Construction Management Agreement

CONSTRUCTION MANAGEMENT AGREEMENT
(PHASE II - IMPROVEMENTS)


BETWEEN


BNP LEASING CORPORATION


("BNPLC")


AND


NETWORK APPLIANCE, INC.


("NAI")


MAY 3, 1999


(SUNNYVALE, CALIFORNIA)


================================================================================


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TABLE OF CONTENTS


Page
---- RECITALS 1


CONSENT AND AUTHORIZATION 1


GENERAL TERMS AND CONDITIONS 1


1. CONSTRUCTION BY NAI 1


(A) The Construction Project 1


(1) Construction Approvals by BNPLC 1


(a) Preconstruction Approvals by BNPLC 1


(b) Definition of Scope Change 2


(c) Approval of Scope Changes 2


(2) NAI's Right to Control and Responsibility for Construction 2


(a) Performance of the Work 2


(b) Third Party Contracts 3


(c) Third Party Estoppels 4


(d) Adequacy of Drawings, Specifications and Budgets 4


(e) Existing Condition of the Land and Improvements 4


(f) Correction of Defective Work 4


(g) Clean Up. 4


(h) No Damage for Delays 5


(i) No Fee For Construction Management 5


(3) Quality of Work 5


(B) Completion Notice 5


2. CONSTRUCTION ADVANCES 5


(A) Costs Subject to Reimbursement Through Construction Advances 5


(B) Exclusions From Reimbursable Construction-Period Costs 6


(C) Conditions to NAI's Right to Receive Construction Advances 7


(1) Construction Advance Requests 7


(2) Amount of the Advances 7


(a) Limit Dependent Upon the Maximum Construction
Allowance 7


(b) Limit Dependent Upon Costs Previously
Incurred by NAI 7


(c) Limit During CMA Suspension Period 8


(d) Restrictions Imposed for Administrative Convenience 9


(3) No Advances After Certain Dates 9


(D) Breakage Costs for Construction Advances Requested But Not Taken 9


(E) No Third Party Beneficiaries 9


(F) No Waiver 9


(G) Funding by Participants 9


3. NORMAL TENANT IMPROVEMENTS 11


(A) Definition of Normal Tenant Improvements 11


(B) Advances for Normal Tenant Improvements 11


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Page
----
(C) Tenant's Obligation to Construct Normal Tenant Improvements 11


4. COST OVERRUNS 11


(A) Definition of Projected Cost Overruns 11


(B) Notice of Projected Cost Overruns 12


(C) Election to Make a Voluntary NAI Construction Contribution 12


5. SUSPENSION AND TERMINATION 12


(A) CMA Suspension Events 12


(1) Projection of Cost Overruns 12


(2) Interruption of Construction 12


(3) Failure of NAI to Correct Defective Work 13


(4) Failure of NAI to Provide Evidence of Costs and Expenses 13


(B) FOCB Notices, Preemptive Notices and CMA Termination Events 13


(C) Rights and Obligations of NAI During a CMA Suspension Period 14


(D) Election by NAI to Terminate 14


(E) BNPLC's Right to Terminate 14


(F) Rights and Obligations Surviving Termination 14


(G) Cooperation by NAI Following any Termination 15


EXHIBITS


Exhibit A Legal Description


Exhibit B Description of the Construction Project (With Site Plan
Attached)


Exhibit C Form of Contractor Estoppel


Exhibit D Form of Design Professional Estoppel


Exhibit E Notice Requesting Advance to Cover Insurance Deductible


Exhibit F Construction Advance Request Form


Exhibit G Notice of Voluntary NAI Funding Commitment


Exhibit H Preemptive Notice by NAI


Exhibit I Notice of Termination by NAI


(2)


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CONSTRUCTION MANAGEMENT AGREEMENT
(PHASE II - IMPROVEMENTS)


This CONSTRUCTION MANAGEMENT AGREEMENT (PHASE II - IMPROVEMENTS) (this "AGREEMENT"), by and between BNP LEASING CORPORATION, a Delaware corporation ("BNPLC"), and NETWORK APPLIANCE, INC., a California corporation ("NAI"), is made and dated as of May 3, 1999, the Effective Date. ("EFFECTIVE DATE" and other capitalized terms used and not otherwise defined in this Agreement are intended to have the meanings assigned to them in the Common Definitions and Provisions Agreement (Phase II - Improvements) executed by BNPLC and NAI contemporaneously with this Agreement. By this reference, the Common Definitions and Provisions Agreement (Phase II - Improvements) is incorporated into and made a part of this Agreement for all purposes.)


RECITALS


Pursuant to the Lease Agreement (Phase II - Improvements) executed by BNPLC and NAI contemporaneously the this Agreement (the "IMPROVEMENTS LEASE"), which covers the Improvements on the Land described in Exhibit A, BNPLC is leasing the Improvements and any appurtenances thereto and all Improvements to NAI.


In anticipation of the construction of new or additional Improvements for NAI's use pursuant to the Improvements Lease, BNPLC and NAI have agreed upon the terms and conditions upon which BNPLC is willing to authorize NAI to arrange and manage such construction and upon which BNPLC is willing to provide funds for such construction, and by this Agreement BNPLC and NAI desire to evidence such agreement.


CONSENT AND AUTHORIZATION


Subject to the terms and conditions set forth in this Agreement and in the Improvements Lease, BNPLC does hereby grant its consent and authorization to NAI for the construction by NAI of the Construction Project on the Land and for the management by NAI of such construction; provided, however, all rights of NAI against BNPLC hereunder are expressly made subject and subordinate to the Permitted Encumbrances and to any other claims or encumbrances affecting the Land or the Property that may be asserted by third parties and that do not constitute Liens Removable by BNPLC.


GENERAL TERMS AND CONDITIONS


(3) 5


1 CONSTRUCTION BY NAI.


(A) The Construction Project.


(1) Construction Approvals by BNPLC.


(a) Preconstruction Approvals by BNPLC. NAI submitted and
obtained BNPLC's approval of the site plan and descriptions of
the Construction Project referenced in Exhibit B. Also set forth
in Exhibit B is a general description of the Construction
Project. The Construction Project, as constructed by NAI
pursuant to this Agreement, and all construction contracts and
other agreements executed or adopted by NAI in connection
therewith, shall be not materially inconsistent with the plans
or other items referenced in Exhibit B, except to the extent
otherwise provided by any Scope Change (as defined below)
approved by BNPLC and except as otherwise provided in
subparagraph 6(d) of the Improvements Lease if BNPLC should make
a Landlord's Election to Continue Construction after any
termination of this Agreement.


(b) Definition of Scope Change. As used herein, "SCOPE
CHANGE" means a change to the Construction Project that, if
implemented, will make the quality, function or capacity of the
Improvements "materially different" (as defined below in this
subparagraph) than as described or inferred by site plan, plans
and renderings referenced in Exhibit B. The term "SCOPE CHANGE"
is not intended to include the mere refinement, correction or
detailing of the site plan, plans or renderings submitted to
BNPLC by NAI. As used in this subparagraph, a "material
difference" means a difference that could reasonably be expected
to (a) after completion of the Construction Project and the
funding of all Construction Advances required in connection
therewith, significantly reduce any excess of the market value
of the Property over Stipulated Loss Value or significantly
increase any excess of Stipulated Loss Value over the market
value of the Property, (b) change the general character of the
Improvements from that needed to accommodate the uses permitted
by subparagraph 2(a) of the Improvements Lease, or (c) result in
Projected Cost Overruns (as defined below).


(c) Approval of Scope Changes. Before making a Scope
Change, NAI shall provide to BNPLC a reasonably detailed written
description of the Scope Change, a revised construction budget
for the Construction Project and a copy of any changes to the
drawings, plans and specifications for the Improvements required
in connection therewith, all of which must be approved in
writing by BNPLC (or by any inspecting architect appointed by
BNPLC from time to time) before the Scope Change is implemented.
BNPLC's approval shall not in any event constitute a waiver of
subparagraph 1(A)(3)or of any other provision of this Agreement
or the Improvements Lease.


(2) NAI's Right to Control and Responsibility for Construction.
Subject to the terms and conditions set forth in this Agreement and in
the Improvements Lease, and prior to any termination of this Agreement
as provided in subparagraphs 5(D) and 5(E), NAI shall have the sole
right to control and the sole responsibility for the design and
construction of the Construction Project, including the means, methods,
sequences and procedures implemented to accomplish such design and
construction. Although title to all Improvements will pass directly to
BNPLC (as more particularly provided in Paragraph 7 of the Improvements
Lease), BNPLC's obligation with respect to the Construction Project
shall be limited to the making of advances under and subject to the
conditions set forth in this Agreement and in Paragraph 6 of the
Improvements Lease. Without limiting the foregoing, NAI acknowledges and
agrees that:


(a) Performance of the Work. Except as provided in
subparagraphs 5(C) and 5(F), NAI must, using its best skill and
judgment and in an expeditious and economical manner not
inconsistent with the interests of BNPLC, perform or cause to be
performed all work required, and will provide or cause to be
provided all supplies and materials


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required, to design and complete construction of the
Construction Project (collectively "WORK"). The Work will
include obtaining all necessary building permits and other
governmental approvals required in connection with the design
and construction of the Construction Project, including the
design and construction of Normal Tenant Improvements (as
defined below), or required in connection with the use and
occupancy thereof (e.g., final certificates of occupancy). The
Work will also include any repairs or restoration required
because of damage to Improvements by fire or other casualty
prior to the Base Rent Commencement Date (a "PRE-COMMENCEMENT
CASUALTY"); however, the cost of any such repairs or restoration
will be subject to reimbursement not only through Construction
Advances made on and subject to the terms and conditions of this
Agreement, but also through the application of Escrowed Proceeds
as provided in the Improvements Lease. NAI will carefully
schedule and supervise all Work, will check all materials and
services used in connection with all Work and will keep full and
detailed accounts as may be necessary to document expenditures
made or expenses incurred for the Work. Subject to delays beyond
the reasonable control of NAI, NAI shall cause all Work to be
completed on or before July 1, 2000.


(b) Third Party Contracts.


1) NAI shall not enter into any construction contract or
other agreement with a third party concerning the Work or the
Construction Project (a "THIRD PARTY CONTRACT") in the name of
BNPLC or otherwise purport to bind BNPLC to any obligation to
any third party.


2) In any Third Party Contract between NAI and any of its
Affiliates (an "AFFILIATE'S CONTRACT") NAI shall reserve the
right to terminate the contract at any time, without cause, and
without subjecting NAI to liability for any Termination Fee (as
defined below). Further, NAI shall not enter into any
Affiliate's Contract that obligates NAI to pay more than would
be required under an arms-length contract or that would require
NAI to pay its Affiliate any amount in excess of the sum of
actual, out-of-pocket direct costs and internal labor costs
incurred by the Affiliate to perform such contract.


3) As necessary to limit the total Reimbursable Third Party
Contract Termination Fees (as defined below) for which BNPLC may
be required to provide Construction Advances to no more than
$7,000,000 (the "MAXIMUM PERMITTED TERMINATION FEES"), NAI shall
reserve in every significant Third Party Contract an absolute
express right to terminate such contract at any time, without
cause. Although any Third Party Contract (other than an
Affiliate's Contract) may require NAI to pay a specified
Termination Fee in the event of such a termination, the
specified Termination Fee must not exceed the difference
computed by subtracting (I) the aggregate of all Termination
Fees that have been paid or would become payable by NAI if NAI
terminated all other Third Party Contracts, from (II) the
Maximum Permitted Termination Fees. Without limiting the
foregoing, NAI will manage and administer all Third Party
Contracts as necessary to ensure that, at any point in time, NAI
can terminate all such contracts without becoming liable for
Termination Fees in excess of the Maximum Permitted Termination
Fees.


4) As used in this Agreement, "TERMINATION FEE" means any
amount, however denominated, for which NAI will be obligated
under a Third Party Contract as a result of any election or
decision by NAI to terminate such Third Party Contract,
including demobilization costs; provided, however, amounts
payable for Prior Work [as defined below] as of the date any
such termination are not intended to be characterized as
Termination Fees for purposes of this Agreement. If, as
described in the preceding paragraph, NAI reserves an absolute
express right in a Third Party Contract to terminate such
contract at any time, without cause, for a specified dollar
amount, such dollar amount will constitute a Termination Fee. If
no such right is reserved in a Third Party Contract, the
Termination Fee applicable


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to such contract for purposes of this Agreement will be the
amount of damages that NAI could be required to pay (in addition
to payments required for Prior Work) upon an anticipatory
repudiation of the Third Party Contract by NAI.


(c) Third Party Estoppels. If requested by BNPLC with respect to
any material general construction contract between NAI and a third party
contractor for any part of the Work, NAI shall cause the contractor to
execute and deliver to BNPLC an estoppel letter substantially in the
form of Exhibit C. Similarly, if requested by BNPLC with respect to any
material architectural or engineering contract between NAI and a third
party professional or firm for any part of the Work, NAI shall cause the
professional or firm thereunder to execute and deliver to BNPLC an
estoppel letter substantially in the form of Exhibit D.


(d) Adequacy of Drawings, Specifications and Budgets. BNPLC has
made and will make no representations as to the adequacy of any budgets,
site plans, renderings, plans, drawings or specifications for the
Construction Project, and no modification of any such budgets, site
plans, renderings, plans, drawings or specifications that may be
required from time to time will entitle NAI to any adjustment in the
Construction Allowance.


(e) Existing Condition of the Land and Improvements. NAI is
familiar with the conditions of the Land and any existing Improvements
on the Land. NAI shall have no claim for damages against BNPLC or for an
increase in the Construction Allowance by reason of any condition
(concealed or otherwise) of or affecting the Land or Improvements.


(f) Correction of Defective Work. NAI will promptly correct all
Work performed prior to any termination of this Agreement that does not
comply with the requirements of this Agreement or that is otherwise
defective (in either case, "DEFECTIVE WORK") at NAI's sole expense. If
NAI fails to correct any Defective Work or fails to carry out Work in
accordance with this Agreement, BNPLC may (but will not be required to)
order NAI to stop all Work until the cause for such failure has been
eliminated.


(g) Clean Up. Upon the completion of all Work, NAI will remove all
waste material and rubbish from and about the Land, as well as all
tools, construction equipment, machinery and surplus materials. NAI will
keep the Land and the Improvements thereon in a reasonably safe and
sightly condition as Work progresses.


(h) No Damage for Delays. NAI shall have no claim for damages
against BNPLC or for an increase in the Construction Allowance by reason
of any delay in the performance of any Work.


(i) No Fee For Construction Management. NAI shall have no claim for
any fee or other compensation or for any reimbursement of internal
administrative or overhead expenses of NAI under this Agreement, it
being understood that NAI is executing this Agreement in consideration
of the rights expressly granted to it herein and in the Improvements
Lease.


(3) Quality of Work. NAI shall cause the Work undertaken and administered by it pursuant to this Agreement to be performed (a) in a safe and good and workmanlike manner, (b) in accordance with Applicable Laws, (c) in compliance with (i) the provisions of this Agreement and the Improvements Lease, (ii) the material provisions of the Permitted Encumbrances and (iii) the material provisions of the Development Documents, and (d) in a manner that, taken as a whole, enhances the value of the Property commensurate with any Construction Advances and Carrying Costs added to the Outstanding Construction Allowance in connection therewith.


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(B) Completion Notice . NAI shall provide a notice (a "COMPLETION NOTICE") to BNPLC promptly after construction of the Construction Project is substantially complete, advising BNPLC of the substantial completion.


2 CONSTRUCTION ADVANCES.


(A) Costs Subject to Reimbursement Through Construction Advances . Subject to the terms and conditions set forth herein, NAI shall be entitled to a Construction Allowance, from which BNPLC will make Construction Advances on Advance Dates from time to time to pay or reimburse NAI for the following costs ("REIMBURSABLE CONSTRUCTION-PERIOD COSTS") to the extent the following costs are not already included in Transaction Expenses paid by BNPLC from the Initial Funding Advance:


(1) the actual costs and expenses incurred or paid by NAI for the
preparation, negotiation and execution of this Agreement and the other
Operative Documents;


(2) the cost of title insurance or other out of pocket expenses
described in subparagraph 5(c)(iii) of the Improvements Lease or of the
Other Lease Agreement to the extent paid by NAI prior to the Base Rent
Commencement Date;


(3) Commitment Fees;


(4) costs of the Work, including not only hard costs incurred for
the new Improvements described in Exhibit B, but also the following
costs to the extent reasonably incurred in connection with the
Construction Project:


- soft costs, such as architectural fees, engineering fees
and fees and costs paid in connection with obtaining
project permits and approvals required by governmental
authorities or the Development Documents,


- site preparation costs, and


- costs of offsite and other public improvements required
as conditions of governmental approvals for the
Construction Project;


(5) the cost of maintaining insurance required by (and consistent
with the requirements of) the Improvements Lease and the Other Lease
Agreement prior to the Base Rent Commencement Date, and costs of
repairing any damage to the Improvements caused by a Pre-commencement
Casualty to the extent such costs are not covered by Escrowed Proceeds
made available to NAI as provided in the Improvements Lease and the
Other Lease Agreement prior to the Base Rent Commencement Date
("REIMBURSABLE RESTORATION COSTS");


(6) Impositions that accrue or become due under the Improvements
Lease or the Other Lease Agreement prior to the Base Rent Commencement
Date; and


(7) except as otherwise provided in subparagraph below, Termination
Fees payable by NAI in connection with any Third Party Contract between
NAI and a Person not an Affiliate of NAI because of any election by NAI
to cancel or terminate such contract during a CMA Suspension Period (as
defined below).


In addition to other Construction Advances required by this subparagraph 2A, but subject to the other terms and conditions hereof, a Construction Advance will be provided by BNPLC on the Base Rent Commencement Date in the form of additional Escrowed Proceeds (to be held and applied like other Escr ...