tenant, including reasonable attorneys' fees and disbursements incurred by Tenant, arising because of any failure by Landlord to perform any of its obligations under Article 11, Section 13.1, Section 15.4, Article 20 or Section 21.10 of this Lease. Landlord's duty to indemnify Tenant under this Section 17.8 shall survive the expiration or earlier termination of this Lease. (b) DEFAULT UNDER CERTAIN PROVISIONS. In addition to Tenant's rights set forth in Section (a) above, in the event of a default by Landlord under Section 20.5, Tenant shall have the right to cure such default on behalf of and at Landlord's expense, without prior notice to Landlord. In addition, in the event of any default by Landlord under Section 20.3, 20.4 or 20.5, Tenant shall have the right to exercise its Purchase Option pursuant to Section 19.1 hereof. ARTICLE 18 QUIET ENJOYMENT Landlord covenants to secure to Tenant the quiet possession of the Premises for the full Term against all persons claiming the same, subject to Landlord's rights and remedies under Section 17 upon a Default or an Event of Major Default by Tenant. The existence of any Permitted Exceptions shall not be deemed to constitute a breach of Landlord's obligations hereunder. Tenant shall, immediately upon demand, reimburse Landlord for all reasonable costs, expenses and damages incurred or paid by Landlord 50. 57 in the performance of Landlord's obligations under this Article 18 (except for any costs, expenses or damages arising from Landlord's willful breach of this Lease). ARTICLE 19 TENANT'S OPTION TO PURCHASE 19.1 OPTION TO PURCHASE PREMISES. (a) PURCHASE OPTION. Tenant shall have the option ("Purchase Option") to purchase all or part of the Premises at any time during the Term; provided that Tenant shall be entitled to purchase less than all of the Premises only if the portion being purchased is released from any existing Fee Mortgage and if the portion of the Premises not purchased shall constitute one or more Buildings or phases after closing of the purchase and shall be viable as a separate Building or phase as determined in Landlord's sole discretion. The purchase price ("Purchase Price") for the Building or phase which Tenant elects to purchase shall be (i) the then-existing Funded Amount for the Building or phase which Tenant elects to purchase, as the same may be reduced from time to time, plus (ii) the amount of any prepayment premium and all other fees, costs, expenses and any accrued but unpaid interest or rent due to any holder of an Authorized Loan in connection with such loan (to the extent not already paid pursuant to Section 21.21 (including late charges arising from Tenant's late payment of Base Rent hereunder and the annual servicing fee attributable to this Lease) hereof). Tenant shall be entitled to a credit against the Purchase Price in an amount equal to the sum of (i) the principal balance(s) of any Fee Mortgage existing immediately prior to the closing under this Purchase Option if such Fee Mortgage is not fully repaid and all documents reflecting the same are not cancelled and removed from the public records on or prior to the closing under this Purchase Option, plus (ii) the amount of the Security Deposit (or, in the event of a purchase of a portion of the Premises, a pro rata portion of the Security Deposit), and, upon closing under this Purchase Option, Landlord shall be released from Landlord's obligation to return the Security Deposit set forth in Section 5.7 hereof. If Tenant purchases less than all of the then-existing Premises, then the credit pursuant to the preceding sentence shall be calculated on a pro rata basis, based upon the ratio of the area of the Premises being purchased compared to the area of the then-existing Premises. In lieu of payment of the Purchase Price, Tenant shall have the right (1) to assume the Improvements Loan or any other Authorized Loan or (2) to cause Landlord to assign the Authorized Loan and this Lease (including the existing Security Deposit) to a third party acceptable to the holder of such Authorized Loan (which third party shall expressly assume such obligations in writing), provided that Landlord is released from all obligations under the Authorized Loan and Landlord is paid an amount equal to the Equity Contribution. Landlord shall execute any and all documents necessary to effect such assumption and assignment upon Tenant's request, provided that Tenant shall 51. 58 reimburse Landlord for all reasonable costs and expenses related thereto. (b) PURCHASE OPTION EXERCISE NOTICE. If Tenant desires to exercise the Purchase Option, Tenant shall deliver to Landlord a written notice ("Purchase Option Exercise Notice") of Tenant's election; provided, however, that in the event of an assignment by Landlord for the benefit of creditors generally, the filing of a voluntary or involuntary bankruptcy petition by or against Landlord or the appointment of a receiver, liquidator or trustee for all or a substantial portion of the Premises by reason of Landlord's insolvency or alleged insolvency, the Purchase Option shall be deemed exercised with respect to the entire Premises as of the calendar day immediately preceding such assignment, filing or appointment. (c) TRANSFER. If Tenant exercises the Purchase Option, the purchase and sale of the Premises shall be consummated as follows. In the event of a purchase of a portion of the Premises, the term "Premises" as used in this Section 19.1(c) shall be deemed to mean that portion of the Premises then to be purchased pursuant to the Purchase Option. (i) Landlord shall grant and convey the Premises to Tenant, its authorized agent or assignee, pursuant to a duly executed and acknowledged grant deed ("Grant Deed"), free and clear of all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and restrictive covenants or conditions, except for the Permitted Exceptions; (ii) The Purchase Price shall be paid upon delivery of the Grant Deed and any other documents reasonably requested by Tenant to evidence the transfer of the Premises or to release all liens of Landlord, including without limitation, any and all reconveyances of mortgages or other recorded documents as requested by Tenant ("Additional Documents"). In the event that Tenant elects to assign the Purchase Option pursuant to Section 19.1(d) below, and Tenant's assignee pays an amount less than the Purchase Price for the Premises, Tenant shall pay to Landlord any excess of the Purchase Price over the amount paid by such assignee. Landlord shall deliver the Grant Deed and the Additional Documents to Tenant on the date for closing specified by Tenant in the Purchase Option Exercise Notice (which date shall be no sooner than ten (10) days after the date of the Purchase Option Exercise Notice and no later than the last day of the Term, as the same may be extended). The closing shall take place at the location and in the manner reasonably set forth by Tenant in the Purchase Option Exercise Notice; (iii) If Landlord shall fail to cause title to be in the condition required in Section 19.1(c)(i) above within the time herein prescribed for the delivery of the Grant Deed, then Tenant shall have the right, in addition to all other rights provided by law, by a written notice to Landlord: (1) to extend 52. 59 the time in which Landlord shall clear title and deliver the Grant Deed and Additional Documents, during which extension this Lease shall remain in full force and effect, except Tenant shall be released from its obligation to pay Base Rent during the extension; (2) to accept delivery of the Grant Deed and Additional Documents subject to such title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and restrictive covenants or conditions specified and set forth in the Grant Deed and not cleared by Landlord (but without waiving any rights or remedies available to Tenant on account of such title exceptions); (3) to rescind, by notice to Landlord and without any penalty or liability therefor, any and all obligations Tenant may have under and by virtue of the Purchase Option or the exercise thereof, whereupon this Lease shall remain in full force and effect; (4) if the title exception is curable by the payment of money, Tenant may make such payment and such payment shall be a credit against the Purchase Price in favor of Tenant. (iv) Refusal of a title company to issue a standard form of owner's title insurance policy insuring title to the Premises in the condition specified in subparagraph (c)(i) shall be sufficient evidence of Landlord's failure to convey clear title and shall entitle Tenant to exercise any of the rights specified in subparagraph (c)(iii). (v) Base Rent shall be prorated and paid and all unpaid Additional Rent shall be paid as of the date title to the Premises is vested of record in Tenant. Tenant shall pay the escrow fees; the recorder's fee for recording the Grant Deed; the premium for the title insurance policy; all documentary transfer taxes; Tenant's attorneys' fees; Landlord's reasonable attorneys' fees; all other costs and expenses incurred by Tenant in consummating the transfer of the Premises; and all reasonable expenses (except as specified in the next sentence) incurred by Landlord in consummating the transfer of the Premises pursuant to this Section 19.1. Landlord shall pay the costs and expenses of clearing title as required by Section 19.1(c)(i). In the event of a purchase by Tenant under this Article 19, Landlord shall have no obligation to return the Security Deposit to Tenant to the extent the Security Deposit has been credited against the purchase price to be paid by Tenant pursuant to Section 19.1(a). (d) ASSIGNMENT. Tenant shall have the right on one or more occasions, without Landlord's consent, to assign this purchase option, in whole or in part, to any Entity at any time, whether or not Tenant also assigns its interest in the Lease. Tenant shall give prior written notice to Landlord of any such assignment. 19.2 MANDATORY PURCHASE/SALE OF PREMISES. Notwithstanding anything to the contrary herein, upon either: (1) the occurrence of an Event of Major Default or the expiration of the Term of this Lease or upon the occurrence of any other event terminating this Lease; or (2) the occurrence of any event which 53. 60 causes the Funded Amount to be reduced to zero (0); or (3) Tenant's exercise of the Purchase Option pursuant to Section 19.1 or 19.2 of the Land Lease, within thirty (30) days after Tenant's receipt of written Notice of the foregoing and of Tenant's purchase obligation under this Section 19.2 (except in the case of a purchase obligation arising on account of the expiration of the Term of this Lease or exercise of the Purchase Option under the Land Lease; in either such case no prior Notice shall be required, but Tenant shall have twenty (20) days after expiration of the Term or exercise of the Purchase Option under the Land Lease to conclude the purchase), Tenant shall purchase or cause another Entity to purchase, and Landlord shall sell, the Premises in the same manner as if Tenant had exercised the Purchase Option on such date. The Purchase Price shall be the same as if Tenant had exercised the Purchase Option, without regard to the physical state or condition of the Premises or any Improvements (but Tenant shall have the rights set forth in Section 19.1, including without limitation, the terms of Sections 19.1(c)(iii) and (iv)). In the event Tenant fails to purchase (or to cause another Entity to purchase) the Premises pursuant to its obligation under this Section 19.2, and if Landlord does not foreclose under the Landlord Deed of Trust, Landlord (to the extent required under Section 21.19) shall use commercially reasonable efforts to sell the Premises to an unrelated third party, and, as applicable, (i) Tenant shall be obligated to pay to Landlord, immediately upon demand, any shortfall between the Purchase Price and the amount realized by Landlord in connection with such sale, or (ii) Landlord shall be obligated to pay to Tenant, immediately upon demand, any excess of the amount realized by Landlord in connection with such sale over the Purchase Price. For purposes of the preceding sentence, the amount realized by Landlord upon a sale of the Premises shall be net of Landlord's reasonable sale expenses and other expenses incurred by Landlord but required to be paid by Tenant pursuant to Section 19.1(c)(v). Landlord's obligation to pay such excess to Tenant shall survive any termination of this Lease. Landlord and Tenant agree that any and all cash proceeds payable at any foreclosure sale under the Landlord Deed of Trust shall, after payment of all obligations secured by the Landlord Deed of Trust, be paid to Tenant or to any other person claiming through Tenant entitled thereto by applicable law. The aggregate of the obligations under an Authorized Loan and the obligations secured by the Landlord Deed of Trust shall not exceed the Purchase Price. Notwithstanding anything to the contrary in this Lease, in the event of default, breach or violation by Tenant of any of Tenant's obligations under this Section 19.2, Tenant shall have no liability to Landlord or any other party in excess of an amount equal to the then-existing Guaranteed Residual Value, less a credit equal to the sum of (a) any of the Collateral (including the pledged Security Deposit) which Lenders or any other holder of an Authorized Loan has used, applied, or otherwise come into possession of, plus (b) any of the Security Deposit retained by Landlord, and Landlord shall have no recourse, claim or counterclaim whatsoever against Tenant in excess of such amount on account of such default, breach or violation. If the Guaranteed Residual Value has not previously 54. 61 been determined as of the date Tenant's liability under this Section 19.2 has been established, then the Guaranteed Residual Value shall be determined as of the date Tenant's liability hereunder is established. 19.3 SURVIVAL. The obligations of Landlord and Tenant under this Article 19 shall survive the expiration or earlier termination of this Lease. ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD 20.1 TITLE AND SUBDIVISION. In the event Tenant so requests in writing (and so long as either Tenant agrees to indemnify Landlord from any liabilities or obligations in connection therewith, or Landlord does not incur any liabilities or obligations in connection therewith), Landlord shall execute all documents, instruments and agreements reasonably requested by Tenant in order to accomplish any of the following in the manner reasonably requested by Tenant and within the time parameters reasonably requested by Tenant: (1) remove exceptions to title to or affecting the Premises; (2) create exceptions to title (including, without limitation, easements and rights of way) to or affecting the Premises (but not including any Mortgage); (3) modify any then-existing exception to title; or (4) subdivide the Land into two or more separate parcels. Tenant shall promptly reimburse Landlord for, or at Landlord's request, pay directly in advance, all reasonable costs, expenses and other amounts incurred or required to be expended by Landlord in order to comply with Tenant's requests made in accordance with the preceding sentence, and the failure of Tenant to reimburse or pay any such amounts shall result in the suspension of Landlord's obligations under such sentence with respect to that particular request until the amounts required to be paid by Tenant under this sentence have been paid. Landlord acknowledges that it is critical to Tenant's ability to construct improvements on the Premises to have the ability and flexibility to accomplish the foregoing, and that the parties therefore agree that Landlord shall not be entitled to withhold Landlord's consent to any of the foregoing requests by Tenant, except as set forth in the preceding sentence. 20.2 LAND USE. Except where requested by Tenant pursuant to this Section 20.2, Landlord shall not cause or give its written consent to any land use or zoning change affecting the Premises or any changes of street grade. In the event Tenant so requests in writing (and so long as either Tenant agrees to indemnify Landlord from any liabilities or obligations in connection therewith, or Landlord does not incur any liabilities or obligations in connection therewith), Landlord shall execute all documents, instruments and agreements reasonably requested by Tenant in order to accomplish any of the following in the manner reasonably requested by Tenant and within the time parameters reasonably requested by Tenant: (1) cause a change in any land use 55. 62 restriction or law affecting the Premises; (2) cause a change in the zoning affecting the Premises; or (3) cause a change in the street grade with respect to any street in the vicinity of the Premises. Tenant shall promptly reimburse Landlord for, or at Landlord's request, pay directly in advance, all reasonable costs, expenses and other amounts incurred or required to be expended by Landlord in order to comply with Tenant's requests made in accordance with the preceding sentence, and the failure of Tenant to reimburse or pay any such amounts shall result in the suspension of Landlord's obligations under such sentence with respect to that particular request until the amounts required to be paid by Tenant under this sentence have been paid. Landlord acknowledges that it is critical to Tenant's ability to construct improvements on the Premises to have the ability and flexibility to accomplish the foregoing, and that the parties therefore agree that Landlord shall not be entitled to withhold Landlord's request to any of the foregoing requests by Tenant. 20.3 TRANSFER OF PROPERTY INTERESTS. Except as requested by Tenant pursuant to Section 11.7 or 20.1, Landlord shall not transfer to any third party any rights inuring to or benefits associated with the Premises (including, without limitation, zoning rights, development rights, air space rights, mineral, oil, gas or water rights). Nothing in this Section 20.3 shall limit Landlord's rights pursuant to Section 13.2; provided that any purchaser of Landlord's interest in the Premises shall be bound by the terms of this Lease, including without limitation, the terms of this Section 20.3. 20.4 TRUST EQUITY; NO OTHER ASSET. Landlord covenants and agrees that during the Term of the Lease, Landlord shall maintain a residual equity capital investment of at least three percent (3%) of total assets of Landlord, including assets acquired by this equity investment. In addition, Landlord shall not, without the prior written consent of Tenant, which consent may be withheld at Tenant's sole discretion, acquire any significant assets other than (i) the Land, (ii) the Premises and (iii) the land and any Improvements thereon, which Improvements are subject to certain leases between Landlord and Tenant executed concurrently herewith, and which land is described on Exhibit L attached hereto. 20.5 DEFAULT UNDER AUTHORIZED LOAN. Landlord shall not, without Tenant's express prior written consent, default under any Authorized Loan, or any loan documents relating to such Authorized Loan, where such default does not arise from an Event of Major Default by Tenant under this Lease. Any such default shall constitute a material default under this Lease, subject to the limitations on liability of Section 17.8 hereof. 56. 63 ARTICLE 21 MISCELLANEOUS 21.1 RELATIONSHIP. Neither this Lease nor any agreements or transactions contemplated hereby shall in any respect be interpreted, deemed or construed as constituting Landlord and Tenant as partners or joint venturers, one with the other, or as creating any partnership, joint venture, association or, except as set forth in Section 21.2 below, any other relationship other than that of landlord and tenant; and, except as set forth in Section 21.2 below, both Landlord and Tenant agree not to make any contrary assertion, contention, claim or counterclaim in any action, suit or other legal proceeding involving either Landlord or Tenant or the subject matter of this Lease. 21.2 FORM OF TRANSACTION; CERTAIN TAX MATTERS. (a) Landlord and Tenant hereby agree and declare that the transactions contemplated by this Lease are intended to constitute, both as to matters of form and substance: (i) an operating lease for financial accounting and securities regulatory purposes, and (ii) a financing arrangement (and not a "true lease") for Federal, state and local income taxes, property tax valuation or other tax purposes. Accordingly, and notwithstanding any other provision of this Lease to the contrary, Landlord and Tenant agree and declare that (A) the transactions contemplated hereby are intended to have a dual, rather than single, form and (B) all references in this Lease to the "Lease" of the Premises which fail to reference such dual form do so as a matter of convenience only and do not reflect the intent of Landlord and Tenant as to the true form of such arrangements. (b) Landlord and Tenant agree that, in accordance with their intentions and the substance of the transactions contemplated hereby, Tenant (and not Landlord) shall be treated as the owner of the Premises for Federal, state, and local income tax and property tax valuation purposes and this Lease shall be treated as a financing arrangement. Tenant shall be entitled to take any deduction, credit allowance or other reporting, filing or other tax position consistent with such characterizations. Landlord shall not file any Federal, state or local income or property tax returns, reports or other statements in a manner which is inconsistent with the foregoing provisions of this Section 21.2. (c) Each party acknowledges that it has retained accounting, tax and legal advisors to assist it in structuring this Lease and neither party is relying on any representations of the other regarding the proper treatment of this transaction for accounting, income tax, property tax or any other purpose. 57. 64 21.3 NOTICES. Each Notice shall be in writing and shall be sent by personal delivery, overnight courier (charges prepaid or billed to the sender) or by the deposit of such with the United States Postal Service, or any official successor thereto, designated as registered or certified mail, return receipt requested, bearing adequate postage and in each case addressed as provided in the Basic Lease Provisions. Each Notice shall be effective upon being personally delivered or actually received. The time period in which a response to any such Notice must be given or any action taken with respect thereto shall commence to run from the date of personal delivery or receipt of the Notice by the addressee thereof, as reflected on the return receipt of the Notice. Rejection or other refusal to accept shall be deemed to be receipt of the Notice sent. By giving to the other party at least thirty (30) days' prior Notice thereof, either party to this Lease (as well as any Mortgagee) shall have the right from time to time during the Term of this Lease to change the address(es) thereof and to specify as the address(es) thereof any other address(es) within the continental United States of America. 21.4 SEVERABILITY OF PROVISIONS. If any term, covenant or condition of this Lease, or the application thereof to any Entity or circumstance, shall be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to Entities or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby. 21.5 ENTIRE AGREEMENT; AMENDMENT. This Lease constitutes the entire agreement of Landlord and Tenant with respect to the subject matter hereof. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. 21.6 APPROVALS AND CONSENTS. Except as expressly provided in this Lease, whenever any provision of this Lease requires an approval or consent to be given by one of the parties hereto, the approval or consent shall not be unreasonably withheld or delayed. Whenever this Lease grants either party the right to take action, exercise discretion, establish rules and regulations, or make an allocation or other determination, except as otherwise provided, such party shall act reasonably and in good faith and take no action which might result in the frustration of the other party's reasonable expectations concerning the benefits to be enjoyed under this Lease. If either party withholds its consent or approval, unless by the express terms of this Lease such consent or approval may be withheld in such party's sole discretion, such party shall, upon request, promptly deliver to the other party a written statement specifying in detail the reason or reasons why such consent or approval was withheld or refused. If neither approval nor rejection is given by Landlord within the time specified in Article 11 as to any particular approval requested by 58. 65 Tenant under Article 11 (or, if no such time is specified, then within thirty (30) days after request for approval is given by a Notice), then the approval thus specifically requested in writing by Tenant shall be conclusively and irrevocably deemed to have been given by Landlord. 21.7 TERMINOLOGY. All personal pronouns used in this Lease shall include all other genders. The singular shall include the plural and the plural shall include the singular. Titles of Articles, Sections and Subsections in this Lease are for convenience only and neither limit nor amplify the provisions of this Lease, and all references in this Lease to Articles, Sections or Subsections shall refer to the corresponding Article, Section or Subsection of this Lease unless specific reference is made to the articles, sections or other subdivisions of another document or instrument. The word "days" as used herein shall mean business days (i.e., excluding holidays when banks in the State of California or New York are generally closed for business and weekends) unless otherwise expressly stated. 21.8 MEMORANDUM OF LEASE. Neither party shall record this Lease. However, concurrently with the execution of this Lease, Landlord and Tenant have executed a Memorandum of Lease in the form attached hereto as Exhibit E and by this reference made a part hereof, which Memorandum of Lease shall be promptly recorded in the Official Records. 21.9 SUCCESSORS AND ASSIGNS. Subject to Articles 13 and 14, this Lease shall inure to the benefit of and be binding upon Landlord and Tenant and their respective heirs, executors, legal representatives, successors and assigns. Whenever in this Lease a reference to any Entity is made, such reference shall be deemed to include a reference to the heirs, executors, legal representatives, successors and assigns of such Entity. 21.10 COMMISSIONS. Landlord and Tenant each represent and warrant that neither has dealt with any broker in connection with this transaction and that no real estate broker, salesperson or finder has the right to claim a real estate brokerage, salesperson's commission or finder's fee by reason of contact between the parties brought about by such broker, salesperson or finder. Each party shall hold and save the other harmless of and from any and all loss, cost, damage, injury or expense arising out of or in any way related to claims for real estate broker's or salesperson's commissions or fees based upon allegations made by the claimant that it is entitled to such a fee from the indemnified party arising out of contact with the indemnifying party or alleged introductions of the indemnifying party to the indemnified party. In addition to the foregoing, Tenant shall hold and save Landlord harmless of and from any and all loss, cost, damages, injury or expense arising out of or in any way related to claims for real estate broker's or salesperson's commissions relating to Landlord's acquisition of the Premises or fees by The Staubach Company in connection with this Lease. 59. 66 21.11 ATTORNEYS' FEES. In the event any action is brought by Landlord or Tenant against the other to enforce or for the breach of any of the terms, covenants or conditions contained in this Lease, the prevailing party shall be entitled to recover reasonable attorneys' fees to be fixed by the court, together with costs of suit therein incurred. Tenant shall pay the reasonable attorneys' fees incurred by Landlord for the review and negotiation of this Lease and the Improvements Loan documents. 21.12 GOVERNING LAW. This Lease and the obligations of the parties hereunder shall be governed by and interpreted, construed and enforced in accordance with the laws of the State of California. 21.13 COUNTERPARTS. This Lease may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. 21.14 TIME IS OF THE ESSENCE. Time is of the essence of this Lease, and of each provision hereof. 21.15 NO THIRD PARTY BENEFICIARIES. This Lease is entered into by Landlord and Tenant for the sole benefit of Landlord and Tenant. There are no third party beneficiaries to this Lease. 21.16 LIMITATIONS ON RECOURSE. The obligations of Tenant and Landlord under this Lease shall be without recourse to any partner, officer, trustee, beneficiary, shareholder, director or employee of Tenant or Landlord. There shall be no limitation on Landlord's liability with respect to any willful misconduct, bad faith breach of this Lease, or gross negligence by Landlord ("Identified Matters"). Except for any Identified Matter, Landlord's liability to Tenant for any default by Landlord under this Lease: (1) shall be limited to the greater of the Equity Funded Amount less any repayment to Tenant of the Security Deposit or Landlord's interest in the Premises; and (2) shall extend to any actual damages of Tenant, but shall not extend to any foreseeable and unforeseeable consequential damages. 21.17 ESTOPPEL CERTIFICATES. Within thirty (30) days after request therefor by either party, the non-requesting party shall deliver, in recordable form, a certificate to any proposed mortgagee, purchaser, sublessee or assignee and to the requesting party, certifying (if such be the case) that this Lease is in full force and effect, the date of Tenant's most recent payment of Rent, that, to the best of its knowledge, the non-requesting party has no defenses or offsets outstanding, or stating those claimed, and any other information reasonably requested. Failure to deliver said statement in time shall be conclusive upon the non-requesting party that: (a) this Lease is in full force and effect, without modification except as may be represented by the requesting party; (b) there are no uncured defaults in the requesting party's 60. 67 performance and the non-requesting party has no right of offset, counterclaim or deduction against the non-requesting party's obligations hereunder; (c) no more than one month's Base Rent has been paid in advance; and (d) any other matters reasonably requested in such certificate. 21.18 COLLATERAL. The parties acknowledge that Tenant has pledged certain collateral ("Collateral") to Lenders to secure Landlord's obligations under the terms of the Note. If the holder of an Authorized Loan applies any of the Collateral to satisfy an obligation under any Authorized Loan documents, such application shall be deemed to reduce the Senior Funded Amount under this Lease on a dollar-for-dollar basis. Tenant shall have no claims, rights or causes of action against Landlord arising from any application of the Collateral to satisfy an obligation under the Authorized Loan documents. 21.19 LANDLORD'S CONTINUING OBLIGATION TO SELL. Except in the case of a foreclosure under the Landlord Deed of Trust, and subject to the rights of any holder of an Authorized Loan, in the event Landlord obtains possession of the Premises pursuant to the terms of this Lease (including, without limitation, upon the expiration or earlier termination of this Lease where Tenant has defaulted in its obligation to purchase the Premises pursuant to Section 19.2), Landlord shall be under a continuing obligation to use its commercially reasonable efforts to sell the Premises to Tenant or to one or more unrelated third parties; provided, however, that Landlord shall not be required to sell or attempt to sell any portion of the Premises (i) in a manner, or under circumstances, that could materially impair Landlord's ability to enforce any of its rights or remedies under this Lease (as determined in Landlord's sole discretion exercised in good faith), (ii) at a time when market conditions render it inadvisable to sell or attempt to sell the Premises (as determined in Landlord's sole discretion exercised in good faith). Nothing contained in this paragraph shall be binding upon any holder of an Authorized Loan acquiring title through foreclosure, to any person acquiring title at any such foreclosure or to their successors in interest. Upon the occurrence of any such sale Landlord shall be obligated to pay to Tenant any excess of the amount realized by Landlord in connection with such sale over the Purchase Price. For purposes of the preceding sentence, the amount realized by Landlord upon a sale of the Premises shall be net of Landlord's reasonable sale expenses and other expenses incurred by Landlord but required to be paid by Tenant pursuant to Section 19.1(c)(v). Landlord's obligation to pay such excess to Tenant shall survive any termination of this Lease. Landlord shall not deliver to any Mortgagee a deed in lieu of foreclosure under any circumstances without Tenant's prior written approval, which may be withheld in Tenant's sole and absolute discretion. 61. 68 21.20 AS-IS LEASE. Landlord makes no representations or warranties concerning the condition, suitability or any other matters relating to the Premises, and Tenant hereby acknowledges that Tenant leases the Premises from Landlord on an "as is" basis. 21.21 NET LEASE. Except as otherwise provided in this Lease, Tenant agrees that this Lease is an absolute net Lease, and the Base Rent called for hereunder shall be paid as required net of all expenses associated with the Premises, including without limitation, Real Estate Taxes and insurance premiums for the insurance required to be carried hereunder, and all other reasonable and customary costs and expenses incurred by Landlord in connection with the Premises or this Lease, all of which shall be paid or reimbursed by Tenant unless otherwise specifically provided herein. Tenant agrees to reimburse Landlord, within five (5) business days following receipt of any written demand therefor, for all reasonable and customary fees (including the pro rata portion of the $3,000 annual servicing fee payable to SBNYTC attributable to this Lease), late charges, title endorsement and other costs and expenses charged to Landlord by Lenders pursuant to the terms and conditions of the Note. 21.22 REPRESENTATIONS AND WARRANTIES. Tenant and Landlord each hereby represents and warrants to the other that: (i) such party is duly organized and existing under the laws of the jurisdiction in which it is formed; (ii) such party has the full right and authority to enter into this Lease, consummate the sale, transfers and assignments contemplated herein and otherwise perform its obligations under this Lease; (iii) the person or persons signatory to this Lease and any document executed pursuant hereto on behalf of such party have full power and authority to bind such party; and (iv) the execution and delivery of this Lease and the performance of such party's obligations hereunder do not and shall not result in the violation of its organizational documents or any contract or agreement to which such party may be a party. 21.23 APPRAISAL PROCEDURE. (a) If this Lease calls for an appraisal under this Section 21.23 with respect to the Coverage Test, Landlord and Tenant shall have thirty (30) days after either party delivers Notice to the other party of a desire to utilize the appraisal procedure under this Section 21.23 in connection with the Coverage Test in which to agree on whether the Coverage Test is satisfied as of the time required under the relevant provision of this Lease. In determining the Coverage Test, the fair market value of the Land and Improvements ("Fair Market Value") shall be calculated together, taking into consideration the quality, size, design and location of the Land and Improvements, and the value of comparable property in the general locality of the Land, and any other factors which customarily are evaluated in appraising land or buildings. If either party elects to utilize the terms of this Section 21.23 and Landlord and Tenant agree on the Fair Market Value during such 62. 69 thirty (30) day period, they shall immediately execute a letter agreement reflecting such agreement. (b) If Landlord and Tenant are unable to agree on the Fair Market Value within such thirty (30) day period, then within ten (10) days after the expiration of the thirty (30) day period, Landlord and Tenant each, at its cost and by giving notice to the other party, shall appoint a competent and disinterested real estate appraiser with at least five (5) years' full-time commercial appraisal experience in the geographical area of the Building to appraise and set the Fair Market Value. If either Landlord or Tenant does not appoint an appraiser within ten 10 days after the other party has given notice of the name of its appraiser, the single appraiser appointed shall be the sole appraiser and shall set the Fair Market Value. If two (2) appraisers are appointed by Landlord and Tenant as stated in this Section, they shall meet promptly and attempt to set the Fair Market Value. (c) If the two (2) appraisers are unable to agree on the Fair Market Value within thirty (30) days after the second appraiser has been appointed, they shall attempt to select a third appraiser meeting the qualifications stated in this Section within ten (10) days after the last day the two (2) appraisers are given to set the Fair Market Value. If they are unable to agree on the third appraiser, either Landlord or Tenant, by giving ten (10) days' notice to the other party, can apply to the then president of the real estate board of the county in which the Land is located, or to the Presiding Judge of the Superior Court of the county in which the Land is located, for the selection of a third appraiser who meets the qualifications stated in this Section. Landlord and Tenant each shall bear one-half (l/2) of the cost of appointing the third appraiser and of paying the third appraiser's fee. The third appraiser, however selected, shall be a person who has not previously acted in any capacity for either Landlord or Tenant. Within thirty (30) days after the selection of the third appraiser, a majority of the appraisers shall set the Fair Market Value. If a majority of the appraisers is unable to set the Fair Market Value within the stipulated period of time, the third appraiser shall arrange for simultaneous exchange of written appraisals from each of the appraisers and the three (3) appraisals shall be added together and their total divided by three (3); the resulting quotient shall be the Fair Market Value. If, however, the low appraisal and/or the high appraisal are/is more than ten percent (10%) lower and/or higher than the middle appraisal, the low appraisal and/or the high appraisal shall be disregarded. If only one (1) appraisal is disregarded, the remaining two (2) appraisals shall be added together and their total divided by two (2); the resulting quotient shall be the Fair Market Value. If both the low appraisal and the high appraisal are disregarded as stated in this Section, the middle appraisal shall be the Fair Market Value. (d) After the Fair Market Value has been set, the appraisers shall immediately notify Landlord and Tenant, and 63. 70 Landlord and Tenant shall immediately execute a letter agreement reflecting the Fair Market Value. 21.24 FINANCIAL REPORTING. Tenant shall provide to Landlord and Lenders: (1) annually, within one hundred twenty (120) days after the end of each of Tenant's fiscal years during the Term, an annual report on Form 10-K for such fiscal years as filed with the Securities and Exchange Commission; (2) quarterly, within forty five (45) days after the end of each of Tenant's fiscal quarters during the Term, quarterly reports on Form 10-Q as filed with the Securities and Exchange Commission; and (3) within thirty (30) days after filing with the Securities and Exchange Commission, any other reports, proxy statements, registration statements or prospectuses filed during the Term with the Securities and Exchange Commission. 21.25 APPRAISAL. Prior to Landlord's making the Initial Advance pursuant to Section 11.3 hereof, Landlord shall have received an appraisal conforming to FIRREA guidelines prepared by an appraiser reasonably satisfactory to Landlord indicating that the current fair market value on an as-completed basis of the buildings as designed as of the date of such appraisal which Tenant may desire to have constructed on the Land (based upon a theoretical current build-out on the Land on the basis of the Site Plan attached hereto as Exhibit C) is not less than ninety percent (90%) of the estimated cost of construction of the buildings which Tenant may desire to have constructed on the Land. The appraisal shall be based upon Tenant's current construction budget, specifications and intended use (both parties hereby recognizing that such items are subject to change, and in no event shall Tenant have any obligation to construct any or all of such buildings). Tenant hereby approves Landlord's use of either Cushman & Wakefield or CB Commercial Real Estate Group as the appraiser under this Section 21.25. Landlord hereby acknowledges that the current fair market value on an as-completed basis of the buildings as designed as of the date of such appraisal which Tenant proposes to have constructed on the Land is not less than ninety percent (90%) of the estimated cost of construction of said buildings. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 64. 71 [SIGNATURE PAGE TO BUILDING LEASE] IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: [JOHN McFADDEN] ------------------------------ Name: [JOHN F. McFADDEN] ------------------------------ Its: [VICE PRESIDENT AND TREASURER] ------------------------------ [Remainder of This Page Intentionally Left Blank] 72 [SIGNATURE PAGE TO BUILDING LEASE] "TENANT" CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION By: [JOHN T. CHAMBERS] ------------------------------------------------ Name: [JOHN T. CHAMBERS] ---------------------------------------- Its: [PRESIDENT AND CHIEF EXECUTIVE OFFICER] ---------------------------------------- By: [LARRY R. CARTER] ------------------------------------------------ Name: [LARRY R. CARTER] ---------------------------------------- Its: [CHIEF FINANCIAL OFFICER] ---------------------------------------- 73 EXHIBIT A LEGAL DESCRIPTION OF LAND REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: All of Parcel 2, as shown on that certain Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on July 13, 1983, in Book 514 of Maps page(s) 47 and 48. APN: 97-53-14 All of Lot 54 as shown upon that certain Map entitled, "Tract No. 7559", which Map was filed for record in the Office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-23 74 EXHIBIT B PERMITTED EXCEPTIONS The following exceptions from coverage of Landlord's title insurance which affect "Parcel Two" and "Parcel Three": 1. PROPERTY TAXES, including any assessments collected with taxes, for the fiscal year 1995-1996, a lien not yet due or payable. 2. a) Bond for City of San Jose, Reassessment District No. 93-210 1993 Consolidated Refunding Bond No. : 24J Assessment No. : 42V Balance of principal : $88,186.00 Balance of interest through maturity : $16,532.60 The above Amount excludes $12,279.07 principal, $5,140.46 interest and $277.29 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects Lot 59 of Parcel One. b) Bond for City of San Jose, Reassessment District No. 93-210 1993 Consolidated Refunding Bond No. : 24J Assessment No. : 46V Balance of principal : $100,217.00 Balance of interest through maturity : $18,788.10 The above Amount excludes $13,954.27 principal, $5,841.76 interest and $312.93 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects Lot 58 of Parcel One. c) Bond for Reassessment District #93-210 Consolidated Refunding, as follows: Bond No. : 24J Assessment No. : 48V Balance of principal : $113,800.32 Balance of interest : $21,334.61 The above Amount to pay in full excludes $15,845.61 principal, $6,633.65 interest and $353.18 handling charge spread on the 1994- 1995 tax roll, which amounts cannot be prepaid. Said matter affects Parcel Two. 75 2. Continued d) Bond for Reassessment District #93-210 Consolidated Refunding, as follows: Bond No. : 24J Assessment No. : 47V Balance of principal : $123,177.11 Balance of interest : $23,092.52 The above Amount to pay in full excludes $17,151.24 principal, $7,180.13 interest and $380.97 handling charge spread on the 1994- 1995 tax roll, which amounts cannot be prepaid. Said matter affects Parcel Three. e) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 8V Balance of principal : $63,238.68 Balance of interest through maturity : $11,855.62 The above Amount excludes $8,806.39 principal, $3,686.25 interest and $203.36 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects Parcels Four and Five. f) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 1V Balance of principal : $429.87 Balance of interest through maturity : $80.61 The above Amount excludes $59.86 principal, $25.02 interest and $1.32 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects a portion of Parcel Six. g) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 2V Balance of principal : $91,559.14 Balance of interest through maturity : $17,164.97 The above Amount excludes $12,748.74 principal, $5,337.09 interest and $280.03 handling charge spread on the 1994- 1995 tax roll, which amounts cannot be prepaid. Said matter affects a portion of Parcel Six. 76 2. Continued h) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 9V Balance of principal : $75,028.33 Balance of interest through maturity : $14,065.87 The above Amount excludes $10,446.98 principal, $4,373.49 interest and $229.47 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects a portion of Parcel Six. i) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 10V Balance of principal : $360.71 Balance of interest through maturity : $67.62 The above Amount excludes $50.23 principal, $21.03 interest and $1.10 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects a portion of Parcel Six. 3. THE LIEN of supplemental taxes, if any, assessed as a result of transfer of interest and/or new construction, said supplemented taxes being assessed pursuant to Chapter 3.5 commencing with Section 75 of the California Revenue and Taxation Code, for which no Notice of Assessment has been issued, as of the date herein. 4. EASEMENT for the purposes stated herein and incidents thereto Purpose : Right to excavate for, install, replace (of initial or any other size), maintain and use for conveying gas such pipe line or lines as shall from time to time elect, with necessary values and other appliances Granted to : Pacific Gas and Electric Company, a California corporation Recorded : July 6, 1944 in Book 1206, page 154, Official Records Affects : as follows: By a Relocation Agreement between Oakmead Associates, a California general partnership and Pacific Gas and Electric Company, a California corporation Recorded : April 5, 1989 in Book K903, page 1344, Official Records the easement was relocated as follows: A strip of land of the uniform width of 15 feet extending from the Northerly boundary line of said Lot 5, said Northerly boundary line being the Southerly boundary line of the city street known as Tasman Drive (128 feet wide), said Tasman Drive is shown on said map, Southwesterly to the Westerly boundary line of said Lot 5, said Westerly boundary line being the Easterly boundary line of the street known as Rio Robles (56 feet wide), said street Rio Robles is also shown on said map, and lying 7.5 feet on each side of the line described as follows: 77 4. Continued Beginning at a point in the Northerly boundary line of said Lot 5 and running (1) S. 0 degrees 23.5 minutes E. 12.4 feet to a point which bears, S. 66 degrees 35.0 minutes W. 579.2 feet distant from the found 5/8 inch brass pin set in concrete accepted as marking the Southwesterly terminus of a course in the center line of said Tasman Drive, which course as shown on said map has a bearing of, N. 59 degrees 28 minutes 40 seconds E. and a length of 700.88 feet; thence (2) S. 29 degrees 04.3 minutes W. 187.8 feet; thence (3) S. 57 degrees 38.6 minutes W. 10.8 feet to a point in the Westerly boundary line of said Lot 5. Said line being a survey traverse made by second party in September, 1983. The bearings used in the foregoing description are based on solar observations made by second party. Covenants, conditions and restrictions in the above mentioned instruments. Said matter affects Parcel Six. 5. TERMS and conditions as contained in the Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records. Said matter affect Parcels Five and Seven and portions of Parcels Four and Six. 6. THE EFFECT of the Rincon de los Esteros Project Redevelopment Plan and Ordinances Nos. 17306, 19686, 19835, 20677, 20958, 21417, 21496, 21903, 22660, 22412, 22761, 22761.1 and 22961, 23703, 23732, 23761 and 23934 of the City of San Jose as recorded and as disclosed by documents recorded July 11, 1975 in Book B502, Page 711; August 6, 1979 in Book E699, Page 245; August 6, 1979 in Book E699, Page 277; December 21, 1979 in Book F37, Page 585; October 8, 1981 in Book G382, Page 605; July 28, 1982 in Book G929, Page 703; September 14, 1983 in Book H892, Page 200; January 10, 1984 in Book I220, Page 271; January 6, 1992 in Book L996, Page 508, all of Official Records, and as disclosed by information provided by the Redevelopment Agency of the City of San Jose. 7. EASEMENT for the purposes stated herein and incidents thereto Purpose : Any and all public service facilities, including, but not limited to, poles, wires, conduits and vaults, storm sewers, sanitary sewers, and gas, water, electrical and communication mains and all appurtenances thereto Granted to : City of San Jose, a municipal corporation of the State of California Recorded : September 14, 1981 in Book G330, page 497, Official Records Affects : That portion of said land as shown upon the map herein referred to, more particularly described as follows: All that certain real property situated in the City of San Jose, County of Santa Clara, State of California, being a portion of the parcel of land described and designated as Parcel 1 in the deed to River Oaks Associates #2, dated November 17, 1979, recorded in Book E962 of Official Records, at page 145, Santa Clara County Records, more particularly described as follows: 78 7. Continued Beginning at a point in the centerline of North First Street (formerly San Jose-Alviso Road) as said centerline is described in said deed at the most Northerly corner of said parcel; thence along the Northwesterly boundary line of said parcel, S. 59 degrees 28 minutes 40 seconds W. (S. 59 degrees 30 minutes W. per deed), 114.98 feet; thence leaving said line, S. 30 degrees 31 minutes 20 seconds E. 34.00 feet to the true point of beginning; thence along a non-tangent curve to the right having a radius of 50.00 feet; whose radius point bears along the continuation of the last described course, S. 30 degrees 31 minutes 20 seconds E. through a central angle of 89 degrees 59 minutes 11 seconds for an arc length of 78.53 feet to a point in a line which is parallel with and 65.00 feet Southwesterly of said centerline; thence along said parallel line, S. 30 degrees 32 minutes 09 seconds E. 254.64 feet to a point in the Northwesterly boundary line of the strip of land described in the deed to the City of County of San Francisco, dated October 20, 1950; recorded in Book 2111 of Official Records, at page 319, Santa Clara County Records; thence along said Northwesterly line, S. 65 degrees 09 minutes 27 seconds W. 10.05 feet to a point in a line that is parallel with and 75.00 feet Southwesterly from said centerline; thence along said parallel line, N. 30 degrees 32 minutes 09 seconds W. 253.64 feet; thence along a curve to the left, having a radius of 40.00 feet, through a central angle of 89 degrees 59 minutes 11 seconds for an arc length of 62.82 feet; thence N. 30 degrees 31 minutes 20 seconds W. 10.00 feet to the true point of beginning; the bearing of, S. 30 degrees 32 minutes 09 seconds E. of the monument line of North First Street, as shown on the Parcel Map recorded in Book 460 of Maps, at page 1, Santa Clara County Records, was used as the basis of bearings for this description. Said matter affects Parcel Six. 8. EASEMENT for the purposes stated herein and incidents thereto Purpose : Landscape Easement Granted to : City of San Jose, a municipal corporation Recorded : September 14, 1981 in Book G330, page 504, Official Records Affects : The Northeasterly 20 feet of Parcel Six. 9. LICENSE for the purposes stated herein and incidents thereto Purpose : To construct, install, maintain, repair, renew, replace, operate and use an interim storm sewer pipe line or lines and appurtenances of any size of material, and/or a surface drainage release Granted to : City of San Jose, a municipal corporation of the State of California Recorded : September 14, 1981 in Book G330, page 511, Official Records Affects : that portion of said land as shown upon the map herein referred to, more particularly described as follows: All that certain real property situate in the City of San Jose, County of Santa Clara, State of California, being a portion of the parcel of land described and designated as Parcel 1 in the deed to River Oaks Associates #2, dated November 17, 1979, recorded in Book E962 of Official Records, at page 145, Santa Clara County Records, more particularly described as follows: Beginning at a point in the centerline of North First Street (formerly San Jose-Alviso Road) as said centerline is described in said deed at the most Northerly corner of said parcel; thence along the Northwesterly boundary line of said parcel, S. 59 degrees 29 minutes 40 seconds W. (S. 59 degrees 30 minutes W. per deed), 114.98 feet; thence leaving said boundary line, S. 30 degrees 31 minutes 20 seconds E. 34.00; thence along a non-tangent curve to the right having a radius of 50.00 feet whose radius point bears along the continuation of the last described course, S. 30 degrees 31 minutes 20 seconds E. through a central angle of 17 degrees 26 minutes 39 seconds for an arc length of 15.22 feet to the point of beginning; thence continuing along said curve 79 9. Continued to the right having a radius of 50.00 feet, through a central angle of 19 degrees 24 minutes 44 seconds for an arc length 16.94 feet to a point in a line that is parallel with and 85.00 feet Southwesterly of said centerline; thence along said parallel line S. 30 degrees 32 minutes 09 seconds E. 292.64 feet to a point in the Northwesterly boundary line of the strip of land described in the deed to the City and County of San Francisco, dated October 20, 1950, recorded in Book 2111 of Official Records, at page 319, Santa Clara County Records; thence along said Northwesterly boundary line, S. 65 degrees 09 minutes 27 seconds W. (S. 65 degrees 08 minutes 00 seconds W. per deed), 15.07 feet to a point in a line which is parallel with and 100.00 feet Southwesterly of said centerline; thence along said parallel line, N. 30 degrees 32 minutes 09 seconds W. 298.84 feet to the true point of beginning. Said matter affects Parcel Six. 10. AN EASEMENT affecting the portion of said land and for the purpose stated herein and incidental purposes, shown or dedicated by the map of Tract 7408 filed in Book 506 of Maps, pages 24, 25 and 26. Purpose : Public Service Easement Affects : The Southwesterly 10 feet of Parcels One, Two and Three; the Northwesterly 8 feet of Parcel Two; the Southwesterly 8 feet of Parcel Four; the Northeasterly and Northwesterly 10 feet of Parcel Six; and the Southwesterly 8 feet of Parcel Six. 11. EASEMENT as shown on the filed map of Tract 7408 filed in Book 506 of Maps, pages 24-26 and incidents thereto Purpose : Landscape Easement Affects : The Southwesterly 20 feet of Parcel One, Two and Three; the Northwesterly 18 feet of Parcel Two; the Southwesterly 18 feet of Parcel Four; the Northeasterly and Northwesterly 20 feet of Parcel Six; and the Southwesterly 18 feet of Parcel Six. 12. EASEMENT for the purposes stated herein and incidents thereto Purpose : Public Service Easement Granted to : City of San Jose Recorded : November 19, 1982 in Book H156, page 275, Official Records Affects : The Northwesterly 25 feet of Parcel Four 13. EASEMENT for the purposes stated herein and incidents thereto Purpose : The installation, maintenance and operation of all landscaping plant forms, irrigation systems, retaining walls, and decorative walkway paving now existing or hereinafter to be constructed Granted to : City of San Jose, a municipal corporation of the State of California Recorded : May 27, 1983 in Book H590, page 649, Official Records Affects : The Southwesterly 20 feet of Parcel One, Two and Three; the Northwesterly 18 feet of Parcel Two; the Southwesterly 18 feet of Parcel Four; the Northeasterly and Northwesterly 20 feet of Parcel Six; and the Southwesterly 18 feet of Parcel Six. 80 14. EASEMENT for the purposes stated herein and incidents thereto Purpose : The installation, maintenance and operation of all landscaping plant forms, irrigation systems, retaining walls, and decorative walkway paving now existing or hereinafter to be constructed Granted to : City of San Jose, a municipal corporation of the State of California Recorded : May 27, 1983 in Book H590, page 652, Official Records Affects : The Westerly corner of Parcel Two and the Northerly and Westerly corner of Parcel Six 15. AGREEMENT on the terms and conditions contained therein, For : The installation and maintenance of landscape improvements Between : City of San Jose, a municipal corporation And : Oakmead-San Jose, a California general partnership and Oakmead-San Jose Sign and Landscape Maintenance Association, a California non-profit mutual benefit corporation Recorded : May 27, 1983 in Book H590, page 662, Official Records Reference is hereby made to the record for further particulars. 16. EASEMENT for the purposes stated herein and incidents thereto Purpose : The construction, installation, repair and maintenance of interlocking pavers, retaining walls and signs, and for pedestrian and vehicular access as necessary or desirable thereto, but subject to the obligation of the association of the association, its successors and assigns, to promptly repair any damage to said improvements lying within the Sign and Landscape Easements resulting from the Association's activities thereon Granted to : Oakmead-San Jose Sign and Landscape Maintenance Association, a non-profit mutual benefit corporation Recorded : June 3, 1983 in Book H604, page 322, Official Records Affects : The Westerly corner of Parcel Two and the Northerly and Westerly corner of Parcel Six 17. LIMITATIONS, covenants, conditions, restrictions, reservations, exceptions, terms, liens or charges, but deleting restrictions, if any, based on race, color, religion or national origin contained in the document recorded June 3, 1983 in Book H604, page 334, Official Records. CONTAINS mortgagee protection clause. MODIFICATION thereof recorded January 26, 1984 in Book I257, page 252, Official Records. A Notice of Amendment of Design Guidelines Executed by : Oakmead-San Jose, a California general partnership Recorded : June 21, 1984 in Book I649, page 543, Official Records An instrument entitled, "Designation of Approving Agent," whereby Kimball Small Properties, a California corporation was designated approving agent under the CC&R's and Design Guidelines. Recorded : April 29, 1988 in Book K517, page 940, Official Records MODIFICATION thereof recorded October 18, 1988 in Book K721, page 265, Official Records. 81 17. Continued Said Assignment affects Parcel One. An instrument entitled, "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 1, 1995 Between : CROCKER PROPERTIES, INC., a California corporation and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 1, 1995 as Instrument No. 12877064, Official Records Said Assignment affects Parcels Two and Three An Instrument entitled, "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 8, 1995 Between : AMDAHL CORPORATION, a Delaware corporation and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 8, 1995 as Instrument No. 12882481, Official Records Said Assignment affects Parcels Four, Five and Six 18. LIMITATIONS, covenants, conditions, restrictions, reservations, exceptions, terms, liens or charges, but deleting restrictions, if any, based on race, color, religion or national origin contained in the document recorded June 3, 1983 in Book H604, page 505, Official Records. Said instrument also provides for the levy of assessments, the lien of which are stated to be subordinate to the lien of a First Mortgage of First Deed of Trust made in good faith and for value. MODIFICATION thereof recorded January 26, 1984 in Book I257, page 248, Official Records. An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose and Removal of Approving Agent," Dated : October 18, 1988 Between : Oakmead-San Jose, a California general partnership and Oakmead Associates, a California general partnership Recorded : October 18, 1988 in Book K721, page 295, Official Records Said Assignment affects Parcels One, Four, Five and Six An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose and Removal of Approving Agent," Dated: : April 20, 1989 Between : Oakmead Associates, a California general partnership and Amdahl Corporation, a Delaware corporation Recorded : April 20, 1989 in Book K927, page 332, Official Records Said Assignment affects Parcels Four and Five 82 18. Continued An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : July 12, 1989 Between : Oakmead Associates, a California general partnership and Amdahl Corporation, a Delaware corporation Recorded : July 12, 1989 in Book L017, page 1927, Official Records Said Assignment affects Parcel Six MODIFICATION thereof recorded July 19, 1989 in Book L024, page 587, Official Records An instrument entitled "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose" Between : Oakmead-San Jose, a California general partnership and Crocker Properties, Inc., a California corporation Recorded : August 10, 1989 in Book L052, page 1001 and page 1011, Official Records. Said Assignment affects Parcels Two and Three An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 1, 1995 Between : OAKMEAD ASSOCIATES, a California general partnership and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 1, 1995 as Instrument No. 12877061, Official Records Said Assignment affects Parcel One. An instrument entitled, "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 1, 1995 Between : CROCKER PROPERTIES, INC., a California corporation and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 1, 1995 as Instrument No. 12877064, Official Records Said Assignment affects Parcels Two and Three An instrument entitled, "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 8, 1995 Between : AMDAHL CORPORATION, a Delaware corporation and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 8, 1995 as Instrument No. 12882481, Official Records Said Assignment affects Parcels Four, Five and Six 83 19. EASEMENT as shown on the filed map of Tract 7559 filed in Book 522 of Maps, pages 49 ad 50. Purpose : Public Service Easement Affects : The Northwesterly 8 Feet and the Westerly corner of Lot 59 of Parcel One 20. EASEMENT as shown on the filed map of Tract 7559 filed in Book 522 of Maps, pages 49 and 50. Purpose : Landscape Easement Affects : The Southeasterly 18 feet and the Southerly corner of Lot 58 of Parcel One; and the Northwesterly 18 feet and the Westerly corner of Lot 59 of Parcel One 21. EASEMENT for the purposes stated herein and incidents thereto Purpose : Communication facilities Granted to : Pacific Bell Recorded : February 21, 1984 in Book I319, page 486, Official Records Affects : The Southwesterly 10 feet of Lot 58 of Parcel One; the Southwesterly 10 feet, the Northwesterly 8 feet and the Westerly corner of Lot 59 of Parcel One; and the Southwesterly 10 Feet of Parcel Three 22. EASEMENT for the purposes stated herein and incidents thereto Purpose : Underground and above ground communication facilities Granted to : Pacific Bell Recorded : May 17, 1984 in Book 1552, page 624, Official Records Affects : The Southwesterly 10 feet of Parcel Four 23. AGREEMENT on the terms and conditions contained therein, For : Gas and electric service Between : Pacific Gas and Electric Company, City of San Jose And : Oakmead-San Jose As disclosed by a Memorandum of Agreement Recorded : February 25, 1985 in Book J271, page 37, Official Records. Reference is hereby made to the record for further particulars. 24. EASEMENT for the purposes stated herein and incidents thereto Purpose : Emergency overland storm drainage release Granted to : Amdahl Corporation, a Delaware corporation Recorded : August 8, 1990, in Book L443, page 754, Official Records Affects : The Northwesterly 10 feet of the Southeasterly 30 feet and the Northeasterly 10 feet of the Northwesterly 100 feet of the Southeasterly 130 feet of Parcel Four. Terms and conditions contained in the document hereinabove referred to. 25. TERMS AND CONDITIONS of that certain Site Development Permit File No. : HSH 90-09-104 Disclosed By : A Notice of Granting of a Site Development Permit Recorded : January 24, 1991 in Book L600, page 1242, Official Records 84 25. Continued Said matter affects Parcels Four, Five and Six. Reference is hereby made to the record for particulars. 26. TERMS AND CONDITIONS of that certain Site Development Permit File No. : HSH 92-02-011 Disclosed By : A Notice of Granting of a Site Development Permit Recorded : August 21, 1992 in Book M340, page 824, Official Records Said matter affects Parcel Six. 27. TERMS AND CONDITIONS of that certain Site Development Permit File No. : H94-07-041 Disclosed By : A Notice of Granting of a Site Development Permit Recorded : October 19, 1994 in Book N638, page 215, Official Records Said matter affects Parcel Six. Reference is hereby made to the record for particulars. 29. ANY RIGHTS, interests, or claims adverse to those of the vestee herein which may exist or arise by reason of the following facts shown on a survey plat entitled "A.L.T.A./A.C.S.M. Land Title Survey", dated April 14, 1995, prepared by Kier & Wright, Job. No. 92160-16. a) The fact that a concrete sign extends across the Northwesterly boundary of Parcel Six. 30. UNRECORDED LEASE for the term and upon the terms and conditions contained therein Dated : February 28, 1995 Lessor : IRISH LEASING CORPORATION, a Texas corporation Lessee : CISCO SYSTEMS, INC., a California corporation Term : 5 Years Disclosed by : Memorandum of Land Lease, recorded May 1, 1995, as Instrument No., 12877062, Official Records. Affects the fee to Parcel One. 31. OPTION TO PURCHASE as disclosed in the Memorandum of Lease recorded May 1, 1995 as Instrument No. 12877062, Official Records Affects the fee to Parcel One. 32. UNRECORDED LEASE for the term and upon the terms and conditions contained therein Dated : February 28, 1995 Lessor : IRISH LEASING CORPORATION, a Texas corporation Lessee : CISCO SYSTEMS, INC., a California corporation Term : 5 Years Disclosed by : Memorandum of Land Lease, recorded May 1, 1995, as Instrument No. 12677065, Official Records. Affects the fee to Parcels Two and Three. 85 33. OPTION TO PURCHASE as disclosed in the Memorandum of Lease recorded May 1, 1995 as Instrument No. 12877065, Official Records Affects the fee to Parcels Two and Three. 34. A DEED OF TRUST to secure an indebtedness in the original principal sum shown below and any other amounts and/or obligations secured thereby Amount : $2,700,000.00 Dated : May 1, 1995 Trustor : IRISH LEASING CORPORATION, a Texas corporation Trustee : FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation Beneficiary : CISCO SYSTEMS, INC., a California corporation Recorded : May 1, 1995, under Series No. 12877066, Official Records. Affects the fee to Parcels One, Two and Three. 35. UNRECORDED LEASE for the term and upon the terms and conditions contained therein Dated : April 12, 1995 Lessor : IRISH LEASING CORPORATION, a Texas corporation Leesee : CISCO SYSTEMS, INC., a California corporation Term : 5 years Disclosed by : Memorandum of Land Lease, recorded May 8, 1995, as Instrument No. 12882482, Official Records. Affects the fee to Parcels Four, Five, Six and Seven. 36. OPTION TO PURCHASE as disclosed in the Memorandum of Lease recorded May 8, 1995 as Instrument No. 12482482, Official Records Affects the fee to Parcels Four, Five, Six and Seven. 37. A DEED OF TRUST to secure an indebtedness in the original principal sum shown below and any other amounts and/or obligations secured thereby Amount : $1,500,000.00 Dated : May 1, 1995 Trustor : IRISH LEASING CORPORATION, a Texas corporation Trustee : FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation Beneficiary : CISCO SYSTEMS, INC., a California corporation Recorded : May 8, 1995, under Series No. 12882483, Official Records. Affects the fee to Parcels Four, Five, Six and Seven. 86 EXHIBIT C (SITE PLAN) EXHIBIT C 1. 87 [AERIAL RENDERING SITE PLAN BUILDING "X"] 88 [AERIAL RENDERING SITE PLAN BUILDING "J"] 89 EXHIBIT D (PRE-APPROVED APPROVAL PLANS) EXHIBIT D 1. 90 [ARCHITECTURAL RENDERING EXTERIOR ELEVATIONS BUILDING "I"] 91 [ARCHITECTURAL RENDERING SITE PLAN BUILDING "I"] 92 [ARCHITECTURAL RENDERING SITE PLAN BUILDING "J"] 93 [ARCHITECTURAL RENDERING SITE PLAN BUILDING "J"] 94 EXHIBIT E MEMORANDUM OF LEASE RECORDING REQUESTED BY, AND WHEN RECORDED, RETURN TO: Brobeck, Phleger & Harrison 550 West C Street, Suite 1300 San Diego, California 92101 Attention: Todd J. Anson, Esq. THIS MEMORANDUM OF LEASE ("Memorandum of Lease") is executed as of May ___, 1995, by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"). RECITALS WHEREAS, Landlord and Tenant have executed that certain lease ("Lease") dated as of May ___, 1995, covering certain improvements ("Premises") which may come to be located on the real property located in the County of Santa Clara, State of California and more particularly described in Schedule 1 attached hereto and incorporated herein by this reference ("Land"); and WHEREAS, Landlord and Tenant desire to record notice of the Lease in the real estate records of Santa Clara County, California; NOW, THEREFORE, in consideration of the foregoing, Landlord and Tenant hereby declare as follows: 1. DEMISE. Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord, subject to the terms, covenants and conditions contained in the Lease. The Premises leased to Tenant pursuant to the Lease consists of the Improvements described in Paragraph 5 below, and does not include the Land. 2. EXPIRATION DATE. The term of the Lease ("Term") shall commence on May ___, 1995 and shall expire five (5) years thereafter, subject to Tenant's option to extend the Term pursuant to Section 4.2 of the Lease for one (1) period of five (5) years. EXHIBIT E 1. 95 3. OPTION TO PURCHASE. Tenant has an option to purchase the Premises, as more particularly described in the Lease, during the Term, as it may be extended. 4. RESTRICTIONS ON ENCUMBRANCES. Landlord is prohibited from recording against the Premises liens (including, without limitation, deeds of trust), encumbrances, and other matters that would constitute exceptions to title, and from amending or modifying any of the foregoing that may exist now or during the Term, as more particularly described in the Lease, and any such encumbrance or modification of an encumbrance not authorized in writing by Tenant shall be null and void. 5. OWNERSHIP OF CERTAIN IMPROVEMENTS. By virtue of Tenant's rights under that certain Ground Lease between Tenant and Irish Leasing Corporation, a Texas corporation, dated February 28, 1995, Tenant hereby grants to Landlord the right to own and construct the improvements which Tenant may elect, as construction agent for Landlord, to erect, construct or situate upon the Land or any part thereof during the Term under and pursuant to the terms of, and using funding provided by or through Landlord pursuant to Article 11 of the Lease ("Improvements"), and Tenant hereby grants, conveys and transfers to Landlord all of Tenant's right, title and interest in and to the Improvements (whether now existing or hereafter constructed), and Tenant agrees that any and all such Improvements shall be and remain the property of Landlord, subject to Tenant's rights to purchase the Improvements under Section 19 of the Lease (with Landlord's agreement that Tenant's purchase rights contemplated under Section 19 of the Lease reflect the primary intent of the parties to the Lease is to treat the Lease as an operating Lease for financial accounting and securities regulatory purposes and as a financing arrangement for all federal, state and local income tax, property tax valuation and other tax purposes). 6. COUNTERPARTS. This Memorandum of Lease may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] EXHIBIT E 2. 96 IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum of Lease as of the date and year first written above. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: ___________________________ Name:___________________________ Its: ___________________________ STATE OF __________________ ) ) ss COUNTY OF _________________ ) On _____________, before me, ______________________, Notary Public, personally appeared _______________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. _________________________________ Signature [SEAL] [SIGNATURES CONTINUED ON NEXT PAGE] EXHIBIT E 3. 97 "TENANT" CISCO SYSTEMS, INC. A CALIFORNIA CORPORATION By: ______________________________ Name:_________________________ Its: _________________________ STATE OF __________________ ) ) ss COUNTY OF _________________ ) On _____________, before me, ______________________, Notary Public, personally appeared _______________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ___________________________________ Signature [SEAL] EXHIBIT E 4. 98 SCHEDULE 1 TO EXHIBIT E LEGAL DESCRIPTION The Premises are described as follows: REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: All of Parcel 2, as shown on that certain Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on July 13, 1983, in Book 514 of Maps page(s) 47 and 48. APN: 97-53-14 All of Lot 54 as shown upon that certain Map entitled, "Tract No. 7559", which Map was filed for record in the Office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-23 SCHEDULE 1 TO EXHIBIT E 99 EXHIBIT F FORM OF CONTRACTOR'S CERTIFICATE EXHIBIT F 1. 100 APPLICATION AND CERTIFICATE FOR PAYMENT AIA DOCUMENT G702 (Instructions on reverse side) PAGE ONE OF PAGES - -------------------------------------------------------------------------------- TO OWNER: PROJECT: APPLICATION NO: Distribution to: PERIOD TO: / / OWNER PROJECT NOS.: / / ARCHITECT / / CONTRACTOR FROM CONTRACTOR: VIA ARCHITECT: CONTRACT DATE: / / / / CONTRACT FOR: - -------------------------------------------------------------------------------- CONTRACTOR'S APPLICATION FOR PAYMENT Application is made for payment, as shown below, in connection with the Contract. Continuation Sheet, AIA Document G703, is attached. 1. ORIGINAL CONTRACT SUM..................................... $ --------------- 2. NET CHANGE BY CHANGE ORDERS............................... $ --------------- 3. CONTRACT SUM TO DATE (Line 1 plus or minus 2)............. $ --------------- 4. TOTAL COMPLETED & STORED TO DATE.......................... $ (Column G on G703) --------------- 5. RETAINAGE: a % of Completed Work (Columns D plus E on G703) $ -------- --------------- b % of Stored Material (Column F on G703) $ -------- --------------- Total Retainage (Line 5a plus 5b or Total in Column 1 of G703)............ $ --------------- 6. TOTAL EARNED LESS RETAINAGE............................... $ (Line 4 less Line 5 Total) --------------- 7. LESS PREVIOUS CERTIFICATES FOR PAYMENT (Line 6 from prior Certificate)........................... $ --------------- 8. CURRENT PAYMENT DUE....................................... $ =============== 9. BALANCE TO FINISH, INCLUDING RETAINAGE (Line 3 less Line 6) $ ---------------
- -------------------------------------------------------------------------------- CHANGE ORDER SUMMARY ADDITIONS DEDUCTIONS - -------------------------------------------------------------------------------- Total changes approved in previous months by Owner - -------------------------------------------------------------------------------- Total approved this Month - -------------------------------------------------------------------------------- TOTALS - -------------------------------------------------------------------------------- NET CHANGES by Change Order - --------------------------------------------------------------------------------
The undersigned Contractor certifies that to the best of the Contractor's knowledge, information and belief the Work covered by this Application for Payment has been completed in accordance with the Contract Documents, that all amounts have been paid by the Contractor for Work for which previous Certificates for Payment were issued and payments received from the Owner, and that current payment shown herein is now due. CONTRACTOR: By: Date: ------------------------------ -------------------------------- State of: County of: Subscribed and sworn to before me this day of Notary Public: My Commission expires: - -------------------------------------------------------------------------------- ARCHITECT'S CERTIFICATE FOR PAYMENT In accordance with the Contract Documents, based on on-site observations and the data comprising this application, the Architect certifies to the Owner that to the best of the Architect's knowledge, information and belief the Work has progressed as indicated, the quality of the Work is in accordance with the Contract Documents, and the Contractor is entitled to payment of the AMOUNT CERTIFIED. AMOUNT CERTIFIED................................... $ ----------------------- (Attach explanation if amount certified differs from the amount applied for. Initial all figures on this Application and on the Continuation Sheet that are changed to conform to the amount certified.) ARCHITECT: By: Date: ------------------------------ -------------------------------- This Certificate is not negotiable. The AMOUNT CERTIFIED is payable only to the Contractor named herein. Issuance, payment and acceptance of payment are without prejudice to any rights of the Owner or Contractor under this Contract. - -------------------------------------------------------------------------------- AIA DOCUMENT G702 APPLICATION AND CERTIFICATE FOR PAYMENT 1992 EDITION AIA(R) Copyright 1992 AMERICAN INSTITUTE OF ARCHITECTS 1735 NEW YORK AVENUE, N.W. WASHINGTON, D.C. 20006-5292 WARNING: UNLICENSED PHOTOCOPYING VIOLATES U.S. COPYRIGHT LAWS AND WILL SUBJECT THE VIOLATOR TO LEGAL PROSECUTION. G702/92 101 EXHIBIT G INITIAL ADVANCE MEMORANDUM THIS INITIAL ADVANCE MEMORANDUM ("Memorandum") is entered into this ___ day of __________, 199_, by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant") concerning that certain Lease ("Lease") between Landlord and Tenant dated May 22, 1995. Any capitalized terms not defined in this Memorandum shall have the meaning as defined in the Lease. 1. Pursuant to Section 5.6 of the Lease, Landlord and Tenant are required to enter into this Memorandum within thirty (30) days after the initial Advance for the foundation of any Building and within thirty (30) days after the initial Advance under the Lease. 2. Landlord and Tenant agree that this Memorandum reflects initial Advances that were made for the following Building(s): ________________ _______________________________________________. 3. Landlord and Tenant agree that the amount(s) of the initial Advances is (are) as follows (allocated on a Building-by-Building basis, if this Memorandum reflects Advances for more than one Building): ______ __________________________________________________________________. 4. Landlord and Tenant agree that the Guaranteed Residual Value for the Building(s) described in Paragraph 2 is _____% of ___________________ (the total Funded Amount for the Building(s)). 5. Landlord and Tenant agree that the estimated Funded Amount, determined by Tenant pursuant to Section 5.5 of the Lease, is $______________________. 6. Landlord and Tenant agree that, pursuant to Section 5.7 of the Lease, the Security Deposit to be held by Landlord pursuant to the Lease is $______________________. [Remainder of This Page Intentionally Left Blank] EXHIBIT G 1. 102 [SIGNATURE PAGE TO INITIAL ADVANCE MEMORANDUM] IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date and year first above written. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: __________________________________ Name:__________________________________ Its: __________________________________ [SIGNATURES CONTINUED ON NEXT PAGE] EXHIBIT G 2. 103 [SIGNATURE PAGE TO INITIAL ADVANCE MEMORANDUM] "TENANT" CISCO SYSTEMS, INC., a California corporation By:___________________________ Name:_________________________ Its: _________________________ EXHIBIT G 3. 104 EXHIBIT H RENT COMMENCEMENT DATE MEMORANDUM THIS RENT COMMENCEMENT DATE MEMORANDUM ("Memorandum") is entered into this ___ day of _______, 199_, by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant") concerning that certain Lease (Buildings "I" and "J") ("Lease") between Landlord and Tenant dated May 22, 1995. Any capitalized terms not defined in this Memorandum shall have their meaning as defined in the Lease. 1. Pursuant to Section 5.6 of the Lease, Landlord and Tenant are required to enter into this Memorandum within thirty (30) days after the Rent Commencement Date for any Building. 2. Landlord and Tenant agree the that Rent Commencement Date for the Building described as follows _______________________, is ___________ ___, 199_. 3. The dollar value of the Funded Amount (defined in Section 2.24 of the Lease) for the Building described in paragraph 2 is $______________________. 4. The dollar value of the Landlord's Equity Contribution (defined in Section 2.17 of the Lease) for the Building described in paragraph 2 above is _____% of $___________________________, (i.e., $__________________). 5. The dollar value of the Guaranteed Residual Value (defined in Section 2.25 of the Lease) for the Building described in paragraph 2 above is ____% of $_____________________ (i.e. $____________________________). 6. Landlord and Tenant agree that, pursuant to Section 5.7 of the Lease, the Security Deposit held by Landlord pursuant to the Lease shall be in the amount of $______________________ as of the Rent Commencement Date. [Remainder of This Page Intentionally Left Blank] EXHIBIT H 1. 105 IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date and year first above written. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: _________________________________ Name:_________________________________ Its: _________________________________ [SIGNATURES CONTINUED ON NEXT PAGE] EXHIBIT H 106 [SIGNATURE PAGE TO RENT COMMENCEMENT DATE MEMORANDUM] "TENANT" CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION By: ___________________________ Name:___________________________ Its: ___________________________ EXHIBIT H 107 EXHIBIT I DRAW REQUEST FORM THIS DRAW REQUEST ("Draw Request") is submitted by CISCO SYSTEMS, INC., a California corporation ("Tenant") to SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), pursuant to Article 11 of that certain Lease (Buildings "I" and "J") between Landlord and Tenant dated May 22, 1995. Any capitalized terms not defined in this Draw Request shall have their meaning as defined in the Lease. Pursuant to the terms of Article 11 of the Lease, Tenant hereby makes a Draw Request for an Advance from Landlord. The Aggregate of the amount of the Advance requested by Tenant pursuant to this Draw Request is $_________________________. Tenant hereby instructs Landlord to make this Advance to the parties and in the amounts described below:
Name of Entity Amount -------------- ------
[ADD ADDITIONAL SHEET, IF NECESSARY, TO DESCRIBE ALL ENTITIES TO RECEIVE A PORTION OF THIS ADVANCE AND THE AMOUNT TO BE PAID TO EACH SUCH ENTITY.] IN WITNESS WHEREOF, Tenant has executed this Draw Request as of the date and year first above written. "TENANT" CISCO SYSTEMS, INC., a California corporation By: _______________________ Name:_______________________ Its: _______________________ EXHIBIT I 1. 108 EXHIBIT J CLOSING COSTS AND FEES TO BE INCLUDED IN FUNDED AMOUNT The following items shall be included in the definition of the Funded Amount under Section 2.24 of the Lease: Fees and costs which are specifically authorized by Tenant in writing to be included in the Funded Amount EXHIBIT J 1. 109 EXHIBIT K NOTICE OF INTEREST RATE PERIOD SELECTION Pursuant to Section 5.1(d) of those certain Leases by and between Sumitomo Bank of New York Trust Company, ("SBNYTC"), as trustee under that certain trust agreement dated May 22, 1995 between Sumitomo Bank Leasing and Finance, Inc. and SBNYTC ("SB Trust"), as Landlord, and Cisco Systems, Inc., a California corporation ("Cisco"), as Tenant, dated as of May 22, 1995, Cisco hereby gives notice to SB Trust of its designation of the Loan interest period as set forth below: Effective Date Interest Period -------------- --------------- _____________, ____ _____ month(s) This Notice of Borrowing is dated this ___ day of _______, _____, and may be executed in multiple copies, each of which shall be deemed an original, and all of which together shall be but a single Notice. "CISCO" CISCO SYSTEMS, INC., a California corporation By:_________________________ Title:______________________ By:_________________________ Title:______________________ EXHIBIT K 110 EXHIBIT L DESCRIPTION OF ADDITIONAL PROPERTY OWNED BY LANDLORD REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: Lots 58 and 59, as shown upon that certain map entitled, "Tract No. 7559", which Map was filed for record in the office of the Recorder of the County of Santa Clara, on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-18,22 Lot 50, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52. Reserving therefrom a perpetual right and easement to construct, install, maintain, repair, renew, replace, operate and use a surface drainage release to benefit Lot 49 of Tract 7560, as contained in that certain Grant of Easement recorded August 8, 1990 in Book L443, page 0754, Official Records, and described as follows: The Northwesterly 10.00 feet of the Southeasterly 30.00 feet and the Northwesterly 100.00 feet of the Southeasterly 130.00 feet of the Northeasterly 10.00 feet of Lot 50. That portion of Lot 51, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52, being more particularly described as follows: Beginning at the Southeasterly corner of said Lot 51; thence along the Southerly line of said Lot 51, S. 59 degrees 27 minutes 51 seconds W. 77.00 feet; thence N. 14 degrees 27 minutes 48 seconds E. 108.90 feet to the Northeasterly line of said Lot 51; thence along said Northeasterly line S. 30 degrees 32 minutes 09 seconds E. 77.00 feet to the point of beginning, as provided for in that certain Lot Line Adjustment granted by the Director of Planning of the City of San Jose, a copy of which was recorded March 28, 1984 in the office of the Recorder of the County of Santa Clara in Book I410, page 712 of Official Records. Lot 5 and 6, as shown on that certain Map of Tract No. 7408, which map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on November 19, 1982 in Book 506 of Maps, pages 24, 25 and 26 and a portion of that certain parcel of land described in the deed recorded December 22, 1972 in Book 0167, page 623, all as approved by that Lot Combination recorded September 16, 1992 in Book M381 of Maps, page(s) 0081, Official Records, more particularly described as follows: EXHIBIT L 111 Beginning at a point on the Northeasterly line of Rio Robles, as shown upon said map, at the most Southerly corner of said Lot 5; thence along said Northeasterly line of Rio Robles, N. 30 degrees 32 minutes 09 seconds W. 105.50 feet; thence on a tangent curve to the right, having a radius of 367.00 feet, through a central angle of 36 degrees 30 minutes 00 seconds an arc distance of 233.80 feet; thence on a curve to the right, tangent to the previous curve, having a radius of 50.00 feet, through a central angle of 86 degrees 01 minutes 50 seconds an arc distance of 75.08 feet to the Southerly line of Tasman Drive as shown upon said map; thence along said line on a curve to the left, tangent to the previous curve, having a radius of 1149.00 feet, through a central angle of 32 degrees 31 minutes 01 seconds an arc distance of 652.09 feet; thence N. 59 degrees 28 minutes 40 seconds E. 600.40 feet; thence on a tangent curve to the right, having a radius of 33.00 feet, through a central angle of 89 degrees 51 minutes 11 seconds an arc distance of 51.83 feet to the Southwesterly line of First Street, as shown upon said map; thence along said line, S. 30 degrees 32 minutes 09 seconds E. 261.38 feet to the Northwesterly line of the lands of the City and County of San Francisco, as shown upon said map; thence along said line of the lands of the City and the County of San Francisco, S. 65 degrees 09 minutes 27 seconds W. 1396.95 feet to the point of beginning. Those rights as contained in that certain Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records. A strip of land 80 feet wide, lying 40 feet either side of the following described line and extensions thereto, across that certain parcel of land conveyed by Charles Nelson, et ux, to Masami Ezaki by Grant Deed dated February 27, 1936 and recorded March 11, 1936, in Volume No. 765, at page 262, Official Records, Santa Clara County, hereinafter referred to as the Ezaki Parcel, said line being more particularly described as commencing at a point in the Westerly boundary of the existing San Jose-Alviso Road, said point being distant along said boundary South 30 degrees 32 minutes 30 seconds East 381.31 feet from its intersection with the Northerly boundary of the above mentioned Ezaki Parcel; thence, from said point of commencement, South 65 degrees 08 minutes 00 seconds West 1459.03 feet to a point in the common boundary between the above mentioned Ezaki Parcel and that certain parcel of land conveyed by Lena Lindgren, et al, to James A. Pankoski, et ux, by Joint Tenancy Deed dated November 13, 1944 and recorded November 17, 1944 in Volume No. 1227 at Page 327, Official Records, Santa Clara County, hereinafter referred to as the Pankoski Parcel, said point being distant along said common boundary South 30 degrees 32 minutes 30 seconds East 237.04 feet from the most Westerly corner of the above mentioned Ezaki Parcel; the Easterly end of said strip being the above mentioned Westerly boundary of the San Jose-Alviso Road, and the Westerly end of said strip being the above mentioned common boundary between the Pankoski and Ezaki Parcels. EXHIBIT L EX-10.30 4 FIRST AMENDMENT TO LEASE I AND J 1 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made and entered into as of this 18th day of July, 1995, by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY, ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"). THIS FIRST AMENDMENT IS ENTERED INTO upon the basis of the following facts, understandings and intentions. RECITALS A. Landlord and Tenant entered into that certain Lease (Buildings "I" and "J") dated May 22, 1995 ("Lease"), pursuant to which Landlord is leasing to Tenant the improvements which Tenant may elect to construct ("Premises"), as agent for Landlord, on that certain land located in San Jose, California, as more particularly described in the Lease and on Exhibit A attached hereto and incorporated herein by this reference. Any capitalized terms used but not defined in this First Amendment which are defined in the Lease shall have the meaning ascribed in the Lease. B. Landlord and Tenant now desire to amend the terms of the Lease, as more particularly described in this First Amendment. NOW THEREFORE, the parties hereto agree as follows: 1. Capitalized Interest. Section 2.9 of the Lease is hereby amended to add the following sentence at the end of the Section: During the Construction Period for a Building or phase of Buildings, Capitalized Interest for such Building or phase of Buildings shall be calculated using the Construction Period Monthly Calculation set forth in Section 2.43. 2. Monthly Calculation. Section 2.43 of the Lease is hereby amended to add the following sentence at the end of the Section: During the Construction Period for a Building or phase of Buildings, "Monthly Calculation" shall mean the quotient resulting from dividing three hundred sixty (360) by the number of days in the applicable Rent Period. The applicable Rent Period shall begin on the twentieth day of the calendar month for which this Construction Period Monthly Calculation is being calculated and shall be for a period equal to the number of days in such calendar month. 2 3. Rent Period. Section 2.57 of the Lease is hereby deleted, and is replaced with the following: 2.57 Rent Period. "Rent Period" shall mean each period equal to one calendar month occurring during the Term hereof, except that: (a) the first Rent Period shall be a partial calendar month commencing on the date of disbursement of the initial proceeds hereof and ending on July 2, 1995, (b) the second Rent Period shall be a partial calendar month commencing on July 3, 1995 and ending on July 19, 1995; (c) Commencing July 20, 1995 and ending on the nineteenth day of the last calendar month of the Construction Period, the Rent Period shall commence on the twentieth day of each calendar month and end on the nineteenth day of the subsequent calendar month; (d) the Rent Period preceding the Rent Commencement Date shall be a partial calendar month commencing on the twentieth day of the last calendar month of the Construction Period and ending on the last day of such calendar month; and (e) the last Rent Period shall be a partial calendar month commencing on the first LIBOR Business Day of the last calendar month of the Term and ending on the last day of the Term. 4. Timing and Method of Disbursement. Section 11.6(a) of the Lease is hereby deleted, and is replaced with the following: (a) Timing and Method of Disbursement. Advances to be made hereunder shall not be made more frequently than monthly. For any calendar month during which Tenant desires to receive an Advance, Tenant shall submit a Draw Request on or before the fifteenth day of such month, and if Tenant submits such Draw Request by such date, then Landlord shall, subject to the conditions to funding described in Sections 11.3, 11.4 and 11.5, make the Advance as requested in such Draw Request to the party(ies) designated by Tenant on the twentieth day of such month, or the next LIBOR Business Day if the twentieth day of such month is not a LIBOR Business Day ("Advance Date"). The Advances shall be made to parties identified by Tenant, which parties may include Tenant. At the option of Tenant, Landlord shall make such Advances to one (1) or more parties. 5. Counterparts. This First Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. 6. Existing Lease. Except to the extent specifically amended hereby, all terms and conditions of the Lease remain in full force and effect. -2- 3 [SIGNATURE PAGE TO FIRST AMENDMENT TO LEASE] IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date and year first above written. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: [LARRY McFADDEN] ------------------------------- Name: [LARRY F. McFADDEN] ------------------------------- Its: [VICE PRESIDENT AND TREASURER] ------------------------------- [SIGNATURES CONTINUED ON NEXT PAGE] -3- 4 [SIGNATURE PAGE TO RENT FIRST AMENDMENT TO LEASE] "TENANT" CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION By: [NANCY BAREILLES] ----------------------------- Name: [NANCY BAREILLES] ---------------------------- By: ---------------------------- Name: ---------------------- Its: ---------------------- -4- 5 EXHIBIT A DESCRIPTION OF LAND REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: All of Parcel 2, as shown on that certain Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on July 13, 1983, in Book 514 of Maps page(s) 47 and 48. APN: 97-53-14 All of Lot 54 as shown upon that certain Map entitled, "Tract No. 7559", which Map was filed for record in the Office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-23 EXHIBIT A EX-10.31 5 LEASE K AND L 5/22/95 1 LEASE (BUILDINGS "K" AND "L") By and Between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC as Landlord and CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION as Tenant for Premises located in San Jose, California THIS LEASE IS NOT INTENDED TO CONSTITUTE A TRUE LEASE FOR INCOME TAX PURPOSES. SEE SECTION 21.2 2 TABLE OF CONTENTS
Page ARTICLE 1 BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Date of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.4 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.5 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.6 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.7 Rent Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.8 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.9 Addresses for Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.10 Address for Rent Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE 2 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.1 Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.2 Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.3 Approval Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.4 Authorized Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.5 Authorized Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.6 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.7 Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.8 Building Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.9 Capitalized Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.10 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.11 Construction Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.12 Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.13 Coverage Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.14 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.15 Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.16 Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.17 Equity Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.18 Equity Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.19 Equity Rent Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.20 Event of Major Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.21 Extension Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.22 Extension Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.23 Fee Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.24 Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.25 Guaranteed Residual Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.26 HSBC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.27 Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.28 Improvements Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.29 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.30 ILC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.31 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.32 Land Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.33 Land Lease Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.34 Land Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.35 Landlord Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.36 Landlord Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.37 Lease Inception Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
i. 3 2.38 Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.39 Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.40 Lenders Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.41 LIBOR Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.42 LIBOR Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.43 Monthly Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.44 Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.45 Mortgagee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.46 New Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.47 Nominal Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.48 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.49 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.50 Official Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.51 Permitted Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.52 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.53 Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.54 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.55 Rent Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.56 Rent Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.57 Rent Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.58 Required Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.59 SBNYTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.60 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.61 Senior Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.62 Senior Rent Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.63 Site Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.64 Sumitomo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.65 Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.66 Tenant Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.67 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE 3 DEMISE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.1 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE 4 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.1 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.2 Extension Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.3 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE 5 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.1 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.2 Proration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5.3 No Abatement of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5.4 Delinquent Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5.5 Equity Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5.6 Exhibits Reflecting Initial Advance and Rent Commencement Date . . . . . . . . . . . . . . . . . . . . . 17 5.7 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.8 Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE 6 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.1 Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.2 Personal Property Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.3 Right to Contest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ii. 4 6.4 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.5 Additional Provisions Relating to Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE 7 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.1 Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.2 Builders' Risk Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.3 All-Risk Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.4 General Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.5 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.6 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE 8 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 8.1 Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 8.2 Contest of Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 8.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE 9 UTILITIES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 9.1 Services to the Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.1 Tenant Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.2 Surrender of the Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 11.1 Tenant's Rights to Construct Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 11.2 Request for Construction Funding; Landlord Obligation to Fund . . . . . . . . . . . . . . . . . . . . . . 30 11.3 Conditions Precedent to Landlord's Obligation to Fund Initial Advances . . . . . . . . . . . . . . . . . 30 11.4 Conditions Precedent to Landlord's Obligation to Fund Subsequent Advances . . . . . . . . . . . . . . . . 33 11.5 Conditions Precedent to Landlord's Obligation to Fund Final Advance . . . . . . . . . . . . . . . . . . . 34 11.6 Additional Provisions Regarding Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 11.7 Required Permits, Easements, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 11.8 Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 11.9 Title to and Nature of Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 11.10 Tenant as Landlord's Construction Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 11.11 Tenant's Release of Funding Commitment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE 12 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE 13 ASSIGNMENT BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 13.1 Further Mortgages or Encumbrances by Landlord; Authorized Loans . . . . . . . . . . . . . . . . . . . . . 36 13.2 Landlord's Right to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 13.3 Transfer of Funds and Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE 14 ASSIGNMENT AND SUBLEASING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 14.1 Right to Assign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 14.2 Right to Sublet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 14.3 Tenant's Right to Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
iii. 5 ARTICLE 15 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 15.1 Total or Substantial Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 15.2 Partial Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 15.3 Temporary Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 15.4 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 15.5 Notice and Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 ARTICLE 16 DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 16.1 Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 16.2 Termination of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 16.3 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE 17 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 17.1 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 17.2 Event of Major Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 17.3 Contest by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 17.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 17.5 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 17.6 Effect of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 17.7 Landlord Cure Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 17.8 Landlord's Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 18 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE 19 TENANT'S OPTION TO PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 19.1 Option To Purchase Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 19.2 Mandatory Purchase/Sale of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 19.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 20.1 Title and Subdivision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 20.2 Land Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 20.3 Transfer of Property Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 20.4 Trust Equity; No Other Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 20.5 Default Under Authorized Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 ARTICLE 21 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 21.1 Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 21.2 Form of Transaction; Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 21.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 21.4 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 21.5 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 21.6 Approvals and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 21.7 Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 21.8 Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 21.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 21.10 Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 21.11 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 21.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 21.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 21.14 Time Is of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 21.15 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 21.16 Limitations on Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 21.17 Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
iv. 6 21.18 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 21.19 Landlord's Continuing Obligation to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 21.20 As-Is Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 21.21 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 21.22 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 21.23 Appraisal Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 21.24 Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 21.25 Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
List of Exhibits Exhibit A Description of Land Exhibit B Permitted Exceptions Exhibit C Site Plan Exhibit D Pre-Approved Approval Plans Exhibit E Memorandum of Lease Exhibit F Form of Contractor's Certificate Exhibit G Initial Advance Memorandum Exhibit H Rent Commencement Date Memorandum Exhibit I Draw Request Form Exhibit J Closing Costs and Fees to be Included in Funded Amount Exhibit K Notice of Interest Rate Period Selection Exhibit L Description of Additional Property Owned by Landlord
v. 7 LEASE THIS LEASE ("Lease") by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC., AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"), is entered into as of the date set forth in Article 1 and shall be effective and binding upon the parties hereto as of such date. Capitalized terms used in this Lease shall have the definitions set forth in Article 2 or in the text of this Lease. In consideration of the Base Rent reserved herein, and the terms, covenants and conditions set forth below, Landlord and Tenant hereby agree as follows: ARTICLE 1 BASIC LEASE PROVISIONS 1.1 DATE OF LEASE: May 22, 1995. 1.2 LANDLORD: Sumitomo Bank of New York Trust Company, ("SBNYTC"), as trustee under that certain trust agreement dated May 22, 1995 between Sumitomo Bank Leasing and Finance, Inc. and SBNYTC. 1.3 TENANT: Cisco Systems, Inc., a California corporation. 1.4 LAND: That certain tract of land located in the City of San Jose, Santa Clara County, California, consisting of two (2) parcels and more particularly described on Exhibit A attached hereto, together with all easements, rights of way, appurtenances and other rights and benefits belonging or pertaining to such land. The Land does not include the Improvements. Landlord makes no representations as to the accuracy of the description of the Land. 1.5 PREMISES: The Improvements which Tenant may elect to construct, as agent for Landlord, on the Land pursuant to the terms of this Lease. The Premises does not include any portion of the Land itself. 1. 8 1.6 TERM: The initial term ("Initial Term") of this Lease shall commence on the Date of Lease set forth in Section 1.1 above and shall expire on May 21, 2000. Subject to the Extension Conditions contained in Section 4.2, upon at least ninety (90) days' prior written notice to Landlord, Tenant may extend the Initial Term for one (1) additional period of five (5) years ("Extension Term"). The Initial Term and (if exercised by Tenant) the Extension Term shall be referred to collectively herein as the "Term." The Term shall cease upon, and shall not refer to any period of time after, termination of this Lease (whether pursuant to the terms of the Lease, by operation of law, or otherwise). 1.7 RENT COMMENCEMENT DATE: Tenant's obligation to pay Base Rent shall commence on a Building-by-Building basis. With respect to any particular Building, the rent commencement date ("Rent Commencement Date") shall be the first LIBOR Business Day of the next calendar month which commences immediately following the earlier to occur of: (a) the date Tenant receives from the applicable governmental authority a final Certificate of Occupancy for the Building in question; or (b) eighteen (18) months following the first Advance by Landlord for the foundation for the Building in question. If Tenant shall elect to construct certain Improvements in a phase of Buildings, then on or before the Lease Inception Date for such phase of Buildings, Landlord and Tenant shall execute a memorandum of understanding that construction is taking place on a phased basis, and in that event, the Rent Commencement Date for such phase of Buildings shall be the first LIBOR Business Day of the next calendar month which commences immediately following the earlier to occur of: (i) the date Tenant receives a final Certificate of Occupancy for the phase in question from the applicable governmental authority; or 2. 9 (ii) eighteen (18) months after the first Advance by Landlord for the foundation for the phase in question. 1.8 BASE RENT: As described in Section 2.6. 1.9 ADDRESSES FOR NOTICES: LANDLORD: TENANT: Sumitomo Bank of New York Cisco Systems, Inc. Trust Company Treasury Department 277 Park Avenue 3535 Garrett Drive New York, NY 10172 Santa Clara, CA 95054 Attn: Corporate Trust Attention: Eugene Hill Department With a copy to: With a copy to: Landels, Ripley & Diamond Cisco Systems, Inc. Hills Plaza 3535 Garrett Drive 350 Steuart Street Santa Clara, CA 95054 San Francisco, CA 94105 Attention: Nancy Bareilles Attn: Bruce W. Hyman, Esq. and Todd J. Anson, Esq. Brobeck, Phleger & Harrison 550 West C Street Suite 1300 San Diego, CA 92101 1.10 ADDRESS FOR RENT PAYMENTS: Equity Rent Component: Sumitomo Bank of New York Trust Company 277 Park Avenue New York, NY10172 Attn: Corporate Trust Department 3. 10 Senior Rent Component: One half (1/2) of the Senior Rent Component (as defined in Section 2.62) shall be payable at the following address: The Hongkong and Shanghai Banking Corporation Limited 160 Sansome Street San Francisco, CA 94104 Attn: Loan Administration Department and one half (1/2) of the Senior Rent Component (as defined in Section 2.62) shall be payable at the following address: The Sumitomo Bank, Limited 555 California Street Suite 3350 San Francisco, CA 94104 Attn: Mr. Dave Kubiak This Article 1 is intended to supplement and/or summarize the provisions set forth in the balance of this Lease. If there is any conflict between any provisions contained in this Article 1 and the balance of this Lease, the balance of this Lease shall control. ARTICLE 2 DEFINITIONS For purposes of this Lease, the following defined terms shall have the meanings set forth in this Article 2. 2.1 ADDITIONAL RENT. "Additional Rent" shall mean any amounts other than Base Rent payable by Tenant to Landlord or to other Entities on Landlord's behalf as required under this Lease, including, without limitation, interest accrued on past due Base Rent and on other past due Additional Rent amounts owing to Landlord hereunder (including interest on the past due amounts payable by Landlord to Lenders under the Improvements Loan, as described in Section 21.21, excluding interest on interest) at the Default Rate (to be compounded annually), costs and expenses to be paid or reimbursed by Tenant hereunder (including any amounts which Tenant owes to Landlord pursuant to the terms of Section 17.7 or Section 21.21), any charges, fees or other amounts due under the Improvements Loan and any other Authorized Loan, amounts due pursuant to Tenant's indemnity obligations hereunder, Real Estate Taxes, Tenant's obligation to pay condemnation proceeds to Landlord pursuant to Section 15.4, Tenant's obligation to pay insurance proceeds to Landlord pursuant to Section 16.3, Tenant's obligation to pay the Purchase Price under Section 19.2, and Tenant's obligation, if any, to pay the "Margin Increase" (as defined in that certain side letter regarding "Management of Collateral 4. 11 Account" between Tenant and HSBC, of even date herewith). Except as provided in this Section, Additional Rent shall not include interest charged on interest. 2.2 ADVANCE. "Advance" shall mean any payment by Landlord for Improvements which has been requested by Tenant and paid pursuant to the terms of Article 11. 2.3 APPROVAL PLANS. "Approval Plans" shall have the meaning set forth in Section 11.3(c). 2.4 AUTHORIZED LOAN. "Authorized Loan" shall have the meaning set forth in Section 13.1(b). 2.5 AUTHORIZED PLANS. "Authorized Plans" shall have the meaning set forth in Section 11.3(c). 2.6 BASE RENT. "Base Rent" shall mean, as of a Rent Payment Date, the sum of the following for any Building for which the Rent Commencement Date has occurred: (1) the Senior Rent Component; and (2) the Equity Rent Component. 2.7 BUILDING. "Building" shall mean any individual building which constitutes an Improvement. 2.8 BUILDING LEASES. "Building Leases" shall mean this Lease and those two (2) certain lease agreements by and between Landlord and Tenant for premises located in San Jose, California, dated the date hereof, collectively. 2.9 CAPITALIZED INTEREST. "Capitalized Interest" shall mean: (1) the Senior Rent Component incurred by Landlord to Lenders under the Notes on Advances during the construction of any Building or phase prior to the Rent Commencement Date for such Building or phase; and (2) the Equity Rent Component as a result of Advances made by Landlord pursuant to Section 5.5 during the construction of any Building or phase prior to the Rent Commencement Date for such Building or phase. 2.10 COLLATERAL. "Collateral" shall have the meaning set forth in Section 21.18. 2.11 CONSTRUCTION PERIOD. "Construction Period" for each Building or phase shall mean that period beginning on the date of the first Advance for the foundation of the Building or phase and ending on the Rent Commencement Date for the Building or phase. 2.12 CONTRACTOR. "Contractor" shall mean the general contractor hired to construct any Improvements, which contractor shall be selected by Tenant in Tenant's capacity as agent for Landlord, and shall be subject to Landlord's approval, which shall not be unreasonably withheld or delayed. Landlord hereby approves Devcon Construction, Inc. 5. 12 2.13 COVERAGE TEST. "Coverage Test" shall mean a requirement, wherever referenced in the Lease, that the fair market value of the Land and the Improvements together be at least three (3) times the Equity Funded Amount. 2.14 DEFAULT. "Default" shall have the meaning set forth in Section 17.1. 2.15 DEFAULT RATE. "Default Rate" means that weighted average of the interest rates of (i) the Senior Rent Component as set forth in Section 2.62 and (ii) the Equity Rent Component set forth in Section 2.19, plus two percent (2.0%), or the highest rate permitted by applicable law (if any), whichever is less. Mathematically, the Default Rate shall be: (3/86 X Equity Rent Component rate) + (83/86 X Senior Rent Component rate)+ 2% Each change in the Default Rate due to a change in such interest rates under the Notes shall take effect simultaneously with such change in such interest rates, without Notice to either party. Notwithstanding the foregoing, in the event that the foregoing Default Rate shall be in violation of any usury or similar law, then the Default Rate shall be reduced to the extent necessary to cause the Default Rate to comply with any usury or similar law. 2.16 ENTITY. "Entity" shall mean any person, corporation, partnership (general or limited), joint venture, association, joint stock company, trust or other business entity or organization. 2.17 EQUITY CONTRIBUTION. "Equity Contribution" shall mean that portion of the Funded Amount equal to three percent (3%) of the Funded Amount, which Landlord has paid as Landlord's equity contribution to the Funded Amount (subject, however, to Tenant's adjusted Base Rent payments in the forty-ninth (49th) and fiftieth (50th) months of the Term, as set forth in Section 5.1(a) below). 2.18 EQUITY FUNDED AMOUNT. "Equity Funded Amount" shall mean that portion of the Funded Amount equal to the amount which Landlord has paid pursuant to the terms of Section 5.5. The Equity Funded Amount shall be the sum of the Equity Contribution plus the Security Deposit. In no event shall the Equity Funded Amount exceed the difference between the Funded Amount minus the aggregate Guaranteed Residual Value. In no event shall the aggregate of the Equity Funded Amounts of the Building Leases exceed Nineteen Million Three Hundred Eighty Thousand Dollars ($19,380,000). 2.19 EQUITY RENT COMPONENT. "Equity Rent Component" shall mean the quotient equal to the product of the Equity Contribution (at the time of the relevant calculation of the Equity Rent Component) multiplied by the LIBOR Rate plus 4.05%, divided by 6. 13 the Monthly Calculation. Mathematically, the Equity Rent Component shall be: [(Equity Contribution) X (LIBOR Rate + 4.05%)] ------------------------------------------------ [ Monthly Calculation ] 2.20 EVENT OF MAJOR DEFAULT. "Event of Major Default" shall have the meaning set forth in Section 17.2. 2.21 EXTENSION FEE. "Extension Fee" shall have the meaning set forth in the Section 4.2. 2.22 EXTENSION TERM. "Extension Term" shall have the meaning set forth in the Basic Lease Provisions. 2.23 FEE MORTGAGE. "Fee Mortgage" shall mean any Mortgage, other than the Improvements Loan, at any time given by Landlord, and remaining uncancelled on the Official Records, encumbering all or any portion of Landlord's right, title and estate in Improvements. 2.24 FUNDED AMOUNT. "Funded Amount" shall mean the aggregate amount of any Advances requested and actually paid by Landlord pursuant to the terms of Section 11 (including Capitalized Interest) and the closing costs and fees set forth in Exhibit J attached hereto (which shall be attributable to the first Building or phase of the Lease), less any reductions in the principal amount of the Improvements Loan or any New Loan or in the Equity Funded Amount, whether such principal reduction or reduction in the Equity Funded Amount is accomplished by payment to Lenders or the holder of a New Loan, the application of the Collateral or other collateral by Lenders or the holder of a New Loan, the payment of insurance proceeds, condemnation awards, or otherwise (subject, however, to Tenant's obligation to adjust its Base Rent payments in the forty-ninth (49th) and fiftieth (50th) months of the Term, as set forth in Section 5.1(a) below). 2.25 GUARANTEED RESIDUAL VALUE. "Guaranteed Residual Value" shall be calculated on each Building or phase, and shall mean that amount necessary to cause the present value of the Minimum Lease Payments under this Lease, including the present value of the Guaranteed Residual Value, to approximately equal, but not exceed, eighty nine and 9/10 percent (89.9%) of the estimated Funded Amount, computed at the Lease Inception Date and discounted to present value as of the expected Rent Commencement Date using the interest rate implicit in the Lease (or Tenant's best available incremental borrowing rate as communicated by Tenant to Landlord, if lower), all as calculated and determined pursuant to Statement of Financial Accounting Standards Number 13. "Minimum Lease Payments" shall mean the Base Rent payable over the Initial Term and the Extension Term, plus imputed interest on the Security Deposit imputed at the one month LIBOR rate of interest, plus the Guaranteed Residual Value, plus the following to the extent paid in cash: the fees listed on Exhibit J, the Extension Fee and 7. 14 reimbursed costs of Landlord paid by Tenant deemed to meet the definition of Minimum Lease Payments under SFAS No. 13. During the Construction Period for each Building, the Guaranteed Residual Value shall not exceed an amount determined by multiplying the then existing Funded Amount for such Building by a fraction, the numerator of which is the estimated Guaranteed Residual Value to be allocated to such Building as of the Rent Commencement Date for such Building and the denominator of which is the estimated Funded Amount to be allocated to such Building as of such Rent Commencement Date. If, at any time prior to the determination of the Guaranteed Residual Value for any Building or phase, the Financial Accounting Standards Board, Emerging Issues Task Force, or the Securities Exchange Commission, releases any pronouncements which modify FAS 13, paragraph 7(d) which outlines the criteria for the determination of the Guaranteed Residual Value, this Section 2.25 shall be modified to insure compliance with the new standards. 2.26 HSBC. "HSBC" shall mean The Hongkong and Shanghai Banking Corporation Limited, a Hong Kong banking corporation, acting through its San Francisco branch. 2.27 IMPROVEMENTS. "Improvements" shall mean any and all improvements which Tenant may elect, as construction agent for Landlord, to erect, construct or situate upon the Land or any part thereof during the Term under and pursuant to the terms of, and using funding provided by or through Landlord pursuant to Article 11 of this Lease. Any improvements constructed, erected or situated on the Land which are not funded by or through Landlord pursuant to the terms of Article 11 of this Lease shall be and remain the property of Tenant, and shall not be subject to the terms of this Lease. 2.28 IMPROVEMENTS LOAN. "Improvements Loan" shall have the meaning set forth in Section 13.1(b). 2.29 INITIAL TERM. "Initial Term" shall have the meaning set forth in the Basic Lease Provisions. 2.30 ILC. "ILC" shall mean Irish Leasing Corporation, a Texas corporation, or a successor landlord under the Land Lease. 2.31 LAND. "Land" shall have the meaning set forth in the Basic Lease Provisions. 2.32 LAND LEASE. "Land Lease" shall mean that certain Ground Lease dated as of February 28, 1995 by and between Tenant and ILC, by which Tenant leases the Land from ILC. 2.33 LAND LEASE DEED OF TRUST. "Land Lease Deed of Trust" shall mean that certain fourth priority deed of trust, junior only to the lien of the Lenders Deed of Trust, the Landlord Deed of Trust and the Tenant Deed of Trust, by ILC, as trustor, in favor of Tenant, as beneficiary, dated May 1, 1995 and recorded on 8. 15 May 1, 1995 in the Official Records as Instrument No. 12877066, and as more fully described in Section 13.1(g). 2.34 LAND LOAN. "Land Loan" shall mean that loan funded by Union Bank of Switzerland, a Swiss banking corporation, acting through its Los Angeles branch, or any other loan authorized pursuant to the terms of the Land Lease for purposes of ILC's purchase of the Land, as more particularly described in the Land Lease. 2.35 LANDLORD AFFILIATE. "Landlord Affiliate" shall mean any Entity which controls or is controlled by or is under the common control of Landlord or its beneficiary. 2.36 LANDLORD DEED OF TRUST. "Landlord Deed of Trust" shall mean that certain second priority deed of trust, securing Tenant's obligations under this Lease, and junior only to the lien of the Lenders Deed of Trust, to be executed by Tenant in favor of Landlord and recorded in the Official Records as of the Date of Lease, as more fully described in Section 13.1(e). 2.37 LEASE INCEPTION DATE. "Lease Inception Date" shall mean, for the first Building or phase constructed (i.e., Building "L" as depicted in the Site Plan attached hereto as Exhibit C), the date of this Lease. For subsequent Buildings or phases, "Lease Inception Date" shall be that date when Tenant's Approval Plans for such Building or phase are approved by Landlord pursuant to Section 11.3(c). 2.38 LEGAL REQUIREMENTS. "Legal Requirements" shall mean all statutes, codes, laws, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all federal, state, county, municipal and other governments, departments, commissions, boards, courts, authorities, officials and officers, which now or at any time hereafter are applicable to Tenant or this Lease or applicable to and enforceable against the Premises, the Improvements or any part thereof, as applicable. 2.39 LENDERS. "Lenders" shall mean HSBC and Sumitomo, collectively. Individually, the Lenders are sometimes hereinafter referred to as a Lender. 2.40 LENDERS DEED OF TRUST. "Lenders Deed of Trust" shall mean that certain first priority deed of trust to be executed by Landlord and Tenant in favor of HSBC and Sumitomo jointly and recorded in the Official Records as of the Date of Lease, as more fully described in Section 13.1(d). 2.41 LIBOR BUSINESS DAY. "LIBOR Business Day" shall have the same meaning as "Business Day" is defined in the Notes or other Authorized Loan. 9. 16 2.42 LIBOR RATE. "LIBOR Rate" shall mean the LIBOR Rate as defined in the Notes, or a subsequent Authorized Loan, as selected in accordance with Section 5.1(d). 2.43 MONTHLY CALCULATION. "Monthly Calculation" shall mean the quotient resulting from dividing three hundred sixty (360) by the number of days in any applicable calendar month. The applicable calendar month shall be the month for which the calculation involving this Monthly Calculation is being done. 2.44 MORTGAGE. "Mortgage" shall mean any mortgage, deed of trust, or other instrument in the nature thereof at any time and from time to time constituting a lien, charge or encumbrance upon any interest or estate of Tenant or Landlord in the Premises or in this Lease. 2.45 MORTGAGEE. "Mortgagee" shall mean the record holder (as reflected in the Official Records) from time to time of, or the record beneficiary (as reflected in the Official Records) from time to time under, a Mortgage. 2.46 NEW LOAN. "New Loan" shall have the meaning set forth in Section 13.1(b). 2.47 NOMINAL RATE. "Nominal Rate" shall mean the operative and relevant rate (or rates) of interest under the Notes from time to time, or if the Improvements Loan has been replaced by an Authorized Loan, then the relevant rate of interest under the promissory note evidencing such Authorized Loan, all subject to the terms of Section 13.1(b). 2.48 NOTES. "Notes" shall have the meaning set forth in Section 13.1(b). 2.49 NOTICE. "Notice" shall mean a written advice, request, demand or notification required or permitted by this Lease, as more particularly provided in Section 21.3. 2.50 OFFICIAL RECORDS. "Official Records" shall mean the official records of Santa Clara County, California. 2.51 PERMITTED EXCEPTIONS. "Permitted Exceptions" shall mean the following: (1) the exceptions set forth in Exhibit B; (2) any exceptions created or caused by Tenant or to which Tenant consents in writing; (3) taxes and assessments not yet due and payable; (4) the Lenders Deed of Trust (or, if the Lenders Deed of Trust has been reconveyed and removed from title, then a deed of trust that secures an Authorized Loan); (5) the Landlord Deed of Trust; (6) the Tenant Deed of Trust; (7) the Land Lease Deed of Trust; (8) all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way, and restrictive covenants and conditions affecting the Land unless any of the foregoing arise as a result of Landlord's actions or with Landlord's written consent (unless such 10. 17 actions taken or consent given by Landlord are requested in writing by Tenant); and (9) this Lease. 2.52 PREMISES. "Premises" shall have the meaning set forth in the Basic Lease Provisions. It is the intention of the parties that the Premises consist only of the Improvements, and in no event shall the Premises consist of any portion of the Land. 2.53 REAL ESTATE TAXES. "Real Estate Taxes" shall have the meaning set forth in Section 6.1(b). 2.54 RENT. "Rent" shall mean Base Rent and Additional Rent. 2.55 RENT COMMENCEMENT DATE. "Rent Commencement Date" shall have the meaning set forth in the Basic Lease Provisions. 2.56 RENT PAYMENT DATE. "Rent Payment Date" shall have the meaning set forth in Section 5.1. 2.57 RENT PERIOD. "Rent Period" shall mean each period equal to one calendar month occurring during the Term hereof, except that the first Rent Period shall be a partial calendar month commencing on the Rent Commencement Date and ending on the last day of such calendar month and the last Rent Period shall be a partial calendar month commencing on the first LIBOR Business Day of the last calendar month of the Term and ending on the last day of the Term. 2.58 REQUIRED PERMITS. "Required Permits" shall mean each and every building and development permit including, without limitation, demolition permits, site permits and addenda thereto (including, without limitation, foundation permits and structural permits), temporary and final occupancy permits and any other governmental or quasi-governmental approvals which must be issued by any governmental authority, department, commission, board, official or officer as a condition precedent to construction and occupancy of any Improvements. 2.59 SBNYTC. "SBNYTC" shall mean Sumitomo Bank of New York Trust Company. 2.60 SECURITY DEPOSIT. "Security Deposit" shall have the meaning set forth in Section 5.7. 2.61 SENIOR FUNDED AMOUNT. "Senior Funded Amount" of this Lease shall mean that amount equal to the Funded Amount minus the Equity Funded Amount, which amount shall not exceed the Guaranteed Residual Value. 2.62 SENIOR RENT COMPONENT. "Senior Rent Component" shall mean the quotient equal to the product of the Senior Funded Amount (at the time of the relevant calculation of the Senior Rent 11. 18 Component) multiplied by the Nominal Rate, divided by the Monthly Calculation. Mathematically, the Senior Rent Component shall be: [ Senior Funded Amount X Nominal Rate ] ----------------------------------------- [ Monthly Calculation ] 2.63 SITE PLAN. "Site Plan" shall mean the Site Plan attached hereto as Exhibit C. 2.64 SUMITOMO. "Sumitomo" shall mean The Sumitomo Bank, Limited, a Japanese banking corporation, acting through its San Francisco branch. 2.65 TAKING. "Taking" shall have the meaning set forth in Section 15.1. 2.66 TENANT DEED OF TRUST. "Tenant Deed of Trust" shall mean that certain third priority deed of trust, securing (i) Landlord's obligation to return Tenant's Security Deposit under this Lease and (ii) Landlord's obligation to convey the Premises to Tenant pursuant to Article 19 of this Lease, and shall be junior only to the liens of the Lenders Deed of Trust and the Landlord Deed of Trust, to be executed by Landlord, as trustor, in favor of Tenant, as beneficiary, and recorded in the Official Records as of the Date of Lease, as more fully described in Section 13.1(f). 2.67 TERM. "Term" shall have the meaning set forth in the Basic Lease Provisions. ARTICLE 3 DEMISE 3.1 PREMISES. Subject to the terms, covenants and conditions contained herein, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, together with all rights, privileges, easements and appurtenances relating to the Premises. ARTICLE 4 TERM The Term of this Lease shall consist of the Initial Term, and if exercised by Tenant, the Extension Term, as follows: 4.1 INITIAL TERM. The Initial Term of this Lease is specified in Article 1. 4.2 EXTENSION TERM. Upon Notice of the extension given to Landlord in accordance with Article 1, so long as the "Extension Conditions" (defined below) are satisfied at the time of such Notice of extension, Tenant may extend the Term for the Extension Term specified in Article 1. All provisions of this Lease shall 12. 19 remain in full force and effect for the Extension Term, including, without limitation, the Base Rent payable hereunder, except that Tenant shall have no further right to extend the Term of this Lease, and except that the Base Rent during the Extension Term may be adjusted only to reflect any actual change in the rate of interest (that is, the spread over LIBOR) charged pursuant to the Authorized Loan. The "Extension Conditions" shall consist of the following: (1) Tenant shall satisfy the "Financial Tests" (defined below) at the time of such Notice and as of the expiration of the Initial Term; (2) Tenant shall pay to Landlord no later than thirty (30) days before the first day of the Extension Term an amount equal to the product of the outstanding Funded Amount as of the end of the fifty-seventh (57th) full calendar month of the Initial Term times 0.25% ("Extension Fee"); (3) there shall exist no ongoing and uncured Event of Major Default at the time of such Notice and as of the expiration of the Initial Term; (4) the Improvements Loan shall have been refinanced or repaid as of the commencement of the Extension Term (the refinancing or repayment of which shall be subject to the terms of Section 13.1(c)) and (5) the Land and the Improvements shall satisfy the Coverage Test at the time of the Notice and as of the expiration of the Initial Term. The "Financial Tests" shall consist of the following: (a) Tenant shall have a minimum tangible net worth (total assets minus intangible assets minus total liabilities as calculated according to generally accepted accounting principles) ("Tangible Net Worth") of not less than Seven Hundred Fifty Million Dollars ($750,000,000); (b) Tenant's leverage (the ratio of funded debt to Tangible Net Worth) shall not exceed a ratio of 1:1; and (3) Tenant shall not have incurred any net losses in excess of Ten Million Dollars ($10,000,000) per year during the two complete fiscal years immediately preceding such Notice of extension. 4.3 HOLDING OVER. If Tenant remains in possession of the Premises after the expiration of the Term without executing a new lease, such holding over shall be construed as a tenancy from month-to-month, subject to all terms, covenants and conditions herein contained, and at the Base Rent required to be paid by Tenant pursuant to the terms hereof during the last month of the Term. ARTICLE 5 RENT 5.1 BASE RENT. (a) PAYMENT. Base Rent shall accrue in the manner set forth below commencing on the Rent Commencement Date. Tenant's obligation to pay Base Rent, with respect to any Building, shall commence accruing on the Rent Commencement Date for such Building, and shall be payable monthly in arrears thereafter on the first LIBOR Business Day of each successive month, except that the last installment of Base Rent shall be payable on the last day of the last month during the Term (each such date shall be a "Rent Payment 13. 20 Date"). Tenant's obligation to pay Base Rent on account of Advances made for any Building shall not commence accruing until the Rent Commencement Date for that Building. No sooner than thirty (30) days prior to the due date for any installment of Base Rent hereunder, Landlord shall deliver to Tenant a Notice indicating the exact dollar amount of the Base Rent that is due on such due date ("Invoice"). The Base Rent payment due on the first LIBOR Business Day of the forty-ninth (49th) month of the Term shall be deemed paid entirely to Landlord to be applied first to the Equity Rent Component then due and the balance to be applied to the reduction of the Equity Funded Amount. The amount of the Senior Rent Component that would otherwise have been due but for the preceding sentence shall be added to the Senior Funded Amount. The Base Rent payment due on the first LIBOR Business Day of the fiftieth (50th) month of the Term shall be deemed paid entirely to Lenders under the Improvements Loan to the extent of the Senior Rent Component for the immediately preceding month and the balance shall be applied to the reduction of the Senior Funded Amount (excluding any prepayment premium thereon). Tenant shall pay Base Rent as follows: The Senior Rent Component shall be paid to Lenders as set forth in the Basic Lease Provisions, and the Equity Rent Component shall be paid to Landlord at the Address for Rent set forth in the Basic Lease Provisions (or, if the Improvements Loan has been replaced by a New Loan or Replacement Loan, then the Senior Rent Component shall be paid directly to the holder of such New Loan or Replacement Loan) or at such other place as Landlord and Tenant may from time to time mutually agree upon, in their respective sole and absolute discretion. With the exception of payments made pursuant to the Clearinghouse Debit Account and Clearinghouse Credit Account, established by Tenant in accordance with the requirements of this Section 5.1(b) and (c), as set forth below, Tenant shall pay Base Rent by wire transfer or by check. Landlord, Lenders or such other holder of a New Loan or Replacement Loan, as the case may be, shall supply Tenant with such bank account information as Tenant shall require to enable payment by wire transfer. The parties agree that Tenant is paying the Senior Rent Component of Base Rent directly to Lenders for the convenience of the parties in order to satisfy Landlord's obligations to pay interest under the Improvements Loan for the period of time corresponding to the Term of this Lease; all Base Rent payments shall be deemed payments to Landlord to the extent of the Equity Rent Component and payments of the interest due to Lenders under the Improvements Loan to the extent of the Senior Rent Component. (b) CLEARINGHOUSE CREDIT ACCOUNT. At any time, and from time to time, during the Term of the Lease, Tenant shall have the right to request in writing that a Lender designate a clearinghouse credit account at a financial institution legally authorized to receive funds on behalf of the Lender ("Clearinghouse Credit Account") for Tenant's payment of the Senior Rent Component due and payable to the Lender (as set forth in the Basic Lease Provisions) on a Rent Payment Date. At any time, and from time to 14. 21 time, after a Lender's designation of a Clearinghouse Credit Account, Tenant may, but shall not be obligated to, deposit funds on a Rent Payment Date in the exact amount of the Senior Rent Component due and payable to the Lender who has established such a Clearinghouse Credit Account and any payment by Tenant of a portion of the Senior Rent Component due a Lender by payment directly into a Lender's Clearinghouse Credit Account shall not prevent Tenant from making future payments of rent by any other means permitted in this Section 5.1. A Lender's designation of a Clearinghouse Credit Account for deposit of Tenant's payment of the Lender's portion of the Senior Rent Component shall be deemed that Lender's approval of Tenant's payment of the Lender's Senior Rent Component into the Clearinghouse Credit Account. Tenant's ability to deposit a Lender's portion of the Senior Rent Component into a Clearinghouse Credit Account shall not alleviate Landlord's obligation to deliver to Tenant an Invoice as set forth above. (c) CLEARINGHOUSE DEBIT ACCOUNT. At any time, and from time to time, during the Term of the Lease, Tenant and HSBC may agree that Tenant's payment of HSBC's portion of the Senior Rent Component as set forth in the Basic Lease Provisions shall be paid to HSBC by funds available to HSBC in a clearinghouse debit account at a financial institution reasonably acceptable to HSBC ("Clearinghouse Debit Account"). If Tenant and HSBC agree to payment of HSBC's portion of the Senior Rent Component through a Clearinghouse Debit Account, Tenant shall provide written notice of such agreement to Landlord, and shall indicate the account number and location of the Clearinghouse Debit Account. The Clearinghouse Debit Account shall be terminable by Tenant at will, without advance notice to Landlord or HSBC. During any portion of the Term in which the Clearinghouse Debit Account is available for and contains sufficient funds to cover the amount of HSBC's portion of the Senior Rent Component due and payable to HSBC on a Rent Payment Date, interest shall not accrue on (nor shall Tenant be deemed in default hereunder for failure to pay) any of HSBC's portion of the Senior Rent Component due hereunder which is not collected on a Rent Payment Date due to any failure by HSBC to collect its portion of the Senior Rent Component in a timely manner. HSBC's ability to collect its portion of the Senior Rent Component from the Clearinghouse Debit Account shall not alleviate Landlord's obligation to deliver to Tenant an Invoice as set forth above. Notwithstanding anything to the contrary in this Lease, the Clearinghouse Debit Account shall not be used for the payment of any amounts (whether or not payable under the Lease) other than HSBC's portion of the Senior Rent Component as set forth in the Basic Lease Provisions and which are due and payable on the then-current Rent Payment Date. (d) INTEREST RATE SELECTION. The parties acknowledge that the interest rate applicable under the Improvements Loan (or other Authorized Loan) and the Equity Rent Component shall affect the amount of Base Rent payable by Tenant hereunder. Therefore, Tenant shall have the right, by written notice to Landlord in the form of Exhibit K (which notice may be 15. 22 transmitted to Landlord by facsimile), to designate the interest period to be selected from time to time by Landlord pursuant to the terms of the Notes (or other Authorized Loan) as the interest period then in effect for interest rate of the Improvements Loan (or other Authorized Loan) and the Equity Rent Component. Tenant acknowledges that the rates available to be selected as the LIBOR Rate after the first partial calendar month of the Term are 1, 3, 6, 9 or 12-month LIBOR rates. In the event that Tenant fails to give such written notice to Landlord prior to the applicable deadline for selection of such interest period pursuant to the terms of the Notes (or other Authorized Loan), Landlord shall select the same interest period then in effect for the Improvements Loan (or other Authorized Loan) and for the Equity Rent Component. Notwithstanding the foregoing, the interest rate applicable during the Construction Period for each Building or phase shall be the one-month LIBOR rate. 5.2 PRORATION. If the Term expires or is otherwise terminated on a day other than the day before the first LIBOR Business Day of a calendar month, then Base Rent for such Rent Period shall be prorated on the basis of actual days elapsed on the basis of a thirty (30) day month. 5.3 NO ABATEMENT OF RENT. Except as a consequence of a reduction in the Funded Amount or the terms of Section 15 (Taking), Tenant shall not be entitled to any abatement, diminution, reduction, setoff or postponement of Base Rent as a consequence of any inconvenience to, interruption of, cessation of or loss of Tenant's use or enjoyment of the Premises or as a result of any reason whatsoever. 5.4 DELINQUENT RENT. Any Base Rent not paid on the due date shall accrue interest at the Default Rate from the date such Base Rent was originally due until the date such Base Rent is paid. All interest accrued on past due Base Rent shall be due and payable to Landlord at the time the Base Rent is paid, or upon demand by Landlord, if earlier. 5.5 EQUITY FUNDING. (a) For each Building (as such term is defined in Section 5.6 for purposes of this Section 5.5), after the appraisal described in Section 21.25 has been received by Landlord, Landlord shall itself fund any Advances on a proportionate basis based upon a fraction of the total amount of the Advance, the numerator of which is the difference between the total estimated Funded Amount (as of completion of construction, as reasonably estimated by Tenant) for the Building or phase less the Guaranteed Residual Value for such Building, and the denominator of which is the total estimated Funded Amount (as of completion) for such Building or phase; provided that the Equity Funded Amount of Advances for a Building shall be deemed to be paid on a proportionate basis out of those funds held by Landlord as Tenant's Security Deposit and out of Landlord's Equity Contribution. In no event shall Landlord be 16. 23 required to do any of the following: (a) pay the Equity Funded Amount of Advances for a Building resulting in such payment exceeding the difference between the Funded Amount for such Building minus the Guaranteed Residual Value for such Building; (b) make Advances such that the aggregate Funded Amounts of the Building Leases exceeds One Hundred Fourteen Million Dollars ($114,000,000) or the aggregate Equity Funded Amounts of the Building Leases exceeds Nineteen Million Three Hundred Eighty Thousand Dollars ($19,380,000); or (c) make Advances such that the Funded Amount under this Lease exceeds Twenty Four Million Dollars ($24,000,000). (b) Notwithstanding the foregoing, in the event: (1) Contractor fails to complete any Building or phase on account of either the insolvency or bankruptcy of the Contractor or a dispute with the Contractor concerning an alleged default by the Contractor; and (2) Tenant elects to have Landlord enter into a construction contract with another contractor for the purpose of completing such Building or phase; and (3) completion of such incomplete Building or phase by another contractor requires funds in excess of the funds that would have been required had Contractor not become insolvent or bankrupt or had such dispute not existed (excluding change orders), then Landlord's obligation for funding for such Building or phase under this Section 5.5 shall be equal to the amount that Landlord would have been required to fund under this Section 5.5 absent such insolvency, bankruptcy or dispute plus the amount of any change orders. At least two (2) days prior to making such equity Advance to Tenant, Landlord shall submit to Tenant and shall have obtained Tenant's prior written approval of the amount of such payment and the basis upon which such amount has been calculated. Tenant may withhold Tenant's consent to such payment if Tenant's accountant in good faith disagrees with such amount or the manner in which it was calculated. 5.6 EXHIBITS REFLECTING INITIAL ADVANCE AND RENT COMMENCEMENT DATE. Within thirty (30) days after the initial Advance for the foundation for any Building and within thirty (30) days after the initial Advance under this Lease, Landlord and Tenant shall execute the "Initial Advance Memorandum" in the form attached hereto as Exhibit G. With respect to the initial Advance under this Lease, the Initial Advance Memorandum shall also indicate to which Building such Advance applies. Within thirty (30) days after the Rent Commencement Date for any Building under this Lease, Landlord and Tenant shall execute the "Rent Commencement Date Memorandum" in the form attached hereto as Exhibit H. If the Rent Commencement Date for any Building under this Lease occurs prior to the completion or occupancy of such Building, then the parties shall, within thirty (30) days after the completion or occupancy of such Building, enter into a memorandum, which shall reflect the Guaranteed Residual Value for such Building (the parties acknowledge that, except as provided in Section 19.2, they will not reflect the Guaranteed Residual Value for any Building until such Building has been completed or occupied). Guaranteed Residual Value for any Building during construction and 17. 24 after construction shall be determined by multiplying the Guaranteed Residual Value percentage, calculated pursuant to Section 2.25, by the Funded Amount for any Building at the date of calculation. Whenever the term "Building" is used in this Lease in connection with the calculation of the Guaranteed Residual Value during a construction period, in connection with Landlord's equity funding under Section 5.5 or in connection with Tenant's Security Deposit funding under Section 5.7, such term shall mean a particular construction phase of the Improvements. 5.7 SECURITY DEPOSIT. On the date of initial Advance for a Building, Tenant shall deliver to Landlord a security deposit ("Security Deposit") in an amount equal to fourteen percent (14%) of the estimated Funded Amount for the Building as stated in the Initial Advance Memorandum for the Building in the form attached hereto as Exhibit G. Landlord may use and commingle the Security Deposit with other funds of Landlord and the Security Deposit shall not bear interest. On the Rent Commencement Date, the amount of the Security Deposit shall be increased or decreased to an amount equal to the difference between the Funded Amount minus the sum of the Landlord's Equity Contribution and the Guaranteed Residual Value (as of such date, as determined pursuant to the Rent Commencement Date Memorandum for the Building in the form attached hereto as Exhibit H). Mathematically, the Security Deposit as of the Rent Commencement Date shall be: Funded Amount - (Guaranteed Residual Value + Equity Contribution) The Security Deposit shall be held by Landlord as security solely for the payment of Base Rent and Additional Rent by Tenant pursuant to this Lease. If at any time during the Term any Base Rent shall be overdue, then Landlord may at its election (but shall not be required to) appropriate and apply any portion of the Security Deposit to the payment of any such overdue Base Rent. Should the entire Security Deposit, or any portion thereof, be appropriated and applied by Landlord as provided herein, then Tenant shall immediately, after receipt of written demand by Landlord, pay to Landlord a sufficient sum in cash to restore the Security Deposit to the amount of the Security Deposit as of the Rent Commencement Date. In the event that the Equity Funded Amount is reduced for any reason, including without limitation by reason of a sale of any portion of the Premises or the application of the proceeds of a condemnation award to reduce the Equity Funded Amount (it being understood that the Equity Funded Amount will only be reduced in the event and to the extent that the net proceeds of such condemnation award exceeds the Senior Funded Amount, with such award proceeds to be applied first to the Senior Funded Amount pursuant to Section 15.4 hereof), the amount of the Security Deposit required hereunder shall be reduced by a like amount, and any such excess funds held by Landlord shall immediately be returned to Tenant. The entire Security Deposit (other than amounts withheld against Base Rent and Additional Rent due hereunder) shall be returned to Tenant at the end of the Term. 18. 25 5.8 ADDITIONAL RENT. Tenant agrees to pay all Additional Rent when it becomes due and payable under this Lease. ARTICLE 6 TAXES 6.1 REAL ESTATE TAXES. (a) From and after the Rent Commencement Date Tenant shall pay directly to the appropriate taxing authority all Real Estate Taxes. If the Rent Commencement Date occurs or the Term expires or otherwise terminates at any time other than the beginning or end of a taxable year, Tenant's obligation to pay Real Estate Taxes shall be prorated on the basis of a 365- day year, so as to include only that portion of the taxable year which is a part of the Term. Unless a termination of the Lease results from a purchase of the Land pursuant to Article 19, any Real Estate Taxes levied against the Land which accrue during the Term of this Lease but which would not be due and payable to the appropriate taxing authority until after the expiration of the Term of this Lease (as the same may be extended) shall be paid by Tenant to Landlord upon such termination. Landlord shall pay such amounts to the appropriate taxing authority on a timely basis. (b) Except to the extent that Real Estate Tax bills and statements are sent directly to Tenant by the taxing authority, upon receipt by Landlord of the tax bills or statements, Landlord will use reasonable efforts to promptly advise Tenant in writing of all Real Estate Taxes and shall deliver copies of all applicable tax bills or statements to Tenant. Tenant shall pay directly to the taxing authority all Real Estate Taxes prior to the later of (i) thirty (30) days after receipt by Tenant from Landlord of a copy of such bills and statements referred to above, or (ii) five (5) days prior to delinquency. As used herein, the term "Real Estate Taxes" shall mean any and all taxes, governmental fees and similar charges or assessments levied or assessed against the Improvements and/or the Land including, without limitation, ad valorem taxes and special assessments applicable to real property; provided, however, that Real Estate Taxes shall not include any Landlord Income Taxes. Real Estate Taxes shall also include any and all documentary, transfer, sales, mortgage, recording or similar taxes imposed on Landlord or Tenant in connection with (i) the original acquisition of the Premises by Landlord, (ii) any transfer of the Premises to Tenant pursuant to the terms of this Lease, or (iii) any sale of the Premises to a third party pursuant to the terms of this Lease. As used herein, the term "Landlord Income Taxes" shall mean any and all income, franchise, gains, gift, succession, excess profits, gross receipts, revenue, estate, rental, or similar taxes or taxes in lieu thereof imposed upon Landlord or any party other than Tenant (or an affiliate thereof) and any withholding tax imposed as a collection device for, in lieu of, or otherwise related to any of the foregoing without regard to whether such tax is required to be collected by Tenant and without 19. 26 regard to whether Tenant would be liable for such withholding tax in the event it failed to so withhold. For purposes of the foregoing, an income tax shall include, without limitation, any tax imposed under the United States Internal Revenue Code or the California Bank and Corporation Tax Law as well as any tax which could qualify as an "income tax" under United States Treasury Regulation Section 1.901-2 (except to the extent any such statute or regulation is subsequently modified to include a tax or other governmental charge of a materially different type and nature from the taxes currently described therein) and any income tax which may be payable under the laws of any jurisdiction either now or in the future. Real Estate Taxes for any given tax year shall exclude assessment installments that are not due and payable during such tax year. 6.2 PERSONAL PROPERTY TAXES. Tenant shall pay directly to the appropriate taxing authorities prior to delinquency any and all taxes and assessments levied or assessed during the Term upon or against Tenant's furniture, equipment, trade fixtures and any other personal property in the Premises. 6.3 RIGHT TO CONTEST. Tenant shall not be required to pay any Real Estate Taxes or any other taxes for which Tenant is liable hereunder (including, without limitation, any taxes for which Tenant is required to indemnify Landlord under Section 6.5) (including penalties and interest), so long as (i) Tenant shall contest the same or the validity thereof by appropriate legal proceedings in such a manner to prevent the tax sale of any portion of the Premises and (ii) the position to be taken by Tenant pursuant to such contest would have a realistic possibility of success if litigated. For purposes of this Lease, Tenant may conclusively establish that a position to be taken in a contest would have a realistic possibility of success if litigated by providing to Landlord a letter from counsel stating an opinion to such effect. In the event of any such contest, Tenant shall, within thirty (30) days after the final determination thereof, pay and discharge the amounts determined to be due in accordance therewith and with the provisions of this Lease, together with any penalties, fines, interest, costs and expenses that may have accrued thereon or that may have resulted from Tenant's contest. Tenant also shall have a right to contest any taxes for which it is liable hereunder, but with regard to which the position to be taken pursuant to such contest would not have a realistic possibility of success if litigated, provided that Tenant pays such taxes on or prior to the date upon which such taxes are asserted to be due by the relevant governmental authority. Notwithstanding the foregoing provisions of this Section 6.3, Tenant shall have an unconditional right to contest (without prior payment) any taxes imposed by law upon Tenant rather than upon Landlord. Tenant's decision to pay any taxes prior to contesting its or another party's underlying liability therefore shall not be deemed to imply or suggest that the position to be taken in such contest would not have a realistic possibility of success if litigated. Landlord shall cooperate fully with Tenant in connection with the exercise of Tenant's right 20. 27 of contest contained herein, and in the event that applicable law shall require that Landlord, rather than Tenant, pursue legal proceedings for such contest, Landlord will initiate and pursue such contest upon Tenant's request and in accordance with Tenant's instructions (including, without limitation, Tenant's instructions as to the selection of legal counsel and matters of strategy or settlement); provided, however, that Landlord shall not be subject to any liability for the payment of any costs or expenses in connection with any such contest or proceedings, and Tenant will indemnify and save harmless Landlord from any such costs and expenses (including, without limitation, reasonable attorneys' fees, costs of court and appraisal costs), reimbursing Landlord therefor upon demand (or paying such costs and expenses directly when due, all as directed by Landlord). Tenant shall be entitled to any refund of any taxes and penalties or interest from any governmental authority to the extent the refund represents monies paid to the governmental authority by Tenant or paid by Landlord and reimbursed by Tenant. 6.4 WITHHOLDING TAXES. Subject to Section 6.5, but notwithstanding any other provision of this Lease to the contrary, Tenant may withhold from any payments under this Lease any Landlord Income Taxes, without obligation to gross-up, indemnify or otherwise increase payments in consequence thereof, to the extent required by applicable law. Upon the date hereof or upon the date a party becomes a Landlord or a transferee of any portion of the Landlord's interest in the Premises or this Lease, and within thirty (30) days following the first day of each calendar year or if otherwise requested from time to time by Tenant, Landlord and each transferee, if organized under the laws of a jurisdiction outside the United States, shall provide Tenant with three counterparts of each of the forms prescribed by the Internal Revenue Service of the United States (Form 1001 or 4224, or successor form(s), as the case may be) certifying as to Landlord's or such transferee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to such person. Without limitation upon the foregoing, unless Tenant has received such forms or other documents reasonably satisfactory to it indicating that payments under this Lease are not subject to withholding tax, Tenant is authorized to and shall withhold taxes from such payments at the applicable statutory rate. Subject to Section 6.5, but notwithstanding any other provision of this Lease to the contrary, any withholding by Tenant under the preceding sentence shall not give rise to any gross-up, indemnification or other payment obligation on the part of Tenant. Landlord and each transferee, if organized under the laws of the United States or any State thereof, shall timely provide Tenant with duplicate documents conforming to the requirements of Treasury Regulation 1.1441-5(b) or any successor thereto (which statement may be made on a Form W-9). 21. 28 6.5 ADDITIONAL PROVISIONS RELATING TO TAXES. Notwithstanding anything in this Section 6 to the contrary, Tenant shall protect and defend Landlord from and against all criminal prosecution regarding and shall indemnify and hold Landlord harmless from and against any and all losses, costs, liabilities or damages (including reasonable attorneys' fees and disbursements and court costs) arising by reason of: (a) Any and all U.S. Federal, state or local income taxes imposed upon Landlord in consequence of Landlord being treated as the owner or lessor of the Premises (or any part thereof) for such tax purposes (provided that Landlord has fully complied with its obligations under Section 21.2(b)); (b) Any and all taxes imposed upon Tenant (except to the extent that such taxes are imposed upon Tenant as a result of Landlord's failure to comply with its obligations under this Lease); (c) Any and all taxes required to be withheld from payments made by Tenant to a third party not related to or affiliated with Landlord, HSBC or Sumitomo; (d) Any and all Real Estate Taxes; (e) Any and all taxes owed by Landlord as a result of payment made by Tenant to Landlord pursuant to Tenant's indemnity obligations under this Section 6.5; and (f) Any and all costs, liabilities or damages (including reasonable attorneys' fees) incurred by Landlord in obtaining indemnification payments from Tenant under the provisions of this Section 6.5. Tenant's obligation to reimburse or indemnify Landlord for any taxes, governmental fees, penalties, interest or other supplemental tax charges under this Lease shall be reduced by the value of any related or offsetting tax benefits derived or realized by Landlord. Tenant's duty to indemnify Landlord under this Section 6.5 shall apply only to taxes arising during the Term (whether or not due and payable at the conclusion of the Term), but shall otherwise survive the expiration or earlier termination of this Lease. ARTICLE 7 INSURANCE 7.1 LIABILITY INSURANCE. At all times during the Term, Tenant shall obtain at Tenant's sole cost and expense a policy or policies of comprehensive general liability insurance on an "occurrence" basis against claims for "personal injury" liability, including bodily injury, death or property damage liability. The liability insurance policy shall contain coverage limits no less 22. 29 than the following: (1) Three Million Dollars ($3,000,000) per person; (2) Five Million Dollars ($5,000,000) per incident; and (3) One Million Dollars ($1,000,000) for property damage. 7.2 BUILDERS' RISK INSURANCE. With respect to any Improvements which may be under construction and not yet covered by insurance under the terms of Section 7.3, Tenant shall maintain or cause to be maintained a policy or policies of builders' risk insurance in an amount equal to the value upon completion of the work (exclusive of land, foundation, excavation, grading, landscaping, architectural and development fees and other items customarily excluded from such coverage), insuring against the risks customarily insured against under such insurance, including fire, vandalism, malicious mischief, sprinkler leakage, lightning, and windstorm. 7.3 ALL-RISK INSURANCE. With respect to any completed Improvements, prior to the termination of the builders' risk insurance required by Section 7.2, and at all times thereafter, Tenant shall, at Tenant's sole cost and expense, obtain and maintain, or cause to be obtained and maintained: (a) a policy or policies of all-risk insurance covering the Improvements, providing coverage against loss or damage by fire, vandalism, malicious mischief, sprinkler leakage, lightning, windstorm and other insurable perils, as, under good insurance practice, from time to time are insured against under all-risk coverage for properties of similar character, age and location in an amount or amounts not less than one hundred percent (100%) of the then actual replacement cost (exclusive of land, foundation, excavations, grading, landscaping, architectural and development fees and other items customarily excluded from such coverage and without any deduction for depreciation); and (b) a policy or policies of difference in conditions insurance covering the Improvements, providing coverage against loss or damage by earthquake and flood as, under good insurance practice, from time to time are insured against under earthquake coverage for properties of similar character, age and location in an amount or amounts not less than the lesser of (i) one hundred percent (100%) of the then actual replacement cost (exclusive of land, foundation, excavations, grading, landscaping, architectural and development fees and other items customarily excluded from such coverage and without any deduction for depreciation) or (ii) the amount of the Equity Funded Amount. 7.4 GENERAL REQUIREMENTS. The insurance required under this Article 7 may be furnished under a "primary" policy and an "umbrella" policy or policies. Landlord and the holder of any Authorized Loan shall be named as an additional insured under Tenant's policy of insurance required under Section 7.1; Landlord, Tenant and the holder of any Authorized Loan shall each be named as the loss payees under the policies of insurance required under Sections 7.2 and 7.3; and such policies shall contain an endorsement for cross-liability coverage. Tenant shall furnish Landlord with certificates from Tenant's insurers with respect to the insurance required to be carried hereunder on or before the 23. 30 date such insurance is required to be carried. The certificates shall state that such insurance is in full force and effect and that coverage will not be reduced in any amount or otherwise limited or cancelled without twenty (20) days' prior written notice to Landlord. Renewal certificates shall be furnished to Landlord not less than thirty (30) days prior to the expiration of each such policy. Any blanket insurance policy or policies that insure Tenant against the risks and for the amounts herein specified shall be deemed to satisfy the obligation of Tenant hereunder, provided that any such policy of blanket insurance shall specify the amount of the total insurance allocated to the risks required to be insured hereunder and such allocated amount meets the requirements of this Article 7. All insurance required by this Article 7 shall be with an insurance company licensed to do business in the State of California, with a general policyholder's rating, as rated by the most current available "Bests" Insurance Reports, no less than A- III,and shall be primary and non-contributing. 7.5 WAIVER OF SUBROGATION. Notwithstanding anything to the contrary contained herein, to the extent permitted by law and so long as any insurance coverage maintained by Tenant is not diminished by reason thereof, Tenant hereby (a) releases and waives any rights it may have against Landlord and its officers, agents and employees on account of any loss or damages occasioned to Tenant, its property or the Premises, and arising from any risk covered by any fire and extended coverage insurance maintained by Tenant, whether or not due to the negligence of Landlord, its agents, employees, contractors, licensees, invitees or other persons, and (b) waives on behalf of any insurer providing such insurance to Tenant any right of subrogation that any such insurer may have or acquire against Landlord or such persons by virtue of payment of any loss under such insurance. Tenant shall use its best efforts to cause its insurance policies to contain a waiver of subrogation clauses in accordance with the foregoing. 7.6 INDEMNITY. Tenant shall protect, defend, indemnify, hold and save Landlord harmless from and against any and all losses, costs, liabilities or damages (including reasonable attorneys' fees and disbursements and court costs) arising by reason of: (i) any and all injury or death of persons or damage to property against which Tenant is obligated to maintain insurance for the benefit of Landlord pursuant to this Article 7; (ii) the failure to obtain the waiver of subrogation clause required by Section 7.5 hereof where such clause could have been obtained through the exercise of Tenant's best efforts; or (iii) the invalidation of such insurance policy required to be obtained by Tenant hereunder by Tenant's insurer. Tenant's duty to indemnify Landlord under this Section 7.6 shall survive the expiration or earlier termination of this Lease with respect to events occurring during the Term. 24. 31 ARTICLE 8 USE 8.1 USE. (a) PERMITTED USES. Tenant may use the Premises for any lawful purpose. (b) ENVIRONMENTAL COMPLIANCE. (i) DEFINED TERMS. The term "Applicable Environmental Laws" shall mean any applicable laws, regulations or ordinances pertaining to health or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 or otherwise (as amended, hereinafter called "CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, the Hazardous and Solid Waste Amendments of 1984 or otherwise (as amended, hereinafter called "RCRA"), and California Health & Safety Code Section 25501(j). The terms "hazardous substance" and "release" as used in this Lease shall have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have the meanings specified in RCRA; provided, in the event either CERCLA or RCRA is amended or superseded by other laws so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment or other laws; and, provided further, to the extent that the laws of the State of California establish a meaning for "hazardous substance", "release", "solid waste", or "disposal" which is broader than that specified in either CERCLA or RCRA, such broader meaning shall apply. The term "Pre-existing Agricultural Contamination" means concentrations of any chemical, compound or substance existing in soil and groundwater on the Land as disclosed in that certain Phase I Preliminary Environmental Site Assessment and Phase II Soil and Ground Water Quality Evaluation for Vista Montana and Tasman Drive Parcels, San Jose, California, performed by Lowney Associates and dated February 1995. (ii) TENANT'S COVENANTS. Tenant will not cause or permit the Premises or the Improvements to be in violation of, or do anything or permit anything to be done which subjects Landlord, Tenant or the Premises to any remedial obligations under or which creates a claim or cause of action under, any Applicable Environmental Laws, including, without limitation, CERCLA, RCRA, and the California Health & Safety Code Section 25501(j), assuming disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to the Premises and the Improvements, and Tenant will promptly notify Landlord in writing of any existing, pending or threatened investigation, claim or inquiry of which Tenant has knowledge by any governmental authority in connection with any Applicable Environmental Laws. Tenant shall obtain any permits, licenses or 25. 32 similar authorizations to construct, occupy, operate or use any Improvements, fixtures and equipment at any time located on the Premises by reason of any Applicable Environmental Laws. Tenant will not use the Premises or the Improvements in a manner which will result in the unlawful disposal or other unlawful release of any hazardous substance or solid waste on or to the Premises or the Improvements and covenants and agrees to keep or cause the Premises and the Improvements to be kept free of any unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (including, without limitation, friable asbestos and any substance containing asbestos deemed hazardous and unlawful by any Applicable Environmental Law) and to remove the unlawful amounts of the same (or if removal is prohibited by law, to take whatever action is required by law) promptly upon discovery at Tenant's sole expense. Tenant shall promptly notify Landlord in writing of any unlawful disposal or other unlawful release of any hazardous substance, environmental contaminants or solid wastes on or to the Premises or the Improvements. Notwithstanding the foregoing, Landlord and Tenant acknowledge that Pre-existing Agricultural Contamination exists on the Land due to agricultural operations of prior owners and that Tenant has no further obligation to notify Landlord regarding such Pre-existing Agricultural Contamination. In the event Tenant fails to comply with or perform any of the foregoing covenants and obligations, after thirty (30) days' prior written Notice to Tenant, Landlord may, but shall be under no obligation to, cause the Premises and the Improvements to be freed from the unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (or if removal is prohibited by law, to take whatever action is required by law) and the reasonable cost of the removal or such other action shall be a demand obligation owing by Tenant to Landlord pursuant to this Lease; provided, however, that this sentence shall not apply to Pre-existing Agricultural Contamination. Notwithstanding the foregoing, Landlord shall have no right to cause the removal of such materials so long as Tenant both: (1) is diligently and in good faith proceeding to comply with Tenant's obligation to remove the unlawful amounts of such materials; and (2) has the financial ability to so comply. Subject to the foregoing, Tenant grants to Landlord and Landlord's agents and employees access to the Premises and the Improvements, and the license to remove the unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (or if removal is prohibited by law, to take whatever action is required by law), and agrees to indemnify and save Landlord harmless from all reasonable costs and expenses involved and from all claims (including consequential damages) asserted or proven against Landlord by any party in connection therewith. Upon Landlord's reasonable request for "good cause" (defined below), at any time and from time to time during the Term, Tenant will provide at Tenant's sole expense an inspection or audit of the Premises and the Improvements from an engineering or consulting firm approved by Landlord, indicating the presence or absence of any hazardous substance, solid waste or environmental contaminants located on the Premises; provided, however that this provision shall not apply to Pre-existing Agricultural Contamination. If Tenant fails to 26. 33 provide same after sixty (60) days' notice, Landlord may order same, and Tenant grants to Landlord and Landlord's employees and agents access to the Premises and the Improvements and a license to undertake any testing reasonably required to obtain such inspection or audit. The reasonable cost of obtaining such inspection or audit and any expenses incurred by Landlord in connection therewith, shall be a demand obligation owing by Tenant to Landlord pursuant to this Lease. For purposes of this Section 8.1(b)(ii), "good cause" shall mean that Landlord shall have reasonable grounds to believe that an unlawful release or unlawful disposal of hazardous substances or solid wastes has occurred on the Premises or the Improvements, but shall not include Pre-existing Agricultural Contamination. (iii) TENANT'S INDEMNITY. Tenant agrees to indemnify and hold Landlord harmless from and against, and to reimburse Landlord with respect to, any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses (including attorneys' fees and court costs), fines and/or penalties of any and every kind or character, known or unknown, fixed or contingent, asserted or potentially asserted against or incurred by Landlord at any time and from time to time by reason of, in connection with or arising out of (A) the failure of Tenant to perform any obligation herein required to be performed by Tenant regarding Applicable Environmental Laws, (B) any violation of any Applicable Environmental Law by Tenant or with respect to the Premises or the Improvements, or any disposal or other release by Tenant or with respect to the Premises or the Improvements of any hazardous substance, environmental contaminants or solid waste on or to the Premises or the Improvements, whether or not resulting in a violation of any Applicable Environmental Law, (C) any act, omission, event or circumstance by Tenant or with respect to the Premises or the Improvements which constitutes or has constituted a violation of any Applicable Environmental Law with respect to the Premises or the Improvements, regardless of whether the act, omission, event or circumstance constituted a violation of any Applicable Environmental Law at the time of its existence or occurrence, and (D) any and all claims or proceedings (whether brought by private party or governmental agencies) for bodily injury, property damage, abatement or remediation, environmental damage or impairment or any other injury or damage resulting from or relating to any hazardous or toxic substance or contaminated material located upon or migrating into, from or through the Premises or the Improvements (whether or not the release of such materials was caused by Tenant, a subtenant, or prior owner of the Premises, or any other Entity) which Landlord may incur. Tenant's duty to indemnify Landlord under this Section 8.1 shall survive the expiration or earlier termination of the Lease with respect to events occurring during, or prior to the Term or after the Term while Landlord has record title to and Tenant is occupying the Premises. 27. 34 (c) COMPLIANCE WITH LEGAL REQUIREMENTS. Tenant shall at all times comply with all material Legal Requirements applicable to the Land or the Improvements and/or the use thereof. 8.2 CONTEST OF LEGAL REQUIREMENTS. Tenant shall have the right at its sole cost and expense to contest the validity of any Legal Requirements applicable to the Premises by appropriate proceedings diligently conducted in good faith; and upon the request of Tenant and at Tenant's sole cost and expense, Landlord will join and cooperate with Tenant in such proceedings. Subject to Section 6.3, any other provision of this Lease to the contrary notwithstanding, Tenant's right to contest Legal Requirements must be exercised in such a manner as to avoid any exposure of the Premises or any part thereof to foreclosure or execution sale or exposure of Landlord to civil or criminal penalties arising from Tenant's non-compliance with such Legal Requirements. Tenant shall defend and indemnify Landlord against, and hold Landlord harmless from, any and all liability, loss, cost, damage, injury or expense (including, without limitation, attorneys' fees and costs) which Landlord may sustain or suffer by reason of Tenant's failure or delay in complying with, or Tenant's contest of, any such Legal Requirements (or Landlord's contest, if requested in writing by Tenant), and Tenant's duty to indemnify Landlord under this Section 8.2 shall survive the expiration or earlier termination of this Lease. 8.3 INDEMNIFICATION. Tenant will defend, protect, indemnify and save harmless Landlord from and against all liabilities, obligations, claims, damages, causes of action, costs and expenses, imposed upon or incurred by Landlord by reason of the occurrence or existence of any of the following during the Term, except to the extent caused by the willful misconduct, gross negligence, or willful breach of contract of Landlord or its agents or contractors (but excluding from the term contractors the Contractor and any subcontractors of the Contractor): (1) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Premises or Improvements; (2) performance of any labor or services or the furnishing of any materials or other property in respect of the Premises or the Improvements; (3) the negligence or willful misconduct on the part of Tenant or any of its agents, invitees, employees or contractors or any other persons entering onto the Premises or the Improvements at the request, behest or with the permission of Tenant; (4) the construction, use or occupancy of the Improvements which Tenant may elect to construct; (5) the use of the Land; or (6) any breach by the "Owner" under the construction contracts entered into by Tenant as Landlord's agent pursuant to the terms of Section 11.10. Tenant's duty to indemnify Landlord under this Section 8.3 shall survive the expiration or earlier termination of this Lease with respect to events occurring during the Term or after the Term while Landlord has record title to and Tenant is occupying the Premises. 28. 35 ARTICLE 9 UTILITIES AND SERVICES 9.1 SERVICES TO THE PREMISES. At Tenant's sole cost and expense, Tenant shall make its own arrangements for the provision of all utilities and services to be provided to or consumed on the Premises, including, without limitation, air conditioning, ventilation, heating, electric power, telephone, water (both domestic and fire protection), sanitary sewer, storm drain, natural gas and janitorial services, including for the installation, maintenance and repair of service lines and meters to measure Tenant's consumption of such utilities. ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES 10.1 TENANT OBLIGATIONS. Except as otherwise provided in this Lease, Tenant shall maintain the Premises and the Improvements in good repair, normal wear and tear, casualty and Takings (as defined in Section 15.1) excepted. All maintenance that Tenant is obligated to perform under this Section 10.1 shall be at the sole expense of Tenant, except to the extent that repairs are made necessary because of the gross negligence or willful misconduct of Landlord, its agents, employees or contractors (but excluding from the term contractor the Contractor and any subcontractors of the Contractor). 10.2 SURRENDER OF THE PREMISES. Except as provided in Section 19, upon the expiration or earlier termination of the Term, Tenant shall surrender the Premises to Landlord in its then "AS-IS" condition, including, without limitation, any condition resulting from: (i) wear and tear; (ii) obsolescence and damage by fire or other casualty, act of God or the elements (subject to the terms of Article 16); (iii) damage that is caused by Landlord, its agents, employees or contractors; (iv) Takings; and (v) any improvements, alterations, additions, repairs, replacements, or decorations in, to or of the Premises or on the Land which are not Improvements but which Tenant may elect to remain on the Land or the Premises. Title to all improvements, furniture, furnishings, fixtures, trade fixtures and personal property of Tenant which have not been funded by Landlord pursuant to the terms of Article 11 and located in or upon the Premises or the Land, whether or not affixed to the realty, shall be and remain in Tenant throughout the Term, and at any time during the Term of this Lease, the same may be removed by Tenant, or, at Tenant's election, surrendered with the Premises, in which event title to such surrendered property shall, if Landlord so elects in Landlord's sole discretion, be deemed transferred to Landlord. Any of such property that is not removed from the Premises or the Improvements on or prior to the expiration or earlier termination of this Lease shall be considered abandoned and Landlord may deal with it as Landlord elects. 29. 36 ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS 11.1 TENANT'S RIGHTS TO CONSTRUCT IMPROVEMENTS. As of the date of this Lease, no improvements exist on the Land. Tenant shall be under no obligation whatsoever to construct any Improvements. Tenant shall have the right, in Tenant's sole discretion, to construct on the Land with Tenant's own funds, improvements, buildings, and/or alterations to Improvements, without the necessity of obtaining any approval from Landlord. In addition, Tenant shall have the right, in Tenant's sole discretion, subject to the terms of this Article 11, to require Landlord to pay for the construction of the Improvements which Tenant desires. With respect to any construction which Tenant may elect to have performed in accordance with this Article 11, Landlord hereby irrevocably appoints Tenant as Landlord's construction agent. Landlord shall have no right to construct any improvements, buildings, and/or alterations on the Land unless Tenant specifically requests that such be constructed, and then only in accordance with the terms and conditions of this Article 11. 11.2 REQUEST FOR CONSTRUCTION FUNDING; LANDLORD OBLIGATION TO FUND. At any time during the first forty-eight (48) months of the Initial Term, Tenant may request Landlord to provide funding for the construction of Improvements, which may consist of one or more Buildings or phases, or for the alteration of any existing Buildings. Each such request shall be in writing and shall generally describe the nature of the Improvements. Landlord shall fund amounts for: (1) the costs of construction or alteration of the Improvements pursuant to the terms and conditions set forth in this Article 11; (2) architectural, engineering, testing, permitting, professional fees and any other soft costs relating to such Buildings; (3) any Capitalized Interest; and (4) the amounts described in Exhibit J. If Tenant reduces the Funded Amount by making payment to Landlord or the holder of any Authorized Loan, except as provided in Articles 15 and 16, the amount so paid shall not later be available to Tenant in the form of Advances for construction work. Landlord shall have no obligation to make Advances to a Mortgagee of Tenant's interest under this Lease, if any, which Mortgagee has foreclosed on Tenant's interest under this Lease and is then the "Tenant" under this Lease. Landlord shall have no obligation to make Advances for any Building or phase after the last day of the twenty-fourth (24th) month after the initial Advance for such Building or phase. 11.3 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATION TO FUND INITIAL ADVANCES. The obligation of Landlord to make an initial Advance hereunder in respect of each Building shall be subject to the following conditions precedent: (a) NO EVENT OF MAJOR DEFAULT. No Event of Major Default shall exist and be continuing at the time of the initial Advance. 30. 37 (b) APPRAISAL. Landlord shall have approved the appraisal delivered pursuant to Section 21.25 hereof. (c) LANDLORD APPROVAL OF APPROVAL PLANS. Landlord shall have approved in accordance with the terms of this Section 11.3(c) (except as otherwise permitted or already approved pursuant to Section 11.1), Tenant's proposed site plans (showing the locations and orientations of any proposed buildings) and exterior shell plans (showing exterior building sections) (collectively, "Approval Plans") of the Building(s) which Tenant may elect to construct. Tenant shall deliver a letter to Landlord along with any submitted Approval Plans in which Tenant states that the submitted Approval Plans do not violate any Legal Requirements. Landlord may only withhold Landlord's approval to any such Approval Plans to the extent that the Approval Plans violate any material Legal Requirements, and Landlord may not withhold its consent on any other ground. At the option of Tenant, the foregoing documentation may be submitted to Landlord for approval in stages as Tenant completes it. Landlord shall have a period of ten (10) days from the date of receipt of each component of the documentation within which to approve or reject it. The Approval Plans, as approved from time to time by Landlord pursuant to this Section 11.3(c) shall constitute the "Authorized Plans." Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of any Approval Plans (not to exceed One Thousand Dollars ($1,000) per approval). Tenant hereby certifies to Landlord that the Approval Plans attached hereto as Exhibit C and Exhibit D do not violate any Legal Requirements. Landlord hereby approves the Approval Plans attached hereto as Exhibit C and Exhibit D. Landlord's approval of any Authorized Plans does not constitute any representation or warranty by Landlord with respect to such Authorized Plans, and Landlord hereby specifically disclaims any such representations and warranties. (i) FURTHER APPROVALS; PROPOSED CHANGES. Subsequent to Landlord's approval of any Authorized Plans pursuant to Section 11.3(c), Tenant shall only be obligated to submit to Landlord for approval documentation showing any proposed material change to the Authorized Plans (but no approval shall be required with respect to construction or design matters that are not contained in or addressed by the Authorized Plans), and only to the extent such change is materially inconsistent with the Authorized Plans. Landlord shall have a period of ten (10) days from receipt of each material change within which to approve or reject it. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of any such changes (not to exceed One Thousand Dollars ($1,000) per approval). Tenant shall have the right, without further approval of Landlord, to construct Improvements not materially inconsistent with the Authorized Plans together with such changes thereto as may be requested or required to comply with Legal Requirements. 31. 38 (ii) FAILURE TO DISAPPROVE. The failure by Landlord to disapprove any portion of the proposed Approval Plans submitted pursuant to this Section 11.3(c) within the specified approval period shall be deemed to constitute approval thereof as submitted, and such Approval Plans shall thereupon become Authorized Plans. Any disapproval by Landlord of any portion of the proposed Approval Plans shall be in writing and shall specify with particularity the basis for the disapproval. (d) LANDLORD APPROVAL OF CONSTRUCTION AGREEMENT. Landlord shall have approved in accordance with the terms of this Section 11.3(d) (except as otherwise permitted or already approved pursuant to Section 11.1), Tenant's proposed construction agreement with Contractor (collectively, "Construction Agreement") of the Building(s) which Tenant may elect to construct. Landlord may only withhold Landlord's approval to any such Construction Agreement to the extent that the Construction Agreement violates any material Legal Requirements or is not a form of agreement which includes a guaranteed maximum price and a date certain of completion of the Improvements, and Landlord may not withhold its consent on any other ground. Landlord shall have a period of ten (10) days from the date of receipt of the Construction Agreement within which to approve or reject it. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of the Construction Agreement (not to exceed One Thousand Dollars ($1,000) per approval). Landlord acknowledges that Landlord has received and approved the Construction Agreement between Tenant and Contractor for the Improvements to be constructed pursuant to this Lease. Landlord's approval of any Construction Agreement does not constitute any representation or warranty by Landlord with respect to such Construction Agreement, and Landlord hereby specifically disclaims any such representations and warranties. (e) DRAW REQUEST. Landlord shall have received a written request from Tenant or its agent requesting the Advance ("Draw Request") in the form attached hereto as Exhibit I. The submission of a Draw Request by Tenant shall be deemed to be Tenant's approval of the Capitalized Interest which is to be included in the Funded Amount during the period covered by such Draw Request pursuant to the terms of Section 2.24. (f) PLANS AND SPECIFICATIONS. Landlord shall have received a copy of the plans and specifications for the Building in question. Landlord acknowledges that Landlord's only approval right with respect to the plans and specifications is as specified in Section 11.3(c) above. (g) CONSTRUCTION AGREEMENT. Landlord shall have received a copy of Tenant's construction agreement with Contractor for the Building or phase in question. Landlord acknowledges that Landlord's only approval right with respect to the plans and specifications is as specified in Section 11.3(d) above. 32. 39 (h) BUILDING PERMITS. With respect to any portion of an Advance going toward hard costs for any Building, Landlord shall have received a copy of all building permits and approvals then required for the construction of the subject Building. (i) CONTRACTOR'S CERTIFICATE. With respect to any portion of an Advance going toward hard costs for any Building, Landlord shall have received a certificate from the Contractor in the form attached hereto as Exhibit F for the Advance in question ("Contractor's Certificate"). 11.4 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATION TO FUND SUBSEQUENT ADVANCES. Landlord's obligation to make any Advance for a Building after the initial Advance for such Improvement shall be subject to the satisfaction of the following conditions: (a) NO EVENT OF MAJOR DEFAULT. No Event of Major Default shall exist and be continuing at the time of such subsequent Advance, and no "major and material" violations of code or law shall exist with respect to the portions of such Building which have been constructed as of the date of the Advance in question. For purposes of this Section 11.4(a), the term "major and material" shall mean a violation that presents a material risk to the health and safety of the occupants of the Building in question. (b) DRAW REQUEST. With respect to any portion of an Advance going toward hard costs for any Building, Landlord shall have received a Draw Request for the Advance in question. (c) CONTRACTOR'S CERTIFICATE. With respect to any portion of an Advance going toward hard costs for any Building, Landlord shall have received a Contractor's Certificate for the Advance in question in the form attached hereto as Exhibit F. (d) LIEN WAIVERS. Landlord shall have received conditional lien waivers and releases upon progress payment from Contractor and any "Major Subcontractor" (defined below) scheduled to receive payment from such Advance. The term "Major Subcontractor" shall mean any subcontractor which has executed a subcontract calling for aggregate payments to the subcontractor in excess of Two Hundred Fifty Thousand Dollars ($250,000). (e) CHANGES TO AUTHORIZED PLANS. Landlord shall have approved any material change to the Authorized Plans pursuant to Section 11.3(c)(i) 33. 40 11.5 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATION TO FUND FINAL ADVANCE. Landlord's obligation to make the final Advance for a Building shall be subject to the satisfaction of the following conditions: (a) SECTION 11.4 CONDITIONS. All of the conditions precedent set forth in Section 11.4 shall have been satisfied with respect to the final Advance in question. (b) CERTIFICATE OF OCCUPANCY. Landlord shall have received a copy of the certificate of occupancy or its equivalent issued by the appropriate governmental authority for the Building in question. 11.6 ADDITIONAL PROVISIONS REGARDING ADVANCES. (a) TIMING AND METHOD OF DISBURSEMENT. Advances to be made hereunder shall not be made more frequently than monthly. For any calendar month during which Tenant desires to receive an Advance, Tenant shall submit a Draw Request on or before the date that is five (5) days prior to the first LIBOR Business Day of such month, and if Tenant submits such Draw Request by such date, then Landlord shall make the Advance as requested in such Draw Request to the party(ies) designated by Tenant on the first LIBOR Business Day of such month (subject to the conditions to funding described in Sections 11.3, 11.4 and 11.5). The Advances shall be made to parties identified by Tenant, which parties may include Tenant. At the option of Tenant, Landlord shall make such Advances to one (1) or more parties. (b) RETAINAGE. Disbursements for construction costs shall be subject to a ten percent (10%) retainage. The retainage shall be paid to Tenant or to any Entities designated by Tenant along with the payment of the Final Advance with respect to any Building. Notwithstanding the foregoing, Tenant may require Landlord to pay any retainage on account of particular subcontractors prior to the payment of a final Advance if: (1) Tenant is able to achieve cost savings as a result of such early payment; and (2) Contractor delivers to Landlord a letter of credit in the amount of the retainage to be paid out prematurely. The parties will enter into an agreement with respect to the letter of credit, which agreement shall reflect the parties' agreement that: (a) Landlord shall only be entitled to draw on the letter of credit if and to the extent necessary to complete the work that the subcontractor receiving the early payment of the retainage was required to perform and failed to perform; and (b) the letter of credit be returned to Tenant at the time that the retainage would have been paid pursuant to the second sentence of this Section 11.6(b). The total retainage shall be reduced by the amount of such retainage paid early pursuant to the terms of the preceding sentence. 34. 41 11.7 REQUIRED PERMITS, EASEMENTS, ETC. From time to time, upon request of Tenant, Landlord (as holder of record of title to the Improvements) shall execute such reasonable documents, petitions, applications and authorizations, easements and rights of way (which have been prepared at Tenant's expense) and shall appear at and participate in such public hearings, staff meetings and similar gatherings, in each case as may in the reasonable and good-faith opinion of Tenant be necessary or appropriate for the purpose of obtaining any Required Permits or private easements or rights of way or utility services for the Improvements or to remove any title encumbrances on the Land which may interfere with Tenant's construction of the Improvements. Tenant shall immediately reimburse Landlord on demand (or pay directly) for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 11.7. 11.8 ALTERATIONS. Tenant shall notify Landlord in writing in advance of any alteration to the Improvements which would either cost more than Five Hundred Thousand Dollars ($500,000), or cause the Land and the Improvements to fail the Coverage Test. At any time and from time to time, and without the necessity for obtaining Landlord's approval or giving Notice thereof to Landlord (except as otherwise specifically provided in this Section 11.8), Tenant shall have the right, at its expense, to make any improvements, alterations, additions, repairs, replacements or decorations in, to or of the Premises which do not materially change the exterior design scope of the Improvements as previously approved by Landlord pursuant to any Authorized Plans. In constructing any such improvements, alterations, additions, repairs, replacements or decorations, Tenant shall do so in a manner which does not violate any applicable and material Legal Requirements. If, in connection with any alterations which Tenant may desire to construct, either: (1) the performance of such alterations would cause the Land and Improvements together to fail the Coverage Test; or (2) such alterations would materially change the exterior design scope of the Improvements as previously approved by Landlord pursuant to Authorized Plans, then such alterations shall be subject to the prior written approval of Landlord, which shall not be unreasonably withheld or delayed. In the event that the parties disagree as to whether or not performing such alterations would cause the Land and the Improvements to fail the Coverage Test, such matter shall be subject to the appraisal provision contained in Section 21.23. 11.9 TITLE TO AND NATURE OF IMPROVEMENTS. By virtue of Tenant's rights under the Land Lease, Tenant hereby grants to Landlord the right to own and construct the Improvements which Tenant elects to cause to be constructed with Landlord's funds under this Article 11, and Tenant hereby grants, conveys and transfers to Landlord all of Tenant's right, title and interest in and to the Improvements (whether now existing or hereafter constructed), and Tenant agrees that any and all Improvements of whatever nature at any time constructed, placed or maintained upon any part of the Land shall be and remain the property of Landlord, 35. 42 subject to Tenant's rights under Section 19 and elsewhere in this Lease. Any improvements on the Land other than the Improvements shall be and remain the property of Tenant, subject to the terms of Section 10.2. The severance of fee title to the Land and Improvements shall not change the character of the Improvements as real property. 11.10 TENANT AS LANDLORD'S CONSTRUCTION AGENT. Tenant shall function as Landlord's agent for purposes of the construction of any Improvements. In this role, Tenant shall have the authority, on Landlord's behalf, to oversee and direct the construction of all Improvements, including but not limited to, approval of building, site and other plans, obtaining building and other permits, negotiating construction contracts, monitoring construction and making periodic inspections, approval of Contractor's invoice for payment, and submission of Draw Requests. Within a reasonable time after Tenant's request, Landlord shall execute construction contracts negotiated by Tenant for the construction of Improvements on the Land; Landlord shall not amend, modify or terminate any such construction contract without the prior written approval of Tenant, which may be withheld in Tenant's sole discretion. Landlord's appointment of Tenant as Landlord's agent under this Section 11.10 shall be irrevocable unless this Lease is terminated pursuant to the terms of Section 17.4(b) in connection with an Event of Major Default. 11.11 TENANT'S RELEASE OF FUNDING COMMITMENT. At any time during the term, Tenant may elect in its sole discretion to release Landlord from its obligation to fund construction of all or any portion of the Improvements by written notice to Landlord and Lenders; provided, however, that Tenant has substantially completed construction of each Building on which construction has commenced. ARTICLE 12 LIENS Except for claims that Tenant is contesting in good faith in such manner as to avoid any exposure of the Premises or any part thereof to foreclosure or execution sale, Tenant shall promptly pay and discharge all claims for work or labor done, supplies furnished or services rendered to the Premises, and shall keep the Premises free and clear of all mechanics' and materialmen's liens in connection therewith. ARTICLE 13 ASSIGNMENT BY LANDLORD 13.1 FURTHER MORTGAGES OR ENCUMBRANCES BY LANDLORD; AUTHORIZED LOANS. (a) PROHIBITION. Except for the Lenders Deed of Trust, the Landlord Deed of Trust, the Tenant Deed of Trust and the 36. 43 Land Lease Deed of Trust (which are hereby approved by Tenant) and as specifically permitted in Section 11.7 or 13.1(b) or 20, Landlord shall not cause or create any mortgages, deeds of trust, encumbrances or other exceptions to title (collectively, "New Encumbrances") to exist with respect to the Premises at any time, and any such encumbrance not authorized in writing by Tenant shall be null and void. The term "New Encumbrances" shall also include any bonds or assessments affecting the Premises to which Landlord consents in writing without the prior written approval of Tenant (which may be withheld in Tenant's sole and absolute discretion). Without the prior written consent of Tenant (which may be withheld in Tenant's sole and absolute discretion), Landlord shall not make or join in an application or other document which requests or authorizes any bonds or assessments to affect the Premises. Landlord recognizes that any New Encumbrance may irreparably harm Tenant in connection with one or more of the following: (1) construction which Tenant may desire to perform; (2) the use of the Premises; (3) Tenant's rights pursuant to the Purchase Option in Section 19; (4) the amount of assessments which Tenant is required to pay; or (5) other matters. (b) AUTHORIZED LOAN. Tenant has approved the loans to Landlord ("Improvements Loan") from Lenders which is evidenced by that certain Promissory Note dated as of the Date of Lease by Landlord in favor of HSBC and that certain Promissory Note dated as of the Date of Lease by Landlord in favor of Sumitomo (collectively, the "Notes"), and further evidenced and/or secured by (a) that certain Pledge Agreement made by Tenant in favor of Lenders, as it may be amended and supplemented from time to time ("Pledge Agreement"), dated as of the Date of Lease; (b) the Lenders Deed of Trust (c) that certain Loan Disbursement Agreement dated as of the Date of Lease; (d) that certain Absolute Assignment of Leases dated as of the Date of Lease; (e) that certain UCC Financing Statement; and (f) that certain Environmental Indemnity Agreement dated as of the Date of Lease. In addition, upon the maturity or prepayment of the Improvements Loan (whether by its terms, by acceleration or otherwise), Landlord may (but, subject to the terms of Section 13.1(c), shall not be obligated to) enter into a new loan (such authorized loan shall be the "New Loan"), provided Landlord first obtains Tenant's written consent (which consent shall not be unreasonably withheld), and so long as: (i) the Improvements Loan is paid off with the proceeds of such New Loan and all documents securing or reflecting the Improvements Loan are assigned to the lender who makes the New Loan or are released and satisfied; (ii) the principal amount of the New Loan does not exceed the principal amount of the Improvements Loan existing at the time the Improvements Loan is repaid; (iii) the interest rate and payment provisions under the New Loan would not result in higher monthly payments than the method under the Improvements Loan, and all such monthly payments shall be interest only; and (iv) the New Loan documents do not contain terms and conditions which differ from the Improvements Loan documents in any material respect (including provisions relating to the Collateral as defined in Section 21.18). The Improvements Loan and the New Loan 37. 44 authorized pursuant to the preceding sentence and the Replacement Loan described in Section 13.1(c) below shall be the "Authorized Loan"; provided that only one Authorized Loan may exist at any one point in time. Landlord may not modify the terms of an Authorized Loan without the prior written consent of Tenant, which Tenant shall not unreasonably withhold (but may be withheld in Tenant's sole and absolute discretion based upon any of the matters identified in subitems (i) through (v) above in this Section 13.1(b)). (c) REPLACEMENT LOAN. Subject to Landlord's prior written consent (which consent shall not be unreasonably withheld or delayed), at the request of Tenant, Landlord shall execute loan documents evidencing and/or securing a new loan to Landlord, the proceeds of which would be used to retire the Improvements Loan (such loan requested by Tenant shall be a "Replacement Loan"). Landlord shall only be entitled to refuse to consent to such new loan if (1) the maturity date of the Replacement Loan is a date on or after the expiration date of the Extension Term; (2) the principal amount of the Replacement Loan exceeds the principal amount of the Improvements Loan plus any accrued interest and fees payable at the time the Improvements Loan is repaid; (3) the interest rate structure under the Replacement Loan is materially higher than market conditions would justify at the time; (4) there are prepayment prohibitions, penalties or other restrictions which would limit rights to retire the Replacement Loan or require additional payment to do so; or (5) the Replacement Loan documents contain terms and conditions which differ from the Improvements Loan documents in any material respect (including provisions relating to the Collateral as defined in Section 21.18). If Tenant requests and provides the funds, Landlord shall make all arrangements necessary for, and shall pay down any Authorized Loan in the amount requested by Tenant, and shall arrange for all documentation reasonably requested by Tenant to reflect the reduction or elimination of such Authorized Loan. (d) LENDERS DEED OF TRUST. On the Date of Lease, Landlord and Tenant shall execute, acknowledge, and cause to be recorded in the Official Records, a deed of trust in form acceptable to Lenders and Tenant ("Lenders Deed of Trust"). The Lenders Deed of Trust shall be a first priority lien against the premises (as defined in the Lenders Deed of Trust). (e) LANDLORD DEED OF TRUST. On the Date of Lease, Tenant shall execute, acknowledge, and cause to be recorded in the Official Records, a deed of trust in form acceptable to Landlord ("Landlord Deed of Trust"), which Landlord Deed of Trust shall secure Tenant's obligations under this Lease. The Landlord Deed of Trust shall be junior only to the Lenders Deed of Trust as a second priority lien against the premises (as defined in the Landlord Deed of Trust). 38. 45 (f) TENANT DEED OF TRUST. On the Date of Lease, Landlord shall execute, acknowledge, and cause to be recorded in the Official Records, a deed of trust in form acceptable to Tenant ("Tenant Deed of Trust"), which Tenant Deed of Trust shall secure Landlord's obligations under this Lease (i) to return the Security Deposit pursuant to the terms of this Lease and (ii) to convey the Premises to Tenant as required pursuant to Article 19 hereof. The Tenant Deed of Trust shall be junior only to the Lenders Deed of Trust and the Tenant Deed of Trust as a third priority lien against the premises (as defined in the Tenant Deed of Trust). (g) LAND LEASE DEED OF TRUST. The Land Lease Deed of Trust secures ILC's obligations under the Land Lease (i) to return the security deposits set forth in the Land Lease pursuant to the terms of the Land Lease, (ii) to convey the Premises to Tenant as required pursuant to Article 19 thereof, and (iii) to comply with Sections 20.3, 20.4 and 20.5 of the Land Lease. The Tenant Deed of Trust shall be junior only to the Lenders Deed of Trust, the Landlord Deed of Trust and the Tenant Deed of Trust and shall be a fourth priority lien against the premises (as defined in the Land Lease Deed of Trust). 13.2 LANDLORD'S RIGHT TO SELL. Subject to Tenant's Purchase Option and the mandatory purchase set forth in Article 19 and the terms of Section 13.1 and Article 20, nothing contained in this Lease shall be deemed in any way to limit, restrict or otherwise affect the right of Landlord at any time and from time to time to sell or transfer all or any portion of its right, title and estate in the Premises to: (1) a financial institution with a capitalization in excess of One Hundred Million Dollars ($100,000,000) and investments in other leased assets of at least Twenty Five Million Dollars ($25,000,000); (2) a trust established by such an institution; or (3) if an Event of Major Default has occurred and is continuing at the time of such sale or transfer, to any Entity; provided, however, that such Entity shall assume, in a manner consistent with Landlord's obligations under this Lease and the Improvements Loan documents, the Improvements Loan or any other Authorized Loan concurrently with acquisition of the Premises, after first obtaining Lenders' written consent thereto. Landlord shall give Tenant prior written notice of any sale or transfer pursuant to this Section 13.2 together with written evidence of compliance with the terms hereof. Any sale or transfer by Landlord whatsoever shall by its express terms recognize and confirm the right of possession of Tenant to the Premises and Tenant's other rights arising out of this Lease shall not be affected or disturbed in any way by any such sale, transfer, assignment or conveyance (except for any disturbance resulting from a foreclosure sale conducted pursuant to the laws of the State of California at which independent third party bids were permitted, pursuant to the Lenders Deed of Trust, all subject to the terms of Section 19.2). 13.3 TRANSFER OF FUNDS AND PROPERTY. At each time Landlord sells, assigns, transfers or conveys the entire right, title and estate of Landlord in the Premises and in this Lease, 39. 46 Landlord shall turn over to the transferee any funds or other property then held by Landlord under this Lease and thereupon all the liabilities and obligations on the part of the Landlord under this Lease arising after the effective date of such sale, assignment, transfer or conveyance shall terminate as to the transferor and be binding upon the transferee. ARTICLE 14 ASSIGNMENT AND SUBLEASING 14.1 RIGHT TO ASSIGN. (a) TENANT'S RIGHT. Tenant shall have the right, at any time and from time to time during the Term, to assign all or any portion of its right, title and estate in the Premises and in this Lease without approval by Landlord. Any such assignee, immediate or remote, shall have the same right of assignment. Any such assignment shall be evidenced by a written instrument, properly executed and acknowledged by all parties thereto and, at Tenant's election, duly recorded in the Official Records, wherein and whereby the assignee assumes all of the obligations of Tenant under this Lease. Notwithstanding any such assignment and assumption or any sublease permitted under Section 14.2 hereof, Tenant shall remain primarily liable for all obligations and liabilities on the part of Tenant theretofore or thereafter arising under this Lease. (b) NOTICE. Tenant shall, promptly after execution of each assignment, notify Landlord of the name and mailing address of the assignee and shall, on demand, permit Landlord to examine and copy the assignment agreement. 14.2 RIGHT TO SUBLET. (a) TENANT'S RIGHT. Tenant shall have the right, at any time and from time to time during the Term, to sublet all or any portion of the Premises and to extend, modify or renew any sublease without the approval of Landlord. (b) NOTICE. Tenant shall, promptly after execution of each sublease, notify Landlord of the name and mailing address of the subtenant and shall, on demand, permit Landlord to examine and copy the sublease. (c) NON-DISTURBANCE AGREEMENT. Upon Tenant's request, Landlord shall enter into a "landlord agreement" with any subtenant of Tenant. Such agreement shall provide that Landlord shall recognize the sublease and not disturb the subtenant's possession thereunder so long as such subtenant shall not be in default under its sublease, and an Event of Major Default is not then in existence and continuing under this Lease. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of- 40. 47 pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 14.2(c). 14.3 TENANT'S RIGHT TO MORTGAGE. (a) RIGHT OF TENANT. Tenant shall have the right from time to time and at any time, without obtaining the approval of Landlord, to mortgage, pledge or otherwise encumber all or any portion of the right, title and estate of Tenant in the Premises or in this Lease. (b) NOTICE. Tenant shall, promptly after execution of any Mortgage, notify Landlord of the name and mailing address of the Mortgagee thereunder and shall, on demand, permit Landlord to examine and copy the Mortgage. ARTICLE 15 EMINENT DOMAIN 15.1 TOTAL OR SUBSTANTIAL TAKING. If title or access is taken for any public or quasi-public use, or under any statute or by right of condemnation or eminent domain, or by sale in lieu thereof (a "Taking") with respect to all of the Premises, or if title to so much of the Premises or access thereto is Taken, or if the Premises or access thereto is damaged, blocked or impaired by the Taking, so that, in Tenant's sole discretion, the Premises or access thereto, even after a reasonable amount of reconstruction thereof, will no longer be suitable for Tenant's (and/or Tenant's subtenants') continued occupancy for the conduct of Tenant's (and/or Tenant's subtenants') business in a manner consistent with the conduct of such business prior to such Taking, then in any such event, this Lease shall terminate on the date of such Taking. 15.2 PARTIAL TAKING. If any part of the Premises, or access thereto, shall be Taken, and the Premises or the remaining part thereof and access thereto will be, in Tenant's sole discretion, suitable for Tenant's (and/or Tenant's subtenants') continued occupancy for the conduct of Tenant's (and/or Tenant's subtenants') business in a manner consistent with the conduct of such business prior to such Taking, all of the terms, covenants and conditions of this Lease shall continue, except that Base Rent shall be adjusted to reflect the decreased Funded Amount remaining after application thereto of the award made to Landlord for such Taking. 15.3 TEMPORARY TAKING. If the whole or any part of the Premises is Taken for temporary use or occupancy, this Lease shall not terminate by reason thereof and Tenant shall continue to pay, in the manner and at the times herein specified, the full amount of the Base Rent payable by Tenant hereunder, and, except only to the extent that Tenant may be prevented from so doing by reason of such Taking, Tenant shall continue to perform and observe all of the other terms, covenants and conditions hereof on the part of Tenant 41. 48 to be performed and observed, as though the Taking had not occurred. In the event of any such temporary Taking, Tenant shall be entitled to receive the entire amount of the award made for the Taking, whether paid by way of damages, rent or otherwise. If the temporary Taking is for a term in excess of thirty (30) days, then the Taking shall be treated as a permanent Taking and be governed by Section 15.1 or 15.2, as applicable. 15.4 DAMAGES. The compensation attributable to the Improvements (in each case the compensation or value shall be determined as of the date of the Taking) awarded or paid upon any Taking (other than a temporary Taking, which shall be governed by Section 15.3), whether awarded to Landlord, Tenant, or both of them, shall be held by the Escrow Agent described in Section 16.3(b) and distributed in the same manner as insurance proceeds pursuant to Section 16.3. For purposes of this Section 15.4, references to the term "casualty" or similar terms in Section 16.3 shall be deemed to refer to "Taking." 15.5 NOTICE AND EXECUTION. Immediately upon service of process upon Landlord or Tenant in connection with any Taking relating to the Premises or any portion thereof or access thereto, each party shall give the other Notice thereof. Each party agrees to execute and deliver to the other all instruments that may be required to effectuate the provisions of this Article 15. Tenant reserves the right to appear in and to contest any proceedings in connection with any such Taking. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 15.5. ARTICLE 16 DAMAGE OR DESTRUCTION 16.1 CASUALTY. If any Improvements are damaged or destroyed by fire or other casualty (including, but not limited to earthquake), except as provided to the contrary in Section 16.2, this Lease shall continue in full force and effect without any abatement or reduction in Base Rent, and Tenant, at Tenant's election, shall either (a) restore the Improvements substantially to their condition prior to the damage or destruction, or such other condition as Tenant shall elect in its sole and absolute discretion, subject to Landlord's approval rights set forth in Section 11.3(c), or (b) not restore the Improvements, but perform, or cause to be performed, at Tenant's sole cost and expense, any work or service required by any Legal Requirement for the protection of persons or property from any risk, or for the abatement of any nuisance, created by or arising from the casualty or the damage or destruction caused thereby. 16.2 TERMINATION OF LEASE. In the case of: (a) any damage or casualty of any Building or Buildings, which in the good faith judgment of Tenant's Board of Directors would render such 42. 49 Building either unsuitable or uneconomic for restoration or continued use by Tenant; (b) the damage or destruction of all or substantially all (as determined in good faith by Tenant's Board of Directors) of any Building or Buildings; or (c) the damage or destruction of any Building or Buildings where restoration cannot (as determined in good faith by Tenant's Board of Directors) reasonably be completed either within 365 days or prior to the expiration of the Initial Term or the Extension Term, then Tenant may elect to terminate this Lease either as to the Building(s) in question or as to the Lease in its entirety. In the event Tenant terminates the Lease pursuant to the preceding sentence, Tenant shall purchase Landlord's interest in the Building(s) in question for a purchase price equal to the Purchase Price for the Building(s) in question, as such Purchase Price is defined in Section 19.1. The purchase of Landlord's interest in such Building(s) shall be pursuant to the terms of Section 19.1, as applicable to such Building(s). Upon the completion of such purchase, this Lease and all obligations hereunder in respect of such Building(s) shall terminate. This Lease shall remain in full force and effect with respect to all remaining Buildings which Tenant does not elect to purchase pursuant to this Section 16.2, and such remaining Building(s) shall constitute the "Improvements" for purposes of this Lease. 16.3 INSURANCE PROCEEDS. In the event of any fire or other casualty, the proceeds of any insurance policies maintained by Tenant pursuant to Section 7.2 or 7.3 shall be held, applied and dealt with as follows: (a) Any proceeds (per occurrence) of such policies attributable to the Improvements below the amount of Five Hundred Thousand Dollars ($500,000) shall be paid directly to Tenant and applied and used as Tenant may direct in its sole discretion for any construction, restoration or reconstruction purposes in connection with any improvements located on the Land which were destroyed, damaged or affected by such casualty. Any portion of such proceeds which Tenant does not want to use (subject to the terms of Section 16.3(d)) for any construction, restoration or reconstruction shall be paid as follows (the order of payment as set forth below shall be the "Distribution Formula"): (1) to Lenders, or to any other holder of an Authorized Loan, and to Landlord, pro rata in proportion to the ratio that the then-existing Senior Funded Amount bears to the then-existing Funded Amount as compared to the ratio that the then-existing Equity Funded Amount bears to the then-existing Funded Amount (provided, however, that in no event shall the amount paid to Landlord exceed the difference between the Funded Amount and the Guaranteed Residual Value); and (2) with any remaining excess to be paid to Tenant. (b) Any proceeds (per occurrence) of such policies attributable to the Improvements greater than Five Hundred Thousand Dollars ($500,000) shall be paid to an escrow agent ("Escrow Agent") mutually agreeable to the parties (but such escrow agent 43. 50 shall not be a party which is related to or affiliated with either of the parties to this Lease). Such proceeds shall be invested by the Escrow Agent as Tenant may direct; provided, however, that such proceeds shall not be invested in the stock or obligations of Tenant. Such proceeds shall be paid by the Escrow Agent to Tenant (or to third parties as Tenant may direct), as Tenant may direct from time to time as restoration, construction or rebuilding progresses to pay the cost of any restoration, construction or rebuilding which Tenant elects to take place on the Land or any Improvements located upon the Land, but only upon the written request of Tenant, and so long as Landlord reasonably determines that the following conditions are satisfied at the time of such request for payment by Tenant: (i) the sum requested has been paid or is then due and payable or will become due and payable within thirty (30) days; (ii) Tenant has the financial ability (taking into account the insurance proceeds held by the Escrow Agent) to complete the restoration, construction or rebuilding which Tenant has elected to perform; (iii) Landlord has approved the Approval Plans, if any, relating to the restoration of Improvements, pursuant to the terms of Article 11; and (iv) in Landlord's reasonable judgment, such restoration work which Tenant desires to perform in connection with the Improvements can be completed prior to the expiration of the Initial Term (or, if Tenant has exercised, or within one hundred twenty (120) days after reaching final written settlement with all insurance companies regarding the amount of proceeds to be paid for the casualty in question, exercises its right to extend for the Extension Term, then prior to the expiration of the Extension Term). Landlord shall promptly upon request instruct the Escrow Agent to make the payments requested by Tenant unless one of the conditions described above is not satisfied at the time of such request. Any excess insurance proceeds existing after either Tenant's completion of the restoration, construction or rebuilding which Tenant elects to perform or Tenant's failure to comply with the funding condition described in subitems (ii), (iii) and (iv) immediately above in this Section 16.3(b), shall be paid pursuant to the Distribution Formula. If Tenant elects to terminate this Lease as to one or more Buildings, Tenant may use any insurance proceeds to pay the purchase price described in Section 16.2, and all rights of Landlord in insurance proceeds not used to pay the purchase price shall be assigned to Tenant by Landlord at the time Tenant purchases Landlord's interest in any such Building(s). (c) Any proceeds of such policies attributable to improvements or buildings on the Land other than the Improvements shall promptly be paid directly to Tenant. (d) If either: (1) Tenant has not delivered written notice to Landlord within one hundred twenty (120) days after reaching final written settlement with all insurance companies regarding the amount of proceeds to be paid for the casualty in question, pursuant to which notice Tenant elects to either exercise some or all of its termination rights under Section 16.2 and/or to fully or partially repair or restore 44. 51 pursuant to Section 16.1; or (2) Landlord reasonably believes that Tenant has abandoned reconstruction or restoration work which Tenant may have elected to perform (and Tenant shall have failed to diligently recommence reconstruction or restoration work which Tenant is then able to perform within thirty (30) days after Tenant's receipt from Landlord of a Notice of Landlord's belief of Tenant's abandonment of the reconstruction or restoration work); then, in either case, the proceeds attributable to the Improvements shall be paid pursuant to the Distribution Formula. (e) Any insurance proceeds paid to Landlord, Lenders or holder of any Authorized Loan under this Article 16 shall automatically reduce the Funded Amount by a like amount. ARTICLE 17 DEFAULT 17.1 DEFAULT. The following event shall constitute a default ("Default") by Tenant: DEFAULT OTHER THAN EVENT OF MAJOR DEFAULT. Tenant's failure to perform or comply with any of the terms, covenants or conditions contained in this Lease other than those referred to in Section 17.2, where such failure shall continue for a period of thirty (30) days after Notice thereof from Landlord to Tenant, or in the case of a failure which cannot with due diligence be cured within the period of thirty (30) days, Tenant's failure to proceed promptly and with due diligence to cure the failure and thereafter to prosecute the curing of the failure with all due diligence, it being intended that in connection with a failure not susceptible of being cured with due diligence within thirty (30) days, the time of Tenant within which to cure the failure shall be extended for such period as may be reasonably necessary to complete the cure with all due diligence. 17.2 EVENT OF MAJOR DEFAULT. Each of the following events shall constitute an event of major default ("Event of Major Default") by Tenant: (a) FAILURE TO PAY BASE RENT. Tenant's failure to pay any Base Rent within ten (10) days after the later to occur of the due date or Tenant's receipt from Landlord of the Invoice required pursuant to Section 5.1; (b) FAILURE TO PAY ADDITIONAL RENT. Tenant's failure to pay any Additional Rent which is due to Landlord within the later to occur of the due date under this Lease or ten (10) days after Tenant's receipt of Notice thereof from Landlord that such Additional Rent is due; 45. 52 (c) FAILURE TO COMPLY WITH PURCHASE OBLIGATION UNDER SECTION 19.2. Tenant's failure to comply with Tenant's obligation to purchase the Premises pursuant to Section 19.2 within the period required in Section 19.2; (d) FAILURE TO CARRY INSURANCE. Tenant's failure to carry the insurance required by Article 7, if such failure continues ten (10) days after Tenant's receipt of Notice thereof from Landlord that Tenant is not carrying such required insurance (provided, however, that it shall not be an Event of Major Default under this Section 17.2 if Tenant is carrying when required the basic form policies required by Article 7 with respect to the perils addressed therein and in the amounts required by Article 7, notwithstanding some other noncompliance); (e) INSOLVENCY. Subject to Section 17.3, the occurrence of: (i) an assignment by Tenant for the benefit of creditors generally; or (ii) the filing of a voluntary or involuntary petition by or against Tenant under any present or future applicable federal, state or other statute or law having for its purpose the adjudication of Tenant as a bankrupt; (iii) the appointment of a receiver, liquidator or trustee for all or a substantial portion of the Premises by reason of the insolvency or alleged insolvency of Tenant; or (iv) the taking of possession by any department of city, county, state or federal government, or any officer thereof duly authorized, of all or a substantial portion of the Premises by reason of the insolvency or alleged insolvency of Tenant; and Tenant's failure to timely give any Notice it is permitted to give pursuant to Section 17.3 (or, in the event Tenant gives timely Notice and pursues a contest under Section 17.3, Tenant's failure to finally prevail in the contest). (f) FAILURE TO REPLENISH UNDER PLEDGE AGREEMENT. Tenant's failure to replenish the collateral account as required under the Pledge Agreement (as defined in Section 13.1(b)) after the notice and cure periods provided in Pledge Agreement; (g) FAILURE TO REFINANCE THE IMPROVEMENT LOAN. Tenant's failure to refinance, or repay, the Improvement Loan prior to the Extension Term; (h) DEFAULT UNDER OTHER CREDIT FACILITY. Tenant's suffering or permitting any of the following defaults: (i) A payment default (after applicable notice and cure periods) under any credit facility of Tenant which equals or exceeds Twenty Million Dollars ($20,000,000); (ii) An Event of Major Default (after applicable notice and cure periods) under that certain lease agreement by and between SGA Development Partnership, Ltd., a Texas limited partnership, and Tenant, for premises located in San Jose, California, dated February 25, 1993, as amended; (iii) An Event of Major Default (after applicable notice and cure periods) under that certain lease agreement by and between Sumitomo Bank Leasing and Finance, Inc., a Delaware corporation ("SBLF"), and Tenant, for premises located in San Jose, California, dated May 20, 1993, as 46. 53 amended; (iv) An Event of Major Default (after applicable notice and cure periods) under that certain lease agreement by and between SBLF and Tenant for premises located in Raleigh, North Carolina, dated July 11, 1994, as amended; (v) An Event of Major Default (after applicable notice and cure periods) under that certain lease agreement by and between SBLF and Tenant for premises located in Raleigh, North Carolina, dated August 12, 1994; or (vi) An Event of Major Default (after applicable notice and cure periods) under any of the Building Leases; (i) TANGIBLE NET WORTH. Tenant's Tangible Net Worth shall fall below Seven Hundred Fifty Million Dollars ($750,000,000.00); (j) FRAUD/INTENTIONAL MISREPRESENTATION. Fraud or intentional misrepresentation by Tenant in connection with the representations and warranties set forth in Section 21.22 hereof; or (k) DEFAULT UNDER LAND LEASE. An Event of Major Default under the Land Lease. 17.3 CONTEST BY TENANT. If upon the filing of any involuntary petition of the type described in Section 17.2(e) or upon the appointment of a receiver, other than a receiver appointed in any voluntary proceeding referred to in Section 17.2(e), or the taking of possession of all or a substantial portion of the Premises by any department of the city, county, state or federal government, or any officer thereof duly authorized, by reason of the alleged insolvency of Tenant without the consent or over the objection of Tenant, should Tenant desire to contest the same in good faith, Tenant shall, within ninety (90) days after the filing of the petition or after the appointment or taking of possession, give Notice to Landlord that Tenant proposes to make the contest, and the same shall not constitute an Event of Major Default so long as Tenant shall prosecute the proceedings with due diligence and no part of the Premises shall be exposed to sale by reason of the continuance of the contest. 17.4 REMEDIES. Landlord shall have the remedies specified below, the parties hereby acknowledging that the remedies described in Section 17.4(b) may be exercised by Landlord only upon the occurrence of an Event of Major Default. Tenant shall at all times have the right to exercise and carry out the terms of the Purchase Option in Section 19.1, notwithstanding the occurrence or existence of any Default or Event of Major Default under this Lease, and Landlord shall have the obligation to comply with Landlord's obligations under Section 19.1 notwithstanding any Default or Event of Major Default. (a) CONTINUE LEASE. In connection with a Default or an Event of Major Default, Landlord shall have the right to enforce, by suit or otherwise, all other covenants and conditions hereof to be performed or complied with by Tenant and to exercise 47. 54 all other remedies permitted by Section 1951.4 of the California Civil Code, or any amendments thereof or any successor laws which replace such Section 1951.4. Landlord has the remedy described in California Civil Code Section 1951.4 (Landlord may continue the Lease in effect after Tenant's breach and abandonment and recover Base Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitation). Upon application by Landlord, a receiver may be appointed to take possession of the Premises and exercise all rights granted to Landlord as set forth in this Section 17.4(a); and (b) TERMINATE LEASE. In connection with an Event of Major Default (but not a Default), Landlord shall have the right to terminate this Lease, by giving Tenant Notice thereof, at any time after the occurrence of such Event of Major Default and whether or not Landlord has also exercised any right under Section 17.4(a). In such event, Tenant shall, within thirty (30) days after receipt of Notice from Landlord, purchase the Premises pursuant to Section 19.2. Landlord shall also have its other remedies at law (including its rights under the Landlord Deed of Trust), provided, however, that Tenant's right to purchase the Improvements pursuant to Section 19.1 shall survive any termination of this Lease up through the date of foreclosure sale under the Lenders Deed of Trust, the Landlord Deed of Trust or any deed of trust securing an Authorized Loan. 17.5 NO WAIVER. No failure by Landlord or Tenant to insist upon the strict performance of any term, covenant or condition of this Lease or to exercise any right or remedy consequent upon a breach thereof and no acceptance of full or partial Rent during the continuance of any breach shall constitute a waiver of any such breach or of the term, covenant, or condition. No term, covenant or condition of this Lease to be performed or complied with by Tenant or Landlord, and no breach thereof, shall be waived, terminated, altered or modified except by a written instrument executed by Landlord and Tenant. No waiver of any breach shall affect or alter this Lease, but each and every term, covenant, and condition of this Lease shall continue in full force and effect with respect to any other then existing subsequent breach thereof. 17.6 EFFECT OF ASSIGNMENT. Notwithstanding an Entity's prior assignment or transfer of its interest as Tenant under this Lease, so long as Landlord has been given Notice of such assignment pursuant to Sections 14.1(b) and 21.3, Landlord shall give such Entity copies of all Notices required by this Article 17 in connection with any Default or Event of Major Default, and such Entity shall have the period granted hereunder to Tenant to cure such Default or Event of Major Default, unless such Entity shall have been released from all obligations arising under this Lease. Landlord may not assert any rights against such Entity in the absence of such Notice and opportunity to cure, so long as Landlord has been given Notice of such assignment pursuant to Sections 14.1(b) and 21.3. 48. 55 17.7 LANDLORD CURE RIGHT. If Tenant fails to perform any covenant or agreement to be performed by Tenant under this Lease, and if the failure or default continues for thirty (30) days after Notice to Tenant and to any Mortgagee who has requested in writing notice thereof from Landlord (except for emergencies and except for payment of any lien or encumbrance threatening the imminent sale of the Premises or any portion thereof, in which case payment or cure may be made as soon as necessary to minimize the damage to person or property caused by such emergency or to prevent any such sale), Landlord may, but shall have no obligation to, pay the same and cure such default on behalf of and at the expense of Tenant and do all reasonably necessary work and make all reasonably necessary payments in connection therewith including, but not limited to, the payment of reasonable attorneys' fees and disbursements incurred by Landlord. Notwithstanding the foregoing, Landlord shall have no right to cure any such failure to perform by Tenant so long as Tenant both: (1) is diligently and in good faith attempting to cure such matter; and (2) has the financial ability to so comply, unless Tenant has failed to substantially cure such matter within ninety (90) days after Tenant's receipt of Notice thereof from Landlord, in which case Landlord may commence in a reasonable and customary manner and in good faith to attempt to cure such matter (except that Landlord shall not have a right to attempt to cure matters addressed in Section 8.1(b) unless specifically authorized to do so pursuant to Section 8.1(b)). Notwithstanding anything to the contrary in this Lease, in no event shall Landlord have a right to cure any matters relating to the Improvements unless Landlord reasonably believes that the failure to cure such matter could lead to criminal prosecution against Landlord (except as specifically permitted in Section 8.1(b)). Upon demand, Tenant shall reimburse Landlord for the reasonable amount so paid, together with interest at the Default Rate from the date incurred until the date repaid. Tenant shall defend, indemnify, and hold Landlord harmless from and against any and all losses, costs, expenses, liabilities, claims, causes of action and damages of all kinds that may result to Landlord, including reasonable attorneys' fees and disbursements incurred by Landlord, arising because of any failure by Tenant to perform any of its obligations under this Lease. Tenant's duty to indemnify Landlord under this Section 17.7 shall survive the expiration or earlier termination of this Lease. 17.8 LANDLORD'S DEFAULT. (a) LANDLORD'S FAILURE TO PERFORM. If Landlord fails to perform any covenant or agreement to be performed by Landlord under Article 11, Section 13.1, Section 15.4, Article 20, or Section 21.10 of this Lease (including, but not limited to, Landlord's failure to keep the Premises free of any and all liens created by or through Landlord except as approved by Tenant in writing), and if the failure or default continues for thirty (30) days after Notice to Landlord and to any holder of an Authorized Loan who has requested in writing notice thereof from Tenant (except for emergencies, a default under Section 20.5 or payment of 49. 56 any lien or encumbrance threatening the imminent sale of the Premises or any portion thereof, in which case payment or cure may be made as soon as necessary to minimize the damage to person or property caused by such emergency, to prevent foreclosure on the Collateral or to prevent any such sale), Tenant may, but shall have no obligation to, pay the same and cure such default on behalf of and, so long as such failure to perform arises due to Landlord's gross negligence, willful misconduct, or willful breach of this Lease, at the expense of Landlord and do all reasonably necessary work and make all reasonably necessary payments in connection therewith including, but not limited to, the payment of reasonable attorneys' fees and disbursements incurred by Tenant. Notwithstanding the foregoing, Tenant shall have no right to cure any such failure to perform by Landlord so long as Landlord both: (1) is diligently and in good faith attempting to cure such matter; and (2) has the financial ability to so comply. To the extent that Landlord's failure to perform arises due to its gross negligence, willful misconduct or willful breach of this Lease, upon demand, Landlord shall reimburse Tenant for the reasonable amount so paid, together with interest at the Default Rate from the date incurred until the date repaid. To the extent that Landlord's failure to perform arises due to its gross negligence, willful misconduct or willful breach of this Lease, Landlord shall defend, protect, indemnify, and hold Tenant harmless from and against any and all losses, costs, expenses, liabilities, claims, causes of action and damages of all kinds that may result to Tenant, including reasonable attorneys' fees and disbursements incurred by Tenant, arising because of any failure by Landlord to perform any of its obligations under Article 11, Section 13.1, Section 15.4, Article 20 or Section 21.10 of this Lease. Landlord's duty to indemnify Tenant under this Section 17.8 shall survive the expiration or earlier termination of this Lease. (b) DEFAULT UNDER CERTAIN PROVISIONS. In addition to Tenant's rights set forth in Section (a) above, in the event of a default by Landlord under Section 20.5, Tenant shall have the right to cure such default on behalf of and at Landlord's expense, without prior notice to Landlord. In addition, in the event of any default by Landlord under Section 20.3, 20.4 or 20.5, Tenant shall have the right to exercise its Purchase Option pursuant to Section 19.1 hereof. ARTICLE 18 QUIET ENJOYMENT Landlord covenants to secure to Tenant the quiet possession of the Premises for the full Term against all persons claiming the same, subject to Landlord's rights and remedies under Section 17 upon a Default or an Event of Major Default by Tenant. The existence of any Permitted Exceptions shall not be deemed to constitute a breach of Landlord's obligations hereunder. Tenant shall, immediately upon demand, reimburse Landlord for all reasonable costs, expenses and damages incurred or paid by Landlord 50. 57 in the performance of Landlord's obligations under this Article 18 (except for any costs, expenses or damages arising from Landlord's willful breach of this Lease). ARTICLE 19 TENANT'S OPTION TO PURCHASE 19.1 OPTION TO PURCHASE PREMISES. (a) PURCHASE OPTION. Tenant shall have the option ("Purchase Option") to purchase all or part of the Premises at any time during the Term; provided that Tenant shall be entitled to purchase less than all of the Premises only if the portion being purchased is released from any existing Fee Mortgage and if the portion of the Premises not purchased shall constitute one or more Buildings or phases after closing of the purchase and shall be viable as a separate Building or phase as determined in Landlord's reasonable discretion; further provided that if the portion of the Premises not purchased will not constitute one or more legal parcels then Landlord may refuse to sell to Tenant that portion of the Premises in its sole discretion. The purchase price ("Purchase Price") for the Building or phase which Tenant elects to purchase shall be (i) the then-existing Funded Amount for the Building or phase which Tenant elects to purchase, as the same may be reduced from time to time, plus (ii) the amount of any prepayment premium and all other fees, costs, expenses and any accrued but unpaid interest or rent due to any holder of an Authorized Loan in connection with such loan (to the extent not already paid pursuant to Section 21.21 (including late charges arising from Tenant's late payment of Base Rent hereunder and the annual servicing fee attributable to this Lease) hereof). Tenant shall be entitled to a credit against the Purchase Price in an amount equal to the sum of (i) the principal balance(s) of any Fee Mortgage existing immediately prior to the closing under this Purchase Option if such Fee Mortgage is not fully repaid and all documents reflecting the same are not cancelled and removed from the public records on or prior to the closing under this Purchase Option, plus (ii) the amount of the Security Deposit (or, in the event of a purchase of a portion of the Premises, a pro rata portion of the Security Deposit), and, upon closing under this Purchase Option, Landlord shall be released from Landlord's obligation to return the Security Deposit set forth in Section 5.7 hereof. If Tenant purchases less than all of the then-existing Premises, then the credit pursuant to the preceding sentence shall be calculated on a pro rata basis, based upon the ratio of the area of the Premises being purchased compared to the area of the then-existing Premises. In lieu of payment of the Purchase Price, Tenant shall have the right (1) to assume the Improvements Loan or any other Authorized Loan or (2) to cause Landlord to assign the Authorized Loan and this Lease (including the existing Security Deposit) to a third party acceptable to the holder of such Authorized Loan (which third party shall expressly assume such obligations in writing), provided that Landlord is released from all obligations under the Authorized Loan 51. 58 and Landlord is paid an amount equal to the Equity Contribution. Landlord shall execute any and all documents necessary to effect such assumption and assignment upon Tenant's request, provided that Tenant shall reimburse Landlord for all reasonable costs and expenses related thereto. (b) PURCHASE OPTION EXERCISE NOTICE. If Tenant desires to exercise the Purchase Option, Tenant shall deliver to Landlord a written notice ("Purchase Option Exercise Notice") of Tenant's election; provided, however, that in the event of an assignment by Landlord for the benefit of creditors generally, the filing of a voluntary or involuntary bankruptcy petition by or against Landlord or the appointment of a receiver, liquidator or trustee for all or a substantial portion of the Premises by reason of Landlord's insolvency or alleged insolvency, the Purchase Option shall be deemed exercised with respect to the entire Premises as of the calendar day immediately preceding such assignment, filing or appointment. (c) TRANSFER. If Tenant exercises the Purchase Option, the purchase and sale of the Premises shall be consummated as follows. In the event of a purchase of a portion of the Premises, the term "Premises" as used in this Section 19.1(c) shall be deemed to mean that portion of the Premises then to be purchased pursuant to the Purchase Option. (i) Landlord shall grant and convey the Premises to Tenant, its authorized agent or assignee, pursuant to a duly executed and acknowledged grant deed ("Grant Deed"), free and clear of all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and restrictive covenants or conditions, except for the Permitted Exceptions; (ii) The Purchase Price shall be paid upon delivery of the Grant Deed and any other documents reasonably requested by Tenant to evidence the transfer of the Premises or to release all liens of Landlord, including without limitation, any and all reconveyances of mortgages or other recorded documents as requested by Tenant ("Additional Documents"). In the event that Tenant elects to assign the Purchase Option pursuant to Section 19.1(d) below, and Tenant's assignee pays an amount less than the Purchase Price for the Premises, Tenant shall pay to Landlord any excess of the Purchase Price over the amount paid by such assignee. Landlord shall deliver the Grant Deed and the Additional Documents to Tenant on the date for closing specified by Tenant in the Purchase Option Exercise Notice (which date shall be no sooner than ten (10) days after the date of the Purchase Option Exercise Notice and no later than the last day of the Term, as the same may be extended). The closing shall take place at the location and in the manner reasonably set forth by Tenant in the Purchase Option Exercise Notice; (iii) If Landlord shall fail to cause title to be in the condition required in Section 19.1(c)(i) above within the 52. 59 time herein prescribed for the delivery of the Grant Deed, then Tenant shall have the right, in addition to all other rights provided by law, by a written notice to Landlord: (1) to extend the time in which Landlord shall clear title and deliver the Grant Deed and Additional Documents, during which extension this Lease shall remain in full force and effect, except Tenant shall be released from its obligation to pay Base Rent during the extension; (2) to accept delivery of the Grant Deed and Additional Documents subject to such title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and restrictive covenants or conditions specified and set forth in the Grant Deed and not cleared by Landlord (but without waiving any rights or remedies available to Tenant on account of such title exceptions); (3) to rescind, by notice to Landlord and without any penalty or liability therefor, any and all obligations Tenant may have under and by virtue of the Purchase Option or the exercise thereof, whereupon this Lease shall remain in full force and effect; (4) if the title exception is curable by the payment of money, Tenant may make such payment and such payment shall be a credit against the Purchase Price in favor of Tenant. (iv) Refusal of a title company to issue a standard form of owner's title insurance policy insuring title to the Premises in the condition specified in subparagraph (c)(i) shall be sufficient evidence of Landlord's failure to convey clear title and shall entitle Tenant to exercise any of the rights specified in subparagraph (c)(iii). (v) Base Rent shall be prorated and paid and all unpaid Additional Rent shall be paid as of the date title to the Premises is vested of record in Tenant. Tenant shall pay the escrow fees; the recorder's fee for recording the Grant Deed; the premium for the title insurance policy; all documentary transfer taxes; Tenant's attorneys' fees; Landlord's reasonable attorneys' fees; all other costs and expenses incurred by Tenant in consummating the transfer of the Premises; and all reasonable expenses (except as specified in the next sentence) incurred by Landlord in consummating the transfer of the Premises pursuant to this Section 19.1. Landlord shall pay the costs and expenses of clearing title as required by Section 19.1(c)(i). In the event of a purchase by Tenant under this Article 19, Landlord shall have no obligation to return the Security Deposit to Tenant to the extent the Security Deposit has been credited against the purchase price to be paid by Tenant pursuant to Section 19.1(a). (d) ASSIGNMENT. Tenant shall have the right on one or more occasions, without Landlord's consent, to assign this purchase option, in whole or in part, to any Entity at any time, whether or not Tenant also assigns its interest in the Lease. Tenant shall give prior written notice to Landlord of any such assignment. 19.2 MANDATORY PURCHASE/SALE OF PREMISES. Notwithstanding anything to the contrary herein, upon either: (1) 53. 60 the occurrence of an Event of Major Default or the expiration of the Term of this Lease or upon the occurrence of any other event terminating this Lease; or (2) the occurrence of any event which causes the Funded Amount to be reduced to zero (0); or (3) Tenant's exercise of the Purchase Option pursuant to Section 19.1 or 19.2 of the Land Lease, within thirty (30) days after Tenant's receipt of written Notice of the foregoing and of Tenant's purchase obligation under this Section 19.2 (except in the case of a purchase obligation arising on account of the expiration of the Term of this Lease or exercise of the Purchase Option under the Land Lease; in either such case no prior Notice shall be required, but Tenant shall have twenty (20) days after expiration of the Term or exercise of the Purchase Option under the Land Lease to conclude the purchase), Tenant shall purchase or cause another Entity to purchase, and Landlord shall sell, the Premises in the same manner as if Tenant had exercised the Purchase Option on such date. The Purchase Price shall be the same as if Tenant had exercised the Purchase Option, without regard to the physical state or condition of the Premises or any Improvements (but Tenant shall have the rights set forth in Section 19.1, including without limitation, the terms of Sections 19.1(c)(iii) and (iv)). In the event Tenant fails to purchase (or to cause another Entity to purchase) the Premises pursuant to its obligation under this Section 19.2, and if Landlord does not foreclose under the Landlord Deed of Trust, Landlord (to the extent required under Section 21.19) shall use commercially reasonable efforts to sell the Premises to an unrelated third party, and, as applicable, (i) Tenant shall be obligated to pay to Landlord, immediately upon demand, any shortfall between the Purchase Price and the amount realized by Landlord in connection with such sale, or (ii) Landlord shall be obligated to pay to Tenant, immediately upon demand, any excess of the amount realized by Landlord in connection with such sale over the Purchase Price. For purposes of the preceding sentence, the amount realized by Landlord upon a sale of the Premises shall be net of Landlord's reasonable sale expenses and other expenses incurred by Landlord but required to be paid by Tenant pursuant to Section 19.1(c)(v). Landlord's obligation to pay such excess to Tenant shall survive any termination of this Lease. Landlord and Tenant agree that any and all cash proceeds payable at any foreclosure sale under the Landlord Deed of Trust shall, after payment of all obligations secured by the Landlord Deed of Trust, be paid to Tenant or to any other person claiming through Tenant entitled thereto by applicable law. The aggregate of the obligations under an Authorized Loan and the obligations secured by the Landlord Deed of Trust shall not exceed the Purchase Price. Notwithstanding anything to the contrary in this Lease, in the event of default, breach or violation by Tenant of any of Tenant's obligations under this Section 19.2, Tenant shall have no liability to Landlord or any other party in excess of an amount equal to the then-existing Guaranteed Residual Value, less a credit equal to the sum of (a) any of the Collateral (including the pledged Security Deposit) which Lenders or any other holder of an Authorized Loan has used, applied, or otherwise come into possession of, plus (b) any of the Security Deposit retained by Landlord, and Landlord 54. 61 shall have no recourse, claim or counterclaim whatsoever against Tenant in excess of such amount on account of such default, breach or violation. If the Guaranteed Residual Value has not previously been determined as of the date Tenant's liability under this Section 19.2 has been established, then the Guaranteed Residual Value shall be determined as of the date Tenant's liability hereunder is established. 19.3 SURVIVAL. The obligations of Landlord and Tenant under this Article 19 shall survive the expiration or earlier termination of this Lease. ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD 20.1 TITLE AND SUBDIVISION. In the event Tenant so requests in writing (and so long as either Tenant agrees to indemnify Landlord from any liabilities or obligations in connection therewith, or Landlord does not incur any liabilities or obligations in connection therewith), Landlord shall execute all documents, instruments and agreements reasonably requested by Tenant in order to accomplish any of the following in the manner reasonably requested by Tenant and within the time parameters reasonably requested by Tenant: (1) remove exceptions to title to or affecting the Premises; (2) create exceptions to title (including, without limitation, easements and rights of way) to or affecting the Premises (but not including any Mortgage); (3) modify any then-existing exception to title; or (4) subdivide the Land into two or more separate parcels. Tenant shall promptly reimburse Landlord for, or at Landlord's request, pay directly in advance, all reasonable costs, expenses and other amounts incurred or required to be expended by Landlord in order to comply with Tenant's requests made in accordance with the preceding sentence, and the failure of Tenant to reimburse or pay any such amounts shall result in the suspension of Landlord's obligations under such sentence with respect to that particular request until the amounts required to be paid by Tenant under this sentence have been paid. Landlord acknowledges that it is critical to Tenant's ability to construct improvements on the Premises to have the ability and flexibility to accomplish the foregoing, and that the parties therefore agree that Landlord shall not be entitled to withhold Landlord's consent to any of the foregoing requests by Tenant, except as set forth in the preceding sentence. 20.2 LAND USE. Except where requested by Tenant pursuant to this Section 20.2, Landlord shall not cause or give its written consent to any land use or zoning change affecting the Premises or any changes of street grade. In the event Tenant so requests in writing (and so long as either Tenant agrees to indemnify Landlord from any liabilities or obligations in connection therewith, or Landlord does not incur any liabilities or obligations in connection therewith), Landlord shall execute all documents, instruments and agreements reasonably requested by 55. 62 Tenant in order to accomplish any of the following in the manner reasonably requested by Tenant and within the time parameters reasonably requested by Tenant: (1) cause a change in any land use restriction or law affecting the Premises; (2) cause a change in the zoning affecting the Premises; or (3) cause a change in the street grade with respect to any street in the vicinity of the Premises. Tenant shall promptly reimburse Landlord for, or at Landlord's request, pay directly in advance, all reasonable costs, expenses and other amounts incurred or required to be expended by Landlord in order to comply with Tenant's requests made in accordance with the preceding sentence, and the failure of Tenant to reimburse or pay any such amounts shall result in the suspension of Landlord's obligations under such sentence with respect to that particular request until the amounts required to be paid by Tenant under this sentence have been paid. Landlord acknowledges that it is critical to Tenant's ability to construct improvements on the Premises to have the ability and flexibility to accomplish the foregoing, and that the parties therefore agree that Landlord shall not be entitled to withhold Landlord's request to any of the foregoing requests by Tenant. 20.3 TRANSFER OF PROPERTY INTERESTS. Except as requested by Tenant pursuant to Section 11.7 or 20.1, Landlord shall not transfer to any third party any rights inuring to or benefits associated with the Premises (including, without limitation, zoning rights, development rights, air space rights, mineral, oil, gas or water rights). Nothing in this Section 20.3 shall limit Landlord's rights pursuant to Section 13.2; provided that any purchaser of Landlord's interest in the Premises shall be bound by the terms of this Lease, including without limitation, the terms of this Section 20.3. 20.4 TRUST EQUITY; NO OTHER ASSET. Landlord covenants and agrees that during the Term of the Lease, Landlord shall maintain a residual equity capital investment of at least three percent (3%) of total assets of Landlord, including assets acquired by this equity investment. In addition, Landlord shall not, without the prior written consent of Tenant, which consent may be withheld at Tenant's sole discretion, acquire any significant assets other than (i) the Land, (ii) the Premises and (iii) the land and any Improvements thereon, which Improvements are subject to certain leases between Landlord and Tenant executed concurrently herewith, and which land is described on Exhibit L attached hereto. 20.5 DEFAULT UNDER AUTHORIZED LOAN. Landlord shall not, without Tenant's express prior written consent, default under any Authorized Loan, or any loan documents relating to such Authorized Loan, where such default does not arise from an Event of Major Default by Tenant under this Lease. Any such default shall constitute a material default under this Lease, subject to the limitations on liability of Section 17.8 hereof. 56. 63 ARTICLE 21 MISCELLANEOUS 21.1 RELATIONSHIP. Neither this Lease nor any agreements or transactions contemplated hereby shall in any respect be interpreted, deemed or construed as constituting Landlord and Tenant as partners or joint venturers, one with the other, or as creating any partnership, joint venture, association or, except as set forth in Section 21.2 below, any other relationship other than that of landlord and tenant; and, except as set forth in Section 21.2 below, both Landlord and Tenant agree not to make any contrary assertion, contention, claim or counterclaim in any action, suit or other legal proceeding involving either Landlord or Tenant or the subject matter of this Lease. 21.2 FORM OF TRANSACTION; CERTAIN TAX MATTERS. (a) Landlord and Tenant hereby agree and declare that the transactions contemplated by this Lease are intended to constitute, both as to matters of form and substance: (i) an operating lease for financial accounting and securities regulatory purposes, and (ii) a financing arrangement (and not a "true lease") for Federal, state and local income taxes, property tax valuation or other tax purposes. Accordingly, and notwithstanding any other provision of this Lease to the contrary, Landlord and Tenant agree and declare that (A) the transactions contemplated hereby are intended to have a dual, rather than single, form and (B) all references in this Lease to the "Lease" of the Premises which fail to reference such dual form do so as a matter of convenience only and do not reflect the intent of Landlord and Tenant as to the true form of such arrangements. (b) Landlord and Tenant agree that, in accordance with their intentions and the substance of the transactions contemplated hereby, Tenant (and not Landlord) shall be treated as the owner of the Premises for Federal, state, and local income tax and property tax valuation purposes and this Lease shall be treated as a financing arrangement. Tenant shall be entitled to take any deduction, credit allowance or other reporting, filing or other tax position consistent with such characterizations. Landlord shall not file any Federal, state or local income or property tax returns, reports or other statements in a manner which is inconsistent with the foregoing provisions of this Section 21.2. (c) Each party acknowledges that it has retained accounting, tax and legal advisors to assist it in structuring this Lease and neither party is relying on any representations of the other regarding the proper treatment of this transaction for accounting, income tax, property tax or any other purpose. 57. 64 21.3 NOTICES. Each Notice shall be in writing and shall be sent by personal delivery, overnight courier (charges prepaid or billed to the sender) or by the deposit of such with the United States Postal Service, or any official successor thereto, designated as registered or certified mail, return receipt requested, bearing adequate postage and in each case addressed as provided in the Basic Lease Provisions. Each Notice shall be effective upon being personally delivered or actually received. The time period in which a response to any such Notice must be given or any action taken with respect thereto shall commence to run from the date of personal delivery or receipt of the Notice by the addressee thereof, as reflected on the return receipt of the Notice. Rejection or other refusal to accept shall be deemed to be receipt of the Notice sent. By giving to the other party at least thirty (30) days' prior Notice thereof, either party to this Lease (as well as any Mortgagee) shall have the right from time to time during the Term of this Lease to change the address(es) thereof and to specify as the address(es) thereof any other address(es) within the continental United States of America. 21.4 SEVERABILITY OF PROVISIONS. If any term, covenant or condition of this Lease, or the application thereof to any Entity or circumstance, shall be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to Entities or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby. 21.5 ENTIRE AGREEMENT; AMENDMENT. This Lease constitutes the entire agreement of Landlord and Tenant with respect to the subject matter hereof. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. 21.6 APPROVALS AND CONSENTS. Except as expressly provided in this Lease, whenever any provision of this Lease requires an approval or consent to be given by one of the parties hereto, the approval or consent shall not be unreasonably withheld or delayed. Whenever this Lease grants either party the right to take action, exercise discretion, establish rules and regulations, or make an allocation or other determination, except as otherwise provided, such party shall act reasonably and in good faith and take no action which might result in the frustration of the other party's reasonable expectations concerning the benefits to be enjoyed under this Lease. If either party withholds its consent or approval, unless by the express terms of this Lease such consent or approval may be withheld in such party's sole discretion, such party shall, upon request, promptly deliver to the other party a written statement specifying in detail the reason or reasons why such consent or approval was withheld or refused. If neither approval nor rejection is given by Landlord within the time specified in Article 11 as to any particular approval requested by 58. 65 Tenant under Article 11 (or, if no such time is specified, then within thirty (30) days after request for approval is given by a Notice), then the approval thus specifically requested in writing by Tenant shall be conclusively and irrevocably deemed to have been given by Landlord. 21.7 TERMINOLOGY. All personal pronouns used in this Lease shall include all other genders. The singular shall include the plural and the plural shall include the singular. Titles of Articles, Sections and Subsections in this Lease are for convenience only and neither limit nor amplify the provisions of this Lease, and all references in this Lease to Articles, Sections or Subsections shall refer to the corresponding Article, Section or Subsection of this Lease unless specific reference is made to the articles, sections or other subdivisions of another document or instrument. The word "days" as used herein shall mean business days (i.e., excluding holidays when banks in the State of California or New York are generally closed for business and weekends) unless otherwise expressly stated. 21.8 MEMORANDUM OF LEASE. Neither party shall record this Lease. However, concurrently with the execution of this Lease, Landlord and Tenant have executed a Memorandum of Lease in the form attached hereto as Exhibit E and by this reference made a part hereof, which Memorandum of Lease shall be promptly recorded in the Official Records. 21.9 SUCCESSORS AND ASSIGNS. Subject to Articles 13 and 14, this Lease shall inure to the benefit of and be binding upon Landlord and Tenant and their respective heirs, executors, legal representatives, successors and assigns. Whenever in this Lease a reference to any Entity is made, such reference shall be deemed to include a reference to the heirs, executors, legal representatives, successors and assigns of such Entity. 21.10 COMMISSIONS. Landlord and Tenant each represent and warrant that neither has dealt with any broker in connection with this transaction and that no real estate broker, salesperson or finder has the right to claim a real estate brokerage, salesperson's commission or finder's fee by reason of contact between the parties brought about by such broker, salesperson or finder. Each party shall hold and save the other harmless of and from any and all loss, cost, damage, injury or expense arising out of or in any way related to claims for real estate broker's or salesperson's commissions or fees based upon allegations made by the claimant that it is entitled to such a fee from the indemnified party arising out of contact with the indemnifying party or alleged introductions of the indemnifying party to the indemnified party. In addition to the foregoing, Tenant shall hold and save Landlord harmless of and from any and all loss, cost, damages, injury or expense arising out of or in any way related to claims for real estate broker's or salesperson's commissions relating to Landlord's acquisition of the Premises or fees by The Staubach Company in connection with this Lease. 59. 66 21.11 ATTORNEYS' FEES. In the event any action is brought by Landlord or Tenant against the other to enforce or for the breach of any of the terms, covenants or conditions contained in this Lease, the prevailing party shall be entitled to recover reasonable attorneys' fees to be fixed by the court, together with costs of suit therein incurred. Tenant shall pay the reasonable attorneys' fees incurred by Landlord for the review and negotiation of this Lease and the Improvements Loan documents. 21.12 GOVERNING LAW. This Lease and the obligations of the parties hereunder shall be governed by and interpreted, construed and enforced in accordance with the laws of the State of California. 21.13 COUNTERPARTS. This Lease may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. 21.14 TIME IS OF THE ESSENCE. Time is of the essence of this Lease, and of each provision hereof. 21.15 NO THIRD PARTY BENEFICIARIES. This Lease is entered into by Landlord and Tenant for the sole benefit of Landlord and Tenant. There are no third party beneficiaries to this Lease. 21.16 LIMITATIONS ON RECOURSE. The obligations of Tenant and Landlord under this Lease shall be without recourse to any partner, officer, trustee, beneficiary, shareholder, director or employee of Tenant or Landlord. There shall be no limitation on Landlord's liability with respect to any willful misconduct, bad faith breach of this Lease, or gross negligence by Landlord ("Identified Matters"). Except for any Identified Matter, Landlord's liability to Tenant for any default by Landlord under this Lease: (1) shall be limited to the greater of the Equity Funded Amount less any repayment to Tenant of the Security Deposit or Landlord's interest in the Premises; and (2) shall extend to any actual damages of Tenant, but shall not extend to any foreseeable and unforeseeable consequential damages. 21.17 ESTOPPEL CERTIFICATES. Within thirty (30) days after request therefor by either party, the non- requesting party shall deliver, in recordable form, a certificate to any proposed mortgagee, purchaser, sublessee or assignee and to the requesting party, certifying (if such be the case) that this Lease is in full force and effect, the date of Tenant's most recent payment of Rent, that, to the best of its knowledge, the non-requesting party has no defenses or offsets outstanding, or stating those claimed, and any other information reasonably requested. Failure to deliver said statement in time shall be conclusive upon the non-requesting party that: (a) this Lease is in full force and effect, without modification except as may be represented by the requesting party; (b) there are no uncured defaults in the requesting party's 60. 67 performance and the non-requesting party has no right of offset, counterclaim or deduction against the non-requesting party's obligations hereunder; (c) no more than one month's Base Rent has been paid in advance; and (d) any other matters reasonably requested in such certificate. 21.18 COLLATERAL. The parties acknowledge that Tenant has pledged certain collateral ("Collateral") to Lenders to secure Landlord's obligations under the terms of the Note. If the holder of an Authorized Loan applies any of the Collateral to satisfy an obligation under any Authorized Loan documents, such application shall be deemed to reduce the Senior Funded Amount under this Lease on a dollar-for-dollar basis. Tenant shall have no claims, rights or causes of action against Landlord arising from any application of the Collateral to satisfy an obligation under the Authorized Loan documents. 21.19 LANDLORD'S CONTINUING OBLIGATION TO SELL. Except in the case of a foreclosure under the Landlord Deed of Trust, and subject to the rights of any holder of an Authorized Loan, in the event Landlord obtains possession of the Premises pursuant to the terms of this Lease (including, without limitation, upon the expiration or earlier termination of this Lease where Tenant has defaulted in its obligation to purchase the Premises pursuant to Section 19.2), Landlord shall be under a continuing obligation to use its commercially reasonable efforts to sell the Premises to Tenant or to one or more unrelated third parties; provided, however, that Landlord shall not be required to sell or attempt to sell any portion of the Premises (i) in a manner, or under circumstances, that could materially impair Landlord's ability to enforce any of its rights or remedies under this Lease (as determined in Landlord's sole discretion exercised in good faith), (ii) at a time when market conditions render it inadvisable to sell or attempt to sell the Premises (as determined in Landlord's sole discretion exercised in good faith). Nothing contained in this paragraph shall be binding on any holder of an Authorized Loan acquiring title through foreclosure, to any person acquiring title at any such foreclosure or to their successors in interest. Upon the occurrence of any such sale Landlord shall be obligated to pay to Tenant any excess of the amount realized by Landlord in connection with such sale over the Purchase Price. For purposes of the preceding sentence, the amount realized by Landlord upon a sale of the Premises shall be net of Landlord's reasonable sale expenses and other expenses incurred by Landlord but required to be paid by Tenant pursuant to Section 19.1(c)(v). Landlord's obligation to pay such excess to Tenant shall survive any termination of this Lease. Landlord shall not deliver to any Mortgagee a deed in lieu of foreclosure under any circumstances without Tenant's prior written approval, which may be withheld in Tenant's sole and absolute discretion. 21.20 AS-IS LEASE. Landlord makes no representations or warranties concerning the condition, suitability or any other 61. 68 matters relating to the Premises, and Tenant hereby acknowledges that Tenant leases the Premises from Landlord on an "as is" basis. 21.21 NET LEASE. Except as otherwise provided in this Lease, Tenant agrees that this Lease is an absolute net Lease, and the Base Rent called for hereunder shall be paid as required net of all expenses associated with the Premises, including without limitation, Real Estate Taxes and insurance premiums for the insurance required to be carried hereunder, and all other reasonable and customary costs and expenses incurred by Landlord in connection with the Premises or this Lease, all of which shall be paid or reimbursed by Tenant unless otherwise specifically provided herein. Tenant agrees to reimburse Landlord, within five (5) business days following receipt of any written demand therefor, for all reasonable and customary fees (including the pro rata portion of the $3,000 annual servicing fee payable to SBNYTC attributable to this Lease), late charges, title endorsement and other costs and expenses charged to Landlord by Lenders pursuant to the terms and conditions of the Note. 21.22 REPRESENTATIONS AND WARRANTIES. Tenant and Landlord each hereby represents and warrants to the other that: (i) such party is duly organized and existing under the laws of the jurisdiction in which it is formed; (ii) such party has the full right and authority to enter into this Lease, consummate the sale, transfers and assignments contemplated herein and otherwise perform its obligations under this Lease; (iii) the person or persons signatory to this Lease and any document executed pursuant hereto on behalf of such party have full power and authority to bind such party; and (iv) the execution and delivery of this Lease and the performance of such party's obligations hereunder do not and shall not result in the violation of its organizational documents or any contract or agreement to which such party may be a party. 21.23 APPRAISAL PROCEDURE. (a) If this Lease calls for an appraisal under this Section 21.23 with respect to the Coverage Test, Landlord and Tenant shall have thirty (30) days after either party delivers Notice to the other party of a desire to utilize the appraisal procedure under this Section 21.23 in connection with the Coverage Test in which to agree on whether the Coverage Test is satisfied as of the time required under the relevant provision of this Lease. In determining the Coverage Test, the fair market value of the Land and Improvements ("Fair Market Value") shall be calculated together, taking into consideration the quality, size, design and location of the Land and Improvements, and the value of comparable property in the general locality of the Land, and any other factors which customarily are evaluated in appraising land or buildings. If either party elects to utilize the terms of this Section 21.23 and Landlord and Tenant agree on the Fair Market Value during such thirty (30) day period, they shall immediately execute a letter agreement reflecting such agreement. 62. 69 (b) If Landlord and Tenant are unable to agree on the Fair Market Value within such thirty (30) day period, then within ten (10) days after the expiration of the thirty (30) day period, Landlord and Tenant each, at its cost and by giving notice to the other party, shall appoint a competent and disinterested real estate appraiser with at least five (5) years' full-time commercial appraisal experience in the geographical area of the Building to appraise and set the Fair Market Value. If either Landlord or Tenant does not appoint an appraiser within ten 10 days after the other party has given notice of the name of its appraiser, the single appraiser appointed shall be the sole appraiser and shall set the Fair Market Value. If two (2) appraisers are appointed by Landlord and Tenant as stated in this Section, they shall meet promptly and attempt to set the Fair Market Value. (c) If the two (2) appraisers are unable to agree on the Fair Market Value within thirty (30) days after the second appraiser has been appointed, they shall attempt to select a third appraiser meeting the qualifications stated in this Section within ten (10) days after the last day the two (2) appraisers are given to set the Fair Market Value. If they are unable to agree on the third appraiser, either Landlord or Tenant, by giving ten (10) days' notice to the other party, can apply to the then president of the real estate board of the county in which the Land is located, or to the Presiding Judge of the Superior Court of the county in which the Land is located, for the selection of a third appraiser who meets the qualifications stated in this Section. Landlord and Tenant each shall bear one-half (l/2) of the cost of appointing the third appraiser and of paying the third appraiser's fee. The third appraiser, however selected, shall be a person who has not previously acted in any capacity for either Landlord or Tenant. Within thirty (30) days after the selection of the third appraiser, a majority of the appraisers shall set the Fair Market Value. If a majority of the appraisers is unable to set the Fair Market Value within the stipulated period of time, the third appraiser shall arrange for simultaneous exchange of written appraisals from each of the appraisers and the three (3) appraisals shall be added together and their total divided by three (3); the resulting quotient shall be the Fair Market Value. If, however, the low appraisal and/or the high appraisal are/is more than ten percent (10%) lower and/or higher than the middle appraisal, the low appraisal and/or the high appraisal shall be disregarded. If only one (1) appraisal is disregarded, the remaining two (2) appraisals shall be added together and their total divided by two (2); the resulting quotient shall be the Fair Market Value. If both the low appraisal and the high appraisal are disregarded as stated in this Section, the middle appraisal shall be the Fair Market Value. (d) After the Fair Market Value has been set, the appraisers shall immediately notify Landlord and Tenant, and Landlord and Tenant shall immediately execute a letter agreement reflecting the Fair Market Value. 63. 70 21.24 FINANCIAL REPORTING. Tenant shall provide to Landlord and Lenders: (1) annually, within one hundred twenty (120) days after the end of each of Tenant's fiscal years during the Term, an annual report on Form 10-K for such fiscal years as filed with the Securities and Exchange Commission; (2) quarterly, within forty five (45) days after the end of each of Tenant's fiscal quarters during the Term, quarterly reports on Form 10-Q as filed with the Securities and Exchange Commission; and (3) within thirty (30) days after filing with the Securities and Exchange Commission, any other reports, proxy statements, registration statements or prospectuses filed during the Term with the Securities and Exchange Commission. 21.25 APPRAISAL. Prior to Landlord's making the Initial Advance pursuant to Section 11.3 hereof, Landlord shall have received an appraisal conforming to FIRREA guidelines prepared by an appraiser reasonably satisfactory to Landlord indicating that the current fair market value on an as-completed basis of the buildings which Tenant may desire to have constructed on the Land (based upon a theoretical current build-out on the Land on the basis of the Site Plan attached hereto as Exhibit C) is not less than ninety percent (90%) of the estimated cost of construction of the buildings as designed as of the date of such appraisal which Tenant may desire to have constructed on the Land. The appraisal shall be based upon Tenant's current construction budget, specifications and intended use (both parties hereby recognizing that such items are subject to change, and in no event shall Tenant have any obligation to construct any or all of such buildings). Tenant hereby approves Landlord's use of either Cushman & Wakefield or CB Commercial Real Estate Group as the appraiser under this Section 21.25. Landlord hereby acknowledges that the current fair market value on an as-completed basis of the buildings as designed as of the date of such appraisal which Tenant proposes to have constructed on the Land is not less than ninety percent (90%) of the estimated cost of construction of said buildings. [Remainder of This Page Intentionally Left Blank] 64. 71 [SIGNATURE PAGE TO BUILDING LEASE] IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: /s/ JOHN F. McFADDEN ----------------------------------- Name: JOHN F. McFADDEN ----------------------------------- Its: VICE PRESIDENT AND TREASURER ----------------------------------- [Remainder of This Page Intentionally Left Blank] 72 [SIGNATURE PAGE TO BUILDING LEASE] "TENANT" CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION By: /s/ JOHN T. CHAMBERS --------------------------------------- Name: JOHN T. CHAMBERS --------------------------------------- Its: PRESIDENT AND CHIEF EXECUTIVE OFFICER --------------------------------------- By: /s/ LARRY R. CARTER --------------------------------------- Name: LARRY R. CARTER --------------------------------------- Its: CHIEF FINANCIAL OFFICER --------------------------------------- 73 EXHIBIT A LEGAL DESCRIPTION OF LAND REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: Lots 58 and 59, as shown upon that certain map entitled, "Tract No. 7559", which Map was filed for record in the office of the Recorder of the County of Santa Clara, on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-18,22 EXHIBIT A 74 EXHIBIT B PERMITTED EXCEPTIONS The following exceptions from coverage of Landlord's title insurance which affect "Parcel Two" and "Parcel Three": 1. PROPERTY TAXES, including any assessments collected with taxes, for the fiscal year 1995-1996, a lien not yet due or payable. 2. a) Bond for City of San Jose, Reassessment District No. 93-210 1993 Consolidated Refunding Bond No. : 24J Assessment No. : 42V Balance of principal : $88,186.00 Balance of interest through maturity : $16,532.60 The above Amount excludes $12,279.07 principal, $5,140.46 interest and $277.29 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects Lot 59 of Parcel One. b) Bond for City of San Jose, Reassessment District No. 93-210 1993 Consolidated Refunding Bond No. : 24J Assessment No. : 46V Balance of principal : $100,217.00 Balance of interest through maturity : $18,788.10 The above Amount excludes $13,954.27 principal, $5,841.76 interest and $312.93 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects Lot 58 of Parcel One. c) Bond for Reassessment District #93-210 Consolidated Refunding, as follows: Bond No. : 24J Assessment No. : 48V Balance of principal : $113,800.32 Balance of interest : $21,334.61 The above Amount to pay in full excludes $15,845.61 principal, $6,633.65 interest and $353.18 handling charge spread on the 1994- 1995 tax roll, which amounts cannot be prepaid. Said matter affects Parcel Two. 75 2. Continued d) Bond for Reassessment District #93-210 Consolidated Refunding, as follows: Bond No. : 24J Assessment No. : 47V Balance of principal : $123,177.11 Balance of interest : $23,092.52 The above Amount to pay in full excludes $17,151.24 principal, $7,180.13 interest and $380.97 handling charge spread on the 1994- 1995 tax roll, which amounts cannot be prepaid. Said matter affects Parcel Three. e) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 8V Balance of principal : $63,238.68 Balance of interest through maturity : $11,855.62 The above Amount excludes $8,806.39 principal, $3,686.25 interest and $203.36 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects Parcels Four and Five. f) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 1V Balance of principal : $429.87 Balance of interest through maturity : $80.61 The above Amount excludes $59.86 principal, $25.02 interest and $1.32 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects a portion of Parcel Six. g) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 2V Balance of principal : $91,559.14 Balance of interest through maturity : $17,164.97 The above Amount excludes $12,748.74 principal, $5,337.09 interest and $280.03 handling charge spread on the 1994- 1995 tax roll, which amounts cannot be prepaid. Said matter affects a portion of Parcel Six. 76 2. Continued h) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 9V Balance of principal : $75,028.33 Balance of interest through maturity : $14,065.87 The above Amount excludes $10,446.98 principal, $4,373.49 interest and $229.47 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects a portion of Parcel Six. i) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 10V Balance of principal : $360.71 Balance of interest through maturity : $67.62 The above Amount excludes $50.23 principal, $21.03 interest and $1.10 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects a portion of Parcel Six. 3. THE LIEN of supplemental taxes, if any, assessed as a result of transfer of interest and/or new construction, said supplemented taxes being assessed pursuant to Chapter 3.5 commencing with Section 75 of the California Revenue and Taxation Code, for which no Notice of Assessment has been issued, as of the date herein. 4. EASEMENT for the purposes stated herein and incidents thereto Purpose : Right to excavate for, install, replace (of initial or any other size), maintain and use for conveying gas such pipe line or lines as shall from time to time elect, with necessary values and other appliances Granted to : Pacific Gas and Electric Company, a California corporation Recorded : July 6, 1944 in Book 1206, page 154, Official Records Affects : as follows: By a Relocation Agreement between Oakmead Associates, a California general partnership and Pacific Gas and Electric Company, a California corporation Recorded : April 5, 1989 in Book K903, page 1344, Official Records the easement was relocated as follows: A strip of land of the uniform width of 15 feet extending from the Northerly boundary line of said Lot 5, said Northerly boundary line being the Southerly boundary line of the city street known as Tasman Drive (128 feet wide), said Tasman Drive is shown on said map, Southwesterly to the Westerly boundary line of said Lot 5, said Westerly boundary line being the Easterly boundary line of the street known as Rio Robles (56 feet wide), said street Rio Robles is also shown on said map, and lying 7.5 feet on each side of the line described as follows: 77 4. Continued Beginning at a point in the Northerly boundary line of said Lot 5 and running (1) S. 0 degrees 23.5 minutes E. 12.4 feet to a point which bears, S. 66 degrees 35.0 minutes W. 579.2 feet distant from the found 5/8 inch brass pin set in concrete accepted as marking the Southwesterly terminus of a course in the center line of said Tasman Drive, which course as shown on said map has a bearing of, N. 59 degrees 28 minutes 40 seconds E. and a length of 700.88 feet; thence (2) S. 29 degrees 04.3 minutes W. 187.8 feet; thence (3) S. 57 degrees 38.6 minutes W. 10.8 feet to a point in the Westerly boundary line of said Lot 5. Said line being a survey traverse made by second party in September, 1983. The bearings used in the foregoing description are based on solar observations made by second party. Covenants, conditions and restrictions in the above mentioned instruments. Said matter affects Parcel Six. 5. TERMS and conditions as contained in the Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records. Said matter affect Parcels Five and Seven and portions of Parcels Four and Six. 6. THE EFFECT of the Rincon de los Esteros Project Redevelopment Plan and Ordinances Nos. 17306, 19686, 19835, 20677, 20958, 21417, 21496, 21903, 22660, 22412, 22761, 22761.1 and 22961, 23703, 23732, 23761 and 23934 of the City of San Jose as recorded and as disclosed by documents recorded July 11, 1975 in Book B502, Page 711; August 6, 1979 in Book E699, Page 245; August 6, 1979 in Book E699, Page 277; December 21, 1979 in Book F37, Page 585; October 8, 1981 in Book G382, Page 605; July 28, 1982 in Book G929, Page 703; September 14, 1983 in Book H892, Page 200; January 10, 1984 in Book I220, Page 271; January 6, 1992 in Book L996, Page 508, all of Official Records, and as disclosed by information provided by the Redevelopment Agency of the City of San Jose. 7. EASEMENT for the purposes stated herein and incidents thereto Purpose : Any and all public service facilities, including, but not limited to, poles, wires, conduits and vaults, storm sewers, sanitary sewers, and gas, water, electrical and communication mains and all appurtenances thereto Granted to : City of San Jose, a municipal corporation of the State of California Recorded : September 14, 1981 in Book G330, page 497, Official Records Affects : That portion of said land as shown upon the map herein referred to, more particularly described as follows: All that certain real property situated in the City of San Jose, County of Santa Clara, State of California, being a portion of the parcel of land described and designated as Parcel 1 in the deed to River Oaks Associates #2, dated November 17, 1979, recorded in Book E962 of Official Records, at page 145, Santa Clara County Records, more particularly described as follows: 78 7. Continued Beginning at a point in the centerline of North First Street (formerly San Jose-Alviso Road) as said centerline is described in said deed at the most Northerly corner of said parcel; thence along the Northwesterly boundary line of said parcel, S. 59 degrees 28 minutes 40 seconds W. (S. 59 degrees 30 minutes W. per deed), 114.98 feet; thence leaving said line, S. 30 degrees 31 minutes 20 seconds E. 34.00 feet to the true point of beginning; thence along a non-tangent curve to the right having a radius of 50.00 feet; whose radius point bears along the continuation of the last described course, S. 30 degrees 31 minutes 20 seconds E. through a central angle of 89 degrees 59 minutes 11 seconds for an arc length of 78.53 feet to a point in a line which is parallel with and 65.00 feet Southwesterly of said centerline; thence along said parallel line, S. 30 degrees 32 minutes 09 seconds E. 254.64 feet to a point in the Northwesterly boundary line of the strip of land described in the deed to the City of County of San Francisco, dated October 20, 1950; recorded in Book 2111 of Official Records, at page 319, Santa Clara County Records; thence along said Northwesterly line, S. 65 degrees 09 minutes 27 seconds W. 10.05 feet to a point in a line that is parallel with and 75.00 feet Southwesterly from said centerline; thence along said parallel line, N. 30 degrees 32 minutes 09 seconds W. 253.64 feet; thence along a curve to the left, having a radius of 40.00 feet, through a central angle of 89 degrees 59 minutes 11 seconds for an arc length of 62.82 feet; thence N. 30 degrees 31 minutes 20 seconds W. 10.00 feet to the true point of beginning; the bearing of, S. 30 degrees 32 minutes 09 seconds E. of the monument line of North First Street, as shown on the Parcel Map recorded in Book 460 of Maps, at page 1, Santa Clara County Records, was used as the basis of bearings for this description. Said matter affects Parcel Six. 8. EASEMENT for the purposes stated herein and incidents thereto Purpose : Landscape Easement Granted to : City of San Jose, a municipal corporation Recorded : September 14, 1981 in Book G330, page 504, Official Records Affects : The Northeasterly 20 feet of Parcel Six. 9. LICENSE for the purposes stated herein and incidents thereto Purpose : To construct, install, maintain, repair, renew, replace, operate and use an interim storm sewer pipe line or lines and appurtenances of any size of material, and/or a surface drainage release Granted to : City of San Jose, a municipal corporation of the State of California Recorded : September 14, 1981 in Book G330, page 511, Official Records Affects : that portion of said land as shown upon the map herein referred to, more particularly described as follows: All that certain real property situate in the City of San Jose, County of Santa Clara, State of California, being a portion of the parcel of land described and designated as Parcel 1 in the deed to River Oaks Associates #2, dated November 17, 1979, recorded in Book E962 of Official Records, at page 145, Santa Clara County Records, more particularly described as follows: Beginning at a point in the centerline of North First Street (formerly San Jose-Alviso Road) as said centerline is described in said deed at the most Northerly corner of said parcel; thence along the Northwesterly boundary line of said parcel, S. 59 degrees 29 minutes 40 seconds W. (S. 59 degrees 30 minutes W. per deed), 114.98 feet; thence leaving said boundary line, S. 30 degrees 31 minutes 20 seconds E. 34.00; thence along a non-tangent curve to the right having a radius of 50.00 feet whose radius point bears along the continuation of the last described course, S. 30 degrees 31 minutes 20 seconds E. through a central angle of 17 degrees 26 minutes 39 seconds for an arc length of 15.22 feet to the point of beginning; thence continuing along said curve 79 9. Continued to the right having a radius of 50.00 feet, through a central angle of 19 degrees 24 minutes 44 seconds for an arc length 16.94 feet to a point in a line that is parallel with and 85.00 feet Southwesterly of said centerline; thence along said parallel line S. 30 degrees 32 minutes 09 seconds E. 292.64 feet to a point in the Northwesterly boundary line of the strip of land described in the deed to the City and County of San Francisco, dated October 20, 1950, recorded in Book 2111 of Official Records, at page 319, Santa Clara County Records; thence along said Northwesterly boundary line, S. 65 degrees 09 minutes 27 seconds W. (S. 65 degrees 08 minutes 00 seconds W. per deed), 15.07 feet to a point in a line which is parallel with and 100.00 feet Southwesterly of said centerline; thence along said parallel line, N. 30 degrees 32 minutes 09 seconds W. 298.84 feet to the true point of beginning. Said matter affects Parcel Six. 10. AN EASEMENT affecting the portion of said land and for the purpose stated herein and incidental purposes, shown or dedicated by the map of Tract 7408 filed in Book 506 of Maps, pages 24, 25 and 26. Purpose : Public Service Easement Affects : The Southwesterly 10 feet of Parcels One, Two and Three; the Northwesterly 8 feet of Parcel Two; the Southwesterly 8 feet of Parcel Four; the Northeasterly and Northwesterly 10 feet of Parcel Six; and the Southwesterly 8 feet of Parcel Six. 11. EASEMENT as shown on the filed map of Tract 7408 filed in Book 506 of Maps, pages 24-26 and incidents thereto Purpose : Landscape Easement Affects : The Southwesterly 20 feet of Parcel One, Two and Three; the Northwesterly 18 feet of Parcel Two; the Southwesterly 18 feet of Parcel Four; the Northeasterly and Northwesterly 20 feet of Parcel Six; and the Southwesterly 18 feet of Parcel Six. 12. EASEMENT for the purposes stated herein and incidents thereto Purpose : Public Service Easement Granted to : City of San Jose Recorded : November 19, 1982 in Book H156, page 275, Official Records Affects : The Northwesterly 25 feet of Parcel Four 13. EASEMENT for the purposes stated herein and incidents thereto Purpose : The installation, maintenance and operation of all landscaping plant forms, irrigation systems, retaining walls, and decorative walkway paving now existing or hereinafter to be constructed Granted to : City of San Jose, a municipal corporation of the State of California Recorded : May 27, 1983 in Book H590, page 649, Official Records Affects : The Southwesterly 20 feet of Parcel One, Two and Three; the Northwesterly 18 feet of Parcel Two; the Southwesterly 18 feet of Parcel Four; the Northeasterly and Northwesterly 20 feet of Parcel Six; and the Southwesterly 18 feet of Parcel Six. 80 14. EASEMENT for the purposes stated herein and incidents thereto Purpose : The installation, maintenance and operation of all landscaping plant forms, irrigation systems, retaining walls, and decorative walkway paving now existing or hereinafter to be constructed Granted to : City of San Jose, a municipal corporation of the State of California Recorded : May 27, 1983 in Book H590, page 652, Official Records Affects : The Westerly corner of Parcel Two and the Northerly and Westerly corner of Parcel Six 15. AGREEMENT on the terms and conditions contained therein, For : The installation and maintenance of landscape improvements Between : City of San Jose, a municipal corporation And : Oakmead-San Jose, a California general partnership and Oakmead-San Jose Sign and Landscape Maintenance Association, a California non-profit mutual benefit corporation Recorded : May 27, 1983 in Book H590, page 662, Official Records Reference is hereby made to the record for further particulars. 16. EASEMENT for the purposes stated herein and incidents thereto Purpose : The construction, installation, repair and maintenance of interlocking pavers, retaining walls and signs, and for pedestrian and vehicular access as necessary or desirable thereto, but subject to the obligation of the association of the association, its successors and assigns, to promptly repair any damage to said improvements lying within the Sign and Landscape Easements resulting from the Association's activities thereon Granted to : Oakmead-San Jose Sign and Landscape Maintenance Association, a non-profit mutual benefit corporation Recorded : June 3, 1983 in Book H604, page 322, Official Records Affects : The Westerly corner of Parcel Two and the Northerly and Westerly corner of Parcel Six 17. LIMITATIONS, covenants, conditions, restrictions, reservations, exceptions, terms, liens or charges, but deleting restrictions, if any, based on race, color, religion or national origin contained in the document recorded June 3, 1983 in Book H604, page 334, Official Records. CONTAINS mortgagee protection clause. MODIFICATION thereof recorded January 26, 1984 in Book I257, page 252, Official Records. A Notice of Amendment of Design Guidelines Executed by : Oakmead-San Jose, a California general partnership Recorded : June 21, 1984 in Book I649, page 543, Official Records An instrument entitled, "Designation of Approving Agent," whereby Kimball Small Properties, a California corporation was designated approving agent under the CC&R's and Design Guidelines. Recorded : April 29, 1988 in Book K517, page 940, Official Records MODIFICATION thereof recorded October 18, 1988 in Book K721, page 265, Official Records. 81 17. Continued Said Assignment affects Parcel One. An instrument entitled, "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 1, 1995 Between : CROCKER PROPERTIES, INC., a California corporation and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 1, 1995 as Instrument No. 12877064, Official Records Said Assignment affects Parcels Two and Three An Instrument entitled, "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 8, 1995 Between : AMDAHL CORPORATION, a Delaware corporation and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 8, 1995 as Instrument No. 12882481, Official Records Said Assignment affects Parcels Four, Five and Six 18. LIMITATIONS, covenants, conditions, restrictions, reservations, exceptions, terms, liens or charges, but deleting restrictions, if any, based on race, color, religion or national origin contained in the document recorded June 3, 1983 in Book H604, page 505, Official Records. Said instrument also provides for the levy of assessments, the lien of which are stated to be subordinate to the lien of a First Mortgage of First Deed of Trust made in good faith and for value. MODIFICATION thereof recorded January 26, 1984 in Book I257, page 248, Official Records. An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose and Removal of Approving Agent," Dated : October 18, 1988 Between : Oakmead-San Jose, a California general partnership and Oakmead Associates, a California general partnership Recorded : October 18, 1988 in Book K721, page 295, Official Records Said Assignment affects Parcels One, Four, Five and Six An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose and Removal of Approving Agent," Dated: : April 20, 1989 Between : Oakmead Associates, a California general partnership and Amdahl Corporation, a Delaware corporation Recorded : April 20, 1989 in Book K927, page 332, Official Records Said Assignment affects Parcels Four and Five 82 18. Continued An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : July 12, 1989 Between : Oakmead Associates, a California general partnership and Amdahl Corporation, a Delaware corporation Recorded : July 12, 1989 in Book L017, page 1927, Official Records Said Assignment affects Parcel Six MODIFICATION thereof recorded July 19, 1989 in Book L024, page 587, Official Records An instrument entitled "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose" Between : Oakmead-San Jose, a California general partnership and Crocker Properties, Inc., a California corporation Recorded : August 10, 1989 in Book L052, page 1001 and page 1011, Official Records. Said Assignment affects Parcels Two and Three An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 1, 1995 Between : OAKMEAD ASSOCIATES, a California general partnership and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 1, 1995 as Instrument No. 12877061, Official Records Said Assignment affects Parcel One. An instrument entitled, "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 1, 1995 Between : CROCKER PROPERTIES, INC., a California corporation and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 1, 1995 as Instrument No. 12877064, Official Records Said Assignment affects Parcels Two and Three An instrument entitled, "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 8, 1995 Between : AMDAHL CORPORATION, a Delaware corporation and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 8, 1995 as Instrument No. 12882481, Official Records Said Assignment affects Parcels Four, Five and Six 83 19. EASEMENT as shown on the filed map of Tract 7559 filed in Book 522 of Maps, pages 49 ad 50. Purpose : Public Service Easement Affects : The Northwesterly 8 Feet and the Westerly corner of Lot 59 of Parcel One 20. EASEMENT as shown on the filed map of Tract 7559 filed in Book 522 of Maps, pages 49 and 50. Purpose : Landscape Easement Affects : The Southeasterly 18 feet and the Southerly corner of Lot 58 of Parcel One; and the Northwesterly 18 feet and the Westerly corner of Lot 59 of Parcel One 21. EASEMENT for the purposes stated herein and incidents thereto Purpose : Communication facilities Granted to : Pacific Bell Recorded : February 21, 1984 in Book I319, page 486, Official Records Affects : The Southwesterly 10 feet of Lot 58 of Parcel One; the Southwesterly 10 feet, the Northwesterly 8 feet and the Westerly corner of Lot 59 of Parcel One; and the Southwesterly 10 Feet of Parcel Three 22. EASEMENT for the purposes stated herein and incidents thereto Purpose : Underground and above ground communication facilities Granted to : Pacific Bell Recorded : May 17, 1984 in Book 1552, page 624, Official Records Affects : The Southwesterly 10 feet of Parcel Four 23. AGREEMENT on the terms and conditions contained therein, For : Gas and electric service Between : Pacific Gas and Electric Company, City of San Jose And : Oakmead-San Jose As disclosed by a Memorandum of Agreement Recorded : February 25, 1985 in Book J271, page 37, Official Records. Reference is hereby made to the record for further particulars. 24. EASEMENT for the purposes stated herein and incidents thereto Purpose : Emergency overland storm drainage release Granted to : Amdahl Corporation, a Delaware corporation Recorded : August 8, 1990, in Book L443, page 754, Official Records Affects : The Northwesterly 10 feet of the Southeasterly 30 feet and the Northeasterly 10 feet of the Northwesterly 100 feet of the Southeasterly 130 feet of Parcel Four. Terms and conditions contained in the document hereinabove referred to. 25. TERMS AND CONDITIONS of that certain Site Development Permit File No. : HSH 90-09-104 Disclosed By : A Notice of Granting of a Site Development Permit Recorded : January 24, 1991 in Book L600, page 1242, Official Records 84 25. Continued Said matter affects Parcels Four, Five and Six. Reference is hereby made to the record for particulars. 26. TERMS AND CONDITIONS of that certain Site Development Permit File No. : HSH 92-02-011 Disclosed By : A Notice of Granting of a Site Development Permit Recorded : August 21, 1992 in Book M340, page 824, Official Records Said matter affects Parcel Six. 27. TERMS AND CONDITIONS of that certain Site Development Permit File No. : H94-07-041 Disclosed By : A Notice of Granting of a Site Development Permit Recorded : October 19, 1994 in Book N638, page 215, Official Records Said matter affects Parcel Six. Reference is hereby made to the record for particulars. 29. ANY RIGHTS, interests, or claims adverse to those of the vestee herein which may exist or arise by reason of the following facts shown on a survey plat entitled "A.L.T.A./A.C.S.M. Land Title Survey", dated April 14, 1995, prepared by Kier & Wright, Job. No. 92160-16. a) The fact that a concrete sign extends across the Northwesterly boundary of Parcel Six. 30. UNRECORDED LEASE for the term and upon the terms and conditions contained therein Dated : February 28, 1995 Lessor : IRISH LEASING CORPORATION, a Texas corporation Lessee : CISCO SYSTEMS, INC., a California corporation Term : 5 Years Disclosed by : Memorandum of Land Lease, recorded May 1, 1995, as Instrument No., 12877062, Official Records. Affects the fee to Parcel One. 31. OPTION TO PURCHASE as disclosed in the Memorandum of Lease recorded May 1, 1995 as Instrument No. 12877062, Official Records Affects the fee to Parcel One. 32. UNRECORDED LEASE for the term and upon the terms and conditions contained therein Dated : February 28, 1995 Lessor : IRISH LEASING CORPORATION, a Texas corporation Lessee : CISCO SYSTEMS, INC., a California corporation Term : 5 Years Disclosed by : Memorandum of Land Lease, recorded May 1, 1995, as Instrument No. 12677065, Official Records. Affects the fee to Parcels Two and Three. 85 33. OPTION TO PURCHASE as disclosed in the Memorandum of Lease recorded May 1, 1995 as Instrument No. 12877065, Official Records Affects the fee to Parcels Two and Three. 34. A DEED OF TRUST to secure an indebtedness in the original principal sum shown below and any other amounts and/or obligations secured thereby Amount : $2,700,000.00 Dated : May 1, 1995 Trustor : IRISH LEASING CORPORATION, a Texas corporation Trustee : FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation Beneficiary : CISCO SYSTEMS, INC., a California corporation Recorded : May 1, 1995, under Series No. 12877066, Official Records. Affects the fee to Parcels One, Two and Three. 35. UNRECORDED LEASE for the term and upon the terms and conditions contained therein Dated : April 12, 1995 Lessor : IRISH LEASING CORPORATION, a Texas corporation Leesee : CISCO SYSTEMS, INC., a California corporation Term : 5 years Disclosed by : Memorandum of Land Lease, recorded May 8, 1995, as Instrument No. 12882482, Official Records. Affects the fee to Parcels Four, Five, Six and Seven. 36. OPTION TO PURCHASE as disclosed in the Memorandum of Lease recorded May 8, 1995 as Instrument No. 12482482, Official Records Affects the fee to Parcels Four, Five, Six and Seven. 37. A DEED OF TRUST to secure an indebtedness in the original principal sum shown below and any other amounts and/or obligations secured thereby Amount : $1,500,000.00 Dated : May 1, 1995 Trustor : IRISH LEASING CORPORATION, a Texas corporation Trustee : FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation Beneficiary : CISCO SYSTEMS, INC., a California corporation Recorded : May 8, 1995, under Series No. 12882483, Official Records. Affects the fee to Parcels Four, Five, Six and Seven. 86 EXHIBIT C (SITE PLAN) EXHIBIT C 1. 87 [AERIAL RENDERING SITE PLAN BUILDING "K"] 88 [AERIAL RENDERING SITE PLAN BUILDING "L"] 89 EXHIBIT D (PRE-APPROVED APPROVAL PLANS) EXHIBIT D 1. 90 [ARCHITECTURAL RENDERING SITE PLAN BUILDING "K"] 91 [ARCHITECTURAL RENDERING SITE PLAN BUILDING "K"] 92 [ARCHITECTURAL RENDERING SITE PLAN BUILDING "L"] 93 [ARCHITECTURAL RENDERING SITE PLAN BUILDING "L"] 94 EXHIBIT E MEMORANDUM OF LEASE RECORDING REQUESTED BY, AND WHEN RECORDED, RETURN TO: Brobeck, Phleger & Harrison 550 West C Street, Suite 1300 San Diego, California 92101 Attention: Todd J. Anson, Esq. - -------------------------------------------------------------------------------- THIS MEMORANDUM OF LEASE ("Memorandum of Lease") is executed as of May ___, 1995, by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"). RECITALS WHEREAS, Landlord and Tenant have executed that certain lease ("Lease") dated as of May ___, 1995, covering certain improvements ("Premises") which may come to be located on the real property located in the County of Santa Clara, State of California and more particularly described in Schedule 1 attached hereto and incorporated herein by this reference ("Land"); and WHEREAS, Landlord and Tenant desire to record notice of the Lease in the real estate records of Santa Clara County, California; NOW, THEREFORE, in consideration of the foregoing, Landlord and Tenant hereby declare as follows: 1. DEMISE. Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord, subject to the terms, covenants and conditions contained in the Lease. The Premises leased to Tenant pursuant to the Lease consists of the Improvements described in Paragraph 5 below, and does not include the Land. 2. EXPIRATION DATE. The term of the Lease ("Term") shall commence on May ___, 1995 and shall expire five (5) years thereafter, subject to Tenant's option to extend the Term pursuant to Section 4.2 of the Lease for one (1) period of five (5) years. EXHIBIT E 1. 95 3. OPTION TO PURCHASE. Tenant has an option to purchase the Premises, as more particularly described in the Lease, during the Term, as it may be extended. 4. RESTRICTIONS ON ENCUMBRANCES. Landlord is prohibited from recording against the Premises liens (including, without limitation, deeds of trust), encumbrances, and other matters that would constitute exceptions to title, and from amending or modifying any of the foregoing that may exist now or during the Term, as more particularly described in the Lease, and any such encumbrance or modification of an encumbrance not authorized in writing by Tenant shall be null and void. 5. OWNERSHIP OF CERTAIN IMPROVEMENTS. By virtue of Tenant's rights under that certain Ground Lease between Tenant and Irish Leasing Corporation, a Texas corporation, dated February 28, 1995, Tenant hereby grants to Landlord the right to own and construct the improvements which Tenant may elect, as construction agent for Landlord, to erect, construct or situate upon the Land or any part thereof during the Term under and pursuant to the terms of, and using funding provided by or through Landlord pursuant to Article 11 of the Lease ("Improvements"), and Tenant hereby grants, conveys and transfers to Landlord all of Tenant's right, title and interest in and to the Improvements (whether now existing or hereafter constructed), and Tenant agrees that any and all such Improvements shall be and remain the property of Landlord, subject to Tenant's rights to purchase the Improvements under Section 19 of the Lease (with Landlord's agreement that Tenant's purchase rights contemplated under Section 19 of the Lease reflect the primary intent of the parties to the Lease is to treat the Lease as an operating Lease for financial accounting and securities regulatory purposes and as a financing arrangement for all federal, state and local income tax, property tax valuation and other tax purposes). 6. COUNTERPARTS. This Memorandum of Lease may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] EXHIBIT E 2. 96 IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum of Lease as of the date and year first written above. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: ___________________________ Name: ___________________________ Its: ___________________________ STATE OF __________________ ) ) ss COUNTY OF _________________ ) On _____________, before me, ______________________, Notary Public, personally appeared _______________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ______________________________ Signature [SEAL] [SIGNATURES CONTINUED ON NEXT PAGE] EXHIBIT E 3. 97 "TENANT" CISCO SYSTEMS, INC. A CALIFORNIA CORPORATION By: _______________________________ Name: _________________________ Its: _________________________ STATE OF __________________ ) ) ss COUNTY OF _________________ ) On _____________, before me, ______________________, Notary Public, personally appeared _______________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ______________________________ Signature [SEAL] EXHIBIT E 4. 98 SCHEDULE 1 TO EXHIBIT E LEGAL DESCRIPTION The Premises are described as follows: REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: Lots 58 and 59, as shown upon that certain map entitled, "Tract No. 7559", which Map was filed for record in the office of the Recorder of the County of Santa Clara, on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-18,22 SCHEDULE 1 TO EXHIBIT E 99 EXHIBIT F FORM OF CONTRACTOR'S CERTIFICATE EXHIBIT F 1. 100 APPLICATION AND CERTIFICATE FOR PAYMENT AIA DOCUMENT G702 (Instructions on reverse side) PAGE ONE OF PAGES - -------------------------------------------------------------------------------- TO OWNER: PROJECT: APPLICATION NO: Distribution to: PERIOD TO: / / OWNER PROJECT NOS.: / / ARCHITECT / / CONTRACTOR FROM CONTRACTOR: VIA ARCHITECT: CONTRACT DATE: / / / / CONTRACT FOR: - -------------------------------------------------------------------------------- CONTRACTOR'S APPLICATION FOR PAYMENT Application is made for payment, as shown below, in connection with the Contract. Continuation Sheet, AIA Document G703, is attached. 1. ORIGINAL CONTRACT SUM..................................... $ --------------- 2. NET CHANGE BY CHANGE ORDERS............................... $ --------------- 3. CONTRACT SUM TO DATE (Line 1 plus or minus 2)............. $ --------------- 4. TOTAL COMPLETED & STORED TO DATE.......................... $ (Column G on G703) --------------- 5. RETAINAGE: a % of Completed Work (Columns D plus E on G703) $ -------- --------------- b % of Stored Material (Column F on G703) $ -------- --------------- Total Retainage (Line 5a plus 5b or Total in Column 1 of G703)............ $ --------------- 6. TOTAL EARNED LESS RETAINAGE............................... $ (Line 4 less Line 5 Total) --------------- 7. LESS PREVIOUS CERTIFICATES FOR PAYMENT (Line 6 from prior Certificate)........................... $ --------------- 8. CURRENT PAYMENT DUE....................................... $ =============== 9. BALANCE TO FINISH, INCLUDING RETAINAGE (Line 3 less Line 6) $ ---------------
- -------------------------------------------------------------------------------- CHANGE ORDER SUMMARY ADDITIONS DEDUCTIONS - -------------------------------------------------------------------------------- Total changes approved in previous months by Owner - -------------------------------------------------------------------------------- Total approved this Month - -------------------------------------------------------------------------------- TOTALS - -------------------------------------------------------------------------------- NET CHANGES by Change Order - --------------------------------------------------------------------------------
The undersigned Contractor certifies that to the best of the Contractor's knowledge, information and belief the Work covered by this Application for Payment has been completed in accordance with the Contract Documents, that all amounts have been paid by the Contractor for Work for which previous Certificates for Payment were issued and payments received from the Owner, and that current payment shown herein is now due. CONTRACTOR: By: Date: ------------------------------ -------------------------------- State of: County of: Subscribed and sworn to before me this day of Notary Public: My Commission expires: - -------------------------------------------------------------------------------- ARCHITECT'S CERTIFICATE FOR PAYMENT In accordance with the Contract Documents, based on on-site observations and the data comprising this application, the Architect certifies to the Owner that to the best of the Architect's knowledge, information and belief the Work has progressed as indicated, the quality of the Work is in accordance with the Contract Documents, and the Contractor is entitled to payment of the AMOUNT CERTIFIED. AMOUNT CERTIFIED................................... $ ----------------------- (Attach explanation if amount certified differs from the amount applied for. Initial all figures on this Application and on the Continuation Sheet that are changed to conform to the amount certified.) ARCHITECT: By: Date: ------------------------------ -------------------------------- This Certificate is not negotiable. The AMOUNT CERTIFIED is payable only to the Contractor named herein. Issuance, payment and acceptance of payment are without prejudice to any rights of the Owner or Contractor under this Contract. - -------------------------------------------------------------------------------- AIA DOCUMENT G702 APPLICATION AND CERTIFICATE FOR PAYMENT 1992 EDITION AIA(R) Copyright 1992 AMERICAN INSTITUTE OF ARCHITECTS 1735 NEW YORK AVENUE, N.W. WASHINGTON, D.C. 20006-5292 WARNING: UNLICENSED PHOTOCOPYING VIOLATES U.S. COPYRIGHT LAWS AND WILL SUBJECT THE VIOLATOR TO LEGAL PROSECUTION. G702/92 101 EXHIBIT G INITIAL ADVANCE MEMORANDUM THIS INITIAL ADVANCE MEMORANDUM ("Memorandum") is entered into this ___ day of __________, 199_, by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant") concerning that certain Lease (Buildings "K" and "L")("Lease") between Landlord and Tenant dated May 22, 1995. Any capitalized terms not defined in this Memorandum shall have the meaning as defined in the Lease. 1. Pursuant to Section 5.6 of the Lease, Landlord and Tenant are required to enter into this Memorandum within thirty (30) days after the initial Advance for the foundation of any Building and within thirty (30) days after the initial Advance under the Lease. 2. Landlord and Tenant agree that this Memorandum reflects initial Advances that were made for the following Building(s): _______________________________________________. 3. Landlord and Tenant agree that the amount(s) of the initial Advances is (are) as follows (allocated on a Building-by- Building basis, if this Memorandum reflects Advances for more than one Building): ________________ _______________________________________________________________________________. 4. Landlord and Tenant agree that the Guaranteed Residual Value for the Building(s) described in Paragraph 2 is _____% of ___________________ (the total Funded Amount for the Building(s)). 5. Landlord and Tenant agree that the estimated Funded Amount, determined by Tenant pursuant to Section 5.5 of the Lease, is $______________________. 6. Landlord and Tenant agree that, pursuant to Section 5.7 of the Lease, the Security Deposit to be held by Landlord pursuant to the Lease is $______________________. [Remainder of This Page Intentionally Left Blank] EXHIBIT G 1. 102 [SIGNATURE PAGE TO INITIAL ADVANCE MEMORANDUM] IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date and year first above written. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: ___________________________ Name:___________________________ Its: ___________________________ [SIGNATURES CONTINUED ON NEXT PAGE] EXHIBIT G 2. 103 [SIGNATURE PAGE TO INITIAL ADVANCE MEMORANDUM] "TENANT" CISCO SYSTEMS, INC., a California corporation By:___________________________ Name:_________________________ Its: _________________________ EXHIBIT G 3. 104 EXHIBIT H RENT COMMENCEMENT DATE MEMORANDUM THIS RENT COMMENCEMENT DATE MEMORANDUM ("Memorandum") is entered into this ___ day of _______, 199_, by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant") concerning that certain Lease (Buildings "K" and "L")("Lease") between Landlord and Tenant dated May 22, 1995. Any capitalized terms not defined in this Memorandum shall have their meaning as defined in the Lease. 1. Pursuant to Section 5.6 of the Lease, Landlord and Tenant are required to enter into this Memorandum within thirty (30) days after the Rent Commencement Date for any Building. 2. Landlord and Tenant agree the that Rent Commencement Date for the Building described as follows _______________________, is ___________ ___, 199_. 3. The dollar value of the Funded Amount (defined in Section 2.24 of the Lease) for the Building described in paragraph 2 is $_____________________). 4. The dollar value of the Landlord's Equity Contribution (defined in Section 2.17 of the Lease) for the Building described in paragraph 2 above is _____% of $_____________________________, (i.e. $_________________________). 5. The dollar value of the Guaranteed Residual Value (defined in Section 2.25 of the Lease) for the Building described in paragraph 2 above is _____% of $_____________________________, (i.e. $_____________________________). 6. Landlord and Tenant agree that, pursuant to Section 5.7 of the Lease, the Security Deposit held by Landlord pursuant to the Lease shall be in the amount of $______________________ as of the Rent Commencement Date. [Remainder of This Page Intentionally Left Blank] EXHIBIT H 1. 105 [SIGNATURE PAGE TO RENT COMMENCEMENT DATE MEMORANDUM] IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date and year first above written. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: ___________________________ Name:___________________________ Its: ___________________________ [SIGNATURES CONTINUED ON NEXT PAGE] EXHIBIT H 106 [SIGNATURE PAGE TO RENT COMMENCEMENT DATE MEMORANDUM] "TENANT" CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION By: ___________________________ Name:___________________________ Its: ___________________________ EXHIBIT H 107 EXHIBIT I DRAW REQUEST FORM THIS DRAW REQUEST ("Draw Request") is submitted by CISCO SYSTEMS, INC., a California corporation ("Tenant") to SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), pursuant to Article 11 of that certain Lease (Buildings "K" and "L") between Landlord and Tenant dated May 22, 1995. Any capitalized terms not defined in this Draw Request shall have their meaning as defined in the Lease. Pursuant to the terms of Article 11 of the Lease, Tenant hereby makes a Draw Request for an Advance from Landlord. The Aggregate of the amount of the Advance requested by Tenant pursuant to this Draw Request is $_________________. Tenant hereby instructs Landlord to make this Advance to the parties and in the amounts described below: Name of Entity Amount [ADD ADDITIONAL SHEET, IF NECESSARY, TO DESCRIBE ALL ENTITIES TO RECEIVE A PORTION OF THIS ADVANCE AND THE AMOUNT TO BE PAID TO EACH SUCH ENTITY.] IN WITNESS WHEREOF, Tenant has executed this Draw Request as of the date and year first above written. "TENANT" CISCO SYSTEMS, INC., a California corporation By: _______________________ Name:_______________________ Its: _______________________ EXHIBIT I 1. 108 EXHIBIT J CLOSING COSTS AND FEES TO BE INCLUDED IN FUNDED AMOUNT The following items shall be included in the definition of the Funded Amount under Section 2.24 of the Lease: 1. Title Insurance premiums paid by Landlord at the closing of this transaction 2. Landlord's Trust Set Up Charge ($5,000) 3. Set Up Charge ($2,000) 4. Arrangement Fee ($3,250) 5. Irish Leasing Corporation Arrangement Fee ($100,000) 6. Landlord Arrangement Fee ($370,500) 7. Other fees and costs which are specifically authorized by Tenant in writing to be included in the Funded Amount EXHIBIT J 1. 109 EXHIBIT K NOTICE OF INTEREST RATE PERIOD SELECTION Pursuant to Section 5.1(d) of those certain Leases by and between Sumitomo Bank of New York Trust Company, ("SBNYTC"), as trustee under that certain trust agreement dated May 22, 1995 between Sumitomo Bank Leasing and Finance, Inc. and SBNYTC ("SB Trust"), as Landlord, and Cisco Systems, Inc., a California corporation ("Cisco"), as Tenant, dated as of May 22, 1995, Cisco hereby gives notice to SB Trust of its designation of the Loan interest period as set forth below: Effective Date Interest Period _____________, ____ _____ month(s) This Notice of Borrowing is dated this ___ day of _______, _____, and may be executed in multiple copies, each of which shall be deemed an original, and all of which together shall be but a single Notice. "CISCO" CISCO SYSTEMS, INC., a California corporation By: ___________________ Title: ___________________ By: ___________________ Title: ___________________ EXHIBIT K 110 EXHIBIT L DESCRIPTION OF ADDITIONAL PROPERTY OWNED BY LANDLORD REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: All of Parcel 2, as shown on that certain Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on July 13, 1983, in Book 514 of Maps page(s) 47 and 48. APN: 97-53-14 All of Lot 54 as shown upon that certain Map entitled, "Tract No. 7559", which Map was filed for record in the Office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-23 Lot 50, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52. Reserving therefrom a perpetual right and easement to construct, install, maintain, repair, renew, replace, operate and use a surface drainage release to benefit Lot 49 of Tract 7560, as contained in that certain Grant of Easement recorded August 8, 1990 in Book L443, page 0754, Official Records, and described as follows: The Northwesterly 10.00 feet of the Southeasterly 30.00 feet and the Northwesterly 100.00 feet of the Southeasterly 130.00 feet of the Northeasterly 10.00 feet of Lot 50. That portion of Lot 51, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52, being more particularly described as follows: Beginning at the Southeasterly corner of said Lot 51; thence along the Southerly line of said Lot 51, S. 59 degrees 27 minutes 51 seconds W. 77.00 feet; thence N. 14 degrees 27 minutes 48 seconds E. 108.90 feet to the Northeasterly line of said Lot 51; thence along said Northeasterly line S. 30 degrees 32 minutes 09 seconds E. 77.00 feet to the point of beginning, as provided for in that certain Lot Line Adjustment granted by the Director of Planning of the City of San Jose, a copy of which was recorded March 28, 1984 in the office of the Recorder of the County of Santa Clara in Book I410, page 712 of Official Records. EXHIBIT L 111 Lot 5 and 6, as shown on that certain Map of Tract No. 7408, which map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on November 19, 1982 in Book 506 of Maps, pages 24, 25 and 26 and a portion of that certain parcel of land described in the deed recorded December 22, 1972 in Book 0167, page 623, all as approved by that Lot Combination recorded September 16, 1992 in Book M381 of Maps, page(s) 0081, Official Records, more particularly described as follows: Beginning at a point on the Northeasterly line of Rio Robles, as shown upon said map, at the most Southerly corner of said Lot 5; thence along said Northeasterly line of Rio Robles, N. 30 degrees 32 minutes 09 seconds W. 105.50 feet; thence on a tangent curve to the right, having a radius of 367.00 feet, through a central angle of 36 degrees 30 minutes 00 seconds an arc distance of 233.80 feet; thence on a curve to the right, tangent to the previous curve, having a radius of 50.00 feet, through a central angle of 86 degrees 01 minutes 50 seconds an arc distance of 75.08 feet to the Southerly line of Tasman Drive as shown upon said map; thence along said line on a curve to the left, tangent to the previous curve, having a radius of 1149.00 feet, through a central angle of 32 degrees 31 minutes 01 seconds an arc distance of 652.09 feet; thence N. 59 degrees 28 minutes 40 seconds E. 600.40 feet; thence on a tangent curve to the right, having a radius of 33.00 feet, through a central angle of 89 degrees 51 minutes 11 seconds an arc distance of 51.83 feet to the Southwesterly line of First Street, as shown upon said map; thence along said line, S. 30 degrees 32 minutes 09 seconds E. 261.38 feet to the Northwesterly line of the lands of the City and County of San Francisco, as shown upon said map; thence along said line of the lands of the City and the County of San Francisco, S. 65 degrees 09 minutes 27 seconds W. 1396.95 feet to the point of beginning. Those rights as contained in that certain Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records. A strip of land 80 feet wide, lying 40 feet either side of the following described line and extensions thereto, across that certain parcel of land conveyed by Charles Nelson, et ux, to Masami Ezaki by Grant Deed dated February 27, 1936 and recorded March 11, 1936, in Volume No. 765, at page 262, Official Records, Santa Clara County, hereinafter referred to as the Ezaki Parcel, said line being more particularly described as commencing at a point in the Westerly boundary of the existing San Jose-Alviso Road, said point being distant along said boundary South 30 degrees 32 minutes 30 seconds East 381.31 feet from its intersection with the Northerly boundary of the above mentioned Ezaki Parcel; thence, from said point of commencement, South 65 degrees 08 minutes 00 seconds West 1459.03 feet to a point in the common boundary between the above mentioned Ezaki Parcel and that certain parcel of land conveyed by Lena Lindgren, et al, to James A. Pankoski, et ux, by Joint Tenancy Deed dated November 13, 1944 and recorded November 17, 1944 in Volume No. 1227 at Page 327, Official Records, Santa Clara County, hereinafter referred to as the Pankoski Parcel, said point being distant along said common boundary South 30 degrees 32 minutes 30 seconds East 237.04 feet from the most Westerly corner of the above mentioned Ezaki Parcel; the Easterly end of said strip being the above mentioned Westerly boundary of the San Jose-Alviso Road, and the Westerly end of said strip being the above mentioned common boundary between the Pankoski and Ezaki Parcels. EXHIBIT L EX-10.32 6 FIRST AMENDMENT TO LEASE K AND L 1 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made and entered into as of this 18th day of July, 1995, by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY, ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"). THIS FIRST AMENDMENT IS ENTERED INTO upon the basis of the following facts, understandings and intentions. RECITALS A. Landlord and Tenant entered into that certain Lease (Buildings "K" and "L") dated May 22, 1995 ("Lease"), pursuant to which Landlord is leasing to Tenant the improvements which Tenant may elect to construct ("Premises"), as agent for Landlord, on that certain land located in San Jose, California, as more particularly described in the Lease and on Exhibit A attached hereto and incorporated herein by this reference. Any capitalized terms used but not defined in this First Amendment which are defined in the Lease shall have the meaning ascribed in the Lease. B. Landlord and Tenant now desire to amend the terms of the Lease, as more particularly described in this First Amendment. NOW THEREFORE, the parties hereto agree as follows: 1. Capitalized Interest. Section 2.9 of the Lease is hereby amended to add the following sentence at the end of the Section: During the Construction Period for a Building or phase of Buildings, Capitalized Interest for such Building or phase of Buildings shall be calculated using the Construction Period Monthly Calculation set forth in Section 2.43. 2. Monthly Calculation. Section 2.43 of the Lease is hereby amended to add the following sentence at the end of the Section: During the Construction Period for a Building or phase of Buildings, "Monthly Calculation" shall mean the quotient resulting from dividing three hundred sixty (360) by the number of days in the applicable Rent Period. The applicable Rent Period shall begin on the twentieth day of the calendar month for which this Construction Period Monthly Calculation is being calculated and shall be for a period equal to the number of days in such calendar month. 2 3. Rent Period. Section 2.57 of the Lease is hereby deleted, and is replaced with the following: 2.57 Rent Period. "Rent Period" shall mean each period equal to one calendar month occurring during the Term hereof, except that: (a) the first Rent Period shall be a partial calendar month commencing on the date of disbursement of the initial proceeds hereof and ending on July 2, 1995, (b) the second Rent Period shall be a partial calendar month commencing on July 3, 1995 and ending on July 19, 1995; (c) Commencing July 20, 1995 and ending on the nineteenth day of the last calendar month of the Construction Period, the Rent Period shall commence on the twentieth day of each calendar month and end on the nineteenth day of the subsequent calendar month; (d) the Rent Period preceding the Rent Commencement Date shall be a partial calendar month commencing on the twentieth day of the last calendar month of the Construction Period and ending on the last day of such calendar month; and (e) the last Rent Period shall be a partial calendar month commencing on the first LIBOR Business Day of the last calendar month of the Term and ending on the last day of the Term. 4. Timing and Method of Disbursement. Section 11.6(a) of the Lease is hereby deleted, and is replaced with the following: (a) Timing and Method of Disbursement. Advances to be made hereunder shall not be made more frequently than monthly. For any calendar month during which Tenant desires to receive an Advance, Tenant shall submit a Draw Request on or before the fifteenth day of such month, and if Tenant submits such Draw Request by such date, then Landlord shall, subject to the conditions to funding described in Sections 11.3, 11.4 and 11.5, make the Advance as requested in such Draw Request to the party(ies) designated by Tenant on the twentieth day of such month, or the next LIBOR Business Day if the twentieth day of such month is not a LIBOR Business Day ("Advance Date"). The Advances shall be made to parties identified by Tenant, which parties may include Tenant. At the option of Tenant, Landlord shall make such Advances to one (1) or more parties. 5. Counterparts. This First Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. 6. Existing Lease. Except to the extent specifically amended hereby, all terms and conditions of the Lease remain in full force and effect. -2- 3 [SIGNATURE PAGE TO FIRST AMENDMENT TO LEASE] IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date and year first above written. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: ---------------------------------- Name: ---------------------------------- Its: ---------------------------------- [SIGNATURES CONTINUED ON NEXT PAGE] -3- 4 [SIGNATURE PAGE TO RENT FIRST AMENDMENT TO LEASE] "TENANT" CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION By: --------------------- Name: --------------------- By: --------------------- Name: ---------------- Its: ---------------- -4- 5 EXHIBIT A DESCRIPTION OF LAND REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: Lots 58 and 59, as shown upon that certain map entitled, "Tract No. 7559", which Map was filed for record in the office of the Recorder of the County of Santa Clara, on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-18,22 EXHIBIT A EX-10.33 7 LEASE IMPROVEMENTS PHASE C 1 LEASE (IMPROVEMENTS PHASE "C") By and Between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC as Landlord and CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION as Tenant for Premises located in San Jose, California THIS LEASE IS NOT INTENDED TO CONSTITUTE A TRUE LEASE FOR INCOME TAX PURPOSES. SEE SECTION 21.2 2 TABLE OF CONTENTS
Page ARTICLE 1 BASIC LEASE PROVISIONS................................... 1 1.1 Date of Lease............................................ 1 1.2 Landlord................................................. 1 1.3 Tenant................................................... 1 1.4 Land..................................................... 1 1.5 Premises................................................. 1 1.6 Term..................................................... 2 1.7 Rent Commencement Date................................... 2 1.8 Base Rent................................................ 3 1.9 Addresses for Notices.................................... 3 1.10 Address for Rent Payments................................ 3 ARTICLE 2 DEFINITIONS.............................................. 4 2.1 Additional Rent.......................................... 4 2.2 Advance.................................................. 5 2.3 Approval Plans........................................... 5 2.4 Authorized Loan.......................................... 5 2.5 Authorized Plans......................................... 5 2.6 Base Rent................................................ 5 2.7 Building................................................. 5 2.8 Building Leases.......................................... 5 2.9 Capitalized Interest..................................... 5 2.10 Collateral............................................... 5 2.11 Construction Period...................................... 5 2.12 Contractor............................................... 5 2.13 Coverage Test............................................ 6 2.14 Default.................................................. 6 2.15 Default Rate............................................. 6 2.16 Entity................................................... 6 2.17 Equity Contribution...................................... 6 2.18 Equity Funded Amount..................................... 6 2.19 Equity Rent Component.................................... 6 2.20 Event of Major Default................................... 7 2.21 Extension Fee............................................ 7 2.22 Extension Term........................................... 7 2.23 Fee Mortgage............................................. 7 2.24 Funded Amount............................................ 7 2.25 Guaranteed Residual Value................................ 7 2.26 HSBC..................................................... 8 2.27 Improvements............................................. 8 2.28 Improvements Loan........................................ 8 2.29 Initial Term............................................. 8 2.30 ILC...................................................... 8 2.31 Land..................................................... 8 2.32 Land Lease............................................... 8 2.33 Land Lease Deed of Trust................................. 8 2.34 Land Loan................................................ 9 2.35 Landlord Affiliate....................................... 9 2.36 Landlord Deed of Trust................................... 9 2.37 Lease Inception Date..................................... 9
i. 3
2.38 Legal Requirements...................................... 9 2.39 Lenders................................................. 9 2.40 Lenders Deed of Trust................................... 9 2.41 LIBOR Business Day...................................... 9 2.42 LIBOR Rate. ........................................... 10 2.43 Monthly Calculation..................................... 10 2.44 Mortgage................................................ 10 2.45 Mortgagee............................................... 10 2.46 New Loan................................................ 10 2.47 Nominal Rate............................................ 10 2.48 Notes................................................... 10 2.49 Notice.................................................. 10 2.50 Official Records........................................ 10 2.51 Permitted Exceptions.................................... 10 2.52 Premises................................................ 11 2.53 Real Estate Taxes....................................... 11 2.54 Rent.................................................... 11 2.55 Rent Commencement Date.................................. 11 2.56 Rent Payment Date....................................... 11 2.57 Rent Period............................................. 11 2.58 Required Permits........................................ 11 2.59 SBNYTC.................................................. 11 2.60 Security Deposit........................................ 11 2.61 Senior Funded Amount.................................... 11 2.62 Senior Rent Component................................... 11 2.63 Site Plan............................................... 12 2.64 Sumitomo................................................ 12 2.65 Taking.................................................. 12 2.66 Tenant Deed of Trust.................................... 12 2.67 Term.................................................... 12 ARTICLE 3 DEMISE.................................................. 12 3.1 Premises................................................ 12 ARTICLE 4 TERM.................................................... 12 4.1 Initial Term............................................ 12 4.2 Extension Term.......................................... 12 4.3 Holding Over............................................ 13 ARTICLE 5 RENT.................................................... 13 5.1 Base Rent............................................... 13 5.2 Proration............................................... 16 5.3 No Abatement of Rent.................................... 16 5.4 Delinquent Rent......................................... 16 5.5 Equity Funding.......................................... 16 5.6 Exhibits Reflecting Initial Advance and Rent Commencement Date...................................... 17 5.7 Security Deposit........................................ 18 5.8 Additional Rent......................................... 19 ARTICLE 6 TAXES................................................... 19 6.1 Real Estate Taxes....................................... 19 6.2 Personal Property Taxes................................. 20 6.3 Right to Contest........................................ 20 6.4 Withholding Taxes....................................... 21
ii. 4 6.5 Additional Provisions Relating to Taxes...................... 22 ARTICLE 7 INSURANCE.................................................... 22 7.1 Liability Insurance.......................................... 22 7.2 Builders' Risk Insurance..................................... 23 7.3 All-Risk Insurance........................................... 23 7.4 General Requirements......................................... 23 7.5 Waiver of Subrogation........................................ 24 7.6 Indemnity.................................................... 24 ARTICLE 8 USE.......................................................... 25 8.1 Use.......................................................... 25 8.2 Contest of Legal Requirements................................ 28 8.3 Indemnification.............................................. 28 ARTICLE 9 UTILITIES AND SERVICES....................................... 29 9.1 Services to the Premises..................................... 29 ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES........... 29 10.1 Tenant Obligations........................................... 29 10.2 Surrender of the Premises.................................... 29 ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS................................. 30 11.1 Tenant's Rights to Construct Improvements.................... 30 11.2 Request for Construction Funding; Landlord Obligation to Fund.......................................... 30 11.3 Conditions Precedent to Landlord's Obligation to Fund Initial Advances....................................... 30 11.4 Conditions Precedent to Landlord's Obligation to Fund Subsequent Advances.................................... 33 11.5 Conditions Precedent to Landlord's Obligation to Fund Final Advance.......................................... 34 11.6 Additional Provisions Regarding Advances..................... 34 11.7 Required Permits, Easements, etc............................. 35 11.8 Alterations.................................................. 35 11.9 Title to and Nature of Improvements.......................... 35 11.10 Tenant as Landlord's Construction Agent...................... 36 11.11 Tenant's Release of Funding Commitment....................... 36 ARTICLE 12 LIENS........................................................ 36 ARTICLE 13 ASSIGNMENT BY LANDLORD....................................... 36 13.1 Further Mortgages or Encumbrances by Landlord; Authorized Loans............................................ 36 13.2 Landlord's Right to Sell..................................... 39 13.3 Transfer of Funds and Property............................... 39 ARTICLE 14 ASSIGNMENT AND SUBLEASING.................................... 40 14.1 Right to Assign.............................................. 40 14.2 Right to Sublet.............................................. 40 14.3 Tenant's Right to Mortgage................................... 41
iii. 5 ARTICLE 15 EMINENT DOMAIN.......................................... 41 15.1 Total or Substantial Taking............................. 41 15.2 Partial Taking.......................................... 41 15.3 Temporary Taking........................................ 41 15.4 Damages................................................. 42 15.5 Notice and Execution.................................... 42 ARTICLE 16 DAMAGE OR DESTRUCTION................................... 42 16.1 Casualty................................................ 42 16.2 Termination of Lease.................................... 42 16.3 Insurance Proceeds...................................... 43 ARTICLE 17 DEFAULT................................................. 45 17.1 Default................................................. 45 17.2 Event of Major Default.................................. 45 17.3 Contest by Tenant....................................... 47 17.4 Remedies................................................ 47 17.5 No Waiver............................................... 48 17.6 Effect of Assignment.................................... 48 17.7 Landlord Cure Right..................................... 49 17.8 Landlord's Default...................................... 49 ARTICLE 18 QUIET ENJOYMENT......................................... 50 ARTICLE 19 TENANT'S OPTION TO PURCHASE............................. 51 19.1 Option To Purchase Premises............................. 51 19.2 Mandatory Purchase/Sale of Premises..................... 53 19.3 Survival................................................ 55 ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD........................ 55 20.1 Title and Subdivision................................... 55 20.2 Land Use................................................ 55 20.3 Transfer of Property Interests.......................... 56 20.4 Trust Equity; No Other Asset............................ 56 20.5 Default Under Authorized Loan........................... 56 ARTICLE 21 MISCELLANEOUS........................................... 57 21.1 Relationship............................................ 57 21.2 Form of Transaction; Certain Tax Matters................ 57 21.3 Notices................................................. 58 21.4 Severability of Provisions.............................. 58 21.5 Entire Agreement; Amendment............................. 58 21.6 Approvals and Consents.................................. 58 21.7 Terminology............................................. 59 21.8 Memorandum of Lease..................................... 59 21.9 Successors and Assigns.................................. 59 21.10 Commissions............................................. 59 21.11 Attorneys' Fees......................................... 60 21.12 Governing Law........................................... 60 21.13 Counterparts............................................ 60 21.14 Time Is of the Essence.................................. 60 21.15 No Third Party Beneficiaries............................ 60 21.16 Limitations on Recourse................................. 60 21.17 Estoppel Certificates................................... 60
iv. 6 21.18 Collateral............................................. 61 21.19 Landlord's Continuing Obligation to Sell............... 61 21.20 As-Is Lease............................................ 61 21.21 Net Lease.............................................. 62 21.22 Representations and Warranties......................... 62 21.23 Appraisal Procedure.................................... 62 21.24 Financial Reporting.................................... 64 21.25 Appraisal.............................................. 64
List of Exhibits Exhibit A Description of Land Exhibit B Permitted Exceptions Exhibit C Site Plan Exhibit D Pre-Approved Approval Plans Exhibit E Memorandum of Lease Exhibit F Form of Contractor's Certificate Exhibit G Initial Advance Memorandum Exhibit H Rent Commencement Date Memorandum Exhibit I Draw Request Form Exhibit J Closing Costs and Fees to be Included in Funded Amount Exhibit K Notice of Interest Rate Period Selection Exhibit L Description of Additional Property Owned by Landlord v. 7 LEASE THIS LEASE ("Lease") by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC., AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"), is entered into as of the date set forth in Article 1 and shall be effective and binding upon the parties hereto as of such date. Capitalized terms used in this Lease shall have the definitions set forth in Article 2 or in the text of this Lease. In consideration of the Base Rent reserved herein, and the terms, covenants and conditions set forth below, Landlord and Tenant hereby agree as follows:
ARTICLE 1 BASIC LEASE PROVISIONS 1.1 DATE OF LEASE: May 22, 1995. 1.2 LANDLORD: Sumitomo Bank of New York Trust Company, ("SBNYTC"), as trustee under that certain trust agreement dated May 22, 1995 between Sumitomo Bank Leasing and Finance, Inc. and SBNYTC. 1.3 TENANT: Cisco Systems, Inc., a California corporation. 1.4 LAND: That certain tract of land located in the City of San Jose, Santa Clara County, California, consisting of three (3) parcels and more particularly described on Exhibit A attached hereto, together with all easements, rights of way, appurtenances and other rights and benefits belonging or pertaining to such land. The Land does not include the Improvements. Landlord makes no representations as to the accuracy of the description of the Land. 1.5 PREMISES: The Improvements which Tenant may elect to construct, as agent for Landlord, on the Land pursuant to the terms of this Lease. The Premises does not include any portion of the Land itself.
1. 8
1.6 TERM: The initial term ("Initial Term") of this Lease shall commence on the Date of Lease set forth in Section 1.1 above and shall expire on May 21, 2000. Subject to the Extension Conditions contained in Section 4.2, upon at least ninety (90) days' prior written notice to Landlord, Tenant may extend the Initial Term for one (1) additional period of five (5) years ("Extension Term"). The Initial Term and (if exercised by Tenant) the Extension Term shall be referred to collectively herein as the "Term." The Term shall cease upon, and shall not refer to any period of time after, termination of this Lease (whether pursuant to the terms of the Lease, by operation of law, or otherwise). 1.7 RENT COMMENCEMENT DATE: Tenant's obligation to pay Base Rent shall commence on a Building-by-Building basis. With respect to any particular Building, the rent commencement date ("Rent Commencement Date") shall be the first LIBOR Business Day of the next calendar month which commences immediately following the earlier to occur of: (a) the date Tenant receives from the applicable governmental authority a final Certificate of Occupancy for the Building in question; or (b) eighteen (18) months following the first Advance by Landlord for the foundation for the Building in question. If Tenant shall elect to construct certain Improvements in a phase of Buildings, then on or before the Lease Inception Date for such phase of Buildings, Landlord and Tenant shall execute a memorandum of understanding that construction is taking place on a phased basis, and in that event, the Rent Commencement Date for such phase of Buildings shall be the first LIBOR Business Day of the next calendar month which commences immediately following the earlier to occur of: (i) the date Tenant receives a final Certificate of Occupancy for the phase in question from the applicable governmental authority; or
2. 9
(ii) eighteen (18) months after the first Advance by Landlord for the foundation for the phase in question. 1.8 BASE RENT: As described in Section 2.6. 1.9 ADDRESSES FOR NOTICES: LANDLORD: TENANT: Sumitomo Bank of New York Cisco Systems, Inc. Trust Company Treasury Department 277 Park Avenue 3535 Garrett Drive New York, NY 10172 Santa Clara, CA 95054 Attn: Corporate Trust Attention: Eugene Hill Department With a copy to: With a copy to: Landels, Ripley & Diamond Cisco Systems, Inc. Hills Plaza 3535 Garrett Drive 350 Steuart Street Santa Clara, CA 95054 San Francisco, CA 94105 Attention: Nancy Bareilles Attn: Bruce W. Hyman, Esq. and Todd J. Anson, Esq. Brobeck, Phleger & Harrison 550 West C Street Suite 1300 San Diego, CA 92101 1.10 ADDRESS FOR RENT PAYMENTS: Equity Rent Component: Sumitomo Bank of New York Trust Company 277 Park Avenue New York, NY 10172 Attn: Corporate Trust Department
3. 10 Senior Rent Component: One half (1/2) of the Senior Rent Component (as defined in Section 2.62) shall be payable at the following address: The Hongkong and Shanghai Banking Corporation Limited 160 Sansome Street San Francisco, CA 94104 Attn: Loan Administration Department and one half (1/2) of the Senior Rent Component (as defined in Section 2.62) shall be payable at the following address: The Sumitomo Bank, Limited 555 California Street Suite 3350 San Francisco, CA 94104 Attn: Mr. Dave Kubiak This Article 1 is intended to supplement and/or summarize the provisions set forth in the balance of this Lease. If there is any conflict between any provisions contained in this Article 1 and the balance of this Lease, the balance of this Lease shall control. ARTICLE 2 DEFINITIONS For purposes of this Lease, the following defined terms shall have the meanings set forth in this Article 2. 2.1 ADDITIONAL RENT. "Additional Rent" shall mean any amounts other than Base Rent payable by Tenant to Landlord or to other Entities on Landlord's behalf as required under this Lease, including, without limitation, interest accrued on past due Base Rent and on other past due Additional Rent amounts owing to Landlord hereunder (including interest on the past due amounts payable by Landlord to Lenders under the Improvements Loan, as described in Section 21.21, excluding interest on interest) at the Default Rate (to be compounded annually), costs and expenses to be paid or reimbursed by Tenant hereunder (including any amounts which Tenant owes to Landlord pursuant to the terms of Section 17.7 or Section 21.21), any charges, fees or other amounts due under the Improvements Loan and any other Authorized Loan, amounts due pursuant to Tenant's indemnity obligations hereunder, Real Estate Taxes, Tenant's obligation to pay condemnation proceeds to Landlord pursuant to Section 15.4, Tenant's obligation to pay insurance proceeds to Landlord pursuant to Section 16.3, Tenant's obligation to pay the Purchase Price under Section 19.2, and Tenant's obligation, if any, to pay the "Margin Increase" (as defined in that certain side letter regarding "Management of Collateral 4. 11 Account" between Tenant and HSBC, of even date herewith). Except as provided in this Section, Additional Rent shall not include interest charged on interest. 2.2 ADVANCE. "Advance" shall mean any payment by Landlord for Improvements which has been requested by Tenant and paid pursuant to the terms of Article 11. 2.3 APPROVAL PLANS. "Approval Plans" shall have the meaning set forth in Section 11.3(c). 2.4 AUTHORIZED LOAN. "Authorized Loan" shall have the meaning set forth in Section 13.1(b). 2.5 AUTHORIZED PLANS. "Authorized Plans" shall have the meaning set forth in Section 11.3(c). 2.6 BASE RENT. "Base Rent" shall mean, as of a Rent Payment Date, the sum of the following for any Building for which the Rent Commencement Date has occurred: (1) the Senior Rent Component; and (2) the Equity Rent Component. 2.7 BUILDING. "Building" shall mean any individual building which constitutes an Improvement. 2.8 BUILDING LEASES. "Building Leases" shall mean this Lease and those two (2) certain lease agreements by and between Landlord and Tenant for premises located in San Jose, California, dated the date hereof, collectively. 2.9 CAPITALIZED INTEREST. "Capitalized Interest" shall mean: (1) the Senior Rent Component incurred by Landlord to Lenders under the Notes on Advances during the construction of any Building or phase prior to the Rent Commencement Date for such Building or phase; and (2) the Equity Rent Component as a result of Advances made by Landlord pursuant to Section 5.5 during the construction of any Building or phase prior to the Rent Commencement Date for such Building or phase. 2.10 COLLATERAL. "Collateral" shall have the meaning set forth in Section 21.18. 2.11 CONSTRUCTION PERIOD. "Construction Period" for each Building or phase shall mean that period beginning on the date of the first Advance for the foundation of the Building or phase and ending on the Rent Commencement Date for the Building or phase. 2.12 CONTRACTOR. "Contractor" shall mean the general contractor hired to construct any Improvements, which contractor shall be selected by Tenant in Tenant's capacity as agent for Landlord, and shall be subject to Landlord's approval, which shall not be unreasonably withheld or delayed. Landlord hereby approves Devcon Construction, Inc. 5. 12 2.13 COVERAGE TEST. "Coverage Test" shall mean a requirement, wherever referenced in the Lease, that the fair market value of the Land and the Improvements together be at least three (3) times the Equity Funded Amount. 2.14 DEFAULT. "Default" shall have the meaning set forth in Section 17.1. 2.15 DEFAULT RATE. "Default Rate" means that weighted average of the interest rates of (i) the Senior Rent Component as set forth in Section 2.62 and (ii) the Equity Rent Component set forth in Section 2.19, plus two percent (2.0%), or the highest rate permitted by applicable law (if any), whichever is less. Mathematically, the Default Rate shall be: (3/86 X Equity Rent Component rate) + (83/86 X Senior Rent Component rate) + 2% Each change in the Default Rate due to a change in such interest rates under the Notes shall take effect simultaneously with such change in such interest rates, without Notice to either party. Notwithstanding the foregoing, in the event that the foregoing Default Rate shall be in violation of any usury or similar law, then the Default Rate shall be reduced to the extent necessary to cause the Default Rate to comply with any usury or similar law. 2.16 ENTITY. "Entity" shall mean any person, corporation, partnership (general or limited), joint venture, association, joint stock company, trust or other business entity or organization. 2.17 EQUITY CONTRIBUTION. "Equity Contribution" shall mean that portion of the Funded Amount equal to three percent (3%) of the Funded Amount, which Landlord has paid as Landlord's equity contribution to the Funded Amount (subject, however, to Tenant's adjusted Base Rent payments in the forty-ninth (49th) and fiftieth (50th) months of the Term, as set forth in Section 5.1(a) below). 2.18 EQUITY FUNDED AMOUNT. "Equity Funded Amount" shall mean that portion of the Funded Amount equal to the amount which Landlord has paid pursuant to the terms of Section 5.5. The Equity Funded Amount shall be the sum of the Equity Contribution plus the Security Deposit. In no event shall the Equity Funded Amount exceed the difference between the Funded Amount minus the aggregate Guaranteed Residual Value. In no event shall the aggregate of the Equity Funded Amounts of the Building Leases exceed Nineteen Million Three Hundred Eighty Thousand Dollars ($19,380,000). 2.19 EQUITY RENT COMPONENT. "Equity Rent Component" shall mean the quotient equal to the product of the Equity Contribution (at the time of the relevant calculation of the Equity Rent Component) multiplied by the LIBOR Rate plus 4.05%, divided by 6. 13 the Monthly Calculation. Mathematically, the Equity Rent Component shall be: [(Equity Contribution) X (LIBOR Rate + 4.05%)] -------------------------------------------------------------- [ Monthly Calculation ] 2.20 EVENT OF MAJOR DEFAULT. "Event of Major Default" shall have the meaning set forth in Section 17.2. 2.21 EXTENSION FEE. "Extension Fee" shall have the meaning set forth in the Section 4.2. 2.22 EXTENSION TERM. "Extension Term" shall have the meaning set forth in the Basic Lease Provisions. 2.23 FEE MORTGAGE. "Fee Mortgage" shall mean any Mortgage, other than the Improvements Loan, at any time given by Landlord, and remaining uncancelled on the Official Records, encumbering all or any portion of Landlord's right, title and estate in Improvements. 2.24 FUNDED AMOUNT. "Funded Amount" shall mean the aggregate amount of any Advances requested and actually paid by Landlord pursuant to the terms of Section 11 (including Capitalized Interest) and the closing costs and fees set forth in Exhibit J attached hereto (which shall be attributable to the first Building or phase of the Lease), less any reductions in the principal amount of the Improvements Loan or any New Loan or in the Equity Funded Amount, whether such principal reduction or reduction in the Equity Funded Amount is accomplished by payment to Lenders or the holder of a New Loan, the application of the Collateral or other collateral by Lenders or the holder of a New Loan, the payment of insurance proceeds, condemnation awards, or otherwise (subject, however, to Tenant's obligation to adjust its Base Rent payments in the forty-ninth (49th) and fiftieth (50th) months of the Term, as set forth in Section 5.1(a) below). 2.25 GUARANTEED RESIDUAL VALUE. "Guaranteed Residual Value" shall be calculated on each Building or phase, and shall mean that amount necessary to cause the present value of the Minimum Lease Payments under this Lease, including the present value of the Guaranteed Residual Value, to approximately equal, but not exceed, eighty nine and 9/10 percent (89.9%) of the estimated Funded Amount, computed at the Lease Inception Date and discounted to present value as of the expected Rent Commencement Date using the interest rate implicit in the Lease (or Tenant's best available incremental borrowing rate as communicated by Tenant to Landlord, if lower), all as calculated and determined pursuant to Statement of Financial Accounting Standards Number 13. "Minimum Lease Payments" shall mean the Base Rent payable over the Initial Term and the Extension Term, plus imputed interest on the Security Deposit imputed at the one month LIBOR rate of interest, plus the Guaranteed Residual Value, plus the following to the extent paid in cash: the fees listed on Exhibit J, the Extension Fee and 7. 14 reimbursed costs of Landlord paid by Tenant deemed to meet the definition of Minimum Lease Payments under SFAS No. 13. During the Construction Period for each Building, the Guaranteed Residual Value shall not exceed an amount determined by multiplying the then existing Funded Amount for such Building by a fraction, the numerator of which is the estimated Guaranteed Residual Value to be allocated to such Building as of the Rent Commencement Date for such Building and the denominator of which is the estimated Funded Amount to be allocated to such Building as of such Rent Commencement Date. If, at any time prior to the determination of the Guaranteed Residual Value for any Building or phase, the Financial Accounting Standards Board, Emerging Issues Task Force, or the Securities Exchange Commission, releases any pronouncements which modify FAS 13, paragraph 7(d) which outlines the criteria for the determination of the Guaranteed Residual Value, this Section 2.25 shall be modified to insure compliance with the new standards. 2.26 HSBC. "HSBC" shall mean The Hongkong and Shanghai Banking Corporation Limited, a Hong Kong banking corporation, acting through its San Francisco branch. 2.27 IMPROVEMENTS. "Improvements" shall mean any and all improvements which Tenant may elect, as construction agent for Landlord, to erect, construct or situate upon the Land or any part thereof during the Term under and pursuant to the terms of, and using funding provided by or through Landlord pursuant to Article 11 of this Lease. Any improvements constructed, erected or situated on the Land which are not funded by or through Landlord pursuant to the terms of Article 11 of this Lease shall be and remain the property of Tenant, and shall not be subject to the terms of this Lease. 2.28 IMPROVEMENTS LOAN. "Improvements Loan" shall have the meaning set forth in Section 13.1(b). 2.29 INITIAL TERM. "Initial Term" shall have the meaning set forth in the Basic Lease Provisions. 2.30 ILC. "ILC" shall mean Irish Leasing Corporation, a Texas corporation, or a successor landlord under the Land Lease. 2.31 LAND. "Land" shall have the meaning set forth in the Basic Lease Provisions. 2.32 LAND LEASE. "Land Lease" shall mean that certain Ground Lease dated as of April 12, 1995 by and between Tenant and ILC, by which Tenant leases the Land from ILC. 2.33 LAND LEASE DEED OF TRUST. "Land Lease Deed of Trust" shall mean that certain fourth priority deed of trust, junior only to the lien of the Lenders Deed of Trust, the Landlord Deed of Trust and the Tenant Deed of Trust, by ILC, as trustor, in favor of Tenant, as beneficiary, dated May 1, 1995 and recorded on 8. 15 May 1, 1995 in the Official Records as Instrument No. 12877066, and as more fully described in Section 13.1(g). 2.34 LAND LOAN. "Land Loan" shall mean that loan funded by Union Bank of Switzerland, a Swiss banking corporation, acting through its Los Angeles branch, or any other loan authorized pursuant to the terms of the Land Lease for purposes of ILC's purchase of the Land, as more particularly described in the Land Lease. 2.35 LANDLORD AFFILIATE. "Landlord Affiliate" shall mean any Entity which controls or is controlled by or is under the common control of Landlord or its beneficiary. 2.36 LANDLORD DEED OF TRUST. "Landlord Deed of Trust" shall mean that certain second priority deed of trust, securing Tenant's obligations under this Lease, and junior only to the lien of the Lenders Deed of Trust, to be executed by Tenant in favor of Landlord and recorded in the Official Records as of the Date of Lease, as more fully described in Section 13.1(e). 2.37 LEASE INCEPTION DATE. "Lease Inception Date" shall mean, for the first Building or phase constructed, the date of this Lease. For subsequent Buildings or phases, "Lease Inception Date" shall be that date when Tenant's Approval Plans for such Building or phase are approved by Landlord pursuant to Section 11.3(c). 2.38 LEGAL REQUIREMENTS. "Legal Requirements" shall mean all statutes, codes, laws, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all federal, state, county, municipal and other governments, departments, commissions, boards, courts, authorities, officials and officers, which now or at any time hereafter are applicable to Tenant or this Lease or applicable to and enforceable against the Premises, the Improvements or any part thereof, as applicable. 2.39 LENDERS. "Lenders" shall mean HSBC and Sumitomo, collectively. Individually, the Lenders are sometimes hereinafter referred to as a Lender. 2.40 LENDERS DEED OF TRUST. "Lenders Deed of Trust" shall mean that certain first priority deed of trust to be executed by Landlord and Tenant in favor of HSBC and Sumitomo jointly and recorded in the Official Records as of the Date of Lease, as more fully described in Section 13.1(d). 2.41 LIBOR BUSINESS DAY. "LIBOR Business Day" shall have the same meaning as "Business Day" is defined in the Notes or other Authorized Loan. 2.42 LIBOR RATE. "LIBOR Rate" shall mean the LIBOR Rate as defined in the Notes, or a subsequent Authorized Loan, as selected in accordance with Section 5.1(d). 9. 16 2.43 MONTHLY CALCULATION. "Monthly Calculation" shall mean the quotient resulting from dividing three hundred sixty (360) by the number of days in any applicable calendar month. The applicable calendar month shall be the month for which the calculation involving this Monthly Calculation is being done. 2.44 MORTGAGE. "Mortgage" shall mean any mortgage, deed of trust, or other instrument in the nature thereof at any time and from time to time constituting a lien, charge or encumbrance upon any interest or estate of Tenant or Landlord in the Premises or in this Lease. 2.45 MORTGAGEE. "Mortgagee" shall mean the record holder (as reflected in the Official Records) from time to time of, or the record beneficiary (as reflected in the Official Records) from time to time under, a Mortgage. 2.46 NEW LOAN. "New Loan" shall have the meaning set forth in Section 13.1(b). 2.47 NOMINAL RATE. "Nominal Rate" shall mean the operative and relevant rate (or rates) of interest under the Notes from time to time, or if the Improvements Loan has been replaced by an Authorized Loan, then the relevant rate of interest under the promissory note evidencing such Authorized Loan, all subject to the terms of Section 13.1(b). 2.48 NOTES. "Notes" shall have the meaning set forth in Section 13.1(b). 2.49 NOTICE. "Notice" shall mean a written advice, request, demand or notification required or permitted by this Lease, as more particularly provided in Section 21.3. 2.50 OFFICIAL RECORDS. "Official Records" shall mean the official records of Santa Clara County, California. 2.51 PERMITTED EXCEPTIONS. "Permitted Exceptions" shall mean the following: (1) the exceptions set forth in Exhibit B; (2) any exceptions created or caused by Tenant or to which Tenant consents in writing; (3) taxes and assessments not yet due and payable; (4) the Lenders Deed of Trust (or, if the Lenders Deed of Trust has been reconveyed and removed from title, then a deed of trust that secures an Authorized Loan); (5) the Landlord Deed of Trust; (6) the Tenant Deed of Trust; (7) the Land Lease Deed of Trust; (8) all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way, and restrictive covenants and conditions affecting the Land unless any of the foregoing arise as a result of Landlord's actions or with Landlord's written consent (unless such actions taken or consent given by Landlord are requested in writing by Tenant); and (9) this Lease. 2.52 PREMISES. "Premises" shall have the meaning set forth in the Basic Lease Provisions. It is the intention of the 10. 17 parties that the Premises consist only of the Improvements, and in no event shall the Premises consist of any portion of the Land. 2.53 REAL ESTATE TAXES. "Real Estate Taxes" shall have the meaning set forth in Section 6.1(b). 2.54 RENT. "Rent" shall mean Base Rent and Additional Rent. 2.55 RENT COMMENCEMENT DATE. "Rent Commencement Date" shall have the meaning set forth in the Basic Lease Provisions. 2.56 RENT PAYMENT DATE. "Rent Payment Date" shall have the meaning set forth in Section 5.1. 2.57 RENT PERIOD. "Rent Period" shall mean each period equal to one calendar month occurring during the Term hereof, except that the first Rent Period shall be a partial calendar month commencing on the Rent Commencement Date and ending on the last day of such calendar month and the last Rent Period shall be a partial calendar month commencing on the first LIBOR Business Day of the last calendar month of the Term and ending on the last day of the Term. 2.58 REQUIRED PERMITS. "Required Permits" shall mean each and every building and development permit including, without limitation, demolition permits, site permits and addenda thereto (including, without limitation, foundation permits and structural permits), temporary and final occupancy permits and any other governmental or quasi-governmental approvals which must be issued by any governmental authority, department, commission, board, official or officer as a condition precedent to construction and occupancy of any Improvements. 2.59 SBNYTC. "SBNYTC" shall mean Sumitomo Bank of New York Trust Company. 2.60 SECURITY DEPOSIT. "Security Deposit" shall have the meaning set forth in Section 5.7. 2.61 SENIOR FUNDED AMOUNT. "Senior Funded Amount" of this Lease shall mean that amount equal to the Funded Amount minus the Equity Funded Amount, which amount shall not exceed the Guaranteed Residual Value. 2.62 SENIOR RENT COMPONENT. "Senior Rent Component" shall mean the quotient equal to the product of the Senior Funded Amount (at the time of the relevant calculation of the Senior Rent Component) multiplied by the Nominal Rate, divided by the Monthly Calculation. Mathematically, the Senior Rent Component shall be: [ Senior Funded Amount X Nominal Rate ] ----------------------------------------- [ Monthly Calculation ] 11. 18 2.63 SUMITOMO. "Sumitomo" shall mean The Sumitomo Bank, Limited, a Japanese banking corporation, acting through its San Francisco branch. 2.64 TAKING. "Taking" shall have the meaning set forth in Section 15.1. 2.65 TENANT DEED OF TRUST. "Tenant Deed of Trust" shall mean that certain third priority deed of trust, securing (i) Landlord's obligation to return Tenant's Security Deposit under this Lease and (ii) Landlord's obligation to convey the Premises to Tenant pursuant to Article 19 of this Lease, and shall be junior only to the liens of the Lenders Deed of Trust and the Landlord Deed of Trust, to be executed by Landlord, as trustor, in favor of Tenant, as beneficiary, and recorded in the Official Records as of the Date of Lease, as more fully described in Section 13.1(f). 2.66 TERM. "Term" shall have the meaning set forth in the Basic Lease Provisions. ARTICLE 3 DEMISE 3.1 PREMISES. Subject to the terms, covenants and conditions contained herein, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, together with all rights, privileges, easements and appurtenances relating to the Premises. ARTICLE 4 TERM The Term of this Lease shall consist of the Initial Term, and if exercised by Tenant, the Extension Term, as follows: 4.1 INITIAL TERM. The Initial Term of this Lease is specified in Article 1. 4.2 EXTENSION TERM. Upon Notice of the extension given to Landlord in accordance with Article 1, so long as the "Extension Conditions" (defined below) are satisfied at the time of such Notice of extension, Tenant may extend the Term for the Extension Term specified in Article 1. All provisions of this Lease shall remain in full force and effect for the Extension Term, including, without limitation, the Base Rent payable hereunder, except that Tenant shall have no further right to extend the Term of this Lease, and except that the Base Rent during the Extension Term may be adjusted only to reflect any actual change in the rate of interest (that is, the spread over LIBOR) charged pursuant to the Authorized Loan. The "Extension Conditions" shall consist of the following: (1) Tenant shall satisfy the "Financial Tests" (defined below) at the time of such Notice and as of the expiration of the 12. 19 Initial Term; (2) Tenant shall pay to Landlord no later than thirty (30) days before the first day of the Extension Term an amount equal to the product of the outstanding Funded Amount as of the end of the fifty-seventh (57th) full calendar month of the Initial Term times 0.25% ("Extension Fee"); (3) there shall exist no ongoing and uncured Event of Major Default at the time of such Notice and as of the expiration of the Initial Term; (4) the Improvements Loan shall have been refinanced or repaid as of the commencement of the Extension Term (the refinancing or repayment of which shall be subject to the terms of Section 13.1(c)) and (5) the Land and the Improvements shall satisfy the Coverage Test at the time of the Notice and as of the expiration of the Initial Term. The "Financial Tests" shall consist of the following: (a) Tenant shall have a minimum tangible net worth (total assets minus intangible assets minus total liabilities, as calculated in accordance with generally accepted accounting principles) ("Tangible Net Worth") of not less than Seven Hundred Fifty Million Dollars ($750,000,000); (b) Tenant's leverage (the ratio of funded debt to Tangible Net Worth) shall not exceed a ratio of 1:1; and (3) Tenant shall not have incurred any net losses in excess of Ten Million Dollars ($10,000,000) per year during the two complete fiscal years immediately preceding such Notice of extension. 4.3 HOLDING OVER. If Tenant remains in possession of the Premises after the expiration of the Term without executing a new lease, such holding over shall be construed as a tenancy from month-to-month, subject to all terms, covenants and conditions herein contained, and at the Base Rent required to be paid by Tenant pursuant to the terms hereof during the last month of the Term. ARTICLE 5 RENT 5.1 BASE RENT. (a) PAYMENT. Base Rent shall accrue in the manner set forth below commencing on the Rent Commencement Date. Tenant's obligation to pay Base Rent, with respect to any Building, shall commence accruing on the Rent Commencement Date for such Building, and shall be payable monthly in arrears thereafter on the first LIBOR Business Day of each successive month, except that the last installment of Base Rent shall be payable on the last day of the last month during the Term (each such date shall be a "Rent Payment Date"). Tenant's obligation to pay Base Rent on account of Advances made for any Building shall not commence accruing until the Rent Commencement Date for that Building. No sooner than thirty (30) days prior to the due date for any installment of Base Rent hereunder, Landlord shall deliver to Tenant a Notice indicating the exact dollar amount of the Base Rent that is due on such due date ("Invoice"). The Base Rent payment due on the first LIBOR Business Day of the forty-ninth (49th) month of the Term shall be deemed paid entirely to Landlord to be applied first to 13. 20 the Equity Rent Component then due and the balance to be applied to the reduction of the Equity Funded Amount. The amount of the Senior Rent Component that would otherwise have been due but for the preceding sentence shall be added to the Senior Funded Amount. The Base Rent payment due on the first LIBOR Business Day of the fiftieth (50th) month of the Term shall be deemed paid entirely to Lenders under the Improvements Loan to the extent of the Senior Rent Component for the immediately preceding month and the balance shall be applied to the reduction of the Senior Funded Amount (excluding any prepayment premium thereon). Tenant shall pay Base Rent as follows: The Senior Rent Component shall be paid to Lenders as set forth in the Basic Lease Provisions, and the Equity Rent Component shall be paid to Landlord at the Address for Rent set forth in the Basic Lease Provisions (or, if the Improvements Loan has been replaced by a New Loan or Replacement Loan, then the Senior Rent Component shall be paid directly to the holder of such New Loan or Replacement Loan) or at such other place as Landlord and Tenant may from time to time mutually agree upon, in their respective sole and absolute discretion. With the exception of payments made pursuant to the Clearinghouse Debit Account and Clearinghouse Credit Account, established by Tenant in accordance with the requirements of this Section 5.1(b) and (c), as set forth below, Tenant shall pay Base Rent by wire transfer or by check. Landlord, Lenders or such other holder of a New Loan or Replacement Loan, as the case may be, shall supply Tenant with such bank account information as Tenant shall require to enable payment by wire transfer. The parties agree that Tenant is paying the Senior Rent Component of Base Rent directly to Lenders for the convenience of the parties in order to satisfy Landlord's obligations to pay interest under the Improvements Loan for the period of time corresponding to the Term of this Lease; all Base Rent payments shall be deemed payments to Landlord to the extent of the Equity Rent Component and payments of the interest due to Lenders under the Improvements Loan to the extent of the Senior Rent Component. (b) CLEARINGHOUSE CREDIT ACCOUNT. At any time, and from time to time, during the Term of the Lease, Tenant shall have the right to request in writing that a Lender designate a clearinghouse credit account at a financial institution legally authorized to receive funds on behalf of the Lender ("Clearinghouse Credit Account") for Tenant's payment of the Senior Rent Component due and payable to the Lender (as set forth in the Basic Lease Provisions) on a Rent Payment Date. At any time, and from time to time, after a Lender's designation of a Clearinghouse Credit Account, Tenant may, but shall not be obligated to, deposit funds on a Rent Payment Date in the exact amount of the Senior Rent Component due and payable to the Lender who has established such a Clearinghouse Credit Account and any payment by Tenant of a portion of the Senior Rent Component due a Lender by payment directly into a Lender's Clearinghouse Credit Account shall not prevent Tenant from making future payments of rent by any other means permitted in this Section 5.1. A Lender's designation of a Clearinghouse Credit 14. 21 Account for deposit of Tenant's payment of the Lender's portion of the Senior Rent Component shall be deemed that Lender's approval of Tenant's payment of the Lender's Senior Rent Component into the Clearinghouse Credit Account. Tenant's ability to deposit a Lender's portion of the Senior Rent Component into a Clearinghouse Credit Account shall not alleviate Landlord's obligation to deliver to Tenant an Invoice as set forth above. (c) CLEARINGHOUSE DEBIT ACCOUNT. At any time, and from time to time, during the Term of the Lease, Tenant and HSBC may agree that Tenant's payment of HSBC's portion of the Senior Rent Component as set forth in the Basic Lease Provisions shall be paid to HSBC by funds available to HSBC in a clearinghouse debit account at a financial institution reasonably acceptable to HSBC ("Clearinghouse Debit Account"). If Tenant and HSBC agree to payment of HSBC's portion of the Senior Rent Component through a Clearinghouse Debit Account, Tenant shall provide written notice of such agreement to Landlord, and shall indicate the account number and location of the Clearinghouse Debit Account. The Clearinghouse Debit Account shall be terminable by Tenant at will, without advance notice to Landlord or HSBC. During any portion of the Term in which the Clearinghouse Debit Account is available for and contains sufficient funds to cover the amount of HSBC's portion of the Senior Rent Component due and payable to HSBC on a Rent Payment Date, interest shall not accrue on (nor shall Tenant be deemed in default hereunder for failure to pay) any of HSBC's portion of the Senior Rent Component due hereunder which is not collected on a Rent Payment Date due to any failure by HSBC to collect its portion of the Senior Rent Component in a timely manner. HSBC's ability to collect its portion of the Senior Rent Component from the Clearinghouse Debit Account shall not alleviate Landlord's obligation to deliver to Tenant an Invoice as set forth above. Notwithstanding anything to the contrary in this Lease, the Clearinghouse Debit Account shall not be used for the payment of any amounts (whether or not payable under the Lease) other than HSBC's portion of the Senior Rent Component as set forth in the Basic Lease Provisions and which are due and payable on the then-current Rent Payment Date. (d) INTEREST RATE SELECTION. The parties acknowledge that the interest rate applicable under the Improvements Loan (or other Authorized Loan) and the Equity Rent Component shall affect the amount of Base Rent payable by Tenant hereunder. Therefore, Tenant shall have the right, by written notice to Landlord in the form of Exhibit K (which notice may be transmitted to Landlord by facsimile), to designate the interest period to be selected from time to time by Landlord pursuant to the terms of the Notes (or other Authorized Loan) as the interest period then in effect for interest rate of the Improvements Loan (or other Authorized Loan) and the Equity Rent Component. Tenant acknowledges that the rates available to be selected as the LIBOR Rate after the first partial calendar month of the Term are 1, 3, 6, 9 or 12-month LIBOR rates. In the event that Tenant fails to give such written notice to Landlord prior to the applicable 15. 22 deadline for selection of such interest period pursuant to the terms of the Notes (or other Authorized Loan), Landlord shall select the same interest period then in effect for the Improvements Loan (or other Authorized Loan) and for the Equity Rent Component. Notwithstanding the foregoing, the interest rate applicable during the Construction Period for each Building or phase shall be the one-month LIBOR rate. 5.2 PRORATION. If the Term expires or is otherwise terminated on a day other than the day before the first LIBOR Business Day of a calendar month, then Base Rent for such Rent Period shall be prorated on the basis of actual days elapsed on the basis of a thirty (30) day month. 5.3 NO ABATEMENT OF RENT. Except as a consequence of a reduction in the Funded Amount or the terms of Section 15 (Taking), Tenant shall not be entitled to any abatement, diminution, reduction, setoff or postponement of Base Rent as a consequence of any inconvenience to, interruption of, cessation of or loss of Tenant's use or enjoyment of the Premises or as a result of any reason whatsoever. 5.4 DELINQUENT RENT. Any Base Rent not paid on the due date shall accrue interest at the Default Rate from the date such Base Rent was originally due until the date such Base Rent is paid. All interest accrued on past due Base Rent shall be due and payable to Landlord at the time the Base Rent is paid, or upon demand by Landlord, if earlier. 5.5 EQUITY FUNDING. (a) For each Building (as such term is defined in Section 5.6 for purposes of this Section 5.5), after the appraisal described in Section 21.25 has been received by Landlord, and provided said appraisal indicates that the current fair market value on an as-completed basis of the Building as designed is not less than ninety percent (90%) of the estimated cost of construction of the Building, Landlord shall itself fund any Advances on a proportionate basis based upon a fraction of the total amount of the Advance, the numerator of which is the difference between the total estimated Funded Amount (as of completion of construction, as reasonably estimated by Tenant) for the Building or phase less the Guaranteed Residual Value for such Building, and the denominator of which is the total estimated Funded Amount (as of completion) for such Building or phase; provided that the Equity Funded Amount of Advances for a Building shall be deemed to be paid on a proportionate basis out of those funds held by Landlord as Tenant's Security Deposit and out of Landlord's Equity Contribution. In no event shall Landlord be required to do any of the following: (a) pay the Equity Funded Amount of Advances for a Building resulting in such payment exceeding the difference between the Funded Amount for such Building minus the Guaranteed Residual Value for such Building; (b) make Advances such that the aggregate Funded Amounts of the 16. 23 Building Leases exceeds One Hundred Fourteen Million Dollars ($114,000,000) or the aggregate Equity Funded Amounts of the Building Leases exceeds Nineteen Million Three Hundred Eighty Thousand Dollars ($19,380,000); or (c) make Advances such that the Funded Amount under this Lease exceeds the fair market value on an as-completed basis of the Improvements as designed (as determined by the appraisal described in Section 21.25). (b) Notwithstanding the foregoing, in the event: (1) Contractor fails to complete any Building or phase on account of either the insolvency or bankruptcy of the Contractor or a dispute with the Contractor concerning an alleged default by the Contractor; and (2) Tenant elects to have Landlord enter into a construction contract with another contractor for the purpose of completing such Building or phase; and (3) completion of such incomplete Building or phase by another contractor requires funds in excess of the funds that would have been required had Contractor not become insolvent or bankrupt or had such dispute not existed (excluding change orders), then Landlord's obligation for funding for such Building or phase under this Section 5.5 shall be equal to the amount that Landlord would have been required to fund under this Section 5.5 absent such insolvency, bankruptcy or dispute plus the amount of any change orders. At least two (2) days prior to making such equity Advance to Tenant, Landlord shall submit to Tenant and shall have obtained Tenant's prior written approval of the amount of such payment and the basis upon which such amount has been calculated. Tenant may withhold Tenant's consent to such payment if Tenant's accountant in good faith disagrees with such amount or the manner in which it was calculated. 5.6 EXHIBITS REFLECTING INITIAL ADVANCE AND RENT COMMENCEMENT DATE. Within thirty (30) days after the initial Advance for the foundation for any Building and within thirty (30) days after the initial Advance under this Lease, Landlord and Tenant shall execute the "Initial Advance Memorandum" in the form attached hereto as Exhibit G. With respect to the initial Advance under this Lease, the Initial Advance Memorandum shall also indicate to which Building such Advance applies. Within thirty (30) days after the Rent Commencement Date for any Building under this Lease, Landlord and Tenant shall execute the "Rent Commencement Date Memorandum" in the form attached hereto as Exhibit H. If the Rent Commencement Date for any Building under this Lease occurs prior to the completion or occupancy of such Building, then the parties shall, within thirty (30) days after the completion or occupancy of such Building, enter into a memorandum, which shall reflect the Guaranteed Residual Value for such Building (the parties acknowledge that, except as provided in Section 19.2, they will not reflect the Guaranteed Residual Value for any Building until such Building has been completed or occupied). Guaranteed Residual Value for any Building during construction and after construction shall be determined by multiplying the Guaranteed Residual Value percentage, calculated pursuant to Section 2.25, by the Funded Amount for any Building at the date of calculation. Whenever the term "Building" is used in this Lease in 17. 24 connection with the calculation of the Guaranteed Residual Value during a construction period, in connection with Landlord's equity funding under Section 5.5 or in connection with Tenant's Security Deposit funding under Section 5.7, such term shall mean a particular construction phase of the Improvements. 5.7 SECURITY DEPOSIT. On the date of initial Advance for a Building, Tenant shall deliver to Landlord a security deposit ("Security Deposit") in an amount equal to fourteen percent (14%) of the estimated Funded Amount for the Building as stated in the Initial Advance Memorandum for the Building in the form attached hereto as Exhibit G. Landlord may use and commingle the Security Deposit with other funds of Landlord and the Security Deposit shall not bear interest. On the Rent Commencement Date, the amount of the Security Deposit shall be increased or decreased to an amount equal to the difference between the Funded Amount minus the sum of the Landlord's Equity Contribution and the Guaranteed Residual Value (as of such date, as determined pursuant to the Rent Commencement Date Memorandum for the Building in the form attached hereto as Exhibit H). Mathematically, the Security Deposit as of the Rent Commencement Date shall be: Funded Amount - (Guaranteed Residual Value + Equity Contribution) The Security Deposit shall be held by Landlord as security solely for the payment of Base Rent and Additional Rent by Tenant pursuant to this Lease. If at any time during the Term any Base Rent shall be overdue, then Landlord may at its election (but shall not be required to) appropriate and apply any portion of the Security Deposit to the payment of any such overdue Base Rent. Should the entire Security Deposit, or any portion thereof, be appropriated and applied by Landlord as provided herein, then Tenant shall immediately, after receipt of written demand by Landlord, pay to Landlord a sufficient sum in cash to restore the Security Deposit to the amount of the Security Deposit as of the Rent Commencement Date. In the event that the Equity Funded Amount is reduced for any reason, including without limitation by reason of a sale of any portion of the Premises or the application of the proceeds of a condemnation award to reduce the Equity Funded Amount (it being understood that the Equity Funded Amount will only be reduced in the event and to the extent that the net proceeds of such condemnation award exceeds the Senior Funded Amount, with such award proceeds to be applied first to the Senior Funded Amount pursuant to Section 15.4 hereof), the amount of the Security Deposit required hereunder shall be reduced by a like amount, and any such excess funds held by Landlord shall immediately be returned to Tenant. The entire Security Deposit (other than amounts withheld against Base Rent and Additional Rent due hereunder) shall be returned to Tenant at the end of the Term. 5.8 ADDITIONAL RENT. Tenant agrees to pay all Additional Rent when it becomes due and payable under this Lease. 18. 25 ARTICLE 6 TAXES 6.1 REAL ESTATE TAXES. (a) From and after the Rent Commencement Date Tenant shall pay directly to the appropriate taxing authority all Real Estate Taxes. If the Rent Commencement Date occurs or the Term expires or otherwise terminates at any time other than the beginning or end of a taxable year, Tenant's obligation to pay Real Estate Taxes shall be prorated on the basis of a 365- day year, so as to include only that portion of the taxable year which is a part of the Term. Unless a termination of the Lease results from a purchase of the Land pursuant to Article 19, any Real Estate Taxes levied against the Land which accrue during the Term of this Lease but which would not be due and payable to the appropriate taxing authority until after the expiration of the Term of this Lease (as the same may be extended) shall be paid by Tenant to Landlord upon such termination. Landlord shall pay such amounts to the appropriate taxing authority on a timely basis. (b) Except to the extent that Real Estate Tax bills and statements are sent directly to Tenant by the taxing authority, upon receipt by Landlord of the tax bills or statements, Landlord will use reasonable efforts to promptly advise Tenant in writing of all Real Estate Taxes and shall deliver copies of all applicable tax bills or statements to Tenant. Tenant shall pay directly to the taxing authority all Real Estate Taxes prior to the later of (i) thirty (30) days after receipt by Tenant from Landlord of a copy of such bills and statements referred to above, or (ii) five (5) days prior to delinquency. As used herein, the term "Real Estate Taxes" shall mean any and all taxes, governmental fees and similar charges or assessments levied or assessed against the Improvements and/or the Land including, without limitation, ad valorem taxes and special assessments applicable to real property; provided, however, that Real Estate Taxes shall not include any Landlord Income Taxes. Real Estate Taxes shall also include any and all documentary, transfer, sales, mortgage, recording or similar taxes imposed on Landlord or Tenant in connection with (i) the original acquisition of the Premises by Landlord, (ii) any transfer of the Premises to Tenant pursuant to the terms of this Lease, or (iii) any sale of the Premises to a third party pursuant to the terms of this Lease. As used herein, the term "Landlord Income Taxes" shall mean any and all income, franchise, gains, gift, succession, excess profits, gross receipts, revenue, estate, rental, or similar taxes or taxes in lieu thereof imposed upon Landlord or any party other than Tenant (or an affiliate thereof) and any withholding tax imposed as a collection device for, in lieu of, or otherwise related to any of the foregoing without regard to whether such tax is required to be collected by Tenant and without regard to whether Tenant would be liable for such withholding tax in the event it failed to so withhold. For purposes of the foregoing, an income tax shall include, without limitation, any tax imposed under the United States Internal Revenue Code or the 19. 26 California Bank and Corporation Tax Law as well as any tax which could qualify as an "income tax" under United States Treasury Regulation Section 1.901-2 (except to the extent any such statute or regulation is subsequently modified to include a tax or other governmental charge of a materially different type and nature from the taxes currently described therein) and any income tax which may be payable under the laws of any jurisdiction either now or in the future. Real Estate Taxes for any given tax year shall exclude assessment installments that are not due and payable during such tax year. 6.2 PERSONAL PROPERTY TAXES. Tenant shall pay directly to the appropriate taxing authorities prior to delinquency any and all taxes and assessments levied or assessed during the Term upon or against Tenant's furniture, equipment, trade fixtures and any other personal property in the Premises. 6.3 RIGHT TO CONTEST. Tenant shall not be required to pay any Real Estate Taxes or any other taxes for which Tenant is liable hereunder (including, without limitation, any taxes for which Tenant is required to indemnify Landlord under Section 6.5) (including penalties and interest), so long as (i) Tenant shall contest the same or the validity thereof by appropriate legal proceedings in such a manner to prevent the tax sale of any portion of the Premises and (ii) the position to be taken by Tenant pursuant to such contest would have a realistic possibility of success if litigated. For purposes of this Lease, Tenant may conclusively establish that a position to be taken in a contest would have a realistic possibility of success if litigated by providing to Landlord a letter from counsel stating an opinion to such effect. In the event of any such contest, Tenant shall, within thirty (30) days after the final determination thereof, pay and discharge the amounts determined to be due in accordance therewith and with the provisions of this Lease, together with any penalties, fines, interest, costs and expenses that may have accrued thereon or that may have resulted from Tenant's contest. Tenant also shall have a right to contest any taxes for which it is liable hereunder, but with regard to which the position to be taken pursuant to such contest would not have a realistic possibility of success if litigated, provided that Tenant pays such taxes on or prior to the date upon which such taxes are asserted to be due by the relevant governmental authority. Notwithstanding the foregoing provisions of this Section 6.3, Tenant shall have an unconditional right to contest (without prior payment) any taxes imposed by law upon Tenant rather than upon Landlord. Tenant's decision to pay any taxes prior to contesting its or another party's underlying liability therefore shall not be deemed to imply or suggest that the position to be taken in such contest would not have a realistic possibility of success if litigated. Landlord shall cooperate fully with Tenant in connection with the exercise of Tenant's right of contest contained herein, and in the event that applicable law shall require that Landlord, rather than Tenant, pursue legal proceedings for such contest, Landlord will initiate and pursue such contest upon Tenant's request and in accordance with Tenant's 20. 27 instructions (including, without limitation, Tenant's instructions as to the selection of legal counsel and matters of strategy or settlement); provided, however, that Landlord shall not be subject to any liability for the payment of any costs or expenses in connection with any such contest or proceedings, and Tenant will indemnify and save harmless Landlord from any such costs and expenses (including, without limitation, reasonable attorneys' fees, costs of court and appraisal costs), reimbursing Landlord therefor upon demand (or paying such costs and expenses directly when due, all as directed by Landlord). Tenant shall be entitled to any refund of any taxes and penalties or interest from any governmental authority to the extent the refund represents monies paid to the governmental authority by Tenant or paid by Landlord and reimbursed by Tenant. 6.4 WITHHOLDING TAXES. Subject to Section 6.5, but notwithstanding any other provision of this Lease to the contrary, Tenant may withhold from any payments under this Lease any Landlord Income Taxes, without obligation to gross-up, indemnify or otherwise increase payments in consequence thereof, to the extent required by applicable law. Upon the date hereof or upon the date a party becomes a Landlord or a transferee of any portion of the Landlord's interest in the Premises or this Lease, and within thirty (30) days following the first day of each calendar year or if otherwise requested from time to time by Tenant, Landlord and each transferee, if organized under the laws of a jurisdiction outside the United States, shall provide Tenant with three counterparts of each of the forms prescribed by the Internal Revenue Service of the United States (Form 1001 or 4224, or successor form(s), as the case may be) certifying as to Landlord's or such transferee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to such person. Without limitation upon the foregoing, unless Tenant has received such forms or other documents reasonably satisfactory to it indicating that payments under this Lease are not subject to withholding tax, Tenant is authorized to and shall withhold taxes from such payments at the applicable statutory rate. Subject to Section 6.5, but notwithstanding any other provision of this Lease to the contrary, any withholding by Tenant under the preceding sentence shall not give rise to any gross-up, indemnification or other payment obligation on the part of Tenant. Landlord and each transferee, if organized under the laws of the United States or any State thereof, shall timely provide Tenant with duplicate documents conforming to the requirements of Treasury Regulation 1.1441-5(b) or any successor thereto (which statement may be made on a Form W-9). 6.5 ADDITIONAL PROVISIONS RELATING TO TAXES. Notwithstanding anything in this Section 6 to the contrary, Tenant shall protect and defend Landlord from and against all criminal prosecution regarding and shall indemnify and hold Landlord harmless from and against any and all losses, costs, liabilities or 21. 28 damages (including reasonable attorneys' fees and disbursements and court costs) arising by reason of: (a) Any and all U.S. Federal, state or local income taxes imposed upon Landlord in consequence of Landlord being treated as the owner or lessor of the Premises (or any part thereof) for such tax purposes (provided that Landlord has fully complied with its obligations under Section 21.2(b)); (b) Any and all taxes imposed upon Tenant (except to the extent that such taxes are imposed upon Tenant as a result of Landlord's failure to comply with its obligations under this Lease); (c) Any and all taxes required to be withheld from payments made by Tenant to a third party not related to or affiliated with Landlord, HSBC or Sumitomo; (d) Any and all Real Estate Taxes; (e) Any and all taxes owed by Landlord as a result of payment made by Tenant to Landlord pursuant to Tenant's indemnity obligations under this Section 6.5; and (f) Any and all costs, liabilities or damages (including reasonable attorneys' fees) incurred by Landlord in obtaining indemnification payments from Tenant under the provisions of this Section 6.5. Tenant's obligation to reimburse or indemnify Landlord for any taxes, governmental fees, penalties, interest or other supplemental tax charges under this Lease shall be reduced by the value of any related or offsetting tax benefits derived or realized by Landlord. Tenant's duty to indemnify Landlord under this Section 6.5 shall apply only to taxes arising during the Term (whether or not due and payable at the conclusion of the Term), but shall otherwise survive the expiration or earlier termination of this Lease. ARTICLE 7 INSURANCE 7.1 LIABILITY INSURANCE. At all times during the Term, Tenant shall obtain at Tenant's sole cost and expense a policy or policies of comprehensive general liability insurance on an "occurrence" basis against claims for "personal injury" liability, including bodily injury, death or property damage liability. The liability insurance policy shall contain coverage limits no less than the following: (1) Three Million Dollars ($3,000,000) per person; (2) Five Million Dollars ($5,000,000) per incident; and (3) One Million Dollars ($1,000,000) for property damage. 22. 29 7.2 BUILDERS' RISK INSURANCE. With respect to any Improvements which may be under construction and not yet covered by insurance under the terms of Section 7.3, Tenant shall maintain or cause to be maintained a policy or policies of builders' risk insurance in an amount equal to the value upon completion of the work (exclusive of land, foundation, excavation, grading, landscaping, architectural and development fees and other items customarily excluded from such coverage), insuring against the risks customarily insured against under such insurance, including fire, vandalism, malicious mischief, sprinkler leakage, lightning, and windstorm. 7.3 ALL-RISK INSURANCE. With respect to any completed Improvements, prior to the termination of the builders' risk insurance required by Section 7.2, and at all times thereafter, Tenant shall, at Tenant's sole cost and expense, obtain and maintain, or cause to be obtained and maintained: (a) a policy or policies of all-risk insurance covering the Improvements, providing coverage against loss or damage by fire, vandalism, malicious mischief, sprinkler leakage, lightning, windstorm and other insurable perils, as, under good insurance practice, from time to time are insured against under all-risk coverage for properties of similar character, age and location in an amount or amounts not less than one hundred percent (100%) of the then actual replacement cost (exclusive of land, foundation, excavations, grading, landscaping, architectural and development fees and other items customarily excluded from such coverage and without any deduction for depreciation); and (b) a policy or policies of difference in conditions insurance covering the Improvements, providing coverage against loss or damage by earthquake and flood as, under good insurance practice, from time to time are insured against under earthquake coverage for properties of similar character, age and location in an amount or amounts not less than the lesser of (i) one hundred percent (100%) of the then actual replacement cost (exclusive of land, foundation, excavations, grading, landscaping, architectural and development fees and other items customarily excluded from such coverage and without any deduction for depreciation) or (ii) the amount of the Equity Funded Amount. 7.4 GENERAL REQUIREMENTS. The insurance required under this Article 7 may be furnished under a "primary" policy and an "umbrella" policy or policies. Landlord and the holder of any Authorized Loan shall be named as an additional insured under Tenant's policy of insurance required under Section 7.1; Landlord, Tenant and the holder of any Authorized Loan shall each be named as the loss payees under the policies of insurance required under Sections 7.2 and 7.3; and such policies shall contain an endorsement for cross-liability coverage. Tenant shall furnish Landlord with certificates from Tenant's insurers with respect to the insurance required to be carried hereunder on or before the date such insurance is required to be carried. The certificates shall state that such insurance is in full force and effect and that coverage will not be reduced in any amount or otherwise limited or cancelled without twenty (20) days' prior written notice 23. 30 to Landlord. Renewal certificates shall be furnished to Landlord not less than thirty (30) days prior to the expiration of each such policy. Any blanket insurance policy or policies that insure Tenant against the risks and for the amounts herein specified shall be deemed to satisfy the obligation of Tenant hereunder, provided that any such policy of blanket insurance shall specify the amount of the total insurance allocated to the risks required to be insured hereunder and such allocated amount meets the requirements of this Article 7. All insurance required by this Article 7 shall be with an insurance company licensed to do business in the State of California, with a general policyholder's rating, as rated by the most current available "Bests" Insurance Reports, no less than A-III,and shall be primary and non-contributing. 7.5 WAIVER OF SUBROGATION. Notwithstanding anything to the contrary contained herein, to the extent permitted by law and so long as any insurance coverage maintained by Tenant is not diminished by reason thereof, Tenant hereby (a) releases and waives any rights it may have against Landlord and its officers, agents and employees on account of any loss or damages occasioned to Tenant, its property or the Premises, and arising from any risk covered by any fire and extended coverage insurance maintained by Tenant, whether or not due to the negligence of Landlord, its agents, employees, contractors, licensees, invitees or other persons, and (b) waives on behalf of any insurer providing such insurance to Tenant any right of subrogation that any such insurer may have or acquire against Landlord or such persons by virtue of payment of any loss under such insurance. Tenant shall use its best efforts to cause its insurance policies to contain a waiver of subrogation clauses in accordance with the foregoing. 7.6 INDEMNITY. Tenant shall protect, defend, indemnify, hold and save Landlord harmless from and against any and all losses, costs, liabilities or damages (including reasonable attorneys' fees and disbursements and court costs) arising by reason of: (i) any and all injury or death of persons or damage to property against which Tenant is obligated to maintain insurance for the benefit of Landlord pursuant to this Article 7; (ii) the failure to obtain the waiver of subrogation clause required by Section 7.5 hereof where such clause could have been obtained through the exercise of Tenant's best efforts; or (iii) the invalidation of such insurance policy required to be obtained by Tenant hereunder by Tenant's insurer. Tenant's duty to indemnify Landlord under this Section 7.6 shall survive the expiration or earlier termination of this Lease with respect to events occurring during the Term. 24. 31 ARTICLE 8 USE 8.1 USE. (a) PERMITTED USES. Tenant may use the Premises for any lawful purpose. (b) ENVIRONMENTAL COMPLIANCE. (i) DEFINED TERMS. The term "Applicable Environmental Laws" shall mean any applicable laws, regulations or ordinances pertaining to health or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 or otherwise (as amended, hereinafter called "CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, the Hazardous and Solid Waste Amendments of 1984 or otherwise (as amended, hereinafter called "RCRA"), and California Health & Safety Code Section 25501(j). The terms "hazardous substance" and "release" as used in this Lease shall have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have the meanings specified in RCRA; provided, in the event either CERCLA or RCRA is amended or superseded by other laws so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment or other laws; and, provided further, to the extent that the laws of the State of California establish a meaning for "hazardous substance", "release", "solid waste", or "disposal" which is broader than that specified in either CERCLA or RCRA, such broader meaning shall apply. The term "Pre-existing Agricultural Contamination" means concentrations of any chemical, compound or substance existing in soil and groundwater on the Land as disclosed in that certain Phase I Preliminary Environmental Site Assessment and Phase II Soil and Ground Water Quality Evaluation for Rio Robles and Tasman Drive Parcels, San Jose, California, performed by Lowney Associates and dated March 1995. (ii) TENANT'S COVENANTS. Tenant will not cause or permit the Premises or the Improvements to be in violation of, or do anything or permit anything to be done which subjects Landlord, Tenant or the Premises to any remedial obligations under or which creates a claim or cause of action under, any Applicable Environmental Laws, including, without limitation, CERCLA, RCRA, and the California Health & Safety Code Section 25501(j), assuming disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to the Premises and the Improvements, and Tenant will promptly notify Landlord in writing of any existing, pending or threatened investigation, claim or inquiry of which Tenant has knowledge by any governmental authority in connection with any Applicable Environmental Laws. Tenant shall obtain any permits, licenses or 25. 32 similar authorizations to construct, occupy, operate or use any Improvements, fixtures and equipment at any time located on the Premises by reason of any Applicable Environmental Laws. Tenant will not use the Premises or the Improvements in a manner which will result in the unlawful disposal or other unlawful release of any hazardous substance or solid waste on or to the Premises or the Improvements and covenants and agrees to keep or cause the Premises and the Improvements to be kept free of any unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (including, without limitation, friable asbestos and any substance containing asbestos deemed hazardous and unlawful by any Applicable Environmental Law) and to remove the unlawful amounts of the same (or if removal is prohibited by law, to take whatever action is required by law) promptly upon discovery at Tenant's sole expense. Tenant shall promptly notify Landlord in writing of any unlawful disposal or other unlawful release of any hazardous substance, environmental contaminants or solid wastes on or to the Premises or the Improvements. Notwithstanding the foregoing, Landlord and Tenant acknowledge that Pre-existing Agricultural Contamination exists on the Land due to agricultural operations of prior owners and that Tenant has no further obligation to notify Landlord regarding such Pre-existing Agricultural Contamination. In the event Tenant fails to comply with or perform any of the foregoing covenants and obligations, after thirty (30) days' prior written Notice to Tenant, Landlord may, but shall be under no obligation to, cause the Premises and the Improvements to be freed from the unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (or if removal is prohibited by law, to take whatever action is required by law) and the reasonable cost of the removal or such other action shall be a demand obligation owing by Tenant to Landlord pursuant to this Lease; provided, however, that this sentence shall not apply to Pre-existing Agricultural Contamination. Notwithstanding the foregoing, Landlord shall have no right to cause the removal of such materials so long as Tenant both: (1) is diligently and in good faith proceeding to comply with Tenant's obligation to remove the unlawful amounts of such materials; and (2) has the financial ability to so comply. Subject to the foregoing, Tenant grants to Landlord and Landlord's agents and employees access to the Premises and the Improvements, and the license to remove the unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (or if removal is prohibited by law, to take whatever action is required by law), and agrees to indemnify and save Landlord harmless from all reasonable costs and expenses involved and from all claims (including consequential damages) asserted or proven against Landlord by any party in connection therewith. Upon Landlord's reasonable request for "good cause" (defined below), at any time and from time to time during the Term, Tenant will provide at Tenant's sole expense an inspection or audit of the Premises and the Improvements from an engineering or consulting firm approved by Landlord, indicating the presence or absence of any hazardous substance, solid waste or environmental contaminants located on the Premises; provided, however that this provision shall not apply to Pre-existing Agricultural Contamination. If Tenant fails to 26. 33 provide same after sixty (60) days' notice, Landlord may order same, and Tenant grants to Landlord and Landlord's employees and agents access to the Premises and the Improvements and a license to undertake any testing reasonably required to obtain such inspection or audit. The reasonable cost of obtaining such inspection or audit and any expenses incurred by Landlord in connection therewith, shall be a demand obligation owing by Tenant to Landlord pursuant to this Lease. For purposes of this Section 8.1(b)(ii), "good cause" shall mean that Landlord shall have reasonable grounds to believe that an unlawful release or unlawful disposal of hazardous substances or solid wastes has occurred on the Premises or the Improvements, but shall not include Pre-existing Agricultural Contamination. (iii) TENANT'S INDEMNITY. Tenant agrees to indemnify and hold Landlord harmless from and against, and to reimburse Landlord with respect to, any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses (including attorneys' fees and court costs), fines and/or penalties of any and every kind or character, known or unknown, fixed or contingent, asserted or potentially asserted against or incurred by Landlord at any time and from time to time by reason of, in connection with or arising out of (A) the failure of Tenant to perform any obligation herein required to be performed by Tenant regarding Applicable Environmental Laws, (B) any violation of any Applicable Environmental Law by Tenant or with respect to the Premises or the Improvements, or any disposal or other release by Tenant or with respect to the Premises or the Improvements of any hazardous substance, environmental contaminants or solid waste on or to the Premises or the Improvements, whether or not resulting in a violation of any Applicable Environmental Law, (C) any act, omission, event or circumstance by Tenant or with respect to the Premises or the Improvements which constitutes or has constituted a violation of any Applicable Environmental Law with respect to the Premises or the Improvements, regardless of whether the act, omission, event or circumstance constituted a violation of any Applicable Environmental Law at the time of its existence or occurrence, and (D) any and all claims or proceedings (whether brought by private party or governmental agencies) for bodily injury, property damage, abatement or remediation, environmental damage or impairment or any other injury or damage resulting from or relating to any hazardous or toxic substance or contaminated material located upon or migrating into, from or through the Premises or the Improvements (whether or not the release of such materials was caused by Tenant, a subtenant, or prior owner of the Premises, or any other Entity) which Landlord may incur. Tenant's duty to indemnify Landlord under this Section 8.1 shall survive the expiration or earlier termination of the Lease with respect to events occurring during, or prior to the Term or after the Term while Landlord has record title to and Tenant is occupying the Premises. 27. 34 (c) COMPLIANCE WITH LEGAL REQUIREMENTS. Tenant shall at all times comply with all material Legal Requirements applicable to the Land or the Improvements and/or the use thereof. 8.2 CONTEST OF LEGAL REQUIREMENTS. Tenant shall have the right at its sole cost and expense to contest the validity of any Legal Requirements applicable to the Premises by appropriate proceedings diligently conducted in good faith; and upon the request of Tenant and at Tenant's sole cost and expense, Landlord will join and cooperate with Tenant in such proceedings. Subject to Section 6.3, any other provision of this Lease to the contrary notwithstanding, Tenant's right to contest Legal Requirements must be exercised in such a manner as to avoid any exposure of the Premises or any part thereof to foreclosure or execution sale or exposure of Landlord to civil or criminal penalties arising from Tenant's non-compliance with such Legal Requirements. Tenant shall defend and indemnify Landlord against, and hold Landlord harmless from, any and all liability, loss, cost, damage, injury or expense (including, without limitation, attorneys' fees and costs) which Landlord may sustain or suffer by reason of Tenant's failure or delay in complying with, or Tenant's contest of, any such Legal Requirements (or Landlord's contest, if requested in writing by Tenant), and Tenant's duty to indemnify Landlord under this Section 8.2 shall survive the expiration or earlier termination of this Lease. 8.3 INDEMNIFICATION. Tenant will defend, protect, indemnify and save harmless Landlord from and against all liabilities, obligations, claims, damages, causes of action, costs and expenses, imposed upon or incurred by Landlord by reason of the occurrence or existence of any of the following during the Term, except to the extent caused by the willful misconduct, gross negligence, or willful breach of contract of Landlord or its agents or contractors (but excluding from the term contractors the Contractor and any subcontractors of the Contractor): (1) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Premises or Improvements; (2) performance of any labor or services or the furnishing of any materials or other property in respect of the Premises or the Improvements; (3) the negligence or willful misconduct on the part of Tenant or any of its agents, invitees, employees or contractors or any other persons entering onto the Premises or the Improvements at the request, behest or with the permission of Tenant; (4) the construction, use or occupancy of the Improvements which Tenant may elect to construct; (5) the use of the Land; or (6) any breach by the "Owner" under the construction contracts entered into by Tenant as Landlord's agent pursuant to the terms of Section 11.10. Tenant's duty to indemnify Landlord under this Section 8.3 shall survive the expiration or earlier termination of this Lease with respect to events occurring during the Term or after the Term while Landlord has record title to and Tenant is occupying the Premises. 28. 35 ARTICLE 9 UTILITIES AND SERVICES 9.1 SERVICES TO THE PREMISES. At Tenant's sole cost and expense, Tenant shall make its own arrangements for the provision of all utilities and services to be provided to or consumed on the Premises, including, without limitation, air conditioning, ventilation, heating, electric power, telephone, water (both domestic and fire protection), sanitary sewer, storm drain, natural gas and janitorial services, including for the installation, maintenance and repair of service lines and meters to measure Tenant's consumption of such utilities. ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES 10.1 TENANT OBLIGATIONS. Except as otherwise provided in this Lease, Tenant shall maintain the Premises and the Improvements in good repair, normal wear and tear, casualty and Takings (as defined in Section 15.1) excepted. All maintenance that Tenant is obligated to perform under this Section 10.1 shall be at the sole expense of Tenant, except to the extent that repairs are made necessary because of the gross negligence or willful misconduct of Landlord, its agents, employees or contractors (but excluding from the term contractor the Contractor and any subcontractors of the Contractor). 10.2 SURRENDER OF THE PREMISES. Except as provided in Section 19, upon the expiration or earlier termination of the Term, Tenant shall surrender the Premises to Landlord in its then "AS-IS" condition, including, without limitation, any condition resulting from: (i) wear and tear; (ii) obsolescence and damage by fire or other casualty, act of God or the elements (subject to the terms of Article 16); (iii) damage that is caused by Landlord, its agents, employees or contractors; (iv) Takings; and (v) any improvements, alterations, additions, repairs, replacements, or decorations in, to or of the Premises or on the Land which are not Improvements but which Tenant may elect to remain on the Land or the Premises. Title to all improvements, furniture, furnishings, fixtures, trade fixtures and personal property of Tenant which have not been funded by Landlord pursuant to the terms of Article 11 and located in or upon the Premises or the Land, whether or not affixed to the realty, shall be and remain in Tenant throughout the Term, and at any time during the Term of this Lease, the same may be removed by Tenant, or, at Tenant's election, surrendered with the Premises, in which event title to such surrendered property shall, if Landlord so elects in Landlord's sole discretion, be deemed transferred to Landlord. Any of such property that is not removed from the Premises or the Improvements on or prior to the expiration or earlier termination of this Lease shall be considered abandoned and Landlord may deal with it as Landlord elects. 29. 36 ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS 11.1 TENANT'S RIGHTS TO CONSTRUCT IMPROVEMENTS. As of the date of this Lease, no improvements exist on the Land. Tenant shall be under no obligation whatsoever to construct any Improvements. Tenant shall have the right, in Tenant's sole discretion, to construct on the Land with Tenant's own funds, improvements, buildings, and/or alterations to Improvements, without the necessity of obtaining any approval from Landlord. In addition, Tenant shall have the right, in Tenant's sole discretion, subject to the terms of this Article 11, to require Landlord to pay for the construction of the Improvements which Tenant desires. With respect to any construction which Tenant may elect to have performed in accordance with this Article 11, Landlord hereby irrevocably appoints Tenant as Landlord's construction agent. Landlord shall have no right to construct any improvements, buildings, and/or alterations on the Land unless Tenant specifically requests that such be constructed, and then only in accordance with the terms and conditions of this Article 11. 11.2 REQUEST FOR CONSTRUCTION FUNDING; LANDLORD OBLIGATION TO FUND. At any time during the first forty-eight (48) months of the Initial Term, Tenant may request Landlord to provide funding for the construction of Improvements, which may consist of one or more Buildings or phases, or for the alteration of any existing Buildings. Each such request shall be in writing and shall generally describe the nature of the Improvements. Landlord shall fund amounts for: (1) the costs of construction or alteration of the Improvements pursuant to the terms and conditions set forth in this Article 11; (2) architectural, engineering, testing, permitting, professional fees and any other soft costs relating to such Buildings; (3) any Capitalized Interest; and (4) the amounts described in Exhibit J. If Tenant reduces the Funded Amount by making payment to Landlord or the holder of any Authorized Loan, except as provided in Articles 15 and 16, the amount so paid shall not later be available to Tenant in the form of Advances for construction work. Landlord shall have no obligation to make Advances to a Mortgagee of Tenant's interest under this Lease, if any, which Mortgagee has foreclosed on Tenant's interest under this Lease and is then the "Tenant" under this Lease. Landlord shall have no obligation to make Advances for any Building or phase if the appraisal described in Section 21.25 indicates that the current fair market value on an as-completed basis of the Building as designed is less than ninety percent (90%) of the estimated cost of construction of the Building. Landlord shall have no obligation to make Advances for any Building or phase after the last day of the twenty-fourth (24th) month after the initial Advance for such Building or phase. 30. 37 11.3 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATION TO FUND INITIAL ADVANCES. The obligation of Landlord to make an initial Advance hereunder in respect of each Building shall be subject to the following conditions precedent: (a) NO EVENT OF MAJOR DEFAULT. No Event of Major Default shall exist and be continuing at the time of the initial Advance. (b) APPRAISAL. Landlord shall have approved the appraisal delivered pursuant to Section 21.25 hereof. (c) LANDLORD APPROVAL OF APPROVAL PLANS. Landlord shall have approved in accordance with the terms of this Section 11.3(c) (except as otherwise permitted or already approved pursuant to Section 11.1), Tenant's proposed site plans (showing the locations and orientations of any proposed buildings) and exterior shell plans (showing exterior building sections) (collectively, "Approval Plans") of the Building(s) which Tenant may elect to construct. Tenant shall deliver a letter to Landlord along with any submitted Approval Plans in which Tenant states that the submitted Approval Plans do not violate any Legal Requirements. Landlord may only withhold Landlord's approval to any such Approval Plans to the extent that the Approval Plans violate any material Legal Requirements, and Landlord may not withhold its consent on any other ground. At the option of Tenant, the foregoing documentation may be submitted to Landlord for approval in stages as Tenant completes it. Landlord shall have a period of ten (10) days from the date of receipt of each component of the documentation within which to approve or reject it. The Approval Plans, as approved from time to time by Landlord pursuant to this Section 11.3(c) shall constitute the "Authorized Plans." Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of any Approval Plans (not to exceed One Thousand Dollars ($1,000) per approval). Landlord's approval of any Authorized Plans does not constitute any representation or warranty by Landlord with respect to such Authorized Plans, and Landlord hereby specifically disclaims any such representations and warranties. (i) FURTHER APPROVALS; PROPOSED CHANGES. Subsequent to Landlord's approval of any Authorized Plans pursuant to Section 11.3(c), Tenant shall only be obligated to submit to Landlord for approval documentation showing any proposed material change to the Authorized Plans (but no approval shall be required with respect to construction or design matters that are not contained in or addressed by the Authorized Plans), and only to the extent such change is materially inconsistent with the Authorized Plans. Landlord shall have a period of ten (10) days from receipt of each material change within which to approve or reject it. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of any such changes (not to 31. 38 exceed One Thousand Dollars ($1,000) per approval). Tenant shall have the right, without further approval of Landlord, to construct Improvements not materially inconsistent with the Authorized Plans together with such changes thereto as may be requested or required to comply with Legal Requirements. (ii) FAILURE TO DISAPPROVE. The failure by Landlord to disapprove any portion of the proposed Approval Plans submitted pursuant to this Section 11.3(c) within the specified approval period shall be deemed to constitute approval thereof as submitted, and such Approval Plans shall thereupon become Authorized Plans. Any disapproval by Landlord of any portion of the proposed Approval Plans shall be in writing and shall specify with particularity the basis for the disapproval. (d) LANDLORD APPROVAL OF CONSTRUCTION AGREEMENT. Landlord shall have approved in accordance with the terms of this Section 11.3(d) (except as otherwise permitted or already approved pursuant to Section 11.1), Tenant's proposed construction agreement with Contractor (collectively, "Construction Agreement") of the Building(s) which Tenant may elect to construct. Landlord may only withhold Landlord's approval to any such Construction Agreement to the extent that the Construction Agreement violates any material Legal Requirements or is not a form of agreement which includes a guaranteed maximum price and a date certain of completion of the Improvements, and Landlord may not withhold its consent on any other ground. Landlord shall have a period of ten (10) days from the date of receipt of the Construction Agreement within which to approve or reject it. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of the Construction Agreement (not to exceed One Thousand Dollars ($1,000) per approval). Landlord's approval of any Construction Agreement does not constitute any representation or warranty by Landlord with respect to such Construction Agreement, and Landlord hereby specifically disclaims any such representations and warranties. (e) DRAW REQUEST. Landlord shall have received a written request from Tenant or its agent requesting the Advance ("Draw Request") in the form attached hereto as Exhibit I. The submission of a Draw Request by Tenant shall be deemed to be Tenant's approval of the Capitalized Interest which is to be included in the Funded Amount during the period covered by such Draw Request pursuant to the terms of Section 2.24. (f) PLANS AND SPECIFICATIONS. Landlord shall have received a copy of the plans and specifications for the Building in question. Landlord acknowledges that Landlord's only approval right with respect to the plans and specifications is as specified in Section 11.3 (c) above. 32. 39 (g) CONSTRUCTION AGREEMENT. Landlord shall have received a copy of Tenant's construction agreement with Contractor for the Building or phase in question. (h) BUILDING PERMITS. With respect to any portion of an Advance going toward hard costs for any Building, Landlord shall have received a copy of all building permits and approvals then required for the construction of the subject Building. (i) CONTRACTOR'S CERTIFICATE. With respect to any portion of an Advance going toward hard costs for any Building, Landlord shall have received a certificate from the Contractor in the form attached hereto as Exhibit F for the Advance in question ("Contractor's Certificate"). 11.4 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATION TO FUND SUBSEQUENT ADVANCES. Landlord's obligation to make any Advance for a Building after the initial Advance for such Improvement shall be subject to the satisfaction of the following conditions: (a) NO EVENT OF MAJOR DEFAULT. No Event of Major Default shall exist and be continuing at the time of such subsequent Advance, and no "major and material" violations of code or law shall exist with respect to the portions of such Building which have been constructed as of the date of the Advance in question. For purposes of this Section 11.4(a), the term "major and material" shall mean a violation that presents a material risk to the health and safety of the occupants of the Building in question. (b) DRAW REQUEST. With respect to any portion of an Advance going toward hard costs for any Building, Landlord shall have received a Draw Request for the Advance in question. (c) CONTRACTOR'S CERTIFICATE. With respect to any portion of an Advance going toward hard costs for any Building, Landlord shall have received a Contractor's Certificate for the Advance in question in the form attached hereto as Exhibit F. (d) LIEN WAIVERS. Landlord shall have received conditional lien waivers and releases upon progress payment from Contractor and any "Major Subcontractor" (defined below) scheduled to receive payment from such Advance. The term "Major Subcontractor" shall mean any subcontractor which has executed a subcontract calling for aggregate payments to the subcontractor in excess of Two Hundred Fifty Thousand Dollars ($250,000). (e) CHANGES TO AUTHORIZED PLANS. Landlord shall have approved any material change to the Authorized Plans pursuant to Section 11.3(c)(i) 33. 40 11.5 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATION TO FUND FINAL ADVANCE. Landlord's obligation to make the final Advance for a Building shall be subject to the satisfaction of the following conditions: (a) SECTION 11.4 CONDITIONS. All of the conditions precedent set forth in Section 11.4 shall have been satisfied with respect to the final Advance in question. (b) CERTIFICATE OF OCCUPANCY. Landlord shall have received a copy of the certificate of occupancy or its equivalent issued by the appropriate governmental authority for the Building in question. 11.6 ADDITIONAL PROVISIONS REGARDING ADVANCES. (a) TIMING AND METHOD OF DISBURSEMENT. Advances to be made hereunder shall not be made more frequently than monthly. For any calendar month during which Tenant desires to receive an Advance, Tenant shall submit a Draw Request on or before the date that is five (5) days prior to the first LIBOR Business Day of such month, and if Tenant submits such Draw Request by such date, then Landlord shall make the Advance as requested in such Draw Request to the party(ies) designated by Tenant on the first LIBOR Business Day of such month (subject to the conditions to funding described in Sections 11.3, 11.4 and 11.5). The Advances shall be made to parties identified by Tenant, which parties may include Tenant. At the option of Tenant, Landlord shall make such Advances to one (1) or more parties. (b) RETAINAGE. Disbursements for construction costs shall be subject to a ten percent (10%) retainage. The retainage shall be paid to Tenant or to any Entities designated by Tenant along with the payment of the Final Advance with respect to any Building. Notwithstanding the foregoing, Tenant may require Landlord to pay any retainage on account of particular subcontractors prior to the payment of a final Advance if: (1) Tenant is able to achieve cost savings as a result of such early payment; and (2) Contractor delivers to Landlord a letter of credit in the amount of the retainage to be paid out prematurely. The parties will enter into an agreement with respect to the letter of credit, which agreement shall reflect the parties' agreement that: (a) Landlord shall only be entitled to draw on the letter of credit if and to the extent necessary to complete the work that the subcontractor receiving the early payment of the retainage was required to perform and failed to perform; and (b) the letter of credit be returned to Tenant at the time that the retainage would have been paid pursuant to the second sentence of this Section 11.6(b). The total retainage shall be reduced by the amount of such retainage paid early pursuant to the terms of the preceding sentence. 34. 41 11.7 REQUIRED PERMITS, EASEMENTS, ETC. From time to time, upon request of Tenant, Landlord (as holder of record of title to the Improvements) shall execute such reasonable documents, petitions, applications and authorizations, easements and rights of way (which have been prepared at Tenant's expense) and shall appear at and participate in such public hearings, staff meetings and similar gatherings, in each case as may in the reasonable and good-faith opinion of Tenant be necessary or appropriate for the purpose of obtaining any Required Permits or private easements or rights of way or utility services for the Improvements or to remove any title encumbrances on the Land which may interfere with Tenant's construction of the Improvements. Tenant shall immediately reimburse Landlord on demand (or pay directly) for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 11.7. 11.8 ALTERATIONS. Tenant shall notify Landlord in writing in advance of any alteration to the Improvements which would either cost more than Five Hundred Thousand Dollars ($500,000), or cause the Land and the Improvements to fail the Coverage Test. At any time and from time to time, and without the necessity for obtaining Landlord's approval or giving Notice thereof to Landlord (except as otherwise specifically provided in this Section 11.8), Tenant shall have the right, at its expense, to make any improvements, alterations, additions, repairs, replacements or decorations in, to or of the Premises which do not materially change the exterior design scope of the Improvements as previously approved by Landlord pursuant to any Authorized Plans. In constructing any such improvements, alterations, additions, repairs, replacements or decorations, Tenant shall do so in a manner which does not violate any applicable and material Legal Requirements. If, in connection with any alterations which Tenant may desire to construct, either: (1) the performance of such alterations would cause the Land and Improvements together to fail the Coverage Test; or (2) such alterations would materially change the exterior design scope of the Improvements as previously approved by Landlord pursuant to Authorized Plans, then such alterations shall be subject to the prior written approval of Landlord, which shall not be unreasonably withheld or delayed. In the event that the parties disagree as to whether or not performing such alterations would cause the Land and the Improvements to fail the Coverage Test, such matter shall be subject to the appraisal provision contained in Section 21.23. 11.9 TITLE TO AND NATURE OF IMPROVEMENTS. By virtue of Tenant's rights under the Land Lease, Tenant hereby grants to Landlord the right to own and construct the Improvements which Tenant elects to cause to be constructed with Landlord's funds under this Article 11, and Tenant hereby grants, conveys and transfers to Landlord all of Tenant's right, title and interest in and to the Improvements (whether now existing or hereafter constructed), and Tenant agrees that any and all Improvements of whatever nature at any time constructed, placed or maintained upon any part of the Land shall be and remain the property of Landlord, 35. 42 subject to Tenant's rights under Section 19 and elsewhere in this Lease. Any improvements on the Land other than the Improvements shall be and remain the property of Tenant, subject to the terms of Section 10.2. The severance of fee title to the Land and Improvements shall not change the character of the Improvements as real property. 11.10 TENANT AS LANDLORD'S CONSTRUCTION AGENT. Tenant shall function as Landlord's agent for purposes of the construction of any Improvements. In this role, Tenant shall have the authority, on Landlord's behalf, to oversee and direct the construction of all Improvements, including but not limited to, approval of building, site and other plans, obtaining building and other permits, negotiating construction contracts, monitoring construction and making periodic inspections, approval of Contractor's invoice for payment, and submission of Draw Requests. Within a reasonable time after Tenant's request, Landlord shall execute construction contracts negotiated by Tenant for the construction of Improvements on the Land; Landlord shall not amend, modify or terminate any such construction contract without the prior written approval of Tenant, which may be withheld in Tenant's sole discretion. Landlord's appointment of Tenant as Landlord's agent under this Section 11.10 shall be irrevocable unless this Lease is terminated pursuant to the terms of Section 17.4(b) in connection with an Event of Major Default. 11.11 TENANT'S RELEASE OF FUNDING COMMITMENT. At any time during the term, Tenant may elect in its sole discretion to release Landlord from its obligation to fund construction of all or any portion of the Improvements by written notice to Landlord and Lenders; provided, however, that Tenant has substantially completed construction of each Building on which construction has commenced. ARTICLE 12 LIENS Except for claims that Tenant is contesting in good faith in such manner as to avoid any exposure of the Premises or any part thereof to foreclosure or execution sale, Tenant shall promptly pay and discharge all claims for work or labor done, supplies furnished or services rendered to the Premises, and shall keep the Premises free and clear of all mechanics' and materialmen's liens in connection therewith. ARTICLE 13 ASSIGNMENT BY LANDLORD 13.1 FURTHER MORTGAGES OR ENCUMBRANCES BY LANDLORD; AUTHORIZED LOANS. (a) PROHIBITION. Except for the Lenders Deed of Trust, the Landlord Deed of Trust, the Tenant Deed of Trust and the 36. 43 Land Lease Deed of Trust (which are hereby approved by Tenant) and as specifically permitted in Section 11.7 or 13.1(b) or 20, Landlord shall not cause or create any mortgages, deeds of trust, encumbrances or other exceptions to title (collectively, "New Encumbrances") to exist with respect to the Premises at any time, and any such encumbrance not authorized in writing by Tenant shall be null and void. The term "New Encumbrances" shall also include any bonds or assessments affecting the Premises to which Landlord consents in writing without the prior written approval of Tenant (which may be withheld in Tenant's sole and absolute discretion). Without the prior written consent of Tenant (which may be withheld in Tenant's sole and absolute discretion), Landlord shall not make or join in an application or other document which requests or authorizes any bonds or assessments to affect the Premises. Landlord recognizes that any New Encumbrance may irreparably harm Tenant in connection with one or more of the following: (1) construction which Tenant may desire to perform; (2) the use of the Premises; (3) Tenant's rights pursuant to the Purchase Option in Section 19; (4) the amount of assessments which Tenant is required to pay; or (5) other matters. (b) AUTHORIZED LOAN. Tenant has approved the loans to Landlord ("Improvements Loan") from Lenders which is evidenced by that certain Promissory Note dated as of the Date of Lease by Landlord in favor of HSBC and that certain Promissory Note dated as of the Date of Lease by Landlord in favor of Sumitomo (collectively, the "Notes"), and further evidenced and/or secured by (a) that certain Pledge Agreement made by Tenant in favor of Lenders, as it may be amended and supplemented from time to time ("Pledge Agreement"), dated as of the Date of Lease; (b) the Lenders Deed of Trust (c) that certain Loan Disbursement Agreement dated as of the Date of Lease; (d) that certain Absolute Assignment of Leases dated as of the Date of Lease; (e) that certain UCC Financing Statement; and (f) that certain Environmental Indemnity Agreement dated as of the Date of Lease. In addition, upon the maturity or prepayment of the Improvements Loan (whether by its terms, by acceleration or otherwise), Landlord may (but, subject to the terms of Section 13.1(c), shall not be obligated to) enter into a new loan (such authorized loan shall be the "New Loan"), provided Landlord first obtains Tenant's written consent (which consent shall not be unreasonably withheld), and so long as: (i) the Improvements Loan is paid off with the proceeds of such New Loan and all documents securing or reflecting the Improvements Loan are assigned to the lender who makes the New Loan or are released and satisfied; (ii) the principal amount of the New Loan does not exceed the principal amount of the Improvements Loan existing at the time the Improvements Loan is repaid; (iii) the interest rate and payment provisions under the New Loan would not result in higher monthly payments than the method under the Improvements Loan, and all such monthly payments shall be interest only; and (iv) the New Loan documents do not contain terms and conditions which differ from the Improvements Loan documents in any material respect (including provisions relating to the Collateral as defined in Section 21.18). The Improvements Loan and the New Loan 37. 44 authorized pursuant to the preceding sentence and the Replacement Loan described in Section 13.1(c) below shall be the "Authorized Loan"; provided that only one Authorized Loan may exist at any one point in time. Landlord may not modify the terms of an Authorized Loan without the prior written consent of Tenant, which Tenant shall not unreasonably withhold (but may be withheld in Tenant's sole and absolute discretion based upon any of the matters identified in subitems (i) through (v) above in this Section 13.1(b)). (c) REPLACEMENT LOAN. Subject to Landlord's prior written consent (which consent shall not be unreasonably withheld or delayed), at the request of Tenant, Landlord shall execute loan documents evidencing and/or securing a new loan to Landlord, the proceeds of which would be used to retire the Improvements Loan (such loan requested by Tenant shall be a "Replacement Loan"). Landlord shall only be entitled to refuse to consent to such new loan if (1) the maturity date of the Replacement Loan is a date on or after the expiration date of the Extension Term; (2) the principal amount of the Replacement Loan exceeds the principal amount of the Improvements Loan plus any accrued interest and fees payable at the time the Improvements Loan is repaid; (3) the interest rate structure under the Replacement Loan is materially higher than market conditions would justify at the time; (4) there are prepayment prohibitions, penalties or other restrictions which would limit rights to retire the Replacement Loan or require additional payment to do so; or (5) the Replacement Loan documents contain terms and conditions which differ from the Improvements Loan documents in any material respect (including provisions relating to the Collateral as defined in Section 21.18). If Tenant requests and provides the funds, Landlord shall make all arrangements necessary for, and shall pay down any Authorized Loan in the amount requested by Tenant, and shall arrange for all documentation reasonably requested by Tenant to reflect the reduction or elimination of such Authorized Loan. (d) LENDERS DEED OF TRUST. On the Date of Lease, Landlord and Tenant shall execute, acknowledge, and cause to be recorded in the Official Records, a deed of trust in form acceptable to Lenders and Tenant ("Lenders Deed of Trust"). The Lenders Deed of Trust shall be a first priority lien against the premises (as defined in the Lenders Deed of Trust). (e) LANDLORD DEED OF TRUST. On the Date of Lease, Tenant shall execute, acknowledge, and cause to be recorded in the Official Records, a deed of trust in form acceptable to Landlord ("Landlord Deed of Trust"), which Landlord Deed of Trust shall secure Tenant's obligations under this Lease. The Landlord Deed of Trust shall be junior only to the Lenders Deed of Trust as a second priority lien against the premises (as defined in the Landlord Deed of Trust). 38. 45 (f) TENANT DEED OF TRUST. On the Date of Lease, Landlord shall execute, acknowledge, and cause to be recorded in the Official Records, a deed of trust in form acceptable to Tenant ("Tenant Deed of Trust"), which Tenant Deed of Trust shall secure Landlord's obligations under this Lease (i) to return the Security Deposit pursuant to the terms of this Lease and (ii) to convey the Premises to Tenant as required pursuant to Article 19 hereof. The Tenant Deed of Trust shall be junior only to the Lenders Deed of Trust and the Tenant Deed of Trust as a third priority lien against the premises (as defined in the Tenant Deed of Trust). (g) LAND LEASE DEED OF TRUST. The Land Lease Deed of Trust secures ILC's obligations under the Land Lease (i) to return the security deposits set forth in the Land Lease pursuant to the terms of the Land Lease, (ii) to convey the Premises to Tenant as required pursuant to Article 19 thereof, and (iii) to comply with Sections 20.3, 20.4 and 20.5 of the Land Lease. The Tenant Deed of Trust shall be junior only to the Lenders Deed of Trust, the Landlord Deed of Trust and the Tenant Deed of Trust and shall be a fourth priority lien against the premises (as defined in the Land Lease Deed of Trust). 13.2 LANDLORD'S RIGHT TO SELL. Subject to Tenant's Purchase Option and the mandatory purchase set forth in Article 19 and the terms of Section 13.1 and Article 20, nothing contained in this Lease shall be deemed in any way to limit, restrict or otherwise affect the right of Landlord at any time and from time to time to sell or transfer all or any portion of its right, title and estate in the Premises to: (1) a financial institution with a capitalization in excess of One Hundred Million Dollars ($100,000,000) and investments in other leased assets of at least Twenty Five Million Dollars ($25,000,000); (2) a trust established by such an institution; or (3) if an Event of Major Default has occurred and is continuing at the time of such sale or transfer, to any Entity; provided, however, that such Entity shall assume, in a manner consistent with Landlord's obligations under this Lease and the Improvements Loan documents, the Improvements Loan or any other Authorized Loan concurrently with acquisition of the Premises, after first obtaining Lenders' written consent thereto. Landlord shall give Tenant prior written notice of any sale or transfer pursuant to this Section 13.2 together with written evidence of compliance with the terms hereof. Any sale or transfer by Landlord whatsoever shall by its express terms recognize and confirm the right of possession of Tenant to the Premises and Tenant's other rights arising out of this Lease shall not be affected or disturbed in any way by any such sale, transfer, assignment or conveyance (except for any disturbance resulting from a foreclosure sale conducted pursuant to the laws of the State of California at which independent third party bids were permitted, pursuant to the Lenders Deed of Trust, all subject to the terms of Section 19.2). 13.3 TRANSFER OF FUNDS AND PROPERTY. At each time Landlord sells, assigns, transfers or conveys the entire right, title and estate of Landlord in the Premises and in this Lease, 39. 46 Landlord shall turn over to the transferee any funds or other property then held by Landlord under this Lease and thereupon all the liabilities and obligations on the part of the Landlord under this Lease arising after the effective date of such sale, assignment, transfer or conveyance shall terminate as to the transferor and be binding upon the transferee. ARTICLE 14 ASSIGNMENT AND SUBLEASING 14.1 RIGHT TO ASSIGN. (a) TENANT'S RIGHT. Tenant shall have the right, at any time and from time to time during the Term, to assign all or any portion of its right, title and estate in the Premises and in this Lease without approval by Landlord. Any such assignee, immediate or remote, shall have the same right of assignment. Any such assignment shall be evidenced by a written instrument, properly executed and acknowledged by all parties thereto and, at Tenant's election, duly recorded in the Official Records, wherein and whereby the assignee assumes all of the obligations of Tenant under this Lease. Notwithstanding any such assignment and assumption or any sublease permitted under Section 14.2 hereof, Tenant shall remain primarily liable for all obligations and liabilities on the part of Tenant theretofore or thereafter arising under this Lease. (b) NOTICE. Tenant shall, promptly after execution of each assignment, notify Landlord of the name and mailing address of the assignee and shall, on demand, permit Landlord to examine and copy the assignment agreement. 14.2 RIGHT TO SUBLET. (a) TENANT'S RIGHT. Tenant shall have the right, at any time and from time to time during the Term, to sublet all or any portion of the Premises and to extend, modify or renew any sublease without the approval of Landlord. (b) NOTICE. Tenant shall, promptly after execution of each sublease, notify Landlord of the name and mailing address of the subtenant and shall, on demand, permit Landlord to examine and copy the sublease. (c) NON-DISTURBANCE AGREEMENT. Upon Tenant's request, Landlord shall enter into a "landlord agreement" with any subtenant of Tenant. Such agreement shall provide that Landlord shall recognize the sublease and not disturb the subtenant's possession thereunder so long as such subtenant shall not be in default under its sublease, and an Event of Major Default is not then in existence and continuing under this Lease. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of- 40. 47 pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 14.2(c). 14.3 TENANT'S RIGHT TO MORTGAGE. (a) RIGHT OF TENANT. Tenant shall have the right from time to time and at any time, without obtaining the approval of Landlord, to mortgage, pledge or otherwise encumber all or any portion of the right, title and estate of Tenant in the Premises or in this Lease. (b) NOTICE. Tenant shall, promptly after execution of any Mortgage, notify Landlord of the name and mailing address of the Mortgagee thereunder and shall, on demand, permit Landlord to examine and copy the Mortgage. ARTICLE 15 EMINENT DOMAIN 15.1 TOTAL OR SUBSTANTIAL TAKING. If title or access is taken for any public or quasi-public use, or under any statute or by right of condemnation or eminent domain, or by sale in lieu thereof (a "Taking") with respect to all of the Premises, or if title to so much of the Premises or access thereto is Taken, or if the Premises or access thereto is damaged, blocked or impaired by the Taking, so that, in Tenant's sole discretion, the Premises or access thereto, even after a reasonable amount of reconstruction thereof, will no longer be suitable for Tenant's (and/or Tenant's subtenants') continued occupancy for the conduct of Tenant's (and/or Tenant's subtenants') business in a manner consistent with the conduct of such business prior to such Taking, then in any such event, this Lease shall terminate on the date of such Taking. 15.2 PARTIAL TAKING. If any part of the Premises, or access thereto, shall be Taken, and the Premises or the remaining part thereof and access thereto will be, in Tenant's sole discretion, suitable for Tenant's (and/or Tenant's subtenants') continued occupancy for the conduct of Tenant's (and/or Tenant's subtenants') business in a manner consistent with the conduct of such business prior to such Taking, all of the terms, covenants and conditions of this Lease shall continue, except that Base Rent shall be adjusted to reflect the decreased Funded Amount remaining after application thereto of the award made to Landlord for such Taking. 15.3 TEMPORARY TAKING. If the whole or any part of the Premises is Taken for temporary use or occupancy, this Lease shall not terminate by reason thereof and Tenant shall continue to pay, in the manner and at the times herein specified, the full amount of the Base Rent payable by Tenant hereunder, and, except only to the extent that Tenant may be prevented from so doing by reason of such Taking, Tenant shall continue to perform and observe all of the other terms, covenants and conditions hereof on the part of Tenant 41. 48 to be performed and observed, as though the Taking had not occurred. In the event of any such temporary Taking, Tenant shall be entitled to receive the entire amount of the award made for the Taking, whether paid by way of damages, rent or otherwise. If the temporary Taking is for a term in excess of thirty (30) days, then the Taking shall be treated as a permanent Taking and be governed by Section 15.1 or 15.2, as applicable. 15.4 DAMAGES. The compensation attributable to the Improvements (in each case the compensation or value shall be determined as of the date of the Taking) awarded or paid upon any Taking (other than a temporary Taking, which shall be governed by Section 15.3), whether awarded to Landlord, Tenant, or both of them, shall be held by the Escrow Agent described in Section 16.3(b) and distributed in the same manner as insurance proceeds pursuant to Section 16.3. For purposes of this Section 15.4, references to the term "casualty" or similar terms in Section 16.3 shall be deemed to refer to "Taking." 15.5 NOTICE AND EXECUTION. Immediately upon service of process upon Landlord or Tenant in connection with any Taking relating to the Premises or any portion thereof or access thereto, each party shall give the other Notice thereof. Each party agrees to execute and deliver to the other all instruments that may be required to effectuate the provisions of this Article 15. Tenant reserves the right to appear in and to contest any proceedings in connection with any such Taking. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 15.5. ARTICLE 16 DAMAGE OR DESTRUCTION 16.1 CASUALTY. If any Improvements are damaged or destroyed by fire or other casualty (including, but not limited to earthquake), except as provided to the contrary in Section 16.2, this Lease shall continue in full force and effect without any abatement or reduction in Base Rent, and Tenant, at Tenant's election, shall either (a) restore the Improvements substantially to their condition prior to the damage or destruction, or such other condition as Tenant shall elect in its sole and absolute discretion, subject to Landlord's approval rights set forth in Section 11.3(c), or (b) not restore the Improvements, but perform, or cause to be performed, at Tenant's sole cost and expense, any work or service required by any Legal Requirement for the protection of persons or property from any risk, or for the abatement of any nuisance, created by or arising from the casualty or the damage or destruction caused thereby. 16.2 TERMINATION OF LEASE. In the case of: (a) any damage or casualty of any Building or Buildings, which in the good faith judgment of Tenant's Board of Directors would render such 42. 49 Building either unsuitable or uneconomic for restoration or continued use by Tenant; (b) the damage or destruction of all or substantially all (as determined in good faith by Tenant's Board of Directors) of any Building or Buildings; or (c) the damage or destruction of any Building or Buildings where restoration cannot (as determined in good faith by Tenant's Board of Directors) reasonably be completed either within 365 days or prior to the expiration of the Initial Term or the Extension Term, then Tenant may elect to terminate this Lease either as to the Building(s) in question or as to the Lease in its entirety. In the event Tenant terminates the Lease pursuant to the preceding sentence, Tenant shall purchase Landlord's interest in the Building(s) in question for a purchase price equal to the Purchase Price for the Building(s) in question, as such Purchase Price is defined in Section 19.1. The purchase of Landlord's interest in such Building(s) shall be pursuant to the terms of Section 19.1, as applicable to such Building(s). Upon the completion of such purchase, this Lease and all obligations hereunder in respect of such Building(s) shall terminate. This Lease shall remain in full force and effect with respect to all remaining Buildings which Tenant does not elect to purchase pursuant to this Section 16.2, and such remaining Building(s) shall constitute the "Improvements" for purposes of this Lease. 16.3 INSURANCE PROCEEDS. In the event of any fire or other casualty, the proceeds of any insurance policies maintained by Tenant pursuant to Section 7.2 or 7.3 shall be held, applied and dealt with as follows: (a) Any proceeds (per occurrence) of such policies attributable to the Improvements below the amount of Five Hundred Thousand Dollars ($500,000) shall be paid directly to Tenant and applied and used as Tenant may direct in its sole discretion for any construction, restoration or reconstruction purposes in connection with any improvements located on the Land which were destroyed, damaged or affected by such casualty. Any portion of such proceeds which Tenant does not want to use (subject to the terms of Section 16.3(d)) for any construction, restoration or reconstruction shall be paid as follows (the order of payment as set forth below shall be the "Distribution Formula"): (1) to Lenders, or to any other holder of an Authorized Loan, and to Landlord, pro rata in proportion to the ratio that the then-existing Senior Funded Amount bears to the then-existing Funded Amount as compared to the ratio that the then-existing Equity Funded Amount bears to the then-existing Funded Amount (provided, however, that in no event shall the amount paid to Landlord exceed the difference between the Funded Amount and the Guaranteed Residual Value); and (2) with any remaining excess to be paid to Tenant. Any proceeds (per occurrence) of such policies attributable to the Improvements greater than Five Hundred Thousand Dollars ($500,000) shall be paid to an escrow agent ("Escrow Agent") mutually agreeable to the parties (but such escrow agent 43. 50 shall not be a party which is related to or affiliated with either of the parties to this Lease). Such proceeds shall be invested by the Escrow Agent as Tenant may direct; provided, however, that such proceeds shall not be invested in the stock or obligations of Tenant. Such proceeds shall be paid by the Escrow Agent to Tenant (or to third parties as Tenant may direct), as Tenant may direct from time to time as restoration, construction or rebuilding progresses to pay the cost of any restoration, construction or rebuilding which Tenant elects to take place on the Land or any Improvements located upon the Land, but only upon the written request of Tenant, and so long as Landlord reasonably determines that the following conditions are satisfied at the time of such request for payment by Tenant: (i) the sum requested has been paid or is then due and payable or will become due and payable within thirty (30) days; (ii) Tenant has the financial ability (taking into account the insurance proceeds held by the Escrow Agent) to complete the restoration, construction or rebuilding which Tenant has elected to perform; (iii) Landlord has approved the Approval Plans, if any, relating to the restoration of Improvements, pursuant to the terms of Article 11; and (iv) in Landlord's reasonable judgment, such restoration work which Tenant desires to perform in connection with the Improvements can be completed prior to the expiration of the Initial Term (or, if Tenant has exercised, or within one hundred twenty (120) days after reaching final written settlement with all insurance companies regarding the amount of proceeds to be paid for the casualty in question, exercises its right to extend for the Extension Term, then prior to the expiration of the Extension Term). Landlord shall promptly upon request instruct the Escrow Agent to make the payments requested by Tenant unless one of the conditions described above is not satisfied at the time of such request. Any excess insurance proceeds existing after either Tenant's completion of the restoration, construction or rebuilding which Tenant elects to perform or Tenant's failure to comply with the funding condition described in subitems (ii), (iii) and (iv) immediately above in this Section 16.3(b), shall be paid pursuant to the Distribution Formula. If Tenant elects to terminate this Lease as to one or more Buildings, Tenant may use any insurance proceeds to pay the purchase price described in Section 16.2, and all rights of Landlord in insurance proceeds not used to pay the purchase price shall be assigned to Tenant by Landlord at the time Tenant purchases Landlord's interest in any such Building(s). (b) Any proceeds of such policies attributable to improvements or buildings on the Land other than the Improvements shall promptly be paid directly to Tenant. (c) If either: (1) Tenant has not delivered written notice to Landlord within one hundred twenty (120) days after reaching final written settlement with all insurance companies regarding the amount of proceeds to be paid for the casualty in question, pursuant to which notice Tenant elects to either exercise some or all of its termination rights under Section 16.2 and/or to fully or partially repair or restore 44. 51 pursuant to Section 16.1; or (2) Landlord reasonably believes that Tenant has abandoned reconstruction or restoration work which Tenant may have elected to perform (and Tenant shall have failed to diligently recommence reconstruction or restoration work which Tenant is then able to perform within thirty (30) days after Tenant's receipt from Landlord of a Notice of Landlord's belief of Tenant's abandonment of the reconstruction or restoration work); then, in either case, the proceeds attributable to the Improvements shall be paid pursuant to the Distribution Formula. (d) Any insurance proceeds paid to Landlord, Lenders or holder of any Authorized Loan under this Article 16 shall automatically reduce the Funded Amount by a like amount. ARTICLE 17 DEFAULT 17.1 DEFAULT. The following event shall constitute a default ("Default") by Tenant: (a) DEFAULT OTHER THAN EVENT OF MAJOR DEFAULT. Tenant's failure to perform or comply with any of the terms, covenants or conditions contained in this Lease other than those referred to in Section 17.2, where such failure shall continue for a period of thirty (30) days after Notice thereof from Landlord to Tenant, or in the case of a failure which cannot with due diligence be cured within the period of thirty (30) days, Tenant's failure to proceed promptly and with due diligence to cure the failure and thereafter to prosecute the curing of the failure with all due diligence, it being intended that in connection with a failure not susceptible of being cured with due diligence within thirty (30) days, the time of Tenant within which to cure the failure shall be extended for such period as may be reasonably necessary to complete the cure with all due diligence. 17.2 EVENT OF MAJOR DEFAULT. Each of the following events shall constitute an event of major default ("Event of Major Default") by Tenant: (a) FAILURE TO PAY BASE RENT. Tenant's failure to pay any Base Rent within ten (10) days after the later to occur of the due date or Tenant's receipt from Landlord of the Invoice required pursuant to Section 5.1; (b) FAILURE TO PAY ADDITIONAL RENT. Tenant's failure to pay any Additional Rent which is due to Landlord within the later to occur of the due date under this Lease or ten (10) days after Tenant's receipt of Notice thereof from Landlord that such Additional Rent is due; 45. 52 (c) FAILURE TO COMPLY WITH PURCHASE OBLIGATION UNDER SECTION 19.2. Tenant's failure to comply with Tenant's obligation to purchase the Premises pursuant to Section 19.2 within the period required in Section 19.2; (d) FAILURE TO CARRY INSURANCE. Tenant's failure to carry the insurance required by Article 7, if such failure continues ten (10) days after Tenant's receipt of Notice thereof from Landlord that Tenant is not carrying such required insurance (provided, however, that it shall not be an Event of Major Default under this Section 17.2 if Tenant is carrying when required the basic form policies required by Article 7 with respect to the perils addressed therein and in the amounts required by Article 7, notwithstanding some other noncompliance); (e) INSOLVENCY. Subject to Section 17.3, the occurrence of: (i) an assignment by Tenant for the benefit of creditors generally; or (ii) the filing of a voluntary or involuntary petition by or against Tenant under any present or future applicable federal, state or other statute or law having for its purpose the adjudication of Tenant as a bankrupt; (iii) the appointment of a receiver, liquidator or trustee for all or a substantial portion of the Premises by reason of the insolvency or alleged insolvency of Tenant; or (iv) the taking of possession by any department of city, county, state or federal government, or any officer thereof duly authorized, of all or a substantial portion of the Premises by reason of the insolvency or alleged insolvency of Tenant; and Tenant's failure to timely give any Notice it is permitted to give pursuant to Section 17.3 (or, in the event Tenant gives timely Notice and pursues a contest under Section 17.3, Tenant's failure to finally prevail in the contest). (f) FAILURE TO REPLENISH UNDER PLEDGE AGREEMENT. Tenant's failure to replenish the collateral account as required under the Pledge Agreement (as defined in Section 13.1(b)) after the notice and cure periods provided in Pledge Agreement; (g) FAILURE TO REFINANCE THE IMPROVEMENT LOAN. Tenant's failure to refinance, or repay, the Improvement Loan prior to the Extension Term; (h) DEFAULT UNDER OTHER CREDIT FACILITY. Tenant's suffering or permitting any of the following defaults: (i) A payment default (after applicable notice and cure periods) under any credit facility of Tenant which equals or exceeds Twenty Million Dollars ($20,000,000); (ii) An Event of Major Default (after applicable notice and cure periods) under that certain lease agreement by and between SGA Development Partnership, Ltd., a Texas limited partnership, and Tenant, for premises located in San Jose, California, dated February 25, 1993, as amended; (iii) An Event of Major Default (after applicable notice and cure periods) under that certain lease agreement by and between Sumitomo Bank Leasing and Finance, Inc., a Delaware corporation ("SBLF"), and Tenant, for premises located in San Jose, California, dated May 20, 1993, as 46. 53 amended; (iv) An Event of Major Default (after applicable notice and cure periods) under that certain lease agreement by and between SBLF and Tenant for premises located in Raleigh, North Carolina, dated July 11, 1994, as amended; (v) An Event of Major Default (after applicable notice and cure periods) under that certain lease agreement by and between SBLF and Tenant for premises located in Raleigh, North Carolina, dated August 12, 1994; or (vi) An Event of Major Default (after applicable notice and cure periods) under any of the Building Leases; (i) TANGIBLE NET WORTH. Tenant's Tangible Net Worth shall fall below Seven Hundred Fifty Million Dollars ($750,000,000.00); (j) FRAUD/INTENTIONAL MISREPRESENTATION. Fraud or intentional misrepresentation by Tenant in connection with the representations and warranties set forth in Section 21.22 hereof; or (k) DEFAULT UNDER LAND LEASE. An Event of Major Default under the Land Lease. 17.3 CONTEST BY TENANT. If upon the filing of any involuntary petition of the type described in Section 17.2(e) or upon the appointment of a receiver, other than a receiver appointed in any voluntary proceeding referred to in Section 17.2(e), or the taking of possession of all or a substantial portion of the Premises by any department of the city, county, state or federal government, or any officer thereof duly authorized, by reason of the alleged insolvency of Tenant without the consent or over the objection of Tenant, should Tenant desire to contest the same in good faith, Tenant shall, within ninety (90) days after the filing of the petition or after the appointment or taking of possession, give Notice to Landlord that Tenant proposes to make the contest, and the same shall not constitute an Event of Major Default so long as Tenant shall prosecute the proceedings with due diligence and no part of the Premises shall be exposed to sale by reason of the continuance of the contest. 17.4 REMEDIES. Landlord shall have the remedies specified below, the parties hereby acknowledging that the remedies described in Section 17.4(b) may be exercised by Landlord only upon the occurrence of an Event of Major Default. Tenant shall at all times have the right to exercise and carry out the terms of the Purchase Option in Section 19.1, notwithstanding the occurrence or existence of any Default or Event of Major Default under this Lease, and Landlord shall have the obligation to comply with Landlord's obligations under Section 19.1 notwithstanding any Default or Event of Major Default. (a) CONTINUE LEASE. In connection with a Default or an Event of Major Default, Landlord shall have the right to enforce, by suit or otherwise, all other covenants and conditions hereof to be performed or complied with by Tenant and to exercise 47. 54 all other remedies permitted by Section 1951.4 of the California Civil Code, or any amendments thereof or any successor laws which replace such Section 1951.4. Landlord has the remedy described in California Civil Code Section 1951.4 (Landlord may continue the Lease in effect after Tenant's breach and abandonment and recover Base Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitation). Upon application by Landlord, a receiver may be appointed to take possession of the Premises and exercise all rights granted to Landlord as set forth in this Section 17.4(a); and (b) TERMINATE LEASE. In connection with an Event of Major Default (but not a Default), Landlord shall have the right to terminate this Lease, by giving Tenant Notice thereof, at any time after the occurrence of such Event of Major Default and whether or not Landlord has also exercised any right under Section 17.4(a). In such event, Tenant shall, within thirty (30) days after receipt of Notice from Landlord, purchase the Premises pursuant to Section 19.2. Landlord shall also have its other remedies at law (including its rights under the Landlord Deed of Trust), provided, however, that Tenant's right to purchase the Improvements pursuant to Section 19.1 shall survive any termination of this Lease up through the date of foreclosure sale under the Lenders Deed of Trust, the Landlord Deed of Trust or any deed of trust securing an Authorized Loan. 17.5 NO WAIVER. No failure by Landlord or Tenant to insist upon the strict performance of any term, covenant or condition of this Lease or to exercise any right or remedy consequent upon a breach thereof and no acceptance of full or partial Rent during the continuance of any breach shall constitute a waiver of any such breach or of the term, covenant, or condition. No term, covenant or condition of this Lease to be performed or complied with by Tenant or Landlord, and no breach thereof, shall be waived, terminated, altered or modified except by a written instrument executed by Landlord and Tenant. No waiver of any breach shall affect or alter this Lease, but each and every term, covenant, and condition of this Lease shall continue in full force and effect with respect to any other then existing subsequent breach thereof. 17.6 EFFECT OF ASSIGNMENT. Notwithstanding an Entity's prior assignment or transfer of its interest as Tenant under this Lease, so long as Landlord has been given Notice of such assignment pursuant to Sections 14.1(b) and 21.3, Landlord shall give such Entity copies of all Notices required by this Article 17 in connection with any Default or Event of Major Default, and such Entity shall have the period granted hereunder to Tenant to cure such Default or Event of Major Default, unless such Entity shall have been released from all obligations arising under this Lease. Landlord may not assert any rights against such Entity in the absence of such Notice and opportunity to cure, so long as Landlord has been given Notice of such assignment pursuant to Sections 14.1(b) and 21.3. 48. 55 17.7 LANDLORD CURE RIGHT. If Tenant fails to perform any covenant or agreement to be performed by Tenant under this Lease, and if the failure or default continues for thirty (30) days after Notice to Tenant and to any Mortgagee who has requested in writing notice thereof from Landlord (except for emergencies and except for payment of any lien or encumbrance threatening the imminent sale of the Premises or any portion thereof, in which case payment or cure may be made as soon as necessary to minimize the damage to person or property caused by such emergency or to prevent any such sale), Landlord may, but shall have no obligation to, pay the same and cure such default on behalf of and at the expense of Tenant and do all reasonably necessary work and make all reasonably necessary payments in connection therewith including, but not limited to, the payment of reasonable attorneys' fees and disbursements incurred by Landlord. Notwithstanding the foregoing, Landlord shall have no right to cure any such failure to perform by Tenant so long as Tenant both: (1) is diligently and in good faith attempting to cure such matter; and (2) has the financial ability to so comply, unless Tenant has failed to substantially cure such matter within ninety (90) days after Tenant's receipt of Notice thereof from Landlord, in which case Landlord may commence in a reasonable and customary manner and in good faith to attempt to cure such matter (except that Landlord shall not have a right to attempt to cure matters addressed in Section 8.1(b) unless specifically authorized to do so pursuant to Section 8.1(b)). Notwithstanding anything to the contrary in this Lease, in no event shall Landlord have a right to cure any matters relating to the Improvements unless Landlord reasonably believes that the failure to cure such matter could lead to criminal prosecution against Landlord (except as specifically permitted in Section 8.1(b)). Upon demand, Tenant shall reimburse Landlord for the reasonable amount so paid, together with interest at the Default Rate from the date incurred until the date repaid. Tenant shall defend, indemnify, and hold Landlord harmless from and against any and all losses, costs, expenses, liabilities, claims, causes of action and damages of all kinds that may result to Landlord, including reasonable attorneys' fees and disbursements incurred by Landlord, arising because of any failure by Tenant to perform any of its obligations under this Lease. Tenant's duty to indemnify Landlord under this Section 17.7 shall survive the expiration or earlier termination of this Lease. 17.8 LANDLORD'S DEFAULT. (a) LANDLORD'S FAILURE TO PERFORM. If Landlord fails to perform any covenant or agreement to be performed by Landlord under Article 11, Section 13.1, Section 15.4, Article 20, or Section 21.10 of this Lease (including, but not limited to, Landlord's failure to keep the Premises free of any and all liens created by or through Landlord except as approved by Tenant in writing), and if the failure or default continues for thirty (30) days after Notice to Landlord and to any holder of an Authorized Loan who has requested in writing notice thereof from Tenant (except for emergencies, a default under Section 20.5 or payment of 49. 56 any lien or encumbrance threatening the imminent sale of the Premises or any portion thereof, in which case payment or cure may be made as soon as necessary to minimize the damage to person or property caused by such emergency, to prevent foreclosure on the Collateral or to prevent any such sale), Tenant may, but shall have no obligation to, pay the same and cure such default on behalf of and, so long as such failure to perform arises due to Landlord's gross negligence, willful misconduct, or willful breach of this Lease, at the expense of Landlord and do all reasonably necessary work and make all reasonably necessary payments in connection therewith including, but not limited to, the payment of reasonable attorneys' fees and disbursements incurred by Tenant. Notwithstanding the foregoing, Tenant shall have no right to cure any such failure to perform by Landlord so long as Landlord both: (1) is diligently and in good faith attempting to cure such matter; and (2) has the financial ability to so comply. To the extent that Landlord's failure to perform arises due to its gross negligence, willful misconduct or willful breach of this Lease, upon demand, Landlord shall reimburse Tenant for the reasonable amount so paid, together with interest at the Default Rate from the date incurred until the date repaid. To the extent that Landlord's failure to perform arises due to its gross negligence, willful misconduct or willful breach of this Lease, Landlord shall defend, protect, indemnify, and hold Tenant harmless from and against any and all losses, costs, expenses, liabilities, claims, causes of action and damages of all kinds that may result to Tenant, including reasonable attorneys' fees and disbursements incurred by Tenant, arising because of any failure by Landlord to perform any of its obligations under Article 11, Section 13.1, Section 15.4, Article 20 or Section 21.10 of this Lease. Landlord's duty to indemnify Tenant under this Section 17.8 shall survive the expiration or earlier termination of this Lease. (b) DEFAULT UNDER CERTAIN PROVISIONS. In addition to Tenant's rights set forth in Section (a) above, in the event of a default by Landlord under Section 20.5, Tenant shall have the right to cure such default on behalf of and at Landlord's expense, without prior notice to Landlord. In addition, in the event of any default by Landlord under Section 20.3, 20.4 or 20.5, Tenant shall have the right to exercise its Purchase Option pursuant to Section 19.1 hereof. ARTICLE 18 QUIET ENJOYMENT Landlord covenants to secure to Tenant the quiet possession of the Premises for the full Term against all persons claiming the same, subject to Landlord's rights and remedies under Section 17 upon a Default or an Event of Major Default by Tenant. The existence of any Permitted Exceptions shall not be deemed to constitute a breach of Landlord's obligations hereunder. Tenant shall, immediately upon demand, reimburse Landlord for all reasonable costs, expenses and damages incurred or paid by Landlord 50. 57 in the performance of Landlord's obligations under this Article 18 (except for any costs, expenses or damages arising from Landlord's willful breach of this Lease). ARTICLE 19 TENANT'S OPTION TO PURCHASE 19.1 OPTION TO PURCHASE PREMISES. (a) PURCHASE OPTION. Tenant shall have the option ("Purchase Option") to purchase all or part of the Premises at any time during the Term; provided that Tenant shall be entitled to purchase less than all of the Premises only if the portion being purchased is released from any existing Fee Mortgage and if the portion of the Premises not purchased shall constitute one or more Buildings or phases after closing of the purchase and shall be viable as a separate Building or phase as determined in Landlord's reasonable discretion; further provided that if the portion of the Premises not purchased will not constitute one or more legal parcels then Landlord may refuse to sell to Tenant that portion of the Premises in its sole discretion. The purchase price ("Purchase Price") for the Building or phase which Tenant elects to purchase shall be (i) the then-existing Funded Amount for the Building or phase which Tenant elects to purchase, as the same may be reduced from time to time, plus (ii) the amount of any prepayment premium and all other fees, costs, expenses and any accrued but unpaid interest or rent due to any holder of an Authorized Loan in connection with such loan (to the extent not already paid pursuant to Section 21.21 (including late charges arising from Tenant's late payment of Base Rent hereunder and the annual servicing fee attributable to this Lease) hereof). Tenant shall be entitled to a credit against the Purchase Price in an amount equal to the sum of (i) the principal balance(s) of any Authorized Loan and/or Fee Mortgage existing immediately prior to the closing under this Purchase Option if such Authorized Loan and/or Fee Mortgage are not fully repaid and all documents reflecting the same are not cancelled and removed from the public records on or prior to the closing under this Purchase Option, plus (ii) the amount of the Security Deposit (or, in the event of a purchase of a portion of the Premises, a pro rata portion of the Security Deposit), and, upon closing under this Purchase Option, Landlord shall be released from Landlord's obligation to return the Security Deposit set forth in Section 5.7 hereof. If Tenant purchases less than all of the then-existing Premises, then the credit pursuant to the preceding sentence shall be calculated on a pro rata basis, based upon the ratio of the area of the Premises being purchased compared to the area of the then-existing Premises. In lieu of payment of the Purchase Price, Tenant shall have the right (1) to assume the Improvements Loan or any other Authorized Loan or (2) to cause Landlord to assign the Authorized Loan and this Lease (including the existing Security Deposit) to a third party acceptable to the holder of such Authorized Loan (which third party shall expressly assume such obligations in writing), provided that Landlord is 51. 58 released from all obligations under the Authorized Loan and Landlord is paid an amount equal to the Equity Contribution. Landlord shall execute any and all documents necessary to effect such assumption and assignment upon Tenant's request, provided that Tenant shall reimburse Landlord for all reasonable costs and expenses related thereto. (b) PURCHASE OPTION EXERCISE NOTICE. If Tenant desires to exercise the Purchase Option, Tenant shall deliver to Landlord a written notice ("Purchase Option Exercise Notice") of Tenant's election; provided, however, that in the event of an assignment by Landlord for the benefit of creditors generally, the filing of a voluntary or involuntary bankruptcy petition by or against Landlord or the appointment of a receiver, liquidator or trustee for all or a substantial portion of the Premises by reason of Landlord's insolvency or alleged insolvency, the Purchase Option shall be deemed exercised with respect to the entire Premises as of the calendar day immediately preceding such assignment, filing or appointment. (c) TRANSFER. If Tenant exercises the Purchase Option, the purchase and sale of the Premises shall be consummated as follows. In the event of a purchase of a portion of the Premises, the term "Premises" as used in this Section 19.1(c) shall be deemed to mean that portion of the Premises then to be purchased pursuant to the Purchase Option. (i) Landlord shall grant and convey the Premises to Tenant, its authorized agent or assignee, pursuant to a duly executed and acknowledged grant deed ("Grant Deed"), free and clear of all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and restrictive covenants or conditions, except for the Permitted Exceptions; (ii) The Purchase Price shall be paid upon delivery of the Grant Deed and any other documents reasonably requested by Tenant to evidence the transfer of the Premises or to release all liens of Landlord, including without limitation, any and all reconveyances of mortgages or other recorded documents as requested by Tenant ("Additional Documents"). In the event that Tenant elects to assign the Purchase Option pursuant to Section 19.1(d) below, and Tenant's assignee pays an amount less than the Purchase Price for the Premises, Tenant shall pay to Landlord any excess of the Purchase Price over the amount paid by such assignee. Landlord shall deliver the Grant Deed and the Additional Documents to Tenant on the date for closing specified by Tenant in the Purchase Option Exercise Notice (which date shall be no sooner than ten (10) days after the date of the Purchase Option Exercise Notice and no later than the last day of the Term, as the same may be extended). The closing shall take place at the location and in the manner reasonably set forth by Tenant in the Purchase Option Exercise Notice; 52. 59 (iii) If Landlord shall fail to cause title to be in the condition required in Section 19.1(c)(i) above within the time herein prescribed for the delivery of the Grant Deed, then Tenant shall have the right, in addition to all other rights provided by law, by a written notice to Landlord: (1) to extend the time in which Landlord shall clear title and deliver the Grant Deed and Additional Documents, during which extension this Lease shall remain in full force and effect, except Tenant shall be released from its obligation to pay Base Rent during the extension; (2) to accept delivery of the Grant Deed and Additional Documents subject to such title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and restrictive covenants or conditions specified and set forth in the Grant Deed and not cleared by Landlord (but without waiving any rights or remedies available to Tenant on account of such title exceptions); (3) to rescind, by notice to Landlord and without any penalty or liability therefor, any and all obligations Tenant may have under and by virtue of the Purchase Option or the exercise thereof, whereupon this Lease shall remain in full force and effect; (4) if the title exception is curable by the payment of money, Tenant may make such payment and such payment shall be a credit against the Purchase Price in favor of Tenant. (iv) Refusal of a title company to issue a standard form of owner's title insurance policy insuring title to the Premises in the condition specified in subparagraph (c)(i) shall be sufficient evidence of Landlord's failure to convey clear title and shall entitle Tenant to exercise any of the rights specified in subparagraph (c)(iii). (v) Base Rent shall be prorated and paid and all unpaid Additional Rent shall be paid as of the date title to the Premises is vested of record in Tenant. Tenant shall pay the escrow fees; the recorder's fee for recording the Grant Deed; the premium for the title insurance policy; all documentary transfer taxes; Tenant's attorneys' fees; Landlord's reasonable attorneys' fees; all other costs and expenses incurred by Tenant in consummating the transfer of the Premises; and all reasonable expenses (except as specified in the next sentence) incurred by Landlord in consummating the transfer of the Premises pursuant to this Section 19.1. Landlord shall pay the costs and expenses of clearing title as required by Section 19.1(c)(i). In the event of a purchase by Tenant under this Article 19, Landlord shall have no obligation to return the Security Deposit to Tenant to the extent the Security Deposit has been credited against the purchase price to be paid by Tenant pursuant to Section 19.1(a). (d) ASSIGNMENT. Tenant shall have the right on one or more occasions, without Landlord's consent, to assign this purchase option, in whole or in part, to any Entity at any time, whether or not Tenant also assigns its interest in the Lease. Tenant shall give prior written notice to Landlord of any such assignment. 53. 60 19.2 MANDATORY PURCHASE/SALE OF PREMISES. Notwithstanding anything to the contrary herein, upon either: (1) the occurrence of an Event of Major Default or the expiration of the Term of this Lease or upon the occurrence of any other event terminating this Lease; or (2) the occurrence of any event which causes the Funded Amount to be reduced to zero (0); or (3) Tenant's exercise of the Purchase Option pursuant to Section 19.1 or 19.2 of the Land Lease, within thirty (30) days after Tenant's receipt of written Notice of the foregoing and of Tenant's purchase obligation under this Section 19.2 (except in the case of a purchase obligation arising on account of the expiration of the Term of this Lease or exercise of the Purchase Option under the Land Lease; in either such case no prior Notice shall be required, but Tenant shall have twenty (20) days after expiration of the Term or exercise of the Purchase Option under the Land Lease to conclude the purchase), Tenant shall purchase or cause another Entity to purchase, and Landlord shall sell, the Premises in the same manner as if Tenant had exercised the Purchase Option on such date. The Purchase Price shall be the same as if Tenant had exercised the Purchase Option, without regard to the physical state or condition of the Premises or any Improvements (but Tenant shall have the rights set forth in Section 19.1, including without limitation, the terms of Sections 19.1(c)(iii) and (iv)). In the event Tenant fails to purchase (or to cause another Entity to purchase) the Premises pursuant to its obligation under this Section 19.2, and if Landlord does not foreclose under the Landlord Deed of Trust, Landlord (to the extent required under Section 21.19) shall use commercially reasonable efforts to sell the Premises to an unrelated third party, and, as applicable, (i) Tenant shall be obligated to pay to Landlord, immediately upon demand, any shortfall between the Purchase Price and the amount realized by Landlord in connection with such sale, or (ii) Landlord shall be obligated to pay to Tenant, immediately upon demand, any excess of the amount realized by Landlord in connection with such sale over the Purchase Price. For purposes of the preceding sentence, the amount realized by Landlord upon a sale of the Premises shall be net of Landlord's reasonable sale expenses and other expenses incurred by Landlord but required to be paid by Tenant pursuant to Section 19.1(c)(v). Landlord's obligation to pay such excess to Tenant shall survive any termination of this Lease. Landlord and Tenant agree that any and all cash proceeds payable at any foreclosure sale under the Landlord Deed of Trust shall, after payment of all obligations secured by the Landlord Deed of Trust, be paid to Tenant or to any other person claiming through Tenant entitled thereto by applicable law. The aggregate of the obligations under an Authorized Loan and the obligations secured by the Landlord Deed of Trust shall not exceed the Purchase Price. Notwithstanding anything to the contrary in this Lease, in the event of default, breach or violation by Tenant of any of Tenant's obligations under this Section 19.2, Tenant shall have no liability to Landlord or any other party in excess of an amount equal to the then-existing Guaranteed Residual Value, less a credit equal to the sum of (a) any of the Collateral (including the pledged Security Deposit) which Lenders or any other holder of an Authorized Loan 54. 61 has used, applied, or otherwise come into possession of, plus (b) any of the Security Deposit retained by Landlord, and Landlord shall have no recourse, claim or counterclaim whatsoever against Tenant in excess of such amount on account of such default, breach or violation. If the Guaranteed Residual Value has not previously been determined as of the date Tenant's liability under this Section 19.2 has been established, then the Guaranteed Residual Value shall be determined as of the date Tenant's liability hereunder is established. 19.3 SURVIVAL. The obligations of Landlord and Tenant under this Article 19 shall survive the expiration or earlier termination of this Lease. ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD 20.1 TITLE AND SUBDIVISION. In the event Tenant so requests in writing (and so long as either Tenant agrees to indemnify Landlord from any liabilities or obligations in connection therewith, or Landlord does not incur any liabilities or obligations in connection therewith), Landlord shall execute all documents, instruments and agreements reasonably requested by Tenant in order to accomplish any of the following in the manner reasonably requested by Tenant and within the time parameters reasonably requested by Tenant: (1) remove exceptions to title to or affecting the Premises; (2) create exceptions to title (including, without limitation, easements and rights of way) to or affecting the Premises (but not including any Mortgage); (3) modify any then-existing exception to title; or (4) subdivide the Land into two or more separate parcels. Tenant shall promptly reimburse Landlord for, or at Landlord's request, pay directly in advance, all reasonable costs, expenses and other amounts incurred or required to be expended by Landlord in order to comply with Tenant's requests made in accordance with the preceding sentence, and the failure of Tenant to reimburse or pay any such amounts shall result in the suspension of Landlord's obligations under such sentence with respect to that particular request until the amounts required to be paid by Tenant under this sentence have been paid. Landlord acknowledges that it is critical to Tenant's ability to construct improvements on the Premises to have the ability and flexibility to accomplish the foregoing, and that the parties therefore agree that Landlord shall not be entitled to withhold Landlord's consent to any of the foregoing requests by Tenant, except as set forth in the preceding sentence. 20.2 LAND USE. Except where requested by Tenant pursuant to this Section 20.2, Landlord shall not cause or give its written consent to any land use or zoning change affecting the Premises or any changes of street grade. In the event Tenant so requests in writing (and so long as either Tenant agrees to indemnify Landlord from any liabilities or obligations in connection therewith, or Landlord does not incur any liabilities or 55. 62 obligations in connection therewith), Landlord shall execute all documents, instruments and agreements reasonably requested by Tenant in order to accomplish any of the following in the manner reasonably requested by Tenant and within the time parameters reasonably requested by Tenant: (1) cause a change in any land use restriction or law affecting the Premises; (2) cause a change in the zoning affecting the Premises; or (3) cause a change in the street grade with respect to any street in the vicinity of the Premises. Tenant shall promptly reimburse Landlord for, or at Landlord's request, pay directly in advance, all reasonable costs, expenses and other amounts incurred or required to be expended by Landlord in order to comply with Tenant's requests made in accordance with the preceding sentence, and the failure of Tenant to reimburse or pay any such amounts shall result in the suspension of Landlord's obligations under such sentence with respect to that particular request until the amounts required to be paid by Tenant under this sentence have been paid. Landlord acknowledges that it is critical to Tenant's ability to construct improvements on the Premises to have the ability and flexibility to accomplish the foregoing, and that the parties therefore agree that Landlord shall not be entitled to withhold Landlord's request to any of the foregoing requests by Tenant. 20.3 TRANSFER OF PROPERTY INTERESTS. Except as requested by Tenant pursuant to Section 11.7 or 20.1, Landlord shall not transfer to any third party any rights inuring to or benefits associated with the Premises (including, without limitation, zoning rights, development rights, air space rights, mineral, oil, gas or water rights). Nothing in this Section 20.3 shall limit Landlord's rights pursuant to Section 13.2; provided that any purchaser of Landlord's interest in the Premises shall be bound by the terms of this Lease, including without limitation, the terms of this Section 20.3. 20.4 TRUST EQUITY; NO OTHER ASSET. Landlord covenants and agrees that during the Term of the Lease, Landlord shall maintain a residual equity capital investment of at least three percent (3%) of total assets of Landlord, including assets acquired by this equity investment. In addition, Landlord shall not, without the prior written consent of Tenant, which consent may be withheld at Tenant's sole discretion, acquire any significant assets other than (i) the Land, (ii) the Premises and (iii) the land and any Improvements thereon, which Improvements are subject to certain leases between Landlord and Tenant executed concurrently herewith, and which land is described on Exhibit L attached hereto. 20.5 DEFAULT UNDER AUTHORIZED LOAN. Landlord shall not, without Tenant's express prior written consent, default under any Authorized Loan, or any loan documents relating to such Authorized Loan, where such default does not arise from an Event of Major Default by Tenant under this Lease. Any such default shall constitute a material default under this Lease, subject to the limitations on liability of Section 17.8 hereof. 56. 63 ARTICLE 21 MISCELLANEOUS 21.1 RELATIONSHIP. Neither this Lease nor any agreements or transactions contemplated hereby shall in any respect be interpreted, deemed or construed as constituting Landlord and Tenant as partners or joint venturers, one with the other, or as creating any partnership, joint venture, association or, except as set forth in Section 21.2 below, any other relationship other than that of landlord and tenant; and, except as set forth in Section 21.2 below, both Landlord and Tenant agree not to make any contrary assertion, contention, claim or counterclaim in any action, suit or other legal proceeding involving either Landlord or Tenant or the subject matter of this Lease. 21.2 FORM OF TRANSACTION; CERTAIN TAX MATTERS. (a) Landlord and Tenant hereby agree and declare that the transactions contemplated by this Lease are intended to constitute, both as to matters of form and substance: (i) an operating lease for financial accounting and securities regulatory purposes, and (ii) a financing arrangement (and not a "true lease") for Federal, state and local income taxes, property tax valuation or other tax purposes. Accordingly, and notwithstanding any other provision of this Lease to the contrary, Landlord and Tenant agree and declare that (A) the transactions contemplated hereby are intended to have a dual, rather than single, form and (B) all references in this Lease to the "Lease" of the Premises which fail to reference such dual form do so as a matter of convenience only and do not reflect the intent of Landlord and Tenant as to the true form of such arrangements. (b) Landlord and Tenant agree that, in accordance with their intentions and the substance of the transactions contemplated hereby, Tenant (and not Landlord) shall be treated as the owner of the Premises for Federal, state, and local income tax and property tax valuation purposes and this Lease shall be treated as a financing arrangement. Tenant shall be entitled to take any deduction, credit allowance or other reporting, filing or other tax position consistent with such characterizations. Landlord shall not file any Federal, state or local income or property tax returns, reports or other statements in a manner which is inconsistent with the foregoing provisions of this Section 21.2. (c) Each party acknowledges that it has retained accounting, tax and legal advisors to assist it in structuring this Lease and neither party is relying on any representations of the other regarding the proper treatment of this transaction for accounting, income tax, property tax or any other purpose. 57. 64 21.3 NOTICES. Each Notice shall be in writing and shall be sent by personal delivery, overnight courier (charges prepaid or billed to the sender) or by the deposit of such with the United States Postal Service, or any official successor thereto, designated as registered or certified mail, return receipt requested, bearing adequate postage and in each case addressed as provided in the Basic Lease Provisions. Each Notice shall be effective upon being personally delivered or actually received. The time period in which a response to any such Notice must be given or any action taken with respect thereto shall commence to run from the date of personal delivery or receipt of the Notice by the addressee thereof, as reflected on the return receipt of the Notice. Rejection or other refusal to accept shall be deemed to be receipt of the Notice sent. By giving to the other party at least thirty (30) days' prior Notice thereof, either party to this Lease (as well as any Mortgagee) shall have the right from time to time during the Term of this Lease to change the address(es) thereof and to specify as the address(es) thereof any other address(es) within the continental United States of America. 21.4 SEVERABILITY OF PROVISIONS. If any term, covenant or condition of this Lease, or the application thereof to any Entity or circumstance, shall be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to Entities or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby. 21.5 ENTIRE AGREEMENT; AMENDMENT. This Lease constitutes the entire agreement of Landlord and Tenant with respect to the subject matter hereof. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. 21.6 APPROVALS AND CONSENTS. Except as expressly provided in this Lease, whenever any provision of this Lease requires an approval or consent to be given by one of the parties hereto, the approval or consent shall not be unreasonably withheld or delayed. Whenever this Lease grants either party the right to take action, exercise discretion, establish rules and regulations, or make an allocation or other determination, except as otherwise provided, such party shall act reasonably and in good faith and take no action which might result in the frustration of the other party's reasonable expectations concerning the benefits to be enjoyed under this Lease. If either party withholds its consent or approval, unless by the express terms of this Lease such consent or approval may be withheld in such party's sole discretion, such party shall, upon request, promptly deliver to the other party a written statement specifying in detail the reason or reasons why such consent or approval was withheld or refused. If neither approval nor rejection is given by Landlord within the time specified in Article 11 as to any particular approval requested by 58. 65 Tenant under Article 11 (or, if no such time is specified, then within thirty (30) days after request for approval is given by a Notice), then the approval thus specifically requested in writing by Tenant shall be conclusively and irrevocably deemed to have been given by Landlord. 21.7 TERMINOLOGY. All personal pronouns used in this Lease shall include all other genders. The singular shall include the plural and the plural shall include the singular. Titles of Articles, Sections and Subsections in this Lease are for convenience only and neither limit nor amplify the provisions of this Lease, and all references in this Lease to Articles, Sections or Subsections shall refer to the corresponding Article, Section or Subsection of this Lease unless specific reference is made to the articles, sections or other subdivisions of another document or instrument. The word "days" as used herein shall mean business days (i.e., excluding holidays when banks in the State of California or New York are generally closed for business and weekends) unless otherwise expressly stated. 21.8 MEMORANDUM OF LEASE. Neither party shall record this Lease. However, concurrently with the execution of this Lease, Landlord and Tenant have executed a Memorandum of Lease in the form attached hereto as Exhibit E and by this reference made a part hereof, which Memorandum of Lease shall be promptly recorded in the Official Records. 21.9 SUCCESSORS AND ASSIGNS. Subject to Articles 13 and 14, this Lease shall inure to the benefit of and be binding upon Landlord and Tenant and their respective heirs, executors, legal representatives, successors and assigns. Whenever in this Lease a reference to any Entity is made, such reference shall be deemed to include a reference to the heirs, executors, legal representatives, successors and assigns of such Entity. 21.10 COMMISSIONS. Landlord and Tenant each represent and warrant that neither has dealt with any broker in connection with this transaction and that no real estate broker, salesperson or finder has the right to claim a real estate brokerage, salesperson's commission or finder's fee by reason of contact between the parties brought about by such broker, salesperson or finder. Each party shall hold and save the other harmless of and from any and all loss, cost, damage, injury or expense arising out of or in any way related to claims for real estate broker's or salesperson's commissions or fees based upon allegations made by the claimant that it is entitled to such a fee from the indemnified party arising out of contact with the indemnifying party or alleged introductions of the indemnifying party to the indemnified party. In addition to the foregoing, Tenant shall hold and save Landlord harmless of and from any and all loss, cost, damages, injury or expense arising out of or in any way related to claims for real estate broker's or salesperson's commissions relating to Landlord's acquisition of the Premises or fees by The Staubach Company in connection with this Lease. 59. 66 21.11 ATTORNEYS' FEES. In the event any action is brought by Landlord or Tenant against the other to enforce or for the breach of any of the terms, covenants or conditions contained in this Lease, the prevailing party shall be entitled to recover reasonable attorneys' fees to be fixed by the court, together with costs of suit therein incurred. Tenant shall pay the reasonable attorneys' fees incurred by Landlord for the review and negotiation of this Lease and the Improvements Loan documents. 21.12 GOVERNING LAW. This Lease and the obligations of the parties hereunder shall be governed by and interpreted, construed and enforced in accordance with the laws of the State of California. 21.13 COUNTERPARTS. This Lease may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. 21.14 TIME IS OF THE ESSENCE. Time is of the essence of this Lease, and of each provision hereof. 21.15 NO THIRD PARTY BENEFICIARIES. This Lease is entered into by Landlord and Tenant for the sole benefit of Landlord and Tenant. There are no third party beneficiaries to this Lease. 21.16 LIMITATIONS ON RECOURSE. The obligations of Tenant and Landlord under this Lease shall be without recourse to any partner, officer, trustee, beneficiary, shareholder, director or employee of Tenant or Landlord. There shall be no limitation on Landlord's liability with respect to any willful misconduct, bad faith breach of this Lease, or gross negligence by Landlord ("Identified Matters"). Except for any Identified Matter, Landlord's liability to Tenant for any default by Landlord under this Lease: (1) shall be limited to the greater of the Equity Funded Amount less any repayment to Tenant of the Security Deposit or Landlord's interest in the Premises; and (2) shall extend to any actual damages of Tenant, but shall not extend to any foreseeable and unforeseeable consequential damages. 21.17 ESTOPPEL CERTIFICATES. Within thirty (30) days after request therefor by either party, the non- requesting party shall deliver, in recordable form, a certificate to any proposed mortgagee, purchaser, sublessee or assignee and to the requesting party, certifying (if such be the case) that this Lease is in full force and effect, the date of Tenant's most recent payment of Rent, that, to the best of its knowledge, the non-requesting party has no defenses or offsets outstanding, or stating those claimed, and any other information reasonably requested. Failure to deliver said statement in time shall be conclusive upon the non-requesting party that: (a) this Lease is in full force and effect, without modification except as may be represented by the requesting party; (b) there are no uncured defaults in the requesting party's 60. 67 performance and the non-requesting party has no right of offset, counterclaim or deduction against the non-requesting party's obligations hereunder; (c) no more than one month's Base Rent has been paid in advance; and (d) any other matters reasonably requested in such certificate. 21.18 COLLATERAL. The parties acknowledge that Tenant has pledged certain collateral ("Collateral") to Lenders to secure Landlord's obligations under the terms of the Note. If the holder of an Authorized Loan applies any of the Collateral to satisfy an obligation under any Authorized Loan documents, such application shall be deemed to reduce the Senior Funded Amount under this Lease on a dollar-for-dollar basis. Tenant shall have no claims, rights or causes of action against Landlord arising from any application of the Collateral to satisfy an obligation under the Authorized Loan documents. 21.19 LANDLORD'S CONTINUING OBLIGATION TO SELL. Except in the case of a foreclosure under the Landlord Deed of Trust, and subject to the rights of any holder of an Authorized Loan, in the event Landlord obtains possession of the Premises pursuant to the terms of this Lease (including, without limitation, upon the expiration or earlier termination of this Lease where Tenant has defaulted in its obligation to purchase the Premises pursuant to Section 19.2), Landlord shall be under a continuing obligation to use its commercially reasonable efforts to sell the Premises to Tenant or to one or more unrelated third parties; provided, however, that Landlord shall not be required to sell or attempt to sell any portion of the Premises (i) in a manner, or under circumstances, that could materially impair Landlord's ability to enforce any of its rights or remedies under this Lease (as determined in Landlord's sole discretion exercised in good faith), (ii) at a time when market conditions render it inadvisable to sell or attempt to sell the Premises (as determined in Landlord's sole discretion exercised in good faith). Nothing contained in this paragraph shall be binding on any holder of an Authorized Loan acquiring title through foreclosure, to any person acquiring title at any such foreclosure or to their successors in interest. Upon the occurrence of any such sale Landlord shall be obligated to pay to Tenant any excess of the amount realized by Landlord in connection with such sale over the Purchase Price. For purposes of the preceding sentence, the amount realized by Landlord upon a sale of the Premises shall be net of Landlord's reasonable sale expenses and other expenses incurred by Landlord but required to be paid by Tenant pursuant to Section 19.1(c)(v). Landlord's obligation to pay such excess to Tenant shall survive any termination of this Lease. Landlord shall not deliver to any Mortgagee a deed in lieu of foreclosure under any circumstances without Tenant's prior written approval, which may be withheld in Tenant's sole and absolute discretion. 61. 68 21.20 AS-IS LEASE. Landlord makes no representations or warranties concerning the condition, suitability or any other matters relating to the Premises, and Tenant hereby acknowledges that Tenant leases the Premises from Landlord on an "as is" basis. 21.21 NET LEASE. Except as otherwise provided in this Lease, Tenant agrees that this Lease is an absolute net Lease, and the Base Rent called for hereunder shall be paid as required net of all expenses associated with the Premises, including without limitation, Real Estate Taxes and insurance premiums for the insurance required to be carried hereunder, and all other reasonable and customary costs and expenses incurred by Landlord in connection with the Premises or this Lease, all of which shall be paid or reimbursed by Tenant unless otherwise specifically provided herein. Tenant agrees to reimburse Landlord, within five (5) business days following receipt of any written demand therefor, for all reasonable and customary fees (including the pro rata portion of the $3,000 annual servicing fee payable to SBNYTC attributable to this Lease), late charges, title endorsement and other costs and expenses charged to Landlord by Lenders pursuant to the terms and conditions of the Note. 21.22 REPRESENTATIONS AND WARRANTIES. Tenant and Landlord each hereby represents and warrants to the other that: (i) such party is duly organized and existing under the laws of the jurisdiction in which it is formed; (ii) such party has the full right and authority to enter into this Lease, consummate the sale, transfers and assignments contemplated herein and otherwise perform its obligations under this Lease; (iii) the person or persons signatory to this Lease and any document executed pursuant hereto on behalf of such party have full power and authority to bind such party; and (iv) the execution and delivery of this Lease and the performance of such party's obligations hereunder do not and shall not result in the violation of its organizational documents or any contract or agreement to which such party may be a party. 21.23 APPRAISAL PROCEDURE. (a) If this Lease calls for an appraisal under this Section 21.23 with respect to the Coverage Test, Landlord and Tenant shall have thirty (30) days after either party delivers Notice to the other party of a desire to utilize the appraisal procedure under this Section 21.23 in connection with the Coverage Test in which to agree on whether the Coverage Test is satisfied as of the time required under the relevant provision of this Lease. In determining the Coverage Test, the fair market value of the Land and Improvements ("Fair Market Value") shall be calculated together, taking into consideration the quality, size, design and location of the Land and Improvements, and the value of comparable property in the general locality of the Land, and any other factors which customarily are evaluated in appraising land or buildings. If either party elects to utilize the terms of this Section 21.23 and Landlord and Tenant agree on the Fair Market Value during such 62. 69 thirty (30) day period, they shall immediately execute a letter agreement reflecting such agreement. (b) If Landlord and Tenant are unable to agree on the Fair Market Value within such thirty (30) day period, then within ten (10) days after the expiration of the thirty (30) day period, Landlord and Tenant each, at its cost and by giving notice to the other party, shall appoint a competent and disinterested real estate appraiser with at least five (5) years' full-time commercial appraisal experience in the geographical area of the Building to appraise and set the Fair Market Value. If either Landlord or Tenant does not appoint an appraiser within ten 10 days after the other party has given notice of the name of its appraiser, the single appraiser appointed shall be the sole appraiser and shall set the Fair Market Value. If two (2) appraisers are appointed by Landlord and Tenant as stated in this Section, they shall meet promptly and attempt to set the Fair Market Value. (c) If the two (2) appraisers are unable to agree on the Fair Market Value within thirty (30) days after the second appraiser has been appointed, they shall attempt to select a third appraiser meeting the qualifications stated in this Section within ten (10) days after the last day the two (2) appraisers are given to set the Fair Market Value. If they are unable to agree on the third appraiser, either Landlord or Tenant, by giving ten (10) days' notice to the other party, can apply to the then president of the real estate board of the county in which the Land is located, or to the Presiding Judge of the Superior Court of the county in which the Land is located, for the selection of a third appraiser who meets the qualifications stated in this Section. Landlord and Tenant each shall bear one-half (l/2) of the cost of appointing the third appraiser and of paying the third appraiser's fee. The third appraiser, however selected, shall be a person who has not previously acted in any capacity for either Landlord or Tenant. Within thirty (30) days after the selection of the third appraiser, a majority of the appraisers shall set the Fair Market Value. If a majority of the appraisers is unable to set the Fair Market Value within the stipulated period of time, the third appraiser shall arrange for simultaneous exchange of written appraisals from each of the appraisers and the three (3) appraisals shall be added together and their total divided by three (3); the resulting quotient shall be the Fair Market Value. If, however, the low appraisal and/or the high appraisal are/is more than ten percent (10%) lower and/or higher than the middle appraisal, the low appraisal and/or the high appraisal shall be disregarded. If only one (1) appraisal is disregarded, the remaining two (2) appraisals shall be added together and their total divided by two (2); the resulting quotient shall be the Fair Market Value. If both the low appraisal and the high appraisal are disregarded as stated in this Section, the middle appraisal shall be the Fair Market Value. (d) After the Fair Market Value has been set, the appraisers shall immediately notify Landlord and Tenant, and 63. 70 EXHIBIT A LEGAL DESCRIPTION OF LAND REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: Lot 50, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52. Reserving therefrom a perpetual right and easement to construct, install, maintain, repair, renew, replace, operate and use a surface drainage release to benefit Lot 49 of Tract 7560, as contained in that certain Grant of Easement recorded August 8, 1990 in Book L443, page 0754, Official Records, and described as follows: The Northwesterly 10.00 feet of the Southeasterly 30.00 feet and the Northwesterly 100.00 feet of the Southeasterly 130.00 feet of the Northeasterly 10.00 feet of Lot 50. That portion of Lot 51, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52, being more particularly described as follows: Beginning at the Southeasterly corner of said Lot 51; thence along the Southerly line of said Lot 51, S. 59 degrees 27 minutes 51 seconds W. 77.00 feet; thence N. 14 degrees 27 minutes 48 seconds E. 108.90 feet to the Northeasterly line of said Lot 51; thence along said Northeasterly line S. 30 degrees 32 minutes 09 seconds E. 77.00 feet to the point of beginning, as provided for in that certain Lot Line Adjustment granted by the Director of Planning of the City of San Jose, a copy of which was recorded March 28, 1984 in the office of the Recorder of the County of Santa Clara in Book I410, page 712 of Official Records. Lot 5 and 6, as shown on that certain Map of Tract No. 7408, which map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on November 19, 1982 in Book 506 of Maps, pages 24, 25 and 26 and a portion of that certain parcel of land described in the deed recorded December 22, 1972 in Book 0167, page 623, all as approved by that Lot Combination recorded September 16, 1992 in Book M381 of Maps, page(s) 0081, Official Records, more particularly described as follows: Beginning at a point on the Northeasterly line of Rio Robles, as shown upon said map, at the most Southerly corner of said Lot 5; thence along said Northeasterly line of Rio Robles, N. 30 degrees 32 minutes 09 seconds W. 105.50 feet; thence on a tangent curve to the right, having a radius of 367.00 feet, through a central angle of 36 degrees 30 minutes 00 seconds an EXHIBIT A 71 arc distance of 233.80 feet; thence on a curve to the right, tangent to the previous curve, having a radius of 50.00 feet, through a central angle of 86 degrees 01 minutes 50 seconds an arc distance of 75.08 feet to the Southerly line of Tasman Drive as shown upon said map; thence along said line on a curve to the left, tangent to the previous curve, having a radius of 1149.00 feet, through a central angle of 32 degrees 31 minutes 01 degrees an arc distance of 652.09 feet; thence N. 59 degrees 28 minutes 40 seconds E. 600.40 feet; thence on a tangent curve to the right, having a radius of 33.00 feet, through a central angle of 89 degrees 51 minutes 11 seconds an arc distance of 51.83 feet to the Southwesterly line of First Street, as shown upon said map; thence along said line, S. 30 degrees 32 minutes 09 seconds E. 261.38 feet to the Northwesterly line of the lands of the City and County of San Francisco, as shown upon said map; thence along said line of the lands of the City and the County of San Francisco, S. 65 degrees 09 minutes 27 seconds W. 1396.95 feet to the point of beginning. Those rights as contained in that certain Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records, over the following described property: A strip of land 80 feet wide, lying 40 feet either side of the following described line and extensions thereto, across that certain parcel of land conveyed by Charles Nelson, et ux, to Masami Ezaki by Grant Deed dated February 27, 1936 and recorded March 11, 1936, in Volume No. 765, at page 262, Official Records, Santa Clara County, hereinafter referred to as the Ezaki Parcel, said line being more particularly described as commencing at a point in the Westerly boundary of the existing San Jose-Alviso Road, said point being distant along said boundary South 30 degrees 32 minutes 30 seconds East 381.31 feet from its intersection with the Northerly boundary of the above mentioned Ezaki Parcel; thence, from said point of commencement, South 65 degrees 08 minutes 00 seconds West 1459.03 feet to a point in the common boundary between the above mentioned Ezaki Parcel and that certain parcel of land conveyed by Lena Lindgren, et al, to James A. Pankoski, et ux, by Joint Tenancy Deed dated November 13, 1944 and recorded November 17, 1944 in Volume No. 1227 at Page 327, Official Records, Santa Clara County, hereinafter referred to as the Pankoski Parcel, said point being distant along said common boundary South 30 degrees 32 minutes 30 seconds East 237.04 feet from the most Westerly corner of the above mentioned Ezaki Parcel; the Easterly end of said strip being the above mentioned Westerly boundary of the San Jose-Alviso Road, and the Westerly end of said strip being the above mentioned common boundary between the Pankoski and Ezaki Parcels. EXHIBIT A 72 EXHIBIT B PERMITTED EXCEPTIONS The following exceptions from coverage of Landlord's title insurance which affect "Parcel Two" and "Parcel Three": 1. PROPERTY TAXES, including any assessments collected with taxes, for the fiscal year 1995-1996, a lien not yet due or payable. 2. a) Bond for City of San Jose, Reassessment District No. 93-210 1993 Consolidated Refunding Bond No. : 24J Assessment No. : 42V Balance of principal : $88,186.00 Balance of interest through maturity : $16,532.60 The above Amount excludes $12,279.07 principal, $5,140.46 interest and $277.29 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects Lot 59 of Parcel One. b) Bond for City of San Jose, Reassessment District No. 93-210 1993 Consolidated Refunding Bond No. : 24J Assessment No. : 46V Balance of principal : $100,217.00 Balance of interest through maturity : $18,788.10 The above Amount excludes $13,954.27 principal, $5,841.76 interest and $312.93 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects Lot 58 of Parcel One. c) Bond for Reassessment District #93-210 Consolidated Refunding, as follows: Bond No. : 24J Assessment No. : 48V Balance of principal : $113,800.32 Balance of interest : $21,334.61 The above Amount to pay in full excludes $15,845.61 principal, $6,633.65 interest and $353.18 handling charge spread on the 1994- 1995 tax roll, which amounts cannot be prepaid. Said matter affects Parcel Two. 73 2. Continued d) Bond for Reassessment District #93-210 Consolidated Refunding, as follows: Bond No. : 24J Assessment No. : 47V Balance of principal : $123,177.11 Balance of interest : $23,092.52 The above Amount to pay in full excludes $17,151.24 principal, $7,180.13 interest and $380.97 handling charge spread on the 1994- 1995 tax roll, which amounts cannot be prepaid. Said matter affects Parcel Three. e) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 8V Balance of principal : $63,238.68 Balance of interest through maturity : $11,855.62 The above Amount excludes $8,806.39 principal, $3,686.25 interest and $203.36 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects Parcels Four and Five. f) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 1V Balance of principal : $429.87 Balance of interest through maturity : $80.61 The above Amount excludes $59.86 principal, $25.02 interest and $1.32 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects a portion of Parcel Six. g) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 2V Balance of principal : $91,559.14 Balance of interest through maturity : $17,164.97 The above Amount excludes $12,748.74 principal, $5,337.09 interest and $280.03 handling charge spread on the 1994- 1995 tax roll, which amounts cannot be prepaid. Said matter affects a portion of Parcel Six. 74 2. Continued h) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 9V Balance of principal : $75,028.33 Balance of interest through maturity : $14,065.87 The above Amount excludes $10,446.98 principal, $4,373.49 interest and $229.47 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects a portion of Parcel Six. i) Bond for Reassessment District #93-210 Consolidated Refunding Bond No. : 24J Assessment No. : 10V Balance of principal : $360.71 Balance of interest through maturity : $67.62 The above Amount excludes $50.23 principal, $21.03 interest and $1.10 handling charge spread on the 1994-1995 tax roll, which amounts cannot be prepaid. Said matter affects a portion of Parcel Six. 3. THE LIEN of supplemental taxes, if any, assessed as a result of transfer of interest and/or new construction, said supplemented taxes being assessed pursuant to Chapter 3.5 commencing with Section 75 of the California Revenue and Taxation Code, for which no Notice of Assessment has been issued, as of the date herein. 4. EASEMENT for the purposes stated herein and incidents thereto Purpose : Right to excavate for, install, replace (of initial or any other size), maintain and use for conveying gas such pipe line or lines as shall from time to time elect, with necessary values and other appliances Granted to : Pacific Gas and Electric Company, a California corporation Recorded : July 6, 1944 in Book 1206, page 154, Official Records Affects : as follows: By a Relocation Agreement between Oakmead Associates, a California general partnership and Pacific Gas and Electric Company, a California corporation Recorded : April 5, 1989 in Book K903, page 1344, Official Records the easement was relocated as follows: A strip of land of the uniform width of 15 feet extending from the Northerly boundary line of said Lot 5, said Northerly boundary line being the Southerly boundary line of the city street known as Tasman Drive (128 feet wide), said Tasman Drive is shown on said map, Southwesterly to the Westerly boundary line of said Lot 5, said Westerly boundary line being the Easterly boundary line of the street known as Rio Robles (56 feet wide), said street Rio Robles is also shown on said map, and lying 7.5 feet on each side of the line described as follows: 75 4. Continued Beginning at a point in the Northerly boundary line of said Lot 5 and running (1) S. 0 degrees 23.5 minutes E. 12.4 feet to a point which bears, S. 66 degrees 35.0 minutes W. 579.2 feet distant from the found 5/8 inch brass pin set in concrete accepted as marking the Southwesterly terminus of a course in the center line of said Tasman Drive, which course as shown on said map has a bearing of, N. 59 degrees 28 minutes 40 seconds E. and a length of 700.88 feet; thence (2) S. 29 degrees 04.3 minutes W. 187.8 feet; thence (3) S. 57 degrees 38.6 minutes W. 10.8 feet to a point in the Westerly boundary line of said Lot 5. Said line being a survey traverse made by second party in September, 1983. The bearings used in the foregoing description are based on solar observations made by second party. Covenants, conditions and restrictions in the above mentioned instruments. Said matter affects Parcel Six. 5. TERMS and conditions as contained in the Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records. Said matter affect Parcels Five and Seven and portions of Parcels Four and Six. 6. THE EFFECT of the Rincon de los Esteros Project Redevelopment Plan and Ordinances Nos. 17306, 19686, 19835, 20677, 20958, 21417, 21496, 21903, 22660, 22412, 22761, 22761.1 and 22961, 23703, 23732, 23761 and 23934 of the City of San Jose as recorded and as disclosed by documents recorded July 11, 1975 in Book B502, Page 711; August 6, 1979 in Book E699, Page 245; August 6, 1979 in Book E699, Page 277; December 21, 1979 in Book F37, Page 585; October 8, 1981 in Book G382, Page 605; July 28, 1982 in Book G929, Page 703; September 14, 1983 in Book H892, Page 200; January 10, 1984 in Book I220, Page 271; January 6, 1992 in Book L996, Page 508, all of Official Records, and as disclosed by information provided by the Redevelopment Agency of the City of San Jose. 7. EASEMENT for the purposes stated herein and incidents thereto Purpose : Any and all public service facilities, including, but not limited to, poles, wires, conduits and vaults, storm sewers, sanitary sewers, and gas, water, electrical and communication mains and all appurtenances thereto Granted to : City of San Jose, a municipal corporation of the State of California Recorded : September 14, 1981 in Book G330, page 497, Official Records Affects : That portion of said land as shown upon the map herein referred to, more particularly described as follows: All that certain real property situated in the City of San Jose, County of Santa Clara, State of California, being a portion of the parcel of land described and designated as Parcel 1 in the deed to River Oaks Associates #2, dated November 17, 1979, recorded in Book E962 of Official Records, at page 145, Santa Clara County Records, more particularly described as follows: 76 7. Continued Beginning at a point in the centerline of North First Street (formerly San Jose-Alviso Road) as said centerline is described in said deed at the most Northerly corner of said parcel; thence along the Northwesterly boundary line of said parcel, S. 59 degrees 28 minutes 40 seconds W. (S. 59 degrees 30 minutes W. per deed), 114.98 feet; thence leaving said line, S. 30 degrees 31 minutes 20 seconds E. 34.00 feet to the true point of beginning; thence along a non-tangent curve to the right having a radius of 50.00 feet; whose radius point bears along the continuation of the last described course, S. 30 degrees 31 minutes 20 seconds E. through a central angle of 89 degrees 59 minutes 11 seconds for an arc length of 78.53 feet to a point in a line which is parallel with and 65.00 feet Southwesterly of said centerline; thence along said parallel line, S. 30 degrees 32 minutes 09 seconds E. 254.64 feet to a point in the Northwesterly boundary line of the strip of land described in the deed to the City of County of San Francisco, dated October 20, 1950; recorded in Book 2111 of Official Records, at page 319, Santa Clara County Records; thence along said Northwesterly line, S. 65 degrees 09 minutes 27 seconds W. 10.05 feet to a point in a line that is parallel with and 75.00 feet Southwesterly from said centerline; thence along said parallel line, N. 30 degrees 32 minutes 09 seconds W. 253.64 feet; thence along a curve to the left, having a radius of 40.00 feet, through a central angle of 89 degrees 59 minutes 11 seconds for an arc length of 62.82 feet; thence N. 30 degrees 31 minutes 20 seconds W. 10.00 feet to the true point of beginning; the bearing of, S. 30 degrees 32 minutes 09 seconds E. of the monument line of North First Street, as shown on the Parcel Map recorded in Book 460 of Maps, at page 1, Santa Clara County Records, was used as the basis of bearings for this description. Said matter affects Parcel Six. 8. EASEMENT for the purposes stated herein and incidents thereto Purpose : Landscape Easement Granted to : City of San Jose, a municipal corporation Recorded : September 14, 1981 in Book G330, page 504, Official Records Affects : The Northeasterly 20 feet of Parcel Six. 9. LICENSE for the purposes stated herein and incidents thereto Purpose : To construct, install, maintain, repair, renew, replace, operate and use an interim storm sewer pipe line or lines and appurtenances of any size of material, and/or a surface drainage release Granted to : City of San Jose, a municipal corporation of the State of California Recorded : September 14, 1981 in Book G330, page 511, Official Records Affects : that portion of said land as shown upon the map herein referred to, more particularly described as follows: All that certain real property situate in the City of San Jose, County of Santa Clara, State of California, being a portion of the parcel of land described and designated as Parcel 1 in the deed to River Oaks Associates #2, dated November 17, 1979, recorded in Book E962 of Official Records, at page 145, Santa Clara County Records, more particularly described as follows: Beginning at a point in the centerline of North First Street (formerly San Jose-Alviso Road) as said centerline is described in said deed at the most Northerly corner of said parcel; thence along the Northwesterly boundary line of said parcel, S. 59 degrees 29 minutes 40 seconds W. (S. 59 degrees 30 minutes W. per deed), 114.98 feet; thence leaving said boundary line, S. 30 degrees 31 minutes 20 seconds E. 34.00; thence along a non-tangent curve to the right having a radius of 50.00 feet whose radius point bears along the continuation of the last described course, S. 30 degrees 31 minutes 20 seconds E. through a central angle of 17 degrees 26 minutes 39 seconds for an arc length of 15.22 feet to the point of beginning; thence continuing along said curve 77 9. Continued to the right having a radius of 50.00 feet, through a central angle of 19 degrees 24 minutes 44 seconds for an arc length 16.94 feet to a point in a line that is parallel with and 85.00 feet Southwesterly of said centerline; thence along said parallel line S. 30 degrees 32 minutes 09 seconds E. 292.64 feet to a point in the Northwesterly boundary line of the strip of land described in the deed to the City and County of San Francisco, dated October 20, 1950, recorded in Book 2111 of Official Records, at page 319, Santa Clara County Records; thence along said Northwesterly boundary line, S. 65 degrees 09 minutes 27 seconds W. (S. 65 degrees 08 minutes 00 seconds W. per deed), 15.07 feet to a point in a line which is parallel with and 100.00 feet Southwesterly of said centerline; thence along said parallel line, N. 30 degrees 32 minutes 09 seconds W. 298.84 feet to the true point of beginning. Said matter affects Parcel Six. 10. AN EASEMENT affecting the portion of said land and for the purpose stated herein and incidental purposes, shown or dedicated by the map of Tract 7408 filed in Book 506 of Maps, pages 24, 25 and 26. Purpose : Public Service Easement Affects : The Southwesterly 10 feet of Parcels One, Two and Three; the Northwesterly 8 feet of Parcel Two; the Southwesterly 8 feet of Parcel Four; the Northeasterly and Northwesterly 10 feet of Parcel Six; and the Southwesterly 8 feet of Parcel Six. 11. EASEMENT as shown on the filed map of Tract 7408 filed in Book 506 of Maps, pages 24-26 and incidents thereto Purpose : Landscape Easement Affects : The Southwesterly 20 feet of Parcel One, Two and Three; the Northwesterly 18 feet of Parcel Two; the Southwesterly 18 feet of Parcel Four; the Northeasterly and Northwesterly 20 feet of Parcel Six; and the Southwesterly 18 feet of Parcel Six. 12. EASEMENT for the purposes stated herein and incidents thereto Purpose : Public Service Easement Granted to : City of San Jose Recorded : November 19, 1982 in Book H156, page 275, Official Records Affects : The Northwesterly 25 feet of Parcel Four 13. EASEMENT for the purposes stated herein and incidents thereto Purpose : The installation, maintenance and operation of all landscaping plant forms, irrigation systems, retaining walls, and decorative walkway paving now existing or hereinafter to be constructed Granted to : City of San Jose, a municipal corporation of the State of California Recorded : May 27, 1983 in Book H590, page 649, Official Records Affects : The Southwesterly 20 feet of Parcel One, Two and Three; the Northwesterly 18 feet of Parcel Two; the Southwesterly 18 feet of Parcel Four; the Northeasterly and Northwesterly 20 feet of Parcel Six; and the Southwesterly 18 feet of Parcel Six. 78 14. EASEMENT for the purposes stated herein and incidents thereto Purpose : The installation, maintenance and operation of all landscaping plant forms, irrigation systems, retaining walls, and decorative walkway paving now existing or hereinafter to be constructed Granted to : City of San Jose, a municipal corporation of the State of California Recorded : May 27, 1983 in Book H590, page 652, Official Records Affects : The Westerly corner of Parcel Two and the Northerly and Westerly corner of Parcel Six 15. AGREEMENT on the terms and conditions contained therein, For : The installation and maintenance of landscape improvements Between : City of San Jose, a municipal corporation And : Oakmead-San Jose, a California general partnership and Oakmead-San Jose Sign and Landscape Maintenance Association, a California non-profit mutual benefit corporation Recorded : May 27, 1983 in Book H590, page 662, Official Records Reference is hereby made to the record for further particulars. 16. EASEMENT for the purposes stated herein and incidents thereto Purpose : The construction, installation, repair and maintenance of interlocking pavers, retaining walls and signs, and for pedestrian and vehicular access as necessary or desirable thereto, but subject to the obligation of the association of the association, its successors and assigns, to promptly repair any damage to said improvements lying within the Sign and Landscape Easements resulting from the Association's activities thereon Granted to : Oakmead-San Jose Sign and Landscape Maintenance Association, a non-profit mutual benefit corporation Recorded : June 3, 1983 in Book H604, page 322, Official Records Affects : The Westerly corner of Parcel Two and the Northerly and Westerly corner of Parcel Six 17. LIMITATIONS, covenants, conditions, restrictions, reservations, exceptions, terms, liens or charges, but deleting restrictions, if any, based on race, color, religion or national origin contained in the document recorded June 3, 1983 in Book H604, page 334, Official Records. CONTAINS mortgagee protection clause. MODIFICATION thereof recorded January 26, 1984 in Book I257, page 252, Official Records. A Notice of Amendment of Design Guidelines Executed by : Oakmead-San Jose, a California general partnership Recorded : June 21, 1984 in Book I649, page 543, Official Records An instrument entitled, "Designation of Approving Agent," whereby Kimball Small Properties, a California corporation was designated approving agent under the CC&R's and Design Guidelines. Recorded : April 29, 1988 in Book K517, page 940, Official Records MODIFICATION thereof recorded October 18, 1988 in Book K721, page 265, Official Records. 79 17. Continued Said Assignment affects Parcel One. An instrument entitled, "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 1, 1995 Between : CROCKER PROPERTIES, INC., a California corporation and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 1, 1995 as Instrument No. 12877064, Official Records Said Assignment affects Parcels Two and Three An Instrument entitled, "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 8, 1995 Between : AMDAHL CORPORATION, a Delaware corporation and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 8, 1995 as Instrument No. 12882481, Official Records Said Assignment affects Parcels Four, Five and Six 18. LIMITATIONS, covenants, conditions, restrictions, reservations, exceptions, terms, liens or charges, but deleting restrictions, if any, based on race, color, religion or national origin contained in the document recorded June 3, 1983 in Book H604, page 505, Official Records. Said instrument also provides for the levy of assessments, the lien of which are stated to be subordinate to the lien of a First Mortgage of First Deed of Trust made in good faith and for value. MODIFICATION thereof recorded January 26, 1984 in Book I257, page 248, Official Records. An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose and Removal of Approving Agent," Dated : October 18, 1988 Between : Oakmead-San Jose, a California general partnership and Oakmead Associates, a California general partnership Recorded : October 18, 1988 in Book K721, page 295, Official Records Said Assignment affects Parcels One, Four, Five and Six An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose and Removal of Approving Agent," Dated: : April 20, 1989 Between : Oakmead Associates, a California general partnership and Amdahl Corporation, a Delaware corporation Recorded : April 20, 1989 in Book K927, page 332, Official Records Said Assignment affects Parcels Four and Five 80 18. Continued An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : July 12, 1989 Between : Oakmead Associates, a California general partnership and Amdahl Corporation, a Delaware corporation Recorded : July 12, 1989 in Book L017, page 1927, Official Records Said Assignment affects Parcel Six MODIFICATION thereof recorded July 19, 1989 in Book L024, page 587, Official Records An instrument entitled "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose" Between : Oakmead-San Jose, a California general partnership and Crocker Properties, Inc., a California corporation Recorded : August 10, 1989 in Book L052, page 1001 and page 1011, Official Records. Said Assignment affects Parcels Two and Three An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 1, 1995 Between : OAKMEAD ASSOCIATES, a California general partnership and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 1, 1995 as Instrument No. 12877061, Official Records Said Assignment affects Parcel One. An instrument entitled, "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 1, 1995 Between : CROCKER PROPERTIES, INC., a California corporation and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 1, 1995 as Instrument No. 12877064, Official Records Said Assignment affects Parcels Two and Three An instrument entitled, "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : May 8, 1995 Between : AMDAHL CORPORATION, a Delaware corporation and IRISH LEASING CORPORATION, a Texas corporation Recorded : May 8, 1995 as Instrument No. 12882481, Official Records Said Assignment affects Parcels Four, Five and Six 81 19. EASEMENT as shown on the filed map of Tract 7559 filed in Book 522 of Maps, pages 49 ad 50. Purpose : Public Service Easement Affects : The Northwesterly 8 Feet and the Westerly corner of Lot 59 of Parcel One 20. EASEMENT as shown on the filed map of Tract 7559 filed in Book 522 of Maps, pages 49 and 50. Purpose : Landscape Easement Affects : The Southeasterly 18 feet and the Southerly corner of Lot 58 of Parcel One; and the Northwesterly 18 feet and the Westerly corner of Lot 59 of Parcel One 21. EASEMENT for the purposes stated herein and incidents thereto Purpose : Communication facilities Granted to : Pacific Bell Recorded : February 21, 1984 in Book I319, page 486, Official Records Affects : The Southwesterly 10 feet of Lot 58 of Parcel One; the Southwesterly 10 feet, the Northwesterly 8 feet and the Westerly corner of Lot 59 of Parcel One; and the Southwesterly 10 Feet of Parcel Three 22. EASEMENT for the purposes stated herein and incidents thereto Purpose : Underground and above ground communication facilities Granted to : Pacific Bell Recorded : May 17, 1984 in Book 1552, page 624, Official Records Affects : The Southwesterly 10 feet of Parcel Four 23. AGREEMENT on the terms and conditions contained therein, For : Gas and electric service Between : Pacific Gas and Electric Company, City of San Jose And : Oakmead-San Jose As disclosed by a Memorandum of Agreement Recorded : February 25, 1985 in Book J271, page 37, Official Records. Reference is hereby made to the record for further particulars. 24. EASEMENT for the purposes stated herein and incidents thereto Purpose : Emergency overland storm drainage release Granted to : Amdahl Corporation, a Delaware corporation Recorded : August 8, 1990, in Book L443, page 754, Official Records Affects : The Northwesterly 10 feet of the Southeasterly 30 feet and the Northeasterly 10 feet of the Northwesterly 100 feet of the Southeasterly 130 feet of Parcel Four. Terms and conditions contained in the document hereinabove referred to. 25. TERMS AND CONDITIONS of that certain Site Development Permit File No. : HSH 90-09-104 Disclosed By : A Notice of Granting of a Site Development Permit Recorded : January 24, 1991 in Book L600, page 1242, Official Records 82 25. Continued Said matter affects Parcels Four, Five and Six. Reference is hereby made to the record for particulars. 26. TERMS AND CONDITIONS of that certain Site Development Permit File No. : HSH 92-02-011 Disclosed By : A Notice of Granting of a Site Development Permit Recorded : August 21, 1992 in Book M340, page 824, Official Records Said matter affects Parcel Six. 27. TERMS AND CONDITIONS of that certain Site Development Permit File No. : H94-07-041 Disclosed By : A Notice of Granting of a Site Development Permit Recorded : October 19, 1994 in Book N638, page 215, Official Records Said matter affects Parcel Six. Reference is hereby made to the record for particulars. 29. ANY RIGHTS, interests, or claims adverse to those of the vestee herein which may exist or arise by reason of the following facts shown on a survey plat entitled "A.L.T.A./A.C.S.M. Land Title Survey", dated April 14, 1995, prepared by Kier & Wright, Job. No. 92160-16. a) The fact that a concrete sign extends across the Northwesterly boundary of Parcel Six. 30. UNRECORDED LEASE for the term and upon the terms and conditions contained therein Dated : February 28, 1995 Lessor : IRISH LEASING CORPORATION, a Texas corporation Lessee : CISCO SYSTEMS, INC., a California corporation Term : 5 Years Disclosed by : Memorandum of Land Lease, recorded May 1, 1995, as Instrument No., 12877062, Official Records. Affects the fee to Parcel One. 31. OPTION TO PURCHASE as disclosed in the Memorandum of Lease recorded May 1, 1995 as Instrument No. 12877062, Official Records Affects the fee to Parcel One. 32. UNRECORDED LEASE for the term and upon the terms and conditions contained therein Dated : February 28, 1995 Lessor : IRISH LEASING CORPORATION, a Texas corporation Lessee : CISCO SYSTEMS, INC., a California corporation Term : 5 Years Disclosed by : Memorandum of Land Lease, recorded May 1, 1995, as Instrument No. 12677065, Official Records. Affects the fee to Parcels Two and Three. 83 33. OPTION TO PURCHASE as disclosed in the Memorandum of Lease recorded May 1, 1995 as Instrument No. 12877065, Official Records Affects the fee to Parcels Two and Three. 34. A DEED OF TRUST to secure an indebtedness in the original principal sum shown below and any other amounts and/or obligations secured thereby Amount : $2,700,000.00 Dated : May 1, 1995 Trustor : IRISH LEASING CORPORATION, a Texas corporation Trustee : FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation Beneficiary : CISCO SYSTEMS, INC., a California corporation Recorded : May 1, 1995, under Series No. 12877066, Official Records. Affects the fee to Parcels One, Two and Three. 35. UNRECORDED LEASE for the term and upon the terms and conditions contained therein Dated : April 12, 1995 Lessor : IRISH LEASING CORPORATION, a Texas corporation Leesee : CISCO SYSTEMS, INC., a California corporation Term : 5 years Disclosed by : Memorandum of Land Lease, recorded May 8, 1995, as Instrument No. 12882482, Official Records. Affects the fee to Parcels Four, Five, Six and Seven. 36. OPTION TO PURCHASE as disclosed in the Memorandum of Lease recorded May 8, 1995 as Instrument No. 12482482, Official Records Affects the fee to Parcels Four, Five, Six and Seven. 37. A DEED OF TRUST to secure an indebtedness in the original principal sum shown below and any other amounts and/or obligations secured thereby Amount : $1,500,000.00 Dated : May 1, 1995 Trustor : IRISH LEASING CORPORATION, a Texas corporation Trustee : FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation Beneficiary : CISCO SYSTEMS, INC., a California corporation Recorded : May 8, 1995, under Series No. 12882483, Official Records. Affects the fee to Parcels Four, Five, Six and Seven. 84 EXHIBIT C Intentionally Omitted EXHIBIT C 1. 85 EXHIBIT D Intentionally Omitted EXHIBIT D 1. 86 EXHIBIT E MEMORANDUM OF LEASE RECORDING REQUESTED BY, AND WHEN RECORDED, RETURN TO: Brobeck, Phleger & Harrison 550 West C Street, Suite 1300 San Diego, California 92101 Attention: Todd J. Anson, Esq. THIS MEMORANDUM OF LEASE ("Memorandum of Lease") is executed as of May ___, 1995, by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"). RECITALS WHEREAS, Landlord and Tenant have executed that certain lease ("Lease") dated as of May ___, 1995, covering certain improvements ("Premises") which may come to be located on the real property located in the County of Santa Clara, State of California and more particularly described in Schedule 1 attached hereto and incorporated herein by this reference ("Land"); and WHEREAS, Landlord and Tenant desire to record notice of the Lease in the real estate records of Santa Clara County, California; NOW, THEREFORE, in consideration of the foregoing, Landlord and Tenant hereby declare as follows: 1. DEMISE. Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord, subject to the terms, covenants and conditions contained in the Lease. The Premises leased to Tenant pursuant to the Lease consists of the Improvements described in Paragraph 5 below, and does not include the Land. 2. EXPIRATION DATE. The term of the Lease ("Term") shall commence on May ___, 1995 and shall expire five (5) years thereafter, subject to Tenant's option to extend the Term pursuant to Section 4.2 of the Lease for one (1) period of five (5) years. EXHIBIT E 1. 87 3. OPTION TO PURCHASE. Tenant has an option to purchase the Premises, as more particularly described in the Lease, during the Term, as it may be extended. 4. RESTRICTIONS ON ENCUMBRANCES. Landlord is prohibited from recording against the Premises liens (including, without limitation, deeds of trust), encumbrances, and other matters that would constitute exceptions to title, and from amending or modifying any of the foregoing that may exist now or during the Term, as more particularly described in the Lease, and any such encumbrance or modification of an encumbrance not authorized in writing by Tenant shall be null and void. 5. OWNERSHIP OF CERTAIN IMPROVEMENTS. By virtue of Tenant's rights under that certain Ground Lease between Tenant and Irish Leasing Corporation, a Texas corporation, dated April 12, 1995, Tenant hereby grants to Landlord the right to own and construct the improvements which Tenant may elect, as construction agent for Landlord, to erect, construct or situate upon the Land or any part thereof during the Term under and pursuant to the terms of, and using funding provided by or through Landlord pursuant to Article 11 of the Lease ("Improvements"), and Tenant hereby grants, conveys and transfers to Landlord all of Tenant's right, title and interest in and to the Improvements (whether now existing or hereafter constructed), and Tenant agrees that any and all such Improvements shall be and remain the property of Landlord, subject to Tenant's rights to purchase the Improvements under Section 19 of the Lease (with Landlord's agreement that Tenant's purchase rights contemplated under Section 19 of the Lease reflect the primary intent of the parties to the Lease is to treat the Lease as an operating Lease for financial accounting and securities regulatory purposes and as a financing arrangement for all federal, state and local income tax, property tax valuation and other tax purposes). 6. COUNTERPARTS. This Memorandum of Lease may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] EXHIBIT E 2. 88 IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum of Lease as of the date and year first written above. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: ___________________________ Name:___________________________ Its: ___________________________ STATE OF __________________ ) ) ss COUNTY OF _________________ ) On _____________, before me, ______________________, Notary Public, personally appeared _______________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ________________________ Signature [SEAL] [SIGNATURES CONTINUED ON NEXT PAGE] EXHIBIT E 3. 89 "TENANT" CISCO SYSTEMS, INC. A CALIFORNIA CORPORATION By: ______________________________ Name: ________________________ Its: ________________________ STATE OF __________________ ) ) ss COUNTY OF _________________ ) On _____________, before me, ______________________, Notary Public, personally appeared _______________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ________________________ Signature [SEAL] EXHIBIT E 4. 90 SCHEDULE 1 TO EXHIBIT E LEGAL DESCRIPTION REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: Lot 50, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52. Reserving therefrom a perpetual right and easement to construct, install, maintain, repair, renew, replace, operate and use a surface drainage release to benefit Lot 49 of Tract 7560, as contained in that certain Grant of Easement recorded August 8, 1990 in Book L443, page 0754, Official Records, and described as follows: The Northwesterly 10.00 feet of the Southeasterly 30.00 feet and the Northwesterly 100.00 feet of the Southeasterly 130.00 feet of the Northeasterly 10.00 feet of Lot 50. That portion of Lot 51, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52, being more particularly described as follows: Beginning at the Southeasterly corner of said Lot 51; thence along the Southerly line of said Lot 51, S. 59 degrees 27 minutes 51 seconds W. 77.00 feet; thence N. 14 degrees 27 minutes 48 seconds E. 108.90 feet to the Northeasterly line of said Lot 51; thence along said Northeasterly line S. 30 degrees 32 minutes 09 seconds E. 77.00 feet to the point of beginning, as provided for in that certain Lot Line Adjustment granted by the Director of Planning of the City of San Jose, a copy of which was recorded March 28, 1984 in the office of the Recorder of the County of Santa Clara in Book I410, page 712 of Official Records. Lot 5 and 6, as shown on that certain Map of Tract No. 7408, which map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on November 19, 1982 in Book 506 of Maps, pages 24, 25 and 26 and a portion of that certain parcel of land described in the deed recorded December 22, 1972 in Book 0167, page 623, all as approved by that Lot Combination recorded September 16, 1992 in Book M381 of Maps, page(s) 0081, Official Records, more particularly described as follows: Beginning at a point on the Northeasterly line of Rio Robles, as shown upon said map, at the most Southerly corner of said Lot 5; thence along said Northeasterly line of Rio Robles, N. 30 degrees 32 minutes 09 seconds W. 105.50 feet; thence on a tangent curve to the right, having a radius of 367.00 feet, through a central angle of 36 degrees 30 minutes 00 seconds an SCHEDULE 1 TO EXHIBIT E 91 arc distance of 233.80 feet; thence on a curve to the right, tangent to the previous curve, having a radius of 50.00 feet, through a central angle of 86 degrees 01 minutes 50 seconds an arc distance of 75.08 feet to the Southerly line of Tasman Drive as shown upon said map; thence along said line on a curve to the left, tangent to the previous curve, having a radius of 1149.00 feet, through a central angle of 32 degrees 31 minutes 01 seconds an arc distance of 652.09 feet; thence N. 59 degrees 28 minutes 40 seconds E. 600.40 feet; thence on a tangent curve to the right, having a radius of 33.00 feet, through a central angle of 89 degrees 51 minutes 11 seconds an arc distance of 51.83 feet to the Southwesterly line of First Street, as shown upon said map; thence along said line, S. 30 degrees 32 minutes 09 seconds E. 261.38 feet to the Northwesterly line of the lands of the City and County of San Francisco, as shown upon said map; thence along said line of the lands of the City and the County of San Francisco, S. 65 degrees 09 minutes 27 seconds W. 1396.95 feet to the point of beginning. Those rights as contained in that certain Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records, over the following described property: A strip of land 80 feet wide, lying 40 feet either side of the following described line and extensions thereto, across that certain parcel of land conveyed by Charles Nelson, et ux, to Masami Ezaki by Grant Deed dated February 27, 1936 and recorded March 11, 1936, in Volume No. 765, at page 262, Official Records, Santa Clara County, hereinafter referred to as the Ezaki Parcel, said line being more particularly described as commencing at a point in the Westerly boundary of the existing San Jose-Alviso Road, said point being distant along said boundary South 30 degrees 32 minutes 30 seconds East 381.31 feet from its intersection with the Northerly boundary of the above mentioned Ezaki Parcel; thence, from said point of commencement, South 65 degrees 08 minutes 00 seconds West 1459.03 feet to a point in the common boundary between the above mentioned Ezaki Parcel and that certain parcel of land conveyed by Lena Lindgren, et al, to James A. Pankoski, et ux, by Joint Tenancy Deed dated November 13, 1944 and recorded November 17, 1944 in Volume No. 1227 at Page 327, Official Records, Santa Clara County, hereinafter referred to as the Pankoski Parcel, said point being distant along said common boundary South 30 degrees 32 minutes 30 seconds East 237.04 feet from the most Westerly corner of the above mentioned Ezaki Parcel; the Easterly end of said strip being the above mentioned Westerly boundary of the San Jose-Alviso Road, and the Westerly end of said strip being the above mentioned common boundary between the Pankoski and Ezaki Parcels. SCHEDULE 1 TO EXHIBIT E 92 EXHIBIT F FORM OF CONTRACTOR'S CERTIFICATE EXHIBIT F 1. 93 APPLICATION AND CERTIFICATE FOR PAYMENT AIA DOCUMENT G702 (Instructions on reverse side) PAGE ONE OF PAGES - -------------------------------------------------------------------------------- TO OWNER: PROJECT: APPLICATION NO: Distribution to: PERIOD TO: / / OWNER PROJECT NOS.: / / ARCHITECT / / CONTRACTOR FROM CONTRACTOR: VIA ARCHITECT: CONTRACT DATE: / / / / CONTRACT FOR: - -------------------------------------------------------------------------------- CONTRACTOR'S APPLICATION FOR PAYMENT Application is made for payment, as shown below, in connection with the Contract. Continuation Sheet, AIA Document G703, is attached. 1. ORIGINAL CONTRACT SUM..................................... $ --------------- 2. NET CHANGE BY CHANGE ORDERS............................... $ --------------- 3. CONTRACT SUM TO DATE (Line 1 plus or minus 2)............. $ --------------- 4. TOTAL COMPLETED & STORED TO DATE.......................... $ (Column G on G703) --------------- 5. RETAINAGE: a % of Completed Work (Columns D plus E on G703) $ -------- --------------- b % of Stored Material (Column F on G703) $ -------- --------------- Total Retainage (Line 5a plus 5b or Total in Column 1 of G703)............ $ --------------- 6. TOTAL EARNED LESS RETAINAGE............................... $ (Line 4 less Line 5 Total) --------------- 7. LESS PREVIOUS CERTIFICATES FOR PAYMENT (Line 6 from prior Certificate)........................... $ --------------- 8. CURRENT PAYMENT DUE....................................... $ =============== 9. BALANCE TO FINISH, INCLUDING RETAINAGE (Line 3 less Line 6) $ ---------------
- -------------------------------------------------------------------------------- CHANGE ORDER SUMMARY ADDITIONS DEDUCTIONS - -------------------------------------------------------------------------------- Total changes approved in previous months by Owner - -------------------------------------------------------------------------------- Total approved this Month - -------------------------------------------------------------------------------- TOTALS - -------------------------------------------------------------------------------- NET CHANGES by Change Order - --------------------------------------------------------------------------------
The undersigned Contractor certifies that to the best of the Contractor's knowledge, information and belief the Work covered by this Application for Payment has been completed in accordance with the Contract Documents, that all amounts have been paid by the Contractor for Work for which previous Certificates for Payment were issued and payments received from the Owner, and that current payment shown herein is now due. CONTRACTOR: By: Date: ------------------------------ -------------------------------- State of: County of: Subscribed and sworn to before me this day of Notary Public: My Commission expires: - -------------------------------------------------------------------------------- ARCHITECT'S CERTIFICATE FOR PAYMENT In accordance with the Contract Documents, based on on-site observations and the data comprising this application, the Architect certifies to the Owner that to the best of the Architect's knowledge, information and belief the Work has progressed as indicated, the quality of the Work is in accordance with the Contract Documents, and the Contractor is entitled to payment of the AMOUNT CERTIFIED. AMOUNT CERTIFIED................................... $ ----------------------- (Attach explanation if amount certified differs from the amount applied for. Initial all figures on this Application and on the Continuation Sheet that are changed to conform to the amount certified.) ARCHITECT: By: Date: ------------------------------ -------------------------------- This Certificate is not negotiable. The AMOUNT CERTIFIED is payable only to the Contractor named herein. Issuance, payment and acceptance of payment are without prejudice to any rights of the Owner or Contractor under this Contract. - -------------------------------------------------------------------------------- AIA DOCUMENT G702 APPLICATION AND CERTIFICATE FOR PAYMENT 1992 EDITION AIA(R) Copyright 1992 AMERICAN INSTITUTE OF ARCHITECTS 1735 NEW YORK AVENUE, N.W. WASHINGTON, D.C. 20006-5292 WARNING: UNLICENSED PHOTOCOPYING VIOLATES U.S. COPYRIGHT LAWS AND WILL SUBJECT THE VIOLATOR TO LEGAL PROSECUTION. G702/92 94 EXHIBIT G INITIAL ADVANCE MEMORANDUM THIS INITIAL ADVANCE MEMORANDUM ("Memorandum") is entered into this ___ day of __________, 199_, by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant") concerning that certain Lease ("Lease") between Landlord and Tenant dated May 22, 1995. Any capitalized terms not defined in this Memorandum shall have the meaning as defined in the Lease. 1. Pursuant to Section 5.6 of the Lease, Landlord and Tenant are required to enter into this Memorandum within thirty (30) days after the initial Advance for the foundation of any Building and within thirty (30) days after the initial Advance under the Lease. 2. Landlord and Tenant agree that this Memorandum reflects initial Advances that were made for the following Building(s):__________________ _______________________________________________. 3. Landlord and Tenant agree that the amount(s) of the initial Advances is (are) as follows (allocated on a Building-by-Building basis, if this Memorandum reflects Advances for more than one Building):_______________ _______________________________________________. 4. Landlord and Tenant agree that the Guaranteed Residual Value for the Building(s) described in Paragraph 2 is _____% of_________________ ______ (the total Funded Amount for the Building(s)). 5. Landlord and Tenant agree that the estimated Funded Amount, determined by Tenant pursuant to Section 5.5 of the Lease, is $______________________. 6. Landlord and Tenant agree that, pursuant to Section 5.7 of the Lease, the Security Deposit to be held by Landlord pursuant to the Lease is $______________________. [Remainder of This Page Intentionally Left Blank] EXHIBIT G 1. 95 [SIGNATURE PAGE TO INITIAL ADVANCE MEMORANDUM] IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date and year first above written. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: ------------------------------------ Name: ------------------------------------ Its: ------------------------------------ [SIGNATURES CONTINUED ON NEXT PAGE] EXHIBIT G 2. 96 [SIGNATURE PAGE TO INITIAL ADVANCE MEMORANDUM] "TENANT" CISCO SYSTEMS, INC., a California corporation By: -------------------------------------- Name: ------------------------------------ Its: ------------------------------------ EXHIBIT G 3. 97 EXHIBIT H RENT COMMENCEMENT DATE MEMORANDUM THIS RENT COMMENCEMENT DATE MEMORANDUM ("Memorandum") is entered into this ___ day of _______, 199_, by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant") concerning that certain Lease (Buildings "I" and "J") ("Lease") between Landlord and Tenant dated May 22, 1995. Any capitalized terms not defined in this Memorandum shall have their meaning as defined in the Lease. 1. Pursuant to Section 5.6 of the Lease, Landlord and Tenant are required to enter into this Memorandum within thirty (30) days after the Rent Commencement Date for any Building. 2. Landlord and Tenant agree the that Rent Commencement Date for the Building described as follows _______________________, is ___________ ___, 199_. 3. The dollar value of the Funded Amount (defined in Section 2.24 of the Lease) for the Building described in paragraph 2 is $______________________. 4. The dollar value of the Landlord's Equity Contribution (defined in Section 2.17 of the Lease) for the Building described in paragraph 2 above is _____% of $_____________________________, (i.e., $______________________). 5. The dollar value of the Guaranteed Residual Value (defined in Section 2.25 of the Lease) for the Building described in paragraph 2 above is ____% of $_____________________ (i.e. $_____________________________). 6. Landlord and Tenant agree that, pursuant to Section 5.7 of the Lease, the Security Deposit held by Landlord pursuant to the Lease shall be in the amount of $______________________ as of the Rent Commencement Date. [Remainder of This Page Intentionally Left Blank] EXHIBIT H 1. 98 [SIGNATURE PAGE TO RENT COMMENCEMENT DATE MEMORANDUM] IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date and year first above written. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: ------------------------------------ Name: ------------------------------------ Its: ------------------------------------ [SIGNATURES CONTINUED ON NEXT PAGE] EXHIBIT H 99 [SIGNATURE PAGE TO RENT COMMENCEMENT DATE MEMORANDUM] "TENANT" CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION By: ------------------------------------ Name: ------------------------------------ Its: ------------------------------------ EXHIBIT H 100 EXHIBIT I DRAW REQUEST FORM THIS DRAW REQUEST ("Draw Request") is submitted by CISCO SYSTEMS, INC., a California corporation ("Tenant") to SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), pursuant to Article 11 of that certain Lease (Buildings "I" and "J") between Landlord and Tenant dated May 22, 1995. Any capitalized terms not defined in this Draw Request shall have their meaning as defined in the Lease. Pursuant to the terms of Article 11 of the Lease, Tenant hereby makes a Draw Request for an Advance from Landlord. The Aggregate of the amount of the Advance requested by Tenant pursuant to this Draw Request is $_________________________. Tenant hereby instructs Landlord to make this Advance to the parties and in the amounts described below:
Name of Entity Amount -------------- ------
[ADD ADDITIONAL SHEET, IF NECESSARY, TO DESCRIBE ALL ENTITIES TO RECEIVE A PORTION OF THIS ADVANCE AND THE AMOUNT TO BE PAID TO EACH SUCH ENTITY.] IN WITNESS WHEREOF, Tenant has executed this Draw Request as of the date and year first above written. "TENANT" CISCO SYSTEMS, INC., a California corporation By: -------------------------------------- Name: --------------------------------- Its: --------------------------------- EXHIBIT I 1. 101 EXHIBIT J CLOSING COSTS AND FEES TO BE INCLUDED IN FUNDED AMOUNT The following items shall be included in the definition of the Funded Amount under Section 2.24 of the Lease: Fees and costs which are specifically authorized by Tenant in writing to be included in the Funded Amount EXHIBIT J 1. 102 EXHIBIT K NOTICE OF INTEREST RATE PERIOD SELECTION Pursuant to Section 5.1(d) of those certain Leases by and between Sumitomo Bank of New York Trust Company, ("SBNYTC"), as trustee under that certain trust agreement dated May 22, 1995 between Sumitomo Bank Leasing and Finance, Inc. and SBNYTC ("SB Trust"), as Landlord, and Cisco Systems, Inc., a California corporation ("Cisco"), as Tenant, dated as of May 22, 1995, Cisco hereby gives notice to SB Trust of its designation of the Loan interest period as set forth below: Effective Date Interest Period _____________, ____ _____ month(s) This Notice of Borrowing is dated this ___ day of _______, _____, and may be executed in multiple copies, each of which shall be deemed an original, and all of which together shall be but a single Notice. "CISCO" CISCO SYSTEMS, INC., a California corporation By: ------------------------------------ Title: ---------------------------------- By: ------------------------------------ Title: ---------------------------------- EXHIBIT K 103 EXHIBIT L DESCRIPTION OF ADDITIONAL PROPERTY OWNED BY LANDLORD REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: All of Parcel 2, as shown on that certain Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on July 13, 1983, in Book 514 of Maps page(s) 47 and 48. APN: 97-53-14 All of Lot 54 as shown upon that certain Map entitled, "Tract No. 7559", which Map was filed for record in the Office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-23 Lots 58 and 59, as shown upon that certain map entitled, "Tract No. 7559", which Map was filed for record in the office of the Recorder of the County of Santa Clara, on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-18,22 EXHIBIT L 104 Landlord and Tenant shall immediately execute a letter agreement reflecting the Fair Market Value. 21.24 FINANCIAL REPORTING. Tenant shall provide to Landlord and Lenders: (1) annually, within one hundred twenty (120) days after the end of each of Tenant's fiscal years during the Term, an annual report on Form 10-K for such fiscal years as filed with the Securities and Exchange Commission; (2) quarterly, within forty five (45) days after the end of each of Tenant's fiscal quarters during the Term, quarterly reports on Form 10-Q as filed with the Securities and Exchange Commission; and (3) within thirty (30) days after filing with the Securities and Exchange Commission, any other reports, proxy statements, registration statements or prospectuses filed during the Term with the Securities and Exchange Commission. 21.25 APPRAISAL. Prior to Landlord's making the Initial Advance pursuant to Section 11.3 hereof, Landlord shall have received an appraisal conforming to FIRREA guidelines prepared by an appraiser reasonably satisfactory to Landlord indicating that the current fair market value on an as-completed basis of the buildings as designed as of the date of such appraisal which Tenant may desire to have constructed on the Land is not less than ninety percent (90%) of the estimated cost of construction of the buildings which Tenant may desire to have constructed on the Land. The appraisal shall be based upon Tenant's current construction budget, specifications and intended use (both parties hereby recognizing that such items are subject to change, and in no event shall Tenant have any obligation to construct any or all of such buildings). Tenant hereby approves Landlord's use of either Cushman & Wakefield or CB Commercial Real Estate Group as the appraiser under this Section 21.25. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 64. 105 [SIGNATURE PAGE TO BUILDING LEASE] IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: /s/ JOHN F. McFADDEN ----------------------------------- Name: JOHN F. McFADDEN ----------------------------------- VICE PRESIDENT Its: AND TREASURER ----------------------------------- [Remainder of This Page Intentionally Left Blank] 106 [SIGNATURE PAGE TO BUILDING LEASE] "TENANT" CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION By: /s/ JOHN T. CHAMBERS ------------------------------------- Name: JOHN T. CHAMBERS ----------------------------- Its: PRESIDENT AND CHIEF EXECUTIVE OFFICER ----------------------------- By: /s/ LARRY R. CARTER ------------------------------------- Name: LARRY R. CARTER ----------------------------- CHIEF FINANCIAL Its: OFFICER ----------------------------- EX-10.34 8 FIRST AMENDMENT TO LEASE PHASE C 1 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made and entered into as of this 18th day of July, 1995, by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY, ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"). THIS FIRST AMENDMENT IS ENTERED INTO upon the basis of the following facts, understandings and intentions. RECITALS A. Landlord and Tenant entered into that certain Lease (Improvements Phase "C") dated May 22, 1995 ("Lease"), pursuant to which Landlord is leasing to Tenant the improvements which Tenant may elect to construct ("Premises"), as agent for Landlord, on that certain land located in San Jose, California, as more particularly described in the Lease and on Exhibit A attached hereto and incorporated herein by this reference. Any capitalized terms used but not defined in this First Amendment which are defined in the Lease shall have the meaning ascribed in the Lease. B. Landlord and Tenant now desire to amend the terms of the Lease, as more particularly described in this First Amendment. NOW THEREFORE, the parties hereto agree as follows: 1. Capitalized Interest. Section 2.9 of the Lease is hereby amended to add the following sentence at the end of the Section: During the Construction Period for a Building or phase of Buildings, Capitalized Interest for such Building or phase of Buildings shall be calculated using the Construction Period Monthly Calculation set forth in Section 2.43. 2. Monthly Calculation. Section 2.43 of the Lease is hereby amended to add the following sentence at the end of the Section: During the Construction Period for a Building or phase of Buildings, "Monthly Calculation" shall mean the quotient resulting from dividing three hundred sixty (360) by the number of days in the applicable Rent Period. The applicable Rent Period shall begin on the twentieth day of the calendar month for which this Construction Period Monthly Calculation is being calculated and shall be for a period equal to the number of days in such calendar month. 2 3. Rent Period. Section 2.57 of the Lease is hereby deleted, and is replaced with the following: 2.57 Rent Period. "Rent Period" shall mean each period equal to one calendar month occurring during the Term hereof, except that: (a) the first Rent Period shall be a partial calendar month commencing on the date of the initial Advance for a Building or phase of Buildings and ending on the nineteenth day of the subsequent calendar month; (b) thereafter during the Construction Period, and ending on the nineteenth day of the last calendar month of the Construction Period, the Rent Period shall commence on the twentieth day of each calendar month and end on the nineteenth day of the subsequent calendar month; (c) the Rent Period preceding the Rent Commencement Date shall be a partial calendar month commencing on the twentieth day of the last calendar month of the Construction Period and ending on the last day of such calendar month; and (d) the last Rent Period shall be a partial calendar month commencing on the first LIBOR Business Day of the last calendar month of the Term and ending on the last day of the Term. 4. Timing and Method of Disbursement. Section 11.6(a) of the Lease is hereby deleted, and is replaced with the following: (a) Timing and Method of Disbursement. Advances to be made hereunder shall not be made more frequently than monthly. For any calendar month during which Tenant desires to receive an Advance, Tenant shall submit a Draw Request on or before the fifteenth day of such month, and if Tenant submits such Draw Request by such date, then Landlord shall, subject to the conditions to funding described in Sections 11.3, 11.4 and 11.5, make the Advance as requested in such Draw Request to the party(ies) designated by Tenant on the twentieth day of such month, or the next LIBOR Business Day if the twentieth day of such month is not a LIBOR Business Day ("Advance Date"). The Advances shall be made to parties identified by Tenant, which parties may include Tenant. At the option of Tenant, Landlord shall make such Advances to one (1) or more parties. 5. Counterparts. This First Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. 6. Existing Lease. Except to the extent specifically amended hereby, all terms and conditions of the Lease remain in full force and effect. -2- 3 [SIGNATURE PAGE TO FIRST AMENDMENT TO LEASE] IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date and year first above written. "LANDLORD" SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC By: -------------------------------------- Name: -------------------------------------- Its: -------------------------------------- [SIGNATURES CONTINUED ON NEXT PAGE] -3- 4 [SIGNATURE PAGE TO RENT FIRST AMENDMENT TO LEASE] "TENANT" CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION By: -------------------------------------- Name: --------------------------------- By: --------------------------------- Name: --------------------------- Its: --------------------------- -4- 5 EXHIBIT A DESCRIPTION OF LAND REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: Lot 50, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52. Reserving therefrom a perpetual right and easement to construct, install, maintain, repair, renew, replace, operate and use a surface drainage release to benefit Lot 49 of Tract 7560, as contained in that certain Grant of Easement recorded August 8, 1990 in Book L443, page 0754, Official Records, and described as follows: The Northwesterly 10.00 feet of the Southeasterly 30.00 feet and the Northwesterly 100.00 feet of the Southeasterly 130.00 feet of the Northeasterly 10.00 feet of Lot 50. That portion of Lot 51, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52, being more particularly described as follows: Beginning at the Southeasterly corner of said Lot 51; thence along the Southerly line of said Lot 51, S. 590 27; 51 W. 77.00 feet; thence N. 14 Degrees 27 Minutes 48 Seconds E. 108.90 feet to the Northeasterly line of said Lot 51; thence along said Northeasterly line S. 30 Degrees 32 Minutes 09 Seconds E. 77.00 feet to the point of beginning, as provided for in that certain Lot Line Adjustment granted by the Director of Planning of the City of San Jose, a copy of which was recorded March 28, 1984 in the office of the Recorder of the County of Santa Clara in Book I410, page 712 of Official Records. Lot 5 and 6, as shown on that certain Map of Tract No. 7408, which map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on November 19, 1982 in Book 506 of Maps, pages 24, 25 and 26 and a portion of that certain parcel of land described in the deed recorded December 22, 1972 in Book 0167, page 623, all as approved by that Lot Combination recorded September 16, 1992 in Book M381 of Maps, page(s) 0081, Official Records, more particularly described as follows: Beginning at a point on the Northeasterly line of Rio Robles, as shown upon said map, at the most Southerly corner of said Lot 5; thence along said Northeasterly line of Rio Robles, N. 30 Degrees 32 Minutes 09 Seconds W. 105.50 feet; thence on a tangent curve to the right, having a EXHIBIT A 6 radius of 367.00 feet, through a central angle of 36 Degrees 30 Minutes 00 Seconds an arc distance of 233.80 feet; thence on a curve to the right, tangent to the previous curve, having a radius of 50.00 feet, through a central angle of 86 Degrees 01 Minute 50 Seconds an arc distance of 75.08 feet to the Southerly line of Tasman Drive as shown upon said map; thence along said line on a curve to the left, tangent to the previous curve, having a radius of 1149.00 feet, through a central angle of 32 Degrees 31 Minutes 01 Seconds an arc distance of 652.09 feet; thence N. 59 Degrees 28 Minutes 40 Seconds E. 600.40 feet; thence on a tangent curve to the right, having a radius of 33.00 feet, through a central angle of 89 Degrees 51 Minutes 11 Seconds an arc distance of 51.83 feet to the Southwesterly line of First Street, as shown upon said map; thence along said line, S. 30 Degrees 32 Minutes 09 Seconds E. 261.38 feet to the Northwesterly line of the lands of the City and County of San Francisco, as shown upon said map; thence along said line of the lands of the City and the County of San Francisco, S. 65 Degrees 09 Minutes 27 Seconds W. 1396.95 feet to the point of beginning. Those rights as contained in that certain Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records, over the following described property: A strip of land 80 feet wide, lying 40 feet either side of the following described line and extensions thereto, across that certain parcel of land conveyed by Charles Nelson, et ux, to Masami Ezaki by Grant Deed dated February 27, 1936 and recorded March 11, 1936, in Volume No. 765, at page 262, Official Records, Santa Clara County, hereinafter referred to as the Ezaki Parcel, said line being more particularly described as commencing at a point in the Westerly boundary of the existing San Jose-Alviso Road, said point being distant along said boundary South 30 Degrees 32 Minutes 30 Seconds East 381.31 feet from its intersection with the Northerly boundary of the above mentioned Ezaki Parcel; thence, from said point of commencement, South 65 Degrees 08 Minutes 00 Seconds West 1459.03 feet to a point in the common boundary between the above mentioned Ezaki Parcel and that certain parcel of land conveyed by Lena Lindgren, et al, to James A. Pankoski, et ux, by Joint Tenancy Deed dated November 13, 1944 and recorded November 17, 1944 in Volume No. 1227 at Page 327, Official Records, Santa Clara County, hereinafter referred to as the Pankoski Parcel, said point being distant along said common boundary South 30 Degrees 32 Minutes 30 Seconds East 237.04 feet from the most Westerly corner of the above mentioned Ezaki Parcel; the Easterly end of said strip being the above mentioned Westerly boundary of the San Jose-Alviso Road, and the Westerly end of said strip being the above mentioned common boundary between the Pankoski and Ezaki Parcels. EXHIBIT A EX-10.35 9 GROUND LEASE PARCEL 2 AND LOT 54 1 GROUND LEASE (PARCEL 2 AND LOT 54) By and Between IRISH LEASING CORPORATION A TEXAS CORPORATION as Landlord and CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION, as Tenant for Premises located in San Jose, California THIS LEASE IS NOT INTENDED TO CONSTITUTE A TRUE LEASE FOR INCOME TAX PURPOSES. SEE SECTION 21.2 2 TABLE OF CONTENTS
Page ARTICLE 1 BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . . . . . 1 1.1 Date of Lease . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.4 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.5 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.6 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.7 Lease Commencement Date . . . . . . . . . . . . . . . . . . . 2 1.8 Rent Commencement Date . . . . . . . . . . . . . . . . . . . . 2 1.9 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.10 Addresses for Notices . . . . . . . . . . . . . . . . . . . . 2 1.11 Addresses for Rent Payments . . . . . . . . . . . . . . . . . 2 ARTICLE 2 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.1 Additional Rent . . . . . . . . . . . . . . . . . . . . . . . 3 2.2 Approval Plans . . . . . . . . . . . . . . . . . . . . . . . . 3 2.3 Authorized Loan . . . . . . . . . . . . . . . . . . . . . . . 3 2.4 Authorized Plans . . . . . . . . . . . . . . . . . . . . . . . 3 2.5 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.6 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.7 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.8 Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.9 Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.10 Equity Funded Amount . . . . . . . . . . . . . . . . . . . . . 4 2.11 Equity Rent Component . . . . . . . . . . . . . . . . . . . . 4 2.12 Event of Major Default . . . . . . . . . . . . . . . . . . . . 4 2.13 Extension Term . . . . . . . . . . . . . . . . . . . . . . . . 4 2.14 Fee Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.15 Fee Mortgagee . . . . . . . . . . . . . . . . . . . . . . . . 4 2.16 Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . 4 2.17 Guaranteed Residual Value . . . . . . . . . . . . . . . . . . 4 2.18 Improvements . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.19 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.20 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.21 Landlord Affiliate . . . . . . . . . . . . . . . . . . . . . . 5 2.22 Lease Commencement Date . . . . . . . . . . . . . . . . . . . 5 2.23 Lease Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.24 Legal Requirements . . . . . . . . . . . . . . . . . . . . . . 5 2.25 LIBOR Business Day . . . . . . . . . . . . . . . . . . . . . . 5 2.26 LIBOR Rate. . . . . . . . . . . . . . . . . . . . . . . . . 5 2.27 Loan Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.28 Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.29 Mortgagee . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.30 New Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.31 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.32 Official Records . . . . . . . . . . . . . . . . . . . . . . . 6 2.33 Permitted Exceptions . . . . . . . . . . . . . . . . . . . . . 6
i. 3 2.34 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.35 Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . . 6 2.36 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.37 Rent Commencement Date . . . . . . . . . . . . . . . . . . . . 6 2.38 Rent Payment Date . . . . . . . . . . . . . . . . . . . . . . 6 2.39 Replacement Loan . . . . . . . . . . . . . . . . . . . . . . . 6 2.40 Required Permits . . . . . . . . . . . . . . . . . . . . . . . 6 2.41 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . 7 2.42 Senior Funded Amount . . . . . . . . . . . . . . . . . . . . . 7 2.43 Senior Rent Component . . . . . . . . . . . . . . . . . . . . 7 2.44 SGA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.45 Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.46 Tenant Deed of Trust . . . . . . . . . . . . . . . . . . . . . 7 2.47 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.48 UBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.49 UBS Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.50 UBS Note . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 3 DEMISE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.1 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 4 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.1 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.2 Extension Term . . . . . . . . . . . . . . . . . . . . . . . . 8 4.3 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE 5 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.1 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.2 Proration . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.3 No Abatement of Rent . . . . . . . . . . . . . . . . . . . . . 10 5.4 Delinquent Rent . . . . . . . . . . . . . . . . . . . . . . . 10 5.5 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 6 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 6.1 Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . . 11 6.2 Personal Property Taxes . . . . . . . . . . . . . . . . . . . 12 6.3 Right to Contest . . . . . . . . . . . . . . . . . . . . . . . 12 6.4 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . 13 6.5 Additional Provisions Relating to Taxes . . . . . . . . . . . 14 ARTICLE 7 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.1 Liability Insurance . . . . . . . . . . . . . . . . . . . . . 15 7.2 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . 15 7.3 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE 8 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 8.1 Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 8.2 Contest of Legal Requirements . . . . . . . . . . . . . . . . 19 8.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 19
ii. 4 ARTICLE 9 UTILITIES AND SERVICES . . . . . . . . . . . . . . . . . . . . 20 9.1 Services to the Premises . . . . . . . . . . . . . . . . . . . 20 ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES . . . . . . 20 10.1 Tenant Obligations . . . . . . . . . . . . . . . . . . . . . . 20 10.2 Surrender of the Premises . . . . . . . . . . . . . . . . . . 21 ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS AND COMMON AREA . . . . . . . . . 21 11.1 Tenant's Rights to Construct Improvements . . . . . . . . . . 21 11.2 Required Permits, Easements, etc . . . . . . . . . . . . . . . 23 11.3 Demolition and Reconstruction . . . . . . . . . . . . . . . . 23 11.4 Title to and Nature of Improvements . . . . . . . . . . . . . 23 ARTICLE 12 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE 13 ASSIGNMENT BY LANDLORD . . . . . . . . . . . . . . . . . . . . 24 13.1 Further Mortgages or Encumbrances by Landlord; Authorized Loans . . . . . . . . . . . . . . . . . . . . . . 24 13.2 Landlord's Right to Sell . . . . . . . . . . . . . . . . . . . 26 13.3 Transfer of Funds and Property . . . . . . . . . . . . . . . . 26 ARTICLE 14 ASSIGNMENT AND SUBLEASING . . . . . . . . . . . . . . . . . . 27 14.1 Right to Assign . . . . . . . . . . . . . . . . . . . . . . . 27 14.2 Right to Sublet . . . . . . . . . . . . . . . . . . . . . . . 27 14.3 Tenant's Right to Mortgage . . . . . . . . . . . . . . . . . . 28 ARTICLE 15 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . 28 15.1 Total or Substantial Taking . . . . . . . . . . . . . . . . . 28 15.2 Partial Taking . . . . . . . . . . . . . . . . . . . . . . . . 28 15.3 Temporary Taking . . . . . . . . . . . . . . . . . . . . . . . 28 15.4 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 15.5 Notice and Execution . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE 16 DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . 29 16.1 Insured Casualty . . . . . . . . . . . . . . . . . . . . . . . 29 16.2 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 17 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 17.1 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 17.2 Event of Major Default . . . . . . . . . . . . . . . . . . . . 31 17.3 Contest by Tenant . . . . . . . . . . . . . . . . . . . . . . 31 17.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 17.5 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 32 17.6 Effect of Assignment . . . . . . . . . . . . . . . . . . . . . 32 17.7 Landlord Cure Right . . . . . . . . . . . . . . . . . . . . . 32 17.8 Landlord's Default . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE 18 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . 34 18.1 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . 34
iii. 5 ARTICLE 19 TENANT'S OPTION TO PURCHASE . . . . . . . . . . . . . . . . . 35 19.1 Option To Purchase Premises . . . . . . . . . . . . . . . . . 35 19.2 Mandatory Purchase/Sale of Premises . . . . . . . . . . . . . 37 19.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD . . . . . . . . . . . . . . . 38 20.1 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 20.2 Land Use . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 20.3 Transfer of Property Interests . . . . . . . . . . . . . . . . 40 20.4 Shareholder Equity; No Other Asset . . . . . . . . . . . . . . 40 20.5 Recourse Obligations . . . . . . . . . . . . . . . . . . . . . 40 20.6 Default Under Authorized Loan . . . . . . . . . . . . . . . . 40 ARTICLE 21 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 40 21.1 Relationship . . . . . . . . . . . . . . . . . . . . . . . . . 40 21.2 Form of Transaction; Certain Tax Matters . . . . . . . . . . . 41 21.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 21.4 Severability of Provisions . . . . . . . . . . . . . . . . . . 42 21.5 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . 42 21.6 Approvals and Consents . . . . . . . . . . . . . . . . . . . . 42 21.7 Terminology . . . . . . . . . . . . . . . . . . . . . . . . . 42 21.8 Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . 43 21.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 43 21.10 Commissions . . . . . . . . . . . . . . . . . . . . . . . . . 43 21.11 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . 43 21.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 43 21.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 43 21.14 Time Is of the Essence . . . . . . . . . . . . . . . . . . . . 44 21.15 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . 44 21.16 No Recourse . . . . . . . . . . . . . . . . . . . . . . . . . 44 21.17 Estoppel Certificates . . . . . . . . . . . . . . . . . . . . 44 21.18 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 44 21.19 Landlord's Continuing Obligation to Sell . . . . . . . . . . . 45 21.20 As-Is Lease . . . . . . . . . . . . . . . . . . . . . . . . . 45 21.21 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . 45 21.22 Representations and Warranties . . . . . . . . . . . . . . . . 45
List of Exhibits Exhibit A Description of Land Exhibit B Permitted Exceptions Exhibit C Memorandum of Lease Exhibit D Closing Costs and Fees to be Included in Funded Amount Exhibit E Lease Commencement Date Memorandum Exhibit F Description of Additional Property Owned by Landlord iv. 6 GROUND LEASE THIS GROUND LEASE ("Lease") by and between IRISH LEASING CORPORATION, a Texas corporation ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"), is entered into as of the date set forth in Article 1 and shall be effective and binding upon the parties hereto as of such date. Capitalized terms used in this Lease shall have the definitions set forth in Article 2 or in the text of this Lease. In consideration of the Base Rent reserved herein, and the terms, covenants and conditions set forth below, Landlord and Tenant hereby agree as follows: ARTICLE 1 BASIC LEASE PROVISIONS 1.1 DATE OF LEASE: February 28, 1995. 1.2 LANDLORD: Irish Leasing Corporation, a Texas corporation. 1.3 TENANT: Cisco Systems, Inc., a California corporation. 1.4 LAND: That certain tract of land located in the City of San Jose, Santa Clara County, California, consisting of two (2) parcels and more particularly described on Exhibit A attached hereto, together with all easements, rights of way, appurtenances and other rights and benefits belonging or pertaining to such land. 1.5 PREMISES: The Land. 1.6 TERM: The initial term ("Initial Term") of this Lease shall be for five (5) years commencing on the Lease Commencement Date (as defined in Section 4.1). Subject to the conditions set forth in Section 4.2, Tenant may extend the Initial Term for one (1) additional period of five (5) years ("Extension Term"). The Initial Term and (if exercised by Tenant) the Extension Term shall be referred to collectively herein as the "Term." The Term shall cease upon, and shall not refer to any period of time after, termination of this Lease (whether 1. 7 pursuant to the terms of the Lease, by operation of law, or otherwise). 1.7 LEASE COMMENCEMENT DATE: As described in Section 4.1. 1.8 RENT COMMENCEMENT DATE: The rent commencement date ("Rent Commencement Date") shall be the first LIBOR Business Day (as defined in Section 2.25) of the calendar month which commences immediately following the Lease Commencement Date. 1.9 BASE RENT: As described in Section 2.5. 1.10 ADDRESSES FOR NOTICES: LANDLORD: TENANT: Irish Leasing Corporation Cisco Systems, Inc. 6750 LBJ Freeway, Suite 1100 3535 Garrett Drive Dallas, TX 75240 Santa Clara, CA 95054 Attn: Mr. Greg England Attention: Eugene Hill With a copy to: With a copy to: Lorne Liechty, Esq. Cisco Systems, Inc. Liechty, McGinnis & Kolitz 3535 Garrett Drive 12750 Merit Drive Santa Clara, CA 95054 Suite 1150 Attention: Nancy Bareilles Dallas, Texas 75251 and Todd J. Anson, Esq. Brobeck, Phleger & Harrison 550 West C Street Suite 1300 San Diego, CA 92101 1.11 ADDRESSES FOR RENT PAYMENTS: Senior Rent Component: Union Bank of Switzerland 444 South Flower Street Los Angeles, CA 90071 Attn: Victor Massarano Equity Rent Component: Irish Leasing Corporation 6750 LBJ Freeway, Suite 1100 Dallas, TX 75240 Attn: Mr. Greg England 2. 8 This Article 1 is intended to supplement and/or summarize the provisions set forth in the balance of this Lease. If there is any conflict between any provisions contained in this Article 1 and the balance of this Lease, the balance of this Lease shall control. ARTICLE 2 DEFINITIONS For purposes of this Lease, the following defined terms shall have the meanings set forth in this Article 2. 2.1 ADDITIONAL RENT. "Additional Rent" shall mean any amounts other than Base Rent payable by Tenant to Landlord or to other Entities on Landlord's behalf as required under this Lease, including, without limitation, interest at the Default Rate accrued on past due Base Rent and other amounts past due hereunder, costs and expenses to be paid or reimbursed by Tenant hereunder, amounts due pursuant to Tenant's indemnity obligations hereunder, and Real Estate Taxes. 2.2 APPROVAL PLANS. "Approval Plans" shall have the meaning set forth in Section 11.1(a). 2.3 AUTHORIZED LOAN. "Authorized Loan" shall have the meaning set forth in Section 13.1(b). 2.4 AUTHORIZED PLANS. "Authorized Plans" shall have the meaning set forth in Section 11.1(a). 2.5 BASE RENT. "Base Rent" shall mean, as of a Rent Payment Date, the product of the Funded Amount as of the Rent Payment Date multiplied by the Lease Rate. 2.6 COLLATERAL. "Collateral" shall have the meaning set forth in Section 21.18. 2.7 DEFAULT. "Default" shall have the meaning set forth in Section 17.1. 2.8 DEFAULT RATE. "Default Rate" shall mean the interest rate charged or chargeable pursuant to the UBS Note or other Authorized Loan on any amounts not paid when due. Notwithstanding the foregoing, in the event that the foregoing Default Rate shall be in violation of any usury or similar law, then the Default Rate shall be reduced to the extent necessary to cause the Default Rate to comply with any usury or similar law. 2.9 ENTITY. "Entity" shall mean any person, corporation, partnership (general or limited), joint venture, association, joint stock company, trust or other business entity or organization. 3. 9 2.10 EQUITY FUNDED AMOUNT. "Equity Funded Amount" shall mean that portion of the Funded Amount equal to the Funded Amount minus the Senior Funded Amount. 2.11 EQUITY RENT COMPONENT. "Equity Rent Component" shall mean the Base Rent as of a Rent Payment Date minus the Senior Rent Component. 2.12 EVENT OF MAJOR DEFAULT. "Event of Major Default" shall have the meaning set forth in Section 17.2. 2.13 EXTENSION TERM. "Extension Term" shall have the meaning set forth in the Basic Lease Provisions. 2.14 FEE MORTGAGE. "Fee Mortgage" shall mean any Mortgage at any time given by Landlord and remaining uncancelled on the Official Records, encumbering all or any portion of Landlord's right, title and estate in the Land or in this Lease. 2.15 FEE MORTGAGEE. "Fee Mortgagee" shall mean the Mortgagee from time to time of a Fee Mortgage. 2.16 FUNDED AMOUNT. "Funded Amount" shall mean the aggregate amount of the sum paid by Landlord to acquire the Land, plus the closing costs and fees set forth on Exhibit D attached hereto; less any reductions in the amount of the UBS Loan or any other Authorized Loan or in the Equity Funded Amount, whether such principal reduction or reduction in the Equity Funded Amount is accomplished by payment to UBS or the holder of an Authorized Loan, the application of the Collateral or other collateral by UBS or the holder of an Authorized Loan, the payment of insurance proceeds, condemnation awards, or otherwise. 2.17 GUARANTEED RESIDUAL VALUE. "Guaranteed Residual Value" shall mean that amount necessary to cause the present value of the aggregate Minimum Lease Payments under this Lease, including the present value of the Guaranteed Residual Value, to not exceed eighty nine and 9/10 percent (89.9%) of the Funded Amount, computed at the Date of Lease and discounted to present value as of the Rent Commencement Date using the interest rate implicit in the Lease or the incremental borrowing rate, whichever is higher, all as calculated and determined pursuant to Statement of Financial Accounting Standards Number 13. "Minimum Lease Payments" shall mean the sum of the aggregate Base Rent payable over the Initial Term and the Extension Term, plus imputed interest on the non-interest bearing portion of the Security Deposit imputed at a market rate of interest for an investment for a similar term, plus the Guaranteed Residual Value, plus the following to the extent paid in cash: custodial and other fees paid by Tenant, and any other reimbursed costs of Landlord paid by Tenant deemed to meet the definition of Minimum Lease Payments under SFAS No. 13. 4. 10 2.18 IMPROVEMENTS. "Improvements" shall mean any and all improvements erected, constructed or situated upon the Land or any part thereof during the Term. 2.19 INITIAL TERM. "Initial Term" shall have the meaning set forth in the Basic Lease Provisions. 2.20 LAND. "Land" shall have the meaning set forth in the Basic Lease Provisions. 2.21 LANDLORD AFFILIATE. "Landlord Affiliate" shall mean any Entity which controls is controlled by or is under the common control of SGA Development Partnership, Ltd., or The Staubach Company, a Texas corporation. 2.22 LEASE COMMENCEMENT DATE. "Lease Commencement Date" shall have the meaning set forth in Section 4.1. 2.23 LEASE RATE. "Lease Rate" shall mean interest at the rate of the product of 0.846 times the then-effective LIBOR Rate plus .0046 per annum. 2.24 LEGAL REQUIREMENTS. "Legal Requirements" shall mean all statutes, codes, laws, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all federal, state, county, municipal and other governments, departments, commissions, boards, courts, authorities, officials and officers, and any covenants, conditions and restrictions and other matters of record (subject to the provisions of Section 13.1(a) hereof), which now or at any time hereafter are applicable to Tenant or this Lease or applicable to and enforceable against the Premises, the Improvements or any part thereof, as applicable. 2.25 LIBOR BUSINESS DAY. "LIBOR Business Day" shall have the same meaning as such term is defined in the UBS Note or other Authorized Loan. 2.26 LIBOR RATE. "LIBOR Rate" shall mean the LIBOR interest rate as defined in the UBS Note, or a subsequent Authorized Loan. 2.27 LOAN RATE. "Loan Rate" shall mean the relevant rate (or rates) of interest, as the same may change from time to time, applicable under the UBS Note (or if the UBS Loan has been replaced by an Authorized Loan, then the relevant rate of interest under the promissory note evidencing such Authorized Loan), all subject to the terms of Section 13.1(b). 2.28 MORTGAGE. "Mortgage" shall mean any mortgage, deed of trust, or other instrument in the nature thereof at any time and from time to time constituting a lien, charge or encumbrance upon any interest or estate of Tenant or Landlord in the Premises or in this Lease. 5. 11 2.29 MORTGAGEE. "Mortgagee" shall mean the record holder (as reflected in the Official Records) from time to time of, or the record beneficiary (as reflected in the Official Records) from time to time under, a Mortgage. 2.30 NEW LOAN. "New Loan" shall have the meaning set forth in Section 13.1(b). 2.31 NOTICE. "Notice" shall mean a written advice, request, demand or notification required or permitted by this Lease, as more particularly provided in Section 21.3. 2.32 OFFICIAL RECORDS. "Official Records" shall mean the official records of Santa Clara County, California. 2.33 PERMITTED EXCEPTIONS. "Permitted Exceptions" shall mean the following: (1) the exceptions set forth in Exhibit B; (2) any exceptions created or caused by Tenant or to which Tenant consents in writing; (3) taxes and assessments not yet due and payable; (4) a deed of trust or mortgage which secures a New Loan authorized pursuant to the terms of Section 13.1(b); (5) the Tenant Deed of Trust; (6) all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way, and restrictive covenants and conditions affecting the Land unless any of the foregoing arise as a result of Landlord's actions or with Landlord's written consent (unless such actions taken or consent given by Landlord are requested in writing by Tenant pursuant to Section 11.2, 20.1 or 20.2); and (7) this Lease. 2.34 PREMISES. "Premises" shall have the meaning set forth in the Basic Lease Provisions. It is the intention of the parties that the Premises consist only of the Land, and in no event shall the Premises consist of any Improvements whatsoever. 2.35 REAL ESTATE TAXES. "Real Estate Taxes" shall have the meaning set forth in Section 6.1(b). 2.36 RENT. "Rent" shall mean Base Rent and Additional Rent. 2.37 RENT COMMENCEMENT DATE. "Rent Commencement Date" shall have the meaning set forth in the Basic Lease Provisions. 2.38 RENT PAYMENT DATE. "Rent Payment Date" shall have the meaning set forth in Section 5.1. 2.39 REPLACEMENT LOAN. "Replacement Loan" shall have the meaning set forth in Section 13.1(c). 2.40 REQUIRED PERMITS. "Required Permits" shall mean each and every building and development permit including, without limitation, demolition permits, site permits and addenda thereto (including, without limitation, foundation permits and structural permits), temporary and final occupancy permits and any other 6. 12 governmental or quasi-governmental approvals which must be issued by any governmental authority, department, commission, board, official or officer as a condition precedent to construction and occupancy of any Improvements. 2.41 SECURITY DEPOSIT. "Security Deposit" shall have the meaning set forth in Section 5.5. 2.42 SENIOR FUNDED AMOUNT. "Senior Funded Amount" shall mean the principal amount of the UBS Loan as of the Lease Commencement Date, less any reductions in the principal amount of the UBS Loan or any other Authorized Loan, whether such principal reduction is accomplished by payment to UBS or the holder of the Authorized Loan, the application of the Collateral or other collateral by UBS or the holder of the Authorized Loan, the payment of condemnation awards, or otherwise. 2.43 SENIOR RENT COMPONENT. "Senior Rent Component" shall mean the product of the Senior Funded Amount as of a Rent Payment Date times the Loan Rate. 2.44 SGA. "SGA" shall mean SGA Development Partnership, Ltd., a Texas limited partnership, the sole shareholder of Landlord. 2.45 TAKING. "Taking" shall have the meaning set forth in Section 15.1. 2.46 TENANT DEED OF TRUST. "Tenant Deed of Trust" shall mean that certain deed of trust to be executed by Landlord in favor of Tenant and recorded in the Official Records as of the Lease Commencement Date, as more fully described in Section 13.1(d). 2.47 TERM. "Term" shall have the meaning set forth in the Basic Lease Provisions. 2.48 UBS. "UBS" shall mean the Union Bank of Switzerland, a Swiss banking corporation, acting through its Los Angeles branch. 2.49 UBS LOAN. "UBS Loan" shall have the meaning set forth in Section 13.1(b). 2.50 UBS NOTE. "UBS Note" shall have the meaning set forth in Section 13.1(b). ARTICLE 3 DEMISE 3.1 PREMISES. Subject to the terms, covenants and conditions contained herein, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, together with all rights, privileges, easements and appurtenances relating to the Premises. 7. 13 ARTICLE 4 TERM The Term of this Lease shall consist of the Initial Term, and if exercised by Tenant, the Extension Term, as follows: 4.1 INITIAL TERM. The Initial Term of this Lease is specified in Article 1. The Initial Term shall commence on the date ("Lease Commencement Date") that Landlord acquires title to the Land pursuant to that certain Purchase and Sale Agreement ("Purchase Agreement") executed or to be executed by Crocker Properties, Inc. as Seller ("Seller") and Landlord as Buyer. Within thirty (30) days after the Lease Commencement Date, Landlord and Tenant shall execute the Lease Commencement Date Memorandum in the form attached hereto as Exhibit E. In the event that the Initial Term does not commence on or before July 1, 1995, Tenant shall have the unilateral right to terminate this Lease by written notice to Landlord, and upon such termination Landlord shall immediately return the Security Deposit to Tenant, plus all interest earned thereon. In the event the Purchase Agreement is terminated as a result of any default under or breach of the Purchase Agreement by Landlord which is not the result of Landlord's gross negligence, willful misconduct or breach of this Lease, Landlord shall not be obligated to return any portion of the Security Deposit retained by Seller as liquidated damages pursuant to the terms of the Purchase Agreement; provided that, at Tenant's request, Landlord shall assign to Tenant any and all rights, claims and causes of action which Landlord may have with respect to the Purchase Agreement, excluding, however, any rights, claims and causes of action which may be necessary for Landlord to retain in order for Landlord to avoid or seek reimbursement for any liability, loss, cost, damage, injury or expense (including without limitation reasonable attorneys' fees and costs) which Landlord may sustain or suffer or be entitled to recover in connection with the Purchase Agreement. 4.2 EXTENSION TERM. Upon at least ninety (90) days' prior written Notice to Landlord, and provided that a New Loan or Replacement Loan has been obtained as of the commencement of the Extension Term (subject to the terms and conditions set forth in Sections 13.1(b) and 13.1(c)), Tenant may extend the Term for the Extension Term specified in Article 1. All provisions of this Lease shall remain in full force and effect for the Extension Term, including, without limitation, the Base Rent payable hereunder, except that Tenant shall have no further right to extend the Term of this Lease, and except that the Lease Rate may be adjusted only to reflect any actual change in the rate of interest (that is, the spread over LIBOR) charged pursuant to the Authorized Loan. 4.3 HOLDING OVER. If Tenant remains in possession of the Premises after the expiration of the Term without executing a new lease, such holding over shall be construed as a tenancy from month-to-month, subject to all terms, covenants and conditions herein contained (except that Tenant shall have no right to extend the Term of this Lease), and at the Base Rent required to be paid by Tenant pursuant to the terms hereof during the last month of the Term. 8. 14 ARTICLE 5 RENT 5.1 BASE RENT. (a) Tenant shall pay Base Rent in the manner set forth below. Base Rent shall be payable monthly, in arrears, without notice on the Rent Commencement Date, and continuing thereafter on the first LIBOR Business Day of each successive month, except that the last installment of Base Rent shall be payable on the last day of the Term (each such date shall be a "Rent Payment Date") and shall be an amount sufficient to pay all Base Rent accrued through the end of the Term. Tenant shall pay Base Rent as follows: The Senior Rent Component shall be paid to UBS, and the Equity Rent Component shall be paid to Landlord, at the Address for Rent set forth in the Basic Lease Provisions (or, if the UBS Loan has been replaced by a New Loan or Replacement Loan, then the Senior Rent Component shall be paid directly to the holder of such New Loan or Replacement Loan) or at such other place as Landlord and Tenant may from time to time mutually agree upon, in their respective sole and absolute discretion. Tenant shall pay Base Rent by wire transfer or by check. Landlord or UBS or such other holder of a New Loan, as the case may be, shall supply Tenant with such bank account information as Tenant shall require to enable payment by wire transfer. The parties agree that Tenant is paying the Senior Rent Component of Base Rent directly to UBS for the convenience of the parties in order to satisfy Landlord's obligations to pay interest under the UBS Loan for the period of time corresponding to the Term of this Lease; all Base Rent payments shall be deemed payments to Landlord to the extent of the Equity Rent Component and payments of the interest due to UBS under the UBS Loan to the extent of the Senior Rent Component. (b) INTEREST RATE SELECTION. The parties acknowledge that the interest rate applicable under the UBS Loan (or other Authorized Loan) shall affect the amount of Base Rent payable by Tenant hereunder. Therefore, Tenant shall have the right, by written notice to UBS (or the holder of any Authorized Loan), SGA and Landlord, to designate the interest period to be selected from time to time by SGA pursuant to the terms of the UBS Note (or other Authorized Loan). Tenant acknowledges that the rates available to be selected under the UBS Loan after the first partial calendar month of the Term are 1, 3, 6, 9 or 12-month LIBOR rates. In the event that Tenant fails to give such written notice to UBS (or other holder of an Authorized Loan), SGA and Landlord prior to the applicable deadline for selection of such interest period pursuant to the terms of the UBS Note (or other Authorized Loan), the same interest period then in effect for the UBS Loan (or other Authorized Loan) shall be selected. 5.2 PRORATION. If the Term expires or is otherwise terminated on a day other than the day before the first LIBOR 9. 15 Business Day of a calendar month, Base Rent for such calendar month shall be prorated on the basis of actual days elapsed on the basis of a thirty (30) day month. 5.3 NO ABATEMENT OF RENT. Except as a consequence of a reduction in the Funded Amount or the terms of Section 15 (Taking), Tenant shall not be entitled to any abatement, diminution, reduction, setoff or postponement of Base Rent as a consequence of any inconvenience to, interruption of, cessation of or loss of Tenant's use or enjoyment of the Premises or as a result of any reason whatsoever. 5.4 DELINQUENT RENT. Any Base Rent not paid on the due date shall accrue interest at the Default Rate from the date such Base Rent was originally due until the date such Base Rent is paid. All interest accrued on past due Base Rent shall be due and payable to Landlord at the time the Base Rent is paid, or upon demand by Landlord, if earlier. 5.5 SECURITY DEPOSIT. On the Date of Lease, Tenant shall deliver to Landlord a security deposit ("Security Deposit") in an amount equal to One Million Two Hundred Sixty Thousand Dollars ($1,260,000), to be held in an interest bearing account requiring authorization by both Landlord and Tenant for withdrawal. On the Lease Commencement Date, the Security Deposit plus all interest earned thereon shall be released to Landlord, and Tenant shall deliver to Landlord an amount sufficient to increase the Security Deposit to an amount equal to the Equity Funded Amount as of such date; provided that Tenant shall receive a credit for any interest earned on the Security Deposit prior to the Lease Commencement Date. The Security Deposit shall be held by Landlord as security solely for the payment of Base Rent and Additional Rent by Tenant pursuant to this Lease. One-fifth of the Security Deposit shall bear interest from the Lease Commencement Date at the rate of 6.75% per annum, simple interest, paid by Landlord to Tenant in cash on an annual basis on each anniversary of the Lease Commencement Date; and the remainder of the Security Deposit shall not bear interest. If at any time during the Term any Base Rent shall be overdue, then Landlord may at its election (but shall not be required to) appropriate and apply any portion of the Security Deposit to the payment of any such overdue Base Rent; provided, however, that Landlord shall use the non-interest bearing portion of the Security Deposit first, before appropriating any portion of the Security Deposit that shall bear interest pursuant hereto. Should the entire Security Deposit, or any portion thereof, be appropriated and applied by Landlord as provided herein, then Tenant shall immediately, after receipt of written demand by Landlord, pay to Landlord a sufficient sum in cash to restore the Security Deposit to the original sum of the Security Deposit. Landlord shall have no obligation to segregate the Security Deposit from other funds. In the event that the Equity Funded Amount is reduced for any reason, including without limitation by reason of a sale of any portion of the Premises or the application of the proceeds of a condemnation award to reduce the Equity Funded Amount 10. 16 (it being understood that the Equity Funded Amount will only be reduced in the event and to the extent that the net proceeds of such condemnation award exceeds the Senior Funded Amount, with such award proceeds to be applied first to the Senior Funded Amount pursuant to Section 15.4 hereof), the amount of the Security Deposit required hereunder shall be reduced (pro rata between the interest bearing and non-interest bearing portions of the Security Deposit) by a like amount, and any such excess funds held by Landlord shall immediately be returned to Tenant. The entire Security Deposit (other than amounts withheld against Base Rent due hereunder), plus any accrued and unpaid interest required to be paid thereon pursuant to this Lease, shall be returned to Tenant at the end of the Term. ARTICLE 6 TAXES 6.1 REAL ESTATE TAXES. (a) From and after the Lease Commencement Date, Tenant shall pay directly to the appropriate taxing authority all Real Estate Taxes. If the Lease Commencement Date occurs or the Term expires or otherwise terminates at any time other than the beginning or end of a taxable year, Tenant's obligation to pay Real Estate Taxes shall be prorated on the basis of a 365-day year, so as to include only that portion of the taxable year which is a part of the Term. Unless a termination of the Lease results from a purchase of the Land pursuant to Article 19, any Real Estate Taxes levied against the Land which accrue during the Term of this Lease but which would not be due and payable to the appropriate taxing authority until after the expiration of the Term of this Lease (as the same may be extended) shall be paid by Tenant to Landlord upon such termination. Landlord shall pay such amounts to the appropriate taxing authority on a timely basis. (b) Except to the extent that Real Estate Tax bills and statements are sent directly to Tenant by the taxing authority, upon receipt by Landlord of the tax bills or statements, Landlord will use reasonable efforts to promptly advise Tenant in writing of all Real Estate Taxes and shall deliver copies of all applicable tax bills or statements to Tenant. Tenant shall pay directly to the taxing authority all Real Estate Taxes prior to the later of (i) thirty (30) days after receipt by Tenant of a copy of such bills and statements referred to above, or (ii) five (5) days prior to delinquency. As used herein, the term "Real Estate Taxes" shall mean any and all taxes, governmental fees and similar charges or assessments levied or assessed against the Improvements and/or the Land including, without limitation, ad valorem taxes and special assessments applicable to real property; provided, however, that Real Estate Taxes shall not include any Landlord Income Taxes. Real Estate Taxes shall also include any and all documentary, transfer, sales, mortgage, recording or similar taxes imposed on Landlord or Tenant in connection with (i) the original acquisition 11. 17 of the Premises by Landlord, (ii) any transfer of the Premises to Tenant pursuant to the terms of this Lease, or (iii) any sale of the Premises to a third party pursuant to the terms of this Lease. As used herein, the term "Landlord Income Taxes" shall mean any and all income, franchise, gains, gift, succession, excess profits, gross receipts, revenue, estate, rental, or similar taxes or taxes in lieu thereof imposed upon Landlord or any party other than Tenant (or an affiliate thereof) and any withholding tax imposed as a collection device for, in lieu of, or otherwise related to any of the foregoing without regard to whether such tax is required to be collected by Tenant and without regard to whether Tenant would be liable for such withholding tax in the event it failed to so withhold. For purposes of the foregoing, an income tax shall include, without limitation, any tax imposed under the United States Internal Revenue Code or the California Bank and Corporation Tax Law as well as any tax which could qualify as an "income tax" under United States Treasury Regulation Section 1.901-2 (except to the extent any such statute or regulation is subsequently modified to include a tax or other governmental charge of a materially different type and nature from the taxes currently described therein) and any income tax which may be payable under the laws of any jurisdiction either now or in the future. Real Estate Taxes for any given tax year shall exclude assessment installments that are not due and payable during such tax year. 6.2 PERSONAL PROPERTY TAXES. Tenant shall pay directly to the appropriate taxing authorities prior to delinquency any and all taxes and assessments levied or assessed during the Term upon or against Tenant's furniture, equipment, trade fixtures and any other personal property in the Premises. 6.3 RIGHT TO CONTEST. Tenant shall not be required to pay any Real Estate Taxes or any other taxes for which Tenant is liable hereunder (including, without limitation, any taxes for which Tenant is required to indemnify Landlord under Section 6.5) (including penalties and interest), so long as (i) Tenant shall contest the same or the validity thereof by appropriate legal proceedings in such a manner to prevent the tax sale of any portion of the Premises and (ii) the position to be taken by Tenant pursuant to such contest would have a realistic possibility of success if litigated. For purposes of this Lease, Tenant may conclusively establish that a position to be taken in a contest would have a realistic possibility of success if litigated by providing to Landlord a letter from counsel stating an opinion to such effect. In the event of any such contest, Tenant shall, within thirty (30) days after the final determination thereof, pay and discharge the amounts determined to be due in accordance therewith and with the provisions of this Lease, together with any penalties, fines, interest, costs and expenses that may have accrued thereon or that may have resulted from Tenant's contest. Tenant also shall have a right to contest any taxes for which it is liable hereunder, but with regard to which the position to be taken pursuant to such contest would not have a realistic possibility of success if litigated, provided that Tenant pays such taxes on or 12. 18 prior to the date upon which such taxes are asserted to be due by the relevant governmental authority. Notwithstanding the foregoing provisions of this Section 6.3, Tenant shall have an unconditional right to contest (without prior payment) any taxes imposed by law upon Tenant rather than upon Landlord. Tenant's decision to pay any taxes prior to contesting its or another party's underlying liability therefore shall not be deemed to imply or suggest that the position to be taken in such contest would not have a realistic possibility of success if litigated. Landlord shall cooperate fully with Tenant in connection with the exercise of Tenant's right of contest contained herein, and in the event that applicable law shall require that Landlord, rather than Tenant, pursue legal proceedings for such contest, Landlord will initiate and pursue such contest upon Tenant's request and in accordance with Tenant's instructions (including, without limitation, Tenant's instructions as to the selection of legal counsel and matters of strategy or settlement); provided, however, that Landlord shall not be subject to any liability for the payment of any costs or expenses in connection with any such contest or proceedings, and Tenant will indemnify, defend and save harmless Landlord from and against any such costs and expenses (including, without limitation, reasonable attorneys' fees, costs of court and appraisal costs), reimbursing Landlord therefor upon demand (or paying such costs and expenses directly when due, all as directed by Landlord). Tenant shall be entitled to any refund of any taxes and penalties or interest from any governmental authority to the extent the refund represents monies paid to the governmental authority by Tenant or paid by Landlord and reimbursed by Tenant. 6.4 WITHHOLDING TAXES. Subject to Section 6.5, but notwithstanding any other provision of this Lease to the contrary, Tenant may withhold from any payments under this Lease any Landlord Income Taxes, without obligation to gross-up, indemnify or otherwise increase payments in consequence thereof, to the extent required by applicable law (as determined by Tenant in its reasonable discretion). Upon the date hereof or upon the date a party becomes a Landlord or a transferee of any portion of the Landlord's interest in the Premises or this Lease, and within thirty (30) days following the first day of each calendar year or if otherwise requested from time to time by Tenant, Landlord and each transferee, if organized under the laws of a jurisdiction outside the United States, shall provide Tenant with three counterparts of each of the forms prescribed by the Internal Revenue Service of the United States (Form 1001 or 4224, or successor form(s), as the case may be) certifying as to Landlord's or such transferee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to such person. Without limitation upon the foregoing, unless Tenant has received such forms or other documents reasonably satisfactory to it indicating that payments under this Lease are not subject to United States withholding tax, Tenant is authorized to and shall withhold taxes from such payments at the applicable statutory rate. Landlord and each transferee, if organized under the laws of the United States or any State thereof, shall timely 13. 19 provide Tenant with duplicate documents conforming to the requirements of Treasury Regulation 1.1441-5(b) or any successor thereto (which statement may be made on a Form W-9). 6.5 ADDITIONAL PROVISIONS RELATING TO TAXES. Notwithstanding anything in this Section 6 to the contrary, Tenant shall indemnify, defend and hold Landlord harmless from and against: (a) Any and all Landlord Income Taxes imposed upon Landlord in consequence of Landlord being treated as the owner or lessor of the Premises (or any part thereof) for such tax purposes (provided that Landlord has fully complied with its obligations under Section 21.2(b)); (b) Any and all minimum franchise taxes imposed in respect of doing business within the State of California, business qualification taxes, and similar governmental charges for which Landlord would not be liable but for its participation in the transactions described in this Lease, including obtaining the UBS Loan or any other Authorized Loan pursuant to this Lease; (c) Any and all taxes imposed upon Tenant (except to the extent that such taxes are imposed upon Tenant as a result of Landlord's failure to comply with its obligations under this Lease); (d) Any and all taxes required to be withheld from payments made by Tenant to a third party not related to or affiliated with Landlord or The Staubach Company; (e) Any and all taxes imposed upon Landlord on cancellation or discharge of indebtedness income arising in connection with a write-down, payoff modification or cancellation of the UBS Loan or other Authorized Loan (other than in connection with Landlord's or SGA's bankruptcy or insolvency or any write-down, payoff, modification or cancellation of the SGA Loan (as defined in Section 12.1(b)) not authorized in advance by Tenant) and provided that Landlord has fully complied with its obligations under Section 21.2(b); (f) Any and all Real Estate Taxes; and (g) Any and all taxes owed by Landlord as a result of payment made by Tenant to or for the benefit of Landlord pursuant to Tenant's indemnity obligations under this Section 6.5. (g) Any and all taxes owed by Landlord as a result of payment made by Tenant to or for the benefit of Landlord pursuant to Tenant's indemnity obligations under this Section 6.5. Tenant's obligation to reimburse or indemnify Landlord for any taxes, governmental fees, penalties, interest or other supplemental tax charges under this Lease shall be reduced by the value of any related or offsetting tax benefits derived or realized by Landlord. For purposes of calculation of tax benefits derived or realized by Landlord, any net operating loss attributable to the 14. 20 Premises for any year shall be deemed to be available to offset against income from the Premises in subsequent years regardless of whether it is in fact available. Tenant's duty to indemnify Landlord under this Section 6.5 shall apply only to taxes arising during the Term (whether or not due and payable at the conclusion of the Term), but shall otherwise survive the expiration or earlier termination of this Lease. ARTICLE 7 INSURANCE 7.1 LIABILITY INSURANCE. At all times during the Term, Tenant shall obtain at Tenant's sole cost and expense a policy or policies of comprehensive general liability insurance on an "occurrence" basis against claims for "personal injury" liability, including, without limitation, bodily injury, death or property damage liability. The liability insurance policy shall contain coverage limits no less than a combined single limit of $5,000,000 per occurrence. The insurance may be furnished under a "primary" policy and an "umbrella" policy or policies. Landlord shall be named as an additional insured under Tenant's policy and Tenant's policy shall contain an endorsement for cross-liability coverage. Tenant shall furnish Landlord with certificates from Tenant's insurers with respect to the insurance required to be carried hereunder on or before the date of execution of this Lease. The certificates shall state that such insurance is in full force and effect and that coverage will not be cancelled without twenty (20) days' prior written notice to Landlord. Renewal certificates shall be furnished to Landlord not less than thirty (30) days prior to the expiration of each such policy. Any blanket insurance policy or policies that insure Tenant against the risks and for the amounts herein specified shall be deemed to satisfy the obligation of Tenant hereunder, provided that any such policy of blanket insurance shall specify the amount of the total insurance allocated to the risks required to be insured hereunder and such allocated amount meets the requirements of this Article 7. All insurance required by this Article 7 shall be with an insurance company licensed to do business in the State of California with a general policyholder's rating, as rated by the most current available "Bests" Insurance Reports, no less than A-III, and shall be primary and non-contributing. 7.2 WAIVER OF SUBROGATION. Notwithstanding anything to the contrary contained herein, to the extent permitted by law and so long as any insurance coverage maintained by Tenant is not diminished by reason thereof, Tenant hereby (a) releases and waives any rights it may have against Landlord and its officers, agents and employees on account of any loss or damages occasioned to Tenant, its property or the Premises, and arising from any risk covered by any fire and extended coverage insurance maintained by Tenant, whether or not due to the negligence of Landlord, its agents, employees, contractors, licensees, invitees or other persons, and (b) waives on behalf of any insurer providing such 15. 21 insurance to Tenant any right of subrogation that any such insurer may have or acquire against Landlord or such persons by virtue of payment of any loss under such insurance. Tenant shall use its best efforts to cause its insurance policies to contain a waiver of subrogation clauses in accordance with the foregoing. 7.3 INDEMNITY. Tenant shall protect, defend, indemnify, hold and save Landlord harmless from and against any and all losses, costs, liabilities or damages (including reasonable attorneys' fees and disbursements and court costs) arising by reason of: (i) any and all injury or death of persons or damage to property against which Tenant is obligated to maintain insurance for the benefit of Landlord pursuant to this Article 7; (ii) the failure to obtain the waiver of subrogation clause required by Section 7.2 hereof where such clause could have been obtained through the exercise of Tenant's best efforts; or (iii) the invalidation of such insurance policy required to be obtained by Tenant hereunder by Tenant's insurer. Tenant's duty to indemnify Landlord under this Section 7.3 shall survive the expiration or earlier termination of this Lease with respect to events occurring during the Term. ARTICLE 8 USE 8.1 USE. (a) PERMITTED USES. Tenant may use the Premises for any lawful purpose. (b) ENVIRONMENTAL COMPLIANCE. (i) DEFINED TERMS. The term "Applicable Environmental Laws" shall mean any applicable laws, regulations or ordinances pertaining to health or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 or otherwise (as amended, hereinafter called "CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, the Hazardous and Solid Waste Amendments of 1984 or otherwise (as amended, hereinafter called "RCRA"), and California Health & Safety Code Section 25501(j). The terms "hazardous substance" and "release" as used in this Lease shall have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have the meanings specified in RCRA; provided, in the event either CERCLA or RCRA is amended or superseded by other laws so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment or other laws; and, provided further, to the extent that the laws of the State of California establish a meaning for "hazardous substance", "release", "solid waste", or "disposal" 16. 22 which is broader than that specified in either CERCLA or RCRA, such broader meaning shall apply. The term "Pre-existing Contamination" means concentrations of arsenic and lead existing in soil and groundwater at the Premises as of the Lease Commencement Date. (ii) TENANT'S COVENANTS. Tenant will not cause or permit the Premises or the Improvements to be in violation of, or do anything or permit anything to be done which subjects Landlord, Tenant or the Premises to any remedial obligations under or which creates a claim or cause of action under, any Applicable Environmental Laws, including, without limitation, CERCLA, RCRA, and the California Health and Safety Code Section 25501(j), assuming disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to the Premises and the Improvements, and Tenant will promptly notify Landlord in writing of any existing, pending or threatened investigation, claim or inquiry of which Tenant has knowledge by any governmental authority in connection with any Applicable Environmental Laws. Tenant shall obtain any permits, licenses or similar authorizations to construct, occupy, operate or use any Improvements, fixtures and equipment at any time located on the Premises by reason of any Applicable Environmental Laws. Tenant will not use the Premises or the Improvements in a manner which will result in the unlawful disposal or other unlawful release of any hazardous substance or solid waste on or to the Premises or the Improvements and covenants and agrees to keep or cause the Premises and the Improvements to be kept free of any unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (including, without limitation, friable asbestos and any substance containing asbestos deemed hazardous and unlawful by any Applicable Environmental Law) and to remove the unlawful amounts of the same (or if removal is prohibited by law, to take whatever action is required by law) promptly upon discovery at Tenant's sole expense. Tenant shall promptly notify Landlord in writing of any unlawful disposal or other unlawful release of any hazardous substance, environmental contaminants or solid wastes on or to the Premises or the Improvements. Landlord and Tenant acknowledge that Pre-existing Contamination exists at the Premises due to operations of prior owners and that Tenant has no further obligation to notify Landlord regarding such Pre-existing Contamination. Landlord acknowledges receipt of that certain Phase I Environmental Assessment and Phase II Soil and Groundwater Evaluation dated February 1995 prepared by Lowney Associates ("Report"); provided that delivery of such Report shall in no way limit or modify Tenant's indemnity obligations pursuant to Section 8.1(b)(iii) hereof. Tenant acknowledges that Landlord will not acquire the Premises if any environmental contamination of the Premises in violation of applicable law, which contamination is not disclosed in the Report, occurs or is discovered before the Lease Commencement Date. In the event Tenant fails to comply with or perform any of the foregoing covenants and obligations, after thirty (30) days' prior written Notice to Tenant, Landlord may, but shall be under no obligation to, cause the Premises and the Improvements to be freed from the unlawful hazardous substance, 17. 23 unlawful solid waste or unlawful environmental contaminants (or if removal is prohibited by law, to take whatever action is required by law) and the reasonable cost of the removal or such other action shall be a demand obligation owing by Tenant to Landlord pursuant to this Lease; provided, however that this sentence shall not apply to Pre-existing Contamination. Notwithstanding the foregoing, Landlord shall have no right to cause the removal of such materials so long as Tenant both: (1) is diligently and in good faith proceeding to comply with Tenant's obligation to remove the unlawful amounts of such materials; and (2) has the financial ability to so comply. Subject to the foregoing, Tenant grants to Landlord and Landlord's agents and employees access to the Premises and the Improvements, and the license to remove the unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (or if removal is prohibited by law, to take whatever action is required by law) and agrees to indemnify, defend and save Landlord harmless from and against all reasonable costs and expenses involved and from all claims (including consequential damages) asserted or proven against Landlord by any party in connection therewith. Upon Landlord's reasonable request for "good cause" (defined below), at any time and from time to time during the Term, Tenant will provide at Tenant's sole expense an inspection or audit of the Premises and the Improvements from an engineering or consulting firm approved by Landlord, indicating the presence or absence of any hazardous substance, solid waste or environmental contaminants located on the Premises; provided, however that this provision shall not apply to Pre-existing Contamination. If Tenant fails to provide same after sixty (60) days' notice, Landlord may order same, and Tenant grants to Landlord and Landlord's employees and agents access to the Premises and the Improvements and a license to undertake any testing reasonably required to obtain such inspection or audit. The reasonable cost of obtaining such inspection or audit and any expenses incurred by Landlord in connection therewith, shall be a demand obligation owing by Tenant to Landlord pursuant to this Lease. For purposes of this Section 8.1(b)(ii), "good cause" shall mean that Landlord shall have reasonable grounds to believe that an unlawful release or unlawful disposal of hazardous substances or solid wastes has occurred on the Premises or the Improvements, but shall not include Pre-existing Contamination. (iii) TENANT'S INDEMNITY. Tenant agrees to indemnify, defend and hold Landlord harmless from and against, and to reimburse Landlord with respect to, any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses (including without limitation attorneys' fees and court costs), fines and/or penalties of any and every kind or character, known or unknown, fixed or contingent, asserted or potentially asserted against or incurred by Landlord at any time and from time to time by reason of, in connection with or arising out of (A) the failure of Tenant to perform any obligation herein required to be performed by Tenant regarding Applicable Environmental Laws, (B) any violation of any Applicable Environmental Law by Tenant or with respect to the Premises or the Improvements, or any disposal or 18. 24 other release by Tenant or with respect to the Premises or the Improvements of any hazardous substance, environmental contaminants or solid waste on or to the Premises or the Improvements, whether or not resulting in a violation of any Applicable Environmental Law, (C) any act, omission, event or circumstance by Tenant or with respect to the Premises or the Improvements which constitutes or has constituted a violation of any Applicable Environmental Law with respect to the Premises or the Improvements, regardless of whether the act, omission, event or circumstance constituted a violation of any Applicable Environmental Law at the time of its existence or occurrence, and (D) any and all claims or proceedings (whether brought by private party or governmental agencies) for bodily injury, property damage, abatement or remediation, environmental damage or impairment or any other injury or damage resulting from or relating to any hazardous or toxic substance or contaminated material located upon or migrating into, from or through the Premises or the Improvements (whether or not the release of such materials was caused by Tenant, a subtenant, a prior owner of the Premises or any other Entity) which Landlord may incur. Tenant's duty to indemnify Landlord under this Section 8.1 shall survive the expiration or earlier termination of the Lease with respect to events occurring during or prior to the Term or after the Term while Landlord has record title to and Tenant is occupying the Premises. 8.2 CONTEST OF LEGAL REQUIREMENTS. Tenant shall have the right at its sole cost and expense to contest the validity of any Legal Requirements applicable to the Premises by appropriate proceedings diligently conducted in good faith; and upon the request of Tenant and at Tenant's sole cost and expense, Landlord will join and cooperate with Tenant in such proceedings. Any other provision of this Lease (other than Section 6.3) to the contrary notwithstanding, Tenant's right to contest Legal Requirements must be exercised in such a manner as to avoid any exposure of the Premises or any part thereof to foreclosure or execution sale or exposure of Landlord to civil or criminal penalties arising from Tenant's non-compliance with such Legal Requirements. Tenant shall defend and indemnify Landlord against, and hold Landlord harmless from, any and all liability, loss, cost, damage, injury or expense (including, without limitation, attorneys' fees and costs) which Landlord may sustain or suffer by reason of Tenant's failure or delay in complying with, or Tenant's contest of, any such Legal Requirements (or Landlord's contest, if requested in writing by Tenant), and Tenant's duty to indemnify Landlord under this Section 8.2 shall survive the expiration or earlier termination of this Lease. 8.3 INDEMNIFICATION. Tenant will defend, protect, indemnify and save harmless Landlord from and against all liabilities, obligations, claims, damages, causes of action, costs and expenses, imposed upon or incurred by Landlord by reason of the occurrence or existence of any of the following during the Term, except to the extent caused by the willful misconduct, gross negligence, or willful breach of contract of Landlord or its agents 19. 25 or contractors: (1) any claims of Seller arising from the Purchase Agreement described in Section 4.1 (provided, that, without limitation of Tenant's indemnity obligations hereunder, Tenant's indemnity obligation under this Clause 1 shall apply notwithstanding a willful breach of the Purchase Agreement by Landlord if such breach is caused, directly or indirectly, by Tenant or any actions or failure to act by Tenant or as a result of Landlord's following Tenant's instructions with respect to the Purchase Agreement or in the event that Landlord is unable to obtain the UBS Loan); (2) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Premises or Improvements; (3) performance of any labor or services or the furnishing of any materials or other property in respect of the Premises or the Improvements; (4) the negligence or willful misconduct on the part of Tenant or any of its agents, invitees, employees or contractors or any other persons entering onto the Premises or the Improvements at the request, behest or with the permission of Tenant; (5) the construction, use or occupancy of the Improvements which Tenant may elect to construct; (6) the existence or application of any Legal Requirements with respect to the Premises or Improvements; or (7) the use of the Premises or Improvements. Tenant's duty to indemnify Landlord under this Section 8.3 shall survive the expiration or earlier termination of this Lease with respect to events occurring prior to the commencement of the Term, during the Term or after the Term while Landlord has record title to and Tenant is occupying the Premises. Notwithstanding anything to the contrary herein, Tenant's duty to indemnify Landlord pursuant to Clause 1 above shall apply only with respect to events or occurrences occurring prior to commencement of the Term. ARTICLE 9 UTILITIES AND SERVICES 9.1 SERVICES TO THE PREMISES. At Tenant's sole cost and expense, Tenant shall make its own arrangements for the provision of all utilities and services to be provided to or consumed on the Premises, including, without limitation, air conditioning, ventilation, heating, electric power, telephone, water (both domestic and fire protection), sanitary sewer, storm drain, natural gas and janitorial services, including for the installation, maintenance and repair of service lines and meters to measure Tenant's consumption of such utilities. ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES 10.1 TENANT OBLIGATIONS. Except as otherwise provided in this Lease, Tenant shall maintain the Premises in good repair, normal wear and tear, casualty and Takings (as defined in Section 15.1) excepted. All maintenance that Tenant is obligated to perform under this Section 10.1 shall be at the sole expense of 20. 26 Tenant, except to the extent that repairs are made necessary because of the gross negligence or willful misconduct of Landlord, its agents, employees or contractors. 10.2 SURRENDER OF THE PREMISES. Except as provided in Section 19, upon the expiration or earlier termination of the Term, Tenant shall surrender the Premises to Landlord in its then "AS-IS" condition, including, without limitation, any condition resulting from: (i) wear and tear; (ii) obsolescence and damage by fire or other casualty, act of God or the elements; (iii) damage that is beyond Tenant's reasonable control or is caused by Landlord, its agents, employees or contractors; (iv) any Improvements which Tenant may elect to construct (in compliance with the terms of this Lease) and leave on the Premises (subject to the rights of any other Entity in such Improvements); (v) Takings; and (vi) Tenant's alterations, additions, removals, repairs, replacements, or decorations in, to or of the Premises. Title to all Improvements, furniture, furnishings, fixtures, trade fixtures and personal property of Tenant located in or upon the Premises, whether or not affixed to the realty, shall be and remain in Tenant, and upon the expiration or earlier termination of this Lease, or within thirty (30) days thereafter (or as soon thereafter as reasonably practical), the same may be removed by Tenant, or, at Tenant's election, surrendered with the Premises, in which event title to such surrendered property shall, if Landlord so elects in Landlord's sole discretion, be deemed transferred to Landlord (subject to the rights of any other Entity in such Improvements). ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS AND COMMON AREA 11.1 TENANT'S RIGHTS TO CONSTRUCT IMPROVEMENTS. Tenant shall be under no obligation whatsoever to construct any Improvements. Tenant shall have the right, in Tenant's sole discretion, to construct Improvements which Tenant desires, subject only to the specific approvals required from Landlord pursuant to the terms of this Section 11.1. Notwithstanding anything to the contrary, without obtaining Landlord's approval, Tenant may perform work on the Premises which does not consist of the actual construction of above-ground buildings (for example, Tenant may perform grading, trenching and similar work, and may install and construct utilities, parking lots, driveways, roadways, foundations, and the like). (a) APPROVAL PLANS. Prior to commencing any actual construction of Improvements (except as otherwise permitted or already approved pursuant to this Section 11.1), Tenant's proposed site plans (showing the locations and orientations of any proposed buildings) and exterior shell plans (showing exterior building sections) (collectively, "Approval Plans") of any Improvements which Tenant may elect to construct shall be submitted to and approved by Landlord in accordance with the following (in each case to the extent applicable). Tenant shall deliver a letter to 21. 27 Landlord along with any submitted Approval Plans in which Tenant states that the submitted Approval Plans do not violate any Legal Requirements. Landlord may only withhold Landlord's approval to any such Approval Plans to the extent that the Approval Plans violate any material Legal Requirements, and Landlord may not withhold its consent on any other ground. At the option of Tenant, the foregoing documentation may be submitted to Landlord for approval in stages as Tenant completes it. Landlord shall have a period of ten (10) days from the date of receipt of each component of the documentation within which to approve or reject it. The Approval Plans, as approved from time to time by Landlord pursuant to this Section 11.1 shall constitute the "Authorized Plans." Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of any Approval Plans, provided that Landlord first gives Tenant a detailed written notice that it has reasonable grounds to believe that the Approval Plans violate material Legal Requirements, and Tenant fails either to revise such Approval Plans to comply with such material Legal Requirements or to provide reasonable evidence that the Approval Plans do not violate material Legal Requirements. Landlord's approval of any Authorized Plans does not constitute any representation or warranty by Landlord with respect to such Authorized Plans, and Landlord hereby specifically disclaims any such representations and warranties. (b) FURTHER APPROVALS; PROPOSED CHANGES. Subsequent to Landlord's approval of any Authorized Plans pursuant to Section 11.1(a), Tenant shall only be obligated to submit to Landlord for approval documentation showing any proposed material change to the Authorized Plans (but no approval shall be required with respect to construction or design matters that are not contained or addressed by the Authorized Plans), and only to the extent such change is materially inconsistent with the Authorized Plans. Landlord shall have a period of ten (10) days from receipt of each material change within which to approve or reject it. Landlord may only withhold Landlord's approval to any such change to the Authorized Plans to the extent that such change violates any material Legal Requirements, and Landlord may not withhold its consent on any other ground. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of any such changes, provided that Landlord first gives Tenant a detailed written notice that it has reasonable grounds to believe that the Approval Plans violate material Legal Requirements, and Tenant fails either to revise such Approval Plans to comply with such material Legal Requirements or to provide reasonable evidence that the Approval Plans do not violate material Legal Requirements. Tenant shall have the right, without further approval of Landlord, to construct Improvements not inconsistent with the Authorized Plans together with such changes thereto as may be requested or required to comply with Legal Requirements. 22. 28 (c) FAILURE TO DISAPPROVE. The failure by Landlord to disapprove any portion of the proposed Approval Plans submitted pursuant to this Section 11.1, or send Notice that it has grounds to believe the proposed Approval Plans violate a material Legal Requirement within the specified approval period shall be deemed to constitute approval thereof as submitted, and such Approval Plans shall thereupon become Authorized Plans. Any disapproval by Landlord of any portion of the proposed Approval Plans shall be in writing and shall specify with particularity the basis for the disapproval. (d) OTHER IMPROVEMENTS AND ALTERATIONS. At any time and from time to time, and without the necessity for obtaining Landlord's approval or giving Notice thereof to Landlord, Tenant shall have the right, at its expense, to make any Improvements, alterations, additions, repairs, replacements or decorations in, to or of the Premises which do not materially change the exterior design scope of the Improvements as previously approved by Landlord pursuant to any Authorized Plans. In constructing any Improvements, Tenant shall do so in a manner which does not violate any applicable and material Legal Requirements. 11.2 REQUIRED PERMITS, EASEMENTS, ETC. From time to time, upon request of Tenant, Landlord (as holder of record of title to the Land) shall execute such reasonable documents, petitions, applications and authorizations, easements and rights of way (which have been prepared at Tenant's expense) and shall appear at and participate in such public hearings, staff meetings and similar gatherings, in each case as may in the reasonable and good-faith opinion of Tenant be necessary or appropriate for the purpose of obtaining any Required Permits or private easements or rights of way or utility services for the Improvements or to remove any title encumbrances on the Land which may interfere with Tenant's construction of the Improvements. Tenant shall immediately reimburse Landlord on demand (or pay directly) for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 11.2. 11.3 DEMOLITION AND RECONSTRUCTION. At any time and from time to time, Tenant shall have the right to demolish or alter all or any portion of the then existing Improvements and construct additional Improvements in their place. The additional Improvements, if any, to be constructed shall be submitted to and approved by Landlord only to the extent required by Section 11.1, as applicable. 11.4 TITLE TO AND NATURE OF IMPROVEMENTS. Any and all Improvements of whatever nature at any time constructed, placed or maintained upon any part of the Land shall be and remain the property of Tenant, subject to Tenant's right to assign or sublease. The severance of fee title to the Land and Improvements shall not change the character of the Improvements as real property. 23. 29 ARTICLE 12 LIENS Except for claims that Tenant is contesting in good faith in such manner as to avoid any exposure of the Premises or any part thereof to foreclosure or execution sale, Tenant shall promptly pay and discharge all claims for work or labor done, supplies furnished or services rendered to the Premises, and shall keep the Premises free and clear of all mechanics' and materialmen's liens in connection therewith. ARTICLE 13 ASSIGNMENT BY LANDLORD 13.1 FURTHER MORTGAGES OR ENCUMBRANCES BY LANDLORD; AUTHORIZED LOANS. (a) PROHIBITION. Except for the Tenant Deed of Trust and as specifically permitted in Section 11.2, 13.1(b) or 20, Landlord shall not cause or create any mortgages, deeds of trust, encumbrances or other exceptions to title (collectively, "New Encumbrances") to exist with respect to the Premises at any time, and any such encumbrance not authorized in writing by Tenant shall be null and void. The term "New Encumbrances" shall also include any bonds or assessments affecting the Premises to which Landlord consents in writing without the prior written approval of Tenant (which may be withheld in Tenant's sole and absolute discretion). Without the prior written consent of Tenant (which may be withheld in Tenant's sole and absolute discretion), Landlord shall not make or join in an application or other document which requests or authorizes any bonds or assessments to affect the Premises. Landlord recognizes that any New Encumbrance may irreparably harm Tenant in connection with one or more of the following: (1) construction which Tenant may desire to perform; (2) the use of the Premises; (3) Tenant's rights pursuant to the Purchase Option in Section 19; (4) the amount of assessments which Tenant is required to pay; or (5) other matters. (b) AUTHORIZED LOAN. Tenant has approved the terms of the loan ("UBS Loan") to be made by UBS to SGA which shall be evidenced by that certain Tranche B Promissory Note dated as of the Lease Commencement Date by SGA in favor of UBS ("UBS Note"), and further evidenced and/or secured by (a) that certain General Terms and Conditions of Credit Arrangement between SGA and UBS, (b) that certain Additional Terms and Conditions between SGA and UBS, (c) that certain Pledge Agreement, as amended by Rider No. 1 thereto, made by Tenant in favor of UBS, and (d) certain documents (including, without limitation a promissory note and related documents) evidencing a loan ("SGA Loan") from SGA to Landlord in the principal amount of the UBS Note, all dated as of the Lease Commencement Date; provided, however, that Tenant, Landlord and SGA reserve the right to approve, in their sole discretion, the final form of all documents related to the UBS Loan. In addition, upon 24. 30 the maturity or prepayment of the UBS Loan (whether by its terms, by acceleration or otherwise), Landlord may (but, subject to the terms of Section 13.1(c), shall not be obligated to) enter into a new loan (such authorized loan shall be the "New Loan"), provided Landlord first obtains Tenant's written consent (which consent shall not be unreasonably withheld except with respect to the matters contained in clauses (i) through (v) below so long as: (i) the UBS Loan is paid off with the proceeds of such New Loan and all documents securing or reflecting the UBS Loan are assigned to the lender who makes the New Loan or are released and satisfied; (ii) the principal amount of the New Loan does not exceed the principal amount of the UBS Loan existing at the time the UBS Loan is repaid; (iii) the interest rate and payment provisions under the New Loan would not result in higher monthly payments than the method under the UBS Loan, and all such monthly payments shall be interest only; (iv) there are no prepayment prohibitions, penalties or other restrictions which would limit rights to retire the New Loan or require additional payment to do so; and (v) the New Loan documents do not contain terms and conditions which differ from the UBS Loan documents in any material respect, including provisions relating to the Collateral as defined in Section 21.18. The UBS Loan, the New Loan authorized pursuant to the preceding sentence and the Replacement Loan described in Section 13.1(c) below shall be the "Authorized Loan"; provided that only one Authorized Loan may exist at any one point in time. Landlord may not modify the terms of an Authorized Loan without the prior written consent of Tenant, which Tenant shall not unreasonably withhold (but may be withheld in Tenant's sole and absolute discretion based upon any of the matters identified in subitems (i) through (v) above in this Section 13.1(b)). (c) REPLACEMENT LOAN. Subject to Landlord's prior written consent (which consent shall not be unreasonably withheld or delayed), at the request of Tenant, Landlord shall execute and/or shall cause SGA to execute loan documents evidencing and/or securing a new loan to Landlord or SGA, the proceeds of which would be used to retire the UBS Loan (such loan requested by Tenant shall be a "Replacement Loan"). Landlord shall only be entitled to refuse to consent to such new loan if (1) the maturity date of the Replacement Loan is a date before the expiration date of the Extension Term; (2) the principal amount of the Replacement Loan exceeds the principal amount of the UBS Loan plus any accrued interest and fees payable at the time the UBS Loan is prepaid; (3) the interest rate structure under the Replacement Loan is materially higher than market conditions would justify at the time; (4) there are prepayment prohibitions, penalties or other restrictions which would limit rights to retire the Replacement Loan or require additional payment to do so; (5) the Replacement Loan creates greater liability for Landlord or SGA than otherwise would exist for Landlord and SGA, or would result in the violation of any law, rule or regulation applicable to Landlord or SGA, or (6) the Replacement Loan documents contain terms and conditions which differ from the UBS Loan documents in any material respect (including provisions relating to the Collateral as defined in 25. 31 Section 21.18); provided, however, that Landlord shall not be entitled to object to a Replacement Loan on the ground that Landlord, rather than SGA, shall be the borrower under such Replacement Loan. Tenant shall pay all reasonable costs, including without limitation reasonable attorneys' fees, incurred by Landlord in connection with obtaining such a Replacement Loan. If Tenant requests and provides the funds, Landlord shall make all arrangements necessary for, and shall pay down any Authorized Loan in the amount requested by Tenant, and shall arrange for all documentation reasonably requested by Tenant to reflect the reduction or elimination of such Authorized Loan. (d) On the Lease Commencement Date, Landlord shall execute, acknowledge, and cause to be recorded in the Official Records, a deed of trust in form acceptable to Tenant ("Tenant Deed of Trust"), which Tenant Deed of Trust shall secure Landlord's obligations under this Lease (i) to return the Security Deposit pursuant to the terms of this Lease, (ii) to convey the Premises to Tenant as required pursuant to Article 19 hereof, and (iii) to comply with Sections 20.4, 20.5 and 20.6. The Tenant Deed of Trust shall be a first priority lien against the Premises. 13.2 LANDLORD'S RIGHT TO SELL. Subject to Tenant's Purchase Option and the mandatory purchase set forth in Article 19 and the terms of Section 13.1 and Article 20, nothing contained in this Lease shall be deemed in any way to limit, restrict or otherwise affect the right of Landlord at any time and from time to time to sell or transfer all of its right, title and estate in the Premises to a Landlord Affiliate or, if an Event of Major Default has occurred and is continuing at the time of such sale or transfer, to any Entity, provided that such buyer or transferee shall concurrently assume without incurring personal liability except as expressly provided in this Lease, in writing, in a manner consistent with this Lease and in compliance with all requirements of the UBS Loan documents, all of Landlord's and/or SGA's obligations under the UBS Loan or any other Authorized Loan and the Landlord's obligations under this Lease. Notwithstanding anything to the contrary in this Lease, without the prior written consent of Tenant (which may be withheld in Tenant's sole discretion), in no event shall Landlord sell or transfer all or any portion of Landlord's right, title or estate in the Premises to any Entity which does not then comply with the requirements of Sections 20.4 and 20.5 if an Event of Major Default does not then exist at the time of such sale or transfer. Any sale or transfer by Landlord whatsoever shall by its express terms recognize and confirm the right of possession of Tenant to the Premises and Tenant's other rights arising out of this Lease shall not be affected or disturbed in any way by any such sale, transfer, assignment or conveyance. 13.3 TRANSFER OF FUNDS AND PROPERTY. At each time Landlord sells, assigns, transfers or conveys the entire right, title and estate of Landlord in the Premises and in this Lease, Landlord shall turn over to the transferee the Security Deposit and any other funds or other property then held by Landlord under this 26. 32 Lease and thereupon all the liabilities and obligations on the part of the Landlord under this Lease arising after the effective date of such sale, assignment, transfer or conveyance shall terminate as to the transferor and be binding upon the transferee. ARTICLE 14 ASSIGNMENT AND SUBLEASING 14.1 RIGHT TO ASSIGN. (a) TENANT'S RIGHT. Tenant shall have the right, at any time and from time to time during the Term, to assign all or any portion of its right, title and estate in the Premises and in this Lease without approval by Landlord. Any such assignee, immediate or remote, shall have the same right of assignment. Any such assignment shall be evidenced by a written instrument, properly executed and acknowledged by all parties thereto and, at Tenant's election, duly recorded in the Official Records, wherein and whereby the assignee assumes all of the obligations of Tenant under this Lease. Notwithstanding any such assignment and assumption or any sublease permitted under Section 14.2 hereof, Tenant shall remain primarily liable for all obligations and liabilities on the part of Tenant theretofore or thereafter arising under this Lease. (b) NOTICE. Tenant shall, promptly after execution of each assignment, notify Landlord of the name and mailing address of the assignee and shall, on demand, permit Landlord to examine and copy the assignment agreement. 14.2 RIGHT TO SUBLET. (a) TENANT'S RIGHT. Tenant shall have the right, at any time and from time to time during the Term, to sublet all or any portion of the Premises and to extend, modify or renew any sublease without the approval of Landlord. (b) NOTICE. Tenant shall, promptly after execution of each sublease, notify Landlord of the name and mailing address of the subtenant and shall, on demand, permit Landlord to examine and copy the sublease. (c) NON-DISTURBANCE AGREEMENT. Upon Tenant's request, Landlord shall enter into a "landlord agreement" with any subtenant of Tenant. Such agreement shall provide that Landlord shall recognize the sublease and not disturb the subtenant's possession thereunder so long as such subtenant shall not be in default under its sublease, and an Event of Major Default is not then in existence and continuing under this Lease. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of- pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 14.2(c). 27. 33 14.3 TENANT'S RIGHT TO MORTGAGE. (a) RIGHT OF TENANT. Tenant shall have the right from time to time and at any time, without obtaining the approval of Landlord, to mortgage, pledge or otherwise encumber all or any portion of the right, title and estate of Tenant in the Premises or in this Lease. (b) NOTICE. Tenant shall, promptly after execution of any Mortgage, notify Landlord of the name and mailing address of the Mortgagee thereunder and shall, on demand, permit Landlord to examine and copy the Mortgage. ARTICLE 15 EMINENT DOMAIN 15.1 TOTAL OR SUBSTANTIAL TAKING. If title or access is taken for any public or quasi-public use, or under any statute or by right of condemnation or eminent domain, or by sale in lieu thereof (a "Taking") with respect to all of the Premises, or if title to so much of the Premises or access thereto is Taken, or if the Premises or access thereto is damaged, blocked or impaired by the Taking, so that, in Tenant's sole discretion, the Premises or access thereto, even after a reasonable amount of reconstruction thereof, will no longer be suitable for Tenant's (and/or Tenant's subtenants') continued occupancy for the conduct of Tenant's (and/or Tenant's subtenants') business in a manner consistent with the conduct of such business prior to such Taking, then in any such event, this Lease shall terminate on the date of such Taking. 15.2 PARTIAL TAKING. If any part of the Premises, or access thereto, shall be Taken, and the Premises or the remaining part thereof and access thereto will be, in Tenant's sole discretion, suitable for Tenant's (and/or Tenant's subtenants') continued occupancy for the conduct of Tenant's (and/or Tenant's subtenants') business in a manner consistent with the conduct of such business prior to such Taking, all of the terms, covenants and conditions of this Lease shall continue, except that Base Rent shall be adjusted to reflect the decreased Funded Amount remaining after application thereto of the award made to Landlord for such Taking (subject to Section 15.3 below). 15.3 TEMPORARY TAKING. If the whole or any part of the Premises is Taken for temporary use or occupancy, this Lease shall not terminate by reason thereof and Tenant shall continue to pay, in the manner and at the times herein specified, the full amount of the Base Rent payable by Tenant hereunder, and, except only to the extent that Tenant may be prevented from so doing by reason of such Taking, Tenant shall continue to perform and observe all of the other terms, covenants and conditions hereof on the part of Tenant to be performed and observed, as though the Taking had not occurred. In the event of any such temporary Taking, Tenant shall be entitled to receive the entire amount of the award made for the 28. 34 Taking, whether paid by way of damages, rent or otherwise. If the temporary Taking is for a term in excess of thirty (30) days, then the Taking shall be treated as a permanent Taking and be governed by Section 15.1 or 15.2, as applicable. 15.4 DAMAGES. The compensation awarded or paid upon any Taking (other than a temporary Taking, which shall be governed by Section 15.3), whether awarded to Landlord, Tenant, or both of them, shall be distributed as set forth below (in each case the compensation or value shall be determined as of the date of the Taking): (a) to Landlord, any amounts payable on account of the value of the Land, but not to exceed an amount equal to the Funded Amount (or, if less than the entire Premises is Taken, not to exceed a pro rata portion of the Funded Amount equal to the ratio that the square footage of the portion of the Premises Taken bears to the square footage of the entire Premises prior to the Taking) plus all accrued Rent hereunder; and (b) to Tenant, any other award, or portion thereof, including any portion of the award above the Funded Amount (or the pro rata portion thereof) pursuant to Section 15.4(a)). Landlord shall promptly pay over to UBS or the holder of an Authorized Loan, as the case may be, any award (not exceeding, however, the Senior Funded Amount) paid to Landlord hereunder, and Tenant shall be entitled to establish reasonable security arrangements to ensure the prompt payment of such amounts to such holder. The Funded Amount shall be reduced on a dollar-for-dollar basis by the amount of any award required to be paid by Landlord to such holder of an Authorized Loan pursuant to the preceding sentence. 15.5 NOTICE AND EXECUTION. Immediately upon service of process upon Landlord or Tenant in connection with any Taking relating to the Premises or any portion thereof or access thereto, each party shall give the other Notice thereof. Each party agrees to execute and deliver to the other all instruments that may be required to effectuate the provisions of this Article 15. Tenant reserves the right to appear in and to contest any proceedings in connection with any such Taking. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 15.5. ARTICLE 16 DAMAGE OR DESTRUCTION 16.1 INSURED CASUALTY. If any Improvements are damaged or destroyed by fire or other casualty, this Lease shall continue in full force and effect without any abatement or reduction in Base Rent, and Tenant, at Tenant's election, may either (a) restore the 29. 35 Improvements to their condition prior to the damage or destruction, or such other condition as Tenant shall elect in its sole and absolute discretion, subject to Landlord's approval rights set forth in Section 11.1, or (b) not restore the Improvements, but perform, or cause to be performed, at Tenant's sole cost and expense, any work or service required by any Legal Requirement for the protection of persons or property from any risk, or for the abatement of any nuisance, created by or arising from the casualty or the damage or destruction caused thereby. 16.2 INSURANCE PROCEEDS. In the event of any fire or other casualty, the proceeds of any insurance policies maintained by Tenant shall be distributed to Tenant, and Landlord shall have no claim or right with respect thereto. ARTICLE 17 DEFAULT 17.1 DEFAULT. Each of the following events shall constitute a default ("Default") by Tenant: (a) DEFAULT OTHER THAN EVENT OF MAJOR DEFAULT. Tenant's failure to perform or comply with any of the terms, covenants or conditions contained in this Lease other than those referred to in Section 17.2, where such failure shall continue for a period of thirty (30) days after Notice thereof from Landlord to Tenant, or in the case of a failure which cannot with due diligence be cured within the period of thirty (30) days, Tenant's failure to proceed promptly and with due diligence to cure the failure and thereafter to prosecute the curing of the failure with all due diligence, it being intended that in connection with a failure not susceptible of being cured with due diligence within thirty (30) days, the time of Tenant within which to cure the failure shall be extended for such period as may be reasonably necessary to complete the cure with all due diligence; and (b) INSOLVENCY. Subject to Section 17.3, the occurrence of: (i) an assignment by Tenant for the benefit of creditors generally; or (ii) the filing of a voluntary or involuntary petition by or against Tenant under any present or future applicable federal, state or other statute or law having for its purpose the adjudication of Tenant as a bankrupt; (iii) the appointment of a receiver, liquidator or trustee for all or a substantial portion of the Premises by reason of the insolvency or alleged insolvency of Tenant; or (iv) the taking of possession by any department of city, county, state or federal government, or any officer thereof duly authorized, of all or a substantial portion of the Premises by reason of the insolvency or alleged insolvency of Tenant; and Tenant's failure to timely give any Notice it is permitted to give pursuant to Section 17.3 (or, in the event Tenant gives timely Notice and pursues a contest under Section 17.3, Tenant's failure to finally prevail in the contest). 30. 36 17.2 EVENT OF MAJOR DEFAULT. Each of the following events shall constitute an event of major default ("Event of Major Default") by Tenant: (a) FAILURE TO PAY BASE RENT. Tenant's failure to pay any Base Rent within five (5) days after Tenant's receipt of Notice thereof from Landlord that the Base Rent is past due; or (b) FAILURE TO PAY ADDITIONAL RENT. Tenant's failure to pay any Additional Rent which is due to Landlord within ten (10) days after Tenant's receipt of Notice thereof from Landlord that such Additional Rent is past due; (c) FAILURE TO COMPLY WITH PURCHASE OBLIGATION UNDER SECTION 19.2. Tenant's failure to comply with Tenant's obligation to purchase the Premises pursuant to Section 19.2 within twenty (20) days after Tenant's receipt of Notice thereof from Landlord that Tenant has so failed, except in the case of a purchase obligation arising on account of expiration of the Term of this Lease, in which case no such Notice shall be required; (d) FAILURE TO CARRY LIABILITY INSURANCE. Tenant's failure to carry the liability insurance required by Section 7.1, if such failure continues ten (10) days after Tenant's receipt of Notice thereof from Landlord that Tenant is not carrying such required liability insurance. 17.3 CONTEST BY TENANT. If upon the filing of any involuntary petition of the type described in Section 17.1(b) or upon the appointment of a receiver, other than a receiver appointed in any voluntary proceeding referred to in Section 17.1(b), or the taking of possession of all or a substantial portion of the Premises by any department of the city, county, state or federal government, or any officer thereof duly authorized, by reason of the alleged insolvency of Tenant without the consent or over the objection of Tenant, should Tenant desire to contest the same in good faith, Tenant shall, within ninety (90) days after the filing of the petition or after the appointment or taking of possession, give Notice to Landlord that Tenant proposes to make the contest, and the same shall not constitute a Default so long as Tenant shall prosecute the proceedings with due diligence and no part of the Premises shall be exposed to sale by reason of the continuance of the contest. 17.4 REMEDIES. Landlord shall have the remedies specified below, the parties hereby acknowledging that the remedies described in Section 17.4(b) may be exercised by Landlord only upon the occurrence of an Event of Major Default. Tenant shall at all times have the right to exercise and carry out the terms of the Purchase Option in Section 19.1, notwithstanding the occurrence or existence of any Default or Event of Major Default under this Lease, and Landlord shall have the obligation to comply with Landlord's obligations under Section 19.1 notwithstanding any Default or Event of Major Default. 31. 37 (a) CONTINUE LEASE. In connection with a Default or an Event of Major Default, Landlord shall have the right to enforce, by suit or otherwise, all other covenants and conditions hereof to be performed or complied with by Tenant and to exercise all other remedies permitted by Section 1951.4 of the California Civil Code, or any amendments thereof or any successor laws which replace such Section 1951.4. Landlord has the remedy described in California Civil Code Section 1951.4 (Landlord may continue the Lease in effect after Tenant's breach and abandonment and recover Base Rent as it becomes due, if Tenant has right to sublet or assign, subject only to reasonable limitation). Upon application by Landlord, a receiver may be appointed to take possession of the Premises and exercise all rights granted to Landlord as set forth in this Section 17.4(a); and (b) TERMINATE LEASE. In connection with an Event of Major Default (but not a Default), Landlord shall have the right to terminate this Lease, by giving Tenant Notice thereof, at any time after the occurrence of such Event of Major Default and whether or not Landlord has also exercised any right under Section 17.4(a). In such event, Tenant shall, within twenty (20) days after receipt of Notice from Landlord, purchase the Premises pursuant to Section 19.2. 17.5 NO WAIVER. No failure by Landlord or Tenant to insist upon the strict performance of any term, covenant or condition of this Lease or to exercise any right or remedy consequent upon a breach thereof and no acceptance of full or partial Rent during the continuance of any breach shall constitute a waiver of any such breach or of the term, covenant, or condition. No term, covenant or condition of this Lease to be performed or complied with by Tenant or Landlord, and no breach thereof, shall be waived, terminated, altered or modified except by a written instrument executed by Landlord and Tenant. No waiver of any breach shall affect or alter this Lease, but each and every term, covenant, and condition of this Lease shall continue in full force and effect with respect to any other then existing subsequent breach thereof. 17.6 EFFECT OF ASSIGNMENT. Notwithstanding an Entity's prior assignment or transfer of its interest as Tenant under this Lease, so long as Landlord has been given Notice of such assignment pursuant to Sections 14.1(b) and 21.3, Landlord shall give such Entity copies of all Notices required by this Article 17 in connection with any Default, and such Entity shall have the period granted hereunder to Tenant to cure such Default, unless such Entity shall have been released from all obligations arising under this Lease. Landlord may not assert any rights against such Entity in the absence of such Notice and opportunity to cure, so long as Landlord has been given Notice of such assignment pursuant to Sections 14.1(b) and 21.3. 17.7 LANDLORD CURE RIGHT. If Tenant fails to perform any covenant or agreement to be performed by Tenant under this 32. 38 Lease, and if the failure or default continues for thirty (30) days after Notice to Tenant and to any Mortgagee who has requested in writing notice thereof from Landlord (except for emergencies and except for payment of any lien or encumbrance threatening the imminent sale of the Premises or any portion thereof, in which case payment or cure may be made as soon as necessary to minimize the damage to person or property caused by such emergency or to prevent any such sale), Landlord may, but shall have no obligation to, pay the same and cure such default on behalf of and at the expense of Tenant and do all reasonably necessary work and make all reasonably necessary payments in connection therewith including, but not limited to, the payment of reasonable attorneys' fees and disbursements incurred by Landlord. Notwithstanding the foregoing, Landlord shall have no right to cure any such failure to perform by Tenant so long as Tenant both: (1) is diligently and in good faith attempting to cure such matter; and (2) has the financial ability to so comply. Notwithstanding anything to the contrary in this Lease, in no event shall Landlord have a right to cure any matters relating to the Improvements unless such matter constitutes a crime by Landlord and subjects Landlord to criminal penalties (except as specifically permitted in Section 8.1(b)). Upon demand, Tenant shall reimburse Landlord for the reasonable amount so paid, together with interest at the Lease Rate from the date incurred until the date repaid. Tenant shall defend, indemnify, and hold Landlord harmless from and against any and all losses, costs, expenses, liabilities, claims, causes of action and damages of all kinds that may result to Landlord, including reasonable attorneys' fees and disbursements incurred by Landlord, arising because of any failure by Tenant to perform any of its obligations under this Lease. Tenant's duty to indemnify Landlord under this Section 17.7 shall survive the expiration or earlier termination of this Lease. 17.8 LANDLORD'S DEFAULT. (a) GENERAL. If Landlord fails to perform any covenant or agreement to be performed by Landlord under Article 11, Section 13.1, Section 15.4, Article 20, or Section 21.10 of this Lease (including, but not limited to, Landlord's failure to keep the Premises free of any and all liens created by or through Landlord except as approved by Tenant in writing), and if the failure or default continues for thirty (30) days after Notice to Landlord and to any Fee Mortgagee who has requested in writing notice thereof from Tenant (except for (i) emergencies, or (ii) payment of any lien or encumbrance threatening the imminent sale of the Premises or any portion thereof, in which case payment or cure may be made as soon as necessary to minimize the damage to person or property caused by such emergency or to prevent any such sale), Tenant may, but shall have no obligation to, pay the same and cure such default on behalf of and, so long as such failure to perform arises due to Landlord's gross negligence, willful misconduct, or willful breach of this Lease, at the expense of Landlord and do all reasonably necessary work and make all reasonably necessary payments in connection therewith including, but not limited to, the payment of reasonable attorneys' fees and 33. 39 disbursements incurred by Tenant. Notwithstanding the foregoing, Tenant shall have no right to cure any such failure to perform by Landlord so long as Landlord both: (1) is diligently and in good faith attempting to cure such matter; and (2) has the financial ability to so comply. To the extent that Landlord's failure to perform arises due to its gross negligence, willful misconduct or willful breach of this Lease, upon demand, Landlord shall reimburse Tenant for the reasonable amount so paid, together with interest at the Lease Rate from the date incurred until the date repaid. To the extent that Landlord's failure to perform arises due to its gross negligence, willful misconduct or willful breach of this Lease, Landlord shall defend, protect, indemnify, and hold Tenant harmless from and against any and all losses, costs, expenses, liabilities, claims, causes of action and damages of all kinds that may result to Tenant, including reasonable attorneys' fees and disbursements incurred by Tenant, arising because of any failure by Landlord to perform any of its obligations under Article 11, Section 13.1, Section 15.4, Article 20 or Section 21.10 of this Lease. Landlord's duty to indemnify Tenant under this Section 17.8 shall survive the expiration or earlier termination of this Lease. (b) DEFAULT UNDER CERTAIN PROVISIONS. Notwithstanding anything to the contrary in Section (a) above, in the event of a default by Landlord under Section 20.6, Tenant shall have the right to cure such default on behalf of and at Landlord's expense, without prior notice to Landlord. In addition, in the event of any default by Landlord under Section 20.4, 20.5 or 20.6, Tenant shall have the right to exercise its Purchase Option pursuant to Section 19.1 hereof, and to offset against the Purchase Price the amount of all losses and reasonable costs and expenses (including without limitation reasonable attorneys' fees) incurred by Tenant arising from such default by Landlord, including without limitation all losses arising by reason of Tenant's inability to treat the transactions contemplated by this Lease as an operating lease for financial accounting and securities regulatory purposes, and all costs and expenses incurred in connection with negotiating and entering into a new lease upon exercise of the Purchase Option. ARTICLE 18 QUIET ENJOYMENT 18.1 QUIET ENJOYMENT. Landlord covenants to secure to Tenant the quiet possession of the Premises for the full Term against all persons claiming the same, subject to Landlord's rights and remedies under Section 17 upon a Default or an Event of Major Default by Tenant. The existence of any Permitted Exceptions shall not be deemed to constitute a breach of Landlord's obligations hereunder. Tenant shall, immediately upon demand, reimburse Landlord for all reasonable costs, expenses and damages incurred or paid by Landlord in the performance of Landlord's obligations under this Article 18 (except for any costs, expenses or damages arising from Landlord's willful breach of this Lease). 34. 40 ARTICLE 19 TENANT'S OPTION TO PURCHASE 19.1 OPTION TO PURCHASE PREMISES. (a) PURCHASE OPTION. Tenant shall have the option ("Purchase Option") to purchase all or part of the Premises at any time during the Term; provided that Tenant shall be entitled to purchase less than all of the Premises only if the portion being purchased is released from any existing Fee Mortgage and if the portion of the Premises not purchased shall constitute one or more legal lots after closing of the purchase and shall be reasonably viable as a separate property. The purchase price ("Purchase Price") for the portion of the Premises which Tenant elects to purchase shall be (i) the then-existing Funded Amount applicable to the portion of the Premises which Tenant elects to purchase (determined in a pro rata basis on the basis of the area being purchased), as the same may be reduced from time to time, plus (ii) the amount of any prepayment premium and all other fees, costs, and expenses due to any holder of an Authorized Loan in connection with such loan (to the extent not already paid pursuant to Section 21.21 hereof), less (iii) the amount of the Security Deposit (or, in the event of a purchase of a portion of the Premises, a pro rata portion of the Security Deposit). Tenant shall be entitled to a credit against the Purchase Price equal to the principal balance(s) of any Authorized Loan and/or Fee Mortgage existing immediately prior to the closing under this Purchase Option if such Authorized Loan and/or Fee Mortgage are not fully repaid and all documents reflecting the same are not cancelled and removed from the public records on or prior to the closing under this Purchase Option. If Tenant purchases less than all of the then-existing Premises, then the credit pursuant to the preceding sentence shall be calculated on a pro rata basis, based upon the ratio of the area of the Premises being purchased compared to the area of the then-existing Premises. In lieu of payment of the Purchase Price, Tenant shall have the right (1) to assume the UBS Loan or any other Authorized Loan or (2) to cause Landlord to assign the Authorized Loan to a third party acceptable to the holder of such Authorized Loan (which third party shall expressly assume such obligations in writing), provided that Landlord is released from all obligations under the Authorized Loan. Landlord shall execute any and all documents necessary to effect such assumption and assignment upon Tenant's request, provided that Tenant shall reimburse Landlord for all reasonable costs and expenses related thereto. Notwithstanding anything to the contrary herein, the Purchase Price shall not include any interest, fees, late charges or any other costs or expenses incurred or charged to Landlord or Tenant by reason of a default by Landlord under Section 20.6 hereof. (b) PURCHASE OPTION EXERCISE NOTICE. If Tenant desires to exercise the Purchase Option, Tenant shall deliver to Landlord a written notice ("Purchase Option Exercise Notice") of Tenant's election; provided, however, that in the event of an 35. 41 assignment by Landlord for the benefit of creditors generally, the filing of a voluntary or involuntary bankruptcy petition by or against Landlord or the appointment of a receiver, liquidator or trustee for all or a substantial portion of the Premises by reason of Landlord's insolvency or alleged insolvency, the Purchase Option shall be deemed exercised with respect to the entire Premises as of the calendar day immediately preceding such assignment, filing or appointment. (c) TRANSFER. If Tenant exercises the Purchase Option, the purchase and sale of the Premises being purchased shall be consummated as follows. In the event of a purchase of a portion of the Premises, the term "Premises" as used in this Section 19.1(c) shall be deemed to mean that portion of the Premises then to be purchased pursuant to the Purchase Option. (i) Landlord shall grant and convey the Premises to Tenant, its authorized agent or assignee, pursuant to a duly executed and acknowledged grant deed ("Grant Deed"), free and clear of all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and restrictive covenants or conditions, except for the Permitted Exceptions. Landlord shall assign and Tenant shall assume all rights, duties and obligations under the Legal Requirements affecting the Premises, effective as of the date of recordation of the Grant Deed; (ii) The Purchase Price shall be paid upon delivery of the Grant Deed and any other documents reasonably requested by Tenant to evidence the transfer of the Premises or to release all liens of Landlord, including, without limitation, any and all reconveyances of mortgages or other recorded documents as requested by Tenant ("Additional Documents"). In the event that Tenant elects to assign the Purchase Option pursuant to Section 19.1(d) below, and Tenant's assignee pays an amount less than the Purchase Price for the Premises, Tenant shall pay to Landlord any excess of the Purchase Price over the amount paid by such assignee. Landlord shall deliver the Grant Deed and the Additional Documents to Tenant on the date for closing specified by Tenant in the Purchase Option Exercise Notice (which date shall be no sooner than ten (10) days after the date of the Purchase Option Exercise Notice and no later than the last day of the Term, as the same may be extended). The closing shall take place at the location and in the manner reasonably set forth by Tenant in the Purchase Option Exercise Notice; (iii) If Landlord shall fail to cause title to be in the condition required in Section 19.1(c)(i) above within the time herein prescribed for the delivery of the Grant Deed, then Tenant shall have the right, in addition to all other rights provided by law, by a written notice to Landlord: (1) to extend the time in which Landlord shall clear title and deliver the Grant Deed and Additional Documents, during which extension this Lease shall remain in full force and effect, except Tenant shall be released from its obligation to pay Base Rent during the extension; (2) to 36. 42 accept delivery of the Grant Deed and Additional Documents subject to such title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and restrictive covenants or conditions specified and set forth in the Grant Deed and not cleared by Landlord (but without waiving any rights or remedies available to Tenant on account of such title exceptions); (3) to rescind, by notice to Landlord and without any penalty or liability therefor, any and all obligations Tenant may have under and by virtue of the Purchase Option or the exercise thereof, whereupon this Lease shall remain in full force and effect; (4) if the title exception is curable by the payment of money, Tenant may make such payment and such payment shall be a credit against the Purchase Price in favor of Tenant. (iv) Refusal of a title company to issue a standard form of owner's title insurance policy insuring title to the Premises in the condition specified in subparagraph (c)(i) shall be sufficient evidence of Landlord's failure to convey clear title and shall entitle Tenant to exercise any of the rights specified in subparagraph (c)(iii). (v) Base Rent shall be prorated and paid and all unpaid Additional Rent shall be paid as of the date title to the Premises is vested of record in Tenant. Tenant shall pay the escrow fees; the recorder's fee for recording the Grant Deed; the premium for the title insurance policy; all documentary transfer taxes; Tenant's attorneys' fees; Landlord's reasonable attorneys' fees; all other costs and expenses incurred by Tenant in consummating the transfer of the Premises; and all reasonable expenses (except as specified in the next sentence) incurred by Landlord in consummating the transfer of the Premises pursuant to this Section 19.1. Landlord shall pay the costs and expenses of clearing title as required by Section 19.1(c)(i). In the event of a purchase by Tenant under this Article 19, Landlord shall have no obligation to return the Security Deposit to Tenant to the extent the Security Deposit has been credited against the purchase price to be paid by Tenant pursuant to Section 19.1(a). (d) ASSIGNMENT. Tenant shall have the right on one or more occasions, without Landlord's consent, to assign this purchase option, in whole or in part, to any Entity at any time, whether or not Tenant also assigns its interest in the Lease. Tenant shall give prior written notice to Landlord of any such assignment. 19.2 MANDATORY PURCHASE/SALE OF PREMISES. Notwithstanding anything to the contrary herein, upon either: (1) expiration of the Term of this Lease or upon the occurrence of any other event terminating this Lease; or (2) the occurrence of any event which causes the Funded Amount to be reduced to zero (0), within thirty (30) days after Tenant's receipt of written notice of the foregoing and of Tenant's purchase obligation under this Section 19.2, Tenant shall purchase or cause another Entity to purchase, and Landlord shall sell, the Premises in the same manner 37. 43 as if Tenant had exercised the Purchase Option on such date. The Purchase Price shall be the same as if Tenant had exercised the Purchase Option, without regard to the physical state or condition of the Premises or any Improvements (but Tenant shall have the rights set forth in Section 19.1, including without limitation, the terms of Sections 19.1(c)(iii) and (iv)). In the event Tenant fails to purchase (or cause another Entity to purchase) the Premises pursuant to its obligation under this Section 19.2, Landlord (to the extent required under Section 21.19) shall sell the Premises to an unrelated third party and, as applicable, (i) Tenant shall be obligated to pay to Landlord, immediately upon demand, any excess of the Purchase Price over the amount realized by Landlord in connection with such sale, or (ii) Landlord shall be obligated to pay to Tenant, immediately upon demand, any excess of the amount realized by Landlord in connection with such sale over the Purchase Price. For purposes of the preceding sentence, the amount realized by Landlord upon a sale of the Premises shall be net of Landlord's reasonable sale expenses and other expenses incurred by Landlord but required to be paid by Tenant pursuant to Section 19.1(c)(v). Landlord's obligation to pay such excess to Tenant shall survive any termination of this Lease. Notwithstanding anything set forth elsewhere herein, if Tenant fails to timely comply with Tenant's obligation to purchase the Premises pursuant to this Section 19.2, upon ten (10) days' prior written Notice, then so long as title is in the condition required by Section 19.1(c)(i), Landlord may transfer title to the Premises to Tenant by way of the Grant Deed described in Section 19.1(c)(i), and Tenant shall accept such Grant Deed and promptly and properly file the same of record. Notwithstanding anything to the contrary in this Lease, in the event of default, breach or violation by Tenant of any of Tenant's obligations under this Section 19.2, Tenant shall have no liability to Landlord or any other party in excess of an amount equal to the then-existing Guaranteed Residual Value, less a credit equal to the sum of (a) any of the Collateral which UBS or any other holder of an Authorized Loan has used, applied, or otherwise come into possession of, plus (b) any of the Security Deposit retained by Landlord, and Landlord shall have no recourse, claim or counterclaim whatsoever against Tenant in excess of such amount on account of such default, breach or violation. If the Guaranteed Residual Value has not previously been determined as of the date Tenant's liability under this Section 19.2 has been established, then the Guaranteed Residual Value shall be determined as of the date Tenant's liability hereunder is established. 19.3 SURVIVAL. The obligations of Landlord and Tenant under this Article 19 shall survive the expiration or earlier termination of this Lease. ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD 20.1 TITLE. In the event Tenant so requests in writing (and so long as either Tenant agrees to indemnify Landlord from any liabilities or obligations in connection therewith, or Landlord 38. 44 does not incur any liabilities or obligations in connection therewith), Landlord shall execute all documents, instruments and agreements reasonably requested by Tenant in order to accomplish any of the following in the manner reasonably requested by Tenant and within the time parameters reasonably requested by Tenant: (1) remove exceptions to title to or affecting the Premises; (2) create exceptions to title (including, without limitation, easements and rights of way) to or affecting the Premises (but not including any Mortgage); (3) modify any then-existing exception to title or (4) subdivide the Premises into two or more separate parcels. Tenant shall promptly reimburse Landlord for, or at Landlord's request, pay directly in advance, all reasonable costs, expenses and other amounts incurred or required to be expended by Landlord in order to comply with Tenant's requests made in accordance with the preceding sentence, and the failure of Tenant to reimburse or pay any such amounts shall result in the suspension of Landlord's obligations under such sentence with respect to that particular request until the amounts required to be paid by Tenant under this sentence have been paid. Landlord acknowledges that it is critical to Tenant's ability to construct improvements on the Premises to have the ability and flexibility to accomplish the foregoing, and that the parties therefore agree that Landlord shall not be entitled to withhold Landlord's consent to any of the foregoing requests by Tenant, except as set forth in the preceding sentence. 20.2 LAND USE. Except where requested by Tenant pursuant to this Section 20.2, Landlord shall not cause or give its written consent to any land use or zoning change affecting the Premises or any changes of street grade. In the event Tenant so requests in writing (and so long as either Tenant agrees to indemnify Landlord from any liabilities or obligations in connection therewith, or Landlord does not incur any liabilities or obligations in connection therewith), Landlord shall execute all documents, instruments and agreements reasonably requested by Tenant in order to accomplish any of the following in the manner reasonably requested by Tenant and within the time parameters reasonably requested by Tenant: (1) cause a change in any land use restriction or law affecting the Premises; (2) cause a change in the zoning affecting the Premises; or (3) cause a change in the street grade with respect to any street in the vicinity of the Premises. Tenant shall promptly reimburse Landlord for, or at Landlord's request, pay directly in advance, all reasonable costs, expenses and other amounts incurred or required to be expended by Landlord in order to comply with Tenant's requests made in accordance with the preceding sentence, and the failure of Tenant to reimburse or pay any such amounts shall result in the suspension of Landlord's obligations under such sentence with respect to that particular request until the amounts required to be paid by Tenant under this sentence have been paid. Landlord acknowledges that it is critical to Tenant's ability to construct improvements on the Premises to have the ability and flexibility to accomplish the foregoing, and that the parties therefore agree that Landlord shall not be entitled to withhold Landlord's request to any of the foregoing requests by Tenant. 39. 45 20.3 TRANSFER OF PROPERTY INTERESTS. Except as requested by Tenant pursuant to Section 11.2 or 20.1, Landlord shall not transfer to any third party any rights inuring to or benefits associated with the Premises (including, without limitation, zoning rights, development rights, air space rights, mineral, oil, gas or water rights). Nothing in this Section 20.3 shall limit Landlord's rights pursuant to Section 13.2; provided that any purchaser of Landlord's interest in the Premises shall be bound by the terms of this Lease, including without limitation, the terms of this Section 20.3. 20.4 SHAREHOLDER EQUITY; NO OTHER ASSET. Landlord covenants and agrees that during the Term of the Lease, Landlord shall maintain a shareholder equity balance of not less than three percent (3%) of its total assets, including without limitation, the Property. In addition, Landlord shall not, without the prior written consent of Tenant, which consent may be withheld at Tenant's sole discretion, acquire any significant assets other than (i) the Premises, (ii) any Improvements to be built on the Premises, and (iii) the land and any Improvements thereon, which is subject to those certain Ground Leases between Landlord and Tenant, which land is described on Exhibit F attached hereto. 20.5 RECOURSE OBLIGATIONS. Landlord agrees that during the Term of this Lease, Landlord will not incur any indebtedness for borrowed money or any other material obligations to which the holder or obligee thereof has recourse against Landlord to satisfy the same without Tenant's prior written consent, which consent Tenant may withhold in its sole discretion. 20.6 DEFAULT UNDER AUTHORIZED LOAN. Landlord shall not, without Tenant's express prior written consent, default under any Authorized Loan, or any loan documents relating to such Authorized Loan, where such default is not caused, directly or indirectly by a breach of any of Tenant's obligations under this Lease, under the Pledge Agreement securing the UBS Loan or under any documents relating to any Authorized Loan. ARTICLE 21 MISCELLANEOUS 21.1 RELATIONSHIP. Neither this Lease nor any agreements or transactions contemplated hereby shall in any respect be interpreted, deemed or construed as constituting Landlord and Tenant as partners or joint venturers, one with the other, or as creating any lender/borrower, partnership, joint venture, association or, except as set forth in Section 21.2 below, any other relationship other than that of landlord and tenant; and, except as set forth in Section 21.2 below, both Landlord and Tenant agree not to make any contrary assertion, contention, claim or counterclaim in any action, suit or other legal proceeding involving either Landlord or Tenant or the subject matter of this Lease. 40. 46 21.2 FORM OF TRANSACTION; CERTAIN TAX MATTERS. (a) Landlord and Tenant hereby agree and declare that the transactions contemplated by this Lease are intended to constitute, both as to matters of form and substance: (i) an operating lease for financial accounting and securities regulatory purposes, and (ii) a financing arrangement (and not a "true lease") for Federal, state and local income tax purposes. Accordingly, and notwithstanding any other provision of this Lease to the contrary, Landlord and Tenant agree and declare that (A) the transactions contemplated hereby are intended to have a dual, rather than single, form and (B) all references in this Lease to the "Lease" of the Premises which fail to reference such dual form do so as a matter of convenience only and do not reflect the intent of Landlord and Tenant as to the true form of such arrangements. (b) Landlord and Tenant agree that, in accordance with their intentions and the substance of the transactions contemplated hereby, Tenant (and not Landlord) shall be treated as the owner of the Premises for Federal, state, and local income tax purposes and this Lease shall be treated as a financing arrangement. Tenant shall be entitled to take any deduction, credit allowance or other reporting, filing or other tax position consistent with such characterizations. Landlord and Tenant shall not file any Federal, state or local income tax returns, reports or other statements, or take any other actions, in a manner which is inconsistent with the foregoing provisions of this Section 21.2. (c) Each party acknowledges that it has retained accounting, tax and legal advisors to assist it in structuring this Lease and neither party is relying on any representations of the other regarding the proper treatment of this transaction for accounting, income tax or any other purpose. Nothing in this Section 21.2(c) shall increase or diminish any liability or obligation of the parties that otherwise exists pursuant to this Lease. 21.3 NOTICES. Each Notice shall be in writing and shall be sent by personal delivery, overnight courier (charges prepaid or billed to the sender) or by the deposit of such with the United States Postal Service, or any official successor thereto, designated as registered or certified mail, return receipt requested, bearing adequate postage and in each case addressed as provided in the Basic Lease Provisions. Each Notice shall be effective upon being personally delivered or actually received. The time period in which a response to any such Notice must be given or any action taken with respect thereto shall commence to run from the date of personal delivery or receipt of the Notice by the addressee thereof, as reflected on the return receipt of the Notice. Rejection or other refusal to accept shall be deemed to be 41. 47 receipt of the Notice sent. By giving to the other party at least thirty (30) days' prior Notice thereof, either party to this Lease (as well as any Mortgagee) shall have the right from time to time during the Term of this Lease to change the address(es) thereof and to specify as the address(es) thereof any other address(es) within the continental United States of America. 21.4 SEVERABILITY OF PROVISIONS. If any term, covenant or condition of this Lease, or the application thereof to any Entity or circumstance, shall be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to Entities or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby. 21.5 ENTIRE AGREEMENT; AMENDMENT. This Lease and other documents expressly referred to herein constitute the entire agreement of Landlord and Tenant with respect to the subject matter hereof. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. 21.6 APPROVALS AND CONSENTS. Except as expressly provided in this Lease, whenever any provision of this Lease requires an approval or consent to be given by one of the parties hereto, the approval or consent shall not be unreasonably withheld or delayed. Whenever this Lease grants either party the right to take action, exercise discretion, establish rules and regulations, or make an allocation or other determination, except as otherwise provided, such party shall act reasonably and in good faith and take no action which might result in the frustration of the other party's reasonable expectations concerning the benefits to be enjoyed under this Lease. If either party withholds its consent or approval, unless by the express terms of this Lease such consent or approval may be withheld in such party's sole discretion, such party shall, upon request, promptly deliver to the other party a written statement specifying in detail the reason or reasons why such consent or approval was withheld or refused. If neither approval nor rejection is given by Landlord within the time specified in Article 11 as to any particular approval requested by Tenant under Article 11 (or, if no such time is specified, then within thirty (30) days after request for approval is given by a Notice), then the approval thus specifically requested in writing by Tenant shall be conclusively and irrevocably deemed to have been given by Landlord. 21.7 TERMINOLOGY. All personal pronouns used in this Lease shall include all other genders. The singular shall include the plural and the plural shall include the singular. Titles of Articles, Sections and Subsections in this Lease are for convenience only and neither limit nor amplify the provisions of this Lease, and all references in this Lease to Articles, Sections or Subsections shall refer to the corresponding Article, Section or 42. 48 Subsection of this Lease unless specific reference is made to the articles, sections or other subdivisions of another document or instrument. The word "days" as used herein shall mean calendar days unless otherwise expressly stated. 21.8 MEMORANDUM OF LEASE. Neither party shall record this Lease. However, concurrently with the execution of this Lease, Landlord and Tenant have executed a Memorandum of Lease in the form attached hereto as Exhibit C and by this reference made a part hereof, which Memorandum of Lease shall be promptly recorded in the Official Records. 21.9 SUCCESSORS AND ASSIGNS. Subject to Articles 13 and 14, this Lease shall inure to the benefit of and be binding upon Landlord and Tenant and their respective heirs, executors, legal representatives, successors and assigns. Whenever in this Lease a reference to any Entity is made, such reference shall be deemed to include a reference to the heirs, executors, legal representatives, successors and assigns of such Entity. 21.10 COMMISSIONS. Landlord and Tenant each represent and warrant that neither has dealt with any broker in connection with this transaction and that no real estate broker, salesperson or finder has the right to claim a real estate brokerage, salesperson's commission or finder's fee by reason of contact between the parties brought about by such broker, salesperson or finder. Each party shall hold and save the other harmless of and from any and all loss, cost, damage, injury or expense arising out of or in any way related to claims for real estate broker's or salesperson's commissions or fees based upon allegations made by the claimant that it is entitled to such a fee from the indemnified party arising out of contact with the indemnifying party or alleged introductions of the indemnifying party to the indemnified party. 21.11 ATTORNEYS' FEES. In the event any action is brought by Landlord or Tenant against the other to enforce or for the breach of any of the terms, covenants or conditions contained in this Lease, the prevailing party shall be entitled to recover reasonable attorneys' fees to be fixed by the court, together with costs of suit therein incurred. Tenant shall pay the reasonable attorneys' fees incurred by Landlord for the review and negotiation of this Lease and the UBS Loan documents. 21.12 GOVERNING LAW. This Lease and the obligations of the parties hereunder shall be governed by and interpreted, construed and enforced in accordance with the laws of the State of California. 21.13 COUNTERPARTS. This Lease may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. 43. 49 21.14 TIME IS OF THE ESSENCE. Time is of the essence of this Lease, and of each provision hereof. 21.15 NO THIRD PARTY BENEFICIARIES. This Lease is entered into by Landlord and Tenant for the sole benefit of Landlord and Tenant. There are no third party beneficiaries to this Lease. 21.16 NO RECOURSE. The obligations of Tenant and Landlord (including, without limitation, the obligations of Landlord with respect to the Identified Matters set forth below) under this Lease shall be without recourse to any partner, officer, trustee, beneficiary, shareholder, director or employee of Tenant or Landlord. There shall be no limitation on Landlord's liability with respect to any willful misconduct, bad faith breach of this Lease, gross negligence by Landlord, or any breach by Landlord of its obligations with respect to Sections 20.4, 20.5 or 20.6 ("Identified Matters"). Except for Identified Matters, Landlord's liability to Tenant for any default by Landlord under this Lease is limited to Landlord's interest in the Premises, and Tenant agrees to look solely to Landlord's interest therein for the recovery of any judgment against Landlord, it being intended that neither Landlord nor any of its shareholders, employees, agents, representatives, affiliates, officers or directors shall be personally liable for any judgment or deficiency. 21.17 ESTOPPEL CERTIFICATES. Within thirty (30) days after request therefor by either party, the non-requesting party shall deliver, in recordable form, a certificate to any proposed mortgagee, purchaser, sublessee or assignee and to the requesting party, certifying (if such be the case) that this Lease is in full force and effect, the date of Tenant's most recent payment of Rent, that, to the best of its knowledge, the non-requesting party has no defenses or offsets outstanding, or stating those claimed, and any other information reasonably requested. Failure to deliver said statement in time shall be conclusive upon the non-requesting party that: (a) this Lease is in full force and effect, without modification except as may be represented by the requesting party; (b) there are no uncured defaults in the requesting party's performance and the non-requesting party has no right of offset, counterclaim or deduction against the non-requesting party's obligations hereunder; (c) no more than one month's Base Rent has been paid in advance; and (d) any other matters reasonably requested in such certificate. 21.18 COLLATERAL. The parties acknowledge that Tenant has pledged certain collateral ("Collateral") to UBS to secure SGA's obligations under the terms of the UBS Note. If the holder of an Authorized Loan applies any of the Collateral to satisfy an obligation under any Authorized Loan documents, such application shall be deemed to reduce the Senior Funded Amount under this Lease on a dollar-for-dollar basis. Tenant shall have no claims, rights or causes of action against Landlord arising from any application of the Collateral to satisfy an obligation under the Authorized 44. 50 Loan documents; provided, however, that nothing herein shall release Landlord from any claims, rights or causes of action of Tenant for any breach of this Lease by Landlord or any default by Landlord under any documents relating to an Authorized Loan, which default does not arise, directly or indirectly from or as a result of any default by Tenant of its obligations under the Lease. 21.19 LANDLORD'S CONTINUING OBLIGATION TO SELL. Notwithstanding anything to the contrary herein, in the event Landlord obtains possession of the Premises pursuant to the terms of this Lease (including, without limitation, upon the expiration or earlier termination of this Lease where Tenant has defaulted in its obligation to purchase the Premises pursuant to Section 19.2), Landlord shall be under a continuing obligation to use its commercially reasonable efforts to sell the Premises to Tenant or to one or more unrelated third parties; provided, however, that Landlord shall not be required to sell or attempt to sell any portion of the Premises (i) in a manner, or under circumstances, that could materially impair Landlord's ability to enforce any of its rights or remedies under this Lease (as determined in Landlord's sole discretion exercised in good faith) or (ii) at a time when market conditions render it inadvisable to sell or attempt to sell the Premises (as determined in Landlord's sole discretion exercised in good faith). 21.20 AS-IS LEASE. Landlord makes no representations or warranties concerning the condition, suitability or any other matters relating to the Premises, and Tenant hereby acknowledges that Tenant leases the Premises from Landlord on an "as is" basis. 21.21 NET LEASE. Except as otherwise provided in this Lease, Tenant agrees that this Lease is an absolute net Lease, and the Base Rent called for hereunder shall be paid as required net of all expenses associated with the Premises, including without limitation, Real Estate Taxes and insurance premiums for the insurance required to be carried hereunder, and all other reasonable and customary costs and expenses incurred by Landlord in connection with the Premises or this Lease, all of which shall be paid or reimbursed by Tenant unless otherwise specifically provided herein. Tenant agrees to reimburse Landlord, within ten (10) days following receipt of any written demand therefor, for all fees, accrued but unpaid interest, late charges, prepayment penalties, costs and expenses charged to Landlord or SGA by UBS (or other holder of an Authorized Loan) pursuant to the terms and conditions of the UBS Note or other Authorized Loan. 21.22 REPRESENTATIONS AND WARRANTIES. Tenant and Landlord each hereby represents and warrants to the other that: (i) such party is duly organized and existing under the laws of the jurisdiction in which it is formed, and is qualified to do business in the State of California; (ii) such party has the full right and authority to enter into this Lease, consummate the sale, transfers and assignments contemplated herein and otherwise perform its obligations under this Lease; (iii) the person or persons signatory 45. 51 to this Lease and any document executed pursuant hereto on behalf of such party have full power and authority to bind such party; and (iv) the execution and delivery of this Lease and the performance of such party's obligations hereunder do not and shall not result in the violation of its organizational documents or any contract or agreement to which such party may be a party. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 46. 52 [SIGNATURE PAGE TO GROUND LEASE] IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written. "LANDLORD" IRISH LEASING CORPORATION, A Texas Corporation By: /s/ KRISTIN MARKHAM --------------------------- Name: KRISTIN MARKHAM --------------------------- "TENANT" CISCO SYSTEMS, INC., A California Corporation By: /s/ JOHN T. CHAMBERS --------------------------- Name: John T. Chambers Its: President and Chief Executive Officer By: /s/ LARRY R. CARTER --------------------------- Name: Larry R. Carter Its: Chief Financial Officer 53 EXHIBIT A DESCRIPTION OF LAND REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: PARCEL ONE: All of Parcel 2, as shown on that certain Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on July 13, 1983, in Book 514 of Maps page(s) 47 and 48. PARCEL TWO: All of Lot 54, as shown upon that certain Map entitled, "Tract No. 7559", which Map was filed for record in the Office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-14 and 23 EXHIBIT A 54 EXHIBIT B PERMITTED EXCEPTIONS [To include all matters of record against the Land on the date it is acquired by Landlord] EXHIBIT B 1. 55 EXHIBIT C (MEMORANDUM OF LEASE) RECORDING REQUESTED BY, AND WHEN RECORDED, RETURN TO: Brobeck, Phleger & Harrison 550 West C Street, Suite 1300 San Diego, California 92101 Attention: Todd J. Anson, Esq. MEMORANDUM OF LEASE THIS MEMORANDUM OF LEASE ("Memorandum of Lease") is executed as of _________________, 1995, by and between IRISH LEASING CORPORATION, a Texas corporation ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"). RECITALS WHEREAS, Landlord and Tenant have executed that certain lease ("Lease") dated as of _____________, 1995, covering certain premises and related improvements ("Premises") located in the City of San Jose, Santa Clara County, California and more particularly described in Schedule 1 attached hereto and incorporated herein by this reference; and WHEREAS, Landlord and Tenant desire to record notice of the Lease in the real estate records of Santa Clara County, California; NOW, THEREFORE, in consideration of the foregoing, Landlord and Tenant hereby declare as follows: 1. DEMISE. Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord, subject to the terms, covenants and conditions contained in the Lease. 2. EXPIRATION DATE. The term of the Lease ("Term") shall commence on ______________, 1995 and shall expire five (5) years thereafter, subject to Tenant's option to extend the Term pursuant to Section 4.2 of the Lease for one (1) period of five (5) years. 3. OPTION TO PURCHASE. Tenant has an option to purchase the Premises, as more particularly described in the Lease, during the Term, as it may be extended. EXHIBIT C 1. 56 4. RESTRICTIONS ON ENCUMBRANCES. Landlord is prohibited from recording against the Premises liens (including, without limitation, deeds of trust), encumbrances, and other matters that would constitute exceptions to title, and from amending or modifying any of the foregoing that may exist now or during the Term, as more particularly described in the Lease, and any such encumbrance or modification of an encumbrance not authorized in writing by Tenant shall be null and void. 5. COUNTERPARTS. This Memorandum of Lease may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] EXHIBIT C 2. 57 [SIGNATURE PAGE TO MEMORANDUM OF LEASE] IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum of Lease as of the date and year first written above. "LANDLORD" IRISH LEASING CORPORATION, A TEXAS CORPORATION By: ___________________________ Its: ___________________________ By: ___________________________ Its: ___________________________ STATE OF __________________ ) ) ss COUNTY OF _________________ ) On _____________, before me, ______________________, Notary Public, personally appeared _______________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ___________________________ Signature [SEAL] EXHIBIT C 3. 58 [SIGNATURE PAGE TO MEMORANDUM OF LEASE] "TENANT" CISCO SYSTEMS, A CALIFORNIA CORPORATION By: ____________________________ Name: ______________________ Its: ______________________ Executive Officer By: ____________________________ Name: ______________________ Its: ______________________ STATE OF _______________ ) ) ss COUNTY OF ______________ ) On _____________, before me, ______________________, Notary Public, personally appeared _______________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. __________________________ Signature [SEAL] EXHIBIT C 4. 59 SCHEDULE 1 TO EXHIBIT C The Premises are described as follows: REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: PARCEL ONE: All of Parcel 2, as shown on that certain Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on July 13, 1983, in Book 514 of Maps page(s) 47 and 48. PARCEL TWO: All of Lot 54, as shown upon that certain Map entitled, "Tract No. 7559", which Map was filed for record in the Office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-14 and 23 SCHEDULE 1 TO EXHIBIT C 60 EXHIBIT D CLOSING COSTS AND FEES TO BE INCLUDED IN FUNDED AMOUNT The following items shall be included in the definition of the Funded Amount under Section 2.16 of the Lease: 1. Title Insurance premiums 2. Arrangement Fee payable to Irish 3. Brokerage Commissions 4. Other fees and costs which are specifically authorized by Tenant in writing to be included in the Funded Amount EXHIBIT D 1. 61 EXHIBIT E LEASE COMMENCEMENT DATE MEMORANDUM THIS LEASE COMMENCEMENT DATE MEMORANDUM ("Memorandum") is entered into this ___ day of ____________, 1995, by and between IRISH LEASING CORPORATION, a Texas corporation ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant") concerning that certain Lease ("Lease") between Landlord and Tenant dated February ___, 1995. Any capitalized terms not defined in this Memorandum shall have their meaning as defined in the Lease. 1. Pursuant to Section 4.1 of the Lease, Landlord and Tenant are required to enter into this Memorandum within thirty (30) days after the Lease Commencement Date. 2. Landlord and Tenant agree the that Lease Commencement Date is _______________, 1995. 3. Landlord and Tenant agree that the Rent Commencement Date is _______________, 1995. 4. The dollar value of the Guaranteed Residual Value (defined in Section 2.17 of the Lease) described in paragraph 2 above is _____% of $_____________________________, (i.e. $_____________________________). 5. The Equity Funded Amount as of the Lease Commencement Date is $__________________. IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date and year first above written. "LANDLORD" IRISH LEASING CORPORATION, a Texas corporation By: ___________________________ Name:______________________ Its: ______________________ "TENANT" CISCO SYSTEMS, INC., a California corporation By: ___________________________ Name:______________________ Its: ______________________ EXHIBIT E 62 EXHIBIT F DESCRIPTION OF ADDITIONAL PROPERTY OWNED BY LANDLORD REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: Lots 58 and 59, as shown upon that certain map entitled, "Tract No. 7559", which Map was filed for record in the office of the Recorder of the County of Santa Clara, on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-18,22 PARCEL ONE: Lot 50, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52. Reserving therefrom a perpetual right and easement to construct, install, maintain, repair, renew, replace, operate and use a surface drainage release to benefit Lot 49 of Tract 7560, as contained in that certain Grant of Easement recorded August 8, 1990 in Book L443, page 0754, Official Records, and described as follows: The Northwesterly 10.00 feet of the Southeasterly 30.00 feet and the Northwesterly 100.00 feet of the Southeasterly 130.00 feet of the Northeasterly 10.00 feet of Lot 50. PARCEL TWO: That portion of Lot 51, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52, being more particularly described as follows: Beginning at the Southeasterly corner of said Lot 51; thence along the Southerly line of said Lot 51, S. 59 degrees 27; 51 W. 77.00 feet; thence N. 14 degrees 27 minutes 48 seconds E. 108.90 feet to the Northeasterly line of said Lot 51; thence along said Northeasterly line S. 30 degrees 32 minutes 09 seconds E. 77.00 feet to the point of beginning, as provided for in that certain Lot Line Adjustment granted by the Director of Planning of the City of San Jose, a copy of which was recorded March 28, 1984 in the office of the Recorder of the County of Santa Clara in Book I410, page 712 of Official Records. EXHIBIT F 63 PARCEL THREE: Lot 5 and 6, as shown on that certain Map of Tract No. 7408, which map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on November 19, 1982 in Book 506 of Maps, pages 24, 25 and 26 and a portion of that certain parcel of land described in the deed recorded December 22, 1972 in Book 0167, page 623, all as approved by that Lot Combination recorded September 16, 1992 in Book M381 of Maps, page(s) 0081, Official Records, more particularly described as follows: Beginning at a point on the Northeasterly line of Rio Robles, as shown upon said map, at the most Southerly corner of said Lot 5; thence along said Northeasterly line of Rio Robles, N. 30 degrees 32 minutes 09 seconds W. 105.50 feet; thence on a tangent curve to the right, having a radius of 367.00 feet, through a central angle of 36 degrees 30 minutes 00 seconds an arc distance of 233.80 feet; thence on a curve to the right, tangent to the previous curve, having a radius of 50.00 feet, through a central angle of 86 degrees 01 minutes 50 seconds an arc distance of 75.08 feet to the Southerly line of Tasman Drive as shown upon said map; thence along said line on a curve to the left, tangent to the previous curve, having a radius of 1149.00 feet, through a central angle of 32 degrees 31 minutes 01 seconds an arc distance of 652.09 feet; thence N. 59 degrees 28 minutes 40 seconds E. 600.40 feet; thence on a tangent curve to the right, having a radius of 33.00 feet, through a central angle of 89 degrees 51 minutes 11 seconds an arc distance of 51.83 feet to the Southwesterly line of First Street, as shown upon said map; thence along said line, S. 30 degrees 32 minutes 09 seconds E. 261.38 feet to the Northwesterly line of the lands of the City and County of San Francisco, as shown upon said map; thence along said line of the lands of the City and the County of San Francisco, S. 65 degrees 09 minutes 27 seconds W. 1396.95 feet to the point of beginning. PARCEL FOUR: Those rights as contained in that certain Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records. PARCEL FIVE: A strip of land 80 feet wide, lying 40 feet either side of the following described line and extensions thereto, across that certain parcel of land conveyed by Charles Nelson, et ux, to Masami Ezaki by Grant Deed dated February 27, 1936 and recorded March 11, 1936, in Volume No. 765, at page 262, Official Records, Santa Clara County, hereinafter referred to as the Ezaki Parcel, said line being more particularly described as commencing at a point in the Westerly boundary of the existing San Jose-Alviso Road, said point being distant along said boundary South 30 degrees 32 minutes 30 seconds East 381.31 EXHIBIT F 64 feet from its intersection with the Northerly boundary of the above mentioned Ezaki Parcel; thence, from said point of commencement, South 65 degrees 08 minutes 00 seconds West 1459.03 feet to a point in the common boundary between the above mentioned Ezaki Parcel and that certain parcel of land conveyed by Lena Lindgren, et al, to James A. Pankoski, et ux, by Joint Tenancy Deed dated November 13, 1944 and recorded November 17, 1944 in Volume No. 1227 at Page 327, Official Records, Santa Clara County, hereinafter referred to as the Pankoski Parcel, said point being distant along said common boundary South 30 degrees 32 minutes 30 seconds East 237.04 feet from the most Westerly corner of the above mentioned Ezaki Parcel; the Easterly end of said strip being the above mentioned Westerly boundary of the San Jose-Alviso Road, and the Westerly end of said strip being the above mentioned common boundary between the Pankoski and Ezaki Parcels. EXHIBIT F EX-10.36 10 FIRST AMENDMENT TO LEASE PARCEL 2 AND LOT 54 1 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made and entered into as of May 1, 1995, by and between IRISH LEASING CORPORATION, a Texas corporation ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"). THIS FIRST AMENDMENT IS ENTERED INTO upon the basis of the following facts, understandings and intentions. A. Landlord and Tenant entered into that certain Lease dated February 28, 1995 ("Lease"), pursuant to which Landlord is leasing to Tenant that certain land located in San Jose, California, as more particularly described in the Lease and on Exhibit A attached hereto and incorporated herein by this reference ("Premises"). Any capitalized terms used but not defined in this First Amendment which are defined in the Lease shall have the meaning ascribed in the Lease. B. Landlord and Tenant now desire to amend the terms of the Lease, as more particularly described in this First Amendment. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereby agree as follows: 1. Equity Funded Amount. Section 2.10 is hereby deleted, and is replaced with the following: 2.10 Equity Funded Amount. "Equity Funded Amount" shall mean that portion of the Funded Amount equal to the Funded Amount minus the Senior Funded Amount and which shall be an amount equal to fifteen percent (15%) of the Funded Amount. 2. Lease Rate. Section 2.23 is hereby deleted, and is replaced with the following: 2.23 Lease Rate. "Lease Rate" shall mean interest at the rate of the product of 0.850 times the then-effective LIBOR Rate, plus .0045, per annum. 3. Lease Rate. Section 2.26 is hereby deleted, and is replaced with the following: 2.26 LIBOR Rate. "LIBOR Rate" shall mean the LIBOR interest rate as defined in that certain Schedule I, Additional Terms and Conditions of Credit Arrangement between SGA and UBS dated May 1, 1995, relating to the UBS Loan ("Schedule I"), or as defined in a subsequent Authorized Loan. 4. Interest Rate Selection. Section 5.1(b) is hereby deleted, and is replaced with the following: (b) Interest Rate Selection. The parties acknowledge that the interest rate applicable under the UBS Loan (or other Authorized Loan) shall affect the amount of Base Rent payable by Tenant hereunder. Therefore, Tenant shall have the right, by written notice to UBS (or the holder of any Authorized Loan), SGA and Landlord, to designate the interest period to be selected from time to time by SGA pursuant to Schedule I (or other Authorized Loan). Tenant acknowledges that the rates available to be selected under the UBS Loan after the first partial calendar month of the Term are 1, 2, 3, 6, 9 or 12-month LIBOR rates. In the event that Tenant fails to give such written notice to UBS (or other holder of an Authorized Loan), SGA and Landlord prior to the applicable deadline for selection of such interest period pursuant to the 2 terms of Schedule I (or other Authorized Loan), Tenant shall be deemed to have selected an interest period of one month for the UBS Loan (or other Authorized Loan). 5. Further Mortgages or Encumbrances by Landlord. The first sentence of Article 13, Section 13.1, subparagraph (b) Authorized Loan that begins with "Tenant has approved . . ." and ends with ". . . all documents related to the UBS Loan" is hereby deleted and replaced with the following: Tenant has approved the terms of the loan ("UBS Loan") to be made by UBS to SGA which shall be evidenced by that certain Tranche A Promissory Note dated as of the Lease Commencement Date by SGA in favor of UBS ("UBS Note"), and further evidenced and/or secured by (a) that certain General Terms and Conditions of Credit Arrangement between SGA and UBS, (b) that certain Schedule 1 Additional Terms and Conditions of Credit Arrangements between SGA and UBS, (c) that certain Pledge Agreement, as amended by Rider No. 1 thereto, made by Tenant in favor of UBS, and (d) certain documents (including, without limitation a promissory note and related documents) evidencing a loan ("SGA Loan") from SGA to Landlord in the principal amount of the UBS Note, all dated as of the Lease Commencement Date; provided, however, that Tenant, Landlord and SGA reserve the right to approve, in their sole discretion, the final form of all documents related to the UBS Loan. 6. Option to Purchase Premises. (a) In Section 19.1(a), Purchase Option , the two (2) sentences beginning with "The purchase price ("Purchase Price") . . ." on line 8 of Section 19.1(a) and ending with ". . . this Purchase Option" on line 26 of Section 19.1(a) are hereby deleted in their entirety and the following inserted in their place: The purchase price ("Purchase Price") for the portion of the Premises which Tenant elects to purchase shall be (i) the then-existing Funded Amount applicable to the portion of the Premises which Tenant elects to purchase (determined in a pro rata basis on the basis of the area being purchased), as the same may be reduced from time to time, plus (ii) the amount of any prepayment premium and all other fees, costs, and expenses due to any holder of an Authorized Loan in connection with such loan (to the extent not already paid pursuant to Section 21.21 hereof). Tenant shall be entitled to a credit against the Purchase Price in an amount equal to the sum of (i) the principal balance(s) of any Authorized Loan and/or Fee Mortgage existing immediately prior to the closing under this Purchase Option if such Authorized Loan and/or Fee Mortgage are not fully repaid and all documents reflecting the same are not cancelled and removed from the public records on or prior to the closing under this Purchase Option, plus (ii) the amount of the Security Deposit (or, in the event of a purchase of a portion of the Premises, a pro rata portion of the Security Deposit), and, upon closing under this Purchase Option, Landlord shall be released from Landlord's obligation to return the Security Deposit set forth in Section 5.5 hereof. -2- 3 (b) In Section 19.1(a), Purchase Option , following the sentence beginning with "Landlord . . ." on line 36 of Section 19.1(a) and ending with ". . . expenses related thereto" on line 40 of Section 19.1(a), the following sentence is inserted: Notwithstanding the foregoing, Landlord agrees to, upon Tenant's written demand, assign the UBS Loan or any other Authorized Loan and its obligations thereunder to Sumitomo Bank Leasing and Finance, Inc., a Delaware corporation ("SBLF"); provided that SBLF shall first expressly assume Landlord's obligations under the UBS Loan (or any other Authorized Loan) in writing and hold Landlord harmless from any liabilities arising after the date of such assignment. 7. Form of Transaction; Certain Tax Matters. a. Section 21.2(a)(ii) is hereby deleted, and is replaced with the following: (a) a financing arrangement (and not a "true lease") for Federal, state and local income tax and local property tax purposes. b. Section 21.2(b) is hereby deleted, and is replaced with the following: Landlord and Tenant agree that, in accordance with their intentions and the substance of the transactions contemplated hereby, Tenant (and not Landlord) shall be treated as the owner of the Premises for Federal, state, and local income tax and property tax purposes and this Lease shall be treated as a financing arrangement. Tenant shall be entitled to take any deduction, credit allowance or other reporting, filing or other tax position consistent with such characterizations. Landlord and Tenant shall not file any Federal, state or local income tax or property tax returns, reports or other statements, or take any other actions, in a manner which is inconsistent with the foregoing provisions of this Section 21.2, unless required to do so by applicable law or Legal Requirement. c. Section 21.2(c) is hereby deleted, and is replaced with the following: Each party acknowledges that it has retained accounting, tax and legal advisors to assist it in structuring this Lease and neither party is relying on any representations of the other regarding the proper treatment of this transaction for accounting, income tax, property tax or any other purpose. Nothing in this Section 21.2(c) shall increase or diminish any liability or obligation of the parties that otherwise exists pursuant to this Lease. 8. Exhibits. Exhibit B is hereby deleted and the attached Exhibit B inserted in its place. 9. Counterparts. This First Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. 10. Existing Lease. Except to the extent specifically amended hereby, all terms and conditions of the Lease remain in full force and effect. -3- 4 [SIGNATURE PAGE TO FIRST AMENDMENT TO LEASE] IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment as of the date and year first written above. "LANDLORD" IRISH LEASING CORPORATION, a Texas corporation By: GREG ENGLAND ----------------------------- Name: /s/GREG ENGLAND ----------------------- Its: VICE PRESIDENT ------------------------ "TENANT" CISCO SYSTEMS, INC., a California corporation By: /s/JOHN CHAMBERS ----------------------------- Name: ----------------------- Its: ------------------------ By: /s/LARRY R. CARTER ----------------------------- Name: ----------------------- Its: ------------------------ -4- 5 EXHIBIT A DESCRIPTION OF LAND REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: PARCEL ONE: All of Parcel 2, as shown on that certain Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on July 13, 1983, in Book 514 of Maps page(s) 47 and 48. PARCEL TWO: All of Lot 54, as shown upon that certain Map entitled, "Tract No. 7559", which Map was filed for record in the Office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-14 and 23 EXHIBIT A 6 EXHIBIT B PERMITTED EXCEPTIONS 1. Bond for REASSESSMENT DISTRICT #93-210 CONSOLIDATED REFUNDING, as follows: 2. THE LIEN of supplemental taxes, if any, assessed as a result of transfer of interest and/or new construction, said supplemented taxes being assessed pursuant to Chapter 3.5 commencing with Section 75 of the California Revenue and Taxation Code, for which no Notice of Assessment has been issued, as of the date herein. 3. THE EFFECT of the Rincon de los Esteros Project Redevelopment Plan and Ordinances Nos. 17306, 19686. 19835, 20677, 20958. 21417, 21496, 21903, 22660, 22412, 22761, 22761.1 and 22961,23703, 23732, 23761 and 23934 of the City of San Jose as recorded and as disclosed by documents recorded July 11, 1975 in Book B502, Page 711;August 6, 1979 in Book E699, Page 245; August 6, 1979 in Book E699. Page 277; December 21,1979 in Book F37, Page 585; October 8, 1981 in Book G382, Page 605; July 28, 1982 in Book G929, Page 703; September 14, 1983 in Book H892, Page 200; January 10, 1984 in Book 1220, Page 271; January 6, 1992 in Book L996, Page 508, all of Official Records, and as disclosed by information provided by the Redevelopment Agency of the City of San Jose. 4. AN EASEMENT affecting the portion of said land and for the purpose stated herein and incidental purposes, shown or dedicated by the map of Tract 7408 filed in Book 506 of Maps, pages 24, 25 and 26. Purpose : Public Service Easement Affects : The Southwesterly 10 feet of Parcels One, Two and Three and the Northwesterly 8 feet of Parcel Two 5. EASEMENT as shown on the filed map of Tract 7408 filed in Book 506 of Maps, pages 24-26 and incidents thereto Purpose : Landscape Easement Affects : The Southwesterly 20 feet of Parcel One, Two and Three and the Northwesterly 18 feet of Parcel Two 6. EASEMENT for the purposes stated herein and incidents thereto Purpose : The installation, maintenance and operation of all landscaping plant forms, irrigation systems, retaining walls, and decorative walkway paving now existing or hereinafter to be constructed Granted to : City of San Jose, a municipal corporation of the State of California Recorded : May 27, 1983 in Book H590, Page 649, Official Records Affects : The Southwesterly 20 feet of Parcel One, Two and Three and the Northwesterly 18 feet of Parcel Two. 7. EASEMENT for the purposes stated herein and incidents thereto Purpose : The installation, maintenance and operation of all landscaping plant forms, irrigation systems, retaining walls, and decorative walkway paving now existing or hereinafter to be constructed Granted to : City of San Jose, a municipal corporation of the State of California Recorded : May 27, 1983 in Book H590, page 652, Official Records Affects : The Westerly corner of parcel two EXHIBIT B 1. 7 8. AGREEMENT on the terms and conditions contained therein, For : The Installation and maintenance of landscape Improvements Between : City of San Jose, a municipal corporation And : Oakmead-San Jose, a California general partnership and Oakmead-San Jose Sign and Landscape Maintenance Association, A California Non Profit Mutual Benefit Corporation Recorded : May 27, 1983 in Book H590, page 662, Official Records. 9. EASEMENT for the purposes stated herein and incidents thereto Purpose : The construction, installation, repair and maintenance of interlocking pavers, retaining walls and signs, and for pedestrian and vehicular access as necessary or desirable thereto, but subject to the obligation of the association of the association, its successors and assigns, to promptly repair any damage to said improvements lying within the Sign and Landscape Easements resulting from the Association's activities thereon Granted to : Oakmead-San Jose Sign and Landscape Maintenance Association, a non-profit mutual benefit corporation Recorded : June 3, 1983 in Book H604, page 322, Official Records Affects : The Westerly corner of Parcel Two 10. LIMITATIONS, covenants, conditions, restrictions, reservations, exceptions, terms, liens or charges, but deleting restrictions, if any, based on race, color, religion or national origin contained in the document recorded June 3, 1983 in Book H604, page 334, Official Records. CONTAINS mortgagee protection clause. MODIFICATION thereof recorded January 26, 1984 in Book 1257, page 252, Official Records. A Notice of Amendment of Design Guidelines Executed by : Oakmead-San Jose, a California general partnership Recorded : June 21, 1984 in Book 1649, page 543, Official Records An instrument entitled, "Designation of Approving Agent," whereby Kimball Small Properties, a California corporation was designated approving agent under the CC&R's and Design Guidelines, Recorded : April 29, 1988 in Book K517, page 940, Official Records MODIFICATION thereof recorded JULY 19, 1989 IN BOOK L024, PAGE 587, Official Records. An Instrument entitled "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose" Between : Oakmead-San Jose, a California general partnership and Crocker Properties, Inc., a California corporation Recorded : August 10, 1989 in Book LO52, page 1001 and page 1011, Official Records. Partial Termination as to other property recorded September 18. 1989 in Book L097, page 1662, Official Records. 11. LIMITATIONS, covenants, conditions, restrictions, reservations, exceptions, terms, liens or charges, but deleting restrictions, if any, based on race, color, religion or national origin contained in the document recorded June 3, 1983 in book H604, PAGE 505, Official Records. EXHIBIT B 2. 8 Said instrument also provides for the levy of assessments, the lien of which are stated to be subordinate to the lien of a First Mortgage or First Deed of Trust made in good faith and for value. MODIFICATION thereof recorded JULY 19, 1989 IN BOOK L024, PAGE 587, Official Records. An Instrument entitled "Assignment and Assumption of Certain Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose" Between : Oakmead-San Jose, a California general partnership and Crocker Properties, Inc., a California corporation Recorded : August 10, 1989 in Book L052, page 1001 and page 1011, Official Records. 12. EASEMENT as shown on the map of Tract 7559 filed in Book 522 of Maps, pages 49 and 50. Purpose : Public Service Easement Affects : The Northwesterly 8 Feet and the Westerly corner of Lot 59 of Pan:el One 13. EASEMENT as shown on the map of Tract 7559 filed in Book 522 of Maps, pages 49 and 50. Purpose : Landscape Easement Affects : The Southeasterly 18 feet and the Southerly corner of Lot 58 of Parcel One; and the Northwesterly 18 feet and the Westerly corner of Lot 59 of Parcel One 14. EASEMENT for the purposes stated herein and incidents thereto Purpose : Communication Facilities Granted to : Pacific Bell Recorded : February 21, 1984 in Book 1319, page 486, Official Records Affects : The Southwesterly 10 feet of Lot 58 of Parcel One; the Southwesterly 10 feet, the Northwesterly 8 feet and the Westerly corner Of Lot 59 Of Parcel One; and the Southwesterly 10 feet of Parcel Three 15. AGREEMENT on the terms and conditions contained therein, For : Gas and Electric Service Between : Pacific Gas and Electric Company, city of San Jose And : Oakmead-San Jose As disclosed by a Memorandum of Agreement Recorded : February 25, 1985 in Book J271, page 37, Official Records. EXHIBIT B 3. EX-10.37 11 SECOND AMENDMENT TO LEASE PARCEL 2 AND LOT 54 1 SECOND AMENDMENT TO LEASE (Parcel 2 and Lot 54) This Second Amendment to Lease ("Second Amendment") is made and entered into as of May 22, 1995 by and between Irish Leasing Corporation, a Texas corporation ("Landlord"), and Cisco Systems, Inc., a California corporation ("Tenant"). WHEREAS, Landlord and Tenant have previously entered into that certain Ground Lease dated February 28, 1995, pursuant to which Landlord is leasing to Tenant those certain parcels of land located in San Jose, California as more particularly described on Exhibit A attached hereto (the "Premises"), which Ground Lease was amended by that certain First Amendment to Lease dated as of May 1, 1995, by and between Landlord and Tenant (the Ground Lease, as so amended, is referred to herein as the "Lease"); and WHEREAS, Landlord and Tenant now wish to further amend the terms of the Lease as more particularly described in this Second Amendment. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. Amendment to Lease. The Landlord and Tenant hereby agree to amend the Lease as hereinafter set forth and as set forth in other sections of this Second Amendment. (a) Section 2.33 of the Lease is hereby amended to read in its entirety as follows: 2.33 Permitted Exceptions. "Permitted Exceptions" shall mean the following: (1) the exceptions set forth in Exhibit B; (2) any exceptions created or caused by Tenant or to which Tenant consents in writing; (3) taxes and assessments not yet due and payable; (4) a deed of trust or mortgage which secures a New Loan authorized pursuant to the terms of Section 13.1(b); (5) the Tenant Deed of Trust; (6) all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way, and restrictive covenants and conditions affecting the Land unless any of the foregoing arise as a result of Landlord's actions or with Landlord's written consent (unless such actions taken or consent given by Landlord are requested in writing by Tenant pursuant to Sections 11.2, 20.1 or 20.2); (7) this Lease; (8) that certain Construction Deed of Trust, Financing Statement, Security Agreement and Fixture Filing (With Assignment of Rents and Leases) (the "Construction Deed of Trust") dated as of even date herewith executed by Landlord, Tenant and Sumitomo Bank of New York Trust Company ("SBNYTC"), as Trustee under that certain Trust Agreement dated May 22, 1995 between Sumitomo Bank Leasing and Finance, Inc. and SBNYTC ("SB Trust") for the benefit of the Sumitomo Bank, Limited ("Sumitomo") and the Hongkong and Shanghai Banking Corporation Limited ("HKS"); (9) that certain Deed of Trust, Financing Statement, Security Agreement and Fixture Filing (with Assignment of Rents and Leases)(the "Second Deed of Trust") dated as of even date 2 herewith executed by Landlord and Tenant for the benefit of SB Trust; (10) that certain Absolute Assignment of Leases (the "HKS Assignment") dated as of even date herewith executed by Landlord, SB Trust, Cisco, HKS and Sumitomo; and (11) that certain Subordination Agreement (herein so called) dated as of even date herewith and executed by Sumitomo, HKS, SB Trust, Landlord and Tenant. (b) The last sentence of Section 5.5 of the Lease is hereby amended to read in its entirety as follows: The entire Security Deposit (other than amounts withheld against Base Rent due hereunder), plus any accrued and unpaid interest required to be paid thereon pursuant to this Lease, shall be returned to Tenant at the end of the Term; provided, however, that, notwithstanding anything to the contrary contained in this Lease, Landlord shall have no obligation to return the Security Deposit to Tenant in the event of a foreclosure, deed in lieu of foreclosure, or other exercise of remedies by the beneficiaries or trustees under the Tenant Deed of Trust, the Construction Deed of Trust, the Second Deed of Trust, the HKS Assignment, or any other Mortgage on the Premises caused by Tenant to which Tenant consents in writing. (c) Section 20.5 of the Lease is hereby amended to read in its entirety as follows: 20.5 Recourse Obligations. Landlord agrees that during the Term of this Lease, except for the SGA Loan, Landlord will not incur any indebtedness for borrowed money or any other material obligations to which the holder or obligee thereof has recourse against Landlord to satisfy the same without Tenant's prior written consent, which consent Tenant may withhold in its sole discretion. (d) Section 20.6 of the Lease is hereby amended to read in its entirety as follows: 20.6 Default Under Authorized Loan. Landlord shall not, without Tenant's express prior written consent, default under any Authorized Loan, or any loan documents relating to such Authorized Loan, where such default is not caused, directly or indirectly by, or arising, directly or indirectly as a result of (a) a breach of any of Tenant's obligations under this Lease, under the Pledge Agreement securing the UBS Loan or under any documents relating to any Authorized Loan, or (b) the occurrence of a default or an Event of Default under the Construction Deed of Trust, the Second Deed of Trust or the HKS Assignment. 2. Existence of Permitted Exceptions. Tenant hereby acknowledges that the existence of any Permitted Exception, and the exercise of any rights or remedies granted to any third party pursuant to any Permitted Exceptions shall not constitute a breach by Landlord under the terms of Section 20.3 or any other provision of the Lease. 3. Quiet Enjoyment. The first sentence of Section 18.1 of the Lease is hereby amended by adding the following language at the end of such sentence: 3 "and subject to the rights of a Fee Mortgagee under the Construction Deed of Trust, and/or the Second Deed of Trust, the rights of the "Assignees" under the HKS Assignment, and the rights of any Fee Mortgagee under any Authorized Loan." 4. Net Lease. The last sentence of Section 21.21 of the Lease is hereby to read in its entirety as follows: Tenant agrees to reimburse Landlord and/or SGA, within ten days following receipt of any written demand therefor, for all fees, accrued but unpaid interest, late charges, prepayment penalties, costs, expenses, indemnification obligations, and other amounts charged to Landlord and/or SGA by UBS, the holder of any Authorized Loan, the holders or beneficiaries of the Construction Deed of Trust and the Second Deed of Trust, and the "Assignees" under the HKS Assignment pursuant to the terms and conditions of the UBS Note, any Authorized Loan, the Construction Deed of Trust, the Second Deed of Trust, the HKS Assignment and the Subordination Agreement." 5. Consent to Encumbrances. Tenant hereby consents to Landlord's execution, delivery and recording of the Construction Deed of Trust, the Second Deed of Trust, the HKS Assignment and the Subordination Agreement, and all documents, instruments and agreements executed in connection therewith by Landlord. 6. Terms. All terms used in this Second Amendment with their initial letter capitalized which are specially defined in the Lease (as amended by this Second Amendment) shall have the same meanings in this Second Amendment as in the Lease (as amended by this Second Amendment). 7. Continuing Obligations. Except as modified by this Second Amendment, the terms of the Lease remain in full force and effect. To the extent of any conflict between the terms of the Lease and the terms of this Second Amendment, the terms of this Second Amendment shall control. 8. Counterparts. This Second Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall comprise but a single instrument. IN WITNESS WHEREOF, the Landlord and Tenant have executed this Second Amendment as of the date first set forth above. 4 IRISH LEASING CORPORATION, a Texas corporation By: /s/GREG ENGLAND ---------------------------- Its: VICE PRESIDENT ------------------------ CISCO SYSTEMS, INC., a California corporation By: /s/LARRY R. CARTER ---------------------------- Its: ------------------------ 5 EXHIBIT A Description of Land REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: PARCEL ONE: All of Parcel 2, as shown on that certain Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on July 13, 1983, in Book 514 of Maps page(s) 47 and 48. PARCEL TWO: All of Lot 54 as shown upon that certain Map entitled, "Tract No. 7559", which Map was filed for record in the Office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-14 and 23 EXHIBIT A EX-10.38 12 GROUND LEASE LOTS 58 AND 59 1 GROUND LEASE (Lots 58 & 59) By and Between IRISH LEASING CORPORATION A TEXAS CORPORATION as Landlord and CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION, as Tenant for Premises located in San Jose, California THIS LEASE IS NOT INTENDED TO CONSTITUTE A TRUE LEASE FOR INCOME TAX PURPOSES. SEE SECTION 21.2 2 TABLE OF CONTENTS
Page ARTICLE 1 BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Date of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.4 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.5 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.6 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.7 Lease Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.8 Rent Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.9 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.10 Addresses for Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.11 Addresses for Rent Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 2 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.1 Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.2 Approval Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.3 Authorized Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.4 Authorized Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.5 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.6 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.7 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.8 Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.9 Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.10 Equity Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.11 Equity Rent Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.12 Event of Major Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.13 Extension Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.14 Fee Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.15 Fee Mortgagee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.16 Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.17 Guaranteed Residual Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.18 Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.19 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.20 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.21 Landlord Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.22 Lease Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.23 Lease Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.24 Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.25 LIBOR Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.26 LIBOR Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.27 Loan Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.28 Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.29 Mortgagee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.30 New Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.31 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.32 Official Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.33 Permitted Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.34 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.35 Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
i. 3
Page 2.36 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.37 Rent Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.38 Rent Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.39 Replacement Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.40 Required Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.41 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.42 Senior Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.43 Senior Rent Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.44 SGA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.45 Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.46 Tenant Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.47 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.48 UBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.49 UBS Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.50 UBS Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 3 DEMISE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.1 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 4 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.1 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.2 Extension Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.3 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE 5 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.1 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.2 Proration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.3 No Abatement of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5.4 Delinquent Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5.5 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 6 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 6.1 Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 6.2 Personal Property Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 6.3 Right to Contest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 6.4 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.5 Additional Provisions Relating to Taxes . . . . . . . . . . . . . . . . . . . . 14 ARTICLE 7 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.1 Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.2 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.3 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE 8 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 8.1 Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 8.2 Contest of Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 19 8.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE 9 UTILITIES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.1 Services to the Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES . . . . . . . . . . . . . . . 20 10.1 Tenant Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 10.2 Surrender of the Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ii. 4
Page ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS AND COMMON AREA . . . . . . . . . . . . . . . . . . 21 11.1 Tenant's Rights to Construct Improvements . . . . . . . . . . . . . . . . . . . 21 11.2 Required Permits, Easements, etc . . . . . . . . . . . . . . . . . . . . . . . . 23 11.3 Demolition and Reconstruction . . . . . . . . . . . . . . . . . . . . . . . . . 23 11.4 Title to and Nature of Improvements . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE 12 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE 13 ASSIGNMENT BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 13.1 Further Mortgages or Encumbrances by Landlord; Authorized Loans . . . . . . . . 24 13.2 Landlord's Right to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 13.3 Transfer of Funds and Property . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE 14 ASSIGNMENT AND SUBLEASING . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 14.1 Right to Assign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 14.2 Right to Sublet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 14.3 Tenant's Right to Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE 15 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 15.1 Total or Substantial Taking . . . . . . . . . . . . . . . . . . . . . . . . . . 28 15.2 Partial Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 15.3 Temporary Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 15.4 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 15.5 Notice and Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE 16 DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 16.1 Insured Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 16.2 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 17 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 17.1 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 17.2 Event of Major Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 17.3 Contest by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 17.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 17.5 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 17.6 Effect of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 17.7 Landlord Cure Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 17.8 Landlord's Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE 18 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 18.1 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE 19 TENANT'S OPTION TO PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . 35 19.1 Option To Purchase Premises . . . . . . . . . . . . . . . . . . . . . . . . . . 35 19.2 Mandatory Purchase/Sale of Premises . . . . . . . . . . . . . . . . . . . . . . 37 19.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . 38 20.1 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 20.2 Land Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 20.3 Transfer of Property Interests . . . . . . . . . . . . . . . . . . . . . . . . . 40 20.4 Shareholder Equity; No Other Asset . . . . . . . . . . . . . . . . . . . . . . . 40 20.5 Recourse Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
iii. 5
Page 20.6 Default Under Authorized Loan . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE 21 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 21.1 Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 21.2 Form of Transaction; Certain Tax Matters . . . . . . . . . . . . . . . . . . . . 41 21.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 21.4 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 21.5 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 42 21.6 Approvals and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 21.7 Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 21.8 Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 21.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 21.10 Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 21.11 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 21.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 21.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 21.14 Time Is of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 21.15 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 44 21.16 No Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 21.17 Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 21.18 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 21.19 Landlord's Continuing Obligation to Sell . . . . . . . . . . . . . . . . . . . . 45 21.20 As-Is Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 21.21 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 21.22 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 45
List of Exhibits Exhibit A Description of Land Exhibit B Permitted Exceptions Exhibit C Memorandum of Lease Exhibit D Closing Costs and Fees to be Included in Funded Amount Exhibit E Lease Commencement Date Memorandum Exhibit F Description of Additional Property Owned by Landlord iv. 6 GROUND LEASE THIS GROUND LEASE ("Lease") by and between IRISH LEASING CORPORATION, a Texas corporation ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"), is entered into as of the date set forth in Article 1 and shall be effective and binding upon the parties hereto as of such date. Capitalized terms used in this Lease shall have the definitions set forth in Article 2 or in the text of this Lease. In consideration of the Base Rent reserved herein, and the terms, covenants and conditions set forth below, Landlord and Tenant hereby agree as follows: ARTICLE 1 BASIC LEASE PROVISIONS 1.1 DATE OF LEASE: February 28, 1995. 1.2 LANDLORD: Irish Leasing Corporation, a Texas corporation. 1.3 TENANT: Cisco Systems, Inc., a California corporation. 1.4 LAND: That certain tract of land located in the City of San Jose, Santa Clara County, California, consisting of five (5) parcels and more particularly described on Exhibit A attached hereto, together with all easements, rights of way, appurtenances and other rights and benefits belonging or pertaining to such land. 1.5 PREMISES: The Land. 1.6 TERM: The initial term ("Initial Term") of this Lease shall be for five (5) years commencing on the Lease Commencement Date (as defined in Section 4.1). Subject to the conditions set forth in Section 4.2, Tenant may extend the Initial Term for one (1) additional period of five (5) years ("Extension Term"). The Initial Term and (if exercised by Tenant) the Extension Term shall be referred to collectively herein as the "Term." The Term shall cease upon, and shall not refer to any period of time after, termination of this Lease (whether 1. 7 pursuant to the terms of the Lease, by operation of law, or otherwise). 1.7 LEASE COMMENCEMENT DATE: As described in Section 4.1. 1.8 RENT COMMENCEMENT DATE: The rent commencement date ("Rent Commencement Date") shall be the first LIBOR Business Day (as defined in Section 2.25) of the calendar month which commences immediately following the Lease Commencement Date. 1.9 BASE RENT: As described in Section 2.5. 1.10 ADDRESSES FOR NOTICES: LANDLORD: TENANT: Irish Leasing Corporation Cisco Systems, Inc. 6750 LBJ Freeway, Suite 1100 3535 Garrett Drive Dallas, TX 75240 Santa Clara, CA 95054 Attn: Mr. Greg England Attention: Eugene Hill With a copy to: With a copy to: Lorne Liechty, Esq. Cisco Systems, Inc. Liechty, McGinnis & Kolitz 3535 Garrett Drive 12750 Merit Drive Santa Clara, CA 95054 Suite 1150 Attention: Nancy Bareilles Dallas, Texas 75251 and Todd J. Anson, Esq. Brobeck, Phleger & Harrison 550 West C Street Suite 1300 San Diego, CA 92101 1.11 ADDRESSES FOR RENT PAYMENTS: Senior Rent Component: Union Bank of Switzerland 444 South Flower Street Los Angeles, CA 90071 Attn: Victor Massarano Equity Rent Component: Irish Leasing Corporation 6750 LBJ Freeway, Suite 1100 Dallas, TX 75240 Attn: Mr. Greg England 2. 8 This Article 1 is intended to supplement and/or summarize the provisions set forth in the balance of this Lease. If there is any conflict between any provisions contained in this Article 1 and the balance of this Lease, the balance of this Lease shall control. ARTICLE 2 DEFINITIONS For purposes of this Lease, the following defined terms shall have the meanings set forth in this Article 2. 2.1 ADDITIONAL RENT. "Additional Rent" shall mean any amounts other than Base Rent payable by Tenant to Landlord or to other Entities on Landlord's behalf as required under this Lease, including, without limitation, interest at the Default Rate accrued on past due Base Rent and other amounts past due hereunder, costs and expenses to be paid or reimbursed by Tenant hereunder, amounts due pursuant to Tenant's indemnity obligations hereunder, and Real Estate Taxes. 2.2 APPROVAL PLANS. "Approval Plans" shall have the meaning set forth in Section 11.1(a). 2.3 AUTHORIZED LOAN. "Authorized Loan" shall have the meaning set forth in Section 13.1(b). 2.4 AUTHORIZED PLANS. "Authorized Plans" shall have the meaning set forth in Section 11.1(a). 2.5 BASE RENT. "Base Rent" shall mean, as of a Rent Payment Date, the product of the Funded Amount as of the Rent Payment Date multiplied by the Lease Rate. 2.6 COLLATERAL. "Collateral" shall have the meaning set forth in Section 21.18. 2.7 DEFAULT. "Default" shall have the meaning set forth in Section 17.1. 2.8 DEFAULT RATE. "Default Rate" shall mean the interest rate charged or chargeable pursuant to the UBS Note or other Authorized Loan on any amounts not paid when due. Notwithstanding the foregoing, in the event that the foregoing Default Rate shall be in violation of any usury or similar law, then the Default Rate shall be reduced to the extent necessary to cause the Default Rate to comply with any usury or similar law. 2.9 ENTITY. "Entity" shall mean any person, corporation, partnership (general or limited), joint venture, association, joint stock company, trust or other business entity or organization. 3. 9 2.10 EQUITY FUNDED AMOUNT. "Equity Funded Amount" shall mean that portion of the Funded Amount equal to the Funded Amount minus the Senior Funded Amount. 2.11 EQUITY RENT COMPONENT. "Equity Rent Component" shall mean the Base Rent as of a Rent Payment Date minus the Senior Rent Component. 2.12 EVENT OF MAJOR DEFAULT. "Event of Major Default" shall have the meaning set forth in Section 17.2. 2.13 EXTENSION TERM. "Extension Term" shall have the meaning set forth in the Basic Lease Provisions. 2.14 FEE MORTGAGE. "Fee Mortgage" shall mean any Mortgage at any time given by Landlord and remaining uncancelled on the Official Records, encumbering all or any portion of Landlord's right, title and estate in the Land or in this Lease. 2.15 FEE MORTGAGEE. "Fee Mortgagee" shall mean the Mortgagee from time to time of a Fee Mortgage. 2.16 FUNDED AMOUNT. "Funded Amount" shall mean the aggregate amount of the sum paid by Landlord to acquire the Land, plus the closing costs and fees set forth on Exhibit D attached hereto; less any reductions in the amount of the UBS Loan or any other Authorized Loan or in the Equity Funded Amount, whether such principal reduction or reduction in the Equity Funded Amount is accomplished by payment to UBS or the holder of an Authorized Loan, the application of the Collateral or other collateral by UBS or the holder of an Authorized Loan, the payment of insurance proceeds, condemnation awards, or otherwise. 2.17 GUARANTEED RESIDUAL VALUE. "Guaranteed Residual Value" shall mean that amount necessary to cause the present value of the aggregate Minimum Lease Payments under this Lease, including the present value of the Guaranteed Residual Value, to not exceed eighty nine and 9/10 percent (89.9%) of the Funded Amount, computed at the Date of Lease and discounted to present value as of the Rent Commencement Date using the interest rate implicit in the Lease or the incremental borrowing rate, whichever is higher, all as calculated and determined pursuant to Statement of Financial Accounting Standards Number 13. "Minimum Lease Payments" shall mean the sum of the aggregate Base Rent payable over the Initial Term and the Extension Term, plus imputed interest on the non-interest bearing portion of the Security Deposit imputed at a market rate of interest for an investment for a similar term, plus the Guaranteed Residual Value, plus the following to the extent paid in cash: custodial and other fees paid by Tenant, and any other reimbursed costs of Landlord paid by Tenant deemed to meet the definition of Minimum Lease Payments under SFAS No. 13. 4. 10 2.18 IMPROVEMENTS. "Improvements" shall mean any and all improvements erected, constructed or situated upon the Land or any part thereof during the Term. 2.19 INITIAL TERM. "Initial Term" shall have the meaning set forth in the Basic Lease Provisions. 2.20 LAND. "Land" shall have the meaning set forth in the Basic Lease Provisions. 2.21 LANDLORD AFFILIATE. "Landlord Affiliate" shall mean any Entity which controls is controlled by or is under the common control of SGA Development Partnership, Ltd., or The Staubach Company, a Texas corporation. 2.22 LEASE COMMENCEMENT DATE. "Lease Commencement Date" shall have the meaning set forth in Section 4.1. 2.23 LEASE RATE. "Lease Rate" shall mean interest at the rate of the product of 0.846 times the then-effective LIBOR Rate plus .0046 per annum. 2.24 LEGAL REQUIREMENTS. "Legal Requirements" shall mean all statutes, codes, laws, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all federal, state, county, municipal and other governments, departments, commissions, boards, courts, authorities, officials and officers, and any covenants, conditions and restrictions and other matters of record (subject to the provisions of Section 13.1(a) hereof), which now or at any time hereafter are applicable to Tenant or this Lease or applicable to and enforceable against the Premises, the Improvements or any part thereof, as applicable. 2.25 LIBOR BUSINESS DAY. "LIBOR Business Day" shall have the same meaning as such term is defined in the UBS Note or other Authorized Loan. 2.26 LIBOR RATE. "LIBOR Rate" shall mean the LIBOR interest rate as defined in the UBS Note, or a subsequent Authorized Loan. 2.27 LOAN RATE. "Loan Rate" shall mean the relevant rate (or rates) of interest, as the same may change from time to time, applicable under the UBS Note (or if the UBS Loan has been replaced by an Authorized Loan, then the relevant rate of interest under the promissory note evidencing such Authorized Loan), all subject to the terms of Section 13.1(b). 2.28 MORTGAGE. "Mortgage" shall mean any mortgage, deed of trust, or other instrument in the nature thereof at any time and from time to time constituting a lien, charge or encumbrance upon any interest or estate of Tenant or Landlord in the Premises or in this Lease. 5. 11 2.29 MORTGAGEE. "Mortgagee" shall mean the record holder (as reflected in the Official Records) from time to time of, or the record beneficiary (as reflected in the Official Records) from time to time under, a Mortgage. 2.30 NEW LOAN. "New Loan" shall have the meaning set forth in Section 13.1(b). 2.31 NOTICE. "Notice" shall mean a written advice, request, demand or notification required or permitted by this Lease, as more particularly provided in Section 21.3. 2.32 OFFICIAL RECORDS. "Official Records" shall mean the official records of Santa Clara County, California. 2.33 PERMITTED EXCEPTIONS. "Permitted Exceptions" shall mean the following: (1) the exceptions set forth in Exhibit B; (2) any exceptions created or caused by Tenant or to which Tenant consents in writing; (3) taxes and assessments not yet due and payable; (4) a deed of trust or mortgage which secures a New Loan authorized pursuant to the terms of Section 13.1(b); (5) the Tenant Deed of Trust; (6) all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way, and restrictive covenants and conditions affecting the Land unless any of the foregoing arise as a result of Landlord's actions or with Landlord's written consent (unless such actions taken or consent given by Landlord are requested in writing by Tenant pursuant to Section 11.2, 20.1 or 20.2); and (7) this Lease. 2.34 PREMISES. "Premises" shall have the meaning set forth in the Basic Lease Provisions. It is the intention of the parties that the Premises consist only of the Land, and in no event shall the Premises consist of any Improvements whatsoever. 2.35 REAL ESTATE TAXES. "Real Estate Taxes" shall have the meaning set forth in Section 6.1(b). 2.36 RENT. "Rent" shall mean Base Rent and Additional Rent. 2.37 RENT COMMENCEMENT DATE. "Rent Commencement Date" shall have the meaning set forth in the Basic Lease Provisions. 2.38 RENT PAYMENT DATE. "Rent Payment Date" shall have the meaning set forth in Section 5.1. 2.39 REPLACEMENT LOAN. "Replacement Loan" shall have the meaning set forth in Section 13.1(c). 2.40 REQUIRED PERMITS. "Required Permits" shall mean each and every building and development permit including, without limitation, demolition permits, site permits and addenda thereto (including, without limitation, foundation permits and structural permits), temporary and final occupancy permits and any other 6. 12 governmental or quasi-governmental approvals which must be issued by any governmental authority, department, commission, board, official or officer as a condition precedent to construction and occupancy of any Improvements. 2.41 SECURITY DEPOSIT. "Security Deposit" shall have the meaning set forth in Section 5.5. 2.42 SENIOR FUNDED AMOUNT. "Senior Funded Amount" shall mean the principal amount of the UBS Loan as of the Lease Commencement Date, less any reductions in the principal amount of the UBS Loan or any other Authorized Loan, whether such principal reduction is accomplished by payment to UBS or the holder of the Authorized Loan, the application of the Collateral or other collateral by UBS or the holder of the Authorized Loan, the payment of condemnation awards, or otherwise. 2.43 SENIOR RENT COMPONENT. "Senior Rent Component" shall mean the product of the Senior Funded Amount as of a Rent Payment Date times the Loan Rate. 2.44 SGA. "SGA" shall mean SGA Development Partnership, Ltd., a Texas limited partnership, the sole shareholder of Landlord. 2.45 TAKING. "Taking" shall have the meaning set forth in Section 15.1. 2.46 TENANT DEED OF TRUST. "Tenant Deed of Trust" shall mean that certain deed of trust to be executed by Landlord in favor of Tenant and recorded in the Official Records as of the Lease Commencement Date, as more fully described in Section 13.1(d). 2.47 TERM. "Term" shall have the meaning set forth in the Basic Lease Provisions. 2.48 UBS. "UBS" shall mean the Union Bank of Switzerland, a Swiss banking corporation, acting through its Los Angeles branch. 2.49 UBS LOAN. "UBS Loan" shall have the meaning set forth in Section 13.1(b). 2.50 UBS NOTE. "UBS Note" shall have the meaning set forth in Section 13.1(b). ARTICLE 3 DEMISE 3.1 PREMISES. Subject to the terms, covenants and conditions contained herein, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, together with all rights, privileges, easements and appurtenances relating to the Premises. 7. 13 ARTICLE 4 TERM The Term of this Lease shall consist of the Initial Term, and if exercised by Tenant, the Extension Term, as follows: 4.1 INITIAL TERM. The Initial Term of this Lease is specified in Article 1. The Initial Term shall commence on the date ("Lease Commencement Date") that Landlord acquires title to the Land pursuant to that certain Purchase and Sale Agreement ("Purchase Agreement") executed or to be executed by Amdahl Corporation, as Seller ("Seller"), and Landlord, as Buyer. Within thirty (30) days after the Lease Commencement Date, Landlord and Tenant shall execute the Lease Commencement Date Memorandum in the form attached hereto as Exhibit E. In the event that the Initial Term does not commence on or before July 1, 1995, Tenant shall have the unilateral right to terminate this Lease by written notice to Landlord, and upon such termination Landlord shall immediately return the Security Deposit to Tenant, plus all interest earned thereon. In the event the Purchase Agreement is terminated as a result of any default under or breach of the Purchase Agreement by Landlord which is not the result of Landlord's gross negligence or willful misconduct, Landlord shall not be obligated to return any portion of the Security Deposit retained by Seller as liquidated damages pursuant to the terms of the Purchase Agreement; provided that, at Tenant's request, Landlord shall assign to Tenant any and all rights, claims and causes of action which Landlord may have with respect to the Purchase Agreement, excluding, however, any rights, claims and causes of action which may be necessary for Landlord to retain in order for Landlord to avoid or seek reimbursement for any liability, loss, cost, damage, injury or expense (including without limitation reasonable attorneys' fees and costs) which Landlord may sustain or suffer or be entitled to recover in connection with the Purchase Agreement. 4.2 EXTENSION TERM. Upon at least ninety (90) days' prior written Notice to Landlord, and provided that a New Loan or Replacement Loan has been obtained as of the commencement of the Extension Term (subject to the terms and conditions set forth in Sections 13.1(b) and 13.1(c)), Tenant may extend the Term for the Extension Term specified in Article 1. All provisions of this Lease shall remain in full force and effect for the Extension Term, including, without limitation, the Base Rent payable hereunder, except that Tenant shall have no further right to extend the Term of this Lease, and except that the Lease Rate may be adjusted only to reflect any actual change in the rate of interest (that is, the spread over LIBOR) charged pursuant to the Authorized Loan. 4.3 HOLDING OVER. If Tenant remains in possession of the Premises after the expiration of the Term without executing a new lease, such holding over shall be construed as a tenancy from month-to-month, subject to all terms, covenants and conditions herein contained (except that Tenant shall have no right to extend the Term of this Lease), and at the Base Rent required to be paid by Tenant pursuant to the terms hereof during the last month of the Term. 8. 14 ARTICLE 5 RENT 5.1 BASE RENT. (a) Tenant shall pay Base Rent in the manner set forth below. Base Rent shall be payable monthly, in arrears, without notice on the Rent Commencement Date, and continuing thereafter on the first LIBOR Business Day of each successive month, except that the last installment of Base Rent shall be payable on the last day of the Term (each such date shall be a "Rent Payment Date") and shall be an amount sufficient to pay all Base Rent accrued through the end of the Term. Tenant shall pay Base Rent as follows: The Senior Rent Component shall be paid to UBS, and the Equity Rent Component shall be paid to Landlord, at the Address for Rent set forth in the Basic Lease Provisions (or, if the UBS Loan has been replaced by a New Loan or Replacement Loan, then the Senior Rent Component shall be paid directly to the holder of such New Loan or Replacement Loan) or at such other place as Landlord and Tenant may from time to time mutually agree upon, in their respective sole and absolute discretion. Tenant shall pay Base Rent by wire transfer or by check. Landlord or UBS or such other holder of a New Loan, as the case may be, shall supply Tenant with such bank account information as Tenant shall require to enable payment by wire transfer. The parties agree that Tenant is paying the Senior Rent Component of Base Rent directly to UBS for the convenience of the parties in order to satisfy Landlord's obligations to pay interest under the UBS Loan for the period of time corresponding to the Term of this Lease; all Base Rent payments shall be deemed payments to Landlord to the extent of the Equity Rent Component and payments of the interest due to UBS under the UBS Loan to the extent of the Senior Rent Component. (b) INTEREST RATE SELECTION. The parties acknowledge that the interest rate applicable under the UBS Loan (or other Authorized Loan) shall affect the amount of Base Rent payable by Tenant hereunder. Therefore, Tenant shall have the right, by written notice to UBS (or the holder of any Authorized Loan), SGA and Landlord, to designate the interest period to be selected from time to time by SGA pursuant to the terms of the UBS Note (or other Authorized Loan). Tenant acknowledges that the rates available to be selected under the UBS Loan after the first partial calendar month of the Term are 1, 3, 6, 9 or 12-month LIBOR rates. In the event that Tenant fails to give such written notice to UBS (or other holder of an Authorized Loan), SGA and Landlord prior to the applicable deadline for selection of such interest period pursuant to the terms of the UBS Note (or other Authorized Loan), the same interest period then in effect for the UBS Loan (or other Authorized Loan) shall be selected. 5.2 PRORATION. If the Term expires or is otherwise terminated on a day other than the day before the first LIBOR 9. 15 Business Day of a calendar month, Base Rent for such calendar month shall be prorated on the basis of actual days elapsed on the basis of a thirty (30) day month. 5.3 NO ABATEMENT OF RENT. Except as a consequence of a reduction in the Funded Amount or the terms of Section 15 (Taking), Tenant shall not be entitled to any abatement, diminution, reduction, setoff or postponement of Base Rent as a consequence of any inconvenience to, interruption of, cessation of or loss of Tenant's use or enjoyment of the Premises or as a result of any reason whatsoever. 5.4 DELINQUENT RENT. Any Base Rent not paid on the due date shall accrue interest at the Default Rate from the date such Base Rent was originally due until the date such Base Rent is paid. All interest accrued on past due Base Rent shall be due and payable to Landlord at the time the Base Rent is paid, or upon demand by Landlord, if earlier. 5.5 SECURITY DEPOSIT. On the Date of Lease, Tenant shall deliver to Landlord a security deposit ("Security Deposit") in an amount equal to One Million Dollars ($1,000,000), to be held in an interest bearing account requiring authorization by both Landlord and Tenant for withdrawal. On the Lease Commencement Date, the Security Deposit plus all interest earned thereon shall be released to Landlord, and Tenant shall deliver to Landlord an amount sufficient to increase the Security Deposit to an amount equal to the Equity Funded Amount as of such date; provided that Tenant shall receive a credit for any interest earned on the Security Deposit prior to the Lease Commencement Date. The Security Deposit shall be held by Landlord as security solely for the payment of Base Rent and Additional Rent by Tenant pursuant to this Lease. One-fifth of the Security Deposit shall bear interest from the Lease Commencement Date at the rate of 6.75% per annum, simple interest, paid by Landlord to Tenant in cash on an annual basis on each anniversary of the Lease Commencement Date; and the remainder of the Security Deposit shall not bear interest. If at any time during the Term any Base Rent shall be overdue, then Landlord may at its election (but shall not be required to) appropriate and apply any portion of the Security Deposit to the payment of any such overdue Base Rent; provided, however, that Landlord shall use the non-interest bearing portion of the Security Deposit first, before appropriating any portion of the Security Deposit that shall bear interest pursuant hereto. Should the entire Security Deposit, or any portion thereof, be appropriated and applied by Landlord as provided herein, then Tenant shall immediately, after receipt of written demand by Landlord, pay to Landlord a sufficient sum in cash to restore the Security Deposit to the original sum of the Security Deposit. Landlord shall have no obligation to segregate the Security Deposit from other funds. In the event that the Equity Funded Amount is reduced for any reason, including without limitation by reason of a sale of any portion of the Premises or the application of the proceeds of a condemnation award to reduce the Equity Funded Amount (it being 10. 16 understood that the Equity Funded Amount will only be reduced in the event and to the extent that the net proceeds of such condemnation award exceeds the Senior Funded Amount, with such award proceeds to be applied first to the Senior Funded Amount pursuant to Section 15.4 hereof), the amount of the Security Deposit required hereunder shall be reduced (pro rata between the interest bearing and non-interest bearing portions of the Security Deposit) by a like amount, and any such excess funds held by Landlord shall immediately be returned to Tenant. The entire Security Deposit (other than amounts withheld against Base Rent due hereunder), plus any accrued and unpaid interest required to be paid thereon pursuant to this Lease, shall be returned to Tenant at the end of the Term. ARTICLE 6 TAXES 6.1 REAL ESTATE TAXES. (a) From and after the Lease Commencement Date, Tenant shall pay directly to the appropriate taxing authority all Real Estate Taxes. If the Lease Commencement Date occurs or the Term expires or otherwise terminates at any time other than the beginning or end of a taxable year, Tenant's obligation to pay Real Estate Taxes shall be prorated on the basis of a 365-day year, so as to include only that portion of the taxable year which is a part of the Term. Unless a termination of the Lease results from a purchase of the Land pursuant to Article 19, any Real Estate Taxes levied against the Land which accrue during the Term of this Lease but which would not be due and payable to the appropriate taxing authority until after the expiration of the Term of this Lease (as the same may be extended) shall be paid by Tenant to Landlord upon such termination. Landlord shall pay such amounts to the appropriate taxing authority on a timely basis. (b) Except to the extent that Real Estate Tax bills and statements are sent directly to Tenant by the taxing authority, upon receipt by Landlord of the tax bills or statements, Landlord will use reasonable efforts to promptly advise Tenant in writing of all Real Estate Taxes and shall deliver copies of all applicable tax bills or statements to Tenant. Tenant shall pay directly to the taxing authority all Real Estate Taxes prior to the later of (i) thirty (30) days after receipt by Tenant of a copy of such bills and statements referred to above, or (ii) five (5) days prior to delinquency. As used herein, the term "Real Estate Taxes" shall mean any and all taxes, governmental fees and similar charges or assessments levied or assessed against the Improvements and/or the Land including, without limitation, ad valorem taxes and special assessments applicable to real property; provided, however, that Real Estate Taxes shall not include any Landlord Income Taxes. Real Estate Taxes shall also include any and all documentary, transfer, sales, mortgage, recording or similar taxes imposed on Landlord or Tenant in connection with (i) the original acquisition 11. 17 of the Premises by Landlord, (ii) any transfer of the Premises to Tenant pursuant to the terms of this Lease, or (iii) any sale of the Premises to a third party pursuant to the terms of this Lease. As used herein, the term "Landlord Income Taxes" shall mean any and all income, franchise, gains, gift, succession, excess profits, gross receipts, revenue, estate, rental, or similar taxes or taxes in lieu thereof imposed upon Landlord or any party other than Tenant (or an affiliate thereof) and any withholding tax imposed as a collection device for, in lieu of, or otherwise related to any of the foregoing without regard to whether such tax is required to be collected by Tenant and without regard to whether Tenant would be liable for such withholding tax in the event it failed to so withhold. For purposes of the foregoing, an income tax shall include, without limitation, any tax imposed under the United States Internal Revenue Code or the California Bank and Corporation Tax Law as well as any tax which could qualify as an "income tax" under United States Treasury Regulation Section 1.901-2 (except to the extent any such statute or regulation is subsequently modified to include a tax or other governmental charge of a materially different type and nature from the taxes currently described therein) and any income tax which may be payable under the laws of any jurisdiction either now or in the future. Real Estate Taxes for any given tax year shall exclude assessment installments that are not due and payable during such tax year. 6.2 PERSONAL PROPERTY TAXES. Tenant shall pay directly to the appropriate taxing authorities prior to delinquency any and all taxes and assessments levied or assessed during the Term upon or against Tenant's furniture, equipment, trade fixtures and any other personal property in the Premises. 6.3 RIGHT TO CONTEST. Tenant shall not be required to pay any Real Estate Taxes or any other taxes for which Tenant is liable hereunder (including, without limitation, any taxes for which Tenant is required to indemnify Landlord under Section 6.5) (including penalties and interest), so long as (i) Tenant shall contest the same or the validity thereof by appropriate legal proceedings in such a manner to prevent the tax sale of any portion of the Premises and (ii) the position to be taken by Tenant pursuant to such contest would have a realistic possibility of success if litigated. For purposes of this Lease, Tenant may conclusively establish that a position to be taken in a contest would have a realistic possibility of success if litigated by providing to Landlord a letter from counsel stating an opinion to such effect. In the event of any such contest, Tenant shall, within thirty (30) days after the final determination thereof, pay and discharge the amounts determined to be due in accordance therewith and with the provisions of this Lease, together with any penalties, fines, interest, costs and expenses that may have accrued thereon or that may have resulted from Tenant's contest. Tenant also shall have a right to contest any taxes for which it is liable hereunder, but with regard to which the position to be taken pursuant to such contest would not have a realistic possibility of success if litigated, provided that Tenant pays such taxes on or 12. 18 prior to the date upon which such taxes are asserted to be due by the relevant governmental authority. Notwithstanding the foregoing provisions of this Section 6.3, Tenant shall have an unconditional right to contest (without prior payment) any taxes imposed by law upon Tenant rather than upon Landlord. Tenant's decision to pay any taxes prior to contesting its or another party's underlying liability therefore shall not be deemed to imply or suggest that the position to be taken in such contest would not have a realistic possibility of success if litigated. Landlord shall cooperate fully with Tenant in connection with the exercise of Tenant's right of contest contained herein, and in the event that applicable law shall require that Landlord, rather than Tenant, pursue legal proceedings for such contest, Landlord will initiate and pursue such contest upon Tenant's request and in accordance with Tenant's instructions (including, without limitation, Tenant's instructions as to the selection of legal counsel and matters of strategy or settlement); provided, however, that Landlord shall not be subject to any liability for the payment of any costs or expenses in connection with any such contest or proceedings, and Tenant will indemnify, defend and save harmless Landlord from and against any such costs and expenses (including, without limitation, reasonable attorneys' fees, costs of court and appraisal costs), reimbursing Landlord therefor upon demand (or paying such costs and expenses directly when due, all as directed by Landlord). Tenant shall be entitled to any refund of any taxes and penalties or interest from any governmental authority to the extent the refund represents monies paid to the governmental authority by Tenant or paid by Landlord and reimbursed by Tenant. 6.4 WITHHOLDING TAXES. Subject to Section 6.5, but notwithstanding any other provision of this Lease to the contrary, Tenant may withhold from any payments under this Lease any Landlord Income Taxes, without obligation to gross-up, indemnify or otherwise increase payments in consequence thereof, to the extent required by applicable law (as determined by Tenant in its reasonable discretion). Upon the date hereof or upon the date a party becomes a Landlord or a transferee of any portion of the Landlord's interest in the Premises or this Lease, and within thirty (30) days following the first day of each calendar year or if otherwise requested from time to time by Tenant, Landlord and each transferee, if organized under the laws of a jurisdiction outside the United States, shall provide Tenant with three counterparts of each of the forms prescribed by the Internal Revenue Service of the United States (Form 1001 or 4224, or successor form(s), as the case may be) certifying as to Landlord's or such transferee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to such person. Without limitation upon the foregoing, unless Tenant has received such forms or other documents reasonably satisfactory to it indicating that payments under this Lease are not subject to United States withholding tax, Tenant is authorized to and shall withhold taxes from such payments at the applicable statutory rate. Landlord and each transferee, if organized under the laws of the United States or any State thereof, shall timely 13. 19 provide Tenant with duplicate documents conforming to the requirements of Treasury Regulation 1.1441-5(b) or any successor thereto (which statement may be made on a Form W-9). 6.5 ADDITIONAL PROVISIONS RELATING TO TAXES. Notwithstanding anything in this Section 6 to the contrary, Tenant shall indemnify, defend and hold Landlord harmless from and against: (a) Any and all Landlord Income Taxes imposed upon Landlord in consequence of Landlord being treated as the owner or lessor of the Premises (or any part thereof) for such tax purposes (provided that Landlord has fully complied with its obligations under Section 21.2(b)); (b) Any and all minimum franchise taxes imposed in respect of doing business within the State of California, business qualification taxes, and similar governmental charges for which Landlord would not be liable but for its participation in the transactions described in this Lease, including obtaining the UBS Loan or any other Authorized Loan pursuant to this Lease; (c) Any and all taxes imposed upon Tenant (except to the extent that such taxes are imposed upon Tenant as a result of Landlord's failure to comply with its obligations under this Lease); (d) Any and all taxes required to be withheld from payments made by Tenant to a third party not related to or affiliated with Landlord or The Staubach Company; (e) Any and all taxes imposed upon Landlord on cancellation or discharge of indebtedness income arising in connection with a write-down, payoff modification or cancellation of the UBS Loan or other Authorized Loan (other than in connection with Landlord's or SGA's bankruptcy or insolvency or any write-down, payoff, modification or cancellation of the SGA Loan (as defined in Section 12.1(b)) not authorized in advance by Tenant) and provided that Landlord has fully complied with its obligations under Section 21.2(b); (f) Any and all Real Estate Taxes; and (g) Any and all taxes owed by Landlord as a result of payment made by Tenant to or for the benefit of Landlord pursuant to Tenant's indemnity obligations under this Section 6.5. Tenant's obligation to reimburse or indemnify Landlord for any taxes, governmental fees, penalties, interest or other supplemental tax charges under this Lease shall be reduced by the value of any related or offsetting tax benefits derived or realized by Landlord. For purposes of calculation of tax benefits derived or realized by Landlord, any net operating loss attributable to the 14. 20 Premises for any year shall be deemed to be available to offset against income from the Premises in subsequent years regardless of whether it is in fact available. Tenant's duty to indemnify Landlord under this Section 6.5 shall apply only to taxes arising during the Term (whether or not due and payable at the conclusion of the Term), but shall otherwise survive the expiration or earlier termination of this Lease. ARTICLE 7 INSURANCE 7.1 LIABILITY INSURANCE. At all times during the Term, Tenant shall obtain at Tenant's sole cost and expense a policy or policies of comprehensive general liability insurance on an "occurrence" basis against claims for "personal injury" liability, including, without limitation, bodily injury, death or property damage liability. The liability insurance policy shall contain coverage limits no less than a combined single limit of $5,000,000 per occurrence. The insurance may be furnished under a "primary" policy and an "umbrella" policy or policies. Landlord shall be named as an additional insured under Tenant's policy and Tenant's policy shall contain an endorsement for cross-liability coverage. Tenant shall furnish Landlord with certificates from Tenant's insurers with respect to the insurance required to be carried hereunder on or before the date of execution of this Lease. The certificates shall state that such insurance is in full force and effect and that coverage will not be cancelled without twenty (20) days' prior written notice to Landlord. Renewal certificates shall be furnished to Landlord not less than thirty (30) days prior to the expiration of each such policy. Any blanket insurance policy or policies that insure Tenant against the risks and for the amounts herein specified shall be deemed to satisfy the obligation of Tenant hereunder, provided that any such policy of blanket insurance shall specify the amount of the total insurance allocated to the risks required to be insured hereunder and such allocated amount meets the requirements of this Article 7. All insurance required by this Article 7 shall be with an insurance company licensed to do business in the State of California with a general policyholder's rating, as rated by the most current available "Bests" Insurance Reports, no less than A-III, and shall be primary and non-contributing. 7.2 WAIVER OF SUBROGATION. Notwithstanding anything to the contrary contained herein, to the extent permitted by law and so long as any insurance coverage maintained by Tenant is not diminished by reason thereof, Tenant hereby (a) releases and waives any rights it may have against Landlord and its officers, agents and employees on account of any loss or damages occasioned to Tenant, its property or the Premises, and arising from any risk covered by any fire and extended coverage insurance maintained by Tenant, whether or not due to the negligence of Landlord, its agents, employees, contractors, licensees, invitees or other persons, and (b) waives on behalf of any insurer providing such 15. 21 insurance to Tenant any right of subrogation that any such insurer may have or acquire against Landlord or such persons by virtue of payment of any loss under such insurance. Tenant shall use its best efforts to cause its insurance policies to contain a waiver of subrogation clauses in accordance with the foregoing. 7.3 INDEMNITY. Tenant shall protect, defend, indemnify, hold and save Landlord harmless from and against any and all losses, costs, liabilities or damages (including reasonable attorneys' fees and disbursements and court costs) arising by reason of: (i) any and all injury or death of persons or damage to property against which Tenant is obligated to maintain insurance for the benefit of Landlord pursuant to this Article 7; (ii) the failure to obtain the waiver of subrogation clause required by Section 7.2 hereof where such clause could have been obtained through the exercise of Tenant's best efforts; or (iii) the invalidation of such insurance policy required to be obtained by Tenant hereunder by Tenant's insurer. Tenant's duty to indemnify Landlord under this Section 7.3 shall survive the expiration or earlier termination of this Lease with respect to events occurring during the Term. ARTICLE 8 USE 8.1 USE. (a) PERMITTED USES. Tenant may use the Premises for any lawful purpose. (b) ENVIRONMENTAL COMPLIANCE. (i) DEFINED TERMS. The term "Applicable Environmental Laws" shall mean any applicable laws, regulations or ordinances pertaining to health or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 or otherwise (as amended, hereinafter called "CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, the Hazardous and Solid Waste Amendments of 1984 or otherwise (as amended, hereinafter called "RCRA"), and California Health & Safety Code Section 25501(j). The terms "hazardous substance" and "release" as used in this Lease shall have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have the meanings specified in RCRA; provided, in the event either CERCLA or RCRA is amended or superseded by other laws so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment or other laws; and, provided further, to the extent that the laws of the State of California establish a meaning for "hazardous substance", "release", "solid waste", or "disposal" 16. 22 which is broader than that specified in either CERCLA or RCRA, such broader meaning shall apply. The term "Pre-existing Contamination" means concentrations of arsenic and lead existing in soil and groundwater at the Premises as of the Lease Commencement Date. (ii) TENANT'S COVENANTS. Tenant will not cause or permit the Premises or the Improvements to be in violation of, or do anything or permit anything to be done which subjects Landlord, Tenant or the Premises to any remedial obligations under or which creates a claim or cause of action under, any Applicable Environmental Laws, including, without limitation, CERCLA, RCRA, and the California Health and Safety Code Section 25501(j), assuming disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to the Premises and the Improvements, and Tenant will promptly notify Landlord in writing of any existing, pending or threatened investigation, claim or inquiry of which Tenant has knowledge by any governmental authority in connection with any Applicable Environmental Laws. Tenant shall obtain any permits, licenses or similar authorizations to construct, occupy, operate or use any Improvements, fixtures and equipment at any time located on the Premises by reason of any Applicable Environmental Laws. Tenant will not use the Premises or the Improvements in a manner which will result in the unlawful disposal or other unlawful release of any hazardous substance or solid waste on or to the Premises or the Improvements and covenants and agrees to keep or cause the Premises and the Improvements to be kept free of any unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (including, without limitation, friable asbestos and any substance containing asbestos deemed hazardous and unlawful by any Applicable Environmental Law) and to remove the unlawful amounts of the same (or if removal is prohibited by law, to take whatever action is required by law) promptly upon discovery at Tenant's sole expense. Tenant shall promptly notify Landlord in writing of any unlawful disposal or other unlawful release of any hazardous substance, environmental contaminants or solid wastes on or to the Premises or the Improvements. Landlord and Tenant acknowledge that Pre-existing Contamination exists at the Premises due to operations of prior owners and that Tenant has no further obligation to notify Landlord regarding such Pre-existing Contamination. Landlord acknowledges receipt of that certain Phase I Environmental Assessment and Phase II Soil and Groundwater Evaluation dated March 31, 1995 prepared by Lowney Associates ("Report"); provided that delivery of such Report shall in no way limit or modify Tenant's indemnity obligations pursuant to Section 8.1(b)(iii) hereof. Tenant acknowledges that Landlord will not acquire the Premises if any environmental contamination of the Premises in violation of applicable law, which contamination is not disclosed in the Report, occurs or is discovered before the Lease Commencement Date. In the event Tenant fails to comply with or perform any of the foregoing covenants and obligations, after thirty (30) days' prior written Notice to Tenant, Landlord may, but shall be under no obligation to, cause the Premises and the Improvements to be freed from the unlawful hazardous substance, 17. 23 unlawful solid waste or unlawful environmental contaminants (or if removal is prohibited by law, to take whatever action is required by law) and the reasonable cost of the removal or such other action shall be a demand obligation owing by Tenant to Landlord pursuant to this Lease; provided, however that this sentence shall not apply to Pre-existing Contamination. Notwithstanding the foregoing, Landlord shall have no right to cause the removal of such materials so long as Tenant both: (1) is diligently and in good faith proceeding to comply with Tenant's obligation to remove the unlawful amounts of such materials; and (2) has the financial ability to so comply. Subject to the foregoing, Tenant grants to Landlord and Landlord's agents and employees access to the Premises and the Improvements, and the license to remove the unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (or if removal is prohibited by law, to take whatever action is required by law) and agrees to indemnify, defend and save Landlord harmless from and against all reasonable costs and expenses involved and from all claims (including consequential damages) asserted or proven against Landlord by any party in connection therewith. Upon Landlord's reasonable request for "good cause" (defined below), at any time and from time to time during the Term, Tenant will provide at Tenant's sole expense an inspection or audit of the Premises and the Improvements from an engineering or consulting firm approved by Landlord, indicating the presence or absence of any hazardous substance, solid waste or environmental contaminants located on the Premises; provided, however that this provision shall not apply to Pre-existing Contamination. If Tenant fails to provide same after sixty (60) days' notice, Landlord may order same, and Tenant grants to Landlord and Landlord's employees and agents access to the Premises and the Improvements and a license to undertake any testing reasonably required to obtain such inspection or audit. The reasonable cost of obtaining such inspection or audit and any expenses incurred by Landlord in connection therewith, shall be a demand obligation owing by Tenant to Landlord pursuant to this Lease. For purposes of this Section 8.1(b)(ii), "good cause" shall mean that Landlord shall have reasonable grounds to believe that an unlawful release or unlawful disposal of hazardous substances or solid wastes has occurred on the Premises or the Improvements, but shall not include Pre-existing Contamination. (iii) TENANT'S INDEMNITY. Tenant agrees to indemnify, defend and hold Landlord harmless from and against, and to reimburse Landlord with respect to, any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses (including without limitation attorneys' fees and court costs), fines and/or penalties of any and every kind or character, known or unknown, fixed or contingent, asserted or potentially asserted against or incurred by Landlord at any time and from time to time by reason of, in connection with or arising out of (A) the failure of Tenant to perform any obligation herein required to be performed by Tenant regarding Applicable Environmental Laws, (B) any violation of any Applicable Environmental Law by Tenant or with respect to the Premises or the Improvements, or any disposal or 18. 24 other release by Tenant or with respect to the Premises or the Improvements of any hazardous substance, environmental contaminants or solid waste on or to the Premises or the Improvements, whether or not resulting in a violation of any Applicable Environmental Law, (C) any act, omission, event or circumstance by Tenant or with respect to the Premises or the Improvements which constitutes or has constituted a violation of any Applicable Environmental Law with respect to the Premises or the Improvements, regardless of whether the act, omission, event or circumstance constituted a violation of any Applicable Environmental Law at the time of its existence or occurrence, and (D) any and all claims or proceedings (whether brought by private party or governmental agencies) for bodily injury, property damage, abatement or remediation, environmental damage or impairment or any other injury or damage resulting from or relating to any hazardous or toxic substance or contaminated material located upon or migrating into, from or through the Premises or the Improvements (whether or not the release of such materials was caused by Tenant, a subtenant, a prior owner of the Premises or any other Entity) which Landlord may incur. Tenant's duty to indemnify Landlord under this Section 8.1 shall survive the expiration or earlier termination of the Lease with respect to events occurring during or prior to the Term or after the Term while Landlord has record title to and Tenant is occupying the Premises. 8.2 CONTEST OF LEGAL REQUIREMENTS. Tenant shall have the right at its sole cost and expense to contest the validity of any Legal Requirements applicable to the Premises by appropriate proceedings diligently conducted in good faith; and upon the request of Tenant and at Tenant's sole cost and expense, Landlord will join and cooperate with Tenant in such proceedings. Any other provision of this Lease (other than Section 6.3) to the contrary notwithstanding, Tenant's right to contest Legal Requirements must be exercised in such a manner as to avoid any exposure of the Premises or any part thereof to foreclosure or execution sale or exposure of Landlord to civil or criminal penalties arising from Tenant's non-compliance with such Legal Requirements. Tenant shall defend and indemnify Landlord against, and hold Landlord harmless from, any and all liability, loss, cost, damage, injury or expense (including, without limitation, attorneys' fees and costs) which Landlord may sustain or suffer by reason of Tenant's failure or delay in complying with, or Tenant's contest of, any such Legal Requirements (or Landlord's contest, if requested in writing by Tenant), and Tenant's duty to indemnify Landlord under this Section 8.2 shall survive the expiration or earlier termination of this Lease. 8.3 INDEMNIFICATION. Tenant will defend, protect, indemnify and save harmless Landlord from and against all liabilities, obligations, claims, damages, causes of action, costs and expenses, imposed upon or incurred by Landlord by reason of the occurrence or existence of any of the following during the Term, except to the extent caused by the willful misconduct, gross negligence, or willful breach of contract of Landlord or its agents 19. 25 or contractors: (1) any claims of Seller arising from the Purchase Agreement described in Section 4.1 (provided, that, without limitation of Tenant's indemnity obligations hereunder, Tenant's indemnity obligation under this Clause 1 shall apply notwithstanding a willful breach of the Purchase Agreement by Landlord if such breach is caused, directly or indirectly, by Tenant or any actions or failure to act by Tenant or as a result of Landlord's following Tenant's instructions with respect to the Purchase Agreement or in the event that Landlord is unable to obtain the UBS Loan); (2) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Premises or Improvements; (3) performance of any labor or services or the furnishing of any materials or other property in respect of the Premises or the Improvements; (4) the negligence or willful misconduct on the part of Tenant or any of its agents, invitees, employees or contractors or any other persons entering onto the Premises or the Improvements at the request, behest or with the permission of Tenant; (5) the construction, use or occupancy of the Improvements which Tenant may elect to construct; (6) the existence or application of any Legal Requirements with respect to the Premises or Improvements; or (7) the use of the Premises or Improvements. Tenant's duty to indemnify Landlord under this Section 8.3 shall survive the expiration or earlier termination of this Lease with respect to events occurring prior to the commencement of the Term, during the Term or after the Term while Landlord has record title to and Tenant is occupying the Premises. Notwithstanding anything to the contrary herein, Tenant's duty to indemnify Landlord pursuant to Clause 1 above shall apply only with respect to events or occurrences occurring prior to commencement of the Term. ARTICLE 9 UTILITIES AND SERVICES 9.1 SERVICES TO THE PREMISES. At Tenant's sole cost and expense, Tenant shall make its own arrangements for the provision of all utilities and services to be provided to or consumed on the Premises, including, without limitation, air conditioning, ventilation, heating, electric power, telephone, water (both domestic and fire protection), sanitary sewer, storm drain, natural gas and janitorial services, including for the installation, maintenance and repair of service lines and meters to measure Tenant's consumption of such utilities. ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES 10.1 TENANT OBLIGATIONS. Except as otherwise provided in this Lease, Tenant shall maintain the Premises in good repair, normal wear and tear, casualty and Takings (as defined in Section 15.1) excepted. All maintenance that Tenant is obligated to perform under this Section 10.1 shall be at the sole expense of Tenant, except to the extent that repairs are made necessary 20. 26 because of the gross negligence or willful misconduct of Landlord, its agents, employees or contractors. 10.2 SURRENDER OF THE PREMISES. Except as provided in Section 19, upon the expiration or earlier termination of the Term, Tenant shall surrender the Premises to Landlord in its then "AS-IS" condition, including, without limitation, any condition resulting from: (i) wear and tear; (ii) obsolescence and damage by fire or other casualty, act of God or the elements; (iii) damage that is beyond Tenant's reasonable control or is caused by Landlord, its agents, employees or contractors; (iv) any Improvements which Tenant may elect to construct (in compliance with the terms of this Lease) and leave on the Premises (subject to the rights of any other Entity in such Improvements); (v) Takings; and (vi) Tenant's alterations, additions, removals, repairs, replacements, or decorations in, to or of the Premises. Title to all Improvements, furniture, furnishings, fixtures, trade fixtures and personal property of Tenant located in or upon the Premises, whether or not affixed to the realty, shall be and remain in Tenant, and upon the expiration or earlier termination of this Lease, or within thirty (30) days thereafter (or as soon thereafter as reasonably practical), the same may be removed by Tenant, or, at Tenant's election, surrendered with the Premises, in which event title to such surrendered property shall, if Landlord so elects in Landlord's sole discretion, be deemed transferred to Landlord (subject to the rights of any other Entity in such Improvements). ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS AND COMMON AREA 11.1 TENANT'S RIGHTS TO CONSTRUCT IMPROVEMENTS. Tenant shall be under no obligation whatsoever to construct any Improvements. Tenant shall have the right, in Tenant's sole discretion, to construct Improvements which Tenant desires, subject only to the specific approvals required from Landlord pursuant to the terms of this Section 11.1. Notwithstanding anything to the contrary, without obtaining Landlord's approval, Tenant may perform work on the Premises which does not consist of the actual construction of above-ground buildings (for example, Tenant may perform grading, trenching and similar work, and may install and construct utilities, parking lots, driveways, roadways, foundations, and the like). (a) APPROVAL PLANS. Prior to commencing any actual construction of Improvements (except as otherwise permitted or already approved pursuant to this Section 11.1), Tenant's proposed site plans (showing the locations and orientations of any proposed buildings) and exterior shell plans (showing exterior building sections) (collectively, "Approval Plans") of any Improvements which Tenant may elect to construct shall be submitted to and approved by Landlord in accordance with the following (in each case to the extent applicable). Tenant shall deliver a letter to Landlord along with any submitted Approval Plans in which Tenant 21. 27 states that the submitted Approval Plans do not violate any Legal Requirements. Landlord may only withhold Landlord's approval to any such Approval Plans to the extent that the Approval Plans violate any material Legal Requirements, and Landlord may not withhold its consent on any other ground. At the option of Tenant, the foregoing documentation may be submitted to Landlord for approval in stages as Tenant completes it. Landlord shall have a period of ten (10) days from the date of receipt of each component of the documentation within which to approve or reject it. The Approval Plans, as approved from time to time by Landlord pursuant to this Section 11.1 shall constitute the "Authorized Plans." Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of any Approval Plans, provided that Landlord first gives Tenant a detailed written notice that it has reasonable grounds to believe that the Approval Plans violate material Legal Requirements, and Tenant fails either to revise such Approval Plans to comply with such material Legal Requirements or to provide reasonable evidence that the Approval Plans do not violate material Legal Requirements. Landlord's approval of any Authorized Plans does not constitute any representation or warranty by Landlord with respect to such Authorized Plans, and Landlord hereby specifically disclaims any such representations and warranties. (b) FURTHER APPROVALS; PROPOSED CHANGES. Subsequent to Landlord's approval of any Authorized Plans pursuant to Section 11.1(a), Tenant shall only be obligated to submit to Landlord for approval documentation showing any proposed material change to the Authorized Plans (but no approval shall be required with respect to construction or design matters that are not contained or addressed by the Authorized Plans), and only to the extent such change is materially inconsistent with the Authorized Plans. Landlord shall have a period of ten (10) days from receipt of each material change within which to approve or reject it. Landlord may only withhold Landlord's approval to any such change to the Authorized Plans to the extent that such change violates any material Legal Requirements, and Landlord may not withhold its consent on any other ground. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of any such changes, provided that Landlord first gives Tenant a detailed written notice that it has reasonable grounds to believe that the Approval Plans violate material Legal Requirements, and Tenant fails either to revise such Approval Plans to comply with such material Legal Requirements or to provide reasonable evidence that the Approval Plans do not violate material Legal Requirements. Tenant shall have the right, without further approval of Landlord, to construct Improvements not inconsistent with the Authorized Plans together with such changes thereto as may be requested or required to comply with Legal Requirements. (c) FAILURE TO DISAPPROVE. The failure by Landlord to disapprove any portion of the proposed Approval Plans submitted 22. 28 pursuant to this Section 11.1, or send Notice that it has grounds to believe the proposed Approval Plans violate a material Legal Requirement within the specified approval period shall be deemed to constitute approval thereof as submitted, and such Approval Plans shall thereupon become Authorized Plans. Any disapproval by Landlord of any portion of the proposed Approval Plans shall be in writing and shall specify with particularity the basis for the disapproval. (d) OTHER IMPROVEMENTS AND ALTERATIONS. At any time and from time to time, and without the necessity for obtaining Landlord's approval or giving Notice thereof to Landlord, Tenant shall have the right, at its expense, to make any Improvements, alterations, additions, repairs, replacements or decorations in, to or of the Premises which do not materially change the exterior design scope of the Improvements as previously approved by Landlord pursuant to any Authorized Plans. In constructing any Improvements, Tenant shall do so in a manner which does not violate any applicable and material Legal Requirements. 11.2 REQUIRED PERMITS, EASEMENTS, ETC. From time to time, upon request of Tenant, Landlord (as holder of record of title to the Land) shall execute such reasonable documents, petitions, applications and authorizations, easements and rights of way (which have been prepared at Tenant's expense) and shall appear at and participate in such public hearings, staff meetings and similar gatherings, in each case as may in the reasonable and good-faith opinion of Tenant be necessary or appropriate for the purpose of obtaining any Required Permits or private easements or rights of way or utility services for the Improvements or to remove any title encumbrances on the Land which may interfere with Tenant's construction of the Improvements. Tenant shall immediately reimburse Landlord on demand (or pay directly) for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 11.2. 11.3 DEMOLITION AND RECONSTRUCTION. At any time and from time to time, Tenant shall have the right to demolish or alter all or any portion of the then existing Improvements and construct additional Improvements in their place. The additional Improvements, if any, to be constructed shall be submitted to and approved by Landlord only to the extent required by Section 11.1, as applicable. 11.4 TITLE TO AND NATURE OF IMPROVEMENTS. Any and all Improvements of whatever nature at any time constructed, placed or maintained upon any part of the Land shall be and remain the property of Tenant, subject to Tenant's right to assign or sublease. The severance of fee title to the Land and Improvements shall not change the character of the Improvements as real property. 23. 29 ARTICLE 12 LIENS Except for claims that Tenant is contesting in good faith in such manner as to avoid any exposure of the Premises or any part thereof to foreclosure or execution sale, Tenant shall promptly pay and discharge all claims for work or labor done, supplies furnished or services rendered to the Premises, and shall keep the Premises free and clear of all mechanics' and materialmen's liens in connection therewith. ARTICLE 13 ASSIGNMENT BY LANDLORD 13.1 FURTHER MORTGAGES OR ENCUMBRANCES BY LANDLORD; AUTHORIZED LOANS. (a) PROHIBITION. Except for the Tenant Deed of Trust and as specifically permitted in Section 11.2, 13.1(b) or 20, Landlord shall not cause or create any mortgages, deeds of trust, encumbrances or other exceptions to title (collectively, "New Encumbrances") to exist with respect to the Premises at any time, and any such encumbrance not authorized in writing by Tenant shall be null and void. The term "New Encumbrances" shall also include any bonds or assessments affecting the Premises to which Landlord consents in writing without the prior written approval of Tenant (which may be withheld in Tenant's sole and absolute discretion). Without the prior written consent of Tenant (which may be withheld in Tenant's sole and absolute discretion), Landlord shall not make or join in an application or other document which requests or authorizes any bonds or assessments to affect the Premises. Landlord recognizes that any New Encumbrance may irreparably harm Tenant in connection with one or more of the following: (1) construction which Tenant may desire to perform; (2) the use of the Premises; (3) Tenant's rights pursuant to the Purchase Option in Section 19; (4) the amount of assessments which Tenant is required to pay; or (5) other matters. (b) AUTHORIZED LOAN. Tenant has approved the terms of the loan ("UBS Loan") to be made by UBS to SGA which shall be evidenced by that certain Tranche B Promissory Note dated as of the Lease Commencement Date by SGA in favor of UBS ("UBS Note"), and further evidenced and/or secured by (a) that certain General Terms and Conditions of Credit Arrangement between SGA and UBS, (b) that certain Additional Terms and Conditions between SGA and UBS, (c) that certain Pledge Agreement, as amended by Rider No. 1 thereto, made by Tenant in favor of UBS, and (d) certain documents (including, without limitation a promissory note and related documents) evidencing a loan ("SGA Loan") from SGA to Landlord in the principal amount of the UBS Note, all dated as of the Lease Commencement Date; provided, however, that Tenant, Landlord and SGA reserve the right to approve, in their sole discretion, the final form of all documents related to the UBS Loan. In addition, upon 24. 30 the maturity or prepayment of the UBS Loan (whether by its terms, by acceleration or otherwise), Landlord may (but, subject to the terms of Section 13.1(c), shall not be obligated to) enter into a new loan (such authorized loan shall be the "New Loan"), provided Landlord first obtains Tenant's written consent (which consent shall not be unreasonably withheld except with respect to the matters contained in clauses (i) through (v) below so long as: (i) the UBS Loan is paid off with the proceeds of such New Loan and all documents securing or reflecting the UBS Loan are assigned to the lender who makes the New Loan or are released and satisfied; (ii) the principal amount of the New Loan does not exceed the principal amount of the UBS Loan existing at the time the UBS Loan is repaid; (iii) the interest rate and payment provisions under the New Loan would not result in higher monthly payments than the method under the UBS Loan, and all such monthly payments shall be interest only; (iv) there are no prepayment prohibitions, penalties or other restrictions which would limit rights to retire the New Loan or require additional payment to do so; and (v) the New Loan documents do not contain terms and conditions which differ from the UBS Loan documents in any material respect, including provisions relating to the Collateral as defined in Section 21.18. The UBS Loan, the New Loan authorized pursuant to the preceding sentence and the Replacement Loan described in Section 13.1(c) below shall be the "Authorized Loan"; provided that only one Authorized Loan may exist at any one point in time. Landlord may not modify the terms of an Authorized Loan without the prior written consent of Tenant, which Tenant shall not unreasonably withhold (but may be withheld in Tenant's sole and absolute discretion based upon any of the matters identified in subitems (i) through (v) above in this Section 13.1(b)). (c) REPLACEMENT LOAN. Subject to Landlord's prior written consent (which consent shall not be unreasonably withheld or delayed), at the request of Tenant, Landlord shall execute and/or shall cause SGA to execute loan documents evidencing and/or securing a new loan to Landlord or SGA, the proceeds of which would be used to retire the UBS Loan (such loan requested by Tenant shall be a "Replacement Loan"). Landlord shall only be entitled to refuse to consent to such new loan if (1) the maturity date of the Replacement Loan is a date before the expiration date of the Extension Term; (2) the principal amount of the Replacement Loan exceeds the principal amount of the UBS Loan plus any accrued interest and fees payable at the time the UBS Loan is prepaid; (3) the interest rate structure under the Replacement Loan is materially higher than market conditions would justify at the time; (4) there are prepayment prohibitions, penalties or other restrictions which would limit rights to retire the Replacement Loan or require additional payment to do so; (5) the Replacement Loan creates greater liability for Landlord or SGA than otherwise would exist for Landlord and SGA, or would result in the violation of any law, rule or regulation applicable to Landlord or SGA, or (6) the Replacement Loan documents contain terms and conditions which differ from the UBS Loan documents in any material respect (including provisions relating to the Collateral as defined in 25. 31 Section 21.18); provided, however, that Landlord shall not be entitled to object to a Replacement Loan on the ground that Landlord, rather than SGA, shall be the borrower under such Replacement Loan. Tenant shall pay all reasonable costs, including without limitation reasonable attorneys' fees, incurred by Landlord in connection with obtaining such a Replacement Loan. If Tenant requests and provides the funds, Landlord shall make all arrangements necessary for, and shall pay down any Authorized Loan in the amount requested by Tenant, and shall arrange for all documentation reasonably requested by Tenant to reflect the reduction or elimination of such Authorized Loan. (d) On the Lease Commencement Date, Landlord shall execute, acknowledge, and cause to be recorded in the Official Records, a deed of trust in form acceptable to Tenant ("Tenant Deed of Trust"), which Tenant Deed of Trust shall secure Landlord's obligations under this Lease (i) to return the Security Deposit pursuant to the terms of this Lease, (ii) to convey the Premises to Tenant as required pursuant to Article 19 hereof, and (iii) to comply with Sections 20.4, 20.5 and 20.6. The Tenant Deed of Trust shall be a first priority lien against the Premises. 13.2 LANDLORD'S RIGHT TO SELL. Subject to Tenant's Purchase Option and the mandatory purchase set forth in Article 19 and the terms of Section 13.1 and Article 20, nothing contained in this Lease shall be deemed in any way to limit, restrict or otherwise affect the right of Landlord at any time and from time to time to sell or transfer all of its right, title and estate in the Premises to a Landlord Affiliate or, if an Event of Major Default has occurred and is continuing at the time of such sale or transfer, to any Entity, provided that such buyer or transferee shall concurrently assume without incurring personal liability except as expressly provided in this Lease, in writing, in a manner consistent with this Lease and in compliance with all requirements of the UBS Loan documents, all of Landlord's and/or SGA's obligations under the UBS Loan or any other Authorized Loan and the Landlord's obligations under this Lease. Notwithstanding anything to the contrary in this Lease, without the prior written consent of Tenant (which may be withheld in Tenant's sole discretion), in no event shall Landlord sell or transfer all or any portion of Landlord's right, title or estate in the Premises to any Entity which does not then comply with the requirements of Sections 20.4 and 20.5 if an Event of Major Default does not then exist at the time of such sale or transfer. Any sale or transfer by Landlord whatsoever shall by its express terms recognize and confirm the right of possession of Tenant to the Premises and Tenant's other rights arising out of this Lease shall not be affected or disturbed in any way by any such sale, transfer, assignment or conveyance. 13.3 TRANSFER OF FUNDS AND PROPERTY. At each time Landlord sells, assigns, transfers or conveys the entire right, title and estate of Landlord in the Premises and in this Lease, Landlord shall turn over to the transferee the Security Deposit and any other funds or other property then held by Landlord under this 26. 32 Lease and thereupon all the liabilities and obligations on the part of the Landlord under this Lease arising after the effective date of such sale, assignment, transfer or conveyance shall terminate as to the transferor and be binding upon the transferee. ARTICLE 14 ASSIGNMENT AND SUBLEASING 14.1 RIGHT TO ASSIGN. (a) TENANT'S RIGHT. Tenant shall have the right, at any time and from time to time during the Term, to assign all or any portion of its right, title and estate in the Premises and in this Lease without approval by Landlord. Any such assignee, immediate or remote, shall have the same right of assignment. Any such assignment shall be evidenced by a written instrument, properly executed and acknowledged by all parties thereto and, at Tenant's election, duly recorded in the Official Records, wherein and whereby the assignee assumes all of the obligations of Tenant under this Lease. Notwithstanding any such assignment and assumption or any sublease permitted under Section 14.2 hereof, Tenant shall remain primarily liable for all obligations and liabilities on the part of Tenant theretofore or thereafter arising under this Lease. (b) NOTICE. Tenant shall, promptly after execution of each assignment, notify Landlord of the name and mailing address of the assignee and shall, on demand, permit Landlord to examine and copy the assignment agreement. 14.2 RIGHT TO SUBLET. (a) TENANT'S RIGHT. Tenant shall have the right, at any time and from time to time during the Term, to sublet all or any portion of the Premises and to extend, modify or renew any sublease without the approval of Landlord. (b) NOTICE. Tenant shall, promptly after execution of each sublease, notify Landlord of the name and mailing address of the subtenant and shall, on demand, permit Landlord to examine and copy the sublease. (c) NON-DISTURBANCE AGREEMENT. Upon Tenant's request, Landlord shall enter into a "landlord agreement" with any subtenant of Tenant. Such agreement shall provide that Landlord shall recognize the sublease and not disturb the subtenant's possession thereunder so long as such subtenant shall not be in default under its sublease, and an Event of Major Default is not then in existence and continuing under this Lease. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 14.2(c). 27. 33 14.3 TENANT'S RIGHT TO MORTGAGE. (a) RIGHT OF TENANT. Tenant shall have the right from time to time and at any time, without obtaining the approval of Landlord, to mortgage, pledge or otherwise encumber all or any portion of the right, title and estate of Tenant in the Premises or in this Lease. (b) NOTICE. Tenant shall, promptly after execution of any Mortgage, notify Landlord of the name and mailing address of the Mortgagee thereunder and shall, on demand, permit Landlord to examine and copy the Mortgage. ARTICLE 15 EMINENT DOMAIN 15.1 TOTAL OR SUBSTANTIAL TAKING. If title or access is taken for any public or quasi-public use, or under any statute or by right of condemnation or eminent domain, or by sale in lieu thereof (a "Taking") with respect to all of the Premises, or if title to so much of the Premises or access thereto is Taken, or if the Premises or access thereto is damaged, blocked or impaired by the Taking, so that, in Tenant's sole discretion, the Premises or access thereto, even after a reasonable amount of reconstruction thereof, will no longer be suitable for Tenant's (and/or Tenant's subtenants') continued occupancy for the conduct of Tenant's (and/or Tenant's subtenants') business in a manner consistent with the conduct of such business prior to such Taking, then in any such event, this Lease shall terminate on the date of such Taking. 15.2 PARTIAL TAKING. If any part of the Premises, or access thereto, shall be Taken, and the Premises or the remaining part thereof and access thereto will be, in Tenant's sole discretion, suitable for Tenant's (and/or Tenant's subtenants') continued occupancy for the conduct of Tenant's (and/or Tenant's subtenants') business in a manner consistent with the conduct of such business prior to such Taking, all of the terms, covenants and conditions of this Lease shall continue, except that Base Rent shall be adjusted to reflect the decreased Funded Amount remaining after application thereto of the award made to Landlord for such Taking (subject to Section 15.3 below). 15.3 TEMPORARY TAKING. If the whole or any part of the Premises is Taken for temporary use or occupancy, this Lease shall not terminate by reason thereof and Tenant shall continue to pay, in the manner and at the times herein specified, the full amount of the Base Rent payable by Tenant hereunder, and, except only to the extent that Tenant may be prevented from so doing by reason of such Taking, Tenant shall continue to perform and observe all of the other terms, covenants and conditions hereof on the part of Tenant to be performed and observed, as though the Taking had not occurred. In the event of any such temporary Taking, Tenant shall be entitled to receive the entire amount of the award made for the 28. 34 Taking, whether paid by way of damages, rent or otherwise. If the temporary Taking is for a term in excess of thirty (30) days, then the Taking shall be treated as a permanent Taking and be governed by Section 15.1 or 15.2, as applicable. 15.4 DAMAGES. The compensation awarded or paid upon any Taking (other than a temporary Taking, which shall be governed by Section 15.3), whether awarded to Landlord, Tenant, or both of them, shall be distributed as set forth below (in each case the compensation or value shall be determined as of the date of the Taking): (a) to Landlord, any amounts payable on account of the value of the Land, but not to exceed an amount equal to the Funded Amount (or, if less than the entire Premises is Taken, not to exceed a pro rata portion of the Funded Amount equal to the ratio that the square footage of the portion of the Premises Taken bears to the square footage of the entire Premises prior to the Taking) plus all accrued Rent hereunder; and (b) to Tenant, any other award, or portion thereof, including any portion of the award above the Funded Amount (or the pro rata portion thereof) pursuant to Section 15.4(a)). Landlord shall promptly pay over to UBS or the holder of an Authorized Loan, as the case may be, any award (not exceeding, however, the Senior Funded Amount) paid to Landlord hereunder, and Tenant shall be entitled to establish reasonable security arrangements to ensure the prompt payment of such amounts to such holder. The Funded Amount shall be reduced on a dollar- for-dollar basis by the amount of any award required to be paid by Landlord to such holder of an Authorized Loan pursuant to the preceding sentence. 15.5 NOTICE AND EXECUTION. Immediately upon service of process upon Landlord or Tenant in connection with any Taking relating to the Premises or any portion thereof or access thereto, each party shall give the other Notice thereof. Each party agrees to execute and deliver to the other all instruments that may be required to effectuate the provisions of this Article 15. Tenant reserves the right to appear in and to contest any proceedings in connection with any such Taking. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 15.5. ARTICLE 16 DAMAGE OR DESTRUCTION 16.1 INSURED CASUALTY. If any Improvements are damaged or destroyed by fire or other casualty, this Lease shall continue in full force and effect without any abatement or reduction in Base Rent, and Tenant, at Tenant's election, may either (a) restore the 29. 35 Improvements to their condition prior to the damage or destruction, or such other condition as Tenant shall elect in its sole and absolute discretion, subject to Landlord's approval rights set forth in Section 11.1, or (b) not restore the Improvements, but perform, or cause to be performed, at Tenant's sole cost and expense, any work or service required by any Legal Requirement for the protection of persons or property from any risk, or for the abatement of any nuisance, created by or arising from the casualty or the damage or destruction caused thereby. 16.2 INSURANCE PROCEEDS. In the event of any fire or other casualty, the proceeds of any insurance policies maintained by Tenant shall be distributed to Tenant, and Landlord shall have no claim or right with respect thereto. ARTICLE 17 DEFAULT 17.1 DEFAULT. Each of the following events shall constitute a default ("Default") by Tenant: (a) DEFAULT OTHER THAN EVENT OF MAJOR DEFAULT. Tenant's failure to perform or comply with any of the terms, covenants or conditions contained in this Lease other than those referred to in Section 17.2, where such failure shall continue for a period of thirty (30) days after Notice thereof from Landlord to Tenant, or in the case of a failure which cannot with due diligence be cured within the period of thirty (30) days, Tenant's failure to proceed promptly and with due diligence to cure the failure and thereafter to prosecute the curing of the failure with all due diligence, it being intended that in connection with a failure not susceptible of being cured with due diligence within thirty (30) days, the time of Tenant within which to cure the failure shall be extended for such period as may be reasonably necessary to complete the cure with all due diligence; and (b) INSOLVENCY. Subject to Section 17.3, the occurrence of: (i) an assignment by Tenant for the benefit of creditors generally; or (ii) the filing of a voluntary or involuntary petition by or against Tenant under any present or future applicable federal, state or other statute or law having for its purpose the adjudication of Tenant as a bankrupt; (iii) the appointment of a receiver, liquidator or trustee for all or a substantial portion of the Premises by reason of the insolvency or alleged insolvency of Tenant; or (iv) the taking of possession by any department of city, county, state or federal government, or any officer thereof duly authorized, of all or a substantial portion of the Premises by reason of the insolvency or alleged insolvency of Tenant; and Tenant's failure to timely give any Notice it is permitted to give pursuant to Section 17.3 (or, in the event Tenant gives timely Notice and pursues a contest under Section 17.3, Tenant's failure to finally prevail in the contest). 30. 36 17.2 EVENT OF MAJOR DEFAULT. Each of the following events shall constitute an event of major default ("Event of Major Default") by Tenant: (a) FAILURE TO PAY BASE RENT. Tenant's failure to pay any Base Rent within five (5) days after Tenant's receipt of Notice thereof from Landlord that the Base Rent is past due; or (b) FAILURE TO PAY ADDITIONAL RENT. Tenant's failure to pay any Additional Rent which is due to Landlord within ten (10) days after Tenant's receipt of Notice thereof from Landlord that such Additional Rent is past due; (c) FAILURE TO COMPLY WITH PURCHASE OBLIGATION UNDER SECTION 19.2. Tenant's failure to comply with Tenant's obligation to purchase the Premises pursuant to Section 19.2 within twenty (20) days after Tenant's receipt of Notice thereof from Landlord that Tenant has so failed, except in the case of a purchase obligation arising on account of expiration of the Term of this Lease, in which case no such Notice shall be required; (d) FAILURE TO CARRY LIABILITY INSURANCE. Tenant's failure to carry the liability insurance required by Section 7.1, if such failure continues ten (10) days after Tenant's receipt of Notice thereof from Landlord that Tenant is not carrying such required liability insurance. 17.3 CONTEST BY TENANT. If upon the filing of any involuntary petition of the type described in Section 17.1(b) or upon the appointment of a receiver, other than a receiver appointed in any voluntary proceeding referred to in Section 17.1(b), or the taking of possession of all or a substantial portion of the Premises by any department of the city, county, state or federal government, or any officer thereof duly authorized, by reason of the alleged insolvency of Tenant without the consent or over the objection of Tenant, should Tenant desire to contest the same in good faith, Tenant shall, within ninety (90) days after the filing of the petition or after the appointment or taking of possession, give Notice to Landlord that Tenant proposes to make the contest, and the same shall not constitute a Default so long as Tenant shall prosecute the proceedings with due diligence and no part of the Premises shall be exposed to sale by reason of the continuance of the contest. 17.4 REMEDIES. Landlord shall have the remedies specified below, the parties hereby acknowledging that the remedies described in Section 17.4(b) may be exercised by Landlord only upon the occurrence of an Event of Major Default. Tenant shall at all times have the right to exercise and carry out the terms of the Purchase Option in Section 19.1, notwithstanding the occurrence or existence of any Default or Event of Major Default under this Lease, and Landlord shall have the obligation to comply with Landlord's obligations under Section 19.1 notwithstanding any Default or Event of Major Default. 31. 37 (a) CONTINUE LEASE. In connection with a Default or an Event of Major Default, Landlord shall have the right to enforce, by suit or otherwise, all other covenants and conditions hereof to be performed or complied with by Tenant and to exercise all other remedies permitted by Section 1951.4 of the California Civil Code, or any amendments thereof or any successor laws which replace such Section 1951.4. Landlord has the remedy described in California Civil Code Section 1951.4 (Landlord may continue the Lease in effect after Tenant's breach and abandonment and recover Base Rent as it becomes due, if Tenant has right to sublet or assign, subject only to reasonable limitation). Upon application by Landlord, a receiver may be appointed to take possession of the Premises and exercise all rights granted to Landlord as set forth in this Section 17.4(a); and (b) TERMINATE LEASE. In connection with an Event of Major Default (but not a Default), Landlord shall have the right to terminate this Lease, by giving Tenant Notice thereof, at any time after the occurrence of such Event of Major Default and whether or not Landlord has also exercised any right under Section 17.4(a). In such event, Tenant shall, within twenty (20) days after receipt of Notice from Landlord, purchase the Premises pursuant to Section 19.2. 17.5 NO WAIVER. No failure by Landlord or Tenant to insist upon the strict performance of any term, covenant or condition of this Lease or to exercise any right or remedy consequent upon a breach thereof and no acceptance of full or partial Rent during the continuance of any breach shall constitute a waiver of any such breach or of the term, covenant, or condition. No term, covenant or condition of this Lease to be performed or complied with by Tenant or Landlord, and no breach thereof, shall be waived, terminated, altered or modified except by a written instrument executed by Landlord and Tenant. No waiver of any breach shall affect or alter this Lease, but each and every term, covenant, and condition of this Lease shall continue in full force and effect with respect to any other then existing subsequent breach thereof. 17.6 EFFECT OF ASSIGNMENT. Notwithstanding an Entity's prior assignment or transfer of its interest as Tenant under this Lease, so long as Landlord has been given Notice of such assignment pursuant to Sections 14.1(b) and 21.3, Landlord shall give such Entity copies of all Notices required by this Article 17 in connection with any Default, and such Entity shall have the period granted hereunder to Tenant to cure such Default, unless such Entity shall have been released from all obligations arising under this Lease. Landlord may not assert any rights against such Entity in the absence of such Notice and opportunity to cure, so long as Landlord has been given Notice of such assignment pursuant to Sections 14.1(b) and 21.3. 17.7 LANDLORD CURE RIGHT. If Tenant fails to perform any covenant or agreement to be performed by Tenant under this 32. 38 Lease, and if the failure or default continues for thirty (30) days after Notice to Tenant and to any Mortgagee who has requested in writing notice thereof from Landlord (except for emergencies and except for payment of any lien or encumbrance threatening the imminent sale of the Premises or any portion thereof, in which case payment or cure may be made as soon as necessary to minimize the damage to person or property caused by such emergency or to prevent any such sale), Landlord may, but shall have no obligation to, pay the same and cure such default on behalf of and at the expense of Tenant and do all reasonably necessary work and make all reasonably necessary payments in connection therewith including, but not limited to, the payment of reasonable attorneys' fees and disbursements incurred by Landlord. Notwithstanding the foregoing, Landlord shall have no right to cure any such failure to perform by Tenant so long as Tenant both: (1) is diligently and in good faith attempting to cure such matter; and (2) has the financial ability to so comply. Notwithstanding anything to the contrary in this Lease, in no event shall Landlord have a right to cure any matters relating to the Improvements unless such matter constitutes a crime by Landlord and subjects Landlord to criminal penalties (except as specifically permitted in Section 8.1(b)). Upon demand, Tenant shall reimburse Landlord for the reasonable amount so paid, together with interest at the Lease Rate from the date incurred until the date repaid. Tenant shall defend, indemnify, and hold Landlord harmless from and against any and all losses, costs, expenses, liabilities, claims, causes of action and damages of all kinds that may result to Landlord, including reasonable attorneys' fees and disbursements incurred by Landlord, arising because of any failure by Tenant to perform any of its obligations under this Lease. Tenant's duty to indemnify Landlord under this Section 17.7 shall survive the expiration or earlier termination of this Lease. 17.8 LANDLORD'S DEFAULT. (a) General. If Landlord fails to perform any covenant or agreement to be performed by Landlord under Article 11, Section 13.1, Section 15.4, Article 20, or Section 21.10 of this Lease (including, but not limited to, Landlord's failure to keep the Premises free of any and all liens created by or through Landlord except as approved by Tenant in writing), and if the failure or default continues for thirty (30) days after Notice to Landlord and to any Fee Mortgagee who has requested in writing notice thereof from Tenant (except for (i) emergencies, or (ii) payment of any lien or encumbrance threatening the imminent sale of the Premises or any portion thereof, in which case payment or cure may be made as soon as necessary to minimize the damage to person or property caused by such emergency or to prevent any such sale), Tenant may, but shall have no obligation to, pay the same and cure such default on behalf of and, so long as such failure to perform arises due to Landlord's gross negligence, willful misconduct, or willful breach of this Lease, at the expense of Landlord and do all reasonably necessary work and make all reasonably necessary payments in connection therewith including, but not limited to, the payment of reasonable attorneys' fees and 33. 39 disbursements incurred by Tenant. Notwithstanding the foregoing, Tenant shall have no right to cure any such failure to perform by Landlord so long as Landlord both: (1) is diligently and in good faith attempting to cure such matter; and (2) has the financial ability to so comply. To the extent that Landlord's failure to perform arises due to its gross negligence, willful misconduct or willful breach of this Lease, upon demand, Landlord shall reimburse Tenant for the reasonable amount so paid, together with interest at the Lease Rate from the date incurred until the date repaid. To the extent that Landlord's failure to perform arises due to its gross negligence, willful misconduct or willful breach of this Lease, Landlord shall defend, protect, indemnify, and hold Tenant harmless from and against any and all losses, costs, expenses, liabilities, claims, causes of action and damages of all kinds that may result to Tenant, including reasonable attorneys' fees and disbursements incurred by Tenant, arising because of any failure by Landlord to perform any of its obligations under Article 11, Section 13.1, Section 15.4, Article 20 or Section 21.10 of this Lease. Landlord's duty to indemnify Tenant under this Section 17.8 shall survive the expiration or earlier termination of this Lease. (b) Default Under Certain Provisions. Notwithstanding anything to the contrary in Section (a) above, in the event of a default by Landlord under Section 20.6, Tenant shall have the right to cure such default on behalf of and at Landlord's expense, without prior notice to Landlord. In addition, in the event of any default by Landlord under Section 20.4, 20.5 or 20.6, Tenant shall have the right to exercise its Purchase Option pursuant to Section 19.1 hereof, and to offset against the Purchase Price the amount of all losses and reasonable costs and expenses (including without limitation reasonable attorneys' fees) incurred by Tenant arising from such default by Landlord, including without limitation all losses arising by reason of Tenant's inability to treat the transactions contemplated by this Lease as an operating lease for financial accounting and securities regulatory purposes, and all costs and expenses incurred in connection with negotiating and entering into a new lease upon exercise of the Purchase Option. ARTICLE 18 QUIET ENJOYMENT 18.1 QUIET ENJOYMENT. Landlord covenants to secure to Tenant the quiet possession of the Premises for the full Term against all persons claiming the same, subject to Landlord's rights and remedies under Section 17 upon a Default or an Event of Major Default by Tenant. The existence of any Permitted Exceptions shall not be deemed to constitute a breach of Landlord's obligations hereunder. Tenant shall, immediately upon demand, reimburse Landlord for all reasonable costs, expenses and damages incurred or paid by Landlord in the performance of Landlord's obligations under this Article 18 (except for any costs, expenses or damages arising from Landlord's willful breach of this Lease). 34. 40 ARTICLE 19 TENANT'S OPTION TO PURCHASE 19.1 OPTION TO PURCHASE PREMISES. (a) PURCHASE OPTION. Tenant shall have the option ("Purchase Option") to purchase all or part of the Premises at any time during the Term; provided that Tenant shall be entitled to purchase less than all of the Premises only if the portion being purchased is released from any existing Fee Mortgage and if the portion of the Premises not purchased shall constitute one or more legal lots after closing of the purchase and shall be reasonably viable as a separate property. The purchase price ("Purchase Price") for the portion of the Premises which Tenant elects to purchase shall be (i) the then-existing Funded Amount applicable to the portion of the Premises which Tenant elects to purchase (determined in a pro rata basis on the basis of the area being purchased), as the same may be reduced from time to time, plus (ii) the amount of any prepayment premium and all other fees, costs, and expenses due to any holder of an Authorized Loan in connection with such loan (to the extent not already paid pursuant to Section 21.21 hereof), less (iii) the amount of the Security Deposit (or, in the event of a purchase of a portion of the Premises, a pro rata portion of the Security Deposit). Tenant shall be entitled to a credit against the Purchase Price equal to the principal balance(s) of any Authorized Loan and/or Fee Mortgage existing immediately prior to the closing under this Purchase Option if such Authorized Loan and/or Fee Mortgage are not fully repaid and all documents reflecting the same are not cancelled and removed from the public records on or prior to the closing under this Purchase Option. If Tenant purchases less than all of the then- existing Premises, then the credit pursuant to the preceding sentence shall be calculated on a pro rata basis, based upon the ratio of the area of the Premises being purchased compared to the area of the then-existing Premises. In lieu of payment of the Purchase Price, Tenant shall have the right (1) to assume the UBS Loan or any other Authorized Loan or (2) to cause Landlord to assign the Authorized Loan to a third party acceptable to the holder of such Authorized Loan (which third party shall expressly assume such obligations in writing), provided that Landlord is released from all obligations under the Authorized Loan. Landlord shall execute any and all documents necessary to effect such assumption and assignment upon Tenant's request, provided that Tenant shall reimburse Landlord for all reasonable costs and expenses related thereto. Notwithstanding anything to the contrary herein, the Purchase Price shall not include any interest, fees, late charges or any other costs or expenses incurred or charged to Landlord or Tenant by reason of a default by Landlord under Section 20.6 hereof. (b) PURCHASE OPTION EXERCISE NOTICE. If Tenant desires to exercise the Purchase Option, Tenant shall deliver to Landlord a written notice ("Purchase Option Exercise Notice") of Tenant's election; provided, however, that in the event of an 35. 41 assignment by Landlord for the benefit of creditors generally, the filing of a voluntary or involuntary bankruptcy petition by or against Landlord or the appointment of a receiver, liquidator or trustee for all or a substantial portion of the Premises by reason of Landlord's insolvency or alleged insolvency, the Purchase Option shall be deemed exercised with respect to the entire Premises as of the calendar day immediately preceding such assignment, filing or appointment. (c) TRANSFER. If Tenant exercises the Purchase Option, the purchase and sale of the Premises being purchased shall be consummated as follows. In the event of a purchase of a portion of the Premises, the term "Premises" as used in this Section 19.1(c) shall be deemed to mean that portion of the Premises then to be purchased pursuant to the Purchase Option. (i) Landlord shall grant and convey the Premises to Tenant, its authorized agent or assignee, pursuant to a duly executed and acknowledged grant deed ("Grant Deed"), free and clear of all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and restrictive covenants or conditions, except for the Permitted Exceptions. Landlord shall assign and Tenant shall assume all rights, duties and obligations under the Legal Requirements affecting the Premises, effective as of the date of recordation of the Grant Deed; (ii) The Purchase Price shall be paid upon delivery of the Grant Deed and any other documents reasonably requested by Tenant to evidence the transfer of the Premises or to release all liens of Landlord, including, without limitation, any and all reconveyances of mortgages or other recorded documents as requested by Tenant ("Additional Documents"). In the event that Tenant elects to assign the Purchase Option pursuant to Section 19.1(d) below, and Tenant's assignee pays an amount less than the Purchase Price for the Premises, Tenant shall pay to Landlord any excess of the Purchase Price over the amount paid by such assignee. Landlord shall deliver the Grant Deed and the Additional Documents to Tenant on the date for closing specified by Tenant in the Purchase Option Exercise Notice (which date shall be no sooner than ten (10) days after the date of the Purchase Option Exercise Notice and no later than the last day of the Term, as the same may be extended). The closing shall take place at the location and in the manner reasonably set forth by Tenant in the Purchase Option Exercise Notice; (iii) If Landlord shall fail to cause title to be in the condition required in Section 19.1(c)(i) above within the time herein prescribed for the delivery of the Grant Deed, then Tenant shall have the right, in addition to all other rights provided by law, by a written notice to Landlord: (1) to extend the time in which Landlord shall clear title and deliver the Grant Deed and Additional Documents, during which extension this Lease shall remain in full force and effect, except Tenant shall be released from its obligation to pay Base Rent during the extension; (2) to 36. 42 accept delivery of the Grant Deed and Additional Documents subject to such title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and restrictive covenants or conditions specified and set forth in the Grant Deed and not cleared by Landlord (but without waiving any rights or remedies available to Tenant on account of such title exceptions); (3) to rescind, by notice to Landlord and without any penalty or liability therefor, any and all obligations Tenant may have under and by virtue of the Purchase Option or the exercise thereof, whereupon this Lease shall remain in full force and effect; (4) if the title exception is curable by the payment of money, Tenant may make such payment and such payment shall be a credit against the Purchase Price in favor of Tenant. (iv) Refusal of a title company to issue a standard form of owner's title insurance policy insuring title to the Premises in the condition specified in subparagraph (c)(i) shall be sufficient evidence of Landlord's failure to convey clear title and shall entitle Tenant to exercise any of the rights specified in subparagraph (c)(iii). (v) Base Rent shall be prorated and paid and all unpaid Additional Rent shall be paid as of the date title to the Premises is vested of record in Tenant. Tenant shall pay the escrow fees; the recorder's fee for recording the Grant Deed; the premium for the title insurance policy; all documentary transfer taxes; Tenant's attorneys' fees; Landlord's reasonable attorneys' fees; all other costs and expenses incurred by Tenant in consummating the transfer of the Premises; and all reasonable expenses (except as specified in the next sentence) incurred by Landlord in consummating the transfer of the Premises pursuant to this Section 19.1. Landlord shall pay the costs and expenses of clearing title as required by Section 19.1(c)(i). In the event of a purchase by Tenant under this Article 19, Landlord shall have no obligation to return the Security Deposit to Tenant to the extent the Security Deposit has been credited against the purchase price to be paid by Tenant pursuant to Section 19.1(a). (d) ASSIGNMENT. Tenant shall have the right on one or more occasions, without Landlord's consent, to assign this purchase option, in whole or in part, to any Entity at any time, whether or not Tenant also assigns its interest in the Lease. Tenant shall give prior written notice to Landlord of any such assignment. 19.2 MANDATORY PURCHASE/SALE OF PREMISES. Notwithstanding anything to the contrary herein, upon either: (1) expiration of the Term of this Lease or upon the occurrence of any other event terminating this Lease; or (2) the occurrence of any event which causes the Funded Amount to be reduced to zero (0), within thirty (30) days after Tenant's receipt of written notice of the foregoing and of Tenant's purchase obligation under this Section 19.2, Tenant shall purchase or cause another Entity to purchase, and Landlord shall sell, the Premises in the same manner 37. 43 as if Tenant had exercised the Purchase Option on such date. The Purchase Price shall be the same as if Tenant had exercised the Purchase Option, without regard to the physical state or condition of the Premises or any Improvements (but Tenant shall have the rights set forth in Section 19.1, including without limitation, the terms of Sections 19.1(c)(iii) and (iv)). In the event Tenant fails to purchase (or cause another Entity to purchase) the Premises pursuant to its obligation under this Section 19.2, Landlord (to the extent required under Section 21.19) shall sell the Premises to an unrelated third party and, as applicable, (i) Tenant shall be obligated to pay to Landlord, immediately upon demand, any excess of the Purchase Price over the amount realized by Landlord in connection with such sale, or (ii) Landlord shall be obligated to pay to Tenant, immediately upon demand, any excess of the amount realized by Landlord in connection with such sale over the Purchase Price. For purposes of the preceding sentence, the amount realized by Landlord upon a sale of the Premises shall be net of Landlord's reasonable sale expenses and other expenses incurred by Landlord but required to be paid by Tenant pursuant to Section 19.1(c)(v). Landlord's obligation to pay such excess to Tenant shall survive any termination of this Lease. Notwithstanding anything set forth elsewhere herein, if Tenant fails to timely comply with Tenant's obligation to purchase the Premises pursuant to this Section 19.2, upon ten (10) days' prior written Notice, then so long as title is in the condition required by Section 19.1(c)(i), Landlord may transfer title to the Premises to Tenant by way of the Grant Deed described in Section 19.1(c)(i), and Tenant shall accept such Grant Deed and promptly and properly file the same of record. Notwithstanding anything to the contrary in this Lease, in the event of default, breach or violation by Tenant of any of Tenant's obligations under this Section 19.2, Tenant shall have no liability to Landlord or any other party in excess of an amount equal to the then-existing Guaranteed Residual Value, less a credit equal to the sum of (a) any of the Collateral which UBS or any other holder of an Authorized Loan has used, applied, or otherwise come into possession of, plus (b) any of the Security Deposit retained by Landlord, and Landlord shall have no recourse, claim or counterclaim whatsoever against Tenant in excess of such amount on account of such default, breach or violation. If the Guaranteed Residual Value has not previously been determined as of the date Tenant's liability under this Section 19.2 has been established, then the Guaranteed Residual Value shall be determined as of the date Tenant's liability hereunder is established. 19.3 SURVIVAL. The obligations of Landlord and Tenant under this Article 19 shall survive the expiration or earlier termination of this Lease. ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD 20.1 TITLE. In the event Tenant so requests in writing (and so long as either Tenant agrees to indemnify Landlord from any 38. 44 liabilities or obligations in connection therewith, or Landlord does not incur any liabilities or obligations in connection therewith), Landlord shall execute all documents, instruments and agreements reasonably requested by Tenant in order to accomplish any of the following in the manner reasonably requested by Tenant and within the time parameters reasonably requested by Tenant: (1) remove exceptions to title to or affecting the Premises; (2) create exceptions to title (including, without limitation, easements and rights of way) to or affecting the Premises (but not including any Mortgage); (3) modify any then-existing exception to title or (4) subdivide the Premises into two or more separate parcels. Tenant shall promptly reimburse Landlord for, or at Landlord's request, pay directly in advance, all reasonable costs, expenses and other amounts incurred or required to be expended by Landlord in order to comply with Tenant's requests made in accordance with the preceding sentence, and the failure of Tenant to reimburse or pay any such amounts shall result in the suspension of Landlord's obligations under such sentence with respect to that particular request until the amounts required to be paid by Tenant under this sentence have been paid. Landlord acknowledges that it is critical to Tenant's ability to construct improvements on the Premises to have the ability and flexibility to accomplish the foregoing, and that the parties therefore agree that Landlord shall not be entitled to withhold Landlord's consent to any of the foregoing requests by Tenant, except as set forth in the preceding sentence. 20.2 LAND USE. Except where requested by Tenant pursuant to this Section 20.2, Landlord shall not cause or give its written consent to any land use or zoning change affecting the Premises or any changes of street grade. In the event Tenant so requests in writing (and so long as either Tenant agrees to indemnify Landlord from any liabilities or obligations in connection therewith, or Landlord does not incur any liabilities or obligations in connection therewith), Landlord shall execute all documents, instruments and agreements reasonably requested by Tenant in order to accomplish any of the following in the manner reasonably requested by Tenant and within the time parameters reasonably requested by Tenant: (1) cause a change in any land use restriction or law affecting the Premises; (2) cause a change in the zoning affecting the Premises; or (3) cause a change in the street grade with respect to any street in the vicinity of the Premises. Tenant shall promptly reimburse Landlord for, or at Landlord's request, pay directly in advance, all reasonable costs, expenses and other amounts incurred or required to be expended by Landlord in order to comply with Tenant's requests made in accordance with the preceding sentence, and the failure of Tenant to reimburse or pay any such amounts shall result in the suspension of Landlord's obligations under such sentence with respect to that particular request until the amounts required to be paid by Tenant under this sentence have been paid. Landlord acknowledges that it is critical to Tenant's ability to construct improvements on the Premises to have the ability and flexibility to accomplish the foregoing, and that the parties therefore agree that Landlord shall 39. 45 not be entitled to withhold Landlord's request to any of the foregoing requests by Tenant. 20.3 TRANSFER OF PROPERTY INTERESTS. Except as requested by Tenant pursuant to Section 11.2 or 20.1, Landlord shall not transfer to any third party any rights inuring to or benefits associated with the Premises (including, without limitation, zoning rights, development rights, air space rights, mineral, oil, gas or water rights). Nothing in this Section 20.3 shall limit Landlord's rights pursuant to Section 13.2; provided that any purchaser of Landlord's interest in the Premises shall be bound by the terms of this Lease, including without limitation, the terms of this Section 20.3. 20.4 SHAREHOLDER EQUITY; NO OTHER ASSET. Landlord covenants and agrees that during the Term of the Lease, Landlord shall maintain a shareholder equity balance of not less than three percent (3%) of its total assets, including without limitation, the Property. In addition, Landlord shall not, without the prior written consent of Tenant, which consent may be withheld at Tenant's sole discretion, acquire any significant assets other than (i) the Premises, (ii) any Improvements to be built on the Premises, and (iii) the land and any Improvements thereon, which is subject to those certain Ground Leases between Landlord and Tenant, which land is described on Exhibit F attached hereto. 20.5 RECOURSE OBLIGATIONS. Landlord agrees that during the Term of this Lease, Landlord will not incur any indebtedness for borrowed money or any other material obligations to which the holder or obligee thereof has recourse against Landlord to satisfy the same without Tenant's prior written consent, which consent Tenant may withhold in its sole discretion. 20.6 DEFAULT UNDER AUTHORIZED LOAN. Landlord shall not, without Tenant's express prior written consent, default under any Authorized Loan, or any loan documents relating to such Authorized Loan, where such default is not caused, directly or indirectly by a breach of any of Tenant's obligations under this Lease, under the Pledge Agreement securing the UBS Loan or under any documents relating to any Authorized Loan. ARTICLE 21 MISCELLANEOUS 21.1 RELATIONSHIP. Neither this Lease nor any agreements or transactions contemplated hereby shall in any respect be interpreted, deemed or construed as constituting Landlord and Tenant as partners or joint venturers, one with the other, or as creating any lender/borrower, partnership, joint venture, association or, except as set forth in Section 21.2 below, any other relationship other than that of landlord and tenant; and, except as set forth in Section 21.2 below, both Landlord and Tenant agree not to make any contrary assertion, contention, claim or 40. 46 counterclaim in any action, suit or other legal proceeding involving either Landlord or Tenant or the subject matter of this Lease. 21.2 FORM OF TRANSACTION; CERTAIN TAX MATTERS. (a) Landlord and Tenant hereby agree and declare that the transactions contemplated by this Lease are intended to constitute, both as to matters of form and substance: (i) an operating lease for financial accounting and securities regulatory purposes, and (ii) a financing arrangement (and not a "true lease") for Federal, state and local income tax purposes. Accordingly, and notwithstanding any other provision of this Lease to the contrary, Landlord and Tenant agree and declare that (A) the transactions contemplated hereby are intended to have a dual, rather than single, form and (B) all references in this Lease to the "Lease" of the Premises which fail to reference such dual form do so as a matter of convenience only and do not reflect the intent of Landlord and Tenant as to the true form of such arrangements. (b) Landlord and Tenant agree that, in accordance with their intentions and the substance of the transactions contemplated hereby, Tenant (and not Landlord) shall be treated as the owner of the Premises for Federal, state, and local income tax purposes and this Lease shall be treated as a financing arrangement. Tenant shall be entitled to take any deduction, credit allowance or other reporting, filing or other tax position consistent with such characterizations. Landlord and Tenant shall not file any Federal, state or local income tax returns, reports or other statements, or take any other actions, in a manner which is inconsistent with the foregoing provisions of this Section 21.2. (c) Each party acknowledges that it has retained accounting, tax and legal advisors to assist it in structuring this Lease and neither party is relying on any representations of the other regarding the proper treatment of this transaction for accounting, income tax or any other purpose. Nothing in this Section 21.2(c) shall increase or diminish any liability or obligation of the parties that otherwise exists pursuant to this Lease. 21.3 NOTICES. Each Notice shall be in writing and shall be sent by personal delivery, overnight courier (charges prepaid or billed to the sender) or by the deposit of such with the United States Postal Service, or any official successor thereto, designated as registered or certified mail, return receipt requested, bearing adequate postage and in each case addressed as provided in the Basic Lease Provisions. Each Notice shall be effective upon being personally delivered or actually received. The time period in which a response to any such Notice must be 41. 47 given or any action taken with respect thereto shall commence to run from the date of personal delivery or receipt of the Notice by the addressee thereof, as reflected on the return receipt of the Notice. Rejection or other refusal to accept shall be deemed to be receipt of the Notice sent. By giving to the other party at least thirty (30) days' prior Notice thereof, either party to this Lease (as well as any Mortgagee) shall have the right from time to time during the Term of this Lease to change the address(es) thereof and to specify as the address(es) thereof any other address(es) within the continental United States of America. 21.4 SEVERABILITY OF PROVISIONS. If any term, covenant or condition of this Lease, or the application thereof to any Entity or circumstance, shall be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to Entities or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby. 21.5 ENTIRE AGREEMENT; AMENDMENT. This Lease and other documents expressly referred to herein constitute the entire agreement of Landlord and Tenant with respect to the subject matter hereof. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. 21.6 APPROVALS AND CONSENTS. Except as expressly provided in this Lease, whenever any provision of this Lease requires an approval or consent to be given by one of the parties hereto, the approval or consent shall not be unreasonably withheld or delayed. Whenever this Lease grants either party the right to take action, exercise discretion, establish rules and regulations, or make an allocation or other determination, except as otherwise provided, such party shall act reasonably and in good faith and take no action which might result in the frustration of the other party's reasonable expectations concerning the benefits to be enjoyed under this Lease. If either party withholds its consent or approval, unless by the express terms of this Lease such consent or approval may be withheld in such party's sole discretion, such party shall, upon request, promptly deliver to the other party a written statement specifying in detail the reason or reasons why such consent or approval was withheld or refused. If neither approval nor rejection is given by Landlord within the time specified in Article 11 as to any particular approval requested by Tenant under Article 11 (or, if no such time is specified, then within thirty (30) days after request for approval is given by a Notice), then the approval thus specifically requested in writing by Tenant shall be conclusively and irrevocably deemed to have been given by Landlord. 21.7 TERMINOLOGY. All personal pronouns used in this Lease shall include all other genders. The singular shall include the plural and the plural shall include the singular. Titles of 42. 48 Articles, Sections and Subsections in this Lease are for convenience only and neither limit nor amplify the provisions of this Lease, and all references in this Lease to Articles, Sections or Subsections shall refer to the corresponding Article, Section or Subsection of this Lease unless specific reference is made to the articles, sections or other subdivisions of another document or instrument. The word "days" as used herein shall mean calendar days unless otherwise expressly stated. 21.8 MEMORANDUM OF LEASE. Neither party shall record this Lease. However, concurrently with the execution of this Lease, Landlord and Tenant have executed a Memorandum of Lease in the form attached hereto as Exhibit C and by this reference made a part hereof, which Memorandum of Lease shall be promptly recorded in the Official Records. 21.9 SUCCESSORS AND ASSIGNS. Subject to Articles 13 and 14, this Lease shall inure to the benefit of and be binding upon Landlord and Tenant and their respective heirs, executors, legal representatives, successors and assigns. Whenever in this Lease a reference to any Entity is made, such reference shall be deemed to include a reference to the heirs, executors, legal representatives, successors and assigns of such Entity. 21.10 COMMISSIONS. Landlord and Tenant each represent and warrant that neither has dealt with any broker in connection with this transaction and that no real estate broker, salesperson or finder has the right to claim a real estate brokerage, salesperson's commission or finder's fee by reason of contact between the parties brought about by such broker, salesperson or finder. Each party shall hold and save the other harmless of and from any and all loss, cost, damage, injury or expense arising out of or in any way related to claims for real estate broker's or salesperson's commissions or fees based upon allegations made by the claimant that it is entitled to such a fee from the indemnified party arising out of contact with the indemnifying party or alleged introductions of the indemnifying party to the indemnified party. 21.11 ATTORNEYS' FEES. In the event any action is brought by Landlord or Tenant against the other to enforce or for the breach of any of the terms, covenants or conditions contained in this Lease, the prevailing party shall be entitled to recover reasonable attorneys' fees to be fixed by the court, together with costs of suit therein incurred. Tenant shall pay the reasonable attorneys' fees incurred by Landlord for the review and negotiation of this Lease and the UBS Loan documents. 21.12 GOVERNING LAW. This Lease and the obligations of the parties hereunder shall be governed by and interpreted, construed and enforced in accordance with the laws of the State of California. 21.13 COUNTERPARTS. This Lease may be executed in any number of counterparts, each of which shall be deemed to be an 43. 49 original and all of which together shall comprise but a single instrument. 21.14 TIME IS OF THE ESSENCE. Time is of the essence of this Lease, and of each provision hereof. 21.15 NO THIRD PARTY BENEFICIARIES. This Lease is entered into by Landlord and Tenant for the sole benefit of Landlord and Tenant. There are no third party beneficiaries to this Lease. 21.16 NO RECOURSE. The obligations of Tenant and Landlord (including, without limitation, the obligations of Landlord with respect to the Identified Matters set forth below) under this Lease shall be without recourse to any partner, officer, trustee, beneficiary, shareholder, director or employee of Tenant or Landlord. There shall be no limitation on Landlord's liability with respect to any willful misconduct, bad faith breach of this Lease, gross negligence by Landlord, or any breach by Landlord of its obligations with respect to Sections 20.4, 20.5 or 20.6 ("Identified Matters"). Except for Identified Matters, Landlord's liability to Tenant for any default by Landlord under this Lease is limited to Landlord's interest in the Premises, and Tenant agrees to look solely to Landlord's interest therein for the recovery of any judgment against Landlord, it being intended that neither Landlord nor any of its shareholders, employees, agents, representatives, affiliates, officers or directors shall be personally liable for any judgment or deficiency. 21.17 ESTOPPEL CERTIFICATES. Within thirty (30) days after request therefor by either party, the non- requesting party shall deliver, in recordable form, a certificate to any proposed mortgagee, purchaser, sublessee or assignee and to the requesting party, certifying (if such be the case) that this Lease is in full force and effect, the date of Tenant's most recent payment of Rent, that, to the best of its knowledge, the non-requesting party has no defenses or offsets outstanding, or stating those claimed, and any other information reasonably requested. Failure to deliver said statement in time shall be conclusive upon the non-requesting party that: (a) this Lease is in full force and effect, without modification except as may be represented by the requesting party; (b) there are no uncured defaults in the requesting party's performance and the non-requesting party has no right of offset, counterclaim or deduction against the non-requesting party's obligations hereunder; (c) no more than one month's Base Rent has been paid in advance; and (d) any other matters reasonably requested in such certificate. 21.18 COLLATERAL. The parties acknowledge that Tenant has pledged certain collateral ("Collateral") to UBS to secure SGA's obligations under the terms of the UBS Note. If the holder of an Authorized Loan applies any of the Collateral to satisfy an obligation under any Authorized Loan documents, such application shall be deemed to reduce the Senior Funded Amount under this Lease 44. 50 on a dollar-for-dollar basis. Tenant shall have no claims, rights or causes of action against Landlord arising from any application of the Collateral to satisfy an obligation under the Authorized Loan documents; provided, however, that nothing herein shall release Landlord from any claims, rights or causes of action of Tenant for any breach of this Lease by Landlord or any default by Landlord under any documents relating to an Authorized Loan, which default does not arise, directly or indirectly from or as a result of any default by Tenant of its obligations under the Lease. 21.19 LANDLORD'S CONTINUING OBLIGATION TO SELL. Notwithstanding anything to the contrary herein, in the event Landlord obtains possession of the Premises pursuant to the terms of this Lease (including, without limitation, upon the expiration or earlier termination of this Lease where Tenant has defaulted in its obligation to purchase the Premises pursuant to Section 19.2), Landlord shall be under a continuing obligation to use its commercially reasonable efforts to sell the Premises to Tenant or to one or more unrelated third parties; provided, however, that Landlord shall not be required to sell or attempt to sell any portion of the Premises (i) in a manner, or under circumstances, that could materially impair Landlord's ability to enforce any of its rights or remedies under this Lease (as determined in Landlord's sole discretion exercised in good faith) or (ii) at a time when market conditions render it inadvisable to sell or attempt to sell the Premises (as determined in Landlord's sole discretion exercised in good faith). 21.20 AS-IS LEASE. Landlord makes no representations or warranties concerning the condition, suitability or any other matters relating to the Premises, and Tenant hereby acknowledges that Tenant leases the Premises from Landlord on an "as is" basis. 21.21 NET LEASE. Except as otherwise provided in this Lease, Tenant agrees that this Lease is an absolute net Lease, and the Base Rent called for hereunder shall be paid as required net of all expenses associated with the Premises, including without limitation, Real Estate Taxes and insurance premiums for the insurance required to be carried hereunder, and all other reasonable and customary costs and expenses incurred by Landlord in connection with the Premises or this Lease, all of which shall be paid or reimbursed by Tenant unless otherwise specifically provided herein. Tenant agrees to reimburse Landlord, within ten (10) days following receipt of any written demand therefor, for all fees, accrued but unpaid interest, late charges, prepayment penalties, costs and expenses charged to Landlord or SGA by UBS (or other holder of an Authorized Loan) pursuant to the terms and conditions of the UBS Note or other Authorized Loan. 21.22 REPRESENTATIONS AND WARRANTIES. Tenant and Landlord each hereby represents and warrants to the other that: (i) such party is duly organized and existing under the laws of the jurisdiction in which it is formed, and is qualified to do business in the State of California; (ii) such party has the full right and 45. 51 authority to enter into this Lease, consummate the sale, transfers and assignments contemplated herein and otherwise perform its obligations under this Lease; (iii) the person or persons signatory to this Lease and any document executed pursuant hereto on behalf of such party have full power and authority to bind such party; and (iv) the execution and delivery of this Lease and the performance of such party's obligations hereunder do not and shall not result in the violation of its organizational documents or any contract or agreement to which such party may be a party. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 46. 52 [SIGNATURE PAGE TO GROUND LEASE] IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written. "LANDLORD" IRISH LEASING CORPORATION, A TEXAS CORPORATION By: /s/ KRISTIN MARKHAM --------------------- Name: /s/ KRISTIN MARKHAM --------------------- 53 [SIGNATURE PAGE TO GROUND LEASE] "TENANT" CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION By: /s/ JOHN T. CHAMBERS ----------------------------------- Name: John T. Chambers Its: President and Chief Executive Officer By: /s/ LARRY R. CARTER ---------------------------------- Name: Larry R. Carter Its: Chief Financial Officer 54 EXHIBIT A Description of Land REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: Lots 58 and 59, as shown upon that certain map entitled, "Tract No. 7559", which Map was filed for record in the office of the Recorder of the County of Santa Clara, on December 21, 1983 in Book 522 of Maps, at ages 49 and 50. APN: 97-53-18,22 EXHIBIT A 55 EXHIBIT B PERMITTED EXCEPTIONS [To include all matters of record against the Land on the date it is acquired by Landlord] EXHIBIT B 1. 56 EXHIBIT C RECORDING REQUESTED BY, AND WHEN RECORDED, RETURN TO: Brobeck, Phleger & Harrison 550 West C Street, Suite 1300 San Diego, California 92101 Attn: Todd J. Anson, Esq. MEMORANDUM OF LEASE THIS MEMORANDUM OF LEASE ("Memorandum of Lease") is executed as of _________________, 1995, by and between IRISH LEASING CORPORATION, a Texas corporation ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"). RECITALS WHEREAS, Landlord and Tenant have executed that certain lease ("Lease") dated as of _____________, 1995, covering certain premises and related improvements ("Premises") located in the City of San Jose, Santa Clara County, California and more particularly described in Schedule 1 attached hereto and incorporated herein by this reference; and WHEREAS, Landlord and Tenant desire to record notice of the Lease in the real estate records of Santa Clara County, California; NOW, THEREFORE, in consideration of the foregoing, Landlord and Tenant hereby declare as follows: 1. DEMISE. Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord, subject to the terms, covenants and conditions contained in the Lease. 2. EXPIRATION DATE. The term of the Lease ("Term") shall commence on ______________, 1995 and shall expire five (5) years thereafter, subject to Tenant's option to extend the Term pursuant to Section 4.2 of the Lease for one (1) period of five (5) years. 3. OPTION TO PURCHASE. Tenant has an option to purchase the Premises, as more particularly described in the Lease, during the Term, as it may be extended. EXHIBIT C 1. 57 4. RESTRICTIONS ON ENCUMBRANCES. Landlord is prohibited from recording against the Premises liens (including, without limitation, deeds of trust), encumbrances, and other matters that would constitute exceptions to title, and from amending or modifying any of the foregoing that may exist now or during the Term, as more particularly described in the Lease, and any such encumbrance or modification of an encumbrance not authorized in writing by Tenant shall be null and void. 5. COUNTERPARTS. This Memorandum of Lease may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] EXHIBIT C 2. 58 [SIGNATURE PAGE TO MEMORANDUM OF LEASE] IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum of Lease as of the date and year first written above. "LANDLORD" IRISH LEASING CORPORATION, A TEXAS CORPORATION By:_______________________ Its:______________________ By:_______________________ Its:______________________ STATE OF __________________ ) ) ss COUNTY OF _________________ ) On _____________, before me, ______________________, Notary Public, personally appeared _______________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ___________________________ Signature [SEAL] EXHIBIT C 3. 59 [SIGNATURE PAGE TO MEMORANDUM OF LEASE] "TENANT" CISCO SYSTEMS, A CALIFORNIA CORPORATION By: ______________________________ Name:_________________________ Its: _________________________ Executive Officer By: _______________________________ Name: _________________________ Its: _________________________ STATE OF _______________ ) ) ss COUNTY OF _____________ ) On _____________, before me, ______________________, Notary Public, personally appeared _______________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ___________________________ Signature [SEAL] EXHIBIT C 4. 60 SCHEDULE 1 TO EXHIBIT C The Premises are described as follows: REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: Lots 58 and 59, as shown upon that certain map entitled, "Tract No. 7559", which Map was filed for record in the office of the Recorder of the County of Santa Clara, on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-18,22 SCHEDULE 1 TO EXHIBIT C 61 EXHIBIT D CLOSING COSTS AND FEES TO BE INCLUDED IN FUNDED AMOUNT The following items shall be included in the definition of the Funded Amount under Section 2.16 of the Lease: 1. Title Insurance premiums 2. Arrangement Fee payable to Irish 3. Brokerage Commissions 4. Other fees and costs which are specifically authorized by Tenant in writing to be included in the Funded Amount EXHIBIT D 1. 62 EXHIBIT E LEASE COMMENCEMENT DATE MEMORANDUM THIS LEASE COMMENCEMENT DATE MEMORANDUM ("Memorandum") is entered into this ___ day of ____________, 1995, by and between IRISH LEASING CORPORATION, a Texas corporation ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant") concerning that certain Lease ("Lease") between Landlord and Tenant dated February ___, 1995. Any capitalized terms not defined in this Memorandum shall have their meaning as defined in the Lease. 1. Pursuant to Section 4.1 of the Lease, Landlord and Tenant are required to enter into this Memorandum within thirty (30) days after the Lease Commencement Date. 2. Landlord and Tenant agree the that Lease Commencement Date is _______________, 1995. 3. Landlord and Tenant agree that the Rent Commencement Date is _______________, 1995. 4. The dollar value of the Guaranteed Residual Value (defined in Section 2.17 of the Lease) described in paragraph 2 above is _____% of $_____________________________, (i.e. $_____________________________). 5. The Equity Funded Amount as of the Lease Commencement Date is $__________________. IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date and year first above written. "LANDLORD" IRISH LEASING CORPORATION, a Texas corporation By:___________________________ Name:______________________ Its: ______________________ "TENANT" CISCO SYSTEMS, INC., a California corporation By:___________________________ Name:______________________ Its: ______________________ EXHIBIT E 63 EXHIBIT F DESCRIPTION OF ADJACENT PROPERTY OWNED BY LANDLORD REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: PARCEL ONE: All of Parcel 2, as shown on that certain Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on July 13, 1983, in Book 514 of Maps page(s) 47 and 48. PARCEL TWO: All of Lot 54, as shown upon that certain Map entitled, "Tract No. 7559", which Map was filed for record in the Office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-14 and 23 PARCEL ONE: Lot 50, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52. Reserving therefrom a perpetual right and easement to construct, install, maintain, repair, renew, replace, operate and use a surface drainage release to benefit Lot 49 of Tract 7560, as contained in that certain Grant of Easement recorded August 8, 1990 in Book L443, page 0754, Official Records, and described as follows: The Northwesterly 10.00 feet of the Southeasterly 30.00 feet and the Northwesterly 100.00 feet of the Southeasterly 130.00 feet of the Northeasterly 10.00 feet of Lot 50. PARCEL TWO: That portion of Lot 51, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52, being more particularly described as follows: Beginning at the Southeasterly corner of said Lot 51; thence along the Southerly line of said Lot 51, S. 59# 27; 51 W. 77.00 feet; thence N. 14# 27' 48" E. 108.90 feet to the Northeasterly line of said Lot 51; thence along said Northeasterly line S. 30# 32' 09" E. EXHIBIT E 64 77.00 feet to the point of beginning, as provided for in that certain Lot Line Adjustment granted by the Director of Planning of the City of San Jose, a copy of which was recorded March 28, 1984 in the office of the Recorder of the County of Santa Clara in Book I410, page 712 of Official Records. PARCEL THREE: Lot 5 and 6, as shown on that certain Map of Tract No. 7408, which map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on November 19, 1982 in Book 506 of Maps, pages 24, 25 and 26 and a portion of that certain parcel of land described in the deed recorded December 22, 1972 in Book 0167, page 623, all as approved by that Lot Combination recorded September 16, 1992 in Book M381 of Maps, page(s) 0081, Official Records, more particularly described as follows: Beginning at a point on the Northeasterly line of Rio Robles, as shown upon said map, at the most Southerly corner of said Lot 5; thence along said Northeasterly line of Rio Robles, N. 30# 32' 09" W. 105.50 feet; thence on a tangent curve to the right, having a radius of 367.00 feet, through a central angle of 36# 30' 00" an arc distance of 233.80 feet; thence on a curve to the right, tangent to the previous curve, having a radius of 50.00 feet, through a central angle of 86# 01' 50" an arc distance of 75.08 feet to the Southerly line of Tasman Drive as shown upon said map; thence along said line on a curve to the left, tangent to the previous curve, having a radius of 1149.00 feet, through a central angle of 32# 31' 01" an arc distance of 652.09 feet; thence N. 59# 28' 40" E. 600.40 feet; thence on a tangent curve to the right, having a radius of 33.00 feet, through a central angle of 89# 51' 11" an arc distance of 51.83 feet to the Southwesterly line of First Street, as shown upon said map; thence along said line, S. 30# 32' 09" E. 261.38 feet to the Northwesterly line of the lands of the City and County of San Francisco, as shown upon said map; thence along said line of the lands of the City and the County of San Francisco, S. 65# 09' 27" W. 1396.95 feet to the point of beginning. PARCEL FOUR: Those rights as contained in that certain Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records. PARCEL FIVE: A strip of land 80 feet wide, lying 40 feet either side of the following described line and extensions thereto, across that certain parcel of land conveyed by Charles Nelson, et ux, to Masami Ezaki by Grant Deed dated February 27, 1936 and recorded March 11, 1936, in Volume No. 765, at page 262, Official Records, Santa Clara County, hereinafter referred to as the Ezaki Parcel, said line EXHIBIT E 65 being more particularly described as commencing at a point in the Westerly boundary of the existing San Jose-Alviso Road, said point being distant along said boundary South 30# 32' 30" East 381.31 feet from its intersection with the Northerly boundary of the above mentioned Ezaki Parcel; thence, from said point of commencement, South 65# 08' 00" West 1459.03 feet to a point in the common boundary between the above mentioned Ezaki Parcel and that certain parcel of land conveyed by Lena Lindgren, et al, to James A. Pankoski, et ux, by Joint Tenancy Deed dated November 13, 1944 and recorded November 17, 1944 in Volume No. 1227 at Page 327, Official Records, Santa Clara County, hereinafter referred to as the Pankoski Parcel, said point being distant along said common boundary South 30# 32' 30" East 237.04 feet from the most Westerly corner of the above mentioned Ezaki Parcel; the Easterly end of said strip being the above mentioned Westerly boundary of the San Jose-Alviso Road, and the Westerly end of said strip being the above mentioned common boundary between the Pankoski and Ezaki Parcels. EXHIBIT F EX-10.39 13 FIRST AMENDMENT TO LEASE LOTS 58 AND 59 1 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made and entered into as of May 1, 1995, by and between IRISH LEASING CORPORATION, a Texas corporation ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"). THIS FIRST AMENDMENT IS ENTERED INTO upon the basis of the following facts, understandings and intentions. A. Landlord and Tenant entered into that certain Lease dated February 28, 1995 ("Lease"), pursuant to which Landlord is leasing to Tenant that certain land located in San Jose, California, as more particularly described in the Lease and on Exhibit A attached hereto and incorporated herein by this reference ("Premises"). Any capitalized terms used but not defined in this First Amendment which are defined in the Lease shall have the meaning ascribed in the Lease. B. Landlord and Tenant now desire to amend the terms of the Lease, as more particularly described in this First Amendment. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereby agree as follows: 1. Equity Funded Amount. Section 2.10 is hereby deleted, and is replaced with the following: 2.10 Equity Funded Amount. "Equity Funded Amount" shall mean that portion of the Funded Amount equal to the Funded Amount minus the Senior Funded Amount and which shall be an amount equal to fifteen percent (15%) of the Funded Amount. 2. Lease Rate. Section 2.23 is hereby deleted, and is replaced with the following: 2.23 Lease Rate. "Lease Rate" shall mean interest at the rate of the product of 0.850 times the then-effective LIBOR Rate, plus .0045, per annum. 3. Lease Rate. Section 2.26 is hereby deleted, and is replaced with the following: 2.26 LIBOR Rate. "LIBOR Rate" shall mean the LIBOR interest rate as defined in that certain Schedule I, Additional Terms and Conditions of Credit Arrangement between SGA and UBS dated May 1, 1995, relating to the UBS Loan ("Schedule I"), or as defined in a subsequent Authorized Loan. 4. Interest Rate Selection. Section 5.1(b) is hereby deleted, and is replaced with the following: (b) Interest Rate Selection. The parties acknowledge that the interest rate applicable under the UBS Loan (or other Authorized Loan) shall affect the amount of Base Rent payable by Tenant hereunder. Therefore, Tenant shall have the right, by written notice to UBS (or the holder of any Authorized Loan), SGA and Landlord, to designate the interest period to be selected from time to time by SGA pursuant to Schedule I (or other Authorized Loan). Tenant acknowledges that the rates available to be selected under the UBS Loan after the first partial calendar month of the Term are 1, 2, 3, 6, 9 or 12-month LIBOR rates. In the event that Tenant fails to give such written notice to UBS (or other holder of an Authorized Loan), SGA and Landlord prior to the applicable deadline for selection of such interest period pursuant to the 2 terms of Schedule I (or other Authorized Loan), Tenant shall be deemed to have selected an interest period of one month for the UBS Loan (or other Authorized Loan). 5. Further Mortgages or Encumbrances by Landlord. The first sentence of Article 13, Section 13.1, subparagraph (b) Authorized Loan that begins with "Tenant has approved . . ." and ends with ". . all documents related to the UBS Loan" is hereby deleted and replaced with the following: Tenant has approved the terms of the loan ("UBS Loan") to be made by UBS to SGA which shall be evidenced by that certain Tranche B Promissory Note dated as of the Lease Commencement Date by SGA in favor of UBS ("UBS Note"), and further evidenced and/or secured by (a) that certain General Terms and Conditions of Credit Arrangement between SGA and UBS, (b) that certain Schedule 1 Additional Terms and Conditions of Credit Arrangements between SGA and UBS, (c) that certain Pledge Agreement, as amended by Rider No. 1 thereto, made by Tenant in favor of UBS, and (d) certain documents (including, without limitation a promissory note and related documents) evidencing a loan ("SGA Loan") from SGA to Landlord in the principal amount of the UBS Note, all dated as of the Lease Commencement Date; provided, however, that Tenant, Landlord and SGA reserve the right to approve, in their sole discretion, the final form of all documents related to the UBS Loan. 6. Option to Purchase Premises. (a) In Section 19.1(a), Purchase Option , the two (2) sentences beginning with "The purchase price ("Purchase Price") . . ." on line 8 of Section 19.1(a) and ending with ". . . this Purchase Option" on line 26 of Section 19.1(a) are hereby deleted in their entirety and the following inserted in their place: The purchase price ("Purchase Price") for the portion of the Premises which Tenant elects to purchase shall be (i) the then-existing Funded Amount applicable to the portion of the Premises which Tenant elects to purchase (determined in a pro rata basis on the basis of the area being purchased), as the same may be reduced from time to time, plus (ii) the amount of any prepayment premium and all other fees, costs, and expenses due to any holder of an Authorized Loan in connection with such loan (to the extent not already paid pursuant to Section 21.21 hereof). Tenant shall be entitled to a credit against the Purchase Price in an amount equal to the sum of (i) the principal balance(s) of any Authorized Loan and/or Fee Mortgage existing immediately prior to the closing under this Purchase Option if such Authorized Loan and/or Fee Mortgage are not fully repaid and all documents reflecting the same are not cancelled and removed from the public records on or prior to the closing under this Purchase Option, plus (ii) the amount of the Security Deposit (or, in the event of a purchase of a portion of the Premises, a pro rata portion of the Security Deposit), and, upon closing under this Purchase Option, Landlord shall be released from Landlord's obligation to return the Security Deposit set forth in Section 5.5 hereof. -2- 3 (b) In Section 19.1(a), Purchase Option , following the sentence beginning with "Landlord . . ." on line 36 of Section 19.1(a) and ending with ". . . expenses related thereto" on line 40 of Section 19.1(a), the following sentence is inserted: Notwithstanding the foregoing, Landlord agrees to, upon Tenant's written demand, assign the UBS Loan or any other Authorized Loan and its obligations thereunder to Sumitomo Bank Leasing and Finance, Inc., a Delaware corporation ("SBLF"); provided that SBLF shall first expressly assume Landlord's obligations under the UBS Loan (or any other Authorized Loan) in writing and hold Landlord harmless from any liabilities arising after the date of such assignment. 7. Form of Transaction; Certain Tax Matters. a. Section 21.2(a)(ii) is hereby deleted, and is replaced with the following: (a) a financing arrangement (and not a "true lease") for Federal, state and local income tax and local property tax purposes. b. Section 21.2(b) is hereby deleted, and is replaced with the following: Landlord and Tenant agree that, in accordance with their intentions and the substance of the transactions contemplated hereby, Tenant (and not Landlord) shall be treated as the owner of the Premises for Federal, state, and local income tax and property tax purposes and this Lease shall be treated as a financing arrangement. Tenant shall be entitled to take any deduction, credit allowance or other reporting, filing or other tax position consistent with such characterizations. Landlord and Tenant shall not file any Federal, state or local income tax or property tax returns, reports or other statements, or take any other actions, in a manner which is inconsistent with the foregoing provisions of this Section 21.2, unless required to do so by applicable law or Legal Requirement. c. Section 21.2(c) is hereby deleted, and is replaced with the following: Each party acknowledges that it has retained accounting, tax and legal advisors to assist it in structuring this Lease and neither party is relying on any representations of the other regarding the proper treatment of this transaction for accounting, income tax, property tax or any other purpose. Nothing in this Section 21.2(c) shall increase or diminish any liability or obligation of the parties that otherwise exists pursuant to this Lease. 8. Exhibits. Exhibit B is hereby deleted and the attached Exhibit B inserted in its place. 9. Counterparts. This First Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. 10. Existing Lease. Except to the extent specifically amended hereby, all terms and conditions of the Lease remain in full force and effect. -3- 4 [SIGNATURE PAGE TO FIRST AMENDMENT TO LEASE] IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment as of the date and year first written above. "LANDLORD" IRISH LEASING CORPORATION, a Texas corporation By: /s/ GREG ENGLAND ----------------------------- Name: GREG ENGLAND ----------------------- Its: VICE PRESIDENT ----------------------- "TENANT" CISCO SYSTEMS, INC., a California corporation By: /s/ John T. Chambers ----------------------------- Name: ----------------------------- Its: ----------------------------- By: /s/ Larry R. Carter ----------------------------- Name: ----------------------------- Its: ----------------------------- -4- 5 EXHIBIT A DESCRIPTION OF LAND REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: Lots 58 and 59, as shown upon that certain map entitled, "Tract No. 7559", which Map was filed for record in the office of the Recorder of the County of Santa Clara, on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-18,22 EXHIBIT A 6 EXHIBIT B PERMITTED EXCEPTIONS 1. Bond for City of San Jose, Reassessment District No. 93-210 1993 Consolidated Refunding 2. THE LIEN of supplemental taxes, if any, assessed as a result of transfer of interest and/or new construction, said supplemented taxes being assessed pursuant to Chapter 3.5 commencing with Section 75 of the California Revenue and Taxation Code, for which no Notice of Assessment has been issued, as of the date herein. 3. THE EFFECT of the Rincon de los Esteros Project Redevelopment Plan and Ordinances Nos. 17306, 19686. 19835, 20677, 20958. 21417, 21496, 21903, 22660, 22412, 22761, 22761.1 and 22961, 23703, 23732, 23761 and 23934 of the City of San Jose as recorded and as disclosed by documents recorded July 11, 1975 in Book B502, Page 711; August 6, 1979 in Book E699, Page 245; August 6, 1979 in Book E699. Page 277; December 21, 1979 in Book F37, Page 585; October 8, 1981 in Book G382, Page 605; July 28, 1982 in Book G929, Page 703; September 14, 1983 in Book H892, Page 200; January 10, 1984 in Book 1220, Page 271; January 6, 1992 in Book L996, Page 508, all of Official Records, and as disclosed by information provided by the Redevelopment Agency of the City of San Jose. 4. AN EASEMENT affecting the portion of said land and for the purpose stated herein and incidental purposes, shown or dedicated by the map of Tract 7408 filed in Book 506 of Maps, pages 24, 25 and 26. Purpose : PUBLIC SERVICE EASEMENT Affects : THE SOUTHWESTERLY 10 FEET OF PARCELS ONE, TWO AND THREE AND THE NORTHWESTERLY 8 FEET OF PARCEL TWO 5. EASEMENT as shown on the filed map of Tract 7408 filed in Book 506 of Maps, pages 24-26 and incidents thereto Purpose : LANDSCAPE EASEMENT Affects : THE SOUTHWESTERLY 20 FEET OF PARCEL ONE, TWO AND THREE AND THE NORTHWESTERLY 18 FEET OF PARCEL TWO 6. EASEMENT for the purposes stated herein and incidents thereto Purpose : THE INSTALLATION, MAINTENANCE AND OPERATION OF ALL LANDSCAPING PLANT FORMS, IRRIGATION SYSTEMS, RETAINING WALLS, AND DECORATIVE WALKWAY PAVING NOW EXISTING OR HEREINAFTER TO BE CONSTRUCTED Granted to : CITY OF SAN JOSE, A MUNICIPAL CORPORATION OF THE STATE OF CALIFORNIA Recorded : MAY 27, 1983 IN BOOK H590, PAGE 649, OFFICIAL RECORDS Affects : THE SOUTHWESTERLY 20 FEET OF PARCEL ONE, TWO AND THREE AND THE NORTHWESTERLY 18 FEET OF PARCEL TWO. 7. EASEMENT for the purposes stated herein and incidents thereto Purpose : THE INSTALLATION, MAINTENANCE AND OPERATION OF ALL LANDSCAPING PLANT FORMS, IRRIGATION SYSTEMS, RETAINING WALLS, AND DECORATIVE WALKWAY PAVING NOW EXISTING OR HEREINAFTER TO BE CONSTRUCTED Granted to : CITY OF SAN JOSE, A MUNICIPAL CORPORATION OF THE STATE OF CALIFORNIA Recorded : MAY 27, 1983 IN BOOK H590, PAGE 652, OFFICIAL RECORDS Affects : THE WESTERLY CORNER OF PARCEL TWO EXHIBIT B 1. 7 8. AGREEMENT on the terms and conditions contained therein, For : THE INSTALLATION AND MAINTENANCE OF LANDSCAPE IMPROVEMENTS Between : CITY OF SAN JOSE, A MUNICIPAL CORPORATION And : OAKMEAD-SAN JOSE, A CALIFORNIA GENERAL PARTNERSHIP AND OAKMEAD-SAN JOSE SIGN AND LANDSCAPE MAINTENANCE ASSOCIATION, A CALIFORNIA NON PROFIT MUTUAL BENEFIT CORPORATION Recorded : MAY 27, 1983 IN BOOK H590, PAGE 662, OFFICIAL RECORDS. 9. EASEMENT for the purposes stated herein and incidents thereto Purpose : THE CONSTRUCTION, INSTALLATION, REPAIR AND MAINTENANCE OF INTERLOCKING PAVERS, RETAINING WALLS AND SIGNS, AND FOR PEDESTRIAN AND VEHICULAR ACCESS AS NECESSARY OR DESIRABLE THERETO, BUT SUBJECT TO THE OBLIGATION OF THE ASSOCIATION, ITS SUCCESSORS AND ASSIGNS, TO PROMPTLY REPAIR ANY DAMAGE TO SAID IMPROVEMENTS LYING WITHIN THE SIGN AND LANDSCAPE EASEMENTS RESULTING FROM THE ASSOCIATION'S ACTIVITIES THEREON Granted to : OAKMEAD-SAN JOSE SIGN AND LANDSCAPE MAINTENANCE ASSOCIATION, A NON-PROFIT MUTUAL BENEFIT CORPORATION Recorded : JUNE 3, 1983 IN BOOK H604, PAGE 322, OFFICIAL RECORDS Affects : THE WESTERLY CORNER OF PARCEL TWO 10. LIMITATIONS, covenants, conditions, restrictions, reservations, exceptions, terms, liens or charges, but deleting restrictions, if any, based on race, color, religion or national origin contained in the document recorded June 3, 1983 in Book H604, page 334, Official Records. CONTAINS mortgagee protection clause. MODIFICATION thereof recorded January 26, 1984 in Book 1257, page 252, Official Records. A Notice of Amendment of Design Guidelines Executed by : OAKMEAD-SAN JOSE, A CALIFORNIA GENERAL PARTNERSHIP Recorded : JUNE 21, 1984 IN BOOK 1649, PAGE 543, OFFICIAL RECORDS An instrument entitled, "Designation of Approving Agent," whereby Kimball Small Properties, a California corporation was designated approving agent under the CC&R's and Design Guidelines, Recorded : APRIL 29, 1988 IN BOOK K517, PAGE 940, OFFICIAL RECORDS MODIFICATION thereof recorded OCTOBER 18, 1988 IN BOOK K721, PAGE 265, Official Records. An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose and Removal of Approving Agent," Dated : OCTOBER 18, 1988 Between : OAKMEAD-SAN JOSE, A CALIFORNIA GENERAL PARTNERSHIP AND OAKMEAD ASSOCIATES, A CALIFORNIA GENERAL PARTNERSHIP Recorded : OCTOBER 18, 1988 IN BOOK K721, PAGE 295, OFFICIAL RECORDS Partial Termination as to other property recorded September 18, 1989 in Book L097, page 1662, Official Records. EXHIBIT B 2. EX-10.40 14 SECOND AMENDMENT TO LEASE LOTS 58 AND 59 1 SECOND AMENDMENT TO LEASE (Lots 58 and 59) This Second Amendment to Lease ("Second Amendment") is made and entered into as of May 22, 1995 by and between Irish Leasing Corporation, a Texas corporation ("Landlord"), and Cisco Systems, Inc., a California corporation ("Tenant"). WHEREAS, Landlord and Tenant have previously entered into that certain Ground Lease dated February 28, 1995, pursuant to which Landlord is leasing to Tenant those certain parcels of land located in San Jose, California as more particularly described on Exhibit A attached hereto (the "Premises"), which Ground Lease was amended by that certain First Amendment to Lease dated as of May 1, 1995, by and between Landlord and Tenant (the Ground Lease, as so amended, is referred to herein as the "Lease"); and WHEREAS, Landlord and Tenant now wish to further amend the terms of the Lease as more particularly described in this Second Amendment. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. Amendment to Lease. The Landlord and Tenant hereby agree to amend the Lease as hereinafter set forth and as set forth in other sections of this Second Amendment. (a) Section 2.33 of the Lease is hereby amended to read in its entirety as follows: 2.33 Permitted Exceptions. "Permitted Exceptions" shall mean the following: (1) the exceptions set forth in Exhibit B; (2) any exceptions created or caused by Tenant or to which Tenant consents in writing; (3) taxes and assessments not yet due and payable; (4) a deed of trust or mortgage which secures a New Loan authorized pursuant to the terms of Section 13.1(b); (5) the Tenant Deed of Trust; (6) all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way, and restrictive covenants and conditions affecting the Land unless any of the foregoing arise as a result of Landlord's actions or with Landlord's written consent (unless such actions taken or consent given by Landlord are requested in writing by Tenant pursuant to Sections 11.2, 20.1 or 20.2); (7) this Lease; (8) that certain Construction Deed of Trust, Financing Statement, Security Agreement and Fixture Filing (With Assignment of Rents and Leases) (the "Construction Deed of Trust") dated as of even date herewith executed by Landlord, Tenant and Sumitomo Bank of New York Trust Company ("SBNYTC"), as Trustee under that certain Trust Agreement dated May 22, 1995 between Sumitomo Bank Leasing and Finance, Inc. and SBNYTC ("SB Trust") for the benefit of the Sumitomo Bank, Limited ("Sumitomo") and the Hongkong and Shanghai Banking Corporation Limited ("HKS"); (9) that certain Deed of Trust, Financing Statement, Security Agreement and Fixture Filing (with Assignment of Rents and Leases)(the "Second Deed of Trust") dated as of even date 2 herewith executed by Landlord and Tenant for the benefit of SB Trust; (10) that certain Absolute Assignment of Leases (the "HKS Assignment") dated as of even date herewith executed by Landlord, SB Trust, Cisco, HKS and Sumitomo; and (11) that certain Subordination Agreement (herein so called) dated as of even date herewith and executed by Sumitomo, HKS, SB Trust, Landlord and Tenant. (b) The last sentence of Section 5.5 of the Lease is hereby amended to read in its entirety as follows: The entire Security Deposit (other than amounts withheld against Base Rent due hereunder), plus any accrued and unpaid interest required to be paid thereon pursuant to this Lease, shall be returned to Tenant at the end of the Term; provided, however, that, notwithstanding anything to the contrary contained in this Lease, Landlord shall have no obligation to return the Security Deposit to Tenant in the event of a foreclosure, deed in lieu of foreclosure, or other exercise of remedies by the beneficiaries or trustees under the Tenant Deed of Trust, the Construction Deed of Trust, the Second Deed of Trust, the HKS Assignment, or any other Mortgage on the Premises caused by Tenant to which Tenant consents in writing. (c) Section 20.5 of the Lease is hereby amended to read in its entirety as follows: 20.5 Recourse Obligations. Landlord agrees that during the Term of this Lease, except for the SGA Loan, Landlord will not incur any indebtedness for borrowed money or any other material obligations to which the holder or obligee thereof has recourse against Landlord to satisfy the same without Tenant's prior written consent, which consent Tenant may withhold in its sole discretion. (d) Section 20.6 of the Lease is hereby amended to read in its entirety as follows: 20.6 Default Under Authorized Loan. Landlord shall not, without Tenant's express prior written consent, default under any Authorized Loan, or any loan documents relating to such Authorized Loan, where such default is not caused, directly or indirectly by, or arising, directly or indirectly as a result of (a) a breach of any of Tenant's obligations under this Lease, under the Pledge Agreement securing the UBS Loan or under any documents relating to any Authorized Loan, or (b) the occurrence of a default or an Event of Default under the Construction Deed of Trust, the Second Deed of Trust or the HKS Assignment. 2. Existence of Permitted Exceptions. Tenant hereby acknowledges that the existence of any Permitted Exception, and the exercise of any rights or remedies granted to any third party pursuant to any Permitted Exceptions shall not constitute a breach by Landlord under the terms of Section 20.3 or any other provision of the Lease. 3. Quiet Enjoyment. The first sentence of Section 18.1 of the Lease is hereby amended by adding the following language at the end of such sentence: 3 "and subject to the rights of a Fee Mortgagee under the Construction Deed of Trust, and/or the Second Deed of Trust, the rights of the "Assignees" under the HKS Assignment, and the rights of any Fee Mortgagee under any Authorized Loan." 4. Net Lease. The last sentence of Section 21.21 of the Lease is hereby to read in its entirety as follows: Tenant agrees to reimburse Landlord and/or SGA, within ten days following receipt of any written demand therefor, for all fees, accrued but unpaid interest, late charges, prepayment penalties, costs, expenses, indemnification obligations, and other amounts charged to Landlord and/or SGA by UBS, the holder of any Authorized Loan, the holders or beneficiaries of the Construction Deed of Trust and the Second Deed of Trust, and the "Assignees" under the HKS Assignment pursuant to the terms and conditions of the UBS Note, any Authorized Loan, the Construction Deed of Trust, the Second Deed of Trust, the HKS Assignment and the Subordination Agreement." 5. Consent to Encumbrances. Tenant hereby consents to Landlord's execution, delivery and recording of the Construction Deed of Trust, the Second Deed of Trust, the HKS Assignment and the Subordination Agreement, and all documents, instruments and agreements executed in connection therewith by Landlord. 6. Terms. All terms used in this Second Amendment with their initial letter capitalized which are specially defined in the Lease (as amended by this Second Amendment) shall have the same meanings in this Second Amendment as in the Lease (as amended by this Second Amendment). 7. Continuing Obligations. Except as modified by this Second Amendment, the terms of the Lease remain in full force and effect. To the extent of any conflict between the terms of the Lease and the terms of this Second Amendment, the terms of this Second Amendment shall control. 8. Counterparts. This Second Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall comprise but a single instrument. IN WITNESS WHEREOF, the Landlord and Tenant have executed this Second Amendment as of the date first set forth above. 4 IRISH LEASING CORPORATION, a Texas corporation By: /s/GREG ENGLAND ----------------------- Its: /s/VICE PRESIDENT ------------------- CISCO SYSTEMS, INC., a California corporation By: /s/LARRY R. CARTER ----------------------- Its: ------------------- 5 EXHIBIT A Description of Land REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: Lots 58 and 59, as shown upon that certain map entitled, "Tract No. 7559", which Map was filed for record in the office of the Recorder of the County of Santa Clara, on December 21, 1983 in Book 522 of Maps, at ages 49 and 50. APN: 97-53-18,22 EX-10.41 15 GROUND LEASE TASMAN PHASE C 1 GROUND LEASE (TASMAN PHASE C) By and Between IRISH LEASING CORPORATION A TEXAS CORPORATION as Landlord and CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION, as Tenant for Premises located in San Jose, California THIS LEASE IS NOT INTENDED TO CONSTITUTE A TRUE LEASE FOR INCOME TAX PURPOSES. SEE SECTION 21.2 2 TABLE OF CONTENTS
Page ARTICLE 1 BASIC LEASE PROVISIONS......................................................................... 1 1.1 Date of Lease.................................................................................. 1 1.2 Landlord....................................................................................... 1 1.3 Tenant......................................................................................... 1 1.4 Land........................................................................................... 1 1.5 Premises....................................................................................... 1 1.6 Term........................................................................................... 1 1.7 Lease Commencement Date........................................................................ 2 1.8 Rent Commencement Date......................................................................... 2 1.9 Base Rent...................................................................................... 2 1.10 Addresses for Notices.......................................................................... 2 1.11 Addresses for Rent Payments.................................................................... 2 ARTICLE 2 DEFINITIONS.................................................................................... 3 2.1 Additional Rent................................................................................ 3 2.2 Approval Plans................................................................................. 3 2.3 Authorized Loan................................................................................ 3 2.4 Authorized Plans............................................................................... 3 2.5 Base Rent...................................................................................... 3 2.6 Collateral..................................................................................... 3 2.7 Default........................................................................................ 3 2.8 Default Rate................................................................................... 3 2.9 Entity......................................................................................... 3 2.10 Equity Funded Amount........................................................................... 4 2.11 Equity Rent Component.......................................................................... 4 2.12 Event of Major Default......................................................................... 4 2.13 Extension Term................................................................................. 4 2.14 Fee Mortgage................................................................................... 4 2.15 Fee Mortgagee.................................................................................. 4 2.16 Funded Amount.................................................................................. 4 2.17 Guaranteed Residual Value...................................................................... 4 2.18 Improvements................................................................................... 5 2.19 Initial Term................................................................................... 5 2.20 Land........................................................................................... 5 2.21 Landlord Affiliate............................................................................. 5 2.22 Lease Commencement Date........................................................................ 5 2.23 Lease Rate..................................................................................... 5 2.24 Legal Requirements............................................................................. 5 2.25 LIBOR Business Day............................................................................. 5 2.26 LIBOR Rate. .................................................................................. 5 2.27 Loan Rate...................................................................................... 5 2.28 Mortgage....................................................................................... 5 2.29 Mortgagee...................................................................................... 6 2.30 New Loan....................................................................................... 6 2.31 Notice......................................................................................... 6 2.32 Official Records............................................................................... 6 2.33 Permitted Exceptions........................................................................... 6 2.34 Premises....................................................................................... 6 2.35 Real Estate Taxes.............................................................................. 6 2.36 Rent........................................................................................... 6 i.
3
Page 2.37 Rent Commencement Date......................................................................... 6 2.38 Rent Payment Date.............................................................................. 6 2.39 Replacement Loan............................................................................... 6 2.40 Required Permits............................................................................... 6 2.41 Security Deposit............................................................................... 7 2.42 Senior Funded Amount........................................................................... 7 2.43 Senior Rent Component.......................................................................... 7 2.44 SGA............................................................................................ 7 2.45 Taking......................................................................................... 7 2.46 Tenant Deed of Trust........................................................................... 7 2.47 Term........................................................................................... 7 2.48 UBS............................................................................................ 7 2.49 UBS Loan....................................................................................... 7 2.50 UBS Note....................................................................................... 7 ARTICLE 3 DEMISE......................................................................................... 7 3.1 Premises....................................................................................... 7 ARTICLE 4 TERM........................................................................................... 8 4.1 Initial Term................................................................................... 8 4.2 Extension Term................................................................................. 8 4.3 Holding Over................................................................................... 8 ARTICLE 5 RENT........................................................................................... 9 5.1 Base Rent...................................................................................... 9 5.2 Proration...................................................................................... 9 5.3 No Abatement of Rent........................................................................... 10 5.4 Delinquent Rent................................................................................ 10 5.5 Security Deposit............................................................................... 10 ARTICLE 6 TAXES.......................................................................................... 11 6.1 Real Estate Taxes.............................................................................. 11 6.2 Personal Property Taxes........................................................................ 12 6.3 Right to Contest............................................................................... 12 6.4 Withholding Taxes.............................................................................. 13 6.5 Additional Provisions Relating to Taxes........................................................ 14 ARTICLE 7 INSURANCE...................................................................................... 15 7.1 Liability Insurance............................................................................ 15 7.2 Waiver of Subrogation.......................................................................... 15 7.3 Indemnity...................................................................................... 16 ARTICLE 8 USE............................................................................................ 16 8.1 Use............................................................................................ 16 8.2 Contest of Legal Requirements.................................................................. 19 8.3 Indemnification................................................................................ 19 ARTICLE 9 UTILITIES AND SERVICES......................................................................... 20 9.1 Services to the Premises....................................................................... 20 ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES............................................. 20 10.1 Tenant Obligations............................................................................. 20 10.2 Surrender of the Premises...................................................................... 21
ii. 4
Page ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS AND COMMON AREA................................................... 21 11.1 Tenant's Rights to Construct Improvements...................................................... 21 11.2 Required Permits, Easements, etc............................................................... 23 11.3 Demolition and Reconstruction.................................................................. 23 11.4 Title to and Nature of Improvements............................................................ 23 ARTICLE 12 LIENS.......................................................................................... 24 ARTICLE 13 ASSIGNMENT BY LANDLORD......................................................................... 24 13.1 Further Mortgages or Encumbrances by Landlord; Authorized Loans............................................................................... 24 13.2 Landlord's Right to Sell....................................................................... 26 13.3 Transfer of Funds and Property................................................................. 26 ARTICLE 14 ASSIGNMENT AND SUBLEASING...................................................................... 27 14.1 Right to Assign................................................................................ 27 14.2 Right to Sublet................................................................................ 27 14.3 Tenant's Right to Mortgage..................................................................... 28 ARTICLE 15 EMINENT DOMAIN................................................................................. 28 15.1 Total or Substantial Taking.................................................................... 28 15.2 Partial Taking................................................................................. 28 15.3 Temporary Taking............................................................................... 28 15.4 Damages........................................................................................ 29 15.5 Notice and Execution........................................................................... 29 ARTICLE 16 DAMAGE OR DESTRUCTION.......................................................................... 29 16.1 Insured Casualty............................................................................... 29 16.2 Insurance Proceeds............................................................................. 30 ARTICLE 17 DEFAULT........................................................................................ 30 17.1 Default........................................................................................ 30 17.2 Event of Major Default......................................................................... 31 17.3 Contest by Tenant.............................................................................. 31 17.4 Remedies....................................................................................... 31 17.5 No Waiver...................................................................................... 32 17.6 Effect of Assignment........................................................................... 32 17.7 Landlord Cure Right............................................................................ 32 17.8 Landlord's Default............................................................................. 33 ARTICLE 18 QUIET ENJOYMENT................................................................................ 34 18.1 Quiet Enjoyment................................................................................ 34 ARTICLE 19 TENANT'S OPTION TO PURCHASE.................................................................... 35 19.1 Option To Purchase Premises.................................................................... 35 19.2 Mandatory Purchase/Sale of Premises............................................................ 37 19.3 Survival....................................................................................... 38 ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD............................................................... 38 20.1 Title.......................................................................................... 38 20.2 Land Use....................................................................................... 39 20.3 Transfer of Property Interests................................................................. 40 20.4 Shareholder Equity; No Other Asset............................................................. 40 20.5 Recourse Obligations........................................................................... 40 iii.
5
Page 20.6 Default Under Authorized Loan.................................................................. 40 ARTICLE 21 MISCELLANEOUS.................................................................................. 40 21.1 Relationship................................................................................... 40 21.2 Form of Transaction; Certain Tax Matters....................................................... 41 21.3 Notices........................................................................................ 41 21.4 Severability of Provisions..................................................................... 42 21.5 Entire Agreement; Amendment.................................................................... 42 21.6 Approvals and Consents......................................................................... 42 21.7 Terminology.................................................................................... 42 21.8 Memorandum of Lease............................................................................ 43 21.9 Successors and Assigns......................................................................... 43 21.10 Commissions.................................................................................... 43 21.11 Attorneys' Fees................................................................................ 43 21.12 Governing Law.................................................................................. 43 21.13 Counterparts................................................................................... 43 21.14 Time Is of the Essence......................................................................... 44 21.15 No Third Party Beneficiaries................................................................... 44 21.16 No Recourse.................................................................................... 44 21.17 Estoppel Certificates.......................................................................... 44 21.18 Collateral..................................................................................... 44 21.19 Landlord's Continuing Obligation to Sell....................................................... 45 21.20 As-Is Lease.................................................................................... 45 21.21 Net Lease...................................................................................... 45 21.22 Representations and Warranties................................................................. 45
List of Exhibits Exhibit A Description of Land Exhibit B Permitted Exceptions Exhibit C Memorandum of Lease Exhibit D Closing Costs and Fees to be Included in Funded Amount Exhibit E Lease Commencement Date Memorandum Exhibit F Description of Additional Property Owned by Landlord iv. 6 GROUND LEASE THIS GROUND LEASE ("Lease") by and between IRISH LEASING CORPORATION, a Texas corporation ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"), is entered into as of the date set forth in Article 1 and shall be effective and binding upon the parties hereto as of such date. Capitalized terms used in this Lease shall have the definitions set forth in Article 2 or in the text of this Lease. In consideration of the Base Rent reserved herein, and the terms, covenants and conditions set forth below, Landlord and Tenant hereby agree as follows: ARTICLE 1 BASIC LEASE PROVISIONS 1.1 DATE OF LEASE: April 12, 1995. 1.2 LANDLORD: Irish Leasing Corporation, a Texas corporation. 1.3 TENANT: Cisco Systems, Inc., a California corporation. 1.4 LAND: That certain tract of land located in the City of San Jose, Santa Clara County, California, consisting of five (5) parcels and more particularly described on Exhibit A attached hereto, together with all easements, rights of way, appurtenances and other rights and benefits belonging or pertaining to such land. 1.5 PREMISES: The Land. 1.6 TERM: The initial term ("Initial Term") of this Lease shall be for five (5) years commencing on the Lease Commencement Date (as defined in Section 4.1). Subject to the conditions set forth in Section 4.2, Tenant may extend the Initial Term for one (1) additional period of five (5) years ("Extension Term"). The Initial Term and (if exercised by Tenant) the Extension Term shall be referred to collectively herein as the "Term." The Term shall cease upon, and shall not refer to any period of time after, termination of this Lease (whether 1. 7 pursuant to the terms of the Lease, by operation of law, or otherwise). 1.7 LEASE COMMENCEMENT DATE: As described in Section 4.1. 1.8 RENT COMMENCEMENT DATE: The rent commencement date ("Rent Commencement Date") shall be the first LIBOR Business Day (as defined in Section 2.25) of the calendar month which commences immediately following the Lease Commencement Date. 1.9 BASE RENT: As described in Section 2.5. 1.10 ADDRESSES FOR NOTICES: LANDLORD: TENANT: Irish Leasing Corporation Cisco Systems, Inc. 6750 LBJ Freeway, Suite 1100 3535 Garrett Drive Dallas, TX 75240 Santa Clara, CA 95054 Attn: Mr. Greg England Attention: Eugene Hill With a copy to: With a copy to: Lorne Liechty, Esq. Cisco Systems, Inc. Liechty, McGinnis & Kolitz 3535 Garrett Drive 12750 Merit Drive Santa Clara, CA 95054 Suite 1150 Attention: Nancy Bareilles Dallas, Texas 75251 and Todd J. Anson, Esq. Brobeck, Phleger & Harrison 550 West C Street Suite 1300 San Diego, CA 92101 1.11 ADDRESSES FOR RENT PAYMENTS: Senior Rent Component: Union Bank of Switzerland 444 South Flower Street Los Angeles, CA 90071 Attn: Victor Massarano Equity Rent Component: Irish Leasing Corporation 6750 LBJ Freeway, Suite 1100 Dallas, TX 75240 Attn: Mr. Greg England 2. 8 This Article 1 is intended to supplement and/or summarize the provisions set forth in the balance of this Lease. If there is any conflict between any provisions contained in this Article 1 and the balance of this Lease, the balance of this Lease shall control. ARTICLE 2 DEFINITIONS For purposes of this Lease, the following defined terms shall have the meanings set forth in this Article 2. 2.1 ADDITIONAL RENT. "Additional Rent" shall mean any amounts other than Base Rent payable by Tenant to Landlord or to other Entities on Landlord's behalf as required under this Lease, including, without limitation, interest at the Default Rate accrued on past due Base Rent and other amounts past due hereunder, costs and expenses to be paid or reimbursed by Tenant hereunder, amounts due pursuant to Tenant's indemnity obligations hereunder, and Real Estate Taxes. 2.2 APPROVAL PLANS. "Approval Plans" shall have the meaning set forth in Section 11.1(a). 2.3 AUTHORIZED LOAN. "Authorized Loan" shall have the meaning set forth in Section 13.1(b). 2.4 AUTHORIZED PLANS. "Authorized Plans" shall have the meaning set forth in Section 11.1(a). 2.5 BASE RENT. "Base Rent" shall mean, as of a Rent Payment Date, the product of the Funded Amount as of the Rent Payment Date multiplied by the Lease Rate. 2.6 COLLATERAL. "Collateral" shall have the meaning set forth in Section 21.18. 2.7 DEFAULT. "Default" shall have the meaning set forth in Section 17.1. 2.8 DEFAULT RATE. "Default Rate" shall mean the interest rate charged or chargeable pursuant to the UBS Note or other Authorized Loan on any amounts not paid when due. Notwithstanding the foregoing, in the event that the foregoing Default Rate shall be in violation of any usury or similar law, then the Default Rate shall be reduced to the extent necessary to cause the Default Rate to comply with any usury or similar law. 2.9 ENTITY. "Entity" shall mean any person, corporation, partnership (general or limited), joint venture, association, joint stock company, trust or other business entity or organization. 3. 9 2.10 EQUITY FUNDED AMOUNT. "Equity Funded Amount" shall mean that portion of the Funded Amount equal to the Funded Amount minus the Senior Funded Amount. 2.11 EQUITY RENT COMPONENT. "Equity Rent Component" shall mean the Base Rent as of a Rent Payment Date minus the Senior Rent Component. 2.12 EVENT OF MAJOR DEFAULT. "Event of Major Default" shall have the meaning set forth in Section 17.2. 2.13 EXTENSION TERM. "Extension Term" shall have the meaning set forth in the Basic Lease Provisions. 2.14 FEE MORTGAGE. "Fee Mortgage" shall mean any Mortgage at any time given by Landlord and remaining uncancelled on the Official Records, encumbering all or any portion of Landlord's right, title and estate in the Land or in this Lease. 2.15 FEE MORTGAGEE. "Fee Mortgagee" shall mean the Mortgagee from time to time of a Fee Mortgage. 2.16 FUNDED AMOUNT. "Funded Amount" shall mean the aggregate amount of the sum paid by Landlord to acquire the Land, plus the closing costs and fees set forth on Exhibit D attached hereto; less any reductions in the amount of the UBS Loan or any other Authorized Loan or in the Equity Funded Amount, whether such principal reduction or reduction in the Equity Funded Amount is accomplished by payment to UBS or the holder of an Authorized Loan, the application of the Collateral or other collateral by UBS or the holder of an Authorized Loan, the payment of insurance proceeds, condemnation awards, or otherwise. 2.17 GUARANTEED RESIDUAL VALUE. "Guaranteed Residual Value" shall mean that amount necessary to cause the present value of the aggregate Minimum Lease Payments under this Lease, including the present value of the Guaranteed Residual Value, to not exceed eighty nine and 9/10 percent (89.9%) of the Funded Amount, computed at the Date of Lease and discounted to present value as of the Rent Commencement Date using the interest rate implicit in the Lease or the incremental borrowing rate, whichever is higher, all as calculated and determined pursuant to Statement of Financial Accounting Standards Number 13. "Minimum Lease Payments" shall mean the sum of the aggregate Base Rent payable over the Initial Term and the Extension Term, plus imputed interest on the non-interest bearing portion of the Security Deposit imputed at a market rate of interest for an investment for a similar term, plus the Guaranteed Residual Value, plus the following to the extent paid in cash: custodial and other fees paid by Tenant, and any other reimbursed costs of Landlord paid by Tenant deemed to meet the definition of Minimum Lease Payments under SFAS No. 13. 4. 10 2.18 IMPROVEMENTS. "Improvements" shall mean any and all improvements erected, constructed or situated upon the Land or any part thereof during the Term. 2.19 INITIAL TERM. "Initial Term" shall have the meaning set forth in the Basic Lease Provisions. 2.20 LAND. "Land" shall have the meaning set forth in the Basic Lease Provisions. 2.21 LANDLORD AFFILIATE. "Landlord Affiliate" shall mean any Entity which controls is controlled by or is under the common control of SGA Development Partnership, Ltd., or The Staubach Company, a Texas corporation. 2.22 LEASE COMMENCEMENT DATE. "Lease Commencement Date" shall have the meaning set forth in Section 4.1. 2.23 LEASE RATE. "Lease Rate" shall mean interest at the rate of the product of 0.846 times the then-effective LIBOR Rate plus .0046 per annum. 2.24 LEGAL REQUIREMENTS. "Legal Requirements" shall mean all statutes, codes, laws, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all federal, state, county, municipal and other governments, departments, commissions, boards, courts, authorities, officials and officers, and any covenants, conditions and restrictions and other matters of record (subject to the provisions of Section 13.1(a) hereof), which now or at any time hereafter are applicable to Tenant or this Lease or applicable to and enforceable against the Premises, the Improvements or any part thereof, as applicable. 2.25 LIBOR BUSINESS DAY. "LIBOR Business Day" shall have the same meaning as such term is defined in the UBS Note or other Authorized Loan. 2.26 LIBOR RATE. "LIBOR Rate" shall mean the LIBOR interest rate as defined in the UBS Note, or a subsequent Authorized Loan. 2.27 LOAN RATE. "Loan Rate" shall mean the relevant rate (or rates) of interest, as the same may change from time to time, applicable under the UBS Note (or if the UBS Loan has been replaced by an Authorized Loan, then the relevant rate of interest under the promissory note evidencing such Authorized Loan), all subject to the terms of Section 13.1(b). 2.28 MORTGAGE. "Mortgage" shall mean any mortgage, deed of trust, or other instrument in the nature thereof at any time and from time to time constituting a lien, charge or encumbrance upon any interest or estate of Tenant or Landlord in the Premises or in this Lease. 5. 11 2.29 MORTGAGEE. "Mortgagee" shall mean the record holder (as reflected in the Official Records) from time to time of, or the record beneficiary (as reflected in the Official Records) from time to time under, a Mortgage. 2.30 NEW LOAN. "New Loan" shall have the meaning set forth in Section 13.1(b). 2.31 NOTICE. "Notice" shall mean a written advice, request, demand or notification required or permitted by this Lease, as more particularly provided in Section 21.3. 2.32 OFFICIAL RECORDS. "Official Records" shall mean the official records of Santa Clara County, California. 2.33 PERMITTED EXCEPTIONS. "Permitted Exceptions" shall mean the following: (1) the exceptions set forth in Exhibit B; (2) any exceptions created or caused by Tenant or to which Tenant consents in writing; (3) taxes and assessments not yet due and payable; (4) a deed of trust or mortgage which secures a New Loan authorized pursuant to the terms of Section 13.1(b); (5) the Tenant Deed of Trust; (6) all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way, and restrictive covenants and conditions affecting the Land unless any of the foregoing arise as a result of Landlord's actions or with Landlord's written consent (unless such actions taken or consent given by Landlord are requested in writing by Tenant pursuant to Section 11.2, 20.1 or 20.2); and (7) this Lease. 2.34 PREMISES. "Premises" shall have the meaning set forth in the Basic Lease Provisions. It is the intention of the parties that the Premises consist only of the Land, and in no event shall the Premises consist of any Improvements whatsoever. 2.35 REAL ESTATE TAXES. "Real Estate Taxes" shall have the meaning set forth in Section 6.1(b). 2.36 RENT. "Rent" shall mean Base Rent and Additional Rent. 2.37 RENT COMMENCEMENT DATE. "Rent Commencement Date" shall have the meaning set forth in the Basic Lease Provisions. 2.38 RENT PAYMENT DATE. "Rent Payment Date" shall have the meaning set forth in Section 5.1. 2.39 REPLACEMENT LOAN. "Replacement Loan" shall have the meaning set forth in Section 13.1(c). 2.40 REQUIRED PERMITS. "Required Permits" shall mean each and every building and development permit including, without limitation, demolition permits, site permits and addenda thereto (including, without limitation, foundation permits and structural permits), temporary and final occupancy permits and any other 6. 12 governmental or quasi-governmental approvals which must be issued by any governmental authority, department, commission, board, official or officer as a condition precedent to construction and occupancy of any Improvements. 2.41 SECURITY DEPOSIT. "Security Deposit" shall have the meaning set forth in Section 5.5. 2.42 SENIOR FUNDED AMOUNT. "Senior Funded Amount" shall mean the principal amount of the UBS Loan as of the Lease Commencement Date, less any reductions in the principal amount of the UBS Loan or any other Authorized Loan, whether such principal reduction is accomplished by payment to UBS or the holder of the Authorized Loan, the application of the Collateral or other collateral by UBS or the holder of the Authorized Loan, the payment of condemnation awards, or otherwise. 2.43 SENIOR RENT COMPONENT. "Senior Rent Component" shall mean the product of the Senior Funded Amount as of a Rent Payment Date times the Loan Rate. 2.44 SGA. "SGA" shall mean SGA Development Partnership, Ltd., a Texas limited partnership, the sole shareholder of Landlord. 2.45 TAKING. "Taking" shall have the meaning set forth in Section 15.1. 2.46 TENANT DEED OF TRUST. "Tenant Deed of Trust" shall mean that certain deed of trust to be executed by Landlord in favor of Tenant and recorded in the Official Records as of the Lease Commencement Date, as more fully described in Section 13.1(d). 2.47 TERM. "Term" shall have the meaning set forth in the Basic Lease Provisions. 2.48 UBS. "UBS" shall mean the Union Bank of Switzerland, a Swiss banking corporation, acting through its Los Angeles branch. 2.49 UBS LOAN. "UBS Loan" shall have the meaning set forth in Section 13.1(b). 2.50 UBS NOTE. "UBS Note" shall have the meaning set forth in Section 13.1(b). ARTICLE 3 DEMISE 3.1 PREMISES. Subject to the terms, covenants and conditions contained herein, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, together with all rights, privileges, easements and appurtenances relating to the Premises. 7. 13 ARTICLE 4 TERM The Term of this Lease shall consist of the Initial Term, and if exercised by Tenant, the Extension Term, as follows: 4.1 INITIAL TERM. The Initial Term of this Lease is specified in Article 1. The Initial Term shall commence on the date ("Lease Commencement Date") that Landlord acquires title to the Land pursuant to that certain Purchase and Sale Agreement ("Purchase Agreement") executed or to be executed by Amdahl Corporation, as Seller ("Seller"), and Landlord, as Buyer. Within thirty (30) days after the Lease Commencement Date, Landlord and Tenant shall execute the Lease Commencement Date Memorandum in the form attached hereto as Exhibit E. In the event that the Initial Term does not commence on or before July 1, 1995, Tenant shall have the unilateral right to terminate this Lease by written notice to Landlord, and upon such termination Landlord shall immediately return the Security Deposit to Tenant, plus all interest earned thereon. In the event the Purchase Agreement is terminated as a result of any default under or breach of the Purchase Agreement by Landlord which is not the result of Landlord's gross negligence or willful misconduct, Landlord shall not be obligated to return any portion of the Security Deposit retained by Seller as liquidated damages pursuant to the terms of the Purchase Agreement; provided that, at Tenant's request, Landlord shall assign to Tenant any and all rights, claims and causes of action which Landlord may have with respect to the Purchase Agreement, excluding, however, any rights, claims and causes of action which may be necessary for Landlord to retain in order for Landlord to avoid or seek reimbursement for any liability, loss, cost, damage, injury or expense (including without limitation reasonable attorneys' fees and costs) which Landlord may sustain or suffer or be entitled to recover in connection with the Purchase Agreement. 4.2 EXTENSION TERM. Upon at least ninety (90) days' prior written Notice to Landlord, and provided that a New Loan or Replacement Loan has been obtained as of the commencement of the Extension Term (subject to the terms and conditions set forth in Sections 13.1(b) and 13.1(c)), Tenant may extend the Term for the Extension Term specified in Article 1. All provisions of this Lease shall remain in full force and effect for the Extension Term, including, without limitation, the Base Rent payable hereunder, except that Tenant shall have no further right to extend the Term of this Lease, and except that the Lease Rate may be adjusted only to reflect any actual change in the rate of interest (that is, the spread over LIBOR) charged pursuant to the Authorized Loan. 4.3 HOLDING OVER. If Tenant remains in possession of the Premises after the expiration of the Term without executing a new lease, such holding over shall be construed as a tenancy from month-to-month, subject to all terms, covenants and conditions herein contained (except that Tenant shall have no right to extend the Term of this Lease), and at the Base Rent required to be paid by Tenant pursuant to the terms hereof during the last month of the Term. 8. 14 ARTICLE 5 RENT 5.1 BASE RENT. (a) Tenant shall pay Base Rent in the manner set forth below. Base Rent shall be payable monthly, in arrears, without notice on the Rent Commencement Date, and continuing thereafter on the first LIBOR Business Day of each successive month, except that the last installment of Base Rent shall be payable on the last day of the Term (each such date shall be a "Rent Payment Date") and shall be an amount sufficient to pay all Base Rent accrued through the end of the Term. Tenant shall pay Base Rent as follows: The Senior Rent Component shall be paid to UBS, and the Equity Rent Component shall be paid to Landlord, at the Address for Rent set forth in the Basic Lease Provisions (or, if the UBS Loan has been replaced by a New Loan or Replacement Loan, then the Senior Rent Component shall be paid directly to the holder of such New Loan or Replacement Loan) or at such other place as Landlord and Tenant may from time to time mutually agree upon, in their respective sole and absolute discretion. Tenant shall pay Base Rent by wire transfer or by check. Landlord or UBS or such other holder of a New Loan, as the case may be, shall supply Tenant with such bank account information as Tenant shall require to enable payment by wire transfer. The parties agree that Tenant is paying the Senior Rent Component of Base Rent directly to UBS for the convenience of the parties in order to satisfy Landlord's obligations to pay interest under the UBS Loan for the period of time corresponding to the Term of this Lease; all Base Rent payments shall be deemed payments to Landlord to the extent of the Equity Rent Component and payments of the interest due to UBS under the UBS Loan to the extent of the Senior Rent Component. (b) INTEREST RATE SELECTION. The parties acknowledge that the interest rate applicable under the UBS Loan (or other Authorized Loan) shall affect the amount of Base Rent payable by Tenant hereunder. Therefore, Tenant shall have the right, by written notice to UBS (or the holder of any Authorized Loan), SGA and Landlord, to designate the interest period to be selected from time to time by SGA pursuant to the terms of the UBS Note (or other Authorized Loan). Tenant acknowledges that the rates available to be selected under the UBS Loan after the first partial calendar month of the Term are 1, 3, 6, 9 or 12-month LIBOR rates. In the event that Tenant fails to give such written notice to UBS (or other holder of an Authorized Loan), SGA and Landlord prior to the applicable deadline for selection of such interest period pursuant to the terms of the UBS Note (or other Authorized Loan), the same interest period then in effect for the UBS Loan (or other Authorized Loan) shall be selected. 5.2 PRORATION. If the Term expires or is otherwise terminated on a day other than the day before the first LIBOR 9. 15 Business Day of a calendar month, Base Rent for such calendar month shall be prorated on the basis of actual days elapsed on the basis of a thirty (30) day month. 5.3 NO ABATEMENT OF RENT. Except as a consequence of a reduction in the Funded Amount or the terms of Section 15 (Taking), Tenant shall not be entitled to any abatement, diminution, reduction, setoff or postponement of Base Rent as a consequence of any inconvenience to, interruption of, cessation of or loss of Tenant's use or enjoyment of the Premises or as a result of any reason whatsoever. 5.4 DELINQUENT RENT. Any Base Rent not paid on the due date shall accrue interest at the Default Rate from the date such Base Rent was originally due until the date such Base Rent is paid. All interest accrued on past due Base Rent shall be due and payable to Landlord at the time the Base Rent is paid, or upon demand by Landlord, if earlier. 5.5 SECURITY DEPOSIT. On the Date of Lease, Tenant shall deliver to Landlord a security deposit ("Security Deposit") in an amount equal to One Million Dollars ($1,000,000), to be held in an interest bearing account requiring authorization by both Landlord and Tenant for withdrawal. On the Lease Commencement Date, the Security Deposit plus all interest earned thereon shall be released to Landlord, and Tenant shall deliver to Landlord an amount sufficient to increase the Security Deposit to an amount equal to the Equity Funded Amount as of such date; provided that Tenant shall receive a credit for any interest earned on the Security Deposit prior to the Lease Commencement Date. The Security Deposit shall be held by Landlord as security solely for the payment of Base Rent and Additional Rent by Tenant pursuant to this Lease. One-fifth of the Security Deposit shall bear interest from the Lease Commencement Date at the rate of 6.75% per annum, simple interest, paid by Landlord to Tenant in cash on an annual basis on each anniversary of the Lease Commencement Date; and the remainder of the Security Deposit shall not bear interest. If at any time during the Term any Base Rent shall be overdue, then Landlord may at its election (but shall not be required to) appropriate and apply any portion of the Security Deposit to the payment of any such overdue Base Rent; provided, however, that Landlord shall use the non-interest bearing portion of the Security Deposit first, before appropriating any portion of the Security Deposit that shall bear interest pursuant hereto. Should the entire Security Deposit, or any portion thereof, be appropriated and applied by Landlord as provided herein, then Tenant shall immediately, after receipt of written demand by Landlord, pay to Landlord a sufficient sum in cash to restore the Security Deposit to the original sum of the Security Deposit. Landlord shall have no obligation to segregate the Security Deposit from other funds. In the event that the Equity Funded Amount is reduced for any reason, including without limitation by reason of a sale of any portion of the Premises or the application of the proceeds of a condemnation award to reduce the Equity Funded Amount (it being 10. 16 understood that the Equity Funded Amount will only be reduced in the event and to the extent that the net proceeds of such condemnation award exceeds the Senior Funded Amount, with such award proceeds to be applied first to the Senior Funded Amount pursuant to Section 15.4 hereof), the amount of the Security Deposit required hereunder shall be reduced (pro rata between the interest bearing and non-interest bearing portions of the Security Deposit) by a like amount, and any such excess funds held by Landlord shall immediately be returned to Tenant. The entire Security Deposit (other than amounts withheld against Base Rent due hereunder), plus any accrued and unpaid interest required to be paid thereon pursuant to this Lease, shall be returned to Tenant at the end of the Term. ARTICLE 6 TAXES 6.1 REAL ESTATE TAXES. (a) From and after the Lease Commencement Date, Tenant shall pay directly to the appropriate taxing authority all Real Estate Taxes. If the Lease Commencement Date occurs or the Term expires or otherwise terminates at any time other than the beginning or end of a taxable year, Tenant's obligation to pay Real Estate Taxes shall be prorated on the basis of a 365-day year, so as to include only that portion of the taxable year which is a part of the Term. Unless a termination of the Lease results from a purchase of the Land pursuant to Article 19, any Real Estate Taxes levied against the Land which accrue during the Term of this Lease but which would not be due and payable to the appropriate taxing authority until after the expiration of the Term of this Lease (as the same may be extended) shall be paid by Tenant to Landlord upon such termination. Landlord shall pay such amounts to the appropriate taxing authority on a timely basis. (b) Except to the extent that Real Estate Tax bills and statements are sent directly to Tenant by the taxing authority, upon receipt by Landlord of the tax bills or statements, Landlord will use reasonable efforts to promptly advise Tenant in writing of all Real Estate Taxes and shall deliver copies of all applicable tax bills or statements to Tenant. Tenant shall pay directly to the taxing authority all Real Estate Taxes prior to the later of (i) thirty (30) days after receipt by Tenant of a copy of such bills and statements referred to above, or (ii) five (5) days prior to delinquency. As used herein, the term "Real Estate Taxes" shall mean any and all taxes, governmental fees and similar charges or assessments levied or assessed against the Improvements and/or the Land including, without limitation, ad valorem taxes and special assessments applicable to real property; provided, however, that Real Estate Taxes shall not include any Landlord Income Taxes. Real Estate Taxes shall also include any and all documentary, transfer, sales, mortgage, recording or similar taxes imposed on Landlord or Tenant in connection with (i) the original acquisition 11. 17 of the Premises by Landlord, (ii) any transfer of the Premises to Tenant pursuant to the terms of this Lease, or (iii) any sale of the Premises to a third party pursuant to the terms of this Lease. As used herein, the term "Landlord Income Taxes" shall mean any and all income, franchise, gains, gift, succession, excess profits, gross receipts, revenue, estate, rental, or similar taxes or taxes in lieu thereof imposed upon Landlord or any party other than Tenant (or an affiliate thereof) and any withholding tax imposed as a collection device for, in lieu of, or otherwise related to any of the foregoing without regard to whether such tax is required to be collected by Tenant and without regard to whether Tenant would be liable for such withholding tax in the event it failed to so withhold. For purposes of the foregoing, an income tax shall include, without limitation, any tax imposed under the United States Internal Revenue Code or the California Bank and Corporation Tax Law as well as any tax which could qualify as an "income tax" under United States Treasury Regulation Section 1.901-2 (except to the extent any such statute or regulation is subsequently modified to include a tax or other governmental charge of a materially different type and nature from the taxes currently described therein) and any income tax which may be payable under the laws of any jurisdiction either now or in the future. Real Estate Taxes for any given tax year shall exclude assessment installments that are not due and payable during such tax year. 6.2 PERSONAL PROPERTY TAXES. Tenant shall pay directly to the appropriate taxing authorities prior to delinquency any and all taxes and assessments levied or assessed during the Term upon or against Tenant's furniture, equipment, trade fixtures and any other personal property in the Premises. 6.3 RIGHT TO CONTEST. Tenant shall not be required to pay any Real Estate Taxes or any other taxes for which Tenant is liable hereunder (including, without limitation, any taxes for which Tenant is required to indemnify Landlord under Section 6.5) (including penalties and interest), so long as (i) Tenant shall contest the same or the validity thereof by appropriate legal proceedings in such a manner to prevent the tax sale of any portion of the Premises and (ii) the position to be taken by Tenant pursuant to such contest would have a realistic possibility of success if litigated. For purposes of this Lease, Tenant may conclusively establish that a position to be taken in a contest would have a realistic possibility of success if litigated by providing to Landlord a letter from counsel stating an opinion to such effect. In the event of any such contest, Tenant shall, within thirty (30) days after the final determination thereof, pay and discharge the amounts determined to be due in accordance therewith and with the provisions of this Lease, together with any penalties, fines, interest, costs and expenses that may have accrued thereon or that may have resulted from Tenant's contest. Tenant also shall have a right to contest any taxes for which it is liable hereunder, but with regard to which the position to be taken pursuant to such contest would not have a realistic possibility of success if litigated, provided that Tenant pays such taxes on or 12. 18 prior to the date upon which such taxes are asserted to be due by the relevant governmental authority. Notwithstanding the foregoing provisions of this Section 6.3, Tenant shall have an unconditional right to contest (without prior payment) any taxes imposed by law upon Tenant rather than upon Landlord. Tenant's decision to pay any taxes prior to contesting its or another party's underlying liability therefore shall not be deemed to imply or suggest that the position to be taken in such contest would not have a realistic possibility of success if litigated. Landlord shall cooperate fully with Tenant in connection with the exercise of Tenant's right of contest contained herein, and in the event that applicable law shall require that Landlord, rather than Tenant, pursue legal proceedings for such contest, Landlord will initiate and pursue such contest upon Tenant's request and in accordance with Tenant's instructions (including, without limitation, Tenant's instructions as to the selection of legal counsel and matters of strategy or settlement); provided, however, that Landlord shall not be subject to any liability for the payment of any costs or expenses in connection with any such contest or proceedings, and Tenant will indemnify, defend and save harmless Landlord from and against any such costs and expenses (including, without limitation, reasonable attorneys' fees, costs of court and appraisal costs), reimbursing Landlord therefor upon demand (or paying such costs and expenses directly when due, all as directed by Landlord). Tenant shall be entitled to any refund of any taxes and penalties or interest from any governmental authority to the extent the refund represents monies paid to the governmental authority by Tenant or paid by Landlord and reimbursed by Tenant. 6.4 WITHHOLDING TAXES. Subject to Section 6.5, but notwithstanding any other provision of this Lease to the contrary, Tenant may withhold from any payments under this Lease any Landlord Income Taxes, without obligation to gross-up, indemnify or otherwise increase payments in consequence thereof, to the extent required by applicable law (as determined by Tenant in its reasonable discretion). Upon the date hereof or upon the date a party becomes a Landlord or a transferee of any portion of the Landlord's interest in the Premises or this Lease, and within thirty (30) days following the first day of each calendar year or if otherwise requested from time to time by Tenant, Landlord and each transferee, if organized under the laws of a jurisdiction outside the United States, shall provide Tenant with three counterparts of each of the forms prescribed by the Internal Revenue Service of the United States (Form 1001 or 4224, or successor form(s), as the case may be) certifying as to Landlord's or such transferee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to such person. Without limitation upon the foregoing, unless Tenant has received such forms or other documents reasonably satisfactory to it indicating that payments under this Lease are not subject to United States withholding tax, Tenant is authorized to and shall withhold taxes from such payments at the applicable statutory rate. Landlord and each transferee, if organized under the laws of the United States or any State thereof, shall timely 13. 19 provide Tenant with duplicate documents conforming to the requirements of Treasury Regulation 1.1441-5(b) or any successor thereto (which statement may be made on a Form W-9). 6.5 ADDITIONAL PROVISIONS RELATING TO TAXES. Notwithstanding anything in this Section 6 to the contrary, Tenant shall indemnify, defend and hold Landlord harmless from and against: (a) Any and all Landlord Income Taxes imposed upon Landlord in consequence of Landlord being treated as the owner or lessor of the Premises (or any part thereof) for such tax purposes (provided that Landlord has fully complied with its obligations under Section 21.2(b)); (b) Any and all minimum franchise taxes imposed in respect of doing business within the State of California, business qualification taxes, and similar governmental charges for which Landlord would not be liable but for its participation in the transactions described in this Lease, including obtaining the UBS Loan or any other Authorized Loan pursuant to this Lease; (c) Any and all taxes imposed upon Tenant (except to the extent that such taxes are imposed upon Tenant as a result of Landlord's failure to comply with its obligations under this Lease); (d) Any and all taxes required to be withheld from payments made by Tenant to a third party not related to or affiliated with Landlord or The Staubach Company; (e) Any and all taxes imposed upon Landlord on cancellation or discharge of indebtedness income arising in connection with a write-down, payoff modification or cancellation of the UBS Loan or other Authorized Loan (other than in connection with Landlord's or SGA's bankruptcy or insolvency or any write-down, payoff, modification or cancellation of the SGA Loan (as defined in Section 12.1(b)) not authorized in advance by Tenant) and provided that Landlord has fully complied with its obligations under Section 21.2(b); (f) Any and all Real Estate Taxes; and (g) Any and all taxes owed by Landlord as a result of payment made by Tenant to or for the benefit of Landlord pursuant to Tenant's indemnity obligations under this Section 6.5. Tenant's obligation to reimburse or indemnify Landlord for any taxes, governmental fees, penalties, interest or other supplemental tax charges under this Lease shall be reduced by the value of any related or offsetting tax benefits derived or realized by Landlord. For purposes of calculation of tax benefits derived or realized by Landlord, any net operating loss attributable to the 14. 20 Premises for any year shall be deemed to be available to offset against income from the Premises in subsequent years regardless of whether it is in fact available. Tenant's duty to indemnify Landlord under this Section 6.5 shall apply only to taxes arising during the Term (whether or not due and payable at the conclusion of the Term), but shall otherwise survive the expiration or earlier termination of this Lease. ARTICLE 7 INSURANCE 7.1 LIABILITY INSURANCE. At all times during the Term, Tenant shall obtain at Tenant's sole cost and expense a policy or policies of comprehensive general liability insurance on an "occurrence" basis against claims for "personal injury" liability, including, without limitation, bodily injury, death or property damage liability. The liability insurance policy shall contain coverage limits no less than a combined single limit of $5,000,000 per occurrence. The insurance may be furnished under a "primary" policy and an "umbrella" policy or policies. Landlord shall be named as an additional insured under Tenant's policy and Tenant's policy shall contain an endorsement for cross-liability coverage. Tenant shall furnish Landlord with certificates from Tenant's insurers with respect to the insurance required to be carried hereunder on or before the date of execution of this Lease. The certificates shall state that such insurance is in full force and effect and that coverage will not be cancelled without twenty (20) days' prior written notice to Landlord. Renewal certificates shall be furnished to Landlord not less than thirty (30) days prior to the expiration of each such policy. Any blanket insurance policy or policies that insure Tenant against the risks and for the amounts herein specified shall be deemed to satisfy the obligation of Tenant hereunder, provided that any such policy of blanket insurance shall specify the amount of the total insurance allocated to the risks required to be insured hereunder and such allocated amount meets the requirements of this Article 7. All insurance required by this Article 7 shall be with an insurance company licensed to do business in the State of California with a general policyholder's rating, as rated by the most current available "Bests" Insurance Reports, no less than A-III, and shall be primary and non-contributing. 7.2 WAIVER OF SUBROGATION. Notwithstanding anything to the contrary contained herein, to the extent permitted by law and so long as any insurance coverage maintained by Tenant is not diminished by reason thereof, Tenant hereby (a) releases and waives any rights it may have against Landlord and its officers, agents and employees on account of any loss or damages occasioned to Tenant, its property or the Premises, and arising from any risk covered by any fire and extended coverage insurance maintained by Tenant, whether or not due to the negligence of Landlord, its agents, employees, contractors, licensees, invitees or other persons, and (b) waives on behalf of any insurer providing such 15. 21 insurance to Tenant any right of subrogation that any such insurer may have or acquire against Landlord or such persons by virtue of payment of any loss under such insurance. Tenant shall use its best efforts to cause its insurance policies to contain a waiver of subrogation clauses in accordance with the foregoing. 7.3 INDEMNITY. Tenant shall protect, defend, indemnify, hold and save Landlord harmless from and against any and all losses, costs, liabilities or damages (including reasonable attorneys' fees and disbursements and court costs) arising by reason of: (i) any and all injury or death of persons or damage to property against which Tenant is obligated to maintain insurance for the benefit of Landlord pursuant to this Article 7; (ii) the failure to obtain the waiver of subrogation clause required by Section 7.2 hereof where such clause could have been obtained through the exercise of Tenant's best efforts; or (iii) the invalidation of such insurance policy required to be obtained by Tenant hereunder by Tenant's insurer. Tenant's duty to indemnify Landlord under this Section 7.3 shall survive the expiration or earlier termination of this Lease with respect to events occurring during the Term. ARTICLE 8 USE 8.1 USE. (a) PERMITTED USES. Tenant may use the Premises for any lawful purpose. (b) ENVIRONMENTAL COMPLIANCE. (i) DEFINED TERMS. The term "Applicable Environmental Laws" shall mean any applicable laws, regulations or ordinances pertaining to health or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 or otherwise (as amended, hereinafter called "CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, the Hazardous and Solid Waste Amendments of 1984 or otherwise (as amended, hereinafter called "RCRA"), and California Health & Safety Code Section 25501(j). The terms "hazardous substance" and "release" as used in this Lease shall have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have the meanings specified in RCRA; provided, in the event either CERCLA or RCRA is amended or superseded by other laws so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment or other laws; and, provided further, to the extent that the laws of the State of California establish a meaning for "hazardous substance", "release", "solid waste", or "disposal" 16. 22 which is broader than that specified in either CERCLA or RCRA, such broader meaning shall apply. The term "Pre-existing Contamination" means concentrations of arsenic and lead existing in soil and groundwater at the Premises as of the Lease Commencement Date. (ii) TENANT'S COVENANTS. Tenant will not cause or permit the Premises or the Improvements to be in violation of, or do anything or permit anything to be done which subjects Landlord, Tenant or the Premises to any remedial obligations under or which creates a claim or cause of action under, any Applicable Environmental Laws, including, without limitation, CERCLA, RCRA, and the California Health and Safety Code ss.25501(j), assuming disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to the Premises and the Improvements, and Tenant will promptly notify Landlord in writing of any existing, pending or threatened investigation, claim or inquiry of which Tenant has knowledge by any governmental authority in connection with any Applicable Environmental Laws. Tenant shall obtain any permits, licenses or similar authorizations to construct, occupy, operate or use any Improvements, fixtures and equipment at any time located on the Premises by reason of any Applicable Environmental Laws. Tenant will not use the Premises or the Improvements in a manner which will result in the unlawful disposal or other unlawful release of any hazardous substance or solid waste on or to the Premises or the Improvements and covenants and agrees to keep or cause the Premises and the Improvements to be kept free of any unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (including, without limitation, friable asbestos and any substance containing asbestos deemed hazardous and unlawful by any Applicable Environmental Law) and to remove the unlawful amounts of the same (or if removal is prohibited by law, to take whatever action is required by law) promptly upon discovery at Tenant's sole expense. Tenant shall promptly notify Landlord in writing of any unlawful disposal or other unlawful release of any hazardous substance, environmental contaminants or solid wastes on or to the Premises or the Improvements. Landlord and Tenant acknowledge that Pre-existing Contamination exists at the Premises due to operations of prior owners and that Tenant has no further obligation to notify Landlord regarding such Pre-existing Contamination. Landlord acknowledges receipt of that certain Phase I Environmental Assessment and Phase II Soil and Groundwater Evaluation dated March 31, 1995 prepared by Lowney Associates ("Report"); provided that delivery of such Report shall in no way limit or modify Tenant's indemnity obligations pursuant to Section 8.1(b)(iii) hereof. Tenant acknowledges that Landlord will not acquire the Premises if any environmental contamination of the Premises in violation of applicable law, which contamination is not disclosed in the Report, occurs or is discovered before the Lease Commencement Date. In the event Tenant fails to comply with or perform any of the foregoing covenants and obligations, after thirty (30) days' prior written Notice to Tenant, Landlord may, but shall be under no obligation to, cause the Premises and the Improvements to be freed from the unlawful hazardous substance, 17. 23 unlawful solid waste or unlawful environmental contaminants (or if removal is prohibited by law, to take whatever action is required by law) and the reasonable cost of the removal or such other action shall be a demand obligation owing by Tenant to Landlord pursuant to this Lease; provided, however that this sentence shall not apply to Pre-existing Contamination. Notwithstanding the foregoing, Landlord shall have no right to cause the removal of such materials so long as Tenant both: (1) is diligently and in good faith proceeding to comply with Tenant's obligation to remove the unlawful amounts of such materials; and (2) has the financial ability to so comply. Subject to the foregoing, Tenant grants to Landlord and Landlord's agents and employees access to the Premises and the Improvements, and the license to remove the unlawful hazardous substance, unlawful solid waste or unlawful environmental contaminants (or if removal is prohibited by law, to take whatever action is required by law) and agrees to indemnify, defend and save Landlord harmless from and against all reasonable costs and expenses involved and from all claims (including consequential damages) asserted or proven against Landlord by any party in connection therewith. Upon Landlord's reasonable request for "good cause" (defined below), at any time and from time to time during the Term, Tenant will provide at Tenant's sole expense an inspection or audit of the Premises and the Improvements from an engineering or consulting firm approved by Landlord, indicating the presence or absence of any hazardous substance, solid waste or environmental contaminants located on the Premises; provided, however that this provision shall not apply to Pre-existing Contamination. If Tenant fails to provide same after sixty (60) days' notice, Landlord may order same, and Tenant grants to Landlord and Landlord's employees and agents access to the Premises and the Improvements and a license to undertake any testing reasonably required to obtain such inspection or audit. The reasonable cost of obtaining such inspection or audit and any expenses incurred by Landlord in connection therewith, shall be a demand obligation owing by Tenant to Landlord pursuant to this Lease. For purposes of this Section 8.1(b)(ii), "good cause" shall mean that Landlord shall have reasonable grounds to believe that an unlawful release or unlawful disposal of hazardous substances or solid wastes has occurred on the Premises or the Improvements, but shall not include Pre-existing Contamination. (iii) TENANT'S INDEMNITY. Tenant agrees to indemnify, defend and hold Landlord harmless from and against, and to reimburse Landlord with respect to, any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses (including without limitation attorneys' fees and court costs), fines and/or penalties of any and every kind or character, known or unknown, fixed or contingent, asserted or potentially asserted against or incurred by Landlord at any time and from time to time by reason of, in connection with or arising out of (A) the failure of Tenant to perform any obligation herein required to be performed by Tenant regarding Applicable Environmental Laws, (B) any violation of any Applicable Environmental Law by Tenant or with respect to the Premises or the Improvements, or any disposal or 18. 24 other release by Tenant or with respect to the Premises or the Improvements of any hazardous substance, environmental contaminants or solid waste on or to the Premises or the Improvements, whether or not resulting in a violation of any Applicable Environmental Law, (C) any act, omission, event or circumstance by Tenant or with respect to the Premises or the Improvements which constitutes or has constituted a violation of any Applicable Environmental Law with respect to the Premises or the Improvements, regardless of whether the act, omission, event or circumstance constituted a violation of any Applicable Environmental Law at the time of its existence or occurrence, and (D) any and all claims or proceedings (whether brought by private party or governmental agencies) for bodily injury, property damage, abatement or remediation, environmental damage or impairment or any other injury or damage resulting from or relating to any hazardous or toxic substance or contaminated material located upon or migrating into, from or through the Premises or the Improvements (whether or not the release of such materials was caused by Tenant, a subtenant, a prior owner of the Premises or any other Entity) which Landlord may incur. Tenant's duty to indemnify Landlord under this Section 8.1 shall survive the expiration or earlier termination of the Lease with respect to events occurring during or prior to the Term or after the Term while Landlord has record title to and Tenant is occupying the Premises. 8.2 CONTEST OF LEGAL REQUIREMENTS. Tenant shall have the right at its sole cost and expense to contest the validity of any Legal Requirements applicable to the Premises by appropriate proceedings diligently conducted in good faith; and upon the request of Tenant and at Tenant's sole cost and expense, Landlord will join and cooperate with Tenant in such proceedings. Any other provision of this Lease (other than Section 6.3) to the contrary notwithstanding, Tenant's right to contest Legal Requirements must be exercised in such a manner as to avoid any exposure of the Premises or any part thereof to foreclosure or execution sale or exposure of Landlord to civil or criminal penalties arising from Tenant's non-compliance with such Legal Requirements. Tenant shall defend and indemnify Landlord against, and hold Landlord harmless from, any and all liability, loss, cost, damage, injury or expense (including, without limitation, attorneys' fees and costs) which Landlord may sustain or suffer by reason of Tenant's failure or delay in complying with, or Tenant's contest of, any such Legal Requirements (or Landlord's contest, if requested in writing by Tenant), and Tenant's duty to indemnify Landlord under this Section 8.2 shall survive the expiration or earlier termination of this Lease. 8.3 INDEMNIFICATION. Tenant will defend, protect, indemnify and save harmless Landlord from and against all liabilities, obligations, claims, damages, causes of action, costs and expenses, imposed upon or incurred by Landlord by reason of the occurrence or existence of any of the following during the Term, except to the extent caused by the willful misconduct, gross negligence, or willful breach of contract of Landlord or its agents 19. 25 or contractors: (1) any claims of Seller arising from the Purchase Agreement described in Section 4.1 (provided, that, without limitation of Tenant's indemnity obligations hereunder, Tenant's indemnity obligation under this Clause 1 shall apply notwithstanding a willful breach of the Purchase Agreement by Landlord if such breach is caused, directly or indirectly, by Tenant or any actions or failure to act by Tenant or as a result of Landlord's following Tenant's instructions with respect to the Purchase Agreement or in the event that Landlord is unable to obtain the UBS Loan); (2) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Premises or Improvements; (3) performance of any labor or services or the furnishing of any materials or other property in respect of the Premises or the Improvements; (4) the negligence or willful misconduct on the part of Tenant or any of its agents, invitees, employees or contractors or any other persons entering onto the Premises or the Improvements at the request, behest or with the permission of Tenant; (5) the construction, use or occupancy of the Improvements which Tenant may elect to construct; (6) the existence or application of any Legal Requirements with respect to the Premises or Improvements; or (7) the use of the Premises or Improvements. Tenant's duty to indemnify Landlord under this Section 8.3 shall survive the expiration or earlier termination of this Lease with respect to events occurring prior to the commencement of the Term, during the Term or after the Term while Landlord has record title to and Tenant is occupying the Premises. Notwithstanding anything to the contrary herein, Tenant's duty to indemnify Landlord pursuant to Clause 1 above shall apply only with respect to events or occurrences occurring prior to commencement of the Term. ARTICLE 9 UTILITIES AND SERVICES 9.1 SERVICES TO THE PREMISES. At Tenant's sole cost and expense, Tenant shall make its own arrangements for the provision of all utilities and services to be provided to or consumed on the Premises, including, without limitation, air conditioning, ventilation, heating, electric power, telephone, water (both domestic and fire protection), sanitary sewer, storm drain, natural gas and janitorial services, including for the installation, maintenance and repair of service lines and meters to measure Tenant's consumption of such utilities. ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES 10.1 TENANT OBLIGATIONS. Except as otherwise provided in this Lease, Tenant shall maintain the Premises in good repair, normal wear and tear, casualty and Takings (as defined in Section 15.1) excepted. All maintenance that Tenant is obligated to perform under this Section 10.1 shall be at the sole expense of Tenant, except to the extent that repairs are made necessary 20. 26 because of the gross negligence or willful misconduct of Landlord, its agents, employees or contractors. 10.2 SURRENDER OF THE PREMISES. Except as provided in Section 19, upon the expiration or earlier termination of the Term, Tenant shall surrender the Premises to Landlord in its then "AS-IS" condition, including, without limitation, any condition resulting from: (i) wear and tear; (ii) obsolescence and damage by fire or other casualty, act of God or the elements; (iii) damage that is beyond Tenant's reasonable control or is caused by Landlord, its agents, employees or contractors; (iv) any Improvements which Tenant may elect to construct (in compliance with the terms of this Lease) and leave on the Premises (subject to the rights of any other Entity in such Improvements); (v) Takings; and (vi) Tenant's alterations, additions, removals, repairs, replacements, or decorations in, to or of the Premises. Title to all Improvements, furniture, furnishings, fixtures, trade fixtures and personal property of Tenant located in or upon the Premises, whether or not affixed to the realty, shall be and remain in Tenant, and upon the expiration or earlier termination of this Lease, or within thirty (30) days thereafter (or as soon thereafter as reasonably practical), the same may be removed by Tenant, or, at Tenant's election, surrendered with the Premises, in which event title to such surrendered property shall, if Landlord so elects in Landlord's sole discretion, be deemed transferred to Landlord (subject to the rights of any other Entity in such Improvements). ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS AND COMMON AREA 11.1 TENANT'S RIGHTS TO CONSTRUCT IMPROVEMENTS. Tenant shall be under no obligation whatsoever to construct any Improvements. Tenant shall have the right, in Tenant's sole discretion, to construct Improvements which Tenant desires, subject only to the specific approvals required from Landlord pursuant to the terms of this Section 11.1. Notwithstanding anything to the contrary, without obtaining Landlord's approval, Tenant may perform work on the Premises which does not consist of the actual construction of above-ground buildings (for example, Tenant may perform grading, trenching and similar work, and may install and construct utilities, parking lots, driveways, roadways, foundations, and the like). (a) APPROVAL PLANS. Prior to commencing any actual construction of Improvements (except as otherwise permitted or already approved pursuant to this Section 11.1), Tenant's proposed site plans (showing the locations and orientations of any proposed buildings) and exterior shell plans (showing exterior building sections) (collectively, "Approval Plans") of any Improvements which Tenant may elect to construct shall be submitted to and approved by Landlord in accordance with the following (in each case to the extent applicable). Tenant shall deliver a letter to Landlord along with any submitted Approval Plans in which Tenant 21. 27 states that the submitted Approval Plans do not violate any Legal Requirements. Landlord may only withhold Landlord's approval to any such Approval Plans to the extent that the Approval Plans violate any material Legal Requirements, and Landlord may not withhold its consent on any other ground. At the option of Tenant, the foregoing documentation may be submitted to Landlord for approval in stages as Tenant completes it. Landlord shall have a period of ten (10) days from the date of receipt of each component of the documentation within which to approve or reject it. The Approval Plans, as approved from time to time by Landlord pursuant to this Section 11.1 shall constitute the "Authorized Plans." Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of any Approval Plans, provided that Landlord first gives Tenant a detailed written notice that it has reasonable grounds to believe that the Approval Plans violate material Legal Requirements, and Tenant fails either to revise such Approval Plans to comply with such material Legal Requirements or to provide reasonable evidence that the Approval Plans do not violate material Legal Requirements. Landlord's approval of any Authorized Plans does not constitute any representation or warranty by Landlord with respect to such Authorized Plans, and Landlord hereby specifically disclaims any such representations and warranties. (b) FURTHER APPROVALS; PROPOSED CHANGES. Subsequent to Landlord's approval of any Authorized Plans pursuant to Section 11.1(a), Tenant shall only be obligated to submit to Landlord for approval documentation showing any proposed material change to the Authorized Plans (but no approval shall be required with respect to construction or design matters that are not contained or addressed by the Authorized Plans), and only to the extent such change is materially inconsistent with the Authorized Plans. Landlord shall have a period of ten (10) days from receipt of each material change within which to approve or reject it. Landlord may only withhold Landlord's approval to any such change to the Authorized Plans to the extent that such change violates any material Legal Requirements, and Landlord may not withhold its consent on any other ground. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the review and approval of any such changes, provided that Landlord first gives Tenant a detailed written notice that it has reasonable grounds to believe that the Approval Plans violate material Legal Requirements, and Tenant fails either to revise such Approval Plans to comply with such material Legal Requirements or to provide reasonable evidence that the Approval Plans do not violate material Legal Requirements. Tenant shall have the right, without further approval of Landlord, to construct Improvements not inconsistent with the Authorized Plans together with such changes thereto as may be requested or required to comply with Legal Requirements. (c) FAILURE TO DISAPPROVE. The failure by Landlord to disapprove any portion of the proposed Approval Plans submitted 22. 28 pursuant to this Section 11.1, or send Notice that it has grounds to believe the proposed Approval Plans violate a material Legal Requirement within the specified approval period shall be deemed to constitute approval thereof as submitted, and such Approval Plans shall thereupon become Authorized Plans. Any disapproval by Landlord of any portion of the proposed Approval Plans shall be in writing and shall specify with particularity the basis for the disapproval. (d) OTHER IMPROVEMENTS AND ALTERATIONS. At any time and from time to time, and without the necessity for obtaining Landlord's approval or giving Notice thereof to Landlord, Tenant shall have the right, at its expense, to make any Improvements, alterations, additions, repairs, replacements or decorations in, to or of the Premises which do not materially change the exterior design scope of the Improvements as previously approved by Landlord pursuant to any Authorized Plans. In constructing any Improvements, Tenant shall do so in a manner which does not violate any applicable and material Legal Requirements. 11.2 REQUIRED PERMITS, EASEMENTS, ETC. From time to time, upon request of Tenant, Landlord (as holder of record of title to the Land) shall execute such reasonable documents, petitions, applications and authorizations, easements and rights of way (which have been prepared at Tenant's expense) and shall appear at and participate in such public hearings, staff meetings and similar gatherings, in each case as may in the reasonable and good-faith opinion of Tenant be necessary or appropriate for the purpose of obtaining any Required Permits or private easements or rights of way or utility services for the Improvements or to remove any title encumbrances on the Land which may interfere with Tenant's construction of the Improvements. Tenant shall immediately reimburse Landlord on demand (or pay directly) for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 11.2. 11.3 DEMOLITION AND RECONSTRUCTION. At any time and from time to time, Tenant shall have the right to demolish or alter all or any portion of the then existing Improvements and construct additional Improvements in their place. The additional Improvements, if any, to be constructed shall be submitted to and approved by Landlord only to the extent required by Section 11.1, as applicable. 11.4 TITLE TO AND NATURE OF IMPROVEMENTS. Any and all Improvements of whatever nature at any time constructed, placed or maintained upon any part of the Land shall be and remain the property of Tenant, subject to Tenant's right to assign or sublease. The severance of fee title to the Land and Improvements shall not change the character of the Improvements as real property. 23. 29 ARTICLE 12 LIENS Except for claims that Tenant is contesting in good faith in such manner as to avoid any exposure of the Premises or any part thereof to foreclosure or execution sale, Tenant shall promptly pay and discharge all claims for work or labor done, supplies furnished or services rendered to the Premises, and shall keep the Premises free and clear of all mechanics' and materialmen's liens in connection therewith. ARTICLE 13 ASSIGNMENT BY LANDLORD 13.1 FURTHER MORTGAGES OR ENCUMBRANCES BY LANDLORD; AUTHORIZED LOANS. (a) PROHIBITION. Except for the Tenant Deed of Trust and as specifically permitted in Section 11.2, 13.1(b) or 20, Landlord shall not cause or create any mortgages, deeds of trust, encumbrances or other exceptions to title (collectively, "New Encumbrances") to exist with respect to the Premises at any time, and any such encumbrance not authorized in writing by Tenant shall be null and void. The term "New Encumbrances" shall also include any bonds or assessments affecting the Premises to which Landlord consents in writing without the prior written approval of Tenant (which may be withheld in Tenant's sole and absolute discretion). Without the prior written consent of Tenant (which may be withheld in Tenant's sole and absolute discretion), Landlord shall not make or join in an application or other document which requests or authorizes any bonds or assessments to affect the Premises. Landlord recognizes that any New Encumbrance may irreparably harm Tenant in connection with one or more of the following: (1) construction which Tenant may desire to perform; (2) the use of the Premises; (3) Tenant's rights pursuant to the Purchase Option in Section 19; (4) the amount of assessments which Tenant is required to pay; or (5) other matters. (b) AUTHORIZED LOAN. Tenant has approved the terms of the loan ("UBS Loan") to be made by UBS to SGA which shall be evidenced by that certain Tranche C Promissory Note dated as of the Lease Commencement Date by SGA in favor of UBS ("UBS Note"), and further evidenced and/or secured by (a) that certain General Terms and Conditions of Credit Arrangement between SGA and UBS, (b) that certain Additional Terms and Conditions between SGA and UBS, (c) that certain Pledge Agreement, as amended by Rider No. 1 thereto, made by Tenant in favor of UBS, and (d) certain documents (including, without limitation a promissory note and related documents) evidencing a loan ("SGA Loan") from SGA to Landlord in the principal amount of the UBS Note, all dated as of the Lease Commencement Date; provided, however, that Tenant, Landlord and SGA reserve the right to approve, in their sole discretion, the final form of all documents related to the UBS Loan. In addition, upon 24. 30 the maturity or prepayment of the UBS Loan (whether by its terms, by acceleration or otherwise), Landlord may (but, subject to the terms of Section 13.1(c), shall not be obligated to) enter into a new loan (such authorized loan shall be the "New Loan"), provided Landlord first obtains Tenant's written consent (which consent shall not be unreasonably withheld except with respect to the matters contained in clauses (i) through (v) below so long as: (i) the UBS Loan is paid off with the proceeds of such New Loan and all documents securing or reflecting the UBS Loan are assigned to the lender who makes the New Loan or are released and satisfied; (ii) the principal amount of the New Loan does not exceed the principal amount of the UBS Loan existing at the time the UBS Loan is repaid; (iii) the interest rate and payment provisions under the New Loan would not result in higher monthly payments than the method under the UBS Loan, and all such monthly payments shall be interest only; (iv) there are no prepayment prohibitions, penalties or other restrictions which would limit rights to retire the New Loan or require additional payment to do so; and (v) the New Loan documents do not contain terms and conditions which differ from the UBS Loan documents in any material respect, including provisions relating to the Collateral as defined in Section 21.18. The UBS Loan, the New Loan authorized pursuant to the preceding sentence and the Replacement Loan described in Section 13.1(c) below shall be the "Authorized Loan"; provided that only one Authorized Loan may exist at any one point in time. Landlord may not modify the terms of an Authorized Loan without the prior written consent of Tenant, which Tenant shall not unreasonably withhold (but may be withheld in Tenant's sole and absolute discretion based upon any of the matters identified in subitems (i) through (v) above in this Section 13.1(b)). (c) REPLACEMENT LOAN. Subject to Landlord's prior written consent (which consent shall not be unreasonably withheld or delayed), at the request of Tenant, Landlord shall execute and/or shall cause SGA to execute loan documents evidencing and/or securing a new loan to Landlord or SGA, the proceeds of which would be used to retire the UBS Loan (such loan requested by Tenant shall be a "Replacement Loan"). Landlord shall only be entitled to refuse to consent to such new loan if (1) the maturity date of the Replacement Loan is a date before the expiration date of the Extension Term; (2) the principal amount of the Replacement Loan exceeds the principal amount of the UBS Loan plus any accrued interest and fees payable at the time the UBS Loan is prepaid; (3) the interest rate structure under the Replacement Loan is materially higher than market conditions would justify at the time; (4) there are prepayment prohibitions, penalties or other restrictions which would limit rights to retire the Replacement Loan or require additional payment to do so; (5) the Replacement Loan creates greater liability for Landlord or SGA than otherwise would exist for Landlord and SGA, or would result in the violation of any law, rule or regulation applicable to Landlord or SGA, or (6) the Replacement Loan documents contain terms and conditions which differ from the UBS Loan documents in any material respect (including provisions relating to the Collateral as defined in 25. 31 Section 21.18); provided, however, that Landlord shall not be entitled to object to a Replacement Loan on the ground that Landlord, rather than SGA, shall be the borrower under such Replacement Loan. Tenant shall pay all reasonable costs, including without limitation reasonable attorneys' fees, incurred by Landlord in connection with obtaining such a Replacement Loan. If Tenant requests and provides the funds, Landlord shall make all arrangements necessary for, and shall pay down any Authorized Loan in the amount requested by Tenant, and shall arrange for all documentation reasonably requested by Tenant to reflect the reduction or elimination of such Authorized Loan. (d) On the Lease Commencement Date, Landlord shall execute, acknowledge, and cause to be recorded in the Official Records, a deed of trust in form acceptable to Tenant ("Tenant Deed of Trust"), which Tenant Deed of Trust shall secure Landlord's obligations under this Lease (i) to return the Security Deposit pursuant to the terms of this Lease, (ii) to convey the Premises to Tenant as required pursuant to Article 19 hereof, and (iii) to comply with Sections 20.4, 20.5 and 20.6. The Tenant Deed of Trust shall be a first priority lien against the Premises. 13.2 LANDLORD'S RIGHT TO SELL. Subject to Tenant's Purchase Option and the mandatory purchase set forth in Article 19 and the terms of Section 13.1 and Article 20, nothing contained in this Lease shall be deemed in any way to limit, restrict or otherwise affect the right of Landlord at any time and from time to time to sell or transfer all of its right, title and estate in the Premises to a Landlord Affiliate or, if an Event of Major Default has occurred and is continuing at the time of such sale or transfer, to any Entity, provided that such buyer or transferee shall concurrently assume without incurring personal liability except as expressly provided in this Lease, in writing, in a manner consistent with this Lease and in compliance with all requirements of the UBS Loan documents, all of Landlord's and/or SGA's obligations under the UBS Loan or any other Authorized Loan and the Landlord's obligations under this Lease. Notwithstanding anything to the contrary in this Lease, without the prior written consent of Tenant (which may be withheld in Tenant's sole discretion), in no event shall Landlord sell or transfer all or any portion of Landlord's right, title or estate in the Premises to any Entity which does not then comply with the requirements of Sections 20.4 and 20.5 if an Event of Major Default does not then exist at the time of such sale or transfer. Any sale or transfer by Landlord whatsoever shall by its express terms recognize and confirm the right of possession of Tenant to the Premises and Tenant's other rights arising out of this Lease shall not be affected or disturbed in any way by any such sale, transfer, assignment or conveyance. 13.3 TRANSFER OF FUNDS AND PROPERTY. At each time Landlord sells, assigns, transfers or conveys the entire right, title and estate of Landlord in the Premises and in this Lease, Landlord shall turn over to the transferee the Security Deposit and any other funds or other property then held by Landlord under this 26. 32 Lease and thereupon all the liabilities and obligations on the part of the Landlord under this Lease arising after the effective date of such sale, assignment, transfer or conveyance shall terminate as to the transferor and be binding upon the transferee. ARTICLE 14 ASSIGNMENT AND SUBLEASING 14.1 RIGHT TO ASSIGN. (a) TENANT'S RIGHT. Tenant shall have the right, at any time and from time to time during the Term, to assign all or any portion of its right, title and estate in the Premises and in this Lease without approval by Landlord. Any such assignee, immediate or remote, shall have the same right of assignment. Any such assignment shall be evidenced by a written instrument, properly executed and acknowledged by all parties thereto and, at Tenant's election, duly recorded in the Official Records, wherein and whereby the assignee assumes all of the obligations of Tenant under this Lease. Notwithstanding any such assignment and assumption or any sublease permitted under Section 14.2 hereof, Tenant shall remain primarily liable for all obligations and liabilities on the part of Tenant theretofore or thereafter arising under this Lease. (b) NOTICE. Tenant shall, promptly after execution of each assignment, notify Landlord of the name and mailing address of the assignee and shall, on demand, permit Landlord to examine and copy the assignment agreement. 14.2 RIGHT TO SUBLET. (a) TENANT'S RIGHT. Tenant shall have the right, at any time and from time to time during the Term, to sublet all or any portion of the Premises and to extend, modify or renew any sublease without the approval of Landlord. (b) NOTICE. Tenant shall, promptly after execution of each sublease, notify Landlord of the name and mailing address of the subtenant and shall, on demand, permit Landlord to examine and copy the sublease. (c) NON-DISTURBANCE AGREEMENT. Upon Tenant's request, Landlord shall enter into a "landlord agreement" with any subtenant of Tenant. Such agreement shall provide that Landlord shall recognize the sublease and not disturb the subtenant's possession thereunder so long as such subtenant shall not be in default under its sublease, and an Event of Major Default is not then in existence and continuing under this Lease. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 14.2(c). 27. 33 14.3 TENANT'S RIGHT TO MORTGAGE. (a) RIGHT OF TENANT. Tenant shall have the right from time to time and at any time, without obtaining the approval of Landlord, to mortgage, pledge or otherwise encumber all or any portion of the right, title and estate of Tenant in the Premises or in this Lease. (b) NOTICE. Tenant shall, promptly after execution of any Mortgage, notify Landlord of the name and mailing address of the Mortgagee thereunder and shall, on demand, permit Landlord to examine and copy the Mortgage. ARTICLE 15 EMINENT DOMAIN 15.1 TOTAL OR SUBSTANTIAL TAKING. If title or access is taken for any public or quasi-public use, or under any statute or by right of condemnation or eminent domain, or by sale in lieu thereof (a "Taking") with respect to all of the Premises, or if title to so much of the Premises or access thereto is Taken, or if the Premises or access thereto is damaged, blocked or impaired by the Taking, so that, in Tenant's sole discretion, the Premises or access thereto, even after a reasonable amount of reconstruction thereof, will no longer be suitable for Tenant's (and/or Tenant's subtenants') continued occupancy for the conduct of Tenant's (and/or Tenant's subtenants') business in a manner consistent with the conduct of such business prior to such Taking, then in any such event, this Lease shall terminate on the date of such Taking. 15.2 PARTIAL TAKING. If any part of the Premises, or access thereto, shall be Taken, and the Premises or the remaining part thereof and access thereto will be, in Tenant's sole discretion, suitable for Tenant's (and/or Tenant's subtenants') continued occupancy for the conduct of Tenant's (and/or Tenant's subtenants') business in a manner consistent with the conduct of such business prior to such Taking, all of the terms, covenants and conditions of this Lease shall continue, except that Base Rent shall be adjusted to reflect the decreased Funded Amount remaining after application thereto of the award made to Landlord for such Taking (subject to Section 15.3 below). 15.3 TEMPORARY TAKING. If the whole or any part of the Premises is Taken for temporary use or occupancy, this Lease shall not terminate by reason thereof and Tenant shall continue to pay, in the manner and at the times herein specified, the full amount of the Base Rent payable by Tenant hereunder, and, except only to the extent that Tenant may be prevented from so doing by reason of such Taking, Tenant shall continue to perform and observe all of the other terms, covenants and conditions hereof on the part of Tenant to be performed and observed, as though the Taking had not occurred. In the event of any such temporary Taking, Tenant shall be entitled to receive the entire amount of the award made for the 28. 34 Taking, whether paid by way of damages, rent or otherwise. If the temporary Taking is for a term in excess of thirty (30) days, then the Taking shall be treated as a permanent Taking and be governed by Section 15.1 or 15.2, as applicable. 15.4 DAMAGES. The compensation awarded or paid upon any Taking (other than a temporary Taking, which shall be governed by Section 15.3), whether awarded to Landlord, Tenant, or both of them, shall be distributed as set forth below (in each case the compensation or value shall be determined as of the date of the Taking): (a) to Landlord, any amounts payable on account of the value of the Land, but not to exceed an amount equal to the Funded Amount (or, if less than the entire Premises is Taken, not to exceed a pro rata portion of the Funded Amount equal to the ratio that the square footage of the portion of the Premises Taken bears to the square footage of the entire Premises prior to the Taking) plus all accrued Rent hereunder; and (b) to Tenant, any other award, or portion thereof, including any portion of the award above the Funded Amount (or the pro rata portion thereof) pursuant to Section 15.4(a)). Landlord shall promptly pay over to UBS or the holder of an Authorized Loan, as the case may be, any award (not exceeding, however, the Senior Funded Amount) paid to Landlord hereunder, and Tenant shall be entitled to establish reasonable security arrangements to ensure the prompt payment of such amounts to such holder. The Funded Amount shall be reduced on a dollar-for-dollar basis by the amount of any award required to be paid by Landlord to such holder of an Authorized Loan pursuant to the preceding sentence. 15.5 NOTICE AND EXECUTION. Immediately upon service of process upon Landlord or Tenant in connection with any Taking relating to the Premises or any portion thereof or access thereto, each party shall give the other Notice thereof. Each party agrees to execute and deliver to the other all instruments that may be required to effectuate the provisions of this Article 15. Tenant reserves the right to appear in and to contest any proceedings in connection with any such Taking. Tenant shall immediately reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses incurred by Landlord in complying with Landlord's obligations under this Section 15.5. ARTICLE 16 DAMAGE OR DESTRUCTION 16.1 INSURED CASUALTY. If any Improvements are damaged or destroyed by fire or other casualty, this Lease shall continue in full force and effect without any abatement or reduction in Base Rent, and Tenant, at Tenant's election, may either (a) restore the 29. 35 Improvements to their condition prior to the damage or destruction, or such other condition as Tenant shall elect in its sole and absolute discretion, subject to Landlord's approval rights set forth in Section 11.1, or (b) not restore the Improvements, but perform, or cause to be performed, at Tenant's sole cost and expense, any work or service required by any Legal Requirement for the protection of persons or property from any risk, or for the abatement of any nuisance, created by or arising from the casualty or the damage or destruction caused thereby. 16.2 INSURANCE PROCEEDS. In the event of any fire or other casualty, the proceeds of any insurance policies maintained by Tenant shall be distributed to Tenant, and Landlord shall have no claim or right with respect thereto. ARTICLE 17 DEFAULT 17.1 DEFAULT. Each of the following events shall constitute a default ("Default") by Tenant: (a) DEFAULT OTHER THAN EVENT OF MAJOR DEFAULT. Tenant's failure to perform or comply with any of the terms, covenants or conditions contained in this Lease other than those referred to in Section 17.2, where such failure shall continue for a period of thirty (30) days after Notice thereof from Landlord to Tenant, or in the case of a failure which cannot with due diligence be cured within the period of thirty (30) days, Tenant's failure to proceed promptly and with due diligence to cure the failure and thereafter to prosecute the curing of the failure with all due diligence, it being intended that in connection with a failure not susceptible of being cured with due diligence within thirty (30) days, the time of Tenant within which to cure the failure shall be extended for such period as may be reasonably necessary to complete the cure with all due diligence; and (b) INSOLVENCY. Subject to Section 17.3, the occurrence of: (i) an assignment by Tenant for the benefit of creditors generally; or (ii) the filing of a voluntary or involuntary petition by or against Tenant under any present or future applicable federal, state or other statute or law having for its purpose the adjudication of Tenant as a bankrupt; (iii) the appointment of a receiver, liquidator or trustee for all or a substantial portion of the Premises by reason of the insolvency or alleged insolvency of Tenant; or (iv) the taking of possession by any department of city, county, state or federal government, or any officer thereof duly authorized, of all or a substantial portion of the Premises by reason of the insolvency or alleged insolvency of Tenant; and Tenant's failure to timely give any Notice it is permitted to give pursuant to Section 17.3 (or, in the event Tenant gives timely Notice and pursues a contest under Section 17.3, Tenant's failure to finally prevail in the contest). 30. 36 17.2 EVENT OF MAJOR DEFAULT. Each of the following events shall constitute an event of major default ("Event of Major Default") by Tenant: (a) FAILURE TO PAY BASE RENT. Tenant's failure to pay any Base Rent within five (5) days after Tenant's receipt of Notice thereof from Landlord that the Base Rent is past due; or (b) FAILURE TO PAY ADDITIONAL RENT. Tenant's failure to pay any Additional Rent which is due to Landlord within ten (10) days after Tenant's receipt of Notice thereof from Landlord that such Additional Rent is past due; (c) FAILURE TO COMPLY WITH PURCHASE OBLIGATION UNDER SECTION 19.2. Tenant's failure to comply with Tenant's obligation to purchase the Premises pursuant to Section 19.2 within twenty (20) days after Tenant's receipt of Notice thereof from Landlord that Tenant has so failed, except in the case of a purchase obligation arising on account of expiration of the Term of this Lease, in which case no such Notice shall be required; (d) FAILURE TO CARRY LIABILITY INSURANCE. Tenant's failure to carry the liability insurance required by Section 7.1, if such failure continues ten (10) days after Tenant's receipt of Notice thereof from Landlord that Tenant is not carrying such required liability insurance. 17.3 CONTEST BY TENANT. If upon the filing of any involuntary petition of the type described in Section 17.1(b) or upon the appointment of a receiver, other than a receiver appointed in any voluntary proceeding referred to in Section 17.1(b), or the taking of possession of all or a substantial portion of the Premises by any department of the city, county, state or federal government, or any officer thereof duly authorized, by reason of the alleged insolvency of Tenant without the consent or over the objection of Tenant, should Tenant desire to contest the same in good faith, Tenant shall, within ninety (90) days after the filing of the petition or after the appointment or taking of possession, give Notice to Landlord that Tenant proposes to make the contest, and the same shall not constitute a Default so long as Tenant shall prosecute the proceedings with due diligence and no part of the Premises shall be exposed to sale by reason of the continuance of the contest. 17.4 REMEDIES. Landlord shall have the remedies specified below, the parties hereby acknowledging that the remedies described in Section 17.4(b) may be exercised by Landlord only upon the occurrence of an Event of Major Default. Tenant shall at all times have the right to exercise and carry out the terms of the Purchase Option in Section 19.1, notwithstanding the occurrence or existence of any Default or Event of Major Default under this Lease, and Landlord shall have the obligation to comply with Landlord's obligations under Section 19.1 notwithstanding any Default or Event of Major Default. 31. 37 (a) CONTINUE LEASE. In connection with a Default or an Event of Major Default, Landlord shall have the right to enforce, by suit or otherwise, all other covenants and conditions hereof to be performed or complied with by Tenant and to exercise all other remedies permitted by Section 1951.4 of the California Civil Code, or any amendments thereof or any successor laws which replace such Section 1951.4. Landlord has the remedy described in California Civil Code Section 1951.4 (Landlord may continue the Lease in effect after Tenant's breach and abandonment and recover Base Rent as it becomes due, if Tenant has right to sublet or assign, subject only to reasonable limitation). Upon application by Landlord, a receiver may be appointed to take possession of the Premises and exercise all rights granted to Landlord as set forth in this Section 17.4(a); and (b) TERMINATE LEASE. In connection with an Event of Major Default (but not a Default), Landlord shall have the right to terminate this Lease, by giving Tenant Notice thereof, at any time after the occurrence of such Event of Major Default and whether or not Landlord has also exercised any right under Section 17.4(a). In such event, Tenant shall, within twenty (20) days after receipt of Notice from Landlord, purchase the Premises pursuant to Section 19.2. 17.5 NO WAIVER. No failure by Landlord or Tenant to insist upon the strict performance of any term, covenant or condition of this Lease or to exercise any right or remedy consequent upon a breach thereof and no acceptance of full or partial Rent during the continuance of any breach shall constitute a waiver of any such breach or of the term, covenant, or condition. No term, covenant or condition of this Lease to be performed or complied with by Tenant or Landlord, and no breach thereof, shall be waived, terminated, altered or modified except by a written instrument executed by Landlord and Tenant. No waiver of any breach shall affect or alter this Lease, but each and every term, covenant, and condition of this Lease shall continue in full force and effect with respect to any other then existing subsequent breach thereof. 17.6 EFFECT OF ASSIGNMENT. Notwithstanding an Entity's prior assignment or transfer of its interest as Tenant under this Lease, so long as Landlord has been given Notice of such assignment pursuant to Sections 14.1(b) and 21.3, Landlord shall give such Entity copies of all Notices required by this Article 17 in connection with any Default, and such Entity shall have the period granted hereunder to Tenant to cure such Default, unless such Entity shall have been released from all obligations arising under this Lease. Landlord may not assert any rights against such Entity in the absence of such Notice and opportunity to cure, so long as Landlord has been given Notice of such assignment pursuant to Sections 14.1(b) and 21.3. 17.7 LANDLORD CURE RIGHT. If Tenant fails to perform any covenant or agreement to be performed by Tenant under this 32. 38 Lease, and if the failure or default continues for thirty (30) days after Notice to Tenant and to any Mortgagee who has requested in writing notice thereof from Landlord (except for emergencies and except for payment of any lien or encumbrance threatening the imminent sale of the Premises or any portion thereof, in which case payment or cure may be made as soon as necessary to minimize the damage to person or property caused by such emergency or to prevent any such sale), Landlord may, but shall have no obligation to, pay the same and cure such default on behalf of and at the expense of Tenant and do all reasonably necessary work and make all reasonably necessary payments in connection therewith including, but not limited to, the payment of reasonable attorneys' fees and disbursements incurred by Landlord. Notwithstanding the foregoing, Landlord shall have no right to cure any such failure to perform by Tenant so long as Tenant both: (1) is diligently and in good faith attempting to cure such matter; and (2) has the financial ability to so comply. Notwithstanding anything to the contrary in this Lease, in no event shall Landlord have a right to cure any matters relating to the Improvements unless such matter constitutes a crime by Landlord and subjects Landlord to criminal penalties (except as specifically permitted in Section 8.1(b)). Upon demand, Tenant shall reimburse Landlord for the reasonable amount so paid, together with interest at the Lease Rate from the date incurred until the date repaid. Tenant shall defend, indemnify, and hold Landlord harmless from and against any and all losses, costs, expenses, liabilities, claims, causes of action and damages of all kinds that may result to Landlord, including reasonable attorneys' fees and disbursements incurred by Landlord, arising because of any failure by Tenant to perform any of its obligations under this Lease. Tenant's duty to indemnify Landlord under this Section 17.7 shall survive the expiration or earlier termination of this Lease. 17.8 LANDLORD'S DEFAULT. (a) GENERAL. If Landlord fails to perform any covenant or agreement to be performed by Landlord under Article 11, Section 13.1, Section 15.4, Article 20, or Section 21.10 of this Lease (including, but not limited to, Landlord's failure to keep the Premises free of any and all liens created by or through Landlord except as approved by Tenant in writing), and if the failure or default continues for thirty (30) days after Notice to Landlord and to any Fee Mortgagee who has requested in writing notice thereof from Tenant (except for (i) emergencies, or (ii) payment of any lien or encumbrance threatening the imminent sale of the Premises or any portion thereof, in which case payment or cure may be made as soon as necessary to minimize the damage to person or property caused by such emergency or to prevent any such sale), Tenant may, but shall have no obligation to, pay the same and cure such default on behalf of and, so long as such failure to perform arises due to Landlord's gross negligence, willful misconduct, or willful breach of this Lease, at the expense of Landlord and do all reasonably necessary work and make all reasonably necessary payments in connection therewith including, but not limited to, the payment of reasonable attorneys' fees and 33. 39 disbursements incurred by Tenant. Notwithstanding the foregoing, Tenant shall have no right to cure any such failure to perform by Landlord so long as Landlord both: (1) is diligently and in good faith attempting to cure such matter; and (2) has the financial ability to so comply. To the extent that Landlord's failure to perform arises due to its gross negligence, willful misconduct or willful breach of this Lease, upon demand, Landlord shall reimburse Tenant for the reasonable amount so paid, together with interest at the Lease Rate from the date incurred until the date repaid. To the extent that Landlord's failure to perform arises due to its gross negligence, willful misconduct or willful breach of this Lease, Landlord shall defend, protect, indemnify, and hold Tenant harmless from and against any and all losses, costs, expenses, liabilities, claims, causes of action and damages of all kinds that may result to Tenant, including reasonable attorneys' fees and disbursements incurred by Tenant, arising because of any failure by Landlord to perform any of its obligations under Article 11, Section 13.1, Section 15.4, Article 20 or Section 21.10 of this Lease. Landlord's duty to indemnify Tenant under this Section 17.8 shall survive the expiration or earlier termination of this Lease. (b) DEFAULT UNDER CERTAIN PROVISIONS. Notwithstanding anything to the contrary in Section (a) above, in the event of a default by Landlord under Section 20.6, Tenant shall have the right to cure such default on behalf of and at Landlord's expense, without prior notice to Landlord. In addition, in the event of any default by Landlord under Section 20.4, 20.5 or 20.6, Tenant shall have the right to exercise its Purchase Option pursuant to Section 19.1 hereof, and to offset against the Purchase Price the amount of all losses and reasonable costs and expenses (including without limitation reasonable attorneys' fees) incurred by Tenant arising from such default by Landlord, including without limitation all losses arising by reason of Tenant's inability to treat the transactions contemplated by this Lease as an operating lease for financial accounting and securities regulatory purposes, and all costs and expenses incurred in connection with negotiating and entering into a new lease upon exercise of the Purchase Option. ARTICLE 18 QUIET ENJOYMENT 18.1 QUIET ENJOYMENT. Landlord covenants to secure to Tenant the quiet possession of the Premises for the full Term against all persons claiming the same, subject to Landlord's rights and remedies under Section 17 upon a Default or an Event of Major Default by Tenant. The existence of any Permitted Exceptions shall not be deemed to constitute a breach of Landlord's obligations hereunder. Tenant shall, immediately upon demand, reimburse Landlord for all reasonable costs, expenses and damages incurred or paid by Landlord in the performance of Landlord's obligations under this Article 18 (except for any costs, expenses or damages arising from Landlord's willful breach of this Lease). 34. 40 ARTICLE 19 TENANT'S OPTION TO PURCHASE 19.1 OPTION TO PURCHASE PREMISES. (a) PURCHASE OPTION. Tenant shall have the option ("Purchase Option") to purchase all or part of the Premises at any time during the Term; provided that Tenant shall be entitled to purchase less than all of the Premises only if the portion being purchased is released from any existing Fee Mortgage and if the portion of the Premises not purchased shall constitute one or more legal lots after closing of the purchase and shall be reasonably viable as a separate property. The purchase price ("Purchase Price") for the portion of the Premises which Tenant elects to purchase shall be (i) the then-existing Funded Amount applicable to the portion of the Premises which Tenant elects to purchase (determined in a pro rata basis on the basis of the area being purchased), as the same may be reduced from time to time, plus (ii) the amount of any prepayment premium and all other fees, costs, and expenses due to any holder of an Authorized Loan in connection with such loan (to the extent not already paid pursuant to Section 21.21 hereof), less (iii) the amount of the Security Deposit (or, in the event of a purchase of a portion of the Premises, a pro rata portion of the Security Deposit). Tenant shall be entitled to a credit against the Purchase Price equal to the principal balance(s) of any Authorized Loan and/or Fee Mortgage existing immediately prior to the closing under this Purchase Option if such Authorized Loan and/or Fee Mortgage are not fully repaid and all documents reflecting the same are not cancelled and removed from the public records on or prior to the closing under this Purchase Option. If Tenant purchases less than all of the then-existing Premises, then the credit pursuant to the preceding sentence shall be calculated on a pro rata basis, based upon the ratio of the area of the Premises being purchased compared to the area of the then-existing Premises. In lieu of payment of the Purchase Price, Tenant shall have the right (1) to assume the UBS Loan or any other Authorized Loan or (2) to cause Landlord to assign the Authorized Loan to a third party acceptable to the holder of such Authorized Loan (which third party shall expressly assume such obligations in writing), provided that Landlord is released from all obligations under the Authorized Loan. Landlord shall execute any and all documents necessary to effect such assumption and assignment upon Tenant's request, provided that Tenant shall reimburse Landlord for all reasonable costs and expenses related thereto. Notwithstanding anything to the contrary herein, the Purchase Price shall not include any interest, fees, late charges or any other costs or expenses incurred or charged to Landlord or Tenant by reason of a default by Landlord under Section 20.6 hereof. (b) PURCHASE OPTION EXERCISE NOTICE. If Tenant desires to exercise the Purchase Option, Tenant shall deliver to Landlord a written notice ("Purchase Option Exercise Notice") of Tenant's election; provided, however, that in the event of an 35. 41 assignment by Landlord for the benefit of creditors generally, the filing of a voluntary or involuntary bankruptcy petition by or against Landlord or the appointment of a receiver, liquidator or trustee for all or a substantial portion of the Premises by reason of Landlord's insolvency or alleged insolvency, the Purchase Option shall be deemed exercised with respect to the entire Premises as of the calendar day immediately preceding such assignment, filing or appointment. (c) TRANSFER. If Tenant exercises the Purchase Option, the purchase and sale of the Premises being purchased shall be consummated as follows. In the event of a purchase of a portion of the Premises, the term "Premises" as used in this Section 19.1(c) shall be deemed to mean that portion of the Premises then to be purchased pursuant to the Purchase Option. (i) Landlord shall grant and convey the Premises to Tenant, its authorized agent or assignee, pursuant to a duly executed and acknowledged grant deed ("Grant Deed"), free and clear of all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and restrictive covenants or conditions, except for the Permitted Exceptions. Landlord shall assign and Tenant shall assume all rights, duties and obligations under the Legal Requirements affecting the Premises, effective as of the date of recordation of the Grant Deed; (ii) The Purchase Price shall be paid upon delivery of the Grant Deed and any other documents reasonably requested by Tenant to evidence the transfer of the Premises or to release all liens of Landlord, including, without limitation, any and all reconveyances of mortgages or other recorded documents as requested by Tenant ("Additional Documents"). In the event that Tenant elects to assign the Purchase Option pursuant to Section 19.1(d) below, and Tenant's assignee pays an amount less than the Purchase Price for the Premises, Tenant shall pay to Landlord any excess of the Purchase Price over the amount paid by such assignee. Landlord shall deliver the Grant Deed and the Additional Documents to Tenant on the date for closing specified by Tenant in the Purchase Option Exercise Notice (which date shall be no sooner than ten (10) days after the date of the Purchase Option Exercise Notice and no later than the last day of the Term, as the same may be extended). The closing shall take place at the location and in the manner reasonably set forth by Tenant in the Purchase Option Exercise Notice; (iii) If Landlord shall fail to cause title to be in the condition required in Section 19.1(c)(i) above within the time herein prescribed for the delivery of the Grant Deed, then Tenant shall have the right, in addition to all other rights provided by law, by a written notice to Landlord: (1) to extend the time in which Landlord shall clear title and deliver the Grant Deed and Additional Documents, during which extension this Lease shall remain in full force and effect, except Tenant shall be released from its obligation to pay Base Rent during the extension; (2) to 36. 42 accept delivery of the Grant Deed and Additional Documents subject to such title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and restrictive covenants or conditions specified and set forth in the Grant Deed and not cleared by Landlord (but without waiving any rights or remedies available to Tenant on account of such title exceptions); (3) to rescind, by notice to Landlord and without any penalty or liability therefor, any and all obligations Tenant may have under and by virtue of the Purchase Option or the exercise thereof, whereupon this Lease shall remain in full force and effect; (4) if the title exception is curable by the payment of money, Tenant may make such payment and such payment shall be a credit against the Purchase Price in favor of Tenant. (iv) Refusal of a title company to issue a standard form of owner's title insurance policy insuring title to the Premises in the condition specified in subparagraph (c)(i) shall be sufficient evidence of Landlord's failure to convey clear title and shall entitle Tenant to exercise any of the rights specified in subparagraph (c)(iii). (v) Base Rent shall be prorated and paid and all unpaid Additional Rent shall be paid as of the date title to the Premises is vested of record in Tenant. Tenant shall pay the escrow fees; the recorder's fee for recording the Grant Deed; the premium for the title insurance policy; all documentary transfer taxes; Tenant's attorneys' fees; Landlord's reasonable attorneys' fees; all other costs and expenses incurred by Tenant in consummating the transfer of the Premises; and all reasonable expenses (except as specified in the next sentence) incurred by Landlord in consummating the transfer of the Premises pursuant to this Section 19.1. Landlord shall pay the costs and expenses of clearing title as required by Section 19.1(c)(i). In the event of a purchase by Tenant under this Article 19, Landlord shall have no obligation to return the Security Deposit to Tenant to the extent the Security Deposit has been credited against the purchase price to be paid by Tenant pursuant to Section 19.1(a). (d) ASSIGNMENT. Tenant shall have the right on one or more occasions, without Landlord's consent, to assign this purchase option, in whole or in part, to any Entity at any time, whether or not Tenant also assigns its interest in the Lease. Tenant shall give prior written notice to Landlord of any such assignment. 19.2 MANDATORY PURCHASE/SALE OF PREMISES. Notwithstanding anything to the contrary herein, upon either: (1) expiration of the Term of this Lease or upon the occurrence of any other event terminating this Lease; or (2) the occurrence of any event which causes the Funded Amount to be reduced to zero (0), within thirty (30) days after Tenant's receipt of written notice of the foregoing and of Tenant's purchase obligation under this Section 19.2, Tenant shall purchase or cause another Entity to purchase, and Landlord shall sell, the Premises in the same manner 37. 43 as if Tenant had exercised the Purchase Option on such date. The Purchase Price shall be the same as if Tenant had exercised the Purchase Option, without regard to the physical state or condition of the Premises or any Improvements (but Tenant shall have the rights set forth in Section 19.1, including without limitation, the terms of Sections 19.1(c)(iii) and (iv)). In the event Tenant fails to purchase (or cause another Entity to purchase) the Premises pursuant to its obligation under this Section 19.2, Landlord (to the extent required under Section 21.19) shall sell the Premises to an unrelated third party and, as applicable, (i) Tenant shall be obligated to pay to Landlord, immediately upon demand, any excess of the Purchase Price over the amount realized by Landlord in connection with such sale, or (ii) Landlord shall be obligated to pay to Tenant, immediately upon demand, any excess of the amount realized by Landlord in connection with such sale over the Purchase Price. For purposes of the preceding sentence, the amount realized by Landlord upon a sale of the Premises shall be net of Landlord's reasonable sale expenses and other expenses incurred by Landlord but required to be paid by Tenant pursuant to Section 19.1(c)(v). Landlord's obligation to pay such excess to Tenant shall survive any termination of this Lease. Notwithstanding anything set forth elsewhere herein, if Tenant fails to timely comply with Tenant's obligation to purchase the Premises pursuant to this Section 19.2, upon ten (10) days' prior written Notice, then so long as title is in the condition required by Section 19.1(c)(i), Landlord may transfer title to the Premises to Tenant by way of the Grant Deed described in Section 19.1(c)(i), and Tenant shall accept such Grant Deed and promptly and properly file the same of record. Notwithstanding anything to the contrary in this Lease, in the event of default, breach or violation by Tenant of any of Tenant's obligations under this Section 19.2, Tenant shall have no liability to Landlord or any other party in excess of an amount equal to the then-existing Guaranteed Residual Value, less a credit equal to the sum of (a) any of the Collateral which UBS or any other holder of an Authorized Loan has used, applied, or otherwise come into possession of, plus (b) any of the Security Deposit retained by Landlord, and Landlord shall have no recourse, claim or counterclaim whatsoever against Tenant in excess of such amount on account of such default, breach or violation. If the Guaranteed Residual Value has not previously been determined as of the date Tenant's liability under this Section 19.2 has been established, then the Guaranteed Residual Value shall be determined as of the date Tenant's liability hereunder is established. 19.3 SURVIVAL. The obligations of Landlord and Tenant under this Article 19 shall survive the expiration or earlier termination of this Lease. ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD 20.1 TITLE. In the event Tenant so requests in writing (and so long as either Tenant agrees to indemnify Landlord from any 38. 44 liabilities or obligations in connection therewith, or Landlord does not incur any liabilities or obligations in connection therewith), Landlord shall execute all documents, instruments and agreements reasonably requested by Tenant in order to accomplish any of the following in the manner reasonably requested by Tenant and within the time parameters reasonably requested by Tenant: (1) remove exceptions to title to or affecting the Premises; (2) create exceptions to title (including, without limitation, easements and rights of way) to or affecting the Premises (but not including any Mortgage); (3) modify any then-existing exception to title or (4) subdivide the Premises into two or more separate parcels. Tenant shall promptly reimburse Landlord for, or at Landlord's request, pay directly in advance, all reasonable costs, expenses and other amounts incurred or required to be expended by Landlord in order to comply with Tenant's requests made in accordance with the preceding sentence, and the failure of Tenant to reimburse or pay any such amounts shall result in the suspension of Landlord's obligations under such sentence with respect to that particular request until the amounts required to be paid by Tenant under this sentence have been paid. Landlord acknowledges that it is critical to Tenant's ability to construct improvements on the Premises to have the ability and flexibility to accomplish the foregoing, and that the parties therefore agree that Landlord shall not be entitled to withhold Landlord's consent to any of the foregoing requests by Tenant, except as set forth in the preceding sentence. 20.2 LAND USE. Except where requested by Tenant pursuant to this Section 20.2, Landlord shall not cause or give its written consent to any land use or zoning change affecting the Premises or any changes of street grade. In the event Tenant so requests in writing (and so long as either Tenant agrees to indemnify Landlord from any liabilities or obligations in connection therewith, or Landlord does not incur any liabilities or obligations in connection therewith), Landlord shall execute all documents, instruments and agreements reasonably requested by Tenant in order to accomplish any of the following in the manner reasonably requested by Tenant and within the time parameters reasonably requested by Tenant: (1) cause a change in any land use restriction or law affecting the Premises; (2) cause a change in the zoning affecting the Premises; or (3) cause a change in the street grade with respect to any street in the vicinity of the Premises. Tenant shall promptly reimburse Landlord for, or at Landlord's request, pay directly in advance, all reasonable costs, expenses and other amounts incurred or required to be expended by Landlord in order to comply with Tenant's requests made in accordance with the preceding sentence, and the failure of Tenant to reimburse or pay any such amounts shall result in the suspension of Landlord's obligations under such sentence with respect to that particular request until the amounts required to be paid by Tenant under this sentence have been paid. Landlord acknowledges that it is critical to Tenant's ability to construct improvements on the Premises to have the ability and flexibility to accomplish the foregoing, and that the parties therefore agree that Landlord shall 39. 45 not be entitled to withhold Landlord's request to any of the foregoing requests by Tenant. 20.3 TRANSFER OF PROPERTY INTERESTS. Except as requested by Tenant pursuant to Section 11.2 or 20.1, Landlord shall not transfer to any third party any rights inuring to or benefits associated with the Premises (including, without limitation, zoning rights, development rights, air space rights, mineral, oil, gas or water rights). Nothing in this Section 20.3 shall limit Landlord's rights pursuant to Section 13.2; provided that any purchaser of Landlord's interest in the Premises shall be bound by the terms of this Lease, including without limitation, the terms of this Section 20.3. 20.4 SHAREHOLDER EQUITY; NO OTHER ASSET. Landlord covenants and agrees that during the Term of the Lease, Landlord shall maintain a shareholder equity balance of not less than three percent (3%) of its total assets, including without limitation, the Property. In addition, Landlord shall not, without the prior written consent of Tenant, which consent may be withheld at Tenant's sole discretion, acquire any significant assets other than (i) the Premises, (ii) any Improvements to be built on the Premises, and (iii) the land and any Improvements thereon, which is subject to those certain Ground Leases between Landlord and Tenant, which land is described on Exhibit F attached hereto. 20.5 RECOURSE OBLIGATIONS. Landlord agrees that during the Term of this Lease, Landlord will not incur any indebtedness for borrowed money or any other material obligations to which the holder or obligee thereof has recourse against Landlord to satisfy the same without Tenant's prior written consent, which consent Tenant may withhold in its sole discretion. 20.6 DEFAULT UNDER AUTHORIZED LOAN. Landlord shall not, without Tenant's express prior written consent, default under any Authorized Loan, or any loan documents relating to such Authorized Loan, where such default is not caused, directly or indirectly by a breach of any of Tenant's obligations under this Lease, under the Pledge Agreement securing the UBS Loan or under any documents relating to any Authorized Loan. ARTICLE 21 MISCELLANEOUS 21.1 RELATIONSHIP. Neither this Lease nor any agreements or transactions contemplated hereby shall in any respect be interpreted, deemed or construed as constituting Landlord and Tenant as partners or joint venturers, one with the other, or as creating any lender/borrower, partnership, joint venture, association or, except as set forth in Section 21.2 below, any other relationship other than that of landlord and tenant; and, except as set forth in Section 21.2 below, both Landlord and Tenant agree not to make any contrary assertion, contention, claim or 40. 46 counterclaim in any action, suit or other legal proceeding involving either Landlord or Tenant or the subject matter of this Lease. 21.2 FORM OF TRANSACTION; CERTAIN TAX MATTERS. (a) Landlord and Tenant hereby agree and declare that the transactions contemplated by this Lease are intended to constitute, both as to matters of form and substance: (i) an operating lease for financial accounting and securities regulatory purposes, and (ii) a financing arrangement (and not a "true lease") for Federal, state and local income tax purposes. Accordingly, and notwithstanding any other provision of this Lease to the contrary, Landlord and Tenant agree and declare that (A) the transactions contemplated hereby are intended to have a dual, rather than single, form and (B) all references in this Lease to the "Lease" of the Premises which fail to reference such dual form do so as a matter of convenience only and do not reflect the intent of Landlord and Tenant as to the true form of such arrangements. (b) Landlord and Tenant agree that, in accordance with their intentions and the substance of the transactions contemplated hereby, Tenant (and not Landlord) shall be treated as the owner of the Premises for Federal, state, and local income tax purposes and this Lease shall be treated as a financing arrangement. Tenant shall be entitled to take any deduction, credit allowance or other reporting, filing or other tax position consistent with such characterizations. Landlord and Tenant shall not file any Federal, state or local income tax returns, reports or other statements, or take any other actions, in a manner which is inconsistent with the foregoing provisions of this Section 21.2. (c) Each party acknowledges that it has retained accounting, tax and legal advisors to assist it in structuring this Lease and neither party is relying on any representations of the other regarding the proper treatment of this transaction for accounting, income tax or any other purpose. Nothing in this Section 21.2(c) shall increase or diminish any liability or obligation of the parties that otherwise exists pursuant to this Lease. 21.3 NOTICES. Each Notice shall be in writing and shall be sent by personal delivery, overnight courier (charges prepaid or billed to the sender) or by the deposit of such with the United States Postal Service, or any official successor thereto, designated as registered or certified mail, return receipt requested, bearing adequate postage and in each case addressed as provided in the Basic Lease Provisions. Each Notice shall be effective upon being personally delivered or actually received. The time period in which a response to any such Notice must be 41. 47 given or any action taken with respect thereto shall commence to run from the date of personal delivery or receipt of the Notice by the addressee thereof, as reflected on the return receipt of the Notice. Rejection or other refusal to accept shall be deemed to be receipt of the Notice sent. By giving to the other party at least thirty (30) days' prior Notice thereof, either party to this Lease (as well as any Mortgagee) shall have the right from time to time during the Term of this Lease to change the address(es) thereof and to specify as the address(es) thereof any other address(es) within the continental United States of America. 21.4 SEVERABILITY OF PROVISIONS. If any term, covenant or condition of this Lease, or the application thereof to any Entity or circumstance, shall be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to Entities or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby. 21.5 ENTIRE AGREEMENT; AMENDMENT. This Lease and other documents expressly referred to herein constitute the entire agreement of Landlord and Tenant with respect to the subject matter hereof. Neither this Lease nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. 21.6 APPROVALS AND CONSENTS. Except as expressly provided in this Lease, whenever any provision of this Lease requires an approval or consent to be given by one of the parties hereto, the approval or consent shall not be unreasonably withheld or delayed. Whenever this Lease grants either party the right to take action, exercise discretion, establish rules and regulations, or make an allocation or other determination, except as otherwise provided, such party shall act reasonably and in good faith and take no action which might result in the frustration of the other party's reasonable expectations concerning the benefits to be enjoyed under this Lease. If either party withholds its consent or approval, unless by the express terms of this Lease such consent or approval may be withheld in such party's sole discretion, such party shall, upon request, promptly deliver to the other party a written statement specifying in detail the reason or reasons why such consent or approval was withheld or refused. If neither approval nor rejection is given by Landlord within the time specified in Article 11 as to any particular approval requested by Tenant under Article 11 (or, if no such time is specified, then within thirty (30) days after request for approval is given by a Notice), then the approval thus specifically requested in writing by Tenant shall be conclusively and irrevocably deemed to have been given by Landlord. 21.7 TERMINOLOGY. All personal pronouns used in this Lease shall include all other genders. The singular shall include the plural and the plural shall include the singular. Titles of 42. 48 Articles, Sections and Subsections in this Lease are for convenience only and neither limit nor amplify the provisions of this Lease, and all references in this Lease to Articles, Sections or Subsections shall refer to the corresponding Article, Section or Subsection of this Lease unless specific reference is made to the articles, sections or other subdivisions of another document or instrument. The word "days" as used herein shall mean calendar days unless otherwise expressly stated. 21.8 MEMORANDUM OF LEASE. Neither party shall record this Lease. However, concurrently with the execution of this Lease, Landlord and Tenant have executed a Memorandum of Lease in the form attached hereto as Exhibit C and by this reference made a part hereof, which Memorandum of Lease shall be promptly recorded in the Official Records. 21.9 SUCCESSORS AND ASSIGNS. Subject to Articles 13 and 14, this Lease shall inure to the benefit of and be binding upon Landlord and Tenant and their respective heirs, executors, legal representatives, successors and assigns. Whenever in this Lease a reference to any Entity is made, such reference shall be deemed to include a reference to the heirs, executors, legal representatives, successors and assigns of such Entity. 21.10 COMMISSIONS. Landlord and Tenant each represent and warrant that neither has dealt with any broker in connection with this transaction and that no real estate broker, salesperson or finder has the right to claim a real estate brokerage, salesperson's commission or finder's fee by reason of contact between the parties brought about by such broker, salesperson or finder. Each party shall hold and save the other harmless of and from any and all loss, cost, damage, injury or expense arising out of or in any way related to claims for real estate broker's or salesperson's commissions or fees based upon allegations made by the claimant that it is entitled to such a fee from the indemnified party arising out of contact with the indemnifying party or alleged introductions of the indemnifying party to the indemnified party. 21.11 ATTORNEYS' FEES. In the event any action is brought by Landlord or Tenant against the other to enforce or for the breach of any of the terms, covenants or conditions contained in this Lease, the prevailing party shall be entitled to recover reasonable attorneys' fees to be fixed by the court, together with costs of suit therein incurred. Tenant shall pay the reasonable attorneys' fees incurred by Landlord for the review and negotiation of this Lease and the UBS Loan documents. 21.12 GOVERNING LAW. This Lease and the obligations of the parties hereunder shall be governed by and interpreted, construed and enforced in accordance with the laws of the State of California. 21.13 COUNTERPARTS. This Lease may be executed in any number of counterparts, each of which shall be deemed to be an 43. 49 original and all of which together shall comprise but a single instrument. 21.14 TIME IS OF THE ESSENCE. Time is of the essence of this Lease, and of each provision hereof. 21.15 NO THIRD PARTY BENEFICIARIES. This Lease is entered into by Landlord and Tenant for the sole benefit of Landlord and Tenant. There are no third party beneficiaries to this Lease. 21.16 NO RECOURSE. The obligations of Tenant and Landlord (including, without limitation, the obligations of Landlord with respect to the Identified Matters set forth below) under this Lease shall be without recourse to any partner, officer, trustee, beneficiary, shareholder, director or employee of Tenant or Landlord. There shall be no limitation on Landlord's liability with respect to any willful misconduct, bad faith breach of this Lease, gross negligence by Landlord, or any breach by Landlord of its obligations with respect to Sections 20.4, 20.5 or 20.6 ("Identified Matters"). Except for Identified Matters, Landlord's liability to Tenant for any default by Landlord under this Lease is limited to Landlord's interest in the Premises, and Tenant agrees to look solely to Landlord's interest therein for the recovery of any judgment against Landlord, it being intended that neither Landlord nor any of its shareholders, employees, agents, representatives, affiliates, officers or directors shall be personally liable for any judgment or deficiency. 21.17 ESTOPPEL CERTIFICATES. Within thirty (30) days after request therefor by either party, the non-requesting party shall deliver, in recordable form, a certificate to any proposed mortgagee, purchaser, sublessee or assignee and to the requesting party, certifying (if such be the case) that this Lease is in full force and effect, the date of Tenant's most recent payment of Rent, that, to the best of its knowledge, the non-requesting party has no defenses or offsets outstanding, or stating those claimed, and any other information reasonably requested. Failure to deliver said statement in time shall be conclusive upon the non-requesting party that: (a) this Lease is in full force and effect, without modification except as may be represented by the requesting party; (b) there are no uncured defaults in the requesting party's performance and the non-requesting party has no right of offset, counterclaim or deduction against the non-requesting party's obligations hereunder; (c) no more than one month's Base Rent has been paid in advance; and (d) any other matters reasonably requested in such certificate. 21.18 COLLATERAL. The parties acknowledge that Tenant has pledged certain collateral ("Collateral") to UBS to secure SGA's obligations under the terms of the UBS Note. If the holder of an Authorized Loan applies any of the Collateral to satisfy an obligation under any Authorized Loan documents, such application shall be deemed to reduce the Senior Funded Amount under this Lease 44. 50 on a dollar-for-dollar basis. Tenant shall have no claims, rights or causes of action against Landlord arising from any application of the Collateral to satisfy an obligation under the Authorized Loan documents; provided, however, that nothing herein shall release Landlord from any claims, rights or causes of action of Tenant for any breach of this Lease by Landlord or any default by Landlord under any documents relating to an Authorized Loan, which default does not arise, directly or indirectly from or as a result of any default by Tenant of its obligations under the Lease. 21.19 LANDLORD'S CONTINUING OBLIGATION TO SELL. Notwithstanding anything to the contrary herein, in the event Landlord obtains possession of the Premises pursuant to the terms of this Lease (including, without limitation, upon the expiration or earlier termination of this Lease where Tenant has defaulted in its obligation to purchase the Premises pursuant to Section 19.2), Landlord shall be under a continuing obligation to use its commercially reasonable efforts to sell the Premises to Tenant or to one or more unrelated third parties; provided, however, that Landlord shall not be required to sell or attempt to sell any portion of the Premises (i) in a manner, or under circumstances, that could materially impair Landlord's ability to enforce any of its rights or remedies under this Lease (as determined in Landlord's sole discretion exercised in good faith) or (ii) at a time when market conditions render it inadvisable to sell or attempt to sell the Premises (as determined in Landlord's sole discretion exercised in good faith). 21.20 AS-IS LEASE. Landlord makes no representations or warranties concerning the condition, suitability or any other matters relating to the Premises, and Tenant hereby acknowledges that Tenant leases the Premises from Landlord on an "as is" basis. 21.21 NET LEASE. Except as otherwise provided in this Lease, Tenant agrees that this Lease is an absolute net Lease, and the Base Rent called for hereunder shall be paid as required net of all expenses associated with the Premises, including without limitation, Real Estate Taxes and insurance premiums for the insurance required to be carried hereunder, and all other reasonable and customary costs and expenses incurred by Landlord in connection with the Premises or this Lease, all of which shall be paid or reimbursed by Tenant unless otherwise specifically provided herein. Tenant agrees to reimburse Landlord, within ten (10) days following receipt of any written demand therefor, for all fees, accrued but unpaid interest, late charges, prepayment penalties, costs and expenses charged to Landlord or SGA by UBS (or other holder of an Authorized Loan) pursuant to the terms and conditions of the UBS Note or other Authorized Loan. 21.22 REPRESENTATIONS AND WARRANTIES. Tenant and Landlord each hereby represents and warrants to the other that: (i) such party is duly organized and existing under the laws of the jurisdiction in which it is formed, and is qualified to do business in the State of California; (ii) such party has the full right and 45. 51 authority to enter into this Lease, consummate the sale, transfers and assignments contemplated herein and otherwise perform its obligations under this Lease; (iii) the person or persons signatory to this Lease and any document executed pursuant hereto on behalf of such party have full power and authority to bind such party; and (iv) the execution and delivery of this Lease and the performance of such party's obligations hereunder do not and shall not result in the violation of its organizational documents or any contract or agreement to which such party may be a party. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 46. 52 [SIGNATURE PAGE TO GROUND LEASE] IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written. "LANDLORD" IRISH LEASING CORPORATION, A Texas Corporation By: /s/ GREG ENGLAND --------------------------- Name: Greg England ------------------------- "TENANT" CISCO SYSTEMS, INC., A California Corporation By: /s/ JOHN T. CHAMBERS --------------------------- Name: John T. Chambers Its: President and Chief Executive Officer By: /s/ LARRY R. CARTER --------------------------- Name: Larry R. Carter Its: Chief Financial Officer 53 EXHIBIT A DESCRIPTION OF LAND REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: PARCEL ONE: Lot 50, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52. Reserving therefrom a perpetual right and easement to construct, install, maintain, repair, renew, replace, operate and use a surface drainage release to benefit Lot 49 of Tract 7560, as contained in that certain Grant of Easement recorded August 8, 1990 in Book L443, page 0754, Official Records, and described as follows: The Northwesterly 10.00 feet of the Southeasterly 30.00 feet and the Northwesterly 100.00 feet of the Southeasterly 130.00 feet of the Northeasterly 10.00 feet of Lot 50. PARCEL TWO: That portion of Lot 51, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52, being more particularly described as follows: Beginning at the Southeasterly corner of said Lot 51; thence along the Southerly line of said Lot 51, S. 59 degrees 27 minutes 51 seconds W. 77.00 feet; thence N. 14 degrees 27 minutes 48 seconds E. 108.90 feet to the Northeasterly line of said Lot 51; thence along said Northeasterly line S. 30 degrees 32 minutes 09 seconds E. 77.00 feet to the point of beginning, as provided for in that certain Lot Line Adjustment granted by the Director of Planning of the City of San Jose, a copy of which was recorded March 28, 1984 in the office of the Recorder of the County of Santa Clara in Book I410, page 712 of Official Records. PARCEL THREE: Lot 5 and 6, as shown on that certain Map of Tract No. 7408, which map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on November 19, 1982 in Book 506 of Maps, pages 24, 25 and 26 and a portion of that certain parcel of land described in the deed recorded December 22, 1972 in Book 0167, page 623, all as approved by that Lot Combination recorded September 16, 1992 in Book M381 of Maps, page(s) 0081, Official Records, more particularly described as follows: Beginning at a point on the Northeasterly line of Rio Robles, as shown upon said map, at the most Southerly corner of said Lot 5; thence along said Northeasterly line of Rio Robles, N. 30 degrees 32 minutes 09 seconds W. 105.50 feet; thence on a tangent curve to the right, having a radius of 367.00 feet, through a central angle of 36 degrees 30 minutes 00 seconds an arc distance of 233.80 feet; thence on a curve to the right, tangent to the previous curve, having a radius of 50.00 feet, through a central angle of 86 degrees 01 minutes 50 seconds an arc distance of 75.08 feet to the Southerly line of Tasman Drive as shown upon said map; thence along said line on a curve to the left, tangent to the previous curve, having a radius of 1149.00 feet, through a central angle of 32 degrees 31 minutes 01 seconds an arc distance of 652.09 feet; thence N. 59 degrees 28 minutes 40 seconds E. 600.40 feet; thence on a tangent curve to the right, having a radius of 33.00 feet, through a central angle of 89 degrees 51 minutes 11 seconds an arc distance of 51.83 feet to the Southwesterly line of First Street, as shown upon said map; thence along said line, S. 30 degrees 32 minutes 09 seconds E. 261.38 feet to the Northwesterly line of the lands of EXHIBIT A 54 the City and County of San Francisco, as shown upon said map; thence along said line of the lands of the City and the County of San Francisco, S. 65 degrees 09 minutes 27 seconds W. 1396.95 feet to the point of beginning. PARCEL FOUR: Those rights as contained in that certain Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records. PARCEL FIVE: A strip of land 80 feet wide, lying 40 feet either side of the following described line and extensions thereto, across that certain parcel of land conveyed by Charles Nelson, et ux, to Masami Ezaki by Grant Deed dated February 27, 1936 and recorded March 11, 1936, in Volume No. 765, at page 262, Official Records, Santa Clara County, hereinafter referred to as the Ezaki Parcel, said line being more particularly described as commencing at a point in the Westerly boundary of the existing San Jose-Alviso Road, said point being distant along said boundary South 30 degrees 32 minutes 30 seconds East 381.31 feet from its intersection with the Northerly boundary of the above mentioned Ezaki Parcel; thence, from said point of commencement, South 65 degrees 08 minutes 00 seconds West 1459.03 feet to a point in the common boundary between the above mentioned Ezaki Parcel and that certain parcel of land conveyed by Lena Lindgren, et al, to James A. Pankoski, et ux, by Joint Tenancy Deed dated November 13, 1944 and recorded November 17, 1944 in Volume No. 1227 at Page 327, Official Records, Santa Clara County, hereinafter referred to as the Pankoski Parcel, said point being distant along said common boundary South 30 degrees 32 minutes 30 seconds East 237.04 feet from the most Westerly corner of the above mentioned Ezaki Parcel; the Easterly end of said strip being the above mentioned Westerly boundary of the San Jose-Alviso Road, and the Westerly end of said strip being the above mentioned common boundary between the Pankoski and Ezaki Parcels. EXHIBIT A 55 EXHIBIT B PERMITTED EXCEPTIONS [To include all matters of record against the Land on the date it is acquired by Landlord] EXHIBIT B 1. 56 EXHIBIT C (MEMORANDUM OF LEASE) RECORDING REQUESTED BY, AND WHEN RECORDED, RETURN TO: Brobeck, Phleger & Harrison 550 West C Street, Suite 1300 San Diego, California 92101 Attention: Todd J. Anson, Esq. MEMORANDUM OF LEASE THIS MEMORANDUM OF LEASE ("Memorandum of Lease") is executed as of _________________, 1995, by and between IRISH LEASING CORPORATION, a Texas corporation ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"). RECITALS WHEREAS, Landlord and Tenant have executed that certain lease ("Lease") dated as of April 12, 1995, covering certain premises and related improvements ("Premises") located in the City of San Jose, Santa Clara County, California and more particularly described in Schedule 1 attached hereto and incorporated herein by this reference; and WHEREAS, Landlord and Tenant desire to record notice of the Lease in the real estate records of Santa Clara County, California; NOW, THEREFORE, in consideration of the foregoing, Landlord and Tenant hereby declare as follows: 1. DEMISE. Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord, subject to the terms, covenants and conditions contained in the Lease. 2. EXPIRATION DATE. The term of the Lease ("Term") shall commence on ______________, 1995 and shall expire five (5) years thereafter, subject to Tenant's option to extend the Term pursuant to Section 4.2 of the Lease for one (1) period of five (5) years. 3. OPTION TO PURCHASE. Tenant has an option to purchase the Premises, as more particularly described in the Lease, during the Term, as it may be extended. EXHIBIT C 1. 57 4. RESTRICTIONS ON ENCUMBRANCES. Landlord is prohibited from recording against the Premises liens (including, without limitation, deeds of trust), encumbrances, and other matters that would constitute exceptions to title, and from amending or modifying any of the foregoing that may exist now or during the Term, as more particularly described in the Lease, and any such encumbrance or modification of an encumbrance not authorized in writing by Tenant shall be null and void. 5. COUNTERPARTS. This Memorandum of Lease may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] EXHIBIT C 2. 58 [SIGNATURE PAGE TO MEMORANDUM OF LEASE] IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum of Lease as of the date and year first written above. "LANDLORD" IRISH LEASING CORPORATION, A TEXAS CORPORATION By: --------------------------- Its: -------------------------- By: --------------------------- Its: -------------------------- STATE OF_____________________ ) ) ss COUNTY OF____________________ ) On _____________, before me, ______________________, Notary Public, personally appeared _______________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ------------------------------ Signature [SEAL] EXHIBIT C 3. 59 [SIGNATURE PAGE TO MEMORANDUM OF LEASE] "TENANT" CISCO SYSTEMS, A CALIFORNIA CORPORATION By: --------------------------- Name: ------------------------- Its: ------------------------- Executive Officer By: --------------------------- Name: ------------------------- Its: ------------------------- STATE OF _______________ ) ) ss COUNTY OF ______________ ) On _____________, before me, ______________________, Notary Public, personally appeared _______________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ------------------------------ Signature [SEAL] EXHIBIT C 4. 60 SCHEDULE 1 TO EXHIBIT C REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: PARCEL ONE: Lot 50, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52. Reserving therefrom a perpetual right and easement to construct, install, maintain, repair, renew, replace, operate and use a surface drainage release to benefit Lot 49 of Tract 7560, as contained in that certain Grant of Easement recorded August 8, 1990 in Book L443, page 0754, Official Records, and described as follows: The Northwesterly 10.00 feet of the Southeasterly 30.00 feet and the Northwesterly 100.00 feet of the Southeasterly 130.00 feet of the Northeasterly 10.00 feet of Lot 50. PARCEL TWO: That portion of Lot 51, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52, being more particularly described as follows: Beginning at the Southeasterly corner of said Lot 51; thence along the Southerly line of said Lot 51, S. 59 degrees 27 minutes 51 seconds W. 77.00 feet; thence N. 14 degrees 27 minutes 48 seconds E. 108.90 feet to the Northeasterly line of said Lot 51; thence along said Northeasterly line S. 30 degrees 32 minutes 09 seconds E. 77.00 feet to the point of beginning, as provided for in that certain Lot Line Adjustment granted by the Director of Planning of the City of San Jose, a copy of which was recorded March 28, 1984 in the office of the Recorder of the County of Santa Clara in Book I410, page 712 of Official Records. PARCEL THREE: Lot 5 and 6, as shown on that certain Map of Tract No. 7408, which map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on November 19, 1982 in Book 506 of Maps, pages 24, 25 and 26 and a portion of that certain parcel of land described in the deed recorded December 22, 1972 in Book 0167, page 623, all as approved by that Lot Combination recorded September 16, 1992 in Book M381 of Maps, page(s) 0081, Official Records, more particularly described as follows: Beginning at a point on the Northeasterly line of Rio Robles, as shown upon said map, at the most Southerly corner of said Lot 5; thence along said Northeasterly line of Rio Robles, N. 30 degrees 32 minutes 09 seconds W. 105.50 feet; thence on a tangent curve to the right, having a radius of 367.00 feet, through a central angle of 36 degrees 30 minutes 00 seconds an arc distance of 233.80 feet; thence on a curve to the right, tangent to the previous curve, having a radius of 50.00 feet, through a central angle of 86 degrees 01 minutes 50 seconds an arc distance of 75.08 feet to the Southerly line of Tasman Drive as shown upon said map; thence along said line on a curve to the left, tangent to the previous curve, having a radius of 1149.00 feet, through a central angle of 32 degrees 31 minutes 01 seconds an arc distance of 652.09 feet; thence N. 59 degrees 28 minutes 40 seconds E. 600.40 feet; thence on a tangent curve to the right, having a radius of 33.00 feet, through a central angle of 89 degrees 51 minutes 11 seconds an arc distance of 51.83 feet to the Southwesterly line of First Street, as shown upon said map; thence along said line, S. 30 degrees 32 minutes 09 seconds E. 261.38 feet to the Northwesterly line of the lands of SCHEDULE 1 TO EXHIBIT C 61 the City and County of San Francisco, as shown upon said map; thence along said line of the lands of the City and the County of San Francisco, S. 65 degrees 09 minutes 27 seconds W. 1396.95 feet to the point of beginning. PARCEL FOUR: Those rights as contained in that certain Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records. PARCEL FIVE: A strip of land 80 feet wide, lying 40 feet either side of the following described line and extensions thereto, across that certain parcel of land conveyed by Charles Nelson, et ux, to Masami Ezaki by Grant Deed dated February 27, 1936 and recorded March 11, 1936, in Volume No. 765, at page 262, Official Records, Santa Clara County, hereinafter referred to as the Ezaki Parcel, said line being more particularly described as commencing at a point in the Westerly boundary of the existing San Jose-Alviso Road, said point being distant along said boundary South 30 degrees 32 minutes 30 seconds East 381.31 feet from its intersection with the Northerly boundary of the above mentioned Ezaki Parcel; thence, from said point of commencement, South 65 degrees 08 minutes 00 seconds West 1459.03 feet to a point in the common boundary between the above mentioned Ezaki Parcel and that certain parcel of land conveyed by Lena Lindgren, et al, to James A. Pankoski, et ux, by Joint Tenancy Deed dated November 13, 1944 and recorded November 17, 1944 in Volume No. 1227 at Page 327, Official Records, Santa Clara County, hereinafter referred to as the Pankoski Parcel, said point being distant along said common boundary South 30 degrees 32 minutes 30 seconds East 237.04 feet from the most Westerly corner of the above mentioned Ezaki Parcel; the Easterly end of said strip being the above mentioned Westerly boundary of the San Jose-Alviso Road, and the Westerly end of said strip being the above mentioned common boundary between the Pankoski and Ezaki Parcels. SCHEDULE 1 TO EXHIBIT C 62 EXHIBIT D CLOSING COSTS AND FEES TO BE INCLUDED IN FUNDED AMOUNT The following items shall be included in the definition of the Funded Amount under Section 2.16 of the Lease: 1. Title Insurance premiums 2. Arrangement Fee payable to Irish 3. Brokerage Commissions 4. Other fees and costs which are specifically authorized by Tenant in writing to be included in the Funded Amount EXHIBIT D 1. 63 EXHIBIT E LEASE COMMENCEMENT DATE MEMORANDUM THIS LEASE COMMENCEMENT DATE MEMORANDUM ("Memorandum") is entered into this ___ day of ____________, 1995, by and between IRISH LEASING CORPORATION, a Texas corporation ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant") concerning that certain Lease ("Lease") between Landlord and Tenant dated April 12, 1995. Any capitalized terms not defined in this Memorandum shall have their meaning as defined in the Lease. 1. Pursuant to Section 4.1 of the Lease, Landlord and Tenant are required to enter into this Memorandum within thirty (30) days after the Lease Commencement Date. 2. Landlord and Tenant agree the that Lease Commencement Date is _______________, 1995. 3. Landlord and Tenant agree that the Rent Commencement Date is _______________, 1995. 4. The dollar value of the Guaranteed Residual Value (defined in Section 2.17 of the Lease) described in paragraph 2 above is _____% of $_____________________________, (i.e. $_____________________________). 5. The Equity Funded Amount as of the Lease Commencement Date is $__________________. IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date and year first above written. "LANDLORD" IRISH LEASING CORPORATION, A TEXAS CORPORATION By: --------------------------- Name: ---------------------- Its: ---------------------- "TENANT" CISCO SYSTEMS, INC., A CALIFORNIA CORPORATION By: --------------------------- Name: ---------------------- Its: ---------------------- EXHIBIT H 64 EXHIBIT F DESCRIPTION OF ADDITIONAL PROPERTY OWNED BY LANDLORD REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: All of Parcel 2, as shown on that certain Map filed for record in the office of the Recorder of the County of Santa Clara, State of California on July 13, 1983, in Book 514 of Maps page(s) 47 and 48. APN: 97-53-14 All of Lots 54, 58 and 59, as shown upon that certain Map entitled, "Tract No. 7559", which Map was filed for record in the Office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages 49 and 50. APN: 97-53-18, 22 and 23 EXHIBIT F EX-10.42 16 FIRST AMENDMENT TO LEASE TASMAN PHASE C 1 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made and entered into as of May 1, 1995, by and between IRISH LEASING CORPORATION, a Texas corporation ("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"). THIS FIRST AMENDMENT IS ENTERED INTO upon the basis of the following facts, understandings and intentions. A. Landlord and Tenant entered into that certain Lease dated April 12, 1995 ("Lease"), pursuant to which Landlord is leasing to Tenant that certain land located in San Jose, California, as more particularly described in the Lease and on Exhibit A attached hereto and incorporated herein by this reference ("Premises"). Any capitalized terms used but not defined in this First Amendment which are defined in the Lease shall have the meaning ascribed in the Lease. B. Landlord and Tenant now desire to amend the terms of the Lease, as more particularly described in this First Amendment. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereby agree as follows: 1. Equity Funded Amount. Section 2.10 is hereby deleted, and is replaced with the following: 2.10 Equity Funded Amount. "Equity Funded Amount" shall mean that portion of the Funded Amount equal to the Funded Amount minus the Senior Funded Amount and which shall be an amount equal to fifteen percent (15%) of the Funded Amount. 2. Lease Rate. Section 2.23 is hereby deleted, and is replaced with the following: 2.23 Lease Rate. "Lease Rate" shall mean interest at the rate of the product of 0.850 times the then-effective LIBOR Rate, plus .0045, per annum. 3. Lease Rate. Section 2.26 is hereby deleted, and is replaced with the following: 2.26 LIBOR Rate. "LIBOR Rate" shall mean the LIBOR interest rate as defined in that certain Schedule I, Additional Terms and Conditions of Credit Arrangement between SGA and UBS dated May 1, 1995, relating to the UBS Loan ("Schedule I"), or as defined in a subsequent Authorized Loan. 4. Interest Rate Selection. Section 5.1(b) is hereby deleted, and is replaced with the following: (b) Interest Rate Selection. The parties acknowledge that the interest rate applicable under the UBS Loan (or other Authorized Loan) shall affect the amount of Base Rent payable by Tenant hereunder. Therefore, Tenant shall have the right, by written notice to UBS (or the holder of any Authorized Loan), SGA and Landlord, to designate the interest period to be selected from time to time by SGA pursuant to Schedule I (or other Authorized Loan). Tenant acknowledges that the rates available to be selected under the UBS Loan after the first partial calendar month of the Term are 1, 2, 3, 6, 9 or 12- month LIBOR rates. In the event that Tenant fails to give such written notice to UBS (or other holder of an Authorized Loan), SGA and Landlord prior to the applicable deadline for selection of such interest period pursuant to the 2 terms of Schedule I (or other Authorized Loan), Tenant shall be deemed to have selected an interest period of one month for the UBS Loan (or other Authorized Loan). 5. Option to Purchase Premises. (a) In Section 19.1(a), Purchase Option , the two (2) sentences beginning with "The purchase price ("Purchase Price") . . ." on line 8 of Section 19.1(a) and ending with ". . . this Purchase Option" on line 26 of Section 19.1(a) are hereby deleted in their entirety and the following inserted in their place: The purchase price ("Purchase Price") for the portion of the Premises which Tenant elects to purchase shall be (i) the then-existing Funded Amount applicable to the portion of the Premises which Tenant elects to purchase (determined in a pro rata basis on the basis of the area being purchased), as the same may be reduced from time to time, plus (ii) the amount of any prepayment premium and all other fees, costs, and expenses due to any holder of an Authorized Loan in connection with such loan (to the extent not already paid pursuant to Section 21.21 hereof). Tenant shall be entitled to a credit against the Purchase Price in an amount equal to the sum of (i) the principal balance(s) of any Authorized Loan and/or Fee Mortgage existing immediately prior to the closing under this Purchase Option if such Authorized Loan and/or Fee Mortgage are not fully repaid and all documents reflecting the same are not cancelled and removed from the public records on or prior to the closing under this Purchase Option, plus (ii) the amount of the Security Deposit (or, in the event of a purchase of a portion of the Premises, a pro rata portion of the Security Deposit), and, upon closing under this Purchase Option, Landlord shall be released from Landlord's obligation to return the Security Deposit set forth in Section 5.5 hereof. (b) In Section 19.1(a), Purchase Option , following the sentence beginning with "Landlord . . ." on line 36 of Section 19.1(a) and ending with ". . . expenses related thereto" on line 40 of Section 19.1(a), the following sentence is inserted: Notwithstanding the foregoing, Landlord agrees to, upon Tenant's written demand, assign the UBS Loan or any other Authorized Loan and its obligations thereunder to Sumitomo Bank Leasing and Finance, Inc., a Delaware corporation ("SBLF"); provided that SBLF shall first expressly assume Landlord's obligations under the UBS Loan (or any other Authorized Loan) in writing and hold Landlord harmless from any liabilities arising after the date of such assignment. 6. Form of Transaction; Certain Tax Matters. a. Section 21.2(a)(ii) is hereby deleted, and is replaced with the following: (a) a financing arrangement (and not a "true lease") for Federal, state and local income tax and local property tax purposes. -2- 3 b. Section 21.2(b) is hereby deleted, and is replaced with the following: Landlord and Tenant agree that, in accordance with their intentions and the substance of the transactions contemplated hereby, Tenant (and not Landlord) shall be treated as the owner of the Premises for Federal, state, and local income tax and property tax purposes and this Lease shall be treated as a financing arrangement. Tenant shall be entitled to take any deduction, credit allowance or other reporting, filing or other tax position consistent with such characterizations. Landlord and Tenant shall not file any Federal, state or local income tax or property tax returns, reports or other statements, or take any other actions, in a manner which is inconsistent with the foregoing provisions of this Section 21.2, unless required to do so by applicable law or Legal Requirement. c. Section 21.2(c) is hereby deleted, and is replaced with the following: Each party acknowledges that it has retained accounting, tax and legal advisors to assist it in structuring this Lease and neither party is relying on any representations of the other regarding the proper treatment of this transaction for accounting, income tax, property tax or any other purpose. Nothing in this Section 21.2(c) shall increase or diminish any liability or obligation of the parties that otherwise exists pursuant to this Lease. 7. Exhibits. Exhibit B is hereby deleted and the attached Exhibit B inserted in its place. 8. Counterparts. This First Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall comprise but a single instrument. 9. Existing Lease. Except to the extent specifically amended hereby, all terms and conditions of the Lease remain in full force and effect. [Remainder of This Page Intentionally Left Blank] -3- 4 [SIGNATURE PAGE TO FIRST AMENDMENT TO LEASE] IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment as of the date and year first written above. "LANDLORD" IRISH LEASING CORPORATION, A TEXAS CORPORATION By: /s/ GREG ENGLAND --------------------------- Name: GREG ENGLAND ---------------------- Its: VICE PRESIDENT ---------------------- "TENANT" CISCO SYSTEMS, INC., a California corporation By: /s/ JOHN CHAMBERS --------------------------- Name: ---------------------- Its: ----------------------- By: /s/ LARRY R. CARTER --------------------------- Name: ---------------------- Its: ----------------------- -4- 5 EXHIBIT A DESCRIPTION OF LAND REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: Lot 50, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52. Reserving therefrom a perpetual right and easement to construct, install, maintain, repair, renew, replace, operate and use a surface drainage release to benefit Lot 49 of Tract 7560, as contained in that certain Grant of Easement recorded August 8, 1990 in Book L443, page 0754, Official Records, and described as follows: The Northwesterly 10.00 feet of the Southeasterly 30.00 feet and the Northwesterly 100.00 feet of the Southeasterly 130.00 feet of the Northeasterly 10.00 feet of Lot 50. That portion of Lot 51, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52, being more particularly described as follows: Beginning at the Southeasterly corner of said Lot 51; thence along the Southerly line of said Lot 51, S. 59 degrees 27 minutes 51 seconds W. 77.00 feet; thence N. 14 degrees 27 minutes 48 seconds E. 108.90 feet to the Northeasterly line of said Lot 51; thence along said Northeasterly line S. 30 degrees 32 minutes 09 seconds E. 77.00 feet to the point of beginning, as provided for in that certain Lot Line Adjustment granted by the Director of Planning of the City of San Jose, a copy of which was recorded March 28, 1984 in the office of the Recorder of the County of Santa Clara in Book I410, page 712 of Official Records. Lot 5 and 6, as shown on that certain Map of Tract No. 7408, which map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on November 19, 1982 in Book 506 of Maps, pages 24, 25 and 26 and a portion of that certain parcel of land described in the deed recorded December 22, 1972 in Book 0167, page 623, all as approved by that Lot Combination recorded September 16, 1992 in Book M381 of Maps, page(s) 0081, Official Records, more particularly described as follows: Beginning at a point on the Northeasterly line of Rio Robles, as shown upon said map, at the most Southerly corner of said Lot 5; thence along said Northeasterly line of Rio Robles, N. 30 degrees 32 minutes 09 seconds W. 105.50 feet; thence on a tangent curve to the right, having a radius of 367.00 feet, through a central angle of 36 degrees 30 minutes 00 seconds an arc distance of 233.80 feet; thence on a curve to the right, tangent to the previous curve, having a radius of 50.00 feet, through a central angle of 86 degrees 01 minutes 50 seconds an arc distance of 75.08 feet to the Southerly line of Tasman Drive as shown upon said map; thence along said line on a curve to the left, tangent to the previous curve, having a radius of 1149.00 feet, through a central angle of 32 degrees 31 minutes 01 seconds an arc distance of 652.09 feet; thence N. 59 degrees 28 minutes 40 seconds E. 600.40 feet; thence on a tangent curve to the right, having a radius of 33.00 feet, through a central angle of 89 degrees 51 minutes 11 seconds an arc distance of 51.83 feet to the Southwesterly line of First Street, as shown upon said map; thence along said line, S. 30 degrees 32 minutes 09 seconds E. 261.38 feet to the Northwesterly line of the lands of the City and County of San Francisco, as shown upon said map; thence along said line of the lands of the City and the County of San Francisco, S. 65 degrees 09 minutes 27 seconds W. 1396.95 feet to the point of beginning. Those rights as contained in that certain Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records. EXHIBIT A 6 A strip of land 80 feet wide, lying 40 feet either side of the following described line and extensions thereto, across that certain parcel of land conveyed by Charles Nelson, et ux, to Masami Ezaki by Grant Deed dated February 27, 1936 and recorded March 11, 1936, in Volume No. 765, at page 262, Official Records, Santa Clara County, hereinafter referred to as the Ezaki Parcel, said line being more particularly described as commencing at a point in the Westerly boundary of the existing San Jose-Alviso Road, said point being distant along said boundary South 30 degrees 32 minutes 30 seconds East 381.31 feet from its intersection with the Northerly boundary of the above mentioned Ezaki Parcel; thence, from said point of commencement, South 65 degrees 08 minutes 00 seconds West 1459.03 feet to a point in the common boundary between the above mentioned Ezaki Parcel and that certain parcel of land conveyed by Lena Lindgren, et al, to James A. Pankoski, et ux, by Joint Tenancy Deed dated November 13, 1944 and recorded November 17, 1944 in Volume No. 1227 at Page 327, Official Records, Santa Clara County, hereinafter referred to as the Pankoski Parcel, said point being distant along said common boundary South 30 degrees 32 minutes 30 seconds East 237.04 feet from the most Westerly corner of the above mentioned Ezaki Parcel; the Easterly end of said strip being the above mentioned Westerly boundary of the San Jose-Alviso Road, and the Westerly end of said strip being the above mentioned common boundary between the Pankoski and Ezaki Parcels. EXHIBIT A 7 EXHIBIT B PERMITTED EXCEPTIONS 1. Bond for Reassessment District #93-210 Consolidated Refunding 2. THE LIEN of supplemental taxes, if any, assessed as a result of transfer of interest and/or new construction, said supplemented taxes being assessed pursuant to Chapter 3.5 commencing with Section 75 of the California Revenue and Taxation Code, for which no Notice of Assessment has been issued, as of the date herein. 3. EASEMENT for the purposes stated herein and incidents thereto Purpose : Right to excavate for, install, replace (of initial or any other size), maintain and use for conveying gas such pipe line or lines as shall from time to time elect, with necessary values and other appliances Granted to : Pacific Gas and Electric Company, a California corporation Recorded : July 6, 1944 in Book 1206, page 154, Official Records Affects : as follows: By a Relocation Agreement between Oakmead Associates, a California general partnership and Pacific Gas and Electric Company, a California corporation Recorded : April 5, 1989 In Book K903, page 1344, Official Records the easement was relocated as follows: A strip of land of the uniform width of 15 feet extending from the Northerly boundary line of said Lot 5, said Northerly boundary line being the Southerly boundary line of the city street known as Tasman Drive (128 feet wide), said Tasman Drive is shown on said map, Southwesterly to the Westerly boundary line of said Lot 5, said Westerly boundary line being the Easterly boundary line of the street known as Rio Robles (66 feet wide), said street Rio Robles is also shown on said map, and lying 7.5 feet on each side of the line described as follows: Beginning at a point in the Northerly boundary line of said Lot 5 and running (1) S. 0 degrees 23.5 minutes E. 12.4 feet to a point which bears, S. 66 degrees 35.0 minutes W. 579.2 feet distant from the found 5/8" brass pin set in concrete accepted as marking the Southwesterly terminus of a course in the center line of said Tasman Drive, which course as shown on said map has a bearing of, N. 59 degrees 28 minutes 40 seconds E. and a length of 700.88 feet; thence (2) S. 29 degrees 04.3 minutes W. 187.8 feet; thence (3) S. 57 degrees 38.6 minutes W. 10.8 feet to a point in the Westerly boundary line of said Lot 5. Said line being a survey traverse made by second party in September, 1983. The bearings used in the foregoing description are based on solar observations made by second party. EXHIBIT B 8 4. TERMS and conditions as contained in the Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records. 5. THE EFFECT of the Rincon de los Esteros Project Redevelopment Plan and Ordinances Nos. 17306, 19686, 19835, 20677, 20958, 21417, 21496, 21903. 22660, 22412, 22761, 22761.1 and 22961, 23703, 23732, 23761 and 23934 of the City of San Jose as recorded and as disclosed by documents recorded July 11, 1975 in Book B502, Page 711; August 6, 1979 in Book E699, Page 245; August 6, 1979 in Book E699, Page 277; December 21, 1979 in Book F37, Page 585; October 8, 1981 in Book G382, Page 605; July 28, 1982 in Book G929, Page 703; September 14, 1983 in Book H892, Page 200; January 10, 1984 in Book 1220, Page 271; January 6, 1992 in Book L996, Page 508, all of Official Records, and as disclosed by information provided by the Redevelopment Agency of the City of San Jose. 6. EASEMENT for the purposes stated herein and incidents thereto Purpose : Any and all public service facilities, including, but not limited to, poles, wires, conduits and vaults, storm sewers, sanitary sewers, and gas, water, electrical and communication mains and all appurtenances thereto Granted to : City of San Jose, a municipal corporation of the State of California Recorded : September 14, 1981 in Book G330, page 497, Official Records Affects : That portion of said land as shown upon the map herein referred to, more particularly described as follows: All that certain real property situated in the City of San Jose, County of Santa Clara, State of California, being a portion of the parcel of land described and designated as Parcel 1 in the deed to River Oaks Associates 12, dated November 17, 1979, recorded in Book E962 of Official Records, at page 145, Santa Clara County Records, more particularly described as follows: Beginning at a point in the centerline of North First Street (formerly San Jose-Alviso Road) as said centerline is described in said deed at the most Northerly corner of said parcel; thence along the Northwesterly boundary line of said parcel, S. 59 degrees 28 minutes 40 seconds W. (S. 59 degrees 30 minutes W. per deed), 114.98 feet; thence leaving said line, S. 30 degrees 31 minutes 20 seconds E. 34.00 feet to the true point of beginning; thence along a non-tangent curve to the right having a radius of 50.00 feet; whose radius point bears along the continuation of the last described course, S. 30 degrees 31 minutes 20 seconds E. through a central angle of 89 degrees 59 minutes 11 seconds for an arc length of 78.53 feet to a point in a line which is parallel with and 65.00 feet Southwesterly of said centerline; thence along said parallel line. S. 30 degrees 32 minutes 09 seconds E. 254.64 feet to a point in the Northwesterly boundary line of the strip of land described in the deed to the City of County of San Francisco, dated October 20, EXHIBIT B 9 1950; recorded in Book 2111 of Official Records, at page 319, Santa Clara County Records; thence along said Northwesterly line, S. 65 degrees 09 minutes 27 seconds W. 10.05 feet to a point in a line that is parallel with and 75.00 feet Southwesterly from said centerline; thence along said parallel line, N. 30 degrees 32 minutes 09 seconds W. 253.64 feet; thence along a curve to the left, having a radius of 40.00 feet, through a central angle of 89 degrees 59 minutes 11 seconds for an arc length of 62.82 feet; thence N. 30 degrees 31 minutes 20 seconds W. 10.00 feet to the true point of beginning; the bearing of, S. 30 degrees 32 minutes 09 seconds E. of the monument line of North First Street, as shown on the Parcel Map recorded in Book 460 of Maps, at page 1, Santa Clara County Records, was used as the basis of bearings for this description. 7. EASEMENT for the purposes stated herein and incidents thereto Purpose : Landscape Easement Granted to : City of San Jose, a municipal corporation Recorded : September 14, 1981 in Book G330, page 504, Official Records Affects : The Northeasterly 20 feet of Parcel Three 8. LICENSE for the purposes stated herein and incidents thereto Purpose : To construct, install, maintain, repair, renew, replace, operate and use an interim storm sewer pipe line or lines and appurtenances of any size of material, and/or a surface drainage release Granted to : City of San Jose, a municipal corporation of the State of California Recorded : September 14, 1981 in Book G330, page 511, Official Records Affects : that portion of said land as shown upon the map herein referred to, more particularly described as follows: All that certain real property situated in the City of San Jose, County of Santa Clara, State of California, being a portion of the parcel of land described and designated as Parcel 1 in the deed to River Oaks Associates #2, dated November 17, 1979, recorded in Book E962 of Official Records, at page 145, Santa Clara County Records, more particularly described as follows: Beginning at a point in the centerline of North First Street (formerly San Jose-Alviso Road) as said centerline is described in said deed at the most Northerly corner of said parcel; thence along the Northwesterly boundary line of said parcel, S. 59 degrees 28 minutes 40 seconds W. (S. 59 degrees 30 minutes W. per deed), 114.98 feet; thence leaving said boundary line, S. 30 degrees 31 minutes 20 seconds E 34.00; thence along a non-tangent curve to the right having a radius of 50.00 feet whose radius point bears along the continuation of the last described course, S. 30 degrees 31 minutes 20 seconds E. through a central angle of 17 degrees 26 minutes 39 seconds for an arc length of 15.22 feet to the point of beginning; thence continuing along said curve to the right having a radius of 50.00 feet, through a central angle of 19 degrees 24 minutes 44 seconds for an arc length 16.94 feet to a point in a line that is parallel with and 85.00 feet Southwesterly of said centerline; EXHIBIT B 10 thence along said parallel line S. 30 degrees 32 minutes 09 seconds E. 292.64 feet to a point in the Northwesterly boundary line of the strip of land described in the deed to the City and County of San Francisco, dated October 20, 1950, recorded in Book 2111 of Official Records, at page 319, Santa Clara County Records; thence along said Northwesterly boundary line, S. 65 degrees 09 minutes 27 seconds W. (S. 65 degrees 08 minutes 00 seconds W. per deed), 15.07 feet to a point in a line which is parallel with and 100.00 feet Southwesterly of said centerline; thence along said parallel line, N. 32 minutes 09 seconds W. 298.84 feet to the true point of beginning. 9. AN EASEMENT affecting the portion of said land and for the purpose stated herein and incidental purposes, shown or dedicated by the map of Tract 7408 filed in Book 506 of Maps, pages 24, 25 and 26. Purpose : Public Service Easement Affects : The Southwesterly 8 feet of Parcel One; the Northeasterly and Northwesterly 10 feet of Parcel Three; and the Southwesterly 8 feet of Parcel Three 10. EASEMENT as shown on the filed map of Tract 7408 filed in Book 506 of Maps, pages 24-26 and incidents thereto Purpose : Landscape Easement Affects : The Southwesterly 18 feet of Parcel One; the Northeasterly and Northwesterly 20 feet of Parcel Three; and the Southwesterly 18 feet of Parcel Three. 11. EASEMENT for the purposes stated herein and incidents thereto Purpose : Public Service Easement Granted to : City of San Jose Recorded : November 19, 1982 in Book H156, page 275, Official Records Affects : The Northwesterly 25 feet of Parcel One. 12. EASEMENT for the purposes stated herein and incidents thereto Purpose : The installation, maintenance and operation of all landscaping plant forms, irrigation systems, retaining walls, and decorative walkway paving now existing or hereinafter to be constructed Granted to : City of San Jose, a municipal corporation of the State of California Recorded : May 27, 1983 in Book H590, page 649, Official Records Affects : The Southwesterly 18 feet of Parcel One; the Northeasterly and Northwesterly 20 feet of Parcel Three; and the Southwesterly 18 feet of Parcel Three. EXHIBIT B 11 13. EASEMENT for the purposes stated herein and incidents thereto Purpose : The installation, maintenance and operation of all landscaping plant forms, irrigation systems, retaining walls, and decorative walkway paving now existing or hereinafter to be constructed Granted to : City of San Jose, a municipal corporation of the State of California Recorded : May 27, 1983 in Book H590, page 6S2, Official Records Affects : The Northerly and Westerly corner of Parcel Three. 14. AGREEMENT on the terms and conditions contained therein, For : The installation and maintenance of landscape improvements Between : City of San Jose, a municipal corporation And : Oakmead-San Jose, a California general partnership and Oakmead-San Jose Sign and Landscape Maintenance Association, a California non-profit mutual benefit corporation Recorded : May 27, 1983 in Book H590, page 862, Official Records. 15. EASEMENT for the purposes stated herein and incidents thereto Purpose : The construction, installation, repair and maintenance of interlocking pavers, retaining walls and signs, and for pedestrian and vehicular access as necessary or desirable thereto, but subject to the obligation of the association of the association, its successors and assigns, to promptly repair any damage to said Improvements lying within the Sign and Landscape Easements resulting from the Association's activities thereon Granted to : Oakmead-San Jose Sign and Landscape Maintenance Association, a non-profit mutual benefit corporation Recorded : June 3, 1983 in Book H604, page 322, Official Records Affects : The Northerly and Westerly corner of Parcel Three 16. LIMITATIONS, covenants, conditions, restrictions, reservations, exceptions, terms, liens or charges, but deleting restrictions, if any, based on race, color, religion or national origin contained in the document recorded June 3, 1983 in Book H604, page 334, Official Records. CONTAINS mortgagee protection clause. MODIFICATION thereof recorded January 26, 1984 in Book 1257, page 252, Official Records. EXHIBIT B 12 16. Continued. A Notice of Amendment of Design Guidelines Executed by : Oakmead-San Jose, a California general partnership Recorded : June 21, 1984 in Book 1649, page 543, Official Records An instrument entitled, "Designation of Approving Agent," whereby Kimball Small Properties, a California corporation was designated approving agent under the CC&R's and Design Guidelines, Recorded : April 29, 1988 in Book K517, page 940, Official Records MODIFICATION thereof recorded October 18, 1988 in Book K721, page 265, Official Records. An instrument entitled, "Assignment of Grantors Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose and Removal of Approving Agent," Dated : October 18, 1988 Between : Oakmead-San Jose, a California general partnership and Oakmead Associates, a California general partnership Recorded : October 18, 1988 in Book K721, page 295, Official Records An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose and Removal of Approving Agent," Dated : April 20,1989 Between : Oakmead Associates, a California general partnership and Amdahl Corporation, a Delaware corporation Recorded : April 21, 1989 in Book K927, page 332, Official Records An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants. Conditions and Restrictions for Oakmead-San Jose," Dated : July 12, 1989 Between : Oakmead Associates, a California general partnership and Amdahl Corporation, a Delaware corporation Recorded : July 12, 1989 in Book L017, page 1927, Official Records Partial Termination as to other property recorded September 18, 1989 in Book L097, page 1662, Official Records. EXHIBIT B 13 17. LIMITATIONS, covenants, conditions, restrictions, reservations, exceptions, terms, liens or charges, but deleting restrictions, if any, based on race, color, religion or national origin contained in the document recorded June 3, 1983 in Book H604, page 505, Official Records. Said instrument also provides for the levy of assessments, the lien of which are stated to be subordinate to the lien of a First Mortgage or First Deed of Trust made In good faith and for value. MODIFICATION thereof recorded January 26, 1984 in Book 1257, page 246, Official Records. An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose and Removal of Approving Agent," Dated : October 18, 1988 Between : Oakmead-San Jose, a California general partnership and Oakmead Associates, a California general partnership Recorded : October 18, 1988 in Book K721, page 295, Official Records An instrument entitled, "Assignment of Grantor's Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose and Removal of Approving Agent," Dated : April 20, 1989 Between : Oakmead Associates, a California general partnership and Amdahl Corporation, a Delaware corporation Recorded : April 20, 1989 in Book K927, page 332, Official Records An instrument entitled, "Assignment of Grantors Rights under Declaration of Covenants, Conditions and Restrictions for Oakmead-San Jose," Dated : July 12, 1989 Between : Oakmead Associates, a California general partnership and Amdahl Corporation, a Delaware corporation Recorded : July 12, 1989 in Book L017, page 1927, Official Records MODIFICATION thereof recorded July 19, 1989 in Book L024, page 587, Official Records. 18. EASEMENT for the purposes stated herein and incidents thereto Purpose : Underground and above ground communication facilities Granted to : Pacific Bell Recorded : May 17, 1984 in Book 1552, page 624, Official Records Affects : The Southwesterly 10 feet of Parcel One EXHIBIT B 14 19. AGREEMENT on the terms and conditions contained therein, For : Gas and electric service Between : Pacific Gas and Electric Company, City of San Jose And : Oakmead-San Jose As disclosed by a Memorandum of Agreement Recorded : February 25, 1985 In Book J271, page 37, Official Records. 20. EASEMENT for the purposes stated herein and incidents thereto Purpose : Emergency overland storm drainage release Granted to : Amdahl Corporation, a Delaware corporation Recorded : August 8, 1990, in Book L443, page 754, Official Records Affects : The Northwesterly 10 feet of the Southeasterly 30 feet and the Northeasterly 10 feet of the Northwesterly 100 feet of the Southeasterly 130 feet of Parcel One. 21. TERMS AND CONDITIONS of that certain Site Development Permit File No. : HSH 90-09-104 As disclosed by a Notice of Granting of a Site Development Permit Recorded : January 24, 1991 in Book L600, page 1242, Official Records 22. TERMS AND CONDITIONS of that certain Site Development Permit File No. : HSH 92-02-011 As disclosed by a Notice of Granting of a Site Development Permit Recorded : August 21, 1992 in Book M340, page 824, Official Records 23. TERMS AND CONDITIONS of that certain Site Development Permit File No. : H94-07-041 As disclosed by a Notice of Granting of a Site Development Permit Recorded : October 19, 1994 in Book N638, page 21.5, Official Records EXHIBIT B EX-10.43 17 SECOND AMENDMENT TO LEASE TASMAN PHASE C 1 SECOND AMENDMENT TO LEASE (Tasman Phase C) This Second Amendment to Lease ("Second Amendment") is made and entered into as of May 22, 1995 by and between Irish Leasing Corporation, a Texas corporation ("Landlord"), and Cisco Systems, Inc., a California corporation ("Tenant"). WHEREAS, Landlord and Tenant have previously entered into that certain Ground Lease dated April 12, 1995, pursuant to which Landlord is leasing to Tenant those certain parcels of land located in San Jose, California as more particularly described on Exhibit A attached hereto (the "Premises"), which Ground Lease was amended by that certain First Amendment to Lease dated as of May 1, 1995, by and between Landlord and Tenant (the Ground Lease, as so amended, is referred to herein as the "Lease"); and WHEREAS, Landlord and Tenant now wish to further amend the terms of the Lease as more particularly described in this Second Amendment. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. Amendment to Lease. The Landlord and Tenant hereby agree to amend the Lease as hereinafter set forth and as set forth in other sections of this Second Amendment. (a) Section 2.33 of the Lease is hereby amended to read in its entirety as follows: 2.33 Permitted Exceptions. "Permitted Exceptions" shall mean the following: (1) the exceptions set forth in Exhibit B; (2) any exceptions created or caused by Tenant or to which Tenant consents in writing; (3) taxes and assessments not yet due and payable; (4) a deed of trust or mortgage which secures a New Loan authorized pursuant to the terms of Section 13.1(b); (5) the Tenant Deed of Trust; (6) all title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way, and restrictive covenants and conditions affecting the Land unless any of the foregoing arise as a result of Landlord's actions or with Landlord's written consent (unless such actions taken or consent given by Landlord are requested in writing by Tenant pursuant to Sections 11.2, 20.1 or 20.2); (7) this Lease; (8) that certain Construction Deed of Trust, Financing Statement, Security Agreement and Fixture Filing (With Assignment of Rents and Leases) (the "Construction Deed of Trust") dated as of even date herewith executed by Landlord, Tenant and Sumitomo Bank of New York Trust Company ("SBNYTC"), as Trustee under that certain Trust Agreement dated May 22, 1995 between Sumitomo Bank Leasing and Finance, Inc. and SBNYTC ("SB Trust") for the benefit of the Sumitomo Bank, Limited ("Sumitomo") and the Hongkong and Shanghai Banking Corporation Limited ("HKS"); (9) that certain Deed of Trust, Financing Statement, Security Agreement and Fixture Filing (with Assignment of Rents and Leases)(the "Second Deed of Trust") dated as of even date 2 herewith executed by Landlord and Tenant for the benefit of SB Trust; (10) that certain Absolute Assignment of Leases (the "HKS Assignment") dated as of even date herewith executed by Landlord, SB Trust, Cisco, HKS and Sumitomo; and (11) that certain Subordination Agreement (herein so called) dated as of even date herewith and executed by Sumitomo, HKS, SB Trust, Landlord and Tenant. (b) The last sentence of Section 5.5 of the Lease is hereby amended to read in its entirety as follows: The entire Security Deposit (other than amounts withheld against Base Rent due hereunder), plus any accrued and unpaid interest required to be paid thereon pursuant to this Lease, shall be returned to Tenant at the end of the Term; provided, however, that, notwithstanding anything to the contrary contained in this Lease, Landlord shall have no obligation to return the Security Deposit to Tenant in the event of a foreclosure, deed in lieu of foreclosure, or other exercise of remedies by the beneficiaries or trustees under the Tenant Deed of Trust, the Construction Deed of Trust, the Second Deed of Trust, the HKS Assignment, or any other Mortgage on the Premises caused by Tenant to which Tenant consents in writing. (c) Section 20.5 of the Lease is hereby amended to read in its entirety as follows: 20.5 Recourse Obligations. Landlord agrees that during the Term of this Lease, except for the SGA Loan, Landlord will not incur any indebtedness for borrowed money or any other material obligations to which the holder or obligee thereof has recourse against Landlord to satisfy the same without Tenant's prior written consent, which consent Tenant may withhold in its sole discretion. (d) Section 20.6 of the Lease is hereby amended to read in its entirety as follows: 20.6 Default Under Authorized Loan. Landlord shall not, without Tenant's express prior written consent, default under any Authorized Loan, or any loan documents relating to such Authorized Loan, where such default is not caused, directly or indirectly by, or arising, directly or indirectly as a result of (a) a breach of any of Tenant's obligations under this Lease, under the Pledge Agreement securing the UBS Loan or under any documents relating to any Authorized Loan, or (b) the occurrence of a default or an Event of Default under the Construction Deed of Trust, the Second Deed of Trust or the HKS Assignment. 2. Existence of Permitted Exceptions. Tenant hereby acknowledges that the existence of any Permitted Exception, and the exercise of any rights or remedies granted to any third party pursuant to any Permitted Exceptions shall not constitute a breach by Landlord under the terms of Section 20.3 or any other provision of the Lease. 3. Quiet Enjoyment. The first sentence of Section 18.1 of the Lease is hereby amended by adding the following language at the end of such sentence: 3 "and subject to the rights of a Fee Mortgagee under the Construction Deed of Trust, and/or the Second Deed of Trust, the rights of the "Assignees" under the HKS Assignment, and the rights of any Fee Mortgagee under any Authorized Loan." 4. Net Lease. The last sentence of Section 21.21 of the Lease is hereby to read in its entirety as follows: Tenant agrees to reimburse Landlord and/or SGA, within ten days following receipt of any written demand therefor, for all fees, accrued but unpaid interest, late charges, prepayment penalties, costs, expenses, indemnification obligations, and other amounts charged to Landlord and/or SGA by UBS, the holder of any Authorized Loan, the holders or beneficiaries of the Construction Deed of Trust and the Second Deed of Trust, and the "Assignees" under the HKS Assignment pursuant to the terms and conditions of the UBS Note, any Authorized Loan, the Construction Deed of Trust, the Second Deed of Trust, the HKS Assignment and the Subordination Agreement." 5. Consent to Encumbrances. Tenant hereby consents to Landlord's execution, delivery and recording of the Construction Deed of Trust, the Second Deed of Trust, the HKS Assignment and the Subordination Agreement, and all documents, instruments and agreements executed in connection therewith by Landlord. 6. Terms. All terms used in this Second Amendment with their initial letter capitalized which are specially defined in the Lease (as amended by this Second Amendment) shall have the same meanings in this Second Amendment as in the Lease (as amended by this Second Amendment). 7. Continuing Obligations. Except as modified by this Second Amendment, the terms of the Lease remain in full force and effect. To the extent of any conflict between the terms of the Lease and the terms of this Second Amendment, the terms of this Second Amendment shall control. 8. Counterparts. This Second Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall comprise but a single instrument. IN WITNESS WHEREOF, the Landlord and Tenant have executed this Second Amendment as of the date first set forth above. 4 IRISH LEASING CORPORATION, a Texas corporation By: /s/ GREG ENGLAND --------------------------- Its: VICE PRESIDENT ----------------------- CISCO SYSTEMS, INC., a California corporation By: /s/ LARRY R. CARTER --------------------------- Its: ----------------------- 5 EXHIBIT A Description of Land REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: PARCEL ONE: Lot 50, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52. Reserving therefrom a perpetual right and easement to construct, install, maintain, repair, renew, replace, operate and use a surface drainage release to benefit Lot 49 of Tract 7560, as contained in that certain Grant of Easement recorded August 8, 1990 in Book L443, page 0754, Official Records, and described as follows: The Northwesterly 10.00 feet of the Southeasterly 30.00 feet and the Northwesterly 100.00 feet of the Southeasterly 130.00 feet of the Northeasterly 10.00 feet of Lot 50. PARCEL TWO: That portion of Lot 51, as shown on that certain Map entitled, "Tract No. 7560," which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52, being more particularly described as follows: Beginning at the Southeasterly corner of said Lot 51; thence along the Southerly line of said Lot 51, S. 59 degrees 27 minutes 51 seconds W. 77.00 feet; thence N. 14 degrees 27 minutes 48 seconds E. 108.90 feet to the Northeasterly line of said Lot 51; thence along said Northeasterly line S. 30 degrees 32 minutes 09 seconds E. 77.00 feet to the point of beginning, as provided for in that certain Lot Line Adjustment granted by the Director of Planning of the City of San Jose, a copy of which was recorded March 28, 1984 in the office of the Recorder of the County of Santa Clara in Book I410, page 712 of Official Records. PARCEL THREE: Lot 5 and 6, as shown on that certain Map of Tract No. 7408, which map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on November 19, 1982 in Book 506 of Maps, pages 24, 25 and 26 and a portion of that certain parcel of land described in the deed recorded December 22, 1972 in Book 0167, page 623, all as approved by that Lot Combination recorded September 16, 1992 in Book M381 of Maps, page(s) 0081, Official Records, more particularly described as follows: Beginning at a point on the Northeasterly line of Rio Robles, as shown upon said map, at the most Southerly corner of said Lot 5; thence along said Northeasterly line of Rio Robles, N. 30 degrees 32 minutes 09 seconds W. 105.50 feet; thence on a tangent curve to the right, having a radius of 367.00 feet, through a central angle of 36 degrees 30 minutes 00 seconds an arc distance of 233.80 feet; thence on a curve to the right, tangent to the previous curve, having a radius of 50.00 feet, through a central angle of 86 degrees 01 minutes 50 seconds an arc distance of 75.08 feet to the Southerly line of Tasman Drive as shown upon said map; thence along said line on a curve to the left, tangent to the previous curve, having a radius of 1149.00 feet, through a central angle of 32 degrees 31 minutes 01 seconds an arc distance of 652.09 feet; thence N. 59 degrees 28 minutes 40 seconds E. 600.40 feet; thence on a tangent curve to the right, having a radius of 33.00 feet, through a central angle of 89 degrees 51 minutes 11 seconds an arc distance of 51.83 feet to the Southwesterly line of First Street, as shown upon said map; thence along said line, S. 30 degrees 32 minutes 09 seconds E. 261.38 feet to the Northwesterly line of the lands of EXHIBIT A 6 the City and County of San Francisco, as shown upon said map; thence along said line of the lands of the City and the County of San Francisco, S. 65 degrees 09 minutes 27 seconds W. 1396.95 feet to the point of beginning. PARCEL FOUR: Those rights as contained in that certain Grant Deed executed by Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a municipal corporation recorded December 8, 1950 in Book 2111, page 319, Official Records, over the following described property: PARCEL FIVE: A strip of land 80 feet wide, lying 40 feet either side of the following described line and extensions thereto, across that certain parcel of land conveyed by Charles Nelson, et ux, to Masami Ezaki by Grant Deed dated February 27, 1936 and recorded March 11, 1936, in Volume No. 765, at page 262, Official Records, Santa Clara County, hereinafter referred to as the Ezaki Parcel, said line being more particularly described as commencing at a point in the Westerly boundary of the existing San Jose-Alviso Road, said point being distant along said boundary South 30 degrees 32 minutes 30 seconds East 381.31 feet from its intersection with the Northerly boundary of the above mentioned Ezaki Parcel; thence, from said point of commencement, South 65 degrees 08 minutes 00 seconds West 1459.03 feet to a point in the common boundary between the above mentioned Ezaki Parcel and that certain parcel of land conveyed by Lena Lindgren, et al, to James A. Pankoski, et ux, by Joint Tenancy Deed dated November 13, 1944 and recorded November 17, 1944 in Volume No. 1227 at Page 327, Official Records, Santa Clara County, hereinafter referred to as the Pankoski Parcel, said point being distant along said common boundary South 30 degrees 32 minutes 30 seconds East 237.04 feet from the most Westerly corner of the above mentioned Ezaki Parcel; the Easterly end of said strip being the above mentioned Westerly boundary of the San JoseAlviso Road, and the Westerly end of said strip being the above mentioned common boundary between the Pankoski and Ezaki Parcels. EXHIBIT A EX-10.44 18 CREDIT AGREEMENT DATED 5/22/95 1 [CONFORMED COPY] $100,000,000 CREDIT AGREEMENT dated as of May 22, 1995 among Cisco Systems, Inc., The Banks Listed Herein, Bank of America National Trust and Savings Association, as Administrative Agent, Morgan Guaranty Trust Company of New York, as Documentation Agent and Bank of America National Trust and Savings Association, as Issuing Bank 2 TABLE OF CONTENTS
Page ARTICLE 1 DEFINITIONS 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.3. Types of Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE 2 THE CREDITS 2.1. Commitments to Lend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.2. Notice of Committed Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.3. Money Market Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.4. Notice to Banks; Funding of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.5. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.6. Maturity of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.7. Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.8. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.9. Optional Termination or Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.10. Mandatory Termination of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.11. Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.12. General Provisions as to Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.13. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.14. Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.15. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE 3 CONDITIONS 3.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.2. Credit Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE 4 REPRESENTATIONS AND WARRANTIES 4.1. Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 4.2. Corporate and Governmental Authorization; No Contravention . . . . . . . . . . . . . . . . . . . . . . . 33 4.3. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 4.4. Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
i 3
Page ---- 4.5. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 4.6. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4.7. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4.9. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 4.10. Regulatory Restrictions on Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 4.11. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE 5 COVENANTS 5.1. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.2. Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 5.3. Maintenance of Property; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 5.4. Conduct of Business and Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 5.5. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 5.6. Inspection of Property, Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.7. Mergers and Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.8. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.9. Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.10. Debt to Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.11. Quick Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.12. Minimum Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.13. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.14. Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE 6 DEFAULTS 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 6.2. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.3. Cash Cover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE 7 THE AGENTS 7.1. Appointment and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 7.2. Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 7.3. Liability of Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 7.4. Reliance by Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 7.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.6. Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.7. Indemnification of Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 7.8. Agents in Individual Capacities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ii 4
Page ---- 7.9. Successor Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 8 CHANGE IN CIRCUMSTANCES 8.1. Basis for Determining Interest Rate Unfair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 8.2. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 8.3. Increased Cost and Reduced Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 8.4. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 8.5. Base Rate Loans Substituted for Affected Fixed Rate Loans . . . . . . . . . . . . . . . . . . . . . . . 55 8.6. Substitution of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 ARTICLE 9 MISCELLANEOUS 9.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 9.2. No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 9.3. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 9.4. Sharing of Set-Offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 9.5. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 9.6. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 9.7. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 9.8. Governing Law; Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 9.9. Counterparts; Integration; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 9.10 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 9.11 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 EXHIBIT A - Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 EXHIBIT B - Money Market Quote Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 EXHIBIT C - Invitation for Money Market Quotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 EXHIBIT D - Money Market Quote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 EXHIBIT E - Opinion of Counsel for the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 EXHIBIT F - Opinion of Special Counsel for the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 EXHIBIT G - Assignment and Assumption Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
iii 5 AGREEMENT dated as of May 22, 1995 among CISCO SYSTEMS, INC., the BANKS listed on the signature pages hereof, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Issuing Bank. The parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1. Definitions. The following terms, as used herein, have the following meanings: "Absolute Rate Auction" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.3. "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 2.7(b). "Administrative Agent" means Bank of America National Trust and Savings Association, in its capacity as Administrative Agent for the Banks hereunder, and its successors in such capacity. "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank. "Affiliate" means, with respect to any Person, (i) any Person that directly, or indirectly through one or more intermediaries, controls such Person (a "Controlling Person") or (ii) any Person (other than such Person or any of its Subsidiaries) which is controlled by or is under common control with a Controlling Person. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. 6 "Agent" means the Administrative Agent or the Documentation Agent, and "Agents" both of them. "Agent-Related Persons" means either Agent and any successor agent arising under Section 7.9, together with their respective Affiliates (including the Arrangers), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and affiliates. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "Arrangers" means BA Securities, Inc. and J.P. Morgan Securities Inc. "Assignee" has the meaning set forth in Section 9.6(c). "Attorney Costs" means and includes all fees and disbursements of any law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel. "Bank" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.6(c), and their respective successors and shall include, as the context may require, the Issuing Bank in such capacity. "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Reference Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Base Rate Loan" means a Committed Loan to be made by a Bank as a Base Rate Loan in accordance with the applicable Notice of Committed Borrowing or pursuant to Article 8. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "BofA" means Bank of America National Trust and Savings Association. "Borrower" means Cisco Systems, Inc., a California corporation, and its successors. "Borrower's 1994 Form 10-K" means the Borrower's annual report on Form 10-K for July 31, 1994, as filed with the 2 7 Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "Borrower's Latest Form 10-Q" means the Borrower's quarterly report on Form 10-Q for the quarter ended January 29, 1995, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "Borrowing" has the meaning set forth in Section 1.3. "Closing Date" means the date (which must occur prior to June 30, 1995) on or after the Effective Date on which the Documentation Agent shall have received the documents specified in or pursuant to Section 3.1. "Commitment" means, with respect to each Bank, the amount set forth opposite the name of such Bank on the signature pages hereof, as such amount may be reduced from time to time pursuant to Section 2.9. "Committed Loan" means a loan made by a Bank pursuant to Section 2.1. "Consolidated Debt" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated Interest Expense" means, for any period, the interest expense of the Borrower and its Consolidated Subsidiaries determined on a consolidated basis for such period. "Consolidated Net Income" means, for any fiscal period, the net income of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis for such period. "Consolidated Operating Income" means, for any fiscal period, Consolidated Net Income for such period plus, to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of Consolidated Interest Expense and income tax expense and minus, to the extent included in determining Consolidated Net Income for such period, interest and other income. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. 3 8 "Consolidated Tangible Net Worth" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries less their consolidated Intangible Assets, all determined as of such date. For purposes of this definition, "Intangible Assets" means the amount (to the extent reflected in determining such consolidated stockholders' equity) of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to January 29, 1995 in the book value of any asset owned by the Borrower or a Consolidated Subsidiary, (ii) all investments in unconsolidated Subsidiaries and all equity investments in Persons which are not Subsidiaries and (iii) all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry-forwards, copyrights, organization or developmental expenses and other intangible assets. "Credit Event" means the making of a Loan or the issuance of a Letter of Credit. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable or accrued liabilities in respect of accrued expenses arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations (and, for purposes of Section 5.9 and the definitions of Material Debt and Material Financial Obligations, all contingent obligations) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) any of the foregoing secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person and (vii) any of the foregoing of others Guaranteed by such Person. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or 4 9 equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Documentation Agent" means Morgan Guaranty Trust Company of New York in its capacity as documentation agent for the Banks hereunder, and its successors in such capacity. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in San Francisco, California are authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent. "Effective Date" means the date this Agreement becomes effective in accordance with Section 9.9. "Eligible Assignee" means (i) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (ii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located and licensed in the United States; and (iii) a Person that is primarily engaged in the business of commercial banking and that is (A) a Subsidiary of a Bank, (B) a Subsidiary of a Person of which a Bank is a Subsidiary, or (C) a Person of which a Bank is a Subsidiary. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, 5 10 transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London, England. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent. "Euro-Dollar Loan" means a Committed Loan to be made by a Bank as a Euro-Dollar Loan in accordance with the applicable Notice of Committed Borrowing. "Euro-Dollar Margin" means a rate per annum determined in accordance with the Pricing Schedule. "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.7(b). "Event of Default" has the meaning set forth in Section 6.1. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the 6 11 Federal Funds Rate for such day shall be the average rate quoted to Bank of America National Trust and Savings Association on such day on such transactions as determined by the Administrative Agent. "Fixed Rate Loans" means Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.1) or any combination of the foregoing. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Substances" means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. "Indemnified Liabilities" has the meaning set forth in Section 9.3(b). "Indemnitee" has the meaning set forth in Section 9.3(b). "Insolvency Proceeding" means (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or 7 12 (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors, undertaken under U.S. Federal, state or foreign law, including the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. Sec 101, et seq.). "Interest Period" means: (1) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (c) below, be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (2) with respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing and ending 90 days thereafter; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (b) below, be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (3) with respect to each Money Market LIBOR Borrowing, the period commencing on the date of such Borrowing and ending one, two, three or six months thereafter as the Borrower may elect in accordance with Section 2.3; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to 8 13 clause (b) below, be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (4) with respect to each Money Market Absolute Rate Borrowing, the period commencing on the date of such Borrowing and ending such number of days thereafter (but not less than 14 days or more than 366 days) as the Borrower may elect in accordance with Section 2.3; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (b) below, be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "Issuing Bank" means Bank of America National Trust and Savings Association, as issuer of a Letter of Credit. "Letter of Credit" means a standby letter of credit to be issued hereunder by the Issuing Bank. "Letter of Credit Liabilities" means, for any Bank and at any time, the sum of (x) the amounts then owing to such Bank (including in its capacity as the Issuing Bank) under Section 2.15 to reimburse it in respect of amounts drawn under Letters of Credit and (y) such Bank's ratable participation in the aggregate amount then available for drawing under all Letters of Credit, calculated in accordance with Section 2.15. "LIBOR Auction" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.3. 9 14 "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan" means a Base Rate Loan, a Euro-Dollar Loan or a Money Market Loan and "Loans" means Base Rate Loans, Euro-Dollar Loans or Money Market Loans or any combination of the foregoing. "London Interbank Offered Rate" has the meaning set forth in Section 2.7(b). "Material Adverse Effect" means (i) any material adverse effect upon the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, taken as a whole; (ii) a material adverse effect on the ability of the Borrower to remain at all times in compliance with the requirements of this Agreement or (iii) a material adverse effect on the rights and remedies of the Agent and the Banks under this Agreement. "Material Debt" means Debt (other than the Notes) of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal or face amount exceeding $20,000,000. "Material Financial Obligations" means a principal or face amount of Debt and/or payment obligations in respect of Derivatives Obligations of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $20,000,000. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $20,000,000. "Material Subsidiary" means at any time any Subsidiary which at such time is a "significant subsidiary" as such term is defined in Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange Commission. "Money Market Absolute Rate" has the meaning set forth in Section 2.3(d)(ii)(D). "Money Market Absolute Rate Loan" means a loan to be made by a Bank pursuant to an Absolute Rate Auction. 10 15 "Money Market Lending Office" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Administrative Agent; provided that any Bank may from time to time by notice to the Borrower and the Administrative Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Money Market LIBOR Loan" means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.1). "Money Market Loan" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. "Money Market Margin" has the meaning set forth in Section 2.3(d)(ii)(C). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.3. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Committed Borrowing or a Notice of Money Market Borrowing. "Notice of Committed Borrowing" has the meaning set forth in Section 2.2. "Notice of Issuance" has the meaning set forth in Section 2.15. "Notice of Money Market Borrowing" has the meaning set forth in Section 2.3(f)). 11 16 "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 9.6(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Pricing Schedule" means the Schedule attached hereto identified as such. "Quick Ratio" means, at any date, the ratio of (i) Unrestricted Cash and Cash Equivalents and accounts receivable of the Borrower and its Consolidated Subsidiaries to (ii) the current liabilities of the Borrower and its Consolidated Subsidiaries, each determined on a consolidated basis as of such date. "Reference Banks" means the principal London offices of ABN AMRO Bank N.V., Bank of America National Trust and Savings Association and Morgan Guaranty Trust Company of New York or replacements thereof selected by the Administrative Agent and reasonably acceptable to the Borrower. "Reference Rate" means the rate of interest publicly announced by BofA in San Francisco, California from time to time as its "reference rate". Any change in the reference rate announced by BofA shall take effect at the opening of business on the day specified in the public announcement of such change. (The "reference rate" is a rate set by BofA based upon various factors including BofA's costs and desired return, general economic conditions and other factors, and is used as a reference point 12 17 for pricing some loans, which may be priced at, above, or below such announced rate.) "Refunding Borrowing" means a Committed Borrowing which, after application of the proceeds thereof, results in no net increase in the outstanding principal amount of Committed Loans made by any Bank. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Banks" means at any time Banks having at least 60% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing at least 60% of the aggregate unpaid principal amount of the Loans or, if the Commitments shall have been terminated and the Notes shall have been repaid in full, having at least 60% of the aggregate outstanding Letter of Credit Liabilities. "Subsidiary" means, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person; unless otherwise specified, "Subsidiary" means a Subsidiary of the Borrower. "Termination Date" means May 19, 1998, or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "United States" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. "Unrestricted Cash and Cash Equivalents " means (i) cash, (ii) cash equivalents and (iii) marketable securities to be 13 18 disposed within one year of the date of acquisition thereof (other than any such cash, cash equivalents and marketable securities subject to a Lien permitted by Section 5.9(a), (b) or (j).) SECTION 1.2 Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks; provided that, no change in generally accepted accounting principles shall affect the operation of any covenant if the Borrower notifies the Administrative Agent that the Borrower wishes to amend such covenant in Article 5 to eliminate such effect (or if the Administrative Agent notifies the Borrower that the Required Banks wish to amend Article 5 for such purpose) until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks. Until such notice is given or withdrawal is made, as the case may be, the Borrower's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective. SECTION 1.3. Types of Borrowings. The term "Borrowing" denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article 2 on a single date and for a single Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "Fixed Rate Borrowing" is a Euro-Dollar Borrowing or a Money Market Borrowing (excluding any such Borrowing consisting of Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.1), and a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article 2 under which participation therein is determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.1 in which all Banks participate in proportion to their Commitments, while a "Money Market Borrowing" is a Borrowing under Section 2.3 in which the Bank participants are determined on the basis of their bids in accordance therewith). 14 19 ARTICLE 2 THE CREDITS SECTION 2.1. Commitments to Lend. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time from the Closing Date to but excluding the Termination Date in amounts such that the sum of (i) the aggregate principal amount of Committed Loans by such Bank at any one time outstanding and (ii) the Letter of Credit Liabilities of such Bank at any one time outstanding shall not exceed the amount of its Commitment. Each Borrowing under this Section shall be in an aggregate principal amount of $5,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.2) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, repay, or to the extent permitted by Section 2.11, prepay Loans and reborrow at any time under this Section. SECTION 2.2. Notice of Committed Borrowing. The Borrower shall give the Administrative Agent notice (a "Notice of Committed Borrowing") (x) not later than 9:00 A.M. (San Francisco, California time) on the date of each Base Rate Borrowing and (y) not later than 10:30 A.M. (San Francisco, California time) on the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing; (ii) the aggregate amount of such Borrowing; (iii) whether the Loans comprising such Borrowing are to be Base Rate Loans or Euro-Dollar Loans; and (iv) in the case of a Euro-Dollar Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. Notwithstanding the foregoing, no more than 10 Euro-Dollar Borrowings shall be outstanding at any one time, and any Borrowing which would exceed such limitation shall be made as a Base Rate Borrowing. 15 20 SECTION 2.3. Money Market Borrowings. (a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.1, the Borrower may, at any time while Level I, II or III Status (each as defined in the Pricing Schedule) exists, request the Banks to make offers to make Money Market Loans to the Borrower in accordance with this Section. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Money Market Quote Request. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Administrative Agent by telex or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received not later than 10:30 A.M. (San Francisco, California time) on (x) the fourth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $5,000,000 or a larger multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for up to three different Interest Periods in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Administrative Agent may agree) of any other Money Market Quote Request. (c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote Request, the Administrative Agent 16 21 shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) Submission and Contents of Money Market Quotes. (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Administrative Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.1 not later than (x) 1:00 P.M. (San Francisco, California time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (San Francisco, California time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Administrative Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Administrative Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles 3 and 6, any Money Market Quote so made shall be irrevocable except with the written consent of the Administrative Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, 17 22 (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Loan, and (E) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection (d)(i). (e) Notice to Borrower. The Administrative Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Administrative Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Administrative Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the 18 23 aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (San Francisco, California time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Administrative Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). The Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. In the case of acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request; (ii) the aggregate principal amount of each Money Market Borrowing must be $5,000,000 or a larger multiple of $1,000,000; (iii) acceptance of offers for any requested Interest Period may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be; and (iv) the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Administrative Agent. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Administrative Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Administrative Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. 19 24 Determinations by the Administrative Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. (h) Notice by Administrative Agent. Promptly following each Money Market Borrowing, the Administrative Agent shall notify each Bank of (i) the ranges of bids submitted, (ii) the highest and lowest bids accepted for such Borrowing and (iii) the aggregate principal amount of the Loans included in such Borrowing. SECTION 2.4. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (San Francisco, California time) on the date of each Borrowing, each Bank participating therein shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in federal or other funds immediately available in San Francisco, California, to the Administrative Agent at its address referred to in Section 9.1. Unless the Administrative Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the Borrower at the Administrative Agent's aforesaid address. (c) If any Bank makes a new Loan hereunder on a day on which the Borrower is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Administrative Agent as provided in subsection (b) of this Section, or remitted by the Borrower to the Administrative Agent as provided in Section 2.12, as the case may be. (d) Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank's share of such Borrowing, the Administrative Agent may assume that such Bank has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Administrative Agent, such Bank and the 20 25 Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.7 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.5. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Administrative Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.1(a), the Documentation Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.6. Maturity of Loans. Each Loan included in any Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. 21 26 SECTION 2.7. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable in arrears for each Interest Period on the last day thereof. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable in arrears for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. The "Adjusted London Interbank Offered Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the respective rates per annum at which deposits in United States dollars are offered to each of the Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Euro- Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in San Francisco, California with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or 22 27 other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (c) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to the Interest Period for such Loan or (ii) the sum of 2% plus the rate applicable to Base Rate Loans for such day. (d) Subject to Section 8.1, each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.7(b) as if the related Money Market LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.3. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.3. Such interest shall be payable in arrears for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Base Rate for such day. (e) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (f) Each Reference Bank agrees to use its best efforts to furnish quotations to the Administrative Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.1 shall apply. 23 28 SECTION 2.8. Fees. (a) Facility Fees. The Borrower shall pay to the Administrative Agent for the account of the Banks ratably a facility fee as set forth in this paragraph at the Facility Fee Rate (determined daily in accordance with the Pricing Schedule). Such facility fee shall accrue (i) from and including May 1, 1995 to but excluding the date of termination of the Commitments in their entirety, on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including such date of termination to but excluding the date the Loans and the Letter of Credit Liabilities shall be repaid in their entirety, on the sum of (x) the daily aggregate outstanding principal amount of the Loans and (y) the daily aggregate amount of the Letter of Credit Liabilities. Accrued fees under this subsection (a) shall be payable quarterly in arrears on each March 31, June 30, September 30 and December 31 and on the date of termination of the Commitments in their entirety (and, if later, the date the Loans and the Letter of Credit Liabilities shall be repaid in their entirety). (b) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent for the account of the Banks ratably with respect to each Letter of Credit issued hereunder a letter of credit fee at the LC Fee Rate (determined daily in accordance with the Pricing Schedule) on the aggregate amount available for drawing under such Letter of Credit. Such letter of credit fee shall accrue from and including the date such Letter of Credit is issued to but excluding the date of termination thereof. The Borrower shall pay to the Issuing Bank with respect to each Letter of Credit issued hereunder a fronting fee in the amount agreed upon between the Borrower and the Issuing Bank. Accrued fees under this subsection (b) shall be payable in arrears on each March 31, June 30, September 30 and December 31 and, with respect to each Letter or Credit, on the date of termination of such Letter of Credit. The Borrower shall also pay to the Issuing Bank issuance, drawing, amendment and extension charges in the amounts and at the times as agreed between the Borrower and the Issuing Bank. SECTION 2.9. Optional Termination or Reduction of Commitments. The Borrower may, upon at least three Domestic Business Days' notice to the Administrative Agent, (i) terminate the Commitments at any time, if no Loans and no Letters of Credit are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or a larger multiple of $1,000,000, the aggregate amount of the Commitments in excess of the sum of (i) the aggregate outstanding principal amount of the Loans and (ii) the aggregate amount of Letter of Credit Liabilities. 24 29 SECTION 2.10. Mandatory Termination of Commitments. The Commitments shall terminate on the Termination Date and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 2.11. Optional Prepayments. (a) Subject in the case of any Euro-Dollar Borrowing to Section 2.13, the Borrower may, upon at least one Domestic Business Day's notice to the Administrative Agent, prepay any Base Rate Borrowing (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.1) or upon at least three Euro-Dollar Business Days' notice to the Administrative Agent, prepay any Euro-Dollar Borrowing, in each case in whole at any time, or from time to time in part in amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Borrowing. (b) Except (i) as provided in subsection (a) above or (ii) with respect to any particular Money Market Loan, as agreed upon between the Bank making such Loan and the Borrower, the Borrower may not prepay all or any portion of the principal amount of any Money Market Loan prior to the maturity thereof. (c) Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.12. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans, and facility fees and letter of credit fees not later than 12:00 Noon (San Francisco, California time) on the date when due, in Federal or other funds immediately available in San Francisco, California, to the Administrative Agent at its address referred to in Section 9.1. The Administrative Agent will promptly distribute to each Bank its ratable share of each such payment received by the Administrative Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Base Rate Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar 25 30 month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.13. Funding Losses. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan (pursuant to Article 2, 6 or 8 otherwise) on any day other than the last day of the Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.7(c), or if the Borrower fails to borrow or prepay any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.4(a), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow or prepay, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error; and provided further that the Borrower shall not be required to make any payment to any Bank pursuant to this Section 2.13 as a result of any prepayment of any Euro-Dollar Loan of such Bank made by the Borrower pursuant to Section 8.2 if such Bank shall not have complied with the provisions of the second sentence of Section 8.2. SECTION 2.14. Computation of Interest and Fees. Interest based on the Reference Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) 26 31 and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.15. Letters of Credit. (a) Subject to the terms and conditions hereof, the Issuing Bank agrees to issue letters of credit hereunder from time to time before the tenth day before the Termination Date upon the request of the Borrower (the "Letters of Credit"); provided that (i) each Letter of Credit shall be in an amount in excess of $10,000,000 and (ii) immediately after each Letter of Credit is issued, the aggregate amount of the Letter of Credit Liabilities plus the aggregate principal amount of all Loans outstanding at such time does not exceed the aggregate amount of the Commitments. The Issuing Bank shall be under no obligation to issue any Letter of Credit if: (x) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from issuing such Letter of Credit, or any requirement of law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuing Bank in good faith deems material to it; or (y) the issuance of a Letter of Credit shall violate any applicable general policies of the Issuing Bank. Upon the date of issuance by the Issuing Bank of a Letter of Credit, the Issuing Bank shall be deemed, without further action by any party hereto, to have sold to each Bank, and each Bank shall be deemed, without further action by any party hereto, to have purchased from the Issuing Bank, a participation in such Letter of Credit and the related Letter of Credit Liabilities in the proportion their respective Commitments bear to the aggregate Commitments. (b) The Borrower shall give the Issuing Bank notice (which, at the option of the Issuing Bank, may be in the form of a completed application for issuance or amendment, in form and substance acceptable to the Issuing Bank; provided that no term of such application shall be effective with respect to any Letter of Credit to the extent it is inconsistent with the terms of this Agreement or sets forth terms in addition to those set forth in this Agreement with respect to fees) at least five Domestic 27 32 Business Days prior to the requested issuance of a Letter of Credit specifying the date such Letter of Credit is to be issued, and describing the terms of such Letter of Credit and the nature of the transactions to be supported thereby (such notice, including any such notice given in connection with the extension or amendment of a Letter of Credit, a "Notice of Issuance"). Upon receipt of a Notice of Issuance, the Issuing Bank shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify each Bank of the amount of the Letter of Credit, its expiry date, and its issuance date. The issuance by the Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Article 3, be subject to the conditions precedent that such Letter of Credit shall be in such form and contain such terms as shall be satisfactory to the Issuing Bank and that the Borrower shall have executed and delivered such other instruments and agreements relating to such Letter of Credit as the Issuing Bank shall have reasonably requested. The extension or amendment (including a renewal) of any Letter of Credit shall be deemed to be an issuance of such Letter of Credit, and if any Letter of Credit contains a provision pursuant to which it is deemed to be extended unless notice of termination is given by the Issuing Bank, the Issuing Bank shall timely give such notice of termination unless it has theretofore timely received a Notice of Issuance and the other conditions to issuance of a Letter of Credit have also theretofore been met with respect to such extension. No Letter of Credit shall have a term of more than one year; provided that a Letter of Credit may contain a provision pursuant to which it is deemed to be extended on an annual basis unless notice of termination is given by the Issuing Bank; provided further that no Letter of Credit shall have a term extending or be so extendible beyond the tenth day before the Termination Date. (c) Upon receipt from the beneficiary of any Letter of Credit of any notice of drawing or of any drawing under such Letter of Credit, the Issuing Bank shall notify the Administrative Agent and the Administrative Agent shall promptly notify the Borrower and each other Bank as to the amount to be paid as a result of such demand or drawing and the payment date. The Borrower shall be irrevocably and unconditionally obligated within three Domestic Business Days thereafter to reimburse the Issuing Bank for any amounts paid by the Issuing Bank upon any drawing under any Letter of Credit. All such amounts paid by the Issuing Bank and remaining unpaid by the Borrower within one Business Day thereafter shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day. In addition, each Bank will pay to the Administrative Agent, for the account of the Issuing Bank, immediately upon the Issuing Bank's demand at any time during the period commencing after such 28 33 drawing until reimbursement therefor in full by the Borrower, an amount equal to such Bank's ratable share of such drawing (in proportion to its participation therein), together with interest on such amount for each day from the date of the Issuing Bank's demand for such payment (or, if such demand is made after 9:00 A.M. (San Francisco, California time) on such date, from the next succeeding Domestic Business Day to the date of payment) by such Bank of such amount at a rate of interest per annum equal to the rate applicable to Base Rate Loans for such period. The Issuing Bank will pay to each Bank ratably all amounts received from the Borrower for application in payment of its reimbursement obligations in respect of any Letter of Credit (including interest thereon, for each day from the date of the Issuing Bank's demand for such payment or, if such demand is made after 9:00 A.M. (San Francisco, California time) on such date, from the next succeeding Domestic Business Day) to the date of payment, but only to the extent such Bank has made payment to the Issuing Bank in respect of such Letter of Credit pursuant hereto. If the Administrative Agent or the Issuing Bank is required at any time to return to the Borrower, or to a trustee, receiver, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of the payments made by the Borrower to the Administrative Agent for the account of the Issuing Bank in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Bank shall, on demand of the Agent, forthwith return to the Agent or the Issuing Bank the amount of its pro rata share of any amounts so returned by the Administrative Agent or the Issuing Bank plus interest thereon from the date such demand is made to the date such amounts are returned by such Bank to the Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds Rate in effect from time to time. (d) The obligations of the Borrower and each Bank under subsection (c) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including without limitation the following circumstances: (i) any lack of validity or enforceability of this Agreement or any Letter of Credit or any document related hereto or thereto; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of this Agreement or any Letter of Credit or any document related hereto or thereto; (iii) the use which may be made of the Letter of Credit by, or any acts or omission of, a beneficiary of a 29 34 Letter of Credit (or any Person for whom the beneficiary may be acting); (iv) the existence of any claim, set-off, defense or other rights that the Borrower may have at any time against a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting), the Banks (including the Issuing Bank) or any other Person, whether in connection with this Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated transaction; (v) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (vi) payment under a Letter of Credit against presentation to the Issuing Bank of a draft or certificate that does not comply with the terms of the Letter of Credit, provided that the Issuing Bank's determination that documents presented under the Letter of Credit comply with the terms thereof shall not have constituted gross negligence or willful misconduct of the Issuing Bank; (vii) any other act or omission to act or delay of any kind by any Bank (including the Issuing Bank), the Agent or any other Person or any other event or circumstance whatsoever that might, but for the provisions of this subsection (vii), constitute a legal or equitable discharge of the Borrower's or the Bank's obligations hereunder; or (vii) the occurrence or continuance of a Default or any event or condition which has had a Material Adverse Effect. (e) The Borrower hereby indemnifies and holds harmless each Bank (including the Issuing Bank) and the Administrative Agent from and against any and all claims, damages, losses, liabilities, costs or expenses which such Bank or the Agent may incur (including, without limitation, any claims, damages, losses, liabilities, costs or expenses which the Issuing Bank may incur by reason of or in connection with the failure of any other Bank to fulfill or comply with its obligations to such Issuing Bank hereunder (but nothing herein contained shall affect any rights the Borrower may have against such defaulting Bank)), and none of the Banks (including the Issuing Bank) nor the Administrative Agent, their respective affiliates nor any of 30 35 their respective officers or directors or employees or agents shall be liable or responsible, by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit, including without limitation any of the circumstances enumerated in subsection (d) above, as well as (i) any error, omission, interruption or delay in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, (ii) any error in interpretation of technical terms, (iii) any loss or delay in the transmission of any document required in order to make a drawing under a Letter of Credit, (iv) any consequences arising from causes beyond the control of the Issuing Bank, including without limitation any government acts, or any other circumstances whatsoever in making or failing to make payment under such Letter of Credit; provided that the Borrower shall not be required to indemnify the Issuing Bank for any claims, damages, losses, liabilities, costs or expenses, and the Borrower shall have a claim for direct (but not consequential) damage suffered by it, to the extent found by a court of competent jurisdiction to have been caused by (x) the willful misconduct or gross negligence of the Issuing Bank in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) the Issuing Bank's failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of the Letter of Credit. Nothing in this subsection (e) is intended to limit the obligations of the Borrower under any other provision of this Agreement. (f) The Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce ("UCP") most recently at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in the Letters of Credit) apply to such Letter of Credit. (g) Each Bank and the Borrower agree that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not have any responsibility to obtain any document (other than any sight draft and certificates expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. ARTICLE 3 CONDITIONS 31 36 SECTION 3.1. Closing. The closing hereunder shall occur upon receipt by the Documentation Agent of the following documents, each dated the Closing Date unless otherwise indicated: (a) a duly executed Note for the account of each Bank dated on or before the Closing Date complying with the provisions of Section 2.5; (b) an opinion of Fenwick & West, special counsel for the Borrower, substantially in the form of Exhibit E hereto; (c) an opinion of Davis Polk & Wardwell, special counsel for the Agents, substantially in the form of Exhibit F hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (d) evidence satisfactory to the Documentation Agent that all fees payable by the Borrower to the Documentation Agent and the Administrative Agent, in the amounts previously agreed upon between the Borrower and each such Agent, shall have been paid in full; and (e) all documents the Documentation Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes and the transactions contemplated hereby, all in form and substance satisfactory to the Documentation Agent. The Documentation Agent shall promptly notify the Borrower, the Banks and the Administrative Agent of the Closing Date, and such notice shall be conclusive and binding on all parties hereto. The Documentation Agent will forward to the Administrative Agent copies of all documents referred to in Section 3.1 promptly after the Closing Date. SECTION 3.2. Credit Events. The obligation of any Bank to make a Loan on the occasion of any Borrowing and the obligation of the Issuing Bank to issue a Letter of Credit on the occasion of any request therefor are each subject to the satisfaction of the following conditions: (a) the fact that the Closing Date shall have occurred; (b) solely with respect to any Borrowing, receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.2 or 2.3, as the case may be; 32 37 (c) solely with respect to any issuance of a Letter of Credit, receipt by the Issuing Bank, with a copy to the Administrative Agent, of a Notice of Issuance as required by Section 2.15; (d) the fact that, immediately after such Credit Event, the aggregate outstanding principal amount of the Loans plus the aggregate Letters of Credit Liabilities will not exceed the aggregate amount of the Commitments; (e) the fact that, immediately before and after such Credit Event, no Default shall have occurred and be continuing; and (f) the fact that the representations and warranties of the Borrower contained in this Agreement (except, in the case of a Refunding Borrowing, the representations and warranties set forth in Sections 4.4(c) and 4.5 as to any matter which has theretofore been disclosed in writing by the Borrower to the Banks) shall be true on and as of the date of such Credit Event. Each Credit Event hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Credit Event as to the facts specified in clauses (d), (e) and (f) of this Section. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.1. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.2. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement and the Notes are within the corporate powers of the Borrower, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of 33 38 incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 4.3. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. SECTION 4.4. Financial Information. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of July 31, 1994 and the related consolidated statements of operations and cash flows for the fiscal year then ended, reported on by Coopers & Lybrand and set forth in the Borrower's 1994 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of January 29, 1995 and the related unaudited consolidated statements of operations and cash flows for the six months then ended, set forth in the Borrower's Latest Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such six-month period (subject to normal year-end adjustments). (c) Since July 31, 1994 there has been no material adverse change in the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.5. Litigation. There is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental 34 39 body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of this Agreement or the Notes. SECTION 4.6. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.7. Environmental Matters. The Borrower has reasonably concluded that the liabilities and costs associated with the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses) could not reasonably be expected to have a Material Adverse Effect. SECTION 4.8. Taxes. The Borrower and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary. The charges, accruals and reserves on the books of the Borrower 35 40 and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.9. Subsidiaries. Each of the Borrower's corporate Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.10. Regulatory Restrictions on Borrowing. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended, a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or otherwise subject to any regulatory scheme which restricts its ability to incur debt. SECTION 4.11. Full Disclosure. All information heretofore furnished by the Borrower to the Administrative Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby, taken as a whole is, and all such information hereafter furnished by the Borrower to the Administrative Agent or any Bank, taken as a whole, will be, true and accurate in all material respects on the date as of which such information is stated or certified. The Borrower has disclosed to the Banks in writing any and all facts which materially and adversely affect or may affect (to the extent the Borrower can now reasonably foresee), the business, operations or financial condition of the Borrower and its Consolidated Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under this Agreement. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder, any amount payable under any Note remains unpaid or any Letter of Credit Liability is outstanding: SECTION 5.1. Information. The Borrower will deliver to the Administrative Agent for distribution to each of the Banks: (a) as soon as available and in any event within 105 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of operations and cash 36 41 flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner acceptable to the Securities and Exchange Commission by Coopers & Lybrand or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of operations and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in the case of such statements of operations and cash flows, in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrower's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.10 to 5.12, inclusive, on the date of such financial statements and (ii) stating whether any Default exists and is continuing on the date of such certificate and, if any Default then exists and is continuing, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) within five Domestic Business Days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (e) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (f) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and 37 42 reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission; (g) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; (h) promptly upon the Borrower's obtaining knowledge thereof, notice of each change in or withdrawal of the ratings of the Borrower's senior unsecured long-term debt securities by either Moody's Investors Service, Inc. and its successors or Standard & Poor's Ratings Group and its successors and all information relating to such change or withdrawal; and (i) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Bank, may reasonably request. SECTION 5.2. Payment of Obligations. The Borrower will pay and discharge, and will cause each Subsidiary to pay and 38 43 discharge, at or before maturity, all their respective obligations and liabilities in excess of $5,000,000 in any one case and in the aggregate in excess of $30,000,000 (including, without limitation, tax liabilities and claims of materialmen, warehousemen and the like which if unpaid might by law give rise to a Lien), except where the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each Subsidiary to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same. SECTION 5.3. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will, and will cause each of its Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts, against at least such risks and with such risk retention as are usually maintained, insured against or retained, as the case may be, in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to the Banks, upon request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried. SECTION 5.4. Conduct of Business and Maintenance of Existence. The Borrower will continue, and will cause each Subsidiary to continue, to engage in business in the same industry as the industry which the business now conducted by the Borrower and its Subsidiaries is in, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary to preserve, renew and keep in full force and effect their respective corporate existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that nothing in this Section 5.4 shall prohibit (i) the merger of a Subsidiary into the Borrower or the merger or consolidation of a Subsidiary with or into another Person if the corporation surviving such consolidation or merger is a Subsidiary and if, in each case, after giving effect thereto, no Default shall have occurred and be continuing or (ii) the termination of the corporate existence of any Subsidiary if the Borrower in good faith determines that such termination is in the best interest of the Borrower and is not materially disadvantageous to the Banks. SECTION 5.5. Compliance with Laws. The Borrower will comply, and cause each Subsidiary to comply, with all applicable 39 44 laws, ordinances, rules, regulations, and requirements of Governmental Authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except where (i) the necessity of compliance therewith is contested in good faith by appropriate proceedings or (ii) noncompliance could not reasonably be expected to have a Material Adverse Effect. SECTION 5.6. Inspection of Property, Books and Records. The Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank at such Bank's expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times during normal business hours and as often as may reasonably be desired, subject to the provisions of Section 9.11. SECTION 5.7. Mergers and Sales of Assets. The Borrower will not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of the assets of the Borrower and its Subsidiaries, taken as a whole, to any other Person; provided that the Borrower may merge with another Person if (x) the Borrower is the corporation surviving such merger and (y) after giving effect to such merger, no Default shall have occurred and be continuing. SECTION 5.8. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower for working capital and general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation U. SECTION 5.9. Negative Pledge. Neither the Borrower nor any Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement in an aggregate principal or face amount not exceeding $170,000,000; (b) any Lien on any asset of or relating to the North Carolina and San Jose campuses (including without limitation 40 45 cash and marketable securities) securing Debt in an aggregate principal or face amount not exceeding $135,000,000 incurred by the Borrower for the purpose of acquiring, developing and financing or constructing the North Carolina and San Jose campuses; (c) any Lien existing on any asset of any corporation at the time such corporation becomes a Subsidiary and not created in contemplation of such event; (d) any Lien (other than any Lien described in clause (b) above) on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring or leasing such asset, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition or lease thereof; (e) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into the Borrower or a Subsidiary and not created in contemplation of such event; (f) any Lien existing on any asset prior to the acquisition thereof by the Borrower or a Subsidiary and not created in contemplation of such acquisition; (g) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section, provided that the principal or face amount of such Debt is not increased and such Debt is not then secured by any additional assets; (h) Liens arising in the ordinary course of its business which (i) do not secure Debt or Derivatives Obligations, (ii) do not secure any obligation in an amount exceeding $75,000,000 and (iii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (i) Liens on cash and cash equivalents securing Derivatives Obligations, provided that the aggregate amount of cash and cash equivalents subject to such Liens may at no time exceed $50,000,000; and (j) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal or face amount at any date not to exceed 5% of Consolidated Tangible Net Worth. 41 46 SECTION 5.10. Debt to Consolidated Tangible Net Worth. Consolidated Debt will at no time exceed 100% of Consolidated Tangible Net Worth. SECTION 5.11. Quick Ratio. The Quick Ratio will at no time be less than 1.0 to 1.0. SECTION 5.12. Minimum Consolidated Tangible Net Worth. Consolidated Tangible Net Worth will at no time be less than an amount equal to the sum of (i) $814,000,000 plus (ii) an amount equal to 50% of Consolidated Net Income for each fiscal quarter of the Borrower ending after January 29, 1995 but prior to the date of determination, in each case, for which Consolidated Net Income is positive (but with no deduction on account of negative Consolidated Net Income for any fiscal quarter of the Borrower) plus (iii) 100% of the aggregate net proceeds, including the fair market value of property other than cash (as determined in good faith by the Board of Directors of the Borrower), received by the Borrower from the issuance and sale after the date hereof of any capital stock of the Borrower (other than the proceeds of any issuance and sale of any capital stock (x) to a Subsidiary of the Borrower or (y) which is required to be redeemed, or is redeemable at the option of the holder, if certain events or conditions occur or exist or otherwise) or in connection with the conversion or exchange of any Debt of the Borrower into capital stock of the Borrower after January 29, 1995 minus (iv) an amount equal to the lesser of (x) $250,000,000 and (y) the aggregate amount paid by the Borrower for the repurchase of shares of its capital stock subsequent to January 29, 1995. SECTION 5.13. Transactions with Affiliates. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect, any transaction with, any Affiliate of the Borrower or such Subsidiary except on an arms-length basis on terms at least as favorable to the Borrower or such Subsidiary or Affiliate than could have been obtained from a third party who was not an Affiliate; provided that the foregoing provisions of this Section shall not prohibit (i) any such Person from declaring or paying any lawful dividend or other payment ratably in respect of all of its capital stock of the relevant class so long as, after giving effect thereto, no Default shall have occurred and be continuing or (ii) the Borrower from repurchasing shares of its capital stock from officers, directors, employees 42 47 or consultants of the Borrower who received such shares as compensation. SECTION 5.14. Ratings. The Borrower has instructed S&P to disclose to any Bank or the Agent, upon request, any Private Rating assigned by S&P to the Borrower's senior unsecured long term debt securities. The Borrower will take all actions necessary or that the Agent or any Bank may request to ensure that such Rating will at all times be available to any Bank or the Agent, upon request. ARTICLE 6 DEFAULTS SECTION 6.1. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan or any reimbursement obligation with respect to any drawing under any Letter of Credit or shall fail to pay within five days of the due date thereof any interest, any fees or any other amount payable hereunder; (b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.7 and 5.8, 5.10 through 5.14, or any covenant contained in Section 5.9, solely with respect to Liens securing Debt or Derivative Obligations; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after written notice thereof has been given to the Borrower by the Administrative Agent at the request of any Bank; (d) any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made); (e) the Borrower or any Subsidiary shall fail to make any payment in respect of any Material Financial Obligations when due or within any applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Debt or enables (or, with the giving of notice or lapse of time or 43 48 both, would enable) the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) the Borrower or any Material Subsidiary shall commence a voluntary Insolvency Proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary Insolvency Proceeding shall be commenced against the Borrower or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $10,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $10,000,000; 44 49 (j) judgments or orders for the payment of money, which individually or in the aggregate (net of applicable insurance for which the insurer has acknowledged coverage) shall exceed $25,000,000 shall be rendered against the Borrower or any Material Subsidiary and such judgments or orders shall continue unsatisfied and unstayed for a period of 45 days; or (k) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 35% or more of the outstanding shares of common stock of the Borrower; or, during any period of 12 consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower (other than as a result of death or disability); then, and in every such event, the Administrative Agent shall (i) if requested by the Required Banks, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding more than 60% of the aggregate principal amount of the Loans, by notice to the Borrower declare the Loans (together with accrued interest thereon) to be, and the Loans shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause 6.1(g) (other than a failure generally to pay debts as they become due, or the taking of any corporate action to authorize the same) or 6.1(h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Banks, the Commitments shall thereupon terminate and the Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.2. Notice of Default. The Administrative Agent shall give written notice to the Borrower under Section 6.1(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. 45 50 SECTION 6.3. Cash Cover. The Borrower agrees, in addition to the provisions of Section 6.1 hereof, that upon the occurrence and during the continuance of any Event of Default, it shall, if requested by the Administrative Agent upon the instruction of the Banks having more than 60% in aggregate amount of the Commitments (or, if the Commitments shall have been terminated, holding at least 60% of the Letter of Credit Liabilities), upon five days' notice, pay to the Administrative Agent an amount in immediately available funds (which funds shall be held as collateral pursuant to arrangements reasonably satisfactory to the Administrative Agent) equal to the aggregate amount available for drawing under all Letters of Credit then outstanding at such time, provided that, upon the occurrence of any Event of Default specified in clause (g) or (h) of Section 6.1 with respect to the Borrower, the Borrower shall pay such amount forthwith without any notice or demand or any other act by the Administrative Agent or the Banks. ARTICLE 7 THE AGENTS SECTION 7.1. Appointment and Authorization. (a) Each Bank hereby irrevocably (subject to Section 7.9) appoints, designates and authorizes each Agent to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to such Agent by the terms of this Agreement, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement, neither Agent shall have any duties or responsibilities, except those expressly set forth herein, nor shall either Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against either Agent. (b) The Issuing Bank shall act on behalf of the Banks with respect to any Letters of Credit issued by it and the documents associated therewith until such time and except for so long as the Administrative Agent may agree at the request of the Required Banks to act for such Issuing Bank with respect thereto; provided, however, that the Issuing Bank shall have all of the benefits and immunities (i) provided to the Administrative Agent in this Article with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit issued by it or proposed to be issued by it and the application and agreements for letters of credit pertaining to the Letters of 46 51 Credit as fully as if the term "Administrative Agent", as used in this Article, included the Issuing Bank with respect to such acts or omissions, and (ii) as additionally provided in this Agreement with respect to the Issuing Bank. SECTION 7.2. Delegation of Duties. Each Agent may execute any of its duties under this Agreement by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Neither Agent shall be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. SECTION 7.3. Liability of Agents. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Borrower or any Subsidiary or Affiliate, or any officer thereof, contained in this Agreement, or in any certificate, report, statement or other document referred to or provided for in, or received by either Agent under or in connection with, this Agreement, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, or for any failure of the Borrower to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrower or any of its Subsidiaries or Affiliates. SECTION 7.4. Reliance by Agents. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Borrower), independent accountants and other experts selected by such Agent. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Required Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Each Agent shall in all cases be fully protected in acting, or in refraining from acting, 47 52 under this Agreement in accordance with a request or consent of the Required Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. SECTION 7.5. Notice of Default. Each Agent shall not be deemed to have knowledge or notice of the occurrence of any Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to such Agent for the account of the Banks, unless such Agent shall have received written notice from a Bank or the Borrower referring to this Agreement, describing such Default and stating that such notice is a "notice of default". Each Agent will notify the Banks of its receipt of any such notice. The Administrative Agent shall take such action with respect to such Default as may be requested by the Required Banks in accordance with Article 6; provided, however, that unless and until the Administrative Agent has received any such request, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable or in the best interest of the Banks. SECTION 7.6. Credit Decision. Each Bank acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by either Agent hereinafter taken, including any review of the affairs of the Borrower and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to each Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrower hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent- Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by either Agent, such Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and 48 53 other condition or creditworthiness of the Borrower which may come into the possession of any of the Agent-Related Persons. SECTION 7.7. Indemnification of Agents. Whether or not the transactions contemplated hereby are consummated, the Banks shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Borrower and without limiting the obligation of the Borrower to do so), pro rata, from and against any and all Indemnified Liabilities; provided, however, that no Bank shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse each Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by such Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, or any document contemplated by or referred to herein, to the extent that such Agent is not reimbursed for such expenses by or on behalf of the Borrower. The undertaking in this Section shall survive the payment of all obligations hereunder and the resignation or replacement of one or both Agents. SECTION 7.8. Agents in Individual Capacities. Each Agent and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Borrower and its Subsidiaries and Affiliates as though BofA and Morgan Guaranty Trust Company of New York ("Morgan") were not Agents hereunder and BofA were not the Issuing Bank and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, each Agent or its Affiliates may receive information regarding the Borrower or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Borrower or such Subsidiary) and acknowledge that neither Agent shall be under any obligation to provide such information to them. With respect to its Loans, each of Morgan and BofA shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not an Agent or the Issuing Bank, and the terms "Bank" and "Banks" include Morgan and BofA in their individual capacities. SECTION 7.9. Successor Agents. Each Agent may resign as Agent upon 30 days' notice to the Banks. If either Agent resigns under this Agreement, the Required Banks shall appoint from among 49 54 the Banks a successor agent for the Banks. If no successor agent is appointed prior to the effective date of the resignation of either Agent, such Agent may appoint, after consulting with the Banks and the Borrower, a successor agent from among the Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall include such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article 7 and Section 9.3 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of such Agent hereunder until such time, if any, as the Required Banks appoint a successor agent as provided for above. Notwithstanding the foregoing, however, BofA may not be removed as the Administrative Agent at the request of the Required Banks unless BofA shall also simultaneously be replaced as "Issuing Bank" hereunder pursuant to documentation in form and substance reasonably satisfactory to BofA. ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.1. Basis for Determining Interest Rate Unfair. If on or prior to the first day of any Interest Period for any Euro-Dollar Borrowing or Money Market LIBOR Borrowing: (a) the Administrative Agent is advised in good faith by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, or (b) in the case of a Committed Borrowing, Banks having 60% or more of the aggregate amount of the Commitments in good faith advise the Administrative Agent that the Adjusted London Interbank Offered Rate as determined by the Administrative Agent will not fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to 50 55 such suspension no longer exist, the obligations of the Banks to make Euro-Dollar Loans shall be suspended. Unless the Borrower notifies the Administrative Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Euro-Dollar Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. SECTION 8.2. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until the circumstances giving rise to such suspension no longer exist (at which time such Bank shall so notify the Borrower and the Administrative Agent), the obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower shall immediately prepay in full the then outstanding principal amount of each such Euro-Dollar Loan, together with accrued interest thereon. Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan. SECTION 8.3. Increased Cost and Reduced Return. (a) If on or after (x) the date hereof, in the case of any Euro- Dollar 51 56 Loan or Letter of Credit or any obligation to make Euro-Dollar Loans or issue Letters of Credit or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans, its Letters of Credit or its obligation to issue or participate in any Letters or Credit and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or issuing or participating in any Letters of Credit, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after written demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be 52 57 material, then from time to time, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. Any Bank claiming compensation under this Section shall provide the Borrower with a certificate setting forth the additional amount or amounts to be paid to it hereunder and in reasonable detail the event or events entitling such Bank to compensation and the method of calculation of such compensation, which shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. If any Bank shall have successfully contested the change in law, rule, regulation, interpretation, administration, request or directive, as the case may be, for which the Borrower has paid any amount under this Section 8.3 and as result of such contest such Bank shall have received a refund of such amount (or any portion thereof), such Bank shall refund to the Borrower such amount or portion thereof, net of any costs incurred by such Bank with respect to such contest. Nothing in the immediately preceding sentence shall be construed to require any Bank to contest any such change. If any Bank claiming any increased cost or reduction has changed its Applicable Lending Office as provided in this subsection or the Borrower has elected that the provisions of Section 8.5 shall apply to such Bank, the calculation of such increased costs or reduction payable by the Borrower to such Bank pursuant to this Section for any date after the date such change in Applicable Lending Office or such election has been made shall take into account the effect of such change or election. SECTION 8.4. Taxes. (a) For the purposes of this Section 8.4(a), the following terms have the following meanings: "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to this Agreement or under any Note or under any Letter of Credit or any Letter of Credit Liability, and all liabilities with respect thereto, excluding (i) in the case of each Bank and the Administrative Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which such Bank or the Administrative Agent (as the case may be) is 53 58 organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Lending Office is located and (ii) in the case of each Bank, any United States withholding tax imposed on such payments but only to the extent that such Bank is subject to United States withholding tax at the time such Bank first becomes a party to this Agreement. "Other Taxes" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or under any Letter of Credit or any Letter of Credit Liability or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note or under any Letter of Credit or any Letter of Credit Liability. (b) Any and all payments by the Borrower to or for the account of any Bank or the Administrative Agent hereunder or under any Note or under any Letter of Credit or any Letter of Credit Liability shall be made without deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) such Bank or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, (iv) the Borrower shall also pay to each Bank or the Administrative Agent for the account of such Bank, at the time interest is paid, all additional amounts which such Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes or Other Taxes had not been imposed and (v) the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 9.1, the original or a certified copy of a receipt evidencing payment thereof. (c) The Borrower agrees to indemnify each Bank and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section) paid by such Bank or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Bank or the Administrative Agent (as the case may be) makes demand therefor. 54 59 (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower or the Administrative Agent (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower and the Administrative Agent with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.4(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which such form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.4(b) or (c) with respect to Taxes imposed by the United States solely as a result of such failure; provided that if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes or additional Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes or additional Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section, then such Bank will change the jurisdiction of its Applicable Lending Office if, in the sole judgment of such Bank, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not disadvantageous to such Bank. SECTION 8.5. Base Rate Loans Substituted for Affected Fixed Rate Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.2 or (ii) any Bank has demanded compensation under Section 8.3 or 8.4 with respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless 55 60 and until the circumstances giving rise to such suspension or demand for compensation no longer exist (at which time such Bank shall so notify the Borrower and the Administrative Agent): (a) all Loans which would otherwise be made by such Bank as Euro-Dollar Loans shall be made instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks); and (b) after each of its Euro-Dollar Loans has been repaid, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead. SECTION 8.6. Substitution of Bank. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.2 or (ii) any Bank has demanded compensation under Section 8.3 or 8.4, the Borrower shall have the right, with the assistance of the Administrative Agent, to seek a mutually satisfactory substitute bank or banks (which may be one or more of the Banks) to purchase the Note and assume the Commitment and Letter of Credit Liabilities of such Bank. Each such substitute bank must be acceptable to the Issuing Bank. ARTICLE 9 MISCELLANEOUS SECTION 9.1. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (a) in the case of the Borrower or the Agents, at the applicable address, facsimile number or telex number set forth on the signature pages hereof, (b) in the case of any Bank, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (c) in the case of any party, such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the 56 61 mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Administrative Agent under Article 2 or Article 8 and notices to the Issuing Bank under Article 2 shall not be effective until actually received by the Administrative Agent and the Issuing Bank at the addresses specified for the Administrative Agent and the Issuing Bank, respectively, pursuant to this Section. SECTION 9.2. No Waivers. No failure or delay by either Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.3. Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agents and the Issuing Bank, including (without duplication) the fees and disbursements of special counsel for the Agents or the Issuing Bank and the allocated cost of inside counsel for the Administrative Agent and the Issuing Bank, in connection with the preparation and administration of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by each Agent and each Bank, including (without duplication) the fees and disbursements of outside counsel and the allocated cost of inside counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify each Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement, any of the Letters of Credit, or any of the Letter of Credit Liabilities or any actual or proposed use of proceeds of Loans hereunder (collectively, "Indemnified Liabilities"); provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross 57 62 negligence or willful misconduct as determined by a court of competent jurisdiction. SECTION 9.4. Sharing of Set-Offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it or of the Letter of Credit Liabilities held by it,as the case may be, which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank or of the Letter of Credit Liabilities held by such other Bank, as the case may be, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks or in the Letter of Credit Liabilities held by the other Banks, as the case may be, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks or of the Letter of Credit Liabilities held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness hereunder. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note or in a Letter or Credit Liability, as the case may be, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.5. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of either Agent or the Issuing Bank are affected thereby, by such Agent or the Issuing Bank, as the case may be); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any obligation in addition to the obligations to which such Bank is subject hereunder on the Effective Date, (ii) reduce the principal of or rate of interest on any Loan, the amount of any Letter of Credit Liability or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan, of any Letter of Credit Liability or any interest thereon or any fees hereunder or for any scheduled termination of any Commitment or (iv) change the percentage of 58 63 the Commitments or of the aggregate unpaid principal amount of the Notes or of the Letter of Credit Liabilities, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. SECTION 9.6. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans or Letter of Credit Liabilities. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower, the Agents and the Issuing Bank, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower, the Agents and the Issuing Bank shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), or (iii) of Section 9.5 without the consent of the Participant. The Borrower agrees that each Bank shall be entitled to the benefits of Section 2.13 and Article 8 without regard to whether it has granted any participating interests, and that all amounts payable to a Bank for the account of a Participant under Section 2.13 and Article 8 shall be determined as if such Bank had not granted a participating interest to such Participant. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more Eligible Assignees all, or a proportionate part (equivalent to an initial Commitment of not less than $5,000,000) of all, of its rights and obligations under this Agreement (including its Letter of Credit Liabilities) and the Notes, and each such Eligible Assignee shall assume such rights and obligations, pursuant to an 59 64 Assignment and Assumption Agreement in substantially the form of Exhibit G hereto executed by such Eligible Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower, the Administrative Agent and the Issuing Bank; provided that if an Eligible Assignee is an Affiliate of such transferor Bank or was a Bank immediately prior to such assignment, no such consent shall be required; and provided further that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans. Upon execution and delivery of such instrument and payment by such Eligible Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Eligible Assignee, such Eligible Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Eligible Assignee. In connection with any such assignment, the transferor Bank shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $2,500. If the Eligible Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.4. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Eligible Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.3 or 8.4 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.2, 8.3 or 8.4 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (f) The Administrative Agent, on behalf of the Borrower, shall maintain at the address of the Administrative Agent a copy of each Assignment and Assumption Agreement delivered to it and a 60 65 record of the names and addresses of the Banks and the Commitments of and principal amounts of the Loans owing to, each Bank from time to time. Such record shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Banks shall treat each Person whose name is recorded as the owner of a Loan or other obligation hereunder as the owner thereof for all purposes of this Agreement, notwithstanding any notice to the contrary or anything to the contrary in this Agreement. Any assignment of any Loan or other right or obligation hereunder shall be effective, in the absence of manifest error, only upon appropriate records with respect thereto being made by the Administrative Agent, notwithstanding anything to the contrary in this Agreement. Such records shall be available for inspection by the Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. SECTION 9.7. Collateral. Each of the Banks represents to each Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.8. Governing Law; Submission to Jurisdiction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York, without reference to its conflicts of law principles. Each Letter of Credit and the application(s) and agreement(s) relating thereto shall be governed by the laws of the State of California. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 9.9. Counterparts; Integration; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective upon receipt by the Documentation Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any 61 66 party as to which an executed counterpart shall not have been received, receipt by the Documentation Agent in form satisfactory to it of telegraphic, telex, facsimile or other written confirmation from such party of execution of a counterpart hereof by such party). SECTION 9.10 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.11 Confidentiality. Each of the Agents and the Banks shall keep confidential any information provided by Borrower or any Subsidiary or Affiliate of the Borrower and clearly identified as confidential (including without limitation any credit rating (other than a "public rating") obtained from S&P or Moody's); provided that nothing herein shall prevent any Agent or any Bank from disclosing such information (i) to its officers, directors, employees, agents, attorneys and accountants who have a need to know such information in accordance with customary banking practices and who receive such information having been made subject to the restrictions set forth in this Section, (ii) upon the order of a court or administrative agency, (iii) upon demand of any regulatory agency or authority having jurisdiction over such party and authority to compel disclosure of such information, (iv) which has become publicly available without breach of any agreement between the parties hereto, including this Agreement, (v) as necessary for the exercise of any remedy under this Agreement, (vi) subject to provisions similar to those contained in this Section, to any prospective Participant or Assignee, (vii) when required to do so in accordance with the provisions of any applicable law, (viii) to the extent reasonably required in connection with any litigation or proceeding between the Borrower and any Agent, any Bank or their respective Affiliates or (ix) as to any Bank or any of its Affiliates, as expressly permitted under the terms of any document or agreement regarding confidentiality to which the Borrower or any Subsidiary is party or is deemed party with such Bank or such Affiliate. 62 67 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. CISCO SYSTEMS, INC. By: /s/ Larry R. Carter ------------------------------ Name: Larry R. Carter Title: Secretary/CFO Address: Cisco Systems, Inc. 170 West Tasman Drive San Jose, CA 95134 Telephone: 408-526-8211 Facsimile: 408-526-4545 Attention: Chief Financial Officer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent By: /s/ Judith L. Kramer ------------------------------ Name: Judith L. Kramer Title: Vice President Address: Agency Management Services #5596 Bank of America National Trust and Savings Association 1455 Market Street 12th Floor San Francisco, CA 94103 Telephone: 415-953-2506 Facsimile: 415-622-4894 Attention: Judith L. Kramer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Issuing Bank By: /s/ Stephen L. Parry ------------------------------ Name: Stephen L. Parry Title: Vice President Address: 350 Lytton Avenue 2nd Floor Palo Alto, CA 94301 Telephone: 415-853-4625 Facsimile: 415-853-4476 Attention: Stephen Parry MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent By: /s/ Carl J. Mehldau, Jr. ------------------------------ Name: Carl J. Mehldau, Jr. Title: Associate Address: J.P. Morgan 60 Wall Street New York, NY 10260 Telex: 177615 MGT UT Telephone: 212-648-7638 Facsimile: 212-648-5014 Attention: David Ellis Commitments: $22,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Carl J. Mehldau, Jr. ------------------------------ Name: Carl J. Mehldau, Jr. Title: Associate $22,000,000 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Stephen L. Parry ------------------------------ Name: Stephen L. Parry Title: Vice President $14,000,000 ABN AMRO BANK N.V. By: /s/ Robin S. Yim ------------------------------ Name: Robin S. Yim Title: Vice President By: /s/ Robert N. Hartinger ------------------------------ Name: Robert N. Hartinger Title: Group Vice President $14,000,0000 DEUTSCHE BANK AG LOS ANGELES AND/OR CAYMAN ISLANDS BRANCHES By: /s/ Christine N. Lane ------------------------------ Name: Christine N. Lane Title: Vice President By: /s/ J. Scott Jessup ------------------------------ Name: J. Scott Jessup Title: Vice President $14,000,000 THE MITSUBISHI BANK, LTD. By: /s/ Hiroaki Fuchida ------------------------------ Name: Hiroaki Fuchida Title: Vice President, Manager $14,000,000 THE SUMITOMO BANK, LIMITED SAN FRANCISCO BRANCH By: /s/ Yuji Harada ------------------------------ Name: Yuji Harada Title: General Manager By: /s/ Herman White Jr. ------------------------------ Name: Herman White Jr. Title: Vice President _____________ Total: $100,000,000 68 EXHIBIT A - Note NOTE New York, New York ___________ __, 199_ For value received, CISCO SYSTEMS, INC., a California corporation (the "Borrower"), promises to pay to the order of ______________________ (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the last day of the Interest Period relating to such Loan. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Agency Management Services #5596, Bank of America National Trust and Savings Association, 1455 Market Street, 12th Floor, San Francisco, California. All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the Credit Agreement dated as of May 22, 1995 among Cisco Systems, Inc., the banks listed on the signature pages thereof, Bank of America National Trust and Savings Association, as Administrative Agent, Morgan Guaranty Trust Company of New York, as Documentation Agent 2 69 and Bank of America National Trust and Savings Association, as Issuing Bank (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. CISCO SYSTEMS, INC. By____________________ Name: Title: 3 70 LOANS AND PAYMENTS OF PRINCIPAL __________________________________________________________________________ Amount Type Amount of of of Principal Maturity Notation Date Loan Loan Repaid Date Made By __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ 4 71 EXHIBIT B - Money Market Quote Request Form of Money Market Quote Request [Date] To: Bank of America National Trust and Savings Association (the "Administrative Agent") From: Cisco Systems, Inc. Re: Credit Agreement (the "Credit Agreement") dated as of May 22, 1995 among Cisco Systems, Inc., the Banks listed on the signature pages thereof, the Administrative Agent, Morgan Guaranty Trust Company of New York, as Documentation Agent and Bank of America National Trust and Savings Association, as Issuing Bank We hereby give notice pursuant to Section 2.3 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________
Principal Amount(1) Interest Period(2) - ---------------- --------------- $
____________________ (1) Amount must be $5,000,000 or a larger multiple of $1,000,000. (2) Not less than one month (LIBOR Auction) or not less than 14 days or more than 366 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. No more than three different Interest Periods. 72 Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Terms used herein have the meanings assigned to them in the Credit Agreement. CISCO SYSTEMS, INC. By_______________________________ Name: Title: 2 73 EXHIBIT C - Invitation for Money Market Quotes Form of Invitation for Money Market Quotes To: [Name of Bank] Re: Invitation for Money Market Quotes to [Name of Borrower] (the "Borrower") Pursuant to Section 2.3 of the Credit Agreement dated as of May 22, 1995 among Cisco Systems, Inc., the Banks parties thereto, the undersigned, as Administrative Agent, Morgan Guaranty Trust Company of New York, as Documentation Agent and Bank of America National Trust and Savings Association, as Issuing Bank, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________
Principal Amount Interest Period - ---------------- --------------- $
Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [1:00 P.M.] [9:30 A.M.] (San Francisco, California time) on [date]. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent By______________________ Authorized Officer 74 EXHIBIT D - Money Market Quote Form of Money Market Quote To: Bank of America National Trust and Savings Association, as Administrative Agent Re: Money Market Quote to [Name of Borrower] (the "Borrower") In response to your invitation on behalf of the Borrower dated _____________, 19__, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: ________________________________ 2. Person to contact at Quoting Bank: _____________________________ 3. Date of Borrowing: ____________________* 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates:
Principal Interest Money Market Amount** Period*** [Margin****] [Absolute Rate*****] - -------- --------- ------------ -------------------- $ $
[Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $____________.]** __________ * As specified in the related Invitation. ** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the (notes continued on following page) 75 We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement dated as of May 22, 1995 among Cisco Systems, Inc., the Banks listed on the signature pages thereof, yourselves, as Administrative Agent, Morgan Guaranty Trust Company of New York, as Documentation Agent and Bank of America National Trust and Savings Association, as Issuing Bank irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Very truly yours, [NAME OF BANK] Dated:_______________ By:__________________________ Authorized Officer __________ amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000. *** Not less than one month or not less than 14 days or more than 365 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. **** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%). 2 76 EXHIBIT E - Opinion of Counsel for the Borrower OPINION OF COUNSEL FOR THE BORROWER ________________, 199_ To the Banks and the Agents Referred to Below c/o Morgan Guaranty Trust Company of New York, as Documentation Agent 60 Wall Street New York, New York 10260-0060 Ladies and Gentlemen: Pursuant to Section 3.1(b) of the Credit Agreement (the "Credit Agreement") dated as of May 22, 1995 among Cisco Systems, Inc., a California corporation (the "Borrower"), the Banks listed on the signature pages thereof and Bank of America National Trust and Savings Association, as Administrative Agent, Morgan Guaranty Trust Company of New York, as Documentation Agent and Bank of America National Trust and Savings Association, as Issuing Bank, we are giving our opinion as counsel for the Borrower on certain matters set forth below. Capitalized terms used in this opinion that are not defined herein have the same meanings given to such terms in the Credit Agreement. In order to render this opinion we have examined the following: (1) The Credit Agreement and the Notes. (2) A copy of the Borrower's Articles of Incorporation, as certified by the office of the California Secretary of State on May __, 1995 (the "Articles"). (3) A copy of the Borrower's Bylaws, as amended through ______________, as certified by the Secretary of the Borrower (the "Bylaws"). 77 (4) A copy of the minutes of the organizational meeting of the Borrower's Board of Directors dated March 10, 1985. (5) A copy of the minutes of the meeting of the Board of Directors of the Borrower dated as of January 31, 1995 approving the execution and delivery by the Borrower of the Credit Agreement and the Notes and the performance by the Borrower of its obligations thereunder. (6) A Management Certificate addressed to us and dated of even date herewith executed by the Borrower (the "Management Certificate"). (7) A Certificate of Status regarding the Borrower issued by the California Secretary of State dated May __, 1995 and a letter from the California Franchise Tax Board dated May __, 1995 to the effect that the Borrower is in good standing with respect to its California franchise tax filings and has no known unpaid franchise tax liability to the California Franchise Tax Board. (8) The following documents which the Borrower has informed us are all of the documents governing Material Financial Obligations (the "Reviewed Agreements"): (A) Pledge Agreement between the Borrower, The Hongkong and Shanghai Banking Corporation Limited ("Hongkong") and the Sumitomo Bank, Limited ("Sumitomo") dated May 20, 1993, as amended May 20, 1993 and May 19, 1994; (B) Lease by and between the Borrower, as tenant, and Sumitomo Bank Leasing and Finance, Inc. ("SBLF"), as landlord dated May 20, 1993 and amended May 19, 1994; (C) Lease by and between the Borrower, as tenant, and SGA Development Partnership, Ltd ("SGA"), as landlord dated February 25, 1993, as amended May 20, 1993 and May 19, 1994; 2 78 (D) Security Agreement by and between SGA and the Borrower for the benefit of SBLF dated May 20, 1993 and amended May 19, 1994; (E) Security Agreement by and between SGA, SBLF and the Borrower for the benefit of Sumitomo and Hongkong dated May 20, 1993 and amended May 19, 1994; (F) The Credit Agreement and the Notes; (G) Agreement between Cisco and Sumitomo Bank Leasing and Finance, Inc. ("Sumitomo") dated June 14, 1994; (H) Ground Lease between Cisco and Sumitomo dated July 11, 1994, as amended August 12, 1994; (I) Lease [Building] between Cisco and Sumitomo dated August 12, 1994; (J) Third Party Pledge Agreement dated July 11, 1994 by Cisco in favor of Union Bank of Switzerland; (K) Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing between Cisco, Chicago Title Company and Sumitomo dated August 12, 1994; (9) A certificate executed by the Borrower's Secretary dated May __, 1995 (the "Secretary's Certificate"). (10) An Incumbency Certificate executed by the Borrower's Executive Vice-President and the Borrower's Secretary (the "Incumbency Certificate"). In connection with this opinion we have not examined any documents other than those expressly referred to above and have not made any factual investigation except for our review of the documents and notices expressly referred to above and, with respect to the opinion expressed in paragraph 4 below, our discussions with management of the Borrower regarding the subject matter of such opinion, and we have assumed, based solely upon the Borrower's representations to us and the Secretary's Certificate, that neither the Borrower nor its assets is a party to, bound by 3 79 or subject to any agreement or instrument which, if known by us, would change any conclusion stated in this opinion. By way of illustration and not limitation, we have not examined, and we express no opinion with respect to, any documents other than the Reviewed Agreements, exclusive of any documents ancillary to the Reviewed Agreements, including without limitation any letter of credit, security agreement, extension of credit, promissory note or guaranty that has been or may be executed in connection with the Credit Agreement (other than the Notes) or any of the other Reviewed Agreements. In our examination of documents for purposes of this opinion, we have assumed, based solely upon the Borrower's representations to us and the Secretary's Certificate and Incumbency Certificate, and express no opinion as to, the genuineness of all signatures on original documents, the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as copies, the lack of any undisclosed terminations, modifications, waivers or amendments to any agreements or other documents reviewed by us and the due execution and delivery of all documents where due execution and delivery are prerequisites to the effectiveness thereof. We did not witness the execution or delivery by the Borrower of the Credit Agreement and the Notes and are not familiar with the handwriting of the officer executing the Credit Agreement and the Notes. We have reviewed copies of the signature pages of the Credit Agreement and the Notes delivered to us, and we have been advised by the President or Chief Financial Officer of the Borrower or his designated agent that he has duly executed and delivered the Credit Agreement and the Notes for and on behalf of the Borrower and have assumed the due execution and delivery of the Credit Agreement by the Borrower for purposes of rendering the opinions herein. As used in this opinion, the phrases "to our knowledge" or "known to us" refer only to the actual knowledge of the attorneys currently in this firm who have rendered legal services to the Borrower and mean that, while such attorneys have not been informed by the Borrower that the matters stated are factually incorrect and have no actual knowledge that the matters stated are factually incorrect, we have made no independent investigation of such matters other than our examination of the documents expressly referred to in the second paragraph of this letter and, with respect to the opinion expressed in paragraph 4 4 80 below, discussions with management of the Borrower regarding the subject matter of such opinion. However, nothing has been brought to our attention by Borrower to make us believe such a statement was incorrect. As to matters of fact relevant to this opinion, we have relied solely upon: (i) our examination of the documents referred to in the second paragraph of this letter, and we have assumed the current accuracy and completeness of the information obtained from public officials and records and reports of professional filing service companies (if any) including in the documents referred to above, (ii) representations and warranties made by representatives of the Borrower to us, including without limitation those set forth in the Management Certificate and the representations and warranties made by the Borrower in the Credit Agreement. We have made no independent investigations or other attempts to verify the accuracy of any of such information, representations, warranties or other facts as represented by the Borrower or to verify the existence or non-existence of any other factual matters; however, we are not aware of any facts that would lead us to believe that any of the opinions expressed herein are not accurate. For the purposes of this opinion, we have also assumed: (a) that the Banks and the Agents have all requisite power and authority, and have taken any and all action, necessary for the due authorization by them of the execution, delivery and performance by them of the Credit Agreement and all agreements, other documents and transactions to be entered into pursuant to the Credit Agreement and the performance by them of all their obligations under the Credit Agreement and such other agreements; (b) that the Credit Agreement is the legal, valid and binding obligation of each of the Banks and the Agents enforceable against it in accordance with its terms; and (c) the current accuracy and completeness of all representations and warranties made by the Banks and the Agents in the Credit Agreement and in all agreements to be entered into in connection therewith. The opinion expressed in paragraph 3 below is qualified by and is subject to, and we render no opinion with respect to, the limitations and exceptions to the enforceability of contracts and obligations generally, including, without limitation: (a) the effect of 5 81 bankruptcy, insolvency, reorganization, arrangement, moratorium, bulk sales, fraudulent conveyance and other similar laws relating to or affecting the rights of creditors generally; (b) the effect of general principles of equity and similar principles, including, without limitation, concepts of materiality, reasonableness, unconscionability, good faith and fair dealing and the possible unavailability of specific performance, injunctive relief or other equitable remedies, regardless of whether considered in a proceeding in equity or at law, and the effect of public policy; (c) the enforceability of any waivers or releases of rights by the Borrower in the Credit Agreement or the documents ancillary thereto, to the extent any of such waivers or releases is not enforceable under applicable law; (d) the effect of Section 1670.5 of the California Civil Code and of California court decisions, invoking statutes or principles of equity, which have held that certain covenants and provisions of agreements are unenforceable where (i) the breach of such covenants or provisions imposes restrictions or burdens upon the other party and it cannot be demonstrated that the enforcement of such restrictions or burdens is reasonably necessary for the protection of the party seeking to enforce such provisions or (ii) the enforcement of such covenants or provisions under the circumstances would violate the implied covenant of good faith and fair dealing; and (e) any implied duty or covenant of good faith and fair dealing which the Bank may have or be subject to. We also advise you that a California court may limit the right of a lender to exercise remedies or impose penalties for late payment or other default if it is determined that the default is not material, the remedies or penalties bear no reasonable relation to the damage suffered by the lender as a result of the default or it cannot be demonstrated that the enforcement of the remedies or penalties is reasonably necessary for the protection of the lender. We assume that the Credit Agreement and any Loans made thereunder are not and will not be secured by any security interest in any property of Borrower or its Subsidiaries. In rendering the opinion expressed in paragraph 3 below, we have assumed with your consent and without independent investigation: (a) that each Bank is a bank organized or licensed under and pursuant to the laws of the United States or a State thereof and is exempt from the 6 82 usury laws of the State of California; and (b) that the Borrower is not insolvent and by executing and delivering the Credit Agreement and the Notes will not become insolvent. In rendering the opinions expressed in paragraphs 2 and 4 below, we have relied solely on representations made to us by the Borrower, and we have not caused the search of any docket of any court, tribunal, agency or similar authority or any other search. To date, we have represented the Borrower only on discrete and specific matters involving international tax, and certain transactional and corporate issues and have not acted as general corporate counsel to the Borrower, nor have we been engaged to represent the Borrower in connection with any litigation, administrative hearing, arbitration or other proceeding. We are admitted to practice law in the State of California, and we express no opinion herein with respect to the application or effect of the laws of any jurisdiction other than the existing laws of the State of California and the existing federal laws of the United States of America. Although pursuant to their terms the Credit Agreement and the Notes are governed by the laws of the State of New York, we have, with your consent, opined herein regarding the Credit Agreement and the Notes are as if they were to be governed under the internal laws of the State of California applicable to contracts entered into between California residents and entirely performed in California. Accordingly we render no opinion regarding the Credit Agreement and the Notes are to the extent that they may be evaluated by a court or other tribunal applying the laws of any jurisdiction other than such laws of the State of California. We also call your attention to the fact that under various reports published by committees of the State Bar of California, certain assumptions, qualifications and exceptions are implicit in opinions of lawyers. Although we have expressly set forth certain assumptions, qualifications and exceptions herein, we are not limiting or omitting any others set forth in the various reports or otherwise deemed standard by practice for lawyers in California such as the 1990 California Opinion Reports published by the State Bar of California. 7 83 In rendering the opinions below, we are opining only as to the specific legal issues expressly set forth herein, and no opinion shall be inferred as to any other matters. Based upon the foregoing, and subject to all the assumptions, limitations and qualifications referred to herein, it is our opinion that: 1. The Borrower has been duly incorporated and is validly existing in good standing, under the laws of the State of California. 2. The execution, delivery, and performance by the Borrower of the Credit Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Borrower, and do not and will not (assuming no change in the Articles or Bylaws, in the Credit Agreement and the Notes or in the Reviewed Agreements) conflict with or result in a violation of the Articles or Bylaws, the Reviewed Agreements, or, to our knowledge, any law to which the Borrower is subject. 3. The Credit Agreement and each Note is a legal, valid, and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms. 4. To our knowledge, there is no litigation, administrative or other governmental proceeding, or arbitration proceeding pending, or threatened in writing, against or affecting the Borrower, the adverse determination of which would result in a Material Adverse Effect. This opinion is intended solely for the use of the Banks and the Agents (and for the use of Participants and Assignees) for the purpose of the above transaction, and is not to be used or relied upon by any Bank or Agent (or any Participants or Assignees) for any other purpose or made available to or used or relied upon by any other persons or entities, without our prior written consent. We assume no obligation to advise you of any facts, circumstances, events or changes in the law that may hereafter be brought to our attention, whether or not they would affect or modify any of the opinions expressed herein. 8 84 Very truly yours, [COUNSEL FOR THE BORROWER] 9 85 EXHIBIT F - Opinion of Special Counsel for the Agent OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENTS ________________, 199_ To the Banks and the Agents Referred to Below c/o Morgan Guaranty Trust Company of New York, as Documentation Agent 60 Wall Street New York, New York 10260 Dear Sirs: We have participated in the preparation of the Credit Agreement (the "Credit Agreement") dated as of May 22, 1995 among Cisco Systems, Inc., a Delaware corporation (the "Borrower"), the banks listed on the signature pages thereof (the "Banks"), Bank of America National Trust and Savings Association, as Administrative Agent, Morgan Guaranty Trust Company of New York, as Documentation Agent (the "Agent") and Bank of America National Trust and Savings Association, as Issuing Bank , and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.1(c) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. We have assumed that the execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within its corporate powers and have been duly authorized by all necessary action. 86 Upon the basis of the foregoing, we are of the opinion that the Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the federal laws of the United States of America. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, 2 87 EXHIBIT G - Assignment and Assumption Agreement ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of ____, 1995 among [NAME OF ASSIGNOR] (the "Assignor"), [NAME OF ASSIGNEE] (the "Assignee"), CISCO SYSTEMS, INC. (the "Borrower"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Issuing Bank (the "Issuing Bank"). WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the Credit Agreement dated as of May 22, 1995 among the Borrower, the Assignor and the other Banks party thereto, as Banks, the Administrative Agent, Morgan Guaranty Trust Company of New York, as Documentation Agent and the Issuing Bank (as amended from time to time, the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower and to participate in Letters of Credit issued for the account of the Borrower such that the aggregate principal amount of such Loans outstanding at any time plus the Letter of Credit Liabilities of the Assignor outstanding at any time shall not exceed $__________; WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; WHEREAS, Letter of Credit Liabilities of the Assignor in the amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Committed Loans and Letter of Credit 88 Liabilities, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the date hereof and of the Letter of Credit Liabilities of the Assignor outstanding on the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, [the Borrower, the Agents and the Issuing Bank] and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.(1) It (1) Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate 2 89 is understood that commitment and/or facility fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. [SECTION 4. Consent of the Borrower, the Administrative Agent and the Issuing Bank. This Agreement is conditioned upon the consent of the Borrower, the Administrative Agent and the Issuing Bank pursuant to Section 9.6(c) of the Credit Agreement. The execution of this Agreement by the Borrower, the Administrative Agent and the Issuing Bank is evidence of this consent. Pursuant to Section 9.6(c), the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be ____________________ case to specify these amounts generically or by formula rather than as a fixed sum. 3 90 an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [NAME OF ASSIGNOR] By_________________________ Name: Title: [NAME OF ASSIGNEE] By__________________________ Name: Title: [CISCO SYSTEMS, INC. By__________________________ Name: Title:] [BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent By__________________________ Name: Title:] 4 91 [BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Issuing Bank By__________________________ Name: Title:] 5 EX-11.01 19 STATEMENT REGARDING COMPUTATION OF NET INCOME 1 EXHIBIT 11.01 COMPUTATION OF NET INCOME PER SHARE IN ACCORDANCE WITH INTERPRETIVE RELEASE NO. 34-9083 (In thousands, except per-share amounts)
Years Ended ----------------------------------------- July 30, July 31, July 25, 1995 1994 1993 ------------ ------------ ------------- PRIMARY EARNINGS PER SHARE: Actual weighted average common shares outstanding for the period 267,679 254,787 244,436 Weighted average shares assuming exercise of employees' stock options using average market price 9,619 10,264 13,697 ------------ ------------ ------------- Shares used in per-share calculations 277,298 265,051 258,133 ============ ============ ============= Net income applicable to primary income per share $ 421,008 $ 314,867 $ 171,955 ============ ============ ============= Net income per share based on SEC Interpretive Release No. 34-9083 $ 1.52 $ 1.19 $ .67 ============ ============ =============
- ----------- (A) These calculations are submitted in accordance with Securities Exchange Act of 1934 Release No. 34-9083. 46 2 EXHIBIT 11.01 (CONTINUED) COMPUTATION OF NET INCOME PER SHARE IN ACCORDANCE WITH INTERPRETIVE RELEASE NO. 34-9083 (In thousands, except per-share amounts)
Years Ended ----------------------------------------- July 30, July 31, July 25, 1995 1994 1993 ------------ ------------ ------------- FULLY DILUTED EARNINGS PER SHARE: Actual weighted average common shares outstanding for the period 267,679 254,787 244,436 Weighted average shares assuming exercise of employees' stock options using ending market price 11,744 10,388 13,989 ------------ ------------ ------------- Shares used in per-share calculations 279,423 265,175 258,425 ============ ============ ============= Net income applicable to fully diluted income per share $ 421,008 $ 314,867 $ 171,955 ============ ============ ============= Net income per share based on SEC Interpretive Release No. 34-9083 $ 1.51 $ 1.19 $ .66 ============ ============ =============
- ----------- (A) These calculations are submitted in accordance with Securities Exchange Act of 1934 Release No. 34-9083. 47 EX-21.01 20 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.01 SUBSIDIARIES Cisco Systems Canada Limited Cisco Systems Europe, S.A.R.L. (France) Cisco Systems Import/Export Corporation (U.S. Virgin Islands) Cisco Systems Belgium, S.A. Cisco Systems Limited (U.K.) Cisco Systems Australia PTY. Limited Nihon Cisco Systems, K.K. (Japan) Cisco Systems de Mexico, S.A. de C.V. Cisco Systems New Zealand Limited Cisco Systems (HK) Limited (Hong Kong) Cisco Systems GmbH (Germany) Cisco Systems (Italy) Srl Cisco Systems GesmbH (Austria) Cisco do Brasil Ltda. (Brazil) Cisco Systems (Korea) Ltd. VZ, Cisco Systems, C.A. (Venezuela) Cisco Systems South Africa (Pty) Ltd. Cisco Systems Sweden Aktiebolag Cisco Systems (Switzerland) AG 48 EX-23.02 21 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23.02 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Cisco Systems, Inc. on Form S-8 (File No. 0-7285) of our reports dated August 15, 1995, on our audits of the consolidated financial statements and financial statement schedule of Cisco Systems, Inc. as of July 30, 1995 and July 31, 1994, and for the years ended July 30, 1995, July 31, 1994, and July 25, 1993, which reports are included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. San Jose, California October 20, 1995 49 EX-27 22 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-K FOR THE PERIOD ENDING JULY 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS JUL-30-1995 AUG-01-1994 JUL-30-1995 204,846 811,609 397,547 13,305 71,160 995,969 242,878 106,243 1,757,279 337,756 0 362,292 0 0 1,016,439 1,757,279 1,978,916 1,978,916 644,152 1,335,977 0 0 0 679,046 258,038 421,008 0 0 0 421,008 1.52 0
-----END PRIVACY-ENHANCED MESSAGE-----