LEASE AGREEMENT LINCOLN COLISEUM DISTRIBUTION CNTR

LEASE AGREEMENT

(NNN)

BASIC LEASE INFORMATION







LEASE DATE: April 1, 1998



LANDLORD: LINCOLN COLISEUM DISTRIBUTION CENTER,

A California Limited Partnership



LANDLORD'S ADDRESS: c/o LPC MS, Inc.

101 Lincoln Centre Drive, Fourth Floor

Foster City, California 94404-1167



TENANT: Intelligent Systems for Retail, Inc.,

a California corporation, dba ISR



TENANT'S ADDRESS: 1241 E. Hillsdale Boulevard, Suite 210

Foster City, California 94404



PREMISES: An approximately 336,680 rentable square foot

Building and the Lot as shown on Exhibit A



PREMISES ADDRESS: 5800 Coliseum Way

Oakland, California 94621



BUILDING: Approximately 336,680 rentable square feet LOT (BUILDING'S TAX PARCEL): APNs 34-2342-5-7, 34-2342-8-2 and 34-2342-5-5



EARLY OCCUPANCY DATE: June 1, 1998



TERM: August 1, 1998 ("Commencement Date"), through

July 31, 2008 ("Expiration Date")



BASE RENT (PARAGRAPH 3): One hundred one thousand four and 00/100

Dollars ($101,004.00) per month, subject to

increase for any Amortized Excess TI Costs in

accordance with the provisions of Exhibit B



ADJUSTMENTS TO BASE RENT: Commencing August 1, 1999, the monthly Base

Rent shall increase to $104,370.80, subject to

increase for any Amortized Excess TI Costs in

accordance with the provisions of Exhibit B

hereto Commencing February 1, 2001, the

monthly Base Rent shall increase to

$111,104.40, subject to increase for any

Amortized Excess TI Costs in accordance with

the provisions of Exhibit B hereto



Commencing August 1, 2003, the monthly Base

Rent shall increase to $121,204.80, subject to

increase for any Amortized Excess TI Costs in

accordance with the provisions of Exhibit B



Commencing February 1, 2006, the monthly Base

Rent shall increase to









$134,672.00, subject to increase for any

Amortized Excess TI Costs in accordance with

the provisions of Exhibit B hereto



LETTER OF CREDIT (PARAGRAPH 4): Letter of Credit in the amount of Nine Hundred

Fifty Thousand and 00/100 Dollars

($950,000.00) as set forth in Section 4 hereof

and Exhibit I hereto



DAMAGE DEPOSIT (PARAGRAPH 5): Fifty Thousand Dollars ($50,000.00)



*TENANT'S OPERATING EXPENSES (PARAGRAPH 7.1): 100% of the Building *TENANT'S TAX EXPENSES (PARAGRAPH 7.2): 100% of the Building *TENANT'S UTILITY EXPENSES

(PARAGRAPH 8): 100% of the Building



*The amount of Tenant's Share of the expenses as referenced above shall be





subject to modification as set forth in this Lease.



PERMITTED USES (PARAGRAPH 10): The Premises shall be used for offices,

central commissary (food

preparation/processing center, including

preparation/processing center, including but

not limited to kitchen facilities, baking,

cooking, meat and seafood cutting and produce

preparation), general warehousing, both

ambient and cold storage, and sale and

distribution at retail and/or wholesale of any

and all consumer goods and products, including

but not limited to, foods, beverages and other

groceries, prepackaged alcohol (for

off-premises consumption only), house and

garden supplies, books, music, software,

health and beauty aids, cleaning and

janitorial supplies, office supplies and

equipment, medical supplies and

pharmaceuticals, clothing and fashion, sports

and hobbies, pet food and supplies, toys,

hardware and tools, jewelry, collectibles,

electronic equipment, appliances, computers

and other general retail merchandise;

provided, however, that such uses are

permitted by the City of Oakland and all other

governmental agencies having jurisdiction



BROKER (PARAGRAPH 39): Christopher Jacobs, Duane Fitch and Douglas

Norton of CB Commercial for Tenant Duane Fitch

and Larry Jones of CB Commercial and LPC MS,

Inc. for Landlord











EXHIBITS: Exhibit A - Premises, Building and Lot

Exhibit B - Tenant Improvements

Exhibit C - Rules and Regulations

Exhibit D - Covenants, Conditions and Restrictions

(Intentionally Omitted)

Exhibit E - Hazardous Materials Disclosure

Certificate - Example

Exhibit F - Change of Commencement Date - Example

Exhibit G - Tenant's Initial Hazardous Materials

Disclosure Certificate

Exhibit H - Sign Criteria (Intentionally Omitted)

Exhibit I - Letter of Credit

Exhibit J - Subordination, Non-disturbance and

Attornment Agreement

Exhibit K - Landlord's Waiver and Agreement

Exhibit L - Tenant's Initial Alterations

Exhibit M - Assignment and Assumption Agreement



ADDENDA: Addendum 1: Option to Extend the Term

Addendum 2: Agreement to Install Satellite Antenna

Receiving Dish







TABLE OF CONTENTS





SECTION PAGE

- ------- ----

1. PREMISES 4

2. ADJUSTMENT OF COMMENCEMENT DATE; CONDITION OF THE PREMISES 4

3. RENT 5

4. LETTER OF CREDIT 6

5. DAMAGE DEPOSIT 7

6. TENANT IMPROVEMENTS 7

7. ADDITIONAL RENT 7

8. UTILITIES 10

9. LATE CHARGES 10

10. USE OF PREMISES 10

11. ALTERATIONS AND ADDITIONS; AND SURRENDER OF PREMISES 12

12. REPAIRS AND MAINTENANCE 13

13. INSURANCE 14

14. WAIVER OF SUBROGATION 17

15. LIMITATION OF LIABILITY AND INDEMNITY 16

16. ASSIGNMENT AND SUBLEASING 16

17. AD VALOREM TAXES 19

18. SUBORDINATION 19

19. RIGHT OF ENTRY 20

20. ESTOPPEL CERTIFICATE 20

21. TENANT'S DEFAULT 20

22. REMEDIES FOR TENANT'S DEFAULT 21

23. HOLDING OVER 22

24. LANDLORD'S DEFAULT 22

25. PARKING 23

26. SALE OF PREMISES 23

27. WAIVER 23

28. CASUALTY DAMAGE 23

29. CONDEMNATION 24

30. ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS 24

31. FINANCIAL STATEMENTS 26

32. GENERAL PROVISIONS 27

33. SIGNS 28

34. MORTGAGEE PROTECTION 28

35. QUITCLAIM 29

36. INTENTIONALLY OMITTED 29











37. WARRANTIES OF TENANT 29

38. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT 29

39. BROKERAGE COMMISSION 29

40. QUIET ENJOYMENT 30

41. LANDLORD'S ABILITY TO PERFORM TENANT'S UNPERFORMED OBLIGATIONS 30

42. TENANT'S ABILITY TO PERFORM LANDLORD'S UNPERFORMED OBLIGATIONS 30

43. TENANT EQUIPMENT FINANCING 31

44. TENANT'S SATELLITE DISH 31











LEASE AGREEMENT





DATE: This Lease is made and entered into as of the Lease Date set forth on Page 1. The Basic Lease Information set forth on Pages 1 and 2 hereof and this Lease are and shall be construed as a single instrument.





1. PREMISES: Landlord hereby leases the Premises to Tenant upon the terms and conditions contained herein. For purposes of this Lease the term "Premises" shall mean and refer to the entirety of the Building and the Lot. For purposes of this Lease the term "Lot" shall mean and refer to those portions of the Premises exclusive of the Building and shall include, but not be limited to, parking areas, access and perimeter roads, sidewalks, rail spurs, landscaped areas and similar areas and facilities. Landlord and Tenant hereby agree that for purposes of this Lease, as of the Lease Date, the rentable square footage area of the Premises (i.e. the Building and the Lot) shall be deemed to be the number of rentable square feet as set forth in the Basic Lease Information on Page 1 hereof. Tenant further acknowledges that the number of rentable square feet of the Building and/or the Lot may subsequently change after the Lease Date commensurate with any actual physical modifications to any of the foregoing resulting from a casualty or condemnation, subject, however, to the provisions of Sections 28 and 29 hereof.



2. ADJUSTMENT OF EARLY OCCUPANCY DATE AND COMMENCEMENT DATE; AND CONDITION OF THE PREMISES:



2.1 If Landlord cannot deliver to Tenant possession of the Premises (in the condition that exists on the day after the previous occupants--Caliber Logistics, Inc., The Glidden Company, and The Glidden Company's subtenant, Santa Clara Warehouse, Inc.--vacate the Building) without any improvements, alterations, repairs, refurbishment or other modifications being made thereto on the Early Occupancy Date, Landlord shall not be subject to any liability nor shall the validity of this Lease be affected; provided, the Early Occupancy Date and the Commencement Date shall be extended commensurately by the period of time Landlord is delayed in so delivering to Tenant possession of the Premises without any improvements, alterations, repairs, refurbishment or other modifications being made thereto. In the event the actual Early Occupancy Date, the actual Commencement Date and/or the actual Expiration Date of this Lease is other than the Early Occupancy Date, Commencement Date and/or Expiration Date specified in the Basic Lease Information, as the case may be, Landlord and Tenant shall execute a written amendment to this Lease, substantially in the form of Exhibit F hereto, wherein the parties shall specify the actual Early Occupancy Date, Commencement Date, Expiration Date and the date on which Tenant is to commence paying Base Rent, Additional Rent and all other sums payable by Tenant hereunder. It is the parties' intention that (i) the Early Occupancy Date of this Lease shall be the date specified in the Basic Lease Information, June 1, 1998, (ii) any delays in Landlord commencing and/or completing any of the Landlord Work (defined below) shall not affect nor otherwise extend the Early Occupancy Date of June 1, 1998, (iii) Tenant commencing and/or completing the Tenant Improvements shall not affect nor otherwise extend the Early Occupancy Date of June 1, 1998, and (iv) Tenant shall be solely and wholly responsible for the construction and substantial completion of the Tenant Improvements. If the Early Occupancy Date is extended beyond June 1, 1998, the Commencement Date and Expiration Date of this Lease shall be extended commensurately by the same time period. The word "Term" whenever used herein refers to the initial term of this Lease and any extension thereof. By taking possession of the Premises without any improvements, alterations, repairs, refurbishment or other modifications being made thereto, Tenant shall be deemed to have accepted the Premises in good condition and state of repair except for the Landlord Work (defined below). Tenant hereby acknowledges and agrees that neither Landlord nor Landlord's agents or representatives has made any representations or warranties as to the suitability, safety or fitness of the Premises for the conduct of Tenant's business, Tenant's intended use of the Premises or for any other purpose.



2.2 If Landlord cannot deliver to Tenant possession of the Premises on or before October 1, 1998 [in the condition that exists on the date after the previous occupants (as set forth in Section 2.1 above)







vacate the Building without any improvements, alterations, repairs, refurbishment or other modifications being made thereto], then either Landlord or Tenant may terminate this Lease by delivering thirty days' prior written notice, if at all, to the other party. The effective date of any such termination shall in no event be prior to November 1, 1998.



2.3 LANDLORD WORK: As soon as possible after all of the Existing Occupants have vacated the Premises and delivered to Landlord possession thereof, Landlord, during the Early Occupancy Period, shall cause the following work to be performed in and about the Premises (collectively, the "Landlord Work"): (i) cause the Premises to be in broom-clean condition; (ii) cause the following described components of the Building to be placed in good working order: (a) roof and building structure; (b) roof membrane; (c) windows; (d) skylights; (e) interior and exterior lighting; (f) electrical systems; and (g) plumbing systems; and (iii) repaint the Building stripe on the exterior of the Building, and reseal and stripe the parking lot. Tenant shall notify Landlord, in writing, within thirty (30) days following the actual Early Occupancy Date of any items specified in clause (ii) above that is not in good working order (the "Tenant Defect Notice"), and Landlord shall correct any such deficiencies or defects of such items and place same in good working order within forty-five (45) days after Landlord's receipt of the Tenant Defect Notice or within such longer period of time as is necessary to correct any such deficiencies or defects, so long as Landlord has commenced such repair within fifteen (15) days of Tenant's Defect Notice and thereafter diligently prosecutes such repair to completion. The costs and expenses incurred by Landlord to perform the work described in clause (iii) above shall be included in the 1998 Operating Expenses for the Premises. Tenant's employees, agents, contractors, consultants, workmen, mechanics, suppliers and invitees shall use their good faith and best efforts to cooperate, work in harmony and not, in any manner, interfere with Landlord or Landlord's agents or representatives in performing the Landlord Work.





3. EARLY OCCUPANCY PERIOD AND RENT:



3.1 EARLY OCCUPANCY PERIOD: During the period commencing on the actual Early Occupancy Date and ending on the date which is sixty (60) days thereafter (the "Early Occupancy Period"), Tenant shall be permitted to use and occupy the Premises, however, any such use and occupancy by Tenant shall be at Tenant's sole risk and subject to all of the provisions of this Lease except as otherwise expressly set forth herein. During the Early Occupancy Period Tenant shall only use the Premises for purposes of (i) planning, installing and constructing the Tenant Improvements in the Premises, and (ii) installing in the Premises Tenant's equipment (including telephone, telecommunications and data lines), furnishings and fixtures to make the Premises ready for Tenant's use and occupancy to conduct its operations therein. Except for the requirement that Tenant pay for all utilities and Utility Expenses to the extent incurred during the Early Occupancy Period, Tenant shall otherwise commence paying Rent (defined below) on the actual Commencement Date regardless of whether or not the planning, design and/or construction of the Tenant Improvements are commenced or completed. Tenant shall be solely responsible for the security of its property or equipment or that of its contractors or agents, stored in the Premises during the Early Occupancy Period. In consideration for Landlord permitting Tenant to use and occupy the Premises during the Early Occupancy Period, Tenant shall indemnify, defend (with counsel reasonably acceptable to Landlord) and hold the Indemnitees (defined in Section 15 below) harmless from and against any and all claims, damages, liabilities, liens, losses, actions, judgments, costs and expenses (including without limitation, attorneys' fees and costs) arising from Tenant's and any of Tenant's Representatives' use and occupancy of any portion of the Premises during the Early Occupancy Period, or from any activity permitted or suffered by Tenant or any of Tenant's Representatives in or about the Premises during the Early Occupancy Period, or any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease during the Early Occupancy Period, or arising from any intentional or negligent act or omission of Tenant or any of Tenant's Representatives during the Early Occupancy Period; provided, however, the foregoing indemnity shall not include claims, damages, liabilities, liens, losses, actions, judgments, costs and expenses (including without limitation, attorneys' fees and costs) for damage or injury to the extent caused by the sole and active negligence or willful misconduct of Landlord and its designated agents or employees, unless covered by insurance Tenant is required by this Lease to maintain. During the Early Occupancy Period, Landlord shall not be liable for any claims, damages (including, but not limited to, consequential damages) or losses of any nature incurred or suffered







by Tenant or any of Tenant's Representatives, or any other person in or about the Premises, arising from or in connection with this Lease or the use of the Premises (including any claims, damages or losses arising from any act or neglect of any other persons including construction workers hired by Landlord), except to the extent such claims, damages or losses arise solely from the sole and active negligence or willful misconduct of Landlord (provided, however, in no event shall Landlord be liable for any consequential damages).



3.2 RENT: On the date that Tenant executes this Lease, Tenant shall deliver to Landlord the original executed Lease, the sum of $121,854.57, which amount equals the Base Rent, the estimated Operating Expenses and Early Occupancy Rent for the first month of the Term of the Lease (the "Advanced Rent") (which Advanced Rent shall be applied against the Rent payable for the first month Tenant is required to pay Base Rent), the Letter of Credit (defined below) and all insurance certificates evidencing the insurance required to be obtained by Tenant under Section 13 of this Lease and under the provisions of Exhibit B hereto. Tenant agrees to pay Landlord, without prior notice or demand, or abatement, offset, deduction or claim (except as otherwise set forth in Section 28 hereof), the Base Rent specified in the Basic Lease Information (including any Amortized Excess TI Costs) and the Early Occupancy Rent (defined below), payable in advance at Landlord's address specified in the Basic Lease Information on the actual Commencement Date and thereafter on the first (1st) day of each month throughout the balance of the Term of this Lease after first giving Tenant credit for the Advanced Rent. In addition to the Base Rent set forth in the Basic Lease Information (including any Amortized Excess TI Costs) and the Early Occupancy Rent (defined below), Tenant shall pay Landlord in advance on the actual Commencement Date and thereafter on the first (1st) day of each month throughout the balance of the Term of this Lease, as Additional Rent, the Administrative Expenses, Operating Expenses and Tax Expenses, after first giving Tenant credit for the Advanced Rent. The term "Rent" whenever used herein refers to the aggregate of all these amounts. The Rent for any fractional part of a calendar month at the commencement or termination of the Lease term shall be a prorated amount of the Rent for a full calendar month based upon a thirty (30) day month. The prorated Rent for the last calendar month of the Term of this Lease shall be paid on the first day of the calendar month in which the date of termination or expiration occurs.



3.3 EARLY OCCUPANCY RENT: In addition to the monthly Base Rent specified in the Basic Lease Information (including any Amortized Excess TI Costs), and as part of the "Rent" payable by Tenant hereunder in accordance with the provisions of Section 3.2 above, Tenant shall pay to Landlord, as Additional Rent, the amount of $2,535.18 (the "Early Occupancy Rent") monthly on the first (1st) day of each month of the first sixty (60) months only of the initial term of this Lease. The monthly amount of the Early Occupancy Rent equals the amortization (at the annual interest rate of ten percent (10%) for a 60-month period) of one month's Base Rent of $101,004.00 plus one month's estimated Operating Expenses, Tax Expenses and Administrative Expenses of $18,315.39.



4. LETTER OF CREDIT:



4.1 Upon Tenant's executing this Lease, Tenant shall deliver to Landlord for the full and faithful performance by Tenant of its obligations under this Lease, an irrevocable and unconditional negotiable standby Letter of Credit in exactly the form and containing the terms as set forth in the form of letter of credit attached hereto as Exhibit I (the "Letter of Credit") issued by Wells Fargo Bank ("Issuer"), a solvent bank under the supervision of the Superintendent of Banks of the State of California or a National Banking Association, payable in Foster City, California, and made in favor of Landlord, as the beneficiary thereof. The Letter of Credit shall be in a face amount equal to Nine Hundred Fifty Thousand and 00/100 U.S. Dollars ($950,000.00) and, subject to the provisions of this Section 4, the expiration date shall be September 1, 2008 (the "L/C Expiration Date"). The face amount of the Letter of Credit shall decline by $110,000.00 (less the amount of any draw or draws made in the preceding calendar year) each year commencing at the end of the third (3rd) year of the Term of this Lease. Therefore, the face amount of the Letter of Credit shall decline to $180,000.00 at the end of the ninth (9th) year of the Term of this Lease and shall remain in this amount until the L/C Expiration Date, or any extension pursuant to Addendum 1 hereto.







4.2 Notwithstanding the foregoing, the face amount of the Letter of Credit shall be reduced as follows: if at any time following the second (2nd) year of the Term of this Lease, Tenant's net worth exceeds Thirty-Five Million Dollars ($35,000,000.00) AND Tenant's net income exceeds Eight Million Dollars ($8,000,000.00) (both as reported in Tenant's audited annual financial statements as prepared by a certified public accountant), then ...