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Lease Agreement (phase Ii - Improvements)

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LEASE AGREEMENT
(PHASE II - IMPROVEMENTS)


BETWEEN


BNP LEASING CORPORATION


("BNPLC")


AND


NETWORK APPLIANCE, INC.


("NAI")


MAY 3, 1999


(SUNNYVALE, CALIFORNIA)


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


2


[Phase II - Improvements]


3
TABLE OF CONTENTS


Page
---- 1. TERM 2
(a) Scheduled Term 2
(b) Automatic Termination as of the Base Rent Commencement Date Resulting
From an Election by NAI to Terminate the Purchase Option and NAI's
Initial Remarketing Rights and Obligations 2
(c) Election by BNPLC to Terminate After an Issue 97-10 Election 2
(d) Election by NAI to Terminate After Accelerating the Designated Sale Date 3
(e) Extension of the Term 3


2. USE AND CONDITION OF THE PROPERTY 4
(a) Use 4
(b) Condition of the Property 4
(c) Consideration for and Scope of Waiver 4


3. RENT 5
(a) Base Rent Generally 5
(b) Impact of Collateral Upon Formulas 5
(c) Calculation of and Due Dates for Base Rent 5
(i) Amount Payable On the Base Rent Commencement Date 5
(ii) Determination of Payment Due Dates, After the Base Rent Commencement
Date, Generally 5
(iii) Special Adjustments to Base Rent Payment Dates and Periods 6
(iv) Base Rent Formula for Periods During Which The Collateral Percentage
is 100% 6
(v) Base Rent Formula for Periods During Which The Collateral Percentage
is Greater Than Zero and Less Than 100% 7
(vi) Base Rent Formula for Periods During Which The Collateral Percentage
is Zero 8
(d) Additional Rent 8
(e) Arrangement Fee 8
(f) Commitment Fees 8
(g) Administrative Agency Fees 9
(h) Issue 97-10 Prepayments 9
(i) No Demand or Setoff 9
(j) Default Interest and Order of Application 9


4. NATURE OF THIS AGREEMENT 9
(a) "Net" Lease Generally 9
(b) No Termination 10
(c) Tax Reporting 11
(d) Characterization of this Improvements Lease 11


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Page
---- 5. PAYMENT OF EXECUTORY COSTS AND LOSSES RELATED TO THE PROPERTY 12
(a) Impositions 12
(b) Increased Costs; Capital Adequacy Charges 12
(c) NAI's Payment of Other Losses; General Indemnification 13
(d) Exceptions and Qualifications to Indemnities 14


6. CONSTRUCTION 16
(a) Construction Advances; Outstanding Construction Allowance 16
(b) Calculation of Carrying Costs 16
(c) Limits on the Amount of Carrying Costs 17
(d) NAI's Right to Control the Construction Project 17
(e) Landlord's Election to Continue Construction 17
(i) Take Control of the Property 17
(ii) Continuation of Construction 18
(iii) Arrange for Turnkey Construction 18
(iv) Suspension or Termination of Construction 18
(f) Powers Coupled With an Interest 19
(g) Completion Notice 19


7. STATUS OF PROPERTY ACQUIRED WITH FUNDS PROVIDED BY BNPLC 19


8. ENVIRONMENTAL 20
(a) Environmental Covenants by NAI 20
(b) Right of BNPLC to do Remedial Work Not Performed by NAI 20
(c) Environmental Inspections and Reviews 21
(d) Communications Regarding Environmental Matters 21


9. INSURANCE REQUIRED AND CONDEMNATION 22
(a) Liability Insurance 22
(b) Property Insurance 22
(c) Failure to Obtain Insurance 22
(d) Condemnation 22
(e) Waiver of Subrogation 23


10. APPLICATION OF INSURANCE AND CONDEMNATION PROCEEDS 23
(a) Collection and Application of Insurance and Condemnation
Proceeds Generally 23
(b) Advances of Escrowed Proceeds to NAI 24
(c) Application of Escrowed Proceeds as a Qualified Prepayment 24
(d) Special Provisions Applicable After a CMA Termination Event or
Event of Default 24
(e) NAI's Obligation to Restore 24
(f) Takings of All or Substantially All of the Property on or after the
Base Rent Commencement Date 25


11. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF NAI CONCERNING
THE PROPERTY 25


(a) Compliance with Covenants and Laws 25
(b) Operation of the Property 25
(c) Debts for Construction, Maintenance, Operation or Development 26
(d) Repair, Maintenance, Alterations and Additions 27


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Page
----
(e) Permitted Encumbrances and Development Documents 27
(f) Books and Records Concerning the Property 27


12. FINANCIAL COVENANTS AND OTHER COVENANTS INCORPORATED BY REFERENCE TO SCHEDULE 1 28


13. FINANCIAL STATEMENTS AND OTHER REPORTS 28
(a) Financial Statements; Required Notices; Certificates 28


14. ASSIGNMENT AND SUBLETTING BY NAI 29
(a) BNPLC's Consent Required 29
(b) Standard for BNPLC's Consent to Assignments and Certain Other Matters 30
(c) Consent Not a Waiver 30


15. ASSIGNMENT BY BNPLC 30
(a) Restrictions on Transfers 30
(b) Effect of Permitted Transfer or other Assignment by BNPLC 30


16. BNPLC's RIGHT OF ACCESS 31


17. EVENTS OF DEFAULT 32


18. REMEDIES 33
(a) Basic Remedies 33
(b) Notice Required So Long As the Purchase Option and NAI's Initial
Remarketing Rights and Obligations Continue Under the Purchase
Agreement 35
(c) Enforceability 35
(d) Remedies Cumulative 35


19. DEFAULT BY BNPLC 35


20. QUIET ENJOYMENT 36


21. SURRENDER UPON TERMINATION 36


22. HOLDING OVER BY NAI 36


23. INDEPENDENT OBLIGATIONS EVIDENCED BY THE OTHER OPERATIVE DOCUMENTS 36


EXHIBITS AND SCHEDULES


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Exhibit A Legal Description


Exhibit B Insurance Requirements


Exhibit C Libor Period Election Form


Schedule 1 Financial Covenants and Other Requirements


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7


LEASE AGREEMENT


(PHASE II - IMPROVEMENTS)


This LEASE AGREEMENT (PHASE II- IMPROVEMENTS) (this "IMPROVEMENTS LEASE"), 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 Improvements Lease 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 Improvements Lease. By this reference, the Common Definitions and Provisions Agreement (Phase II - Improvements) is incorporated into and made a part of this Improvements Lease for all purposes.)


RECITALS


Pursuant to the Existing Contract, which covers the Land described in Exhibit A, BNPLC is acquiring the Land and any appurtenances thereto and all existing Improvements thereon from Seller contemporaneously with the execution of this Improvements Lease.


In anticipation of BNPLC's acquisition of the Land and the existing Improvements thereon under the Existing Contract, BNPLC and NAI have reached agreement as to the terms and conditions upon which BNPLC is willing to lease the existing Improvements and the Improvements to be constructed on the Land as hereinafter provided, and by this Improvements Lease BNPLC and NAI desire to evidence such agreement.


GRANTING CLAUSES


BNPLC does hereby LEASE, DEMISE and LET unto NAI for the term hereinafter set forth all right, title and interest of BNPLC, now owned or hereafter acquired, in and to:


(1) any and all Improvements; and


(2) all easements and other rights appurtenant to the Improvements, whether
now owned or hereafter acquired by BNPLC.


BNPLC's interest in all property described in clauses (1) and (2) above are hereinafter referred to collectively as the "REAL PROPERTY". The Real Property does not include the Land itself, it being understood that the Other Lease Agreement constitutes a separate lease of the Land and the appurtenances thereto, and only the Land and the appurtenances thereto, from BNPLC to NAI.


To the extent, but only to the extent, that assignable rights or interests in, to or under the following have been or will be acquired by BNPLC under the Existing Contract or acquired by BNPLC pursuant to Paragraph 7 below, BNPLC also hereby grants and assigns to NAI for the term of this Improvements Lease the right to use and enjoy (and, in the case of contract rights, to enforce) such rights or interests of BNPLC:


(a) any goods, equipment, furnishings, furniture and other tangible
personal property of whatever nature that are located on the Land and all
renewals or replacements of or substitutions for any of the foregoing;


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(b) the benefits, if any, conferred upon the owner of the Real Property
by the Permitted Encumbrances (including Existing Space Leases) and
Development Documents; and


(c) any permits, licenses, franchises, certificates, and other rights
and privileges against third parties (including the lessees under the
Existing Space Leases) related to the Real Property.


Such rights and interests of BNPLC, whether now existing or hereafter arising, are hereinafter collectively called the "PERSONAL PROPERTY". The Real Property and the Personal Property are hereinafter sometimes collectively called the "PROPERTY."


However, the leasehold estate conveyed hereby and NAI's rights hereunder are expressly made subject and subordinate to the terms and conditions of this Improvements Lease, to the Permitted Encumbrances (including the Existing Space Leases), and to any other claims or encumbrances not constituting Liens Removable by BNPLC.


GENERAL TERMS AND CONDITIONS


The Property is leased by BNPLC to NAI and is accepted and is to be used and possessed by NAI upon and subject to the following terms and conditions:


1. TERM.


(a) Scheduled Term. The term of this Improvements Lease (the "TERM") shall commence on and include the Effective Date, and end on the first Business Day of February, 2004, unless sooner terminated as expressly herein provided.


(b) Automatic Termination as of the Base Rent Commencement Date Resulting From an Election by NAI to Terminate the Purchase Option and NAI's Initial Remarketing Rights and Obligations. If NAI terminates the Purchase Option and NAI's Initial Remarketing Rights and Obligations prior to the Base Rent Commencement Date pursuant to subparagraph 4(B) of the Purchase Agreement, then this Improvements Lease shall terminate automatically on the Base Rent Commencement Date. Just as any such termination of the Purchase Option and NAI's Initial Remarketing Rights and Obligations shall be subject to the condition (set forth in subparagraph 4(B) of the Purchase Agreement) that NAI pay an Issue 97-10 Prepayment to BNPLC, so too will the termination of this Improvements Lease pursuant to this subparagraph be subject the condition that NAI make the Issue 97-10 Prepayment to BNPLC.


(c) Election by BNPLC to Terminate After an Issue 97-10 Election. By notice to NcI BNPLC shall be entitled to terminate this Improvements Lease, as BNPLC deems appropriate in its sole and absolute discretion, at any time after receiving a notice given by NAI to make any Issue 97-10 Election. Upon any termination of this Improvements Lease by BNPLC pursuant to this subparagraph, NAI shall become obligated to pay to BNPLC an Issue 97-10 Prepayment, which obligation will survive the termination of this Improvements Lease.


(d) Election by NAI to Terminate After Accelerating the Designated Sale Date. Provided NAI has not made any Issue 97-10 Election, NAI shall be entitled to accelerate the Designated Sale Date (and thus accelerate the purchase of BNPLC's interest in the Property by NAI or by an Applicable Purchaser pursuant to the Purchase Agreement) by sending a notice to BNPLC as provided in clause (2) of the definition of "Designated Sale Date" in the Common Definitions and Provisions Agreement (Phase II - Improvements). In the event, because of NAI's election to so accelerate the Designated Sale Date or for any other reason, the Designated Sale Date occurs before the end of the scheduled Term, NAI may terminate this Improvements Lease on or after the Designated Sale Date; provided, however, as a condition to any such termination by NAI, NAI must have done the following prior to the termination:


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(i) purchased or caused an Applicable Purchaser to purchase the Property
pursuant to the Purchase Agreement and satisfied all of NAI's other
obligations under the Purchase Agreement;


(ii) paid to BNPLC all Base Rent, all Commitment Fees and all other Rent due
on or before or accrued through the Designated Sale Date; and


(iii) paid any Breakage Costs caused by BNPLC's sale of the Property
pursuant to the Purchase Agreement.


(e) Extension of the Term. The Term may be extended at the option of NAI for two successive periods of five years each; provided, however, that prior to any such extension the following conditions must have been satisfied: (A) at least ninety days prior to the commencement of any such extension, BNPLC and NAI must have agreed in writing upon, and received the consent and approval of BNPLC's Parent and all other Participants to (1) a corresponding extension not only to the date for the expiration of the Term specified above in this Section, but also to the date specified in clause (1) of the definition of Designated Sale Date in the Common Definitions and Provisions Agreement (Phase II - Improvements), and (2) an adjustment to the Rent that NAI will be required to pay for the extension, it being expected that the Rent for the extension may be different than the Rent required for the original Term, and it being understood that the Rent for any extension must in all events be satisfactory to both BNPLC and NAI, each in its sole and absolute discretion; (B) no Event of Default shall have occurred and be continuing at the time of NAI's exercise of its option to extend; (C) prior to any such extension, NAI must have completed the Construction Project in accordance with the Construction Management Agreement and must not have made any Issue 97-10 Election; and (D) immediately prior to any such extension, this Improvements Lease must remain in effect. With respect to the condition that BNPLC and NAI must have agreed upon the Rent required for any extension of the Term, neither NAI nor BNPLC is willing to submit itself to a risk of liability or loss of rights hereunder for being judged unreasonable. Accordingly, both NAI and BNPLC hereby disclaim any obligation express or implied to be reasonable in negotiating the Rent for any such extension. Subject to the changes to the Rent payable during any extension of the Term as provided in this Paragraph, if NAI exercises its option to extend the Term as provided in this Paragraph, this Improvements Lease shall continue in full force and effect, and the leasehold estate hereby granted to NAI shall continue without interruption and without any loss of priority over other interests in or claims against the Property that may be created or arise after the date hereof and before the extension.


2. USE AND CONDITION OF THE PROPERTY.


(a) Use. Subject to the Permitted Encumbrances, the Development Documents and the terms hereof, NAI may use and occupy the Property during the Term, but only for the following purposes and other lawful purposes incidental thereto:


(i) construction and development of the Construction Project;


(ii) administrative and office space;


(iii) activities related to NAI's research and development or production of
products that are of substantially the same type and character as those
regularly sold by NAI in the ordinary course of its business as of the
Effective Date;


(iv) cafeteria, library and other support facilities that NAI may provide to
its employees; and


(v) other lawful purposes (including NAI's research and development or
production of products that are not of substantially the same type and
character as those regularly sold by NAI in the ordinary course of its
business as of the Effective Date) approved in advance and in writing by
BNPLC, which approval will not be unreasonably withheld after completion of
the Construction Project (but NAI acknowledges that BNPLC's withholding of
such approval shall be reasonable if BNPLC determines in good faith that (1)
giving the approval may materially increase BNPLC's risk of liability


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for any existing or future environmental problem, or (2) giving the approval
is likely to substantially increase BNPLC's administrative burden of
complying with or monitoring NAI's compliance with the requirements of this
Improvements Lease or other Operative Documents).


(b) Condition of the Property. NAI ACKNOWLEDGES THAT IT HAS CAREFULLY AND FULLY INSPECTED THE PROPERTY AND ACCEPTS THE PROPERTY IN ITS PRESENT STATE, AS IS, AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE CONDITION OF SUCH PROPERTY OR AS TO THE USE WHICH MAY BE MADE THEREOF. NAI ALSO ACCEPTS THE PROPERTY WITHOUT ANY COVENANT, REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, BY BNPLC OR ITS AFFILIATES REGARDING THE TITLE THERETO OR THE RIGHTS OF ANY PARTIES IN POSSESSION OF ANY PART THEREOF, EXCEPT AS EXPRESSLY SET FORTH IN PARAGRAPH 20. BNPLC SHALL NOT BE RESPONSIBLE FOR ANY LATENT OR OTHER DEFECT OR CHANGE OF CONDITION IN THE LAND OR IN IMPROVEMENTS, FIXTURES AND PERSONAL PROPERTY FORMING A PART OF THE PROPERTY OR FOR ANY VIOLATIONS WITH RESPECT THERETO OF APPLICABLE LAWS. FURTHER, THOUGH NAI MAY OBTAIN FROM THIRD PARTIES ANY FACILITIES OR SERVICES TO WHICH NAI IS ENTITLED BY REASON OF THE ASSIGNMENT AND LEASE OF PERSONAL PROPERTY SET FORTH ON PAGE 2 OF THIS IMPROVEMENTS LEASE, BNPLC SHALL NOT BE REQUIRED TO FURNISH TO NAI ANY FACILITIES OR SERVICES OF ANY KIND, INCLUDING WATER, STEAM, HEAT, GAS, AIR CONDITIONING, ELECTRICITY, LIGHT OR POWER.


(c) Consideration for and Scope of Waiver. The provisions of subparagraph 2.(b) above have been negotiated by BNPLC and NAI after due consideration for the Rent payable hereunder and are intended to be a complete exclusion and negation of any representations or warranties of BNPLC or its Affiliates, express or implied, with respect to the Property that may arise pursuant to any law now or hereafter in effect or otherwise, except as expressly set forth herein.


However, such exclusion of representations and warranties by BNPLC is not intended to impair any representations or warranties made by other parties, the benefit of which may pass to NAI during the Term because of the definition of Personal Property and Property above.


3. RENT.


(a) Base Rent Generally. On the Base Rent Commencement Date and on each Base Rent Date through the end of the Term, NAI shall pay BNPLC rent ("BASE RENT"). Each payment of Base Rent must be received by BNPLC no later than 10:00 a.m. (Pacific time) on the date it becomes due; if received after 10:00 a.m. (Pacific time) it will be considered for purposes of this Improvements Lease as received on the next following Business Day. At least five days prior to any Base Rent Commencement Date or Base Rent Date upon which an installment of Base Rent shall become due, BNPLC shall notify NAI in writing of the amount of each installment, calculated as provided below. Any failure by BNPLC to so notify NAI, however, shall not constitute a waiver of BNPLC's right to payment, but absent such notice NAI shall not be in default hereunder for any underpayment resulting therefrom if NAI, in good faith, reasonably estimates the payment required, makes a timely payment of the amount so estimated and corrects any underpayment within three Business Days after being notified by BNPLC of the underpayment.


(b) Impact of Collateral Upon Formulas. To ease the administrative burden of this Improvements Lease and the Pledge Agreement, the formulas for calculating Base Rent set out below in subparagraph 3.(c) reflect a reduction in the Base Rent equal to the interest that would accrue on any Collateral provided in accordance with the requirements of the Pledge Agreement from time to time if the Accounts (as defined in the Pledge Agreement) bore interest at the Effective Rate. BNPLC has agreed to such reduction to provide NAI with the economic equivalent of interest on such Collateral, and in return NAI has agreed to the provisions of the Pledge Agreement that excuse the actual payment of interest on the Accounts. By incorporating such reduction of Base Rent into the formulas below, and by providing for noninterest bearing Accounts in the Pledge Agreement, the parties will avoid an unnecessary and cumbersome periodic exchange of equal payments. It is not, however, the intent of BNPLC or NAI to understate Base Rent or interest for financial reporting purposes. Accordingly, for


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purposes of any financial reports that this Improvements Lease requires of NAI from time to time, NAI may report Base Rent as if there had been no such reduction and as if the Collateral from time to time provided in accordance with the requirements of the Pledge Agreement had been maintained in Accounts bearing interest at the Effective Rate.


(c) Calculation of and Due Dates for Base Rent. Payments of Base Rent shall be calculated and become due as follows:


(i) Amount Payable On the Base Rent Commencement Date. The Bas
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