10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 29, 2006

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number 0-14970

COST PLUS, INC.

(Exact name of registrant as specified in its charter)

California	94-1067973
(State or other jurisdiction of incorporation or Organization)	(I.R.S. Employer Identification No.)

200 4th Street, Oakland, California	94607
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (510) 893-7300

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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨                Accelerated filer  x                Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

The number of shares of Common Stock, $0.01 par value, outstanding on June 5, 2006 was 22,065,038.

COST PLUS, INC.

FORM 10-Q

For the Quarter Ended April 29, 2006

INDEX

		Page
PART I.	FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements (unaudited)
	Balance Sheets as of April 29, 2006, January 28, 2006 and April 30, 2005	3
	Statements of Operations for the three months ended April 29, 2006 and April 30, 2005	4
	Statements of Cash Flows for the three months ended April 29, 2006 and April 30, 2005	5
	Notes to Condensed Consolidated Financial Statements	6-11
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-15
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	15
ITEM 4.	Controls and Procedures	15
PART II.	OTHER INFORMATION
ITEM 1A.	Risk Factors	16-20
ITEM 6.	Exhibits	20
SIGNATURE PAGE		21

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

COST PLUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts, unaudited)

	April 29, 2006		January 28, 2006			April 30, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	15,330	$	40,382		$	3,759
Merchandise inventories, net		251,092		252,791			268,492
Other current assets		25,043		15,294			14,498
Total current assets		291,465		308,467			286,749
Property and equipment, net		199,629		203,873			188,134
Goodwill, net		4,178		4,178			4,178
Other assets, net		16,233		15,433			12,937
Total assets	$	511,505	$	531,951		$	491,998
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	45,474	$	57,351		$	50,377
Income taxes payable		—		10,618			—
Accrued compensation		10,152		13,084			9,700
Revolving line of credit		—		—			6,500
Current portion of long-term debt		3,575		5,267			4,330
Other current liabilities		25,875		27,998			23,738
Total current liabilities		85,076		114,318			94,645
Capital lease obligations		11,841		12,268			13,471
Long-term debt		62,144		50,051			54,121
Other long-term obligations		40,315		39,233			35,328
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $.01 par value: 5,000,000 shares authorized; none issued and outstanding		—		—			—
Common stock, $.01 par value: 67,500,000 shares authorized; issued and outstanding 22,065,038; 22,060,788 and 22,015,149 shares		221		220			220
Additional paid-in capital		164,206		163,571			163,128
Retained earnings		147,650		152,442			132,071
Accumulated other comprehensive income (loss)		52		(152	)		(986	)
Total shareholders’ equity		312,129		316,081			294,433
Total liabilities and shareholders’ equity	$	511,505	$	531,951		$	491,998

See notes to condensed consolidated financial statements.

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COST PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)

	Three Months Ended
	April 29, 2006			April 30, 2005
Net sales	$	212,964		$	200,023
Cost of sales and occupancy		149,657			133,304
Gross profit		63,307			66,719
Selling, general and administrative expenses		68,707			65,157
Store preopening expenses		1,525			1,061
Income (loss) from operations		(6,925	)		501
Net interest expense		1,062			726
Loss before income taxes		(7,987	)		(225	)
Income tax benefit		(3,195	)		(87	)
Net loss	$	(4,792	)	$	(138	)
Net loss per weighted average share
Basic	$	(0.22	)	$	(0.01	)
Diluted	$	(0.22	)	$	(0.01	)
Weighted average shares outstanding
Basic		22,062			21,914
Diluted		22,062			21,914

See notes to condensed consolidated financial statements.

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COST PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Three Months Ended
	April 29, 2006			April 30, 2005
Cash Flows From Operating Activities:
Net loss	$	(4,792	)	$	(138	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		7,865			6,821
Share-based compensation expense		571			630
Tax effect of disqualifying common stock dispositions		6			238
Deferred income taxes		—			(1,243	)
Changes in assets and liabilities:
Merchandise inventories		1,699			(15,373	)
Other assets		(10,638	)		5,121
Accounts payable		(4,425	)		(22,073	)
Income taxes payable		(10,618	)		(9,692	)
Other liabilities		(3,815	)		(1,883	)
Net cash used in operating activities		(24,147	)		(37,592	)
Cash Flows From Investing Activities:
Purchases of property and equipment		(10,987	)		(31,057	)
Proceeds from sale of property and equipment		3			7
Net cash used in investing activities		(10,984	)		(31,050	)
Cash Flows From Financing Activities:
Net borrowings under revolving line of credit		—			6,500
Proceeds from long-term debt		29,779			20,000
Prepayment of long-term debt		(18,208	)		—
Principal payments on long-term debt		(1,170	)		(680	)
Principal payments on capital lease obligations		(381	)		(366	)
Proceeds from the issuance of common stock		59			4,029
Net cash provided by financing activities		10,079			29,483
Net decrease in cash and cash equivalents		(25,052	)		(39,159	)
Cash and Cash Equivalents:
Beginning of period		40,382			42,918
End of period	$	15,330		$	3,759
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	1,188		$	655
Cash paid for taxes	$	12,421		$	10,532

See notes to condensed consolidated financial statements.

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COST PLUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended April 29, 2006 and April 30, 2005

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared from the records of Cost Plus, Inc. (the “Company”) without audit and, in the opinion of management, include all adjustments that are normal and recurring in nature necessary to present fairly the Company’s financial position at April 29, 2006 and April 30, 2005, the interim results of operations for the three months ended April 29, 2006 and April 30, 2005, and changes in cash flows for the three months ended April 29, 2006 and April 30, 2005. The balance sheet at January 28, 2006, presented herein, has been derived from the audited financial statements of the Company for the fiscal year then ended.

Accounting policies followed by the Company are described in Note 1 to the audited consolidated financial statements for the fiscal year ended January 28, 2006. Certain information and disclosures normally included in the notes to the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted for purposes of presenting the interim condensed consolidated financial statements. Such statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, for the fiscal year ended January 28, 2006.

The results of operations for the three month period ended April 29, 2006, presented herein, are not indicative of the results to be expected for the full year.

2. SHARE-BASED COMPENSATION

The Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”) at the beginning of fiscal 2006. SFAS 123(R) requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and non-employee directors including stock options and performance share awards based on estimated fair values.

Prior to fiscal 2006, the Company accounted for share-based awards granted to employees and non-employee directors in accordance with the measurement and recognition provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and complied with the disclosure provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123 “Accounting for Stock-Based Compensation,” (“SFAS 123”) and FASB Statement No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure, an Amendment of FASB Statement No. 123.”

The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of the first day of the Company’s 2006 fiscal year. The Company’s consolidated financial statements as of and for the three months ended April 29, 2006 include the impact of share-based payment expense in accordance with SFAS 123(R). Also, in accordance with the modified prospective transition method, the Company’s consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R).

The Company recognized share-based compensation expense of $571,000 (before any related tax benefit) in the three months ended April 29, 2006 as a component of selling, general and administrative expenses. As of April 29, 2006, there was $7.6 million (before any related tax benefit) of total unrecognized compensation cost related to nonvested share-based payments that is expected to be recognized over a weighted-average period of approximately 1.5 years.

Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest. Share-based compensation expense recognized in the Company’s consolidated statement of operations for the three months ended April 29, 2006 includes compensation expense for share-based payment

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awards granted prior to but not yet vested as of January 29, 2006 based on the fair value estimate at the grant date in accordance with the provisions of SFAS 123 and compensation expense for the share-based payment awards granted subsequent to January 28, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). In conjunction with the adoption of SFAS 123(R), compensation expense for all share-based payment awards granted prior to January 29, 2006 will continue to be recognized based on the multiple option approach (accelerated method) and compensation expense for all share-based payment awards granted subsequent to January 28, 2006 will be recognized using the straight-line method. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Share-based compensation expense recognized in the consolidated statement of operations for the first quarter of fiscal 2006 has been reduced for estimated forfeitures.

Prior to the adoption of SFAS 123(R), the Company presented all benefits of tax deductions resulting from the exercise of share-based payment awards as operating cash flows in its statements of cash flows. SFAS 123(R) requires the benefits of tax deductions in excess of the compensation cost recognized for those stock awards (excess tax benefits) to be classified as financing cash flows. For the three months ended April 29, 2006, the Company had no excess tax benefits required to be reported as a financing cash flow.

The following table presents the weighted average assumptions used in the option pricing model for the stock options granted during the three months ended April 29, 2006 and April 30, 2005:

	Three Months Ended
	April 29, 2006			April 30, 2005
				(Pro forma)
Expected dividend rate		—	%		—	%
Volatility		46.8	%		50.0	%
Risk-free interest rate		4.5	%		4.0	%
Expected lives (years)		4.75			4.2
Fair value per option granted	$	8.64		$	11.47

The fair value of each option grant was estimated using the Black-Scholes option-pricing model, which was also used for the Company’s pro forma disclosure required under SFAS 123. The Company used its historical stock price volatility for a period approximating the expected life as the basis for its expected volatility assumption consistent with SFAS 123(R) and SEC Staff Accounting Bulletin No. 107, (“SAB 107”). The expected life of stock options represents the weighted-average period the stock options are expected to remain outstanding. The Company has elected to follow the guidance of SAB 107 and adopt the simplified method in determining expected life for its stock option awards. SAB 107 provides for a simplified method for estimating expected life for “plain-vanilla” options that is based on the vesting period and the contractual term for each grant or for each vesting tranche for awards with graded vesting. The mid-point between the vesting date and the expiration date is used as the expected term under this method. The expected dividend yield assumption is based on the Company’s history of zero dividend payouts and the expectation that no dividends will be paid in the foreseeable future. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with a term equivalent to the expected life of the stock option.

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Had share-based employee compensation expense been determined based upon the fair values at the grant dates for awards under the Company’s stock plan in accordance with SFAS 123 for the three months ended April 30, 2005, the Company’s pro forma net earnings, basic and diluted earnings per common share would have been as follows:

(In thousands, except per share data)	Three Months Ended April 30, 2005
Net loss, as reported	$	(138	)
Add: Stock-based compensation expense included in reported net loss, net of related tax effect		381
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect		(1,446	)
Pro forma net loss	$	(1,203	)
Basic net loss per weighted average share:
As reported	$	(0.01	)
Pro forma	$	(0.05	)
Diluted net loss per weighted average share:
As reported	$	(0.01	)
Pro forma	$	(0.05	)

The following table summarizes stock option activity during the three months ended April 29, 2006:

	Options		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (In thousands)
Outstanding, January 28, 2006	1,912,904		$	25.24
Granted	527,000			18.94
Exercised	(4,250	)		13.76
Cancelled	(100,834	)		29.12
Outstanding, April 29, 2006	2,334,820		$	23.67	6.4	$	—
Exercisable, April 29, 2006	1,000,195		$	24.74	5.4	$	—

Intrinsic value for stock options is defined as the difference between the market value and the grant price. The total intrinsic value of stock options exercised during the three months ended April 29, 2006 was $14,500. Cash received as a result of stock options exercised during the three months ended April 29, 2006 was $58,500, and the actual tax benefit realized for tax deductions from stock options exercised totaled $6,000.

During the first quarter of fiscal 2006, the Company granted performance share awards (“Performance Shares”) to certain key employees pursuant to the 2004 Stock Plan. Performance Shares entitle the holder to receive a number of shares of Cost Plus, Inc. common stock within a specified range of shares at the end of the vesting period. Performance shares are earned using a non-discretionary formula that is based on the Company achieving certain thresholds of comparable store sales growth and income from operations during the performance period. The fair value of performance shares are measured on the grant date and recognized in earnings over the requisite service period in accordance with SFAS 123(R).

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The following table summarizes Performance Share activity during the three months ended April 29, 2006, with the shares granted representing the maximum number of share shares that could be achieved:

	Shares	Weighted Average Grant Date Fair Value Per Share
Nonvested at January 28, 2006	—	$	—
Granted	89,250		17.00
Vested	—		—
Forfeited	—		—
Nonvested at April 29, 2006	89,250	$	17.00

The 2004 Stock Plan permits the granting of up to 1,800,000 shares, which includes 900,000 new shares, 100,000 shares transferred from the 1995 plan, and 800,000 shares subject to outstanding options under the 1995 Plan if they expire without being exercised. Under the 2004 Plan, incentive stock options must be granted at fair market value as of the grant date and non-statutory options may be granted at 25% to 100% of the fair market value on the grant date. The term of the options granted under the 2004 Plan and the date when the options become exercisable is determined by the Board of Directors. However, in no event will a stock option granted under the 2004 Plan be exercised more than ten years after the date of grant. The 2004 Plan also includes the ability to grant restricted stock, stock appreciation rights, performance shares, and deferred stock units.

The 1996 Director Option Plan permits the granting of options to non-employee directors to purchase up to 503,675 shares of common stock at fair market value as of the date of grant. Options are exercisable over ten years and vest as determined by the Board of Directors, generally over four years. The number of shares of common stock reserved for issuance under the Director Option Plan increased by 150,000 in 2002 and 100,000 in 2004, both increases were approved by the Board of Directors and shareholders and are included in the share count above.

3. RECONCILIATION OF BASIC SHARES TO DILUTED SHARES

The following is a reconciliation of the weighted average number of shares (in thousands) used in the Company’s basic and diluted earnings per share computations:

	Three Months Ended
	Basic EPS			Effect of Dilutive Stock Options (treasury stock method)		Diluted EPS
April 29, 2006
Shares		22,062			—		22,062
Amount	$	(0.22	)	$	0.00	$	(0.22	)
April 30, 2005
Shares		21,914			—		21,914
Amount	$	(0.01	)	$	0.00	$	(0.01	)

For the three months ended April 29, 2006 and April 30, 2005, options to purchase 2,334,820 and 2,052,971 shares of common stock, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive.

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4. COMPREHENSIVE INCOME

Comprehensive loss for the three months ended April 29, 2006 and April 30, 2005 was as follows:

	Three Months Ended
(In thousands)	April 29, 2006			April 30, 2005
Net loss, as reported	$	(4,792	)	$	(138	)
Other comprehensive income net of taxes - cash flow hedge		204			101
Comprehensive loss	$	(4,588	)	$	(37	)

5. LONG-TERM DEBT AND REVOLVING LINE OF CREDIT

In May 2004, the Company completed the $26.5 million purchase of its existing 500,000 square foot Virginia distribution center, which it had previously held under a capital lease. The Company financed $20 million of the purchase through a new 10 year fully amortizing commercial real estate loan, which bears interest at LIBOR plus 0.9% and matures in June 2014. The Company entered into an interest rate swap agreement to effectively fix the interest rate on this loan at 4.82%. The swap is accounted for as a cash flow hedge in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activity.”

In 2004, the Company also began construction on a 500,000 square foot expansion to the existing Virginia distribution center to help meet its future growth requirements. The expansion project was completed and placed in service in the first quarter of fiscal 2005. The Company funded the majority of the expansion project through a $20 million interest only revolving line of credit and the remaining amount was financed through internally generated funds. The Company retired the line of credit in May 2005 with a new $20 million 10 year fully amortizing commercial real estate loan. This loan bears interest at LIBOR plus 0.9%. The Company entered into interest rate swap agreements to effectively fix interest on this loan at a weighted average rate of 6.58%. The swaps are accounted for as a cash flow hedge in accordance with SFAS No. 133.

On April 7, 2006, the Company prepaid a fully amortizing commercial real estate loan in the amount of $18.2 million and terminated a related swap commitment. The loan agreement had been entered into to finance a portion of the acquisition costs of the building and land in Stockton, CA. See Note 6 for a more detailed discussion.

In November 2004, the Company entered into an unsecured five year revolving line of credit agreement (the “Agreement”) with a group of banks that terminated and replaced an existing revolving credit facility. The Agreement allows for cash borrowings and letters of credit under an unsecured revolving credit facility of up to $50.0 million from January through June of each year, increasing to $125.0 million from July through December of each year to coincide with the Company’s Holiday borrowing needs. The Agreement includes a one-time option to increase the size of the revolving credit facility to $150.0 million. Interest is paid quarterly in arrears and bears interest, at the Company’s election, based on a rate equal to Bank of America’s prime rate or LIBOR plus an applicable margin that is based on the Company’s Consolidated Adjusted Leverage Ratio, as defined in the Agreement. The Agreement requires a 30-day “clean-up period” in which Adjusted Total Outstandings, as defined in the Agreement, do not exceed $30.0 million for not less than 30 consecutive days during the period from January 1 through March 31 of each year. The Company is subject to a minimum consolidated tangible net worth requirement, and annual capital expenditures are limited under the Agreement. The Agreement includes limitations on the ability of the Company to incur debt, grant liens, make acquisitions, make certain restricted payments such as dividend payments, and dispose of assets. The events of default under the Agreement include payment defaults, cross defaults with certain other indebtedness, breaches of covenants and bankruptcy events. In the case of a continuing event of default, the lenders under the Agreement may, among other remedies, eliminate their commitments to make credit available, declare due all unpaid principal amounts outstanding, and require cash collateral for any letter of credit obligations. As of April 29, 2006, the Company was in compliance with its loan covenant requirements, had no outstanding borrowings under its line of credit and had $18.2 million outstanding in letters of credit.

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In April 2006, the Company entered into an unsecured 18 month revolving credit facility agreement with Bank of America, N.A. as the lender (the “Credit Facility”). The Credit Facility allows for borrowings of up to $40.0 million to be used for costs and expenses related to the construction of an additional distribution facility adjacent to the Company’s existing facility in Stockton, CA. The Credit Facility will be repaid in monthly payments of accrued interest, with the entire outstanding balance payable on October 27, 2007. The Credit Facility will bear interest, at the Company’s election, at a rate based on LIBOR plus a margin or Bank of America’s prime rate (or the Federal Funds Rate plus 0.5%, if greater). In addition the Company will pay a fee on the unused portion of the Credit Facility (the “Unused Fee”). The Unused Fee will be payable quarterly in arrears. The applicable margin and the Unused Fee will be based upon the Company’s consolidated adjusted leverage ratio, as defined in the agreement. The Credit Facility’s financial covenants are the same as those in the Agreement entered into in November 2004, as discussed above. As of April 29, 2006, the Company was in compliance with its loan covenant requirements and had no outstanding borrowings under the Credit Facility.

6. SIGNIFICANT EVENT

On April 7, 2006, Cost Plus, Inc. entered into a sale-leaseback transaction with Inland Real Estate Acquisitions, Inc. a third party real estate investment trust (“Inland”). In connection with the transaction, the Company sold its Stockton, CA distribution center property to Inland for net proceeds of $29.8 million. The property sold consists of a 500,000 square foot building located on approximately 55 acres. The Company simultaneously entered into a lease agreement with Inland to lease the property back.

The Company is accounting for the transaction as a financing whereby the net book value of the asset will remain on the Company’s consolidated balance sheet. The Company will also record a financing obligation in the amount of approximately $29.8 million, which will be amortized over the 34 year period of the leases (including option periods) and approximates the discounted value of total maximum lease payments under the leases. Monthly lease payments will be accounted for as principal and interest payments (at an approximate annual rate of 7.2%) on the recorded obligation. As of April 29, 2006, the balance of the financing obligation was $ 29.8 million and was included in the Company’s consolidated balance sheet as long-term debt.

The Company used a portion of the net proceeds from the sale of the property of approximately $29.8 million to retire $18.2 million of long-term debt related to the Company’s purchase of the property, and the remaining proceeds will be used for other business purposes. The Company also terminated the interest rate swap agreement related to the aforementioned long-term debt.

7. SHAREHOLDERS’ EQUITY

Stock Repurchase Program

In March 2003, the Company announced a stock repurchase program that was approved by its Board of Directors to repurchase up to 500,000 shares of its common stock. In November 2004, the Company’s Board of Directors authorized the repurchase of an additional 1,000,000 shares. The Company repurchased 425,500 shares under the program in fiscal 2004 and repurchased no shares in fiscal 2005. There were no shares repurchased under the program in the first quarter of fiscal 2006. As of April 29, 2006, there were 1,074,500 shares available for repurchase under the program. The program does not require the Company to repurchase any common stock and may be discontinued at any time.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto for the three months ended April 29, 2006.

This document contains forward-looking statements, which reflect the Company’s current beliefs and estimates with respect to future events and the Company’s future financial performance, operations and competitive position. Forward looking statements may be identified, without limitation, by use of the words “may,” “should,” “expects,” “anticipates,” “estimates,”

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“believes,” “looking ahead,” “forecast,” “projects,” “continues,” “intends,” “likely,” “plans” and similar expressions. Actual results may differ materially from those discussed in such forward-looking statements, and shareholders of Cost Plus, Inc. should carefully review the cautionary statements set forth in this form 10-Q. The Company may from time to time make additional written and oral forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company.

Overview

Cost Plus, Inc. is a leading specialty retailer of casual home furnishings and entertaining products. The stores feature an ever-changing selection of casual home furnishings, housewares, gifts, decorative accessories, gourmet foods and beverages offered at competitive prices and imported from more than 50 countries. Many items are unique and exclusive to the Company. The value, breadth and continual refreshment of products invites customers to come back throughout a lifetime of changing home furnishings and entertaining needs.

Net revenue for the first quarter of fiscal 2006 was $213.0 million, a 6.5% increase over the first quarter of fiscal 2005 net revenue of $200.0 million. Same store sales for the quarter decreased 4.3%, compared to a 1.9% decrease for the first quarter of 2005. The Company believes that weaker than expected customer traffic and lower sales of upholstered and outdoor furniture and certain other home furnishings categories were the primary reasons for the comparable store sales decrease.

The Company reported a net loss of $4.8 million, or $0.22 per diluted share, for the first quarter of fiscal 2006. The net loss includes a charge of approximately $0.03 per diluted share related to the closing of two stores and the departure of the Company’s EVP of Merchandising. The net loss also includes a non-cash charge of approximately $0.02 per diluted share associated with the expensing of stock options required under Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”). The Company reported a net loss of $138,000, or $0.01 per diluted share, in the first quarter of fiscal 2005. Those results include a charge of approximately $0.09 per diluted share related to the closure of four stores and the departure of the Company’s former CEO. The Company did not expense stock options in 2005.

In the first quarter of fiscal 2006, the Company opened seven new stores and closed two existing stores to end the quarter with 272 stores in 34 states. Although the Company believes there is still ample room for more than 600 stores in the United States it has decided to slow down new store growth to 24 stores in fiscal 2006. The new store openings, when combined with the closing of four stores, are expected to result in 287 locations by the end of the year.

Results of Operations

The three months ended April 29, 2006 as compared to the three months ended April 30, 2005.

Net Sales Net sales consist of sales from comparable stores and non-comparable stores. Net sales increased $12.9 million, or 6.5%, to $213.0 million in the first quarter of fiscal 2006 from $200.0 million in the first quarter of fiscal 2005. The increase in net sales was attributable to an increase in non-comparable store sales partially offset by a decrease in comparable store sales. Comparable store sales decreased 4.3%, or $8.5 million, in the first quarter of fiscal 2006 compared to a decrease of 1.9%, or $3.4 million, in the first quarter of fiscal 2005. Comparable store sales decreased primarily as a result of decreased customer traffic partially offset by an increase in average transaction size. As of April 29, 2006, the calculation of comparable store sales included a base of 233 stores. A store is generally included as comparable at the beginning of the fourteenth month after its grand opening. Non-comparable store sales increased $21.3 million for the quarter. As of April 29, 2006, the Company operated 272 stores compared to 238 stores as of April 30, 2005.

The Company classifies its sales into the home furnishings and consumables product lines. Home furnishings were 61.8% of sales in the first quarter of fiscal 2006 compared to 63.5% in the first quarter of fiscal 2005 and consumables were 38.2% in the first quarter of fiscal 2006 compared to 36.5% in the first quarter of fiscal 2005.

Cost of Sales and Occupancy Cost of sales and occupancy, which consists of costs to acquire merchandise inventory, costs of freight and distribution, as well as certain facilities costs, increased $16.4 million, or 12.3%, to $149.7 million, in the first quarter of fiscal 2006 compared to the first quarter of fiscal 2005. As a percentage of net sales, total cost of sales and occupancy increased 370 basis points to 70.3% in the first quarter of fiscal 2006 from 66.6% in first quarter of fiscal 2005. Cost of sales for the quarter

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increased by 270 basis points compared to the first quarter of fiscal 2005 primarily due to a significantly higher mix of consumables to total net sales resulting from a longer Easter selling season, lower initial markup, and higher markdowns primarily in furniture and textiles. Occupancy costs increased as a percentage of net sales by 100 basis points compared to the first quarter of fiscal 2005 primarily as a result of higher real estate tax assessments, and the de-leveraging of occupancy costs due to the decrease in comparable store sales.

Selling, General and Administrative (“SG&A”) Expenses SG&A expenses increased $3.6 million, or 5.4%, to $68.7 million, in the first quarter of fiscal 2006 compared to the first quarter of fiscal 2005. As a percentage of net sales, SG&A expenses decreased to 32.3% in the first quarter of fiscal 2006 from 32.6% in the first quarter of fiscal 2005. The decrease was primarily due to lower spending on advertising related to cuts in weekly newspaper print ads partially offset by de-leveraging from lower comparable store sales. SG&A expenses for the first quarter of fiscal 2006 included charges totaling approximately $700,000 related to the closure of two stores and severance costs from the departure of the former Executive Vice President of Merchandising. The first quarter of fiscal 2006 also included a charge of $571,000 related to the expensing of share-based compensation due to the adoption of SFAS 123(R) at the beginning of fiscal 2006. SG&A expenses for the first quarter of fiscal 2005 included charges totaling $3.1 million related to the departure of the former Chief Executive Officer and the closure of four stores.

Store Preopening Expenses Store preopening expenses, which include rent expense incurred prior to opening as well as grand opening advertising and preopening merchandise setup expenses, were $1.5 million in the first quarter of fiscal 2006 compared to $1.1 million in the first quarter of fiscal 2005. The Company opened seven stores in the first quarter of fiscal 2006 compared to five in the first quarter of fiscal 2005. Store preopening expenses vary depending on the amount of time between the possession date and the store opening, the particular store site and whether it is located in a new or existing market.

Net interest expense Net interest expense, which includes interest on capital leases and debt, net of interest earned on investments, was $1.1 million in the first quarter of fiscal 2006 compared to $726,000 in the first quarter of fiscal 2005. The increase in net interest expense was primarily due to the debt associated with the purchase of the Stockton, CA distribution facility in fiscal 2005 and the new debt related to its subsequent sale-leaseback in first quarter of fiscal 2006, partially offset by lower seasonal borrowings on the Company’s revolving line of credit and higher investment income.

Income Taxes The Company’s effective tax rate was 40.0% in the first quarter of fiscal 2006 compared to 38.5% in the first quarter of fiscal 2005. The increase in the effective tax rate was primarily due to the impact of adopting SFAS 123(R). As a result of adopting SFAS 123 (R), the compensation expense associated with incentive stock options increased the Company’s effective tax rate. Additionally, the effective tax rate is expected to fluctuate from quarter to quarter, due to the timing of incentive stock option exercises and sales in relation to the level of earnings. The Company expects its effective tax rate to be approximately 40.0% for the remainder of the year.

Liquidity and Capital Resources

The Company’s cash and cash equivalents balance at April 29, 2006 was $15.3 million compared to $3.8 million at April 30, 2005. The Company’s primary uses for cash are to fund operating expenses, inventory requirements and new store expansion. Historically, the Company has financed its operations primarily from internally generated funds and seasonal borrowings under a revolving credit facility. The Company believes that the combination of its cash and cash equivalents, internally generated funds and available borrowings will be sufficient to finance its working capital, new store expansion and distribution center project requirements for at least the next twelve months.

Distribution Center Activities On April 7, 2006, Cost Plus, Inc. entered into a sale-leaseback transaction with Inland Real Estate Acquisitions, Inc. a third party real estate investment trust (“Inland”). In connection with the transaction, the Company sold its Stockton, CA distribution center property to Inland for net proceeds of $29.8 million. The property sold consists of a 500,000 square foot building located on approximately 55 acres. The Company simultaneously entered into a lease agreement with Inland to lease the property back.

The Company is accounting for the transaction as a financing whereby the net book value of the asset will remain on the Company’s consolidated balance sheet. The Company will also record a financing obligation in the amount of approximately $29.8 million, which will be amortized over the 34-year period of the leases (including option periods) and approximates the discounted value of total maximum lease payments under the leases. Monthly lease payments will be accounted for as principal

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and interest payments (at an approximate annual rate of 7.2%) on the recorded obligation. As of April 29, 2006, the balance of the financing obligation was $29.8 million and was included in the Company’s consolidated balance sheet as long-term debt.

The Company used a portion of the net proceeds from the sale of the property of approximately $29.8 million to retire $18.2 million of long-term debt related to the Company’s purchase of the property, and the remaining proceeds will be used for other business purposes. The Company also terminated the interest rate swap agreement related to the aforementioned long-term debt.

Cash Flows From Operating Activities Net cash used in operating activities totaled $24.1 million for the first quarter of fiscal 2006 compared to $37.6 million in the first quarter of fiscal 2005, a decrease of $13.4 million. The decrease in net cash used in operations was primarily due to decreased inventory levels compared the first quarter last year and the related decrease in accounts payable partially offset by a higher net loss and an increase in other assets due the timing of rent payments.

Cash Flows From Investing Activities Net cash used in investing activities totaled $11.0 million in the first quarter of fiscal 2006 compared to net cash used of $31.1 million in the first quarter of fiscal 2005. The decrease is primarily due to the fiscal 2005 purchase of a Stockton, CA distribution facility for $25.1 million that is included in net cash used in investing activities for the first quarter of fiscal 2005.

The Company estimates that fiscal 2006 capital expenditures will approximate $73.9 million; including approximately $13.1 million for new stores, $40.6 million to expand the distribution center in Stockton, CA, $8.1 million for management information systems and distribution center projects, and $12.1 million allocated to investments in existing stores and various other corporate projects.

Cash Flows From Financing Activities Net cash provided by financing activities was $10.1 million in the first quarter of fiscal 2006 compared to $29.5 million in the first quarter of fiscal 2005. For the first quarter of fiscal 2006, the Company had proceeds from long-term debt of $29.8 million and a prepayment of long-term debt of $18.2 million related to the sale-leaseback of the Stockton, CA distribution facility compared to proceeds from long-term debt of $20.0 million in the first quarter of fiscal 2005 for the purchase of the Stockton, CA distribution facility. The Company had no net borrowings under its revolving line of credit for the first quarter of fiscal 2006 compared to $6.5 million for the first quarter of fiscal 2005. The Company received $59,000 in the first quarter of fiscal 2006 from the issuance of common stock in connection with the exercise of employee stock options versus $4.0 million received in the first quarter of fiscal 2005.

Revolving Line of Credit In November 2004, the Company entered into an unsecured five year revolving line of credit agreement (the “Agreement”) with a group of banks that terminated and replaced an existing revolving credit facility. The Agreement allows for cash borrowings and letters of credit under an unsecured revolving credit facility of up to $50.0 million from January through June of each year, increasing to $125.0 million from July through December of each year to coincide with the Company’s Holiday borrowing needs. The Agreement includes a one-time option to increase the size of the revolving credit facility to $150.0 million. Interest is paid quarterly in arrears and bears interest, at the Company’s election, based on a rate equal to Bank of America’s prime rate or LIBOR plus an applicable margin that is based on the Company’s Consolidated Adjusted Leverage Ratio, as defined in the Agreement. The Agreement requires a 30-day “clean-up period” in which Adjusted Total Outstandings, as defined in the Agreement, do not exceed $30.0 million for not less than 30 consecutive days during the period from January 1 through March 31 of each year. The Company is subject to a minimum consolidated tangible net worth requirement, and annual capital expenditures are limited under the Agreement. The Agreement includes limitations on the ability of the Company to incur debt, grant liens, make acquisitions, make certain restricted payments such as dividend payments, and dispose of assets. The events of default under the Agreement include payment defaults, cross defaults with certain other indebtedness, breaches of covenants and bankruptcy events. In the case of a continuing event of default, the lenders under the Agreement may, among other remedies, eliminate their commitments to make credit available, declare due all unpaid principal amounts outstanding, and require cash collateral for any letter of credit obligations. As of April 29, 2006, the Company was in compliance with its loan covenant requirements, had no outstanding borrowings under its line of credit and had $18.2 million outstanding in letters of credit.

In April 2006, the Company entered into an unsecured 18 month revolving credit facility agreement with Bank of America, N.A. as the lender (the “Credit Facility”). The Credit Facility allows for borrowings of up to $40.0 million to be used for costs and expenses related to the construction of an additional distribution facility adjacent to the Company’s existing facility in Stockton, California. The Credit Facility will be repaid in monthly payments of accrued interest, with the entire outstanding balance payable on October 27, 2007. The Credit Facility will bear interest, at the Company’s election, at a rate based on

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LIBOR plus a margin or Bank of America’s prime rate (or the Federal Funds Rate plus 0.5%, if greater). In addition the Company will pay a fee on the unused portion of the Credit Facility (the “Unused Fee”). The Unused Fee will be payable quarterly in arrears. The applicable margin and the Unused Fee will be based upon the Company’s consolidated adjusted leverage ratio, as defined in the agreement. The Credit Facility’s financial covenants are the same as those in the Agreement entered into in November 2004, as discussed above. As of April 29, 2006, the Company was in compliance with its loan covenant requirements and had no outstanding borrowings under the Credit Facility.

Seasonality

The Company’s business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the fourth quarter (Holiday) selling season. Due to the importance of the Holiday selling season, the fourth quarter of each fiscal year has historically contributed, and the Company expects it will continue to contribute, a disproportionate percentage of the Company’s net sales and most of its net income for the entire fiscal year.

Available Information

The Company’s Internet web-site address is http://www.worldmarket.com. The Company makes available through its Internet web-site, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Definitive Proxy Statement and Section 16 filings and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There are no material changes to the Company’s market risk as disclosed in its Form 10-K filed for the fiscal year ended January 28, 2006.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management evaluated, with the participation of its principal executive officer and its principal financial officer, the effectiveness of its disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Company’s principal executive officer and its principal financial officer have concluded that its disclosure controls and procedures are effective to ensure that information it is required to disclose in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to its management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended April 29, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

The following information describes certain significant risks and uncertainties inherent in our business. You should carefully consider these risks and uncertainties, together with the other information contained in this Quarterly Report on Form 10-Q and in the Company’s other public filings. If any of such risks and uncertainties actually occurs, the Company’s business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in the Company’s other public filings. In addition, if any of the following risks and uncertainties, or if any other disclosed risks and uncertainties, actually occurs, the Company’s business, financial condition or operating results could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly.

Our business is highly seasonal and our operating results fluctuate significantly from quarter to quarter.

Our business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the Holiday season. Due to the importance of the Holiday selling season, the fourth quarter of each fiscal year has historically contributed, and we expect will continue to contribute, a large percentage of our net sales and much of our net income for the entire fiscal year. Any factors that have a negative effect on our business during the Holiday selling season in any year, including unfavorable economic conditions, would materially and adversely affect our financial condition and results of operations. We generally experience lower sales and earnings during the first three quarters and, as is typical in the retail industry, may incur losses in these quarters. The results of our operations for these interim periods are not necessarily indicative of the results for our full fiscal year.

We also must make decisions regarding merchandise well in advance of the season in which it will be sold. If the demand for our merchandise is significantly different than we have projected, it would harm our business and operating results, either as a result of lost sales due to insufficient inventory or lower gross margin due to the need to mark down excess inventory.

Our quarterly operating results may also fluctuate based on such factors as:

• delays in the flow of merchandise to our stores,

• the number and timing of new store openings and related store pre-opening expenses,

• the amount of sales contributed by new and existing stores,

• the mix of products sold,

• the timing and level of markdowns,

• store closings or relocations,

• competitive factors,

• changes in fuel and other shipping costs,

• general economic conditions,

• labor market fluctuations,

• the impact of terrorist activities,

• changes in accounting rules and regulations, and

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• unseasonable weather conditions.

These fluctuations may also cause a decline in the market price of our common stock.

Our success depends to a significant extent upon the overall level of consumer spending.

As a retail business our success depends to a significant extent upon the overall level of consumer spending. Among the factors that affect consumer spending are the general state of the economy, the level of consumer debt, prevailing interest rates and consumer confidence in future economic conditions. A substantial number of our stores are located in the western United States, especially in California. Lower levels of consumer spending in this region could have a material adverse affect on our financial condition and results of operations. Reduced consumer confidence and spending may result in reduced demand for our merchandise, may limit our ability to increase prices and may require us to incur higher selling and promotional expenses, which in turn would harm our business and operating results.

The occurrence or the threat of international conflicts or terrorist activities could harm our business and result in business interruptions.

Most of the merchandise that we sell is purchased in other countries and must be shipped to the United States, transported from the port of entry to our distribution centers in California or Virginia and distributed to our stores from the distribution centers. The precise timing and coordination of these activities is crucial to our business. The occurrence or threat of international conflicts or terrorist activities and the responses to those developments, for example, the temporary shutdown of a port that we use, could have a significant impact upon our business, our personnel and facilities, our customers and suppliers, the retail and financial markets and general economic conditions.

Our business and operating results are sensitive to changes in energy and transportation costs.

We incur significant costs for the purchase of fuel in transporting goods from foreign ports and to our distribution centers and stores and for utility services in our stores, distribution centers and corporate offices. We continually negotiate pricing for certain transportation contracts and, in a period of rising fuel costs such as we have recently experienced, expect that our vendors for these services will increase their rates to compensate for the higher energy costs. We may not be able to pass these increased costs on to our customers.

We must continue to open new stores and increase sales from existing stores to carry out our growth strategy.

Our ability to increase our sales and earnings depends in part on our ability to continue to open new stores and to operate these stores on a profitable basis. Our continued growth also depends on our ability to increase sales in our existing stores. We opened a net of 30 stores in fiscal 2005 and presently anticipate opening a net of 20 stores in fiscal 2006. We intend to open stores in both existing and new geographic markets. When we open additional stores in existing markets it can result in lower sales from existing stores in that market. The success of our planned expansion will depend upon many factors, including the following:

• our ability to identify suitable markets for expansion,

• the selection, availability and leasing of suitable sites on acceptable terms,

• the hiring, training and retention of qualified management and other store personnel,

• satisfaction of regulatory requirements in new markets, including alcoholic beverage regulations,

• control of costs associated with entering new markets, including advertising and distribution costs; and

• our ability to maintain adequate systems, controls and procedures, including product distribution facilities, store management, financial controls and information systems.

We cannot assure that we will be able to achieve our planned expansion, integrate new stores effectively into our existing operations or operate our new stores profitably.

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Our operating results will be harmed if we are unable to improve our comparable store sales.

Our success depends, in part, upon our ability to improve sales at our existing stores. Our comparable store sales, which are defined as sales by stores that have completed 14 full fiscal months of sales, fluctuate from year to year. To ensure a meaningful comparison, we measure comparable store sales on a 52-week basis. In first quarter of fiscal 2006, comparable store sales decreased by 4.3% compared to a decrease of 1.9% in the first quarter of fiscal 2005. Various factors affect comparable store sales, including:

• the general retail sales environment,

• our ability to source and distribute products efficiently,

• changes in our merchandise mix,

• competition,

• current economic conditions,

• the timing of release of new merchandise and promotional events,

• the success of marketing programs, and

• weather conditions.

These factors and others may cause our comparable store sales to differ significantly from prior periods and from expectations. If we fail to meet the comparable store sales expectations of investors and security analysts in one or more future periods, the price of our common stock could decline.

We face a number of risks because we import much of our merchandise.

We import a significant amount of our merchandise from over 50 countries and numerous suppliers. We have no long-term contracts with our suppliers, but instead rely on long-term relationships that we have established with many of these suppliers. Our future success will depend to a significant extent on our ability to maintain our relationships with our suppliers or to develop new ones. As an importer, our business is subject to the risks generally associated with doing business abroad such as the following:

• foreign governmental regulations,

• economic disruptions,

• delays in shipments,

• freight cost increases,

• changes in political or economic conditions in countries from which we purchase products, and

• the effect of trade regulation by the United States, including quotas, duties and taxes and other charges or restrictions on imported merchandise.

If these factors or others made the conduct of business in particular countries undesirable or impractical or if additional quotas, duties taxes or other charges or restrictions were imposed by the United States on the importation of our products, our business and operating results would be harmed.

Our dependence on our distribution centers carries certain risks.

Merchandise distribution for all of our stores is currently handled from facilities in Stockton, California and Windsor, Virginia. Any significant interruption in the operation of these facilities, including any interruption as a result of the planned expansion of

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the Stockton facility, would harm our business and operating results, as would operational inefficiencies or failure to coordinate the operations of these facilities successfully.

We may not be able to forecast customer preferences accurately in our merchandise selections.

Our success depends in part on our ability to anticipate the tastes or our customers and to provide merchandise that appeals to their preferences. Our strategy requires our merchandising staff to introduce products from around the world that meet current customer preferences and that are affordable, distinctive in quality and design and that are not widely available from other retailers. Many of our products require long order lead times. In addition, a large percentage of our merchandise changes regularly. Our failure to anticipate, identify or react appropriately to changes in consumer trends could cause excess inventories and higher markdowns or a shortage of products and could harm our business and operating results.

We face intense competition from a variety of other retailers.

The markets that we serve are very competitive. We compete against a diverse group of retailers ranging from specialty stores to department stores and discounters. Our product offerings compete with such retailers as Bed Bath & Beyond, Target, Linens n’ Things, Crate & Barrel, Pottery Barn, Michaels Stores, Pier 1 Imports, Trader Joe’s and Williams-Sonoma. We compete with these and other retailers for customers, suitable retail locations and qualified management personnel. Many of our competitors have considerably greater financial, marketing and other resources than we have.

We rely on various key management personnel to ensure our success and have had significant management changes in the past year.

Our success will continue to depend on our key management personnel. The loss of the services of one or more of these executives could harm our business and operating results. We do not maintain any key man life insurance policies. In the recent past, we have had significant changes in our management, including our Chief Executive Officer and our Chief Financial Officer. Moreover, we have recently added a Senior Vice President, Marketing, and a Senior Vice President, Supply Chain, and our Executive Vice President of Merchandising and Marketing has terminated employment and has not yet been replaced.

Our common stock may be subject to substantial price and volume fluctuations.

The market price of our common stock is affected by factors such as fluctuations in our operating results, a downturn in the retail industry, changes in stock market analysts’ recommendations regarding our company, other retail companies or the retail industry in general and general market and economic conditions. In addition, the stock market can experience price and volume fluctuations that are unrelated to the operating performance of particular companies.

Our business is subject to risks associated with fluctuations in the values of foreign currencies against the United States dollar.

We have significant purchase obligations with suppliers outside of the United States. During the first quarter of fiscal 2006, approximately 3.5% of these purchases were settled in currencies other than the United States dollar. Fluctuations in the rates of exchange between the dollar and other currencies could harm our operating results. We have not hedged our currency risk in the past and do not currently anticipate doing so in the future.

Provisions in our charter documents as well as our stockholders’ rights plan could prevent or delay a change in control of our company and may reduce the market price of our common stock.

Certain provisions of our articles of incorporation and bylaws may have the effect of making it more difficult for a third party to acquire, or may discourage a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. Certain of these provisions allow us to issue preferred stock without any vote or further action by the shareholders. In addition, the right to cumulate votes in the election of directors has been eliminated. These provisions may make it more difficult for shareholders to take certain corporate actions and could have the effect of delaying or preventing a change in control of the Company. In addition, our board of directors has adopted a preferred share purchase rights agreement. Pursuant to the rights agreement, our board of directors declared a dividend of one right to purchase one one-thousandth share of our Series A Participating Preferred Stock for each outstanding share of our common stock. These rights could have the effect of delaying, deferring or preventing a change of control of our company, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock. The rights agreement could also limit the price that investors might be willing to pay in the future for our common stock.

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Lawsuits and other claims against our company may adversely affect our operating results.

We are involved in litigation, claims and assessments incidental to our business, the disposition of which is not expected to have a material effect on our financial position or results of operations. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions related to these matters. We accrue our best estimate of the probable cost for the resolution of claims. When appropriate, such estimates are developed in consultation with outside counsel handling the matters and are based upon a combination of litigation and settlement strategies. To the extent additional information arises or our strategies change, it is possible that our best estimate of our probable liability may change.

ITEM 6. EXHIBITS

(a) Exhibits

3.1	Amended and Restated Bylaws dated May 12, 2006
10.1	Credit Agreement dated April 28, 2006 between Cost Plus, Inc. and Bank of America, N.A., as lender.
10.2	Purchase and Sale Agreement between Cost Plus Inc. and Inland Real Estate Acquisitions, Inc., as purchaser.
10.2.1	Lease Agreement between Cost Plus, Inc., as lessee, and Inland Western Stockton Airport Way, L.L.C. (“First Landlord”), as lessor, dated as of April 7, 2006.
10.2.2	Subground Lease Agreement between Cost Plus, Inc., as lessee, and Western Stockton Ground Tenant, L.L.C. (“Second Landlord”), as lessor dated as of April 7, 2006.
10.3	Amendment to Credit Agreement dated April 7, 2006, between Cost Plus, Inc., the lenders named therein, and Bank of America, N.A. as the administrative agent, amending the Credit Agreement dated November 10, 2004, between Cost Plus, Inc., the lenders named therein and Bank of America, N.A., as the administrative agent and letter of credit issuer, incorporated by reference to Exhibit 10.1 of the Form 8-K filed on November 16, 2004.
10.4	Modification Agreement dated April 7, 2006 between Cost Plus, Inc., and Bank of America, N.A., amending the Loan Agreement dated May 14, 2004 between Cost Plus, Inc. and Bank of America, N.A., as Lender, incorporated by reference to Exhibit 10.1 of the Form 10-Q filed for the quarter ended May 1, 2004.
10.5	Form of Notice of Grant of Performance Shares and Performance Share Agreement under the 2004 Stock Plan, incorporated by reference to Exhibit 10.1 of the Form 8-K filed on April 21, 2006.
10.6	Fourth Amended and Restated Employment Severance Agreement dated April 17, 2006, between Cost Plus, Inc. and Mike Allen.
10.7	Employment Severance Agreement dated April 17, 2006, between Cost Plus, Inc. and Frank Castiglione.
10.8	Fourth Amended and Restated Employment Severance Agreement dated April 17, 2006, between Cost Plus, Inc. and Joan Fujii.
10.9	Employment Severance Agreement dated April 17, 2006, between Cost Plus, Inc. and Rayford Whitley.
10.10	Employment Severance Agreement dated April 17, 2006, between Cost Plus, Inc. and Thomas Willardson.
31.1	Certification of the Chief Executive Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer and Chief Financial Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COSTPLUS, INC. Registrant
Date: June 8, 2006	By:	/s/ THOMAS D. WILLARDSON
		Thomas D. Willardson
		Executive Vice President
		Chief Financial Officer
		Duly Authorized Officer

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INDEX TO EXHIBITS

3.1	Amended and Restated Bylaws dated May 12, 2006
10.1	Credit Agreement dated April 28, 2006 between Cost Plus, Inc. and Bank of America, N.A., as lender.
10.2	Purchase and Sale Agreement between Cost Plus Inc. and Inland Real Estate Acquisitions, Inc., as purchaser.
10.2.1	Lease Agreement between Cost Plus, Inc., as lessee, and Inland Western Stockton Airport Way, L.L.C. (“First Landlord”), as lessor, dated as of April 7, 2006.
10.2.2	Subground Lease Agreement between Cost Plus, Inc., as lessee, and Western Stockton Ground Tenant, L.L.C. (“Second Landlord”), as lessor dated as of April 7, 2006.
10.3	Amendment to Credit Agreement dated April 7, 2006, between Cost Plus, Inc., the lenders named therein, and Bank of America, N.A. as the administrative agent, amending the Credit Agreement dated November 10, 2004, between Cost Plus, Inc., the lenders named therein and Bank of America, N.A., as the administrative agent and letter of credit issuer, incorporated by reference to Exhibit 10.1 of the Form 8-K filed on November 16, 2004.
10.4	Modification Agreement dated April 7, 2006 between Cost Plus, Inc., and Bank of America, N.A., amending the Loan Agreement dated May 14, 2004 between Cost Plus, Inc. and Bank of America, N.A., as Lender, incorporated by reference to Exhibit 10.1 of the Form 10-Q filed for the quarter ended May 1, 2004.
10.5	Form of Notice of Grant of Performance Shares and Performance Share Agreement under the 2004 Stock Plan, incorporated by reference to Exhibit 10.1 of the Form 8-K filed on April 21, 2006.
10.6	Fourth Amended and Restated Employment Severance Agreement dated April 17, 2006, between Cost Plus, Inc. and Mike Allen.
10.7	Employment Severance Agreement dated April 17, 2006, between Cost Plus, Inc. and Frank Castiglione.
10.8	Fourth Amended and Restated Employment Severance Agreement dated April 17, 2006, between Cost Plus, Inc. and Joan Fujii.
10.9	Employment Severance Agreement dated April 17, 2006, between Cost Plus, Inc. and Rayford Whitley.
10.10	Employment Severance Agreement dated April 17, 2006, between Cost Plus, Inc. and Thomas Willardson.
31.1	Certification of the Chief Executive Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer and Chief Financial Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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EX-3.1

Exhibit 3.1

AMENDED AND RESTATED¹

BY-LAWS

OF

COST PLUS, INC.

(a California corporation)

(the “corporation”)

Article I

OFFICES

Section 1.1 Principal Office. The principal office for the transaction of the business of the corporation shall be located at 200 4th Street, Oakland, State of California. The Board of Directors of the corporation (the “Board” or the “Board of Directors”) is hereby granted full power and authority to change said principal office to another location within or without the State of California.

Section 1.2 Other Offices. One or more branch or other subordinate offices may at any time be fixed and located by the Board of Directors at such place or places within or without the State of California as it deems appropriate.

Article II

DIRECTORS

Section 2.1 Exercise of Corporate Powers. Except as otherwise provided by the Articles of Incorporation of the corporation or by the laws of the State of California now or hereafter in force, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board may delegate the management of the day-to-day operation as permitted by law provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Without limiting the foregoing, in addition to any other action required by law, by the Articles of Incorporation or by these By-Laws, approval by the Board of Directors or a duly established committee of the Board shall be required for any of the following corporate actions:

(a) the election and removal of the Chairman (if any), the President, the Chief Financial Officer, or any other executive officer of the corporation or any significant subsidiary (as such term is defined in Regulation S-X promulgated under the Securities Act of 1933, as amended)

¹ As of May 12, 2006

of the corporation, the compensation of any of them, and the prescription of such powers and duties for them as are not inconsistent with the Articles of Incorporation, these By-Laws or applicable law;

(b) lease of any real property on terms which exceed parameters approved by the Board;

(c) ceasing of operations at any of the business locations of the corporation and any writeoff for any such location in excess of $250,000;

(d) sale, exchange, mortgage, pledge or other disposition or encumbrance by the corporation of any real property or any other assets of the corporation having a net book or fair market value in excess of $1,000,000 other than sales of inventory in the ordinary course of business;

(e) settlement of any claim involving a payment or forbearance, or any writeoff, by the corporation in excess of $500,000 not included in the annual capital expenditure budgets for the corporation;

(f) appointment of auditors for the corporation and any significant change in the accounting principles or tax elections applicable to the corporation which are not mandated by generally accepted accounting principles or applicable law; and

(g) any contract or other transaction between the corporation and one or more of its directors or officers or any entity in which one or more of its directors or officers has a material financial interest.

Section 2.2 Number. The number of directors of the corporation shall be not less than five (5) nor more than nine (9). The exact number of directors shall be six (6) until changed, within the limits specified above, by a bylaw amending this Section 2.2, duly adopted by the Board of Directors or by the shareholders. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the Articles of Incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than 16-2/3% of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two times the stated minimum number of directors minus one.

Section 2.3 Need not Be Shareholders. The directors of the corporation need not be shareholders of the corporation.

Section 2.4 Compensation. Directors shall receive such compensation for their services as directors and such reimbursement for their expenses of attendance at meetings as may be determined from time to time by resolution of the Board. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

Section 2.5 Election and Term of Office. At each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting, provided, that if for any reason, said annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall begin immediately after their election and shall continue until the expiration of the term for which elected and until their respective successors have been elected and qualified.

Section 2.6 Vacancies. A vacancy or vacancies in the Board of Directors shall exist when any authorized position of director is not then filled by a duly elected director, whether caused by death, resignation, removal change in the authorized number of directors (by the Board or the shareholders) or otherwise. The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony. Except for a vacancy created by the removal of a director, vacancies on the Board may be filled by a majority of the directors then in office, whether or not less than a quorum, or by a sole remaining director. A vacancy created by the removal of a director may be filled only by the approval of the shareholders. The shareholders may elect a director at any time to fill any vacancy not filled by the directors, but any such election by written consent requires the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.

Section 2.7 Removal. (a) Any and all of the directors may be removed without cause if such removal is approved by the affirmative vote of a majority of the outstanding shares entitled to vote at an election of directors, except that no director may be removed (unless the entire Board is removed) when the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director’s most recent election were then being elected.

(b) Any reduction of the authorized number of directors does not remove any director prior to the expiration of such director’s term of office.

Section 2.8 Approval of Loans. The corporation may, upon the approval of the Board of Directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or of its parent, if any, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that: (i) the Board of Directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation; (ii) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the California General Corporation Law) on the date of approval by the Board of Directors; and (iii) the approval of the Board of Directors is by a vote sufficient without counting the vote of any interested director or directors. Notwithstanding the foregoing, the corporation shall have the power to make loans otherwise permitted by the California General Corporation Law.

Article III

OFFICERS

Section 3.1 Election and Qualifications. The officers of this corporation shall consist of a President, a Chief Financial Officer and a Secretary who shall be chosen by the Board of Directors and such other officers, including a Chairman of the Board, one or more Vice Presidents, an Assistant Treasurer, an Assistant Secretary and a Controller, as the Board of Directors shall deem expedient, who shall be chosen in such manner and hold their offices for such terms as the Board of Directors may prescribe. Any two or more of such offices may be held by the same person. Any Vice President, Assistant Treasurer or Assistant Secretary, respectively, may exercise any of the powers of the President, the Chief Financial Officer, or the Secretary, respectively, as directed by the Board of Directors and shall perform such other duties as are imposed upon such officer by the By-Laws or the Board of Directors.

Section 3.2 Term of Office and Compensation. The term of office and salary of each of said officers and the manner and time of the payment of such salaries shall be fixed and determined by the Board of Directors and may be altered by said Board from time to time at its pleasure, subject to the rights, if any, of said officers under any contract of employment.

Section 3.3 Removal and Vacancies. Any officer of the corporation may be removed at the pleasure of the Board of Directors at any meeting or by vote of shareholders entitled to exercise the majority of voting power of the corporation at any meeting. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. If any vacancy occurs in any office of the corporation, the Board of Directors may elect a successor to fill such vacancy for the remainder of the unexpired term and until a successor is duly chosen and qualified.

Article IV

CHAIRMAN OF THE BOARD

Section 4.1 Powers and Duties. The Chairman of the Board of Directors, if there be one, shall have the power to preside at all meetings of the Board of Directors, and to call meetings of the shareholders and of the Board of Directors to be held within the limitations prescribed by law or by these By-Laws, at such times and at such places as the Chairman of the Board shall deem proper. The Chairman of the Board shall have such other powers and shall be subject to such other duties as the Board of Directors may from time to time prescribe.

Article V

PRESIDENT

Section 5.1 Powers and Duties. The powers and duties of the President are:

(a) To act as the chief executive officer of the corporation and, subject to the control of the Board of Directors, to have general supervision, direction and control of the business and affairs of the corporation.

(b) To preside at all meetings of the shareholders and, in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors.

(c) To call meetings of the shareholders and also of the Board of Directors to be held, subject to the limitations prescribed by law or by these By-Laws, at such times and at such places as the President shall deem proper.

(d) To affix the signature of the corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board of Directors or which do not require the approval of the Board of Directors under Section 2.1 of the By-Laws and in the judgment of the President should be executed on behalf of the corporation, to sign certificates for shares of stock of the corporation and, subject to the direction of the Board of Directors, to have general charge of the property of the corporation and to supervise and control all officers, agents and employees of the corporation.

Section 5.2 President pro tem. If neither the Chairman of the Board, the President, nor any Vice President is present at any meeting of the Board of Directors, a President pro tem may be chosen to preside and act at such meeting. If neither the President nor any Vice President is present at any meeting of the shareholders, a President pro tem may be chosen to preside at such meeting.

Article VI

VICE PRESIDENT

Section 6.1 Powers and Duties. In case of the absence, disability or death of the President, the Vice President, or one of the Vice Presidents, shall exercise all the powers and perform all the duties of the President. If there is more than one Vice President, the order in which the Vice Presidents shall succeed to the powers and duties of the President shall be as fixed by the Board of Directors. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be granted or prescribed by the Board of Directors.

Article VII

SECRETARY

Section 7.1 Powers and Duties. The powers and duties of the Secretary are:

(a) To keep a book of minutes at the principal office of the corporation, or such other place as the Board of Directors may order, of all meetings of its directors and shareholders with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors’ meetings, the number of shares present or represented at shareholders’ meetings and the proceedings thereof.

(b) To keep the seal of the corporation and to affix the same to all instruments which may require it.

(c) To keep or cause to be kept at the principal office of the corporation, or at the office of the transfer agent or agents, a share register, or duplicate share registers, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for shares, and the number and date of cancellation of every certificate surrendered for cancellation.

(d) To keep a supply of certificates for shares of the corporation, to fill in all certificates issued, and to make a proper record of each such issuance; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents.

(e) To transfer upon the share books of the corporation any and all shares of the corporation; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents, and the method of transfer of each certificate shall be subject to the reasonable regulations of the transfer agent to which the certificate is presented for transfer, and also, if the corporation then has one or more duly appointed and acting registrars, to the reasonable regulations of the registrar to which the new certificate is presented for registration; and provided, further, that no certificate for shares of stock shall be issued or delivered or, if issued or delivered, shall have any validity whatsoever until and unless it has been signed or authenticated in the manner provided in Section 14.4 hereof.

(f) To make service and publication of all notices that may be necessary or proper, and without command or direction from anyone, in case of the absence, disability, refusal or neglect of the Secretary to make service or publication of any notices, then such notices may be served and/or published by the President or a Vice President, or by any person thereunto authorized by either of them or by the Board of Directors or by the holders of a majority of the outstanding shares of the corporation.

(g) Generally to do and perform all such duties as pertain to the office of Secretary and as may be required by the Board of Directors.

Article VIII

CHIEF FINANCIAL OFFICER

Section 8.1 Powers and Duties. The powers and duties of the Chief Financial Officer are:

(a) To supervise and control the keeping and maintaining of adequate and correct accounts of the corporation’s properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director.

(b) To have the custody of all funds, securities, evidence of indebtedness and other valuable documents of the corporation and, at the Chief Financial Officer’s discretion, to cause any or all thereof to be deposited for the account of the corporation with such depositary as may be designated from time to time by the Board of Directors.

(c) To receive or cause to be received, and to give or cause to be given receipts and acquittances for moneys paid in for the account of the corporation.

(d) To disburse, or cause to be disbursed, all funds of the corporation as may be directed by the Board of Directors, taking proper vouchers for such disbursements.

(e) To render to the President and to the Board of Directors, whenever they may require, accounts of all transactions and of the financial condition of the corporation.

(f) Generally to do and perform all such duties as pertain to the office of Chief Financial Officer and as may be required by the Board of Directors.

Article IX

TREASURER

Section 9.1 Powers and Duties. The Treasurer shall have such powers and duties as from time to time may be prescribed by the board of directors or these By-Laws, including custody of and responsibility for all money and investments.

Article X

CONTROLLER

Section 10.1 Powers and Duties. The Controller, if there be one, shall have the power and duty to keep and maintain adequate and correct accounts of the corporation’s properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings and shares, and to render to the Chief Financial Officer, the President and the Board of Directors, whenever they may require, accounts of all transactions and of the financial condition of the corporation. The Controller shall generally have the power to do and perform all such other duties as pertain to the office of Controller and as may be required by the Board of Directors.

Article XI

COMMITTEES OF THE BOARD

Section 11.1 Appointments and Procedure. The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the Board, designate members of any committee, and designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee.

Section 11.2 Powers. Any committee appointed by the Board of Directors, to the extent provided in the resolution of the Board or in these By-Laws, shall have all the authority of the Board except with respect to:

(a) the approval of any action for which the California General Corporation Law or the Articles of Incorporation or these By-Laws requires the approval or vote of the shareholders or of a majority or supermajority of the directors then serving on the Board of Directors;

(b) the filling of vacancies on the Board or on any committee;

(c) the fixing of compensation of the directors for serving on the Board or on any committee;

(d) the amendment or repeal of By-Laws or the adoption of new By-Laws;

(e) the amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable;

(f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the Board; and

(g) the appointment of other committees of the Board or the members thereof.

Section 11.3 Executive Committee. In the event that the Board of Directors appoints an Executive Committee, such Executive Committee, in all cases in which specific directions to the contrary shall not have been given by the Board of Directors, shall have and may exercise, during the intervals between the meetings of the Board of Directors, all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation (except as provided in Section 11.2 hereof) in such manner as the Executive Committee may deem best for the interests of the corporation.

Article XII

MEETINGS OF SHAREHOLDERS

Section 12.1 Place of Meetings. Meetings (whether regular, special or adjourned) of the shareholders of the corporation shall be held at the principal office for the transaction of business as specified in accordance with Section 1.1 hereof, or any place within or without the State which may be designated by written consent of all the shareholders entitled to vote thereat, or which may be designated by the Board of Directors.

Section 12.2 Time of Annual Meetings. The annual meeting of the shareholders shall be held at the hour of 9:00 o’clock in the morning on the fourth Thursday in June in each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day not a legal holiday, or such other time or date as may be set by the Board of Directors.

Section 12.3 Special Meetings. (a) Special meetings of the shareholders may be called by the Board of Directors, the Chairman of the Board, the President or the holders of shares entitled to cast not less than 10% of the vote at the meeting.

(b) If a special meeting is called by any person or persons other than the Board of Directors, the Chairman of the Board or the President, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board, the President, any Vice President or the Secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 12.4 and 12.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 12.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the Board of Directors may be held.

Section 12.4 Notice of Meetings. (a) Whenever shareholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 nor more than 60 days before the day of the meeting to each shareholder entitled to vote thereat. Such notice

shall state the place, date and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the annual meeting, those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholder, but subject to the provisions of subdivision (b) any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by management for election.

(b) Any shareholder approval at a meeting, other unanimous approval by those entitled to vote, on any of the matters listed below shall be valid only if the general nature of the proposal so approved was stated in the notice of meeting or in any written waiver of notice:

(1) a proposal to approve a contract or other transaction between a corporation and one or more of its directors, or between a corporation and any corporation, firm or association in which one or more directors has a material financial interest;

(2) a proposal to amend the Articles of Incorporation;

(3) a proposal regarding a reorganization, merger or consolidation involving this corporation;

(4) a proposal to wind up and dissolve the corporation; and

(5) a proposal to adopt a plan of distribution of the shares, obligations or securities of any other corporation, domestic or foreign, or assets other than money which is not in accordance with the liquidation rights of any preferred shares as specified in the Articles of Incorporation.

Section 12.5 Delivery of Notice. Notice of shareholders’ meeting or any report shall be given either personally or by mail or other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. The notice or report shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. An affidavit of mailing of any notice or report in accordance with the provisions of this section, executed by the Secretary, Assistant Secretary or any transfer agent, shall be prima facie evidence of the giving of the notice or report.

If any notice or report addressed to the shareholders at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written

demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders.

Section 12.6 Adjourned Meetings. When a shareholders’ meeting is adjourned to another time or place, unless the By-Laws otherwise require and except as provided in this section, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.

Section 12.7 Consent to Shareholders’ Meeting. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if either before or after the meeting each of the persons entitled to vote, not present in person or by proxy signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the California General Corporation Law to be included in the notice but not so included in the notice if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, unless otherwise provided in the Articles of Incorporation or By-Laws, except as provided in subdivision (b) of Section 12.4.

Section 12.8 Quorum. (a) The presence in person or by proxy of the persons entitled to vote the majority of the voting shares at any meeting shall constitute a quorum for the transaction of business. Except as otherwise expressly required by statute, the Articles of Incorporation and these By-Laws, if a quorum is present, the affirmative vote of the majority of shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders.

(b) The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of the number of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

(c) In the absence of a quorum, any meeting of shareholders from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted, except as provided in subdivision (b).

Section 12.9 Actions without Meeting. (a) Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding

shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted; provided that, subject to the provisions of Section 2.6, directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors.

(b) Unless the consents of all shareholders entitled to vote have been solicited in writing,

(1) notice of any shareholder approval on matters described in subparagraphs (1), (3) or (5) of subdivision (b) of Section 12.4 or respecting indemnification of agents of the corporation without a meeting by less than unanimous written consent shall be given at least 10 days before the consummation of the action authorized by such approval, and

(2) prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent, to those shareholders entitled to vote but who have not consented in writing; the provisions of Section 12.5 shall apply to such notice.

Section 12.10 Revocation of Consent. Any shareholder giving a written consent, or the shareholder’s proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation.

Section 12.11 Voting Rights. Except as provided in Section 12.13 or in the Articles of Incorporation or in any statute relating to the election of directors or to other particular matters, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of shareholders. Any holder of shares entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder’s approving vote is with respect to all shares such shareholder is entitled to vote.

Section 12.12 Determination of Holders of Record. (a) In order that the corporation may determine the shareholders entitled to notice of or to vote at any meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the Board of Directors may fix in advance, a record date, which shall not be more than 60 nor less than 10 days prior to the date of such meeting nor more than 60 days prior to any other action.

(b) In the absence of any record date set by the Board of Directors pursuant to subdivision (a) above, then:

(1) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.

(2) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given.

(3) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later.

(c) A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date of the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting.

(d) Shareholders on the record date are entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation or these By-Laws or by agreement or applicable law.

Section 12.13 Election of Directors. (a) In any election of directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of directors to be elected by such shares are elected.

(b) Election for directors need not be by ballot unless a shareholder demands election by ballot at the meeting and before the voting begins or unless the By-Laws so requires.

Section 12.14 Proxies. (a) Every person entitled to vote shares may authorize another person or persons to act by proxy with respect to such shares. Any proxy purporting to be executed in accordance with the provisions of the General Corporation Law of the State of California shall be presumptively valid.

(b) No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in this section. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or by attendance at the meeting and voting in person by, the person executing the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed.

(c) A proxy is not revoked by the death or incapacity of the maker unless, before the vote is counted, written notice of such death or incapacity is received by the corporation.

Section 12.15 Inspectors of Election. (a) In advance of any meeting of shareholders the Board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder’s proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed.

(b) The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders.

(c) The inspectors of election shall perform their duties, impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.

Section 12.16 Advance Notice of Shareholder Nominations. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of shareholders by or at the direction of the Board of Directors or by any shareholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a shareholder’s notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days in advance of the anniversary of the date of the corporation’s proxy statement released to shareholders in connection with the previous year’s annual meeting of shareholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year’s proxy statement, notice by the shareholder to be timely must be so received a reasonable time before the solicitation is made. Such shareholder’s notice shall set forth (a) as to each person, if any, whom the shareholder proposes to nominate for election or re-election as a director: (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the corporation which are beneficially owned by such person, (iv) any other information relating to such person that is required by law to be disclosed in solicitations of proxies for election of directors, and (v) such person’s written consent to being named as a nominee and to serving as a director if elected; and (b) as to the shareholder giving the notice: (i) the name and address, as they appear on the corporation’s books, of such shareholder, (ii) the class and number of shares of the corporation which are beneficially owned by such shareholder, and (iii) a description of all arrangements or understandings between such shareholder and each nominee and any other person or persons (naming such person or persons) relating to the

nomination. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in the shareholder’s notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section. The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these By-Laws, and if the chairman should so determine, the chairman shall so declare at the meeting and the defective nomination shall be disregarded.

Section 12.17 Advance Notice of Shareholder Business. At the annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (a) as specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder. Business to be brought before the meeting by a shareholder shall not be considered properly brought if the shareholder has not given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder’s notice must be delivered to the principal executive offices of the corporation not less than one hundred twenty (120) calendar days in advance of the anniversary of the date of the corporation’s proxy statement released to shareholders in connection with the previous year’s annual meeting of shareholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year’s proxy statement, notice by the shareholder to be timely must be so received a reasonable time before the solicitation is made. A shareholder’s notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address of the shareholder proposing such business, (iii) the class and number of shares of the corporation, which are beneficially owned by the shareholder, (iv) any material interest of the shareholder in such business, and (v) any other information that is required by law to be provided by the shareholder in his capacity as proponent of a shareholder proposal. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section. The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section, and, if the chairman should so determine, the chairman shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.

Article XIII

MEETINGS OF DIRECTORS

Section 13.1 Place of Meetings. Unless otherwise specified in the notice thereof, meetings (whether regular, special or adjourned) of the Board of Directors of this corporation shall be held at the principal office of the corporation for the transaction of business, as specified in accordance with

Section 1.1 hereof, which is hereby designated as an office for such purpose in accordance with the laws of the State of California, or at any other place within or without the State which has been designated from time to time by resolution of the Board or by written consent of all members of the Board.

Section 13.2 Regular Meetings. Regular meetings of the Board of Directors, of which no notice need be given except as required by the laws of the State of California, shall be held after the adjournment of each annual meeting of the shareholders (which meeting shall be designated the Regular Annual Meeting) and at such other times as may be designated from time to time by resolution of the Board of Directors.

Section 13.3 Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board or the President or by any Vice President or the Secretary or by any two or more of the directors.

Section 13.4 Notice of Meetings. Except in the case of regular meetings, notice of which has been dispensed with, the meetings of the Board of Directors shall be held upon four days’ notice by mail or 48 hours’ notice delivered personally or by telephone, telegraph or other electronic or wireless means. If the address of a director is not shown on the records and is not readily ascertainable, notice shall be addressed to him at the city or place in which the meetings of the directors are regularly held. Except as set forth in Section 13.6, notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned.

Section 13.5 Quorum. A majority of the authorized number of directors constitutes a Quorum of the Board for the transaction of business. Except as otherwise expressly required by statute, the Articles of Incorporation or these By-Laws and every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting.

Section 13.6 Adjourned Meeting. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than 24 hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment.

Section 13.7 Waiver of Notice and Consent. (a) Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director.

(b) The transactions of any meeting of the Board, however called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present or who, though present, has prior to the meeting or at its commencement, protested the lack of proper notice to him, signs a written waiver of notice, a consent to holding the meeting or an approval of the

minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 13.8 Action Without a Meeting. Any action required or permitted to be taken by the Board may be taken without a meeting, if all members of the Board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors.

Section 13.9 Conference Telephone Meetings. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in a meeting pursuant to this section constitutes presence in person at such meeting.

Section 13.10 Meetings of Committees. The provisions of this Article apply also to committees of the Board and action by such committees.

Article XIV

SUNDRY PROVISIONS

Section 14.1 Instruments in Writing. All checks, drafts, demands for money and notes of the corporation, and all written contracts of the corporation, shall be signed by such officer or officers, agent or agents, as the Board of Directors may from time to time by resolution designate. No officer, agent, or employee of the corporation shall have power to bind the corporation by contract or otherwise unless authorized to do so by these By-Laws or by the Board of Directors.

Section 14.2 Fiscal Year. The fiscal year of this corporation shall end on the Saturday nearest to the last day of January of each year.

Section 14.3 Shares Held by the Corporation. Shares in other corporations standing in the name of this corporation may be voted or represented and all rights incident thereto may be exercised on behalf of this corporation by the President or by any other officer of this corporation authorized so to do by resolution of the Board of Directors.

Section 14.4 Certificates of Stock. There shall be issued to each holder of fully paid shares of the capital stock of the corporation a certificate or certificates for such shares. Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman or Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.

Section 14.5 Lost Certificates. The corporation may issue a new share certificate or a new certificate for any other security in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate or the owner’s legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. The Board of Directors may adopt such other provisions and restrictions with reference to lost certificates, not inconsistent with applicable law, as it shall in its discretion deem appropriate.

Section 14.6 Certification and Inspection of By-Laws. The corporation shall keep at its principal executive office in this State, or if its principal executive office is not in this State at its principal business office in this State, the original or a copy of these By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside this State and the corporation has no principal business office in this State, it shall upon the written request of any shareholder furnish to such shareholder a copy of the By-Laws as amended to date.

Section 14.7 Notices. Any reference in these By-Laws to the time a notice is given or sent means, unless otherwise expressly provided, the time a written notice by mail is deposited in the United States mails, postage prepaid; or the time any other written notice is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient; or the time any oral notice is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving wire the notice has reason to believe will promptly communicate it to the recipient.

Section 14.8 Reports to Shareholders. Except as may otherwise be required by law, the rendition of an annual report to the shareholders is waived so long as there are less than 100 holders of record of the shares of the corporation (determined as provided in Section 605 of the California General Corporation Law). At such time or times, if any, that the corporation has 100 or more holders of record of its shares, the Board of Directors shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year or within such shorter time period as may be required by applicable law, and such annual report shall contain such information and be accompanied by such other documents as may be required by applicable law.

Section 14.9 Indemnification of Officers, Directors, Employees and Other Agents. (a) The corporation shall, to the fullest extent permissible under, and in the manner permitted by, California law, indemnify each of its directors and officers against “Expenses” (as defined in Section 317(a) of the California General Corporation Law), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any “Proceeding” (as defined in Section 317(a) of the California General Corporation Law), arising by reason of the fact that such person is or was an Agent (as defined in Section 317(a) of the California General Corporation Law) of the corporation. For purposes of this Section 14.9, a “director” or “officer” of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other

enterprise, or (iii) who was a director of officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.

(b) The corporation shall have the power, to the fullest extent permissible under, and in the manner permitted by, California law, to indemnify each of its employees and other Agents against Expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any Proceeding, arising by reason of the fact that such person is or was an employee or Agent of the corporation. For purposes of this Section 14.9, an “employee” or “Agent” of the corporation includes any person (i) who is or was an employee or Agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or Agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or Agent of the corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.

(c) Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required or permitted pursuant to this Section 14.9 shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Section 14.9.

(d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances under this Section 14.9 shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer who serves in such capacity at any time while this By-Law and other relevant provisions of the California General Corporation Law and other applicable law, if any, are in effect. Any right to indemnification or advances granted by this Section 14.9 to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part or (ii) no disposition of such claim is made within 90 days of request therefor. The claimant in such enforcement action (an “Action”), if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any Action that a claimant has not met the standard of conduct which make it permissible under the California General Corporation Law for the corporation to indemnify the claimant for the amount claimed, provided that such defense shall not be available for an Action brought to enforce a claim for the advancement of expenses pursuant to subdivision (d) above if the claimant has tendered the required undertaking to the corporation. It shall not be a defense to an Action, nor shall it create a presumption that the claimant has not met the applicable standard of conduct, that the corporation (including its Board of Directors, independent counsel or shareholders) has failed, prior to the commencement of the Action, to have made a determination that the indemnification of the claimant is proper in the circumstances, or that the corporation (including its Board of Directors, independent counsel or shareholders) has actually determined that the claimant has not met the applicable standard of conduct.

(e) Non-Exclusivity of Rights. The rights conferred on any person by this Section 14.9 shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, By-Laws, agreement, vote of shareholders or

disinterested directors or otherwise both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or other Agents respecting indemnification and advances, to the fullest extent permitted by the California General Corporation Law.

(f) No indemnification or advance shall be made under this Section 14.9, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears:

(1) That it would be inconsistent with a provision of the Articles of Incorporation, these By-Laws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or

(2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.

(g) Survival of Rights. The rights conferred on any person by this Section 14.9 shall continue as to a person who has ceased to be a director, officer, employee or other Agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

(h) Insurance. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was an Agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Section 14.9.

(i) Repeal or Modification. Any repeal or modification of this Section 14.9 shall not adversely affect any rights under this Section 14.9 of any director, officer or other Agent of the corporation relating to acts or omissions occurring prior to such repeal or modification.

(j) Saving Clause. If this Section 14.9 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director or officer, any may nevertheless indemnify any employee or other Agent, to the full extent permitted by any applicable portion of this Section 14.9 that shall not have been invalidated, or by any other applicable law.

(k) If the California General Corporation Law is hereafter amended to further indemnification of Agents of the corporation, then the Corporation shall be authorized to indemnify such Agents to the fullest extent permissible under the California General Corporation Law as so amended.

Article XV

CONSTRUCTION OF BY-LAWS WITH

REFERENCE TO PROVISIONS OF LAW

Section 15.1 Definitions. Unless defined otherwise in these By-Laws or unless the context otherwise requires, terms used herein shall have the same meaning, if any, ascribed thereto in the California General Corporation Law, as amended from time to time.

Section 15.2 By-Law Provisions Additional and Supplemental to Provisions of Law. All restrictions, limitations, requirements and other provisions of these By-Laws shall be construed, insofar as possible, as supplemental and additional to all provisions of law applicable to the subject matter thereof and shall be fully complied with in addition to the said provisions of law unless such compliance shall be illegal.

Section 15.3 By-Law Contrary to or Inconsistent with Provisions of Law. Any article, section, subsection, subdivision, sentence, clause or phrase of these By-Laws which upon being construed in the manner provided in Section 15.2 hereof, shall be contrary to or inconsistent with any applicable provision of law, shall not apply so long as said provisions of law shall remain in effect, but such result shall not affect the validity or applicability of any other portions of these By-Laws, it being hereby declared that these By-Laws would have been adopted and each article, section, subsection, subdivision, sentence, clause or phrase thereof, irrespective of the fact that any one or more articles, sections, subsections, subdivisions, sentences, clauses or phrases is or are illegal.

Article XVI

ADOPTION, AMENDMENT OR REPEAL OF BY-LAWS

Section 16.1 By Shareholders. Except as otherwise expressly required by statute, the Articles of Incorporation or these By-Laws, By-Laws may be adopted, amended or repealed by the approval of the affirmative vote of a majority of the outstanding shares of the corporation entitled to vote.

Section 16.2 By the Board of Directors. Except as otherwise expressly required by statute, the Articles of Incorporation or these By-Laws and subject to the right of shareholders to adopt, amend or repeal By-Laws, By-Laws other than a By-Law or amendment thereof changing the authorized number of directors (except to fix the authorized number of directors pursuant to a By-Law providing for a variable number of directors) may be adopted, amended or repealed by the Board of Directors.

EX-10.1

Exhibit 10.1

Execution Copy

$40,000,000

CREDIT AGREEMENT

Dated as of April 28, 2006

between

COST PLUS, INC.

and

BANK OF AMERICA, N.A.

TABLE OF CONTENTS

Section		Page
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS		1
1.01	Defined Terms	1
1.02	Other Interpretive Provisions	12
1.03	Accounting Terms	12
1.04	Rounding	13
1.05	References to Agreements and Laws	13
1.06	Times of Day	13
ARTICLE II. THE COMMITMENT AND LOANS		13
2.01	Loans	13
2.02	Borrowings, Conversions and Continuations of Loans	13
2.03	Prepayments	15
2.04	Termination or Reduction of Commitment	15
2.05	Repayment of Loans	15
2.06	Interest	15
2.07	Fees	16
2.08	Computation of Interest and Fees	16
2.09	Evidence of Debt	16
2.10	Payments Generally	17
ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY		18
3.01	Taxes	18
3.02	Illegality	19
3.03	Inability to Determine Eurodollar Rate	19
3.04	Increased Cost and Reduced Return; Capital Adequacy	19
3.05	Funding Losses	20
3.06	Requests for Compensation	20
3.07	Survival	21
ARTICLE IV. CONDITIONS PRECEDENT TO LOANS		21
4.01	Conditions of Initial Loan	21
4.02	Conditions to all Loans	22
ARTICLE V. REPRESENTATIONS AND WARRANTIES		23
5.01	Existence, Qualification and Power; Compliance with Laws	23
5.02	Authorization; No Contravention	23
5.03	Governmental Authorization; Other Consents	23
5.04	Binding Effect	23
5.05	Financial Statements; No Material Adverse Effect	23
5.06	Litigation	24
5.07	No Default	24
5.08	Ownership of Property; Liens	24
5.09	Environmental Compliance	24
5.10	Taxes	24
5.11	ERISA Compliance	25
5.12	Subsidiaries	25
5.13	Margin Regulations; Investment Company Act	26

5.14	Compliance with Laws	26
5.15	Intellectual Property; Licenses, Etc.	26
5.16	Disclosure	26
ARTICLE VI. COVENANTS		27
6.01	Financial Statements; Certificates	27
6.02	Other Information	27
6.03	Notices	27
6.04	Inspection Rights	28
6.05	Use of Proceeds	28
6.06	Other Covenants	28
6.07	Liens	29
6.08	Material Subsidiaries	29
6.09	Further Assurances	29
ARTICLE VII. EVENTS OF DEFAULT AND REMEDIES		29
7.01	Events of Default	29
7.02	Remedies Upon Event of Default	30
7.03	Application of Funds	30
ARTICLE VIII. MISCELLANEOUS		31
8.01	Amendments; Etc.	31
8.02	Notices and Other Communications; Facsimile Copies	31
8.03	No Waiver; Cumulative Remedies	32
8.04	Attorney Costs, Expenses and Taxes	32
8.05	Indemnification by the Borrower	33
8.06	Payments Set Aside	33
8.07	Successors and Assigns	34
8.08	Confidentiality	35
8.09	Set-off	36
8.10	Interest Rate Limitation	36
8.11	Counterparts	37
8.12	Integration	37
8.13	Survival of Representations and Warranties	37
8.14	Severability	37
8.15	Governing Law; Arbitration; Waiver of Jury Trial	37
8.16	USA Patriot Act Notice	39
8.17	Time of the Essence	39
SIGNATURES		S-1

ii

SCHEDULES

8.02 Lending Office, Addresses for Notices

EXHIBITS

	Form of:
A	Loan Notice
B	Note
C	Guaranty

iii

CREDIT AGREEMENT

This CREDIT AGREEMENT (“Agreement”) is entered into as of April 28, 2006, by and between COST PLUS, INC., a California corporation (the “Borrower”) and BANK OF AMERICA, N.A. (the “Lender”).

The Borrower has requested that the Lender provide a revolving credit facility, and the Lender is willing to do so on the terms and conditions set forth herein.

In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I.

DEFINITIONS AND ACCOUNTING TERMS

1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:

“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

“Agreement” means this Credit Agreement.

“Applicable Rate” means, the following percentages per annum, based upon the Consolidated Adjusted Leverage Ratio (as defined in the Incorporated Agreement) as set forth in the most recent Compliance Certificate received by the Lender pursuant to Section 6.01(a):

Applicable Rate

Pricing Level	Consolidated Adjusted Leverage Ratio	Commitment Fee		Eurodollar Rate +		Base Rate +
1	£2.75:1	0.125	%	1.000	%	0.000	%
2	>2.75:1 but <3.25:1	0.150	%	1.125	%	0.000	%
3	³3.25:1	0.175	%	1.375	%	0.000	%

Any increase or decrease in the Applicable Rate resulting from a change in the Consolidated Adjusted Leverage Ratio shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to Section 6.01 (a); provided, however, that if a Compliance Certificate is not delivered when due in accordance with such Section, then Pricing Level 3 shall apply as of the first Business Day after the date on

which such Compliance Certificate was required to have been delivered. Subject to the foregoing, the Applicable Rate in effect from the Closing Date through the date of delivery of the Compliance Certificate in respect of the Borrower’s fiscal quarter ending on or about April 28, 2006 shall be determined based upon Pricing Level 3.

“Attorney Costs” means and includes all fees, expenses and disbursements of any law firm or other external counsel and, without duplication, the allocated cost of internal legal services and all expenses and disbursements of internal counsel.

“Attributable Indebtedness” means, on any date, (a) in respect of any capital lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a capital lease.

“Audited Financial Statements” means the audited consolidated balance sheet of the Borrower and its Subsidiaries for the fiscal year ended January 28, 2006, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of the Borrower and its Subsidiaries, including the notes thereto.

“Availability Period” means the period from and including the Closing Date to the earlier of (a) the Maturity Date and (b) the date of termination of the Commitment.

“Base Rate” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by the Lender as its “prime rate.” The “prime rate” is a rate set by the Lender based upon various factors including the Lender’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by the Lender shall take effect at the opening of business on the day specified in the public announcement of such change.

“Base Rate Loan” means a Loan that bears interest based on the Base Rate.

“Borrower” has the meaning specified in the introductory paragraph hereto.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Lending Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in offshore Dollar interbank market.

“Closing Date” means the first date all of the conditions precedent in Section 4.01 are satisfied or waived by the Lender.

“Code” means the Internal Revenue Code of 1986.

2

“Commitment” means the obligation of the Lender to make Loans hereunder in an aggregate principal amount at any one time not to exceed $40,000,000, as such amount may be adjusted from time to time in accordance with this Agreement.

“Compliance Certificate” means the “Compliance Certificate” as defined in the Incorporated Agreement.

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Control” has the meaning specified in the definition of “Affiliate.”

“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

“Default Rate” means an interest rate equal to (a) the Base Rate plus (b) the Applicable Rate, if any, applicable to Base Rate Loans plus (c) 2% per annum; provided, however, that with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum, in each case to the fullest extent permitted by applicable Laws.

“Disclosure Letter” means the Disclosure Letter, dated on or about the Closing Date, delivered by the Borrower to the Lender pursuant to Section 4.01(a).

“Dollar” and “$” mean lawful money of the United States.

“Eligible Assignee” has the meaning specified in Section 8.07(f).

“Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, or restrictions by or in respect of any Governmental Authority relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure

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to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Equity Interest” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

“ERISA” means the Employee Retirement Income Security Act of 1974.

“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.

“Eurodollar Base Rate” has the meaning specified in the definition of Eurodollar Rate.

“Eurodollar Rate” means, for any Interest Period, with respect to any Eurodollar Rate Loan, a rate per annum determined by the Lender pursuant to the following formula:

Eurodollar Rate	=	Eurodollar Base Rate
		1.00 – Eurodollar Reserve Percentage

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Where,

“Eurodollar Base Rate” means, for such Interest Period, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Lender from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the Eurodollar Base Rate for such Interest Period shall be the rate per annum determined by the Lender to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by the Lender and with a term equivalent to such Interest Period would be offered by the Lender’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period; and

“Eurodollar Reserve Percentage” means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, carried out to five decimal places) in effect on such day applicable to the Lender under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as “Eurocurrency liabilities”). The Eurodollar Rate for each outstanding Eurodollar Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage.

“Eurodollar Rate Loan” means a Loan that bears interest at a rate based on the Eurodollar Rate.

“Event of Default” has the meaning specified in Section 7.01.

“Federal Funds Rate” means, for any day, the rate per annum 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 Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to the Lender on such day on such transactions as determined by the Lender.

“Fee Letter” means the letter agreement, dated April 28, 2006, between the Borrower and the Lender.

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“FRB” means the Board of Governors of the Federal Reserve System of the United States.

“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Guarantors” means Cost Plus Management Services, Inc. and any other Person that executes a Guaranty hereunder.

“Guaranty” means the Guaranty made by a Guarantor in favor of the Lender, pursuant to this Agreement, substantially in the form of Exhibit C.

“Guarantee” means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas,

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infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Incorporated Agreement” means the Credit Agreement, dated as of November 10, 2004, among the Borrower, Bank of America, N.A., as Administrative Agent and L/C Issuer, and the Lenders party thereto.

“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

(b) all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

(c) net obligations of such Person under any Swap Contract;

(d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business);

(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f) capital leases and Synthetic Lease Obligations;

(g) to the extent such obligations may, on a contingent or other basis, mature or become fixed on or before the Maturity Date, all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and

(h) all Guarantees of such Person in respect of any of the foregoing.

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, except to the extent such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of any capital lease or Synthetic Lease Obligation as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date.

“Indemnified Liabilities” has the meaning specified in Section 8.05.

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“Indemnitees” has the meaning specified in Section 8.05.

“Interest Payment Date” means the first Business Day of each month and the Maturity Date.

“Interest Period” means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three, six or nine months thereafter, as selected by the Borrower in its Loan Notice; provided that:

(i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(ii) any Interest Period that begins on the last 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 end on the last Business Day of the calendar month at the end of such Interest Period; and

(iii) no Interest Period shall extend beyond the Maturity Date.

“IP Rights” has the meaning specified in Section 5.15.

“IRS” means the United States Internal Revenue Service.

“Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

“Lending Office” means the office or offices of the Lender described as such on Schedule 8.02, or such other office or offices as the Lender may from time to time notify the Borrower.

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing).

“Loan” has the meaning specified in Section 2.01.

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“Loan Documents” means this Agreement, any Note, the Disclosure Letter, the Fee Letter, each Loan Notice, each Compliance Certificate and each Guaranty.

“Loan Notice” means a notice of (a) a borrowing of a Loan, (b) a conversion of a Loan from one Type to the other, or (c) a continuation of a Eurodollar Rate Loan as the same Type, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.

“Loan Parties” means, collectively, the Borrower and each Guarantor.

“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

“Material Subsidiary” has the meaning specified in the Incorporated Agreement.

“Maturity Date” means (a) October 27, 2007 or (b) such earlier date upon which the Commitment may be terminated in accordance with the terms hereof.

“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

“Note” means a promissory note made by the Borrower in favor of the Lender evidencing Loans made by the Lender, substantially in the form of Exhibit B.

“Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding

“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or

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organization and, if applicable, any certificate or articles of formation or organization of such entity.

“Outstanding Amount” means with respect to Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Loans occurring on such date.

“Participant” has the meaning specified in Section 8.07(c).

“PBGC” means the Pension Benefit Guaranty Corporation.

“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Borrower or any ERISA Affiliate or to which the Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

“Permitted Liens” means Liens permitted pursuant to Section 7.01 of the Incorporated Agreement, except as otherwise limited in this Agreement.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by the Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30-day notice period has been waived.

“Responsible Officer” means the chief executive officer, president, chief financial officer, vice president, treasurer or assistant treasurer of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

“Stockton Project” means the Borrower’s proposed additional distribution center and/or other expansion of its existing distribution center on the Stockton Property.

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“Stockton Property” means the real property (including all improvements thereon) situated in the City of Stockton, County of San Joaquin, California, described as follows: Parcel 1, as shown upon that certain Parcel Map filed for record April 8, 2003, in Book 22 of Parcel Maps, at page 145, San Joaquin County Records. Assessor’s Parcel No.: a portion of 177-140-08.

“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.

“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include the Lender or any Affiliate of the Lender).

“Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

“Type” means, with respect to a Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.

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“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

“United States” and “U.S.” mean the United States of America.

1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(b) (i) The words “herein,” “hereto,” “hereof” and “hereunder” and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof.

(ii) Article, Section, Exhibit and Schedule references are to the Loan Document in which such reference appears.

(iii) The term “including” is by way of example and not limitation.

(iv) The term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.

(c) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

(d) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

(e) Defined terms used herein which are stated to have the meanings assigned in the Incorporated Agreement shall incorporate any amendments, restatements, supplements or other modifications to such terms.

1.03 Accounting Terms.

(a) All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein.

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(b) If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Lender shall so request, the Lender and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Lender), provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Lender financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

1.04 Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

1.05 References to Agreements and Laws. Unless otherwise expressly provided herein, (a) references to the Incorporated Agreement, Organization Documents, agreements (including the Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Loan Document; and (b) references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law.

1.06 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Pacific time (daylight or standard, as applicable).

ARTICLE II.

THE COMMITMENT AND LOANS

2.01 Loans. Subject to the terms and conditions set forth herein, the Lender agrees to make loans (each such loan, a “Loan”) to the Borrower from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of the Commitment; provided, however, that after giving effect to any borrowing, the Outstanding Amount of all Loans shall not exceed the Commitment. Within the limits of the Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.01, prepay under Section 2.03, and reborrow under this Section 2.01. A Loan may be a Base Rate Loan or a Eurodollar Rate Loan, as further provided herein.

2.02 Borrowings, Conversions and Continuations of Loans.

(a) Each borrowing, each conversion of a Loan from one Type to the other, and each continuation of a Eurodollar Rate Loan shall be made upon the Borrower’s irrevocable notice to the Lender, which may be given by telephone. Each such notice must be received by the Lender

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not later than 11:00 a.m. (i) two Business Days prior to the requested date of any borrowing of, conversion to or continuation of a Eurodollar Rate Loan or of any conversion of a Eurodollar Rate Loan to a Base Rate Loan, and (ii) on the requested date of any borrowing of a Base Rate Loan. Each such telephonic notice must be confirmed promptly by delivery to the Lender of a written Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Each borrowing of, conversion to or continuation of a Eurodollar Rate Loan shall be in a principal amount of $1,000,000 or a whole multiple of $500,000 in excess thereof. Each borrowing of or conversion to a Base Rate Loan shall be in a principal amount of $100,000 or a whole multiple of $100,000 in excess thereof. Each Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a borrowing, a conversion of a Loan from one Type to the other, or a continuation of a Eurodollar Rate Loan, (ii) the requested date of the borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of the Loan to be borrowed, converted or continued, (iv) the Type of Loan to be borrowed or to which an existing Loan is to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of Loan in a Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Loan shall be made as, or converted to, a Base Rate Loan. Any such automatic conversion to a Base Rate Loan shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loan. If the Borrower requests a borrowing of, conversion to, or continuation of a Eurodollar Rate Loan in any such Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month.

(b) Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if a borrowing is the initial Loan, Section 4.01), the Lender shall make the proceeds of each Loan available to the Borrower either by (i) crediting the account of the Borrower on the books of the Lender with the amount of such proceeds or (ii) wire transfer of such proceeds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Lender by the Borrower.

(c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan. During the existence of a Default, no Loan may be requested as, converted to or continued as Eurodollar Rate Loans without the consent of the Lender.

(d) The Lender shall promptly notify the Borrower of the interest rate applicable to any Interest Period for a Eurodollar Rate Loan upon determination of such interest rate. The determination of the Eurodollar Rate by the Lender shall be conclusive in the absence of manifest error. At any time that a Base Rate Loan is outstanding, the Lender shall notify the Borrower of any change in the Lender’s prime rate used in determining the Base Rate promptly following the public announcement of such change.

(e) After giving effect to all borrowings, all conversions of Loans from one Type to the other, and all continuations of Loans as the same Type, there shall not be more than seven Interest Periods in effect.

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2.03 Prepayments.

(a) The Borrower may, upon notice to the Lender, at any time or from time to time voluntarily prepay any Loan in whole or in part without premium or penalty; provided that (i) such notice must be received by the Lender not later than 1:00 p.m. (A) three Business Days prior to any date of prepayment of a Eurodollar Rate Loan, and (B) on the date of prepayment of a Base Rate Loan; (ii) any prepayment of a Eurodollar Rate Loan shall be in a principal amount of $1,000,000 or a whole multiple of $500,000 in excess thereof; and (iii) any prepayment of a Base Rate Loan shall be in a principal amount of $100,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Loan(s) to be prepaid. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest thereon, together with any additional amounts required pursuant to Section 3.05.

(b) If for any reason the Outstanding Amount of all Loans at any time exceeds the Commitment then in effect, the Borrower shall immediately prepay Loans in an aggregate amount equal to such excess.

2.04 Termination or Reduction of Commitment. The Borrower may, upon notice to the Lender, terminate the Commitment, or from time to time reduce the Commitment; provided that (i) any such notice shall be received by the Lender not later than 11:00 a.m., five Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $1,000,000 or any whole multiple of $1,000,000 in excess thereof, and (iii) the Borrower shall not terminate or reduce the Commitment if, after giving effect thereto and to any concurrent prepayments hereunder, the Outstanding Amount of all Loans would exceed the Commitment. All Commitment Fees accrued until the effective date of any termination of the Commitment shall be paid on the effective date of such termination.

2.05 Repayment of Loans. The Borrower shall repay to the Lender on the Maturity Date the aggregate principal amount of Loans outstanding on such date.

2.06 Interest.

(a) Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate; and (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate.

(b) If any amount payable by the Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. Furthermore, while any Event of Default exists, the Borrower shall pay interest on the

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principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

2.07 Fees.

(a) Commitment Fee. The Borrower shall pay to the Lender a commitment fee equal to the Applicable Rate times the actual daily amount by which the Commitment exceeds the Outstanding Amount of all Loans. The commitment fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the Maturity Date. The commitment fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect.

(b) Lender’s Upfront Fee. On the Closing Date, the Borrower shall pay to the Lender an upfront fee in the amount set forth in the Fee Letter. Such fee shall be fully earned when paid and shall not be refundable for any reason whatsoever.

2.08 Computation of Interest and Fees. All computations of interest for Base Rate Loans when the Base Rate is determined by the Lender’s “prime rate” shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.10(a), bear interest for one day.

2.09 Evidence of Debt. The Loans made by the Lender shall be evidenced by one or more accounts or records maintained by the Lender in the ordinary course of business. The accounts or records maintained by the Lender shall be conclusive absent manifest error of the amount of the Loans made by the Lender to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. Upon the request of the Lender, the Borrower shall execute and deliver to the Lender a Note, which shall evidence the Lender’s Loans in addition to such accounts or records. The Lender

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may attach schedules to the Note and endorse thereon the date, Type, amount and maturity of each Loan and payments with respect thereto.

2.10 Payments Generally.

(a) All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Lender at the applicable Lending Office in Dollars and in immediately available funds not later than 12:00 noon on the date specified herein. All payments received by the Lender after 12:00 noon shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue.

(b) The Borrower hereby irrevocably authorizes the Lender to debit the account maintained by the Borrower with the Lender as of the Closing Date (or such other account maintained by the Borrower with the Lender as shall be designated in writing by the Borrower from time to time) (the “Designated Account”) on each date (including each Interest Payment Date) on which a payment of interest, fees, costs or expenses is due hereunder (each, a “Due Date”). Not later than two Business Days prior to each such Due Date, the Lender shall deliver to the Borrower a statement of the amount that will be due and payable in respect of any such interest, fees, costs and expenses having accrued hereunder (the “Billed Amount”); provided that any such Billed Amount shall be calculated by the Lender under the assumption that no new Loans or payments of principal, interest, fees, costs or expenses will be made by the Borrower, and that no changes in the Applicable Rates then applicable to each outstanding Loan will occur, during the period commencing on the date such statement is issued and ending on the Due Date related thereto. On the Due Date, the Lender may debit the Designated Account for the actual amount of accrued interest, fees, costs and expenses due on such Due Date (each, a “Debited Amount”), and shall promptly notify the Borrower as to any difference (positive or negative) between such Billed Amount and Debited Amount. The Borrower shall at all times maintain sufficient funds in the Designated Account to pay all Debited Amounts debited therefrom. To the extent that, on any Due Date, there are insufficient funds in the Designated Account to pay the Debited Amount related to such Due Date, the Borrower shall pay to the Administrative an amount equal to such Debited Amount in accordance with this Section 2.10. Interest, fees, costs and expenses payable hereunder shall continue to accrue in the manner provided hereunder, regardless of whether such interest, fees, costs and expenses are paid by the Borrower by means of a debit to the Designated Account or otherwise, and regardless of any differences between any Billed Amount and the Debited Amount related thereto. No failure by the Lender to issue any statement or notice, or failure or inability on the part of the Lender to debit the Designated Account on any Due Date for any amount then due (whether as a result of insufficient funds in the Designated Account on such Due Date or otherwise), shall in any way excuse or in any way affect any obligation of the Borrower to pay any such interest, fees, costs and expenses in accordance with the terms and provisions of this Agreement.

(b) If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.

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(c) Nothing herein shall be deemed to obligate the Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by the Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

ARTICLE III.

TAXES, YIELD PROTECTION AND ILLEGALITY

3.01 Taxes.

(a) Any and all payments by the Borrower to or for the account of the Lender under any Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding taxes imposed on or measured by its overall net income, and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the Laws of which the Lender is organized or maintains a lending office (all such non-excluded taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and liabilities being hereinafter referred to as “Taxes”). If the Borrower shall be required by any Laws to deduct any Taxes from or in respect of any sum payable under any Loan Document to the Lender, (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), the Lender 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 Laws, and (iv) within 30 days after the date of such payment, the Borrower shall furnish to the Lender the original or a certified copy of a receipt evidencing payment thereof.

(b) In addition, the Borrower agrees to pay any and all present or future stamp, court or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under any Loan Document or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, any Loan Document (hereinafter referred to as “Other Taxes”).

(c) If the Borrower shall be required to deduct or pay any Taxes or Other Taxes from or in respect of any sum payable under any Loan Document to the Lender, the Borrower shall also pay to the Lender, at the time interest is paid, such additional amount that the Lender specifies is necessary to preserve the after-tax yield (after factoring in all taxes, including taxes imposed on or measured by net income) that the Lender would have received if such Taxes or Other Taxes had not been imposed.

(d) The Borrower agrees to indemnify the Lender for (i) the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section) paid by the Lender, (ii) amounts payable under Section 3.01(c) and (iii) any liability (including additions to tax, penalties, interest and expenses) arising therefrom or with respect thereto, in each case whether or not such Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority; provided that

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(A) the Borrower shall not be obligated to indemnify the Lender for any penalties described in clause (iii) above to the extent the Lender (1) had actual knowledge of the existence of the tax, interest, or expense, the non-payment of which gave rise to such penalties, and (2) failed to give the Borrower notice of such tax, interest or expense within ten Business Days after the Lender received actual knowledge of the existence thereof; and (B) nothing contained in this subsection (d) shall be deemed to imply any obligation on the part of the Lender to provide the Borrower with notice of any such tax, penalty, interest or expense. Payment under this subsection (d) shall be made within 30 days after the date the Lender makes a demand therefor.

3.02 Illegality. If the Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for the Lender or its Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, then, on notice thereof by the Lender to the Borrower, any obligation of the Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans shall be suspended until the Lender notifies the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand from the Lender, prepay or, if applicable, convert all Eurodollar Rate Loans to Base Rate Loans, either on the last day of the Interest Period therefor, if the Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if the Lender may not lawfully continue to maintain such Eurodollar Rate Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted. The Lender agrees to designate a different Lending Office if such designation will avoid the need for such notice and will not, in the good faith judgment of the Lender, otherwise be materially disadvantageous to the Lender.

3.03 Inability to Determine Eurodollar Rate. If the Lender determines that for any reason adequate and reasonable means do not exist for determining the Eurodollar Base Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan, or that the Eurodollar Base Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to the Lender of funding such Loan, the Lender will promptly so notify the Borrower. Thereafter, the obligation of the Lender to make or maintain Eurodollar Rate Loans shall be suspended until the Lender revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a borrowing of, conversion to or continuation of a Eurodollar Rate Loan or, failing that, will be deemed to have converted such request into a request for a borrowing of a Base Rate Loan in the amount specified therein.

3.04 Increased Cost and Reduced Return; Capital Adequacy.

(a) If the Lender determines that as a result of the introduction of or any change in or in the interpretation of any Law occurring after the Closing Date, or the Lender’s compliance therewith, there shall be any increase in the cost to the Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Loans, or a reduction in the amount received or receivable by the Lender in connection with any of the foregoing (excluding for purposes of this

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subsection (a) any such increased costs or reduction in amount resulting from (i) Taxes or Other Taxes (as to which Section 3.01 shall govern), (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or any foreign jurisdiction or any political subdivision of either thereof under the Laws of which the Lender is organized or has its Lending Office, and (iii) reserve requirements utilized in the determination of the Eurodollar Rate), then from time to time upon demand of the Lender, the Borrower shall pay to the Lender such additional amounts as will compensate the Lender for such increased cost or reduction.

(b) If the Lender determines that the introduction of any Law occurring after the Closing Date regarding capital adequacy or any change therein or in the interpretation thereof occurring after the Closing Date, or compliance by the Lender (or its Lending Office) therewith after the Closing Date, has the effect of reducing the rate of return on the capital of the Lender or any corporation controlling the Lender as a consequence of the Lender’s obligations hereunder (taking into consideration its policies with respect to capital adequacy and the Lender’s desired return on capital), then from time to time upon demand of the Lender, the Borrower shall pay to the Lender such additional amounts as will compensate the Lender for such reduction.

3.05 Funding Losses. Upon demand of the Lender from time to time, the Borrower shall promptly compensate the Lender for and hold the Lender harmless from any loss, cost or expense incurred by it as a result of:

(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or

(b) any failure by the Borrower (for a reason other than the failure of the Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower,

including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by the Lender in connection with the foregoing.

For purposes of calculating amounts payable by the Borrower to the Lender under this Section 3.05, the Lender shall be deemed to have funded each Eurodollar Rate Loan at the Eurodollar Base Rate used in determining the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded.

3.06 Requests for Compensation. A certificate of the Lender claiming compensation under this Article III and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, the Lender may use any reasonable averaging and attribution methods; provided, however, that the Borrower shall not be liable for any such amount to the extent attributable to any period occurring more than 180 days prior to the date of such certificate.

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3.07 Survival. All of the Borrower’s obligations under this Article III shall survive termination of the Commitment and repayment of all other Obligations hereunder; provided, however, that the Obligation of the Borrower to make any payment under this Article III is contingent upon the receipt by the Borrower of the certificate described in Section 3.05 within 180 days after the repayment of all loans.

ARTICLE IV.

CONDITIONS PRECEDENT TO LOANS

4.01 Conditions of Initial Loan. The obligation of the Lender to make its initial Loan hereunder is subject to satisfaction of the following conditions precedent:

(a) Closing Documents. The Lender’s receipt of the following, each of which shall be originals or facsimiles (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Lender and its legal counsel:

(i) Credit Agreement Documents. Executed counterparts of this Agreement, the Guaranty made by Cost Plus Management Services, Inc. and the Disclosure Letter, sufficient in number for distribution to the Lender and the Borrower and a Note executed by the Borrower;

(ii) Resolutions; Incumbency. Such certificates of resolutions or other action, incumbency certificates and/or other certificates of the Secretary or Assistant Secretary of each Loan Party as the Lender may reasonably require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party;

(iii) Organization Documents; Good Standing. Such documents and certifications as the Lender may reasonably require to evidence that each Loan Party is duly organized or formed, and that each Loan Party existing as of the Closing Date is validly existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect;

(iv) Consents, Licenses and Agreements. A certificate of a Responsible Officer of each Loan Party either (A) attaching copies of all consents, licenses and approvals required in connection with the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;

(v) Payment of Fees and Attorney Costs. Evidence of payment by the Borrower of all accrued and unpaid fees, costs and expenses to the extent then due and payable

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on the Closing Date, together with Attorney Costs of the Lender to the extent invoiced prior to or on the Closing Date;

(vi) Certificate. A certificate signed by a Responsible Officer of the Borrower, dated as of the Closing Date, certifying (A) that the conditions specified in Sections 4.02(a) and (b) have been satisfied, and (B) that there has been no event or circumstance since January 28, 2006 that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect; and

(vii) Other Documents.

(A) a copy of the appraisal of the Stockton Property most recently received by the Borrower;

(B) evidence that the sale and leaseback transaction relating to the Stockton Property has been completed; and

(C) such other approvals, opinions, documents or materials as the Lender may reasonably request.

(b) Closing Date. The Closing Date shall have occurred on or before April 28, 2006.

4.02 Conditions to all Loans. The obligation of the Lender to make any Loan is subject to the following conditions precedent:

(a) Representation and Warranties True and Correct. The representations and warranties of the Borrower contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct on and as of the date of such Loan, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and except that for purposes of this Section 4.02, the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01.

(b) No Default. No Default shall exist, or would result from such proposed Loan.

(c) Loan Notice. The Lender shall have received a Loan Notice in accordance with the requirements hereof.

Each Loan Notice (other than a Loan Notice requesting only a conversion of a Loan to the other Type or a continuation of a Eurodollar Rate Loan) submitted by the Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 4.02(a) and (b) have been satisfied on and as of the date of the applicable Loan.

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ARTICLE V.

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Lender that:

5.01 Existence, Qualification and Power; Compliance with Laws. Each Loan Party (a) is a corporation, partnership or limited liability company duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, (c) is duly qualified and is licensed and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license, and (d) is in compliance with all Laws; except in each case referred to in clause (b)(i), (c) or (d), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

5.02 Authorization; No Contravention. The execution, delivery and performance by each Loan Party of each Loan Document to which such Person is party, have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, (i) any Contractual Obligation to which such Person is a party or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.

5.03 Governmental Authorization; Other Consents. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required by or on behalf of any Loan Party in connection with the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document.

5.04 Binding Effect. This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is party thereto in accordance with its terms.

5.05 Financial Statements; No Material Adverse Effect.

(a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Borrower and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness, in each case, that are required to be disclosed therein (in footnotes or otherwise) in accordance with GAAP.

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(b) The unaudited quarterly consolidated financial statements of the Borrower and its Subsidiaries furnished pursuant to Section 6.01 and the related consolidated statements of income or operations, shareholders’ equity and cash flows for the fiscal quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments.

(c) Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.

5.06 Litigation. Except as specifically disclosed in Schedule 5.06 of the Disclosure Letter, there are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Borrower, threatened in writing, at law, in equity, in arbitration or before any Governmental Authority, by or against the Borrower or any of its Subsidiaries or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby, or (b) either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect.

5.07 No Default. Neither the Borrower nor any Subsidiary is in default under or with respect to any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

5.08 Ownership of Property; Liens. Each of the Borrower and each Subsidiary has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The property of the Borrower and its Subsidiaries is subject to no Liens, other than Liens permitted by Section 6.07.

5.09 Environmental Compliance. The Borrower and its Subsidiaries conduct in the ordinary course of business a review of the effect of existing Environmental Laws and claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and properties, and as a result thereof the Borrower has reasonably concluded that, except as specifically disclosed in Schedule 5.09 of the Disclosure Letter, such Environmental Laws and claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

5.10 Taxes. The Borrower and its Subsidiaries have filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other

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material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP and except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. There is no proposed tax assessment against the Borrower or any Subsidiary that would, if made, have a Material Adverse Effect.

5.11 ERISA Compliance.

(a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto (or there is remaining a period of time under applicable Treasury regulations or IRS pronouncements in which to apply for such a letter and make amendments necessary to obtain a favorable determination letter) and, to the best knowledge of the Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification. The Borrower and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code and except where the failure to do so could not reasonably be expected to have a Material Adverse Effect, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.

(b) There are no pending or, to the best knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could be reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.

(c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA.

5.12 Subsidiaries. As of the Closing Date, the Borrower (a) has no Subsidiaries other than those specifically disclosed in Part (a) of Schedule 5.12 of the Disclosure Letter, (b) has no Equity Interest in any Person other than those specifically disclosed in Part(b) of Schedule 5.12 of the Disclosure Letter and, except where the existence of such conflict could not reasonably be expected to have a Material Adverse Effect.

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5.13 Margin Regulations; Investment Company Act.

(a) The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock.

(b) None of the Borrower, any Person Controlling the Borrower, or any Subsidiary is or is required to be registered as an “investment company” under the Investment Company Act of 1940.

5.14 Compliance with Laws. Each of the Borrower and each Subsidiary is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

5.15 Intellectual Property; Licenses, Etc. The Borrower and its Subsidiaries own, or possess the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights (collectively, “IP Rights”) that are reasonably necessary for the operation of their respective businesses, and, except where the existence of such conflict could not reasonably be expected to have a Material Adverse Effect, without conflict with the rights of any other Person. To the best knowledge of the Borrower, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Borrower or any Subsidiary infringes upon any rights held by any other Person, except where any such infringement could not reasonably be expected to have a Material Adverse Effect. No claim or litigation regarding any of the foregoing is pending or, to the best knowledge of the Borrower, threatened in writing, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

5.16 Disclosure. The Borrower has disclosed to the Lender (such disclosures being deemed to include the Borrower’s periodic filings with the SEC) all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party to the Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished), when taken together with the Borrower’s periodic filings with the SEC, contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

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ARTICLE VI.

COVENANTS

So long as the Commitment shall be in effect, any Loan or other Obligation hereunder (other than, solely for this purpose, inchoate indemnity obligations which survive the termination of this Agreement) shall remain unpaid or unsatisfied, the Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02, 6.03 and 6.05) cause each Subsidiary to:

6.01 Financial Statements; Certificates. Deliver to the Lender, in form and detail reasonably satisfactory to the Lender, the financial statements and other documents, notices and certificates (a) described in Sections 6.01(a) and (b) and 6.02(a) of the Incorporated Agreement, and (b) as otherwise required in Sections 6.01, 6.02 and 6.03 of the Incorporated Agreement, within the time limits stipulated within such sections. As similarly provided in the Incorporated Agreement, documents required to be delivered pursuant to Sections 6.01(a) or (b) or Section 6.02(c) of the Incorporated Agreement (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed on Schedule 8.02; or (ii) on which such documents are posted on the Borrower’s behalf on IntraLinks/IntraAgency or another relevant website, if any, to which the Lender has access (whether a commercial, third-party website or whether sponsored by the Lender); provided that: (i) the Borrower shall deliver paper copies of such documents to the Lender if it requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Lender and (ii) the Borrower shall notify (which may be by facsimile or electronic mail) the Lender of the posting of any such documents and provide to the Lender by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the Compliance Certificates required by Section 6.02(a) of the Incorporated Agreement to the Lender.

6.02 Other Information. Promptly furnish to the Lender (a) monthly updates (whether through title updates or in other form acceptable to the Lender) evidencing that no new Liens are encumbering the Stockton Project (except for Permitted Liens) and (b) such additional information regarding the business, financial or corporate affairs of the Borrower or any Subsidiary as the Lender may from time to time reasonably request.

6.03 Notices. Promptly notify the Lender:

(a) of the occurrence of any Default or Event of Default; and

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(b) of any proposed waiver, amendment or modification of the Incorporated Agreement.

Each notice under subsection (a) shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Borrower or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under subsection (a) shall also describe with particularity any and all clauses or provisions of the Incorporated Agreement, this Agreement or any other Loan Document, that have been (or foreseeably will be) breached or violated, but the failure to correctly list all such sections shall not, of itself, constitute a failure to comply with this Section.

6.04 Inspection Rights. Permit representatives and independent contractors of the Lender to visit and undertake reasonable inspections of any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; provided, however, that when an Event of Default exists the Lender (or any of its representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and without advance notice.

6.05 Use of Proceeds. Use the proceeds of the Loans solely for costs and expenses related to the Stockton Project.

6.06 Other Covenants. Comply with all the covenants and agreements applicable to it contained in Articles VI (Affirmative Covenants) and VII (Negative Covenants) of the Incorporated Agreement, other than the covenants set forth in Sections 6.01, 6.02, 6.03, 6.10, 6.11, 6.12 and 6.13 of the Incorporated Agreement. The covenants and agreements of the Borrower referred to in the preceding sentence (including all exhibits, schedules and defined terms referred to therein) are hereby incorporated herein by reference as if set forth in full herein with appropriate substitutions, mutatis mutandis, including the following:

(a) all references to “this Agreement” shall be deemed to be references to this Agreement;

(b) all references to “the Administrative Agent”, “the Lenders” and the “Required Lenders” shall be deemed to be references to the Lender;

(c) all references to “Default” and “Event of Default” shall be deemed to be references to a Default and an Event of Default, respectively; and

(d) all references to “Loans” shall be deemed to be references to the Loans.

All such covenants and agreements so incorporated herein by reference shall survive any termination, cancellation, discharge or replacement of the Incorporated Agreement.

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6.07 Liens. Not create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for Permitted Liens.

6.08 Material Subsidiaries. Cause each Material Subsidiary created, acquired or arising after the Closing Date (including Subsidiaries existing as of the Closing Date which become Material Subsidiaries after the Closing Date, whether pursuant to the consummation of a Permitted Acquisition (as defined in the Incorporated Agreement) or otherwise) to execute and deliver a Guaranty within 30 days after each such Material Subsidiary is acquired, created or otherwise becomes a Material Subsidiary, together with such other certificates, documents, instruments and opinions as the Lender may reasonably request in connection therewith.

6.09 Further Assurances.

(a) Ensure that all written information, exhibits and reports furnished to the Lender do not and will not contain any untrue statement of a material fact and do not and will not omit to state any material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and will promptly disclose to the Lender and correct any defect or error that may be discovered therein or in any Document or in the execution, acknowledgement or recordation thereof.

(b) Promptly upon request by the Lender, execute, acknowledge, and deliver any and all such further acts, certificates, assurances and other instruments the Lender may reasonably require from time to time in order to carry out more effectively the purposes of this Agreement or any other Loan Document.

ARTICLE VII.

EVENTS OF DEFAULT AND REMEDIES

7.01 Events of Default. Any of the following shall constitute an Event of Default:

(a) Non-Payment. The Borrower or any other Loan Party fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan, or (ii) within three days after the same becomes due, any interest on any Loan, or any commitment or other fee due hereunder, or (iii) within five days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or

(b) Specific Covenants. The Borrower fails to perform or observe any term, covenant or agreement contained in Sections 6.01(a), 6.03(a), 6.04, 6.05, 6.07 or 6.08; or

(c) Representations and Warranties. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrower or any other Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading when made or deemed made; or

(d) Other Covenants of the Incorporated Agreement. The Borrower fails to comply with any covenant or agreement incorporated herein by reference pursuant to Article VI, subject

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to any applicable grace period and/or notice requirement set forth in Article VIII of the Incorporated Agreement (it being understood and agreed that any such notice requirement shall be met by the Lender’s giving the applicable notice to the Borrower hereunder); or

(e) Other Defaults. Any Loan Party fails to perform or observe any other covenant set forth in Article VI or agreement (not specified in subsection (a), (b) or (d) above) contained in any other Loan Document on its part to be performed or observed and such failure continues for 30 days; or

(f) Invalidity of Loan Documents. Any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document; or

(g) Cross Default. Any “Event of Default” specified in Article VIII of the Incorporated Agreement occurs and is continuing, without giving effect to any waiver thereof pursuant to the Incorporated Agreement, it being agreed that each such “Event of Default” so incorporated shall survive any termination, cancellation, discharge or replacement of the Incorporated Agreement.

7.02 Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the Lender may take any or all of the following actions:

(a) declare the Commitment to be terminated, whereupon the Commitment shall be terminated;

(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; and

(c) exercise all rights and remedies available to it under the Loan Documents or applicable law;

provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the Commitment shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, without further act of the Lender.

7.03 Application of Funds. After the exercise of remedies provided for in Section 7.02 (or after the Loans have automatically become immediately due and payable as set forth in the proviso to Section 7.02), any amounts received on account of the Obligations shall be applied by the Lender in such order as it elects in its sole discretion.

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ARTICLE VIII.

MISCELLANEOUS

8.01 Amendments; Etc. No amendment or waiver of any provision of this Agreement (including any waiver of any provision of the Incorporated Agreement incorporated herein by reference pursuant to Article VI above and any waiver of Section 7.01(c) or Section 7.01(e)) or of any other Loan Document, and no consent by the Lender to any departure therefrom by the Borrower or any other Loan Party, shall be effective unless such amendment, waiver or consent shall be in writing and signed by a duly authorized officer of the Lender, and by the Borrower or other applicable Loan Party, and any such amendment, waiver or consent shall then be effective only for the period and on the conditions and for the specific instance specified in such writing. Notwithstanding the foregoing, any and all amendments to the Incorporated Agreement shall have the effect of amending any corresponding incorporated provisions contained in this Agreement.

8.02 Notices and Other Communications; Facsimile Copies.

(a) General. Unless otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including by facsimile transmission). All such written notices shall be mailed, faxed or delivered to the address, facsimile number or (subject to subsection (c) below) electronic mail address specified for notices to the applicable party on Schedule 8.02; or to such other address, facsimile number or electronic mail address as shall be designated by such party in a notice to the other party. All notices and other communications expressly permitted hereunder to be given by telephone shall be made to the telephone number specified for notices to the applicable party on Schedule 8.02, or to such other telephone number as shall be designated by such party in a notice to the other party. All such notices and other communications shall be deemed to be given or made upon the earlier to occur of (i) actual receipt by the relevant party hereto and (ii) (A) if delivered by hand or by courier, when signed for by or on behalf of the relevant party hereto; (B) if delivered by mail, four Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile, when sent and receipt has been confirmed by telephone; and (D) if delivered by electronic mail (which form of delivery is subject to the provisions of subsection (c) below), when delivered; provided, however, that notices and other communications to the Lender pursuant to Article II shall not be effective until actually received by the Lender. In no event shall a voicemail message be effective as a notice, communication or confirmation hereunder.

(b) Effectiveness of Facsimile Documents and Signatures. Loan Documents may be transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures shall, subject to applicable Law, have the same force and effect as manually-signed originals and shall be binding on all Loan Parties and the Lender. The Lender may also require that any such documents and signatures be confirmed by a manually-signed original thereof; provided, however, that the failure to request or deliver the same shall not limit the effectiveness of any facsimile document or signature.

(c) Electronic Mail. Notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended

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recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient; and notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described above of notification that such notice or communication is available and identifying the website address therefor. Electronic mail and Internet and intranet websites may be used only to distribute routine communications, such as financial statements and other information as provided in Article VI, to distribute Loan Documents for execution by the parties thereto, and may not be used for any other purpose.

(d) Reliance by Lender. The Lender shall be entitled to rely and act upon any notices (including telephonic Loan Notices) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Lender, its Affiliates, and their respective Related Parties from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other communications with the Lender may be recorded by the Lender, and the Borrower hereby consents to such recording.

8.03 No Waiver; Cumulative Remedies. No failure by the Lender to exercise, and no delay by the Lender in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

8.04 Attorney Costs, Expenses and Taxes. The Borrower agrees (a) to pay or reimburse the Lender for all costs and expenses incurred in connection with the development, preparation, negotiation and execution of this Agreement and the other Loan Documents and any amendment, waiver, consent or other modification of the provisions hereof and thereof (whether or not the transactions contemplated hereby or thereby are consummated), and the consummation and administration of the transactions contemplated hereby and thereby, including all reasonable Attorney Costs, and (b) to pay or reimburse the Lender for all costs and expenses incurred in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or the other Loan Documents (including all such costs and expenses incurred in any arbitration and during any “workout” or restructuring in respect of the Obligations and during any legal proceeding, including any proceeding under any Debtor Relief Law), including all Attorney Costs. The foregoing costs and expenses shall include all search, filing, recording, title insurance and appraisal charges and fees and taxes related thereto, and other out-of-pocket expenses incurred by the Lender and the cost of independent public accountants and other outside experts retained by the Lender. All amounts due under this

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Section 8.04 shall be payable within ten Business Days after demand therefor. The agreements in this Section shall survive the termination of the Commitment and repayment, satisfaction or discharge of all other Obligations.

8.05 Indemnification by the Borrower. Whether or not the transactions contemplated hereby are consummated, the Borrower shall indemnify and hold harmless the Lender and its Related Parties (collectively the “Indemnitees”) from and against any and all liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against any such Indemnitee in any way relating to or arising out of or in connection with (a) the execution, delivery, enforcement, performance or administration of any Loan Document or any other agreement, letter or instrument delivered in connection with the transactions contemplated thereby or the consummation of the transactions contemplated thereby, (b) the Commitment, any Loan the use or proposed use of the proceeds therefrom, (c) any actual or alleged presence or release of Hazardous Materials on or from any property currently or formerly owned or operated by the Borrower, any Subsidiary or any other Loan Party, or any Environmental Liability related in any way to the Borrower, any Subsidiary or any other Loan Party, or (d) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory (including any investigation of, preparation for, or defense of any pending or threatened claim, investigation, litigation or proceeding) and regardless of whether any Indemnitee is a party thereto (all the foregoing, collectively, the “Indemnified Liabilities”); provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses or disbursements are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. No Indemnitee shall have any liability for any indirect or consequential damages relating to this Agreement or any other Loan Document or arising out of its activities in connection herewith or therewith (whether before or after the Closing Date). All amounts due under this Section 8.05 shall be payable within ten Business Days after demand therefor. The agreements in this Section shall survive the termination of the Commitment and the repayment, satisfaction or discharge of all the other Obligations.

8.06 Payments Set Aside. To the extent that any payment by or on behalf of the Borrower is made to the Lender, or the Lender exercises its right of set-off, and such payment or the proceeds of such set-off or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred.

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8.07 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 permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Lender and the Lender may not assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (c) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (e) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (c) of this Section and, to the extent expressly contemplated hereby, the Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) The Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of the Commitment, the Loans at the time owing to it) pursuant to documentation acceptable to the Lender and the assignee. In the event of any partial assignment, the Lender, the Borrower and such assignee shall enter into such amendments to this Agreement and the other Loan Documents as shall be necessary to effect such assignment (including customary agency and majority voting provisions) and, in connection therewith, the Lender shall be the agent bank. From and after the effective date specified in such documentation, such Eligible Assignee shall be a party to this Agreement and, to the extent of the interest assigned by the Lender, have the rights and obligations of the Lender under this Agreement, and the Lender shall, to the extent of the interest so assigned, be released from its obligations under this Agreement (and, in the case of an assignment of all of the Lender’s rights and obligations under this Agreement, shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, 8.04 and 8.05 with respect to facts and circumstances occurring prior to the effective date of such assignment. Upon request, the Borrower (at its expense) shall execute and deliver new or replacement Notes to the Lender and the assignee, and shall execute and deliver any other documents reasonably necessary or appropriate to give effect to such assignment and to provide for the administration of this Agreement after giving effect thereto.

(c) The Lender may at any time, without the consent of, or notice to, the Borrower, sell participations to any Person (other than a natural person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of the Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans; provided that (i) the Lender’s obligations under this Agreement shall remain unchanged, (ii) the Lender shall remain solely responsible to the Borrower for the performance of such obligations and (iii) the Borrower shall continue to deal solely and directly with the Lender in connection with the Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which the Lender sells such a participation shall provide that the Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may

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provide that the Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification that would (i) postpone any date upon which any payment of money is scheduled to be made to such Participant, or (ii) reduce the principal, interest, fees or other amounts payable to such Participant (provided, however, that the Lender may, without the consent of the Participant, A) amend any financial covenant hereunder (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Loan obligation or to reduce any fee payable hereunder and (B) waive the right to be paid interest at the Default Rate), or (iii) release any Guarantor from the Guaranty. Subject to subsection (d) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were the Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 8.09 as though it were the Lender.

(d) A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code shall not be entitled to the benefits of Section 3.01 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to provide to the Lender such tax forms prescribed by the IRS as are necessary or desirable to establish an exemption from U.S. withholding tax.

(e) The Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under the Note, if any) to secure obligations of the Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release the Lender from any of its obligations hereunder or substitute any such pledgee or assignee for the Lender as a party hereto.

(f) As used herein, the following terms have the following meanings:

“Eligible Assignee” means (a) an Affiliate of the Lender; (b) an Approved Fund; and (c) any other Person (other than a natural person) approved by the Borrower (such approval not to be unreasonably withheld or delayed); provided that no such approval shall be required if an Event of Default has occurred and is continuing.

“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

“Approved Fund” means any Fund that is administered or managed by (a) the Lender or (b) an Affiliate of the Lender.

8.08 Confidentiality. The Lender agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be

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informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or (provided that, to the extent permitted and practicable in the reasonable judgment of the recipient thereof, reasonably prompt notice of the receipt thereof is given to the Borrower) by any subpoena or similar legal process, (d) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (e) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (f) with the consent of the Borrower, (g) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Lender on a nonconfidential basis from a source other than the Borrower or (h) to the National Association of Insurance Commissioners or any similar organization. In addition, the Lender may disclose the existence of this Agreement and information about this Agreement to market data collectors, similar service providers to the lending industry, and service providers to the Lender in connection with the administration and management of this Agreement, the other Loan Documents, the Commitment, and the Loans. For purposes of this Section, “Information” means all information received from any Loan Party relating to any Loan Party or any of their respective businesses, other than any such information that is available to the Lender on a nonconfidential basis prior to disclosure by any Loan Party, provided that, in the case of information received from a Loan Party after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

8.09 Set-off. In addition to any rights and remedies of the Lender provided by law, upon the occurrence and during the continuance of any Event of Default, the Lender is authorized at any time and from time to time, without prior notice to the Borrower or any other Loan Party, any such notice being waived by the Borrower (on its own behalf and on behalf of each Loan Party) to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, the Lender to or for the credit or the account of the respective Loan Parties against any and all Obligations owing to the Lender hereunder or under any other Loan Document, now or hereafter existing, irrespective of whether or not the Lender shall have made demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured or denominated in a currency different from that of the applicable deposit or indebtedness. The Lender agrees promptly to notify the Borrower after any such set-off and application; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application.

8.10 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not

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exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”). If the Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Lender exceeds the Maximum Rate, the Lender may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

8.11 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

8.12 Integration. This Agreement, together with the other Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and thereof and supersedes all prior agreements, written or oral, on such subject matter. In the event of any conflict between the provisions of this Agreement and those of any other Loan Document, the provisions of this Agreement shall control; provided that the inclusion of supplemental rights or remedies in favor of the Lender in any other Loan Document shall not be deemed a conflict with this Agreement. Each Loan Document was drafted with the joint participation of the respective parties thereto and shall be construed neither against nor in favor of any party, but rather in accordance with the fair meaning thereof.

8.13 Survival of Representations and Warranties. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Lender, regardless of any investigation made by the Lender or on its behalf and notwithstanding that the Lender may have had notice or knowledge of any Default at the time of any Loan, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied.

8.14 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

8.15 Governing Law; Arbitration; Waiver of Jury Trial.

(a) This Agreement shall be governed by, and construed in accordance with, the law of the State of California.

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(b) This Section concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including controversies or claims that arise out of or relate to: (i) this Agreement (including any renewals, extensions or modifications); or (ii) any other Loan Document (collectively a “Claim”). For the purposes of this arbitration provision only, the term “parties” shall include any parent corporation, Subsidiary or other Affiliate of the Lender involved in the servicing, management or administration of any obligation described or evidenced by this Agreement.

(c) At the request of any party to this Agreement, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the “Act”). The Act will apply even though this Agreement provides that it is governed by the law of the State of California.

(d) Arbitration proceedings will be determined in accordance with the Act, the applicable rules and procedures for the arbitration of disputes of JAMS or any successor thereof (“JAMS”), and the terms of this Section. In the event of any inconsistency, the terms of this Section shall control.

(e) The arbitration shall be administered by JAMS and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for the Obligations is located or if there is no such collateral, in the State of California. All Claims shall be determined by one arbitrator; provided, however, that if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators. All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days. The arbitrator(s) shall provide a concise written statement of reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed and enforced.

(f) The arbitrator(s) will have the authority to decide whether any Claim is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. For purposes of the application of the statute of limitations, the service on JAMS under applicable JAMS rules of a notice of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s). The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this Agreement.

(g) This Section does not limit the right of any party to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

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(h) The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

(i) By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim. Furthermore, without intending in any way to limit this Agreement to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim. This provision is a material inducement for the parties entering into this Agreement.

8.16 USA Patriot Act Notice. The Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow the Lender to identify the Borrower in accordance with the Act.

8.17 Time of the Essence. Time is of the essence of the Loan Documents.

(remainder of page intentionally left blank)

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

COST PLUS, INC.
By:	/s/ Tom Willardson
Name:	Tom Willardson
Title:	CFO

S-1

BANK OF AMERICA, N.A.
By:	/s/ Ronald J. Drobny
Name:	Ronald J. Drobny
Title:	Senior Vice President

S-2

SCHEDULE 8.02

NOTICE ADDRESSES AND LENDING OFFICE

BORROWER:

COST PLUS, INC.

200 4^th Street

Oakland, CA 94607

Attention: Mr. Thomas D. Willardson, Chief Financial Officer

Telephone: (510) 893-7300

Facsimile:  (510) 893-3084

Electronic Mail: tom.willardson@cpwm.com

Website Address: www. worldmarket.com

LENDER:

BANK OF AMERICA, N.A.

Credit Services

Mail Code: CA4-706-05-09

180 Gateway Boulevard

Concord, CA 94520

Attn: Ms. Gardelyn O. Jayme

Telephone: (925) 675-7184

Facsimile:  (925) 969-9232

Electronic Mail: gardelyn.o.jayme@bankofamerica.com

Account No.

Ref:

ABA# 026009593

Notices (other than for Loan Notices):

BANK OF AMERICA, N.A.

315 Montgomery Street

San Francisco, CA 94104

Attn: Mr. Ronald Drobny

Telephone: (415) 953-9023

Facsimile:  (415) 622-1878

Electronic mail: Ronald.Drobny@bankofamerica.com

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EXHIBIT A

FORM OF LOAN NOTICE

Date:                     ,

To: Bank of America, N.A.

Ladies and Gentlemen:

Reference is made to that certain Credit Agreement, dated as of April 28, 2006 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), between Cost Plus, Inc., a California corporation, and Bank of America, N.A.

The undersigned hereby requests (select one):

¨ A Loan                                                  ¨ A Conversion or Continuation of a Loan

1. On                                                                                   (a Business Day).

2. In the amount of $                                        .

3. Comprised of                                                              .

                                [Type of Loan requested]

4. For a Eurodollar Rate Loan: with an Interest Period of              months.

The borrowing requested herein complies with the proviso to the first sentence of Section 2.01 of the Agreement.

COST PLUS, INC.

By:

Name:

Title:

A-1

Form of Loan Notice

EXHIBIT B

FORM OF NOTE

$40,000,000                                          , 2006

FOR VALUE RECEIVED, the undersigned (the “Borrower”) hereby promises to pay to the order of BANK OF AMERICA, N.A. (the “Lender”), on the Maturity Date (as defined in the Credit Agreement referred to below) the principal amount of Forty Million Dollars ($40,000,000), or such lesser principal amount of Loans (as defined in such Credit Agreement) due and payable by the Borrower to the Lender on the Maturity Date under that certain Credit Agreement, dated as of April 28, 2006 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), between the Borrower and the Lender.

The Borrower promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount is paid in full, at such interest rates, and at such times as are specified in the Agreement. All payments of principal and interest shall be made to the Lender in Dollars in immediately available funds at the Lender’s Lending Office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Agreement.

This Note is the Note referred to in the Agreement, is entitled to the benefits thereof and is subject to optional prepayment in whole or in part as provided therein. This Note is also entitled to the benefits of the Guaranty. Upon the occurrence and continuation of one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided in the Agreement. Loans made by the Lender shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of business. The Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of the Loans and payments with respect thereto.

The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.

Form of Promissory Note B-1

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

COST PLUS, INC.
By
Name	________________________________________
Title	________________________________________

Form of Promissory Note B-2

LOANS AND PAYMENTS WITH RESPECT THERETO

Date	Type of Loan Made	Amount of Loan Made	End of Interest Period	Amount of Principal or Interest Paid This Date	Outstanding Principal Balance This Date	Notation Made By
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________
____________	______________	______________	______________	______________	______________	______________

Form of Promissory Note B-3

EXHIBIT C

FORM OF GUARANTY

[See attachment hereto]

Form of Guaranty C-1

EX-10.2

Exhibit 10.2

PURCHASE AND SALE AGREEMENT

AND JOINT ESCROW INSTRUCTIONS

THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (“Agreement”) is made and entered into as of this 7^th day of April, 2006, by and between COST PLUS, INC., a California corporation (“Seller”), and INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation, or assignee (“Buyer”).

WITNESSETH THAT:

WHEREAS, Buyer wishes to purchase, and Seller wishes to sell, the Property (as hereinafter defined), but only upon the terms and conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:

Section 1. Definitions and Exhibits.

1.1 Definitions. For purposes of this Agreement, each of the following terms, when used herein with an initial capital letter, shall have the meaning ascribed to it as follows:

Agreement. This Purchase and Sale Agreement and Joint Escrow Instructions.

Broker. Blickman Turkus, L.P., dba BT Commercial Real Estate.

Building. The warehouse building containing approximately 513,778 square feet, which is located on the Land and known locally as 3610 Airport Way, Stockton, California.

Closing. The closing and consummation of the purchase and sale of the Property pursuant hereto, including, without limitation, the recording of the Deed in the records of San Joaquin County, California.

Closing Date. The date on which the Closing occurs as provided in Section 11.1.

Closing Documents. Seller’s Closing Documents (as defined in Section 11.2) together with Buyer’s Closing Documents (as defined in Section 11.3).

Contract Date. The date upon which this Agreement shall be deemed effective, which shall be the date on which each of Seller and Buyer has executed this

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Agreement and each of them has received a counterpart executed by the other, which date shall be inserted in the blank first above written.

Deed. The Grant Deed to be executed by Seller in the form attached hereto and incorporated herein as Exhibit D.

Earnest Money. The amount deposited by Buyer in escrow with Escrow Agent as earnest money pursuant to the terms and conditions of Section 3, together with any interest earned thereon (which shall follow principal).

Environmental Matter. Any matter or circumstance related in any manner whatsoever to (i) the disposal or release of solid, liquid or gaseous waste into the environment, (ii) the treatment, storage, disposal or other handling of any Hazardous Materials, (iii) the placement of structures or materials into waters of the United States, (iv) above-ground or underground storage tanks used for the storage of petroleum, petroleum products, or Hazardous Materials, or (v) the presence of any Hazardous Materials, including, but not limited to, asbestos, in any building, structure or workplace, which matter or circumstance exists at the Property on or before the Closing Date.

Escrow. As defined in Section 3.2.

Escrow Agent. Chicago Title & Trust Company in Chicago, Illinois acting as Escrow Agent pursuant to the terms and conditions of Section 3 and the Escrow Agreement.

Escrow Agreement. That certain Earnest Money Escrow Agreement of even date herewith among Seller, Buyer and Escrow Agent referred to in Section 3 and attached hereto and incorporated herein as Exhibit A.

Governmental Requirements. Laws, rules and regulations of federal, state and local governmental authorities having jurisdiction over the Property including, but not limited to, environmental laws, rules and regulations and zoning laws, rules and regulations.

Hazardous Materials. As defined in Section 6.3.

Improved Land. All that tract or parcel of land described or depicted on Exhibit B-1 attached hereto and incorporated herein, containing approximately 22.8041 acres. The Improvements are located on the Improved Land.

Improvements. The Building and any other buildings, structures and improvements located upon the Land.

Inspection Date. As defined in Section 6.6.

Intangible Interests. All intangible personal property used in the operation of, located at, or associated with the Property, including without limitation transferable permits,

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licenses, entitlements, certificates, approvals, and consents granted or issued by any governmental or quasi-governmental agency; all warranties and guarantees, if any, by third parties covering the Property and the improvements, including without limitation all warranties and guarantees by architects, contractors, subcontractors, engineers, and/or vendors; and all rights and claims that Seller has or may have against third parties with respect to the Property.

Land. Collectively, the Improved Land and the Unimproved Land.

Parties. Seller and Buyer, collectively.

Permitted Title Exceptions. Those matters approved by Buyer on or before the Inspection Date, those matters identified on Exhibit C attached hereto and incorporated herein, and, to the extent not included in Exhibit C, current and future property taxes and assessments not yet due and payable, any zoning laws and ordinances, any existing general utility easements serving the Property and any other rights or interests recorded in the public records where the Land is located.

Property. All of Seller’s right, title and interest in, to and under the following property:

(i) The Unimproved Land;

(ii) The Improved Land;

(iii) The Improvements;

(iv) The Intangible Interests; and

(v) All rights of way or use, licenses, tenements, hereditaments, appurtenances and easements now or hereafter belonging or pertaining to any of the foregoing, except those, if any, hereinafter reserved to Seller.

Proration Date. The effective date of the prorations provided in Section 4.2, which is 11:59 p.m. on the eve of the Closing Date.

Purchase Price. The purchase price for the Property described in Section 4.1.

Seller Related Parties. As defined in Section 18.13.

Title Commitment. As defined in Section 5.

Title Insurer. Chicago Title & Trust Company.

Unimproved Land. All those tracts or parcels of land described in Exhibit B-2 attached hereto and incorporated herein, containing approximately 56.5492 acres.

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1.2 Exhibits. Attached hereto and forming an integral part of this Agreement are the following exhibits, all of which are incorporated into this Agreement as fully as if the contents thereof were set out in full herein at each point of reference thereto:

Exhibit A -	Escrow Agreement
Exhibit B-1 -	Description of Improved Land
Exhibit B-2 -	Description of Unimproved Land
Exhibit C -	Permitted Title Exceptions
Exhibit D -	Form of Grant Deed
Exhibit E -	Non-Foreign Certificate
Exhibit F-	General Assignment

Section 2. Purchase and Sale. Subject to and in accordance with the terms and provisions hereof, Seller agrees to sell and Buyer agrees to purchase the Property.

Section 3. Deposit; Opening of Escrow.

3.1 Earnest Money. Buyer shall deposit into Escrow the sum of ONE MILLION DOLLARS ($1,000,000) (the “Deposit”) upon full execution of this Agreement. The Deposit and all interest accruing thereon shall be referred to collectively as the “Earnest Money”. The Escrow Agent shall invest the Earnest Money in an interest bearing account of an FDIC-insured bank, and the Earnest Money shall be held by Escrow Agent in the Escrow until applied at Closing in accordance with this Agreement or until the Earnest Money is otherwise disbursed in accordance with this Agreement. The Earnest Money shall be retained or refunded, as the case may be, in accordance with the terms of this Agreement and, except if Buyer defaults on its obligations under this Agreement resulting in termination of this Agreement by Seller, shall be applied as a credit against the Purchase Price at Closing. Notwithstanding the foregoing, Buyer may unilaterally withdraw the Earnest Money on or before the Inspection Date in which event this Agreement shall automatically terminate. Seller and Buyer agree to sign all forms required by Escrow Agent for the holding and investing of the Earnest Money, such as IRS and bank account forms, and for such purposes the Earnest Money shall be considered the property of Buyer until such time as Escrow Agent disburses the Earnest Money to either Seller or Buyer pursuant to this Agreement. The preceding sentence shall not change in any way the other provisions in this Agreement concerning the holding and disbursing of the Earnest Money.

3.2 Escrow. Concurrently with the execution of this Agreement, Buyer and Seller shall open an escrow (“Escrow”) with Escrow Agent, whose address is: 171 N. Clark Street, Chicago, Illinois 60601, Attention: Nancy Castro, Telephone: 312-223-2709, Facsimile: 312-223-2108.

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3.3 Escrow Instructions. The terms and conditions set forth in this Agreement shall constitute both an agreement between Seller and Buyer and escrow instructions for the Escrow Agent. If there is any conflict or inconsistency between this Agreement and any separate or additional escrow instructions required by Escrow Agent (“Additional Instructions”), this Agreement shall prevail and govern. The Additional Instructions shall not modify or amend the provisions of this Agreement unless otherwise expressly set forth by mutual written instructions or consent of Buyer and Seller. As used in this Agreement, “Opening of Escrow” means delivery of fully executed copies, or counterparts, of this Agreement and any Additional Instructions to Escrow Agent, along with the Earnest Money, and Escrow shall be deemed opened by Escrow Agent as of the date of delivery to Escrow Agent of all such documents and funds. Escrow Agent shall deliver written notice to the Parties specifying the date upon which Escrow opened hereunder.

Section 4. Purchase Price.

4.1 Purchase Price. The purchase price (the “Purchase Price”) for the Property shall be THIRTY TWO MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($32,750,000).

The Purchase Price, as adjusted by the prorations provided in Section 4.2 and as reduced by the Earnest Money (which, unless otherwise disbursed hereunder, shall be disbursed by Escrow Agent at the Closing to Seller as a portion of the Purchase Price), shall be deposited by Buyer with the Escrow Agent at the Closing in United States dollars, by Federal Reserve System wire transfer or other immediately available funds acceptable to Escrow Agent.

4.2 Prorations. The following items shall be prorated between Seller and Buyer as of the Proration Date, and prorations favoring Buyer, to the extent determinable as of the Proration Date, shall reduce the Purchase Price payable by Buyer at the Closing, and such prorations favoring Seller, to the extent determinable as of the Proration Date, shall increase the Purchase Price payable by Buyer at the Closing:

4.2.1 State, county and local property taxes and assessments of every nature (including, without limitation, payments for Mello Roos bonds and Community Facilities District assessments) for the year or tax period of Closing. If the actual tax bills have not been issued, then such proration shall be based on such taxes for the prior year or tax period. After the tax bills for the year or tax period of Closing are received by either Buyer or Seller, Buyer and Seller shall adjust such proration, and any amount then owing shall be paid within twenty (20) days of demand by the party entitled thereto.

4.2.2 Sanitary sewer taxes, assessments and utility charges, if any.

4.2.3 Operating expenses of the Property, if any.

4.2.4 If the parties make any errors in the closing prorations or if they subsequently determine that any dollar amount prorated is or was incorrect, each agrees, upon

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notice from the other within six (6) months after the Closing, to make any adjustment necessary to correct the error, including payment of any amount to the other then determined to be owing.

Buyer and Seller shall promptly pay to the other party any amount due to the other party as a result of any proration required under this Section 4.2. All amounts due hereunder shall be payable no later than twenty (20) days after demand by the payee. The terms and conditions set forth in this Section 4.2 shall expressly survive the Closing hereunder only for the period of time necessary to achieve final prorations of all amounts due and owing hereunder, but in any event no later than two (2) years after the Closing.

Section 4.3. Holdback Amount. The sum of TWO MILLION NINE HUNDRED SEVENTY THOUSAND NINE HUNDRED TWENTY-SIX DOLLARS ($2,970,926) (the “Holdback Amount”) shall be retained in Escrow until such time as Escrow Agent records a grant deed from Buyer to Seller reconveying the Remainder Parcel (as defined in the “Subground Lease” of even date herewith by and between Seller, as Lessee, and Inland Western Stockton Ground Tenant, L.L.C. (“IWSGT”), as Lessor); in which event, the Holdback Amount, together with all interest accrued thereon, shall be returned to Buyer. If Seller is unable, after using its diligent, good faith efforts, to subdivide the Remainder Parcel from the Total Parcel (as defined in the Subground Lease) within twelve (12) months after the Closing Date, Buyer and Seller shall deliver written instructions to Escrow Agent to disburse the Holdback Amount in accordance with the provisions of Section 4.4(b) of the Subground Lease.

Section 5. Title to the Property. Seller shall convey good and insurable title to the Land and the Improvements to Buyer in the form of the Deed, which shall expressly be made subject to the Permitted Title Exceptions. Buyer shall obtain a current Urban ALTA/ACSM spotted survey (the “Survey”) in accordance with the minimum standard detail requirements for ALTA/ACSM Land Title surveys established and adopted by ALTA and ACSM in 1999 including all Title A Optional Responsibilities Items 1-4, 6, 7(a), (b)(1), (c), 8, 9, 10, 11(a), 12-16 certified to Buyer, its successors and assigns, lenders and the Title Company. Additionally, Buyer shall obtain from the Title Insurer an owner’s title insurance commitment on the current ALTA Extended Coverage form, in the amount of the Purchase Price and naming Buyer as the proposed insured (the “Title Commitment”), together with copies of all documents shown in the Title Commitment as exceptions to the title to the Property. Buyer shall have ten (10) calendar days after receipt of the Survey, Title Commitment and copies of all exceptions to give written notice to Seller of any objections which Buyer may have to the title to the Property. If Buyer fails to give any notice to Seller by such date, Buyer shall be deemed to have waived such right to object to any title exceptions or defects except with respect to title exceptions or defects of which Buyer receives notice following its required time to notify Seller. If Buyer does give Seller timely notice of objection to any other title exceptions or defects, Seller shall then have the right, but not the obligation, for a period of five (5) calendar days after such notice, to reasonably cure or satisfy such objection. The procurement by Seller, at its sole expense, of an endorsement to the Title Commitment, insuring Buyer against any title exceptions or defects, shall be deemed a cure by Seller of such exception or defect. Notwithstanding the foregoing, Seller shall in all events be required to cure, at or before the Closing, monetary liens in a definite and ascertainable amount and all other title exceptions or defects caused by Seller’s intentional and wrongful acts that may be cured by the payment of money. If such objection is not so timely

6

and reasonably cured, then Buyer shall, within five (5) calendar days thereafter, elect, by written notice given to Seller on or before such fifth (5th) day, either to (a) terminate this Agreement, in which case the Earnest Money shall be returned to Buyer by Escrow Agent, and the parties shall have no further rights or obligations hereunder, except for those which expressly survive any such termination, or (b) waive its objections hereunder and proceed with the transaction pursuant to the remaining terms and conditions of this Agreement. If Buyer fails to give Seller notice of its election by such time, it shall be deemed to have elected the option contained in subparagraph (b) above. If Seller does so reasonably cure or satisfy such objection, then this Agreement shall continue in full force and effect. Buyer shall have the right at any time to waive any objections that it may have made and, thereby, to preserve this Agreement in full force and effect.

Section 6. Limitation on Warranties and Buyer’s Inspection.

6.1 Disclaimer of Representations and Warranties by Seller. BUYER HEREBY ACKNOWLEDGES AND AGREES THAT THE SALE OF THE PROPERTY HEREUNDER IS AND WILL BE MADE ON AN “AS IS, WHERE IS” BASIS AND THAT EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT, FUTURE OR OTHERWISE, OF, AS TO, CONCERNING OR WITH RESPECT TO, THE PROPERTY, INCLUDING, WITHOUT LIMITATION, (i) ENVIRONMENTAL MATTERS RELATING TO THE PROPERTY OR ANY PORTION THEREOF, (ii) GEOLOGICAL CONDITIONS, INCLUDING, WITHOUT LIMITATION, SUBSIDENCE, SUBSURFACE CONDITIONS, WATER TABLE CONDITIONS, UNDERGROUND WATER RESERVOIRS, AND LIMITATIONS REGARDING THE WITHDRAWAL OF WATER AND FAULTING, (iii) WHETHER OR NOT AND TO THE EXTENT TO WHICH THE PROPERTY OR ANY PORTION THEREOF IS AFFECTED BY ANY STREAM (SURFACE OR UNDERGROUND), BODY OF WATER, FLOOD PRONE AREA, FLOOD PLAIN, FLOODWAY OR SPECIAL FLOOD HAZARD, (iv) DRAINAGE ISSUES, CONDITIONS OR PROBLEMS, (v) SOIL CONDITIONS, INCLUDING THE EXISTENCE OF INSTABILITY, PAST SOIL REPAIRS, SOIL ADDITIONS OR CONDITIONS OF SOIL FILL, OR SUSCEPTIBILITY TO LANDSLIDES, OR THE SUFFICIENCY OF ANY UNDERSHORING, (vi) THE ZONING OR OTHER LAND USE RESTRICTIONS TO WHICH THE PROPERTY OR ANY PORTION THEREOF MAY BE SUBJECT, (vii) THE AVAILABILITY OF ANY UTILITIES TO THE PROPERTY OR ANY PORTION THEREOF INCLUDING, WITHOUT LIMITATION, WATER, SEWAGE, GAS AND ELECTRIC SERVICE, (viii) USAGES OF ADJOINING PROPERTY, (ix) ACCESS TO THE PROPERTY OR ANY PORTION THEREOF, (x) THE VALUE, COMPLIANCE WITH THE PLANS AND SPECIFICATIONS, SIZE, LOCATION, AGE, USE, DESIGN, QUALITY, DESCRIPTION, DURABILITY, STRUCTURAL INTEGRITY, OPERATION, TITLE TO, OR PHYSICAL OR FINANCIAL CONDITION OF, THE PROPERTY, OR ANY PORTION THEREOF, OR ANY INCOME, EXPENSES, CHARGES, LIENS, ENCUMBRANCES, RIGHTS, OR CLAIMS ON OR AFFECTING,

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OR PERTAINING TO, THE PROPERTY OR ANY PART THEREOF, (xi) THE PRESENCE OF HAZARDOUS MATERIALS (AS MORE FULLY DESCRIBED IN SECTION 6.3 BELOW) IN OR ON, UNDER OR IN THE VICINITY OF THE PROPERTY, (xii) THE CONDITION OR USE OF THE PROPERTY OR COMPLIANCE OF THE PROPERTY WITH ANY OR ALL PAST, PRESENT OR FUTURE FEDERAL, STATE OR LOCAL ORDINANCES, RULES, REGULATIONS OR LAWS, BUILDING, FIRE OR ZONING ORDINANCES, CODES OR OTHER SIMILAR LAWS, (xiii) THE EXISTENCE OR NON-EXISTENCE OF UNDERGROUND STORAGE TANKS, (xiv) ANY OTHER MATTER AFFECTING THE STABILITY OR INTEGRITY OF THE LAND OR IMPROVEMENTS, (xv) THE POTENTIAL FOR FURTHER DEVELOPMENT OF THE PROPERTY, (xvi) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING ENTITLEMENTS AFFECTING THE PROPERTY, AND (xvii) THE MERCHANTABILITY OF THE PROPERTY OR FITNESS OF THE PROPERTY FOR ANY PARTICULAR PURPOSE (BUYER AFFIRMING THAT BUYER HAS NOT RELIED ON SELLER’S SKILL OR JUDGMENT TO SELECT OR FURNISH THE PROPERTY FOR ANY PARTICULAR PURPOSE, AND THAT SELLER MAKES NO WARRANTY THAT THE PROPERTY IS FIT FOR ANY PARTICULAR PURPOSE).

6.2 Inspection by Buyer. Buyer acknowledges that it will complete all physical and financial examinations relating to the acquisition of the Property hereunder and, subject to the express representations and warranties of Seller contained herein, will acquire the same solely on the basis of such examinations and the title insurance protection afforded by the owner’s title insurance policy to be issued pursuant to the Title Commitment and not on any information provided or to be provided by Seller. Except as expressly set forth in this Agreement, Seller makes no representation or warranty as to the truth, accuracy or completeness of any materials, data or information delivered by Seller to Buyer in connection with the transaction contemplated by this Agreement. Buyer acknowledges and agrees that all materials, data and information delivered or made available by Seller to Buyer in connection with the transaction contemplated by this Agreement are provided to Buyer as a convenience only and that any reliance on or use of such materials, data or information by Buyer shall be at the sole risk of Buyer, except as otherwise expressly stated herein. Without limiting the generality of the foregoing provisions, Buyer acknowledges and agrees that (a) any environmental or other report with respect to the Property which is delivered or made available by Seller to Buyer shall be for general informational purposes only, (b) Buyer shall not have any right to rely on any such report delivered or made available by Seller to Buyer, but rather will rely on its own inspections and investigations of the Property and any reports commissioned by Buyer with respect thereto, and (c) neither Seller, any affiliate of Seller, nor the person or entity which prepared any such report delivered or made available by Seller to Buyer shall have any liability to Buyer for any inaccuracy in or omission from any such report. Buyer further acknowledges and agrees that any information provided or to be provided with respect to the Property including, without limitation, any due diligence materials, was obtained from a variety of sources and that, except for the express representations and warranties contained in this Agreement, Seller has not made any independent investigation or verification of such information and makes no representations as to the accuracy or completeness of such information. Seller shall not be liable for any failure to investigate the Property nor shall Seller be bound in any manner by any verbal or written

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statements, representations, appraisals, environmental assessment reports, or other information pertaining to the Property or the operation thereof, furnished by Seller or by any real estate broker, attorney, agent, representative, employee, servant or other person acting on Seller’s behalf, except as expressly set forth herein. It is expressly understood and agreed that the amount of the Purchase Price reflects, and the Property is being sold by Seller and purchased by Buyer subject to, the foregoing disclaimers, which shall survive Closing.

6.3 Waiver and Release by Buyer. Except as otherwise expressly set forth in this Agreement, Buyer, for itself and any entity affiliated with Buyer, waives and releases Seller, the Seller Related Parties and their respective employees, agents, officers, trustees, directors and shareholders from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs or expenses of whatever kind or nature, known or unknown, existing and future, contingent or otherwise (including any action or proceeding, brought or threatened, or ordered by any appropriate governmental entity) made, incurred, or suffered by Buyer or any entity affiliated with Buyer relating to the presence, misuse, use, disposal, release or threatened release of any hazardous or toxic materials, chemicals or wastes at the Property and any liability or claim related to the Property arising under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, and the Toxic Substance Control Act, all as amended, or any other cause of action based on any other state, local, or federal environmental law, rule or regulation; provided, however, the foregoing waiver and release shall not apply to (i) the release by Seller of Hazardous Materials at or affecting the Property or violations by Seller of environmental laws to the extent affecting the Property or (ii) violations of environmental laws within the actual knowledge of Seller and not disclosed to Buyer prior to Closing. As used herein, “Hazardous Materials” shall mean substances which are designated, defined or classified as a hazardous substance, hazardous material or contaminant under applicable environmental laws currently in effect as of the Contract Date. Buyer acknowledges that unknown and unsuspected Hazardous Materials may hereafter be discovered on or about the Property, and Buyer knowingly releases Seller and the Seller Related Parties from any and all liability related thereto (except as expressly provided above). Buyer hereby agrees, represents and warrants that the matters released herein are not limited to matters which are known, disclosed, suspected or foreseeable.

Seller’s Initials Buyer’s Initials

The provisions of this Section 6.3 shall survive indefinitely any Closing or termination of this Agreement and shall not be merged into the Closing Documents.

6.4 Physical and Document Inspection. Simultaneously with or prior to the execution and delivery of this Agreement, Seller shall deliver to Buyer complete copies of each of the following documents related to the Property that it has in its possession: (a) a Phase I environmental report and an ALTA survey of the Property (both of which have been provided to Seller), and (b) plans and specifications, certificate of occupancy, and notice of completion for the Building.

6.5 Buyer’s Inspection. Buyer and its agents shall have the right, from time to time prior to the Closing, to enter upon the Property to examine the same and the condition

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thereof, and to conduct such surveys and to make all such engineering and other inspections, tests and studies as Buyer shall determine to be reasonably necessary, all at Buyer’s sole cost and expense; provided, however, Buyer shall not conduct any environmental investigations of the Property beyond a Phase I environmental site assessment (i.e. no sampling or drilling) without obtaining Seller’s prior written consent. Buyer agrees to give Seller at least twenty-four (24) hours advance written notice of such examinations or surveys and to conduct such examinations or surveys during normal business hours. Unless Seller waives such right in writing, a representative of Seller must be present with Buyer during all examinations or surveys of the Property conducted by Buyer. Buyer agrees to restore the Property to its condition prior to any such examinations or surveys immediately after conducting the same. Buyer hereby indemnifies and holds Seller harmless from and against any claims for injury or death to persons, damage to property or other losses, damages or claims, including, in each instance, attorneys’ fees and litigation costs, to the extent arising out of any action of any person or firm entering the Property on Buyer’s behalf as aforesaid, which indemnity shall survive the Closing and any termination of this Agreement without the Closing having occurred.

6.6 Formal Inspection Period. Notwithstanding Buyer’s right of inspection contained in Section 6.5 above, with respect to the condition of the Property, Buyer’s obligation to close under this Agreement is subject to and conditioned upon Buyer’s investigation and study of and satisfaction with the Property. Buyer shall have until April 7, 2006 (the “Inspection Date”), to make any such investigations and studies with respect to the Property as Buyer deems appropriate, and to terminate this Agreement, by written notice to Seller, to be given on or before the Inspection Date, if Buyer is not, for any reason, satisfied with the Property. If Buyer fails timely to give notice of such termination, then Buyer’s rights under this Section 6.6 shall be deemed to have been waived by Buyer and this Agreement shall remain in full force and effect without any longer being subject to this Section 6.6. If Buyer does give notice of termination on or before the Inspection Date, the Earnest Money shall be refunded to Buyer by Escrow Agent, and the parties shall have no further rights or obligations hereunder, except for those which expressly survive any such termination, and, thereafter, Buyer shall promptly provide to Seller, without charge and without warranty, copies of any reports, surveys, drawings, tests or other written documents obtained by Buyer from third parties with respect to the Property.

6.7 Disclosure. Buyer and Seller acknowledge that Seller or Broker may be required to disclose if the Property lies within the following natural hazard areas or zones: (1) a special flood hazard area designated by the Federal Emergency Management Agency (Cal. Civ. Code §1103); (2) an area of potential flooding (Cal. Gov. Code §8589.4); (3) a very high fire hazard severity zone (Cal. Gov. Code 51183.5); (4) a wild land area that may contain substantial forest fire risks and hazards (Pub. Resources Code § 4136); (5) an earthquake fault zone (Pub. Resources Code § 2621.9); or (6) a seismic hazard zone (Pub. Resources Code § 2694). Buyer and Seller acknowledge that Buyer will employ the services of a reputable third party who is in the business of providing such information (which, in such capacity is herein called “Natural Hazard Expert”) to examine the maps and other information specifically made available to the public by government agencies for the purpose of enabling each of Seller and Broker to fulfill its disclosure obligations, if any, with respect to the natural hazards referred to in California Civil Code Section 1103.2 and to report the result of its examination to Buyer and Seller in writing. The written report prepared by the Natural Hazard Expert regarding the results of its examination

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fully and completely discharges Seller and Broker from their disclosure obligations, if any, referred to herein, and, for the purpose of this Agreement, the provisions of Civil Code Section 1102.4 regarding the non-liability of each of Seller and Broker for errors or omissions not within its personal knowledge shall be deemed to apply and the Natural Hazard Expert shall be deemed to be an expert, dealing with matters within the scope of its expertise with respect to the examination and written report regarding the natural hazards referred to above. The obligations of Seller and Broker are several (and not joint and several).

Section 7. Reserved.

Section 8. Representations and Warranties.

As of the Contract Date, Seller hereby warrants and represents to Buyer as follows:

8.1 No Litigation. Seller has not received any written notice of any actual, pending or threatened litigation or proceeding, including, without limitation, condemnation or other exercise of the power of eminent domain, by any organization, person, individual or governmental agency against Seller with respect to the Property or against the Property. Seller has no actual knowledge of any other pending or threatened litigation, condemnation or other exercise of the power of eminent domain which would affect the Property.

8.2 No Violation of Law. Seller has received no written notice from any governmental authority alleging or asserting that the Property is not in compliance with applicable Governmental Requirements.

8.3 Authority. Seller is a duly organized and validly formed corporation under the laws of the State of California, is in good standing in the State of California, is not subject to any voluntary or involuntary bankruptcy or other proceeding for dissolution or liquidation thereof, has obtained all requisite authorizations to enter into this Agreement with Buyer and to consummate and close the purchase and sale of the Property pursuant hereto, and that the parties executing this Agreement on behalf of Seller are duly authorized to do so.

8.4 Non-Foreign Status. Seller is not a “foreign person” as that term is defined in the Internal Revenue Code of 1986, as amended and the Regulations promulgated pursuant thereto.

8.5 No Leases. There are no leases, licenses, or other rights of occupancy in effect at the Property.

8.6 Other Buyers. Other than this Agreement and Seller’s loan facility and/or credit agreements with Bank of America, there is no binding agreement, understanding, letter of intent, or other commitment or arrangement of any kind between Seller and any other person, firm, corporation, or other entity relating to the sale, lease, or other disposition of the Property or any portion or component thereof.

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8.7 Performance Under Contract. To Seller’s knowledge, Seller’s entering into this Agreement does not and at the time of Closing will not violate any provisions of any agreement or judicial order to which Seller is a party or to which Seller or the Property is subject.

Whenever a representation and warranty made by Seller in this Section 8 is limited to Seller’s “knowledge” or “actual knowledge”, such term shall mean the current actual knowledge of the authorized representative of Seller responsible, on behalf of Seller, for the acquisition, development, leasing, management, operation and disposition of the Property and construction of the Improvements, without any independent inquiry or investigation and without any personal liability on the part of any of them, and the knowledge of no other past, present or future employee of Seller shall be imputed to Seller for the purposes hereof. The foregoing definition of “knowledge” or “actual knowledge” shall apply to such terms wherever used in this Agreement with respect to statements, warranties or actions of Seller, including, without limitation, Section 6.3.

Section 9. Buyer’s Conditions to Closing.

9.1 Seller’s Representations and Warranties. The representations and warranties contained in Section 8 are true and correct in all material respects at Closing. The representations and warranties contained in Section 8 shall survive Closing for a period of one year following the Closing Date (except for 8.3 and 8.4 which shall survive for a period of four years) and shall terminate upon expiration of such one year period, except as to claims asserted in writing by Buyer prior to that time.

9.2 Seller’s Compliance. Seller shall have complied with each and every condition and material covenant of this Agreement to be kept or complied with by Seller.

9.3 ALTA Survey. Buyer shall have obtained the Survey in a form reasonably satisfactory to Buyer.

Section 10. No Leases. Seller will not, so long as this Agreement remains in effect, enter into any leases, licenses, or occupancy agreements affecting the Property.

Section 11. Closing.

11.1 Time and Place. Provided that all of the conditions set forth in this Agreement are theretofore fully satisfied or performed, the Closing shall be conducted through an escrow administered by Escrow Agent, at its offices at 171 North Clark Street, Chicago, Illinois 60601, commencing at 10:00 a.m., on a date selected by Buyer and reasonably acceptable to Seller, but in no event later than April 7, 2006. Seller and Buyer will execute and deliver to Escrow Agent such escrow instructions, either jointly or separately, not later than the day before the date of Closing, as may be necessary to enable Escrow Agent to administer and complete the Closing in accordance with the provisions of this Agreement and the Additional Instructions.

11.2 Seller’s Closing Documents. For and in consideration of, and as a condition precedent to, Buyer’s delivery to Seller of the Purchase Price, Seller shall obtain and

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deliver to Buyer, or cause to be obtained and delivered to Buyer, at the Closing the following documents (collectively, the “Seller’s Closing Documents”, all of which shall be duly executed and witnessed, which documents Buyer agrees to execute where required):

11.2.1 A Deed, in the form attached as Exhibit D conveying to Buyer all of Seller’s right, title and interest in and to the Land and Improvements, subject to the Permitted Title Exceptions and such other exceptions as are permitted by Section 5.

11.2.2 A Non-Foreign Certificate, in the form attached as Exhibit E;

11.2.3 Such evidence as the Title Insurer shall reasonably require as to the authority of the parties acting on behalf of Seller and Buyer to enter into this Agreement and to discharge the obligations of Seller and Buyer pursuant hereto;

11.2.4 A properly-completed property transfer tax return, in form and substance appropriate to the jurisdiction in which the Property is located;

11.2.5 A closing statement;

11.2.6 An affidavit of title or other affidavit customarily required of sellers by the Title Insurer to remove the standard exceptions from an owner’s ALTA extended coverage title insurance policy which are capable of being removed by such an affidavit;

11.2.7 A General Assignment in the form attached hereto as Exhibit F;

11.2.8 A current ALTA Owner’s Extended Coverage Policy of Title Insurance issued by the Title Insurer, in the amount of the Purchase Price and showing title to the Property vested in Buyer, subject to the Permitted Title Exceptions, with such endorsements as Buyer shall reasonably request and which shall include 3.1 zoning with parking, comprehensive, subdivision, utility facility, survey, access, single tax lot, waiver of the creditors’ rights exception, waiver of the arbitration clause and environmental lien endorsements;

11.2.9 A lease and subground lease agreement, in the forms attached hereto as Exhibit G-1 and G-2, respectively, whereby Seller agrees to lease from Buyer (or IWSGT, as applicable), and Buyer agrees to lease (or cause to be leased) to Seller, the Property;

11.2.10 Insurance certificate in the form as is required by the lease naming the Buyer’s assignee and lender as insured parties;

11.2.11 Estoppel certificate executed by Seller, as lessee, in a commercially reasonable form; and

11.2.12 Such further instructions, documents and information as Buyer or Title Insurer may reasonably request as necessary to consummate the purchase and sale contemplated by this Agreement.

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11.3 Buyer’s Closing Documents. For and in consideration of, and as a condition precedent to, Seller’s delivery to Buyer of the Deed, Buyer shall obtain and deliver to Seller, or cause to be obtained and delivered to Seller, at the Closing the following documents (collectively, the “Buyer’s Closing Documents”, all of which shall be duly executed and witnessed, which documents Seller agrees to execute where required):

11.3.1 Such evidence as the Title Insurer shall reasonably require as to the authority of the parties acting on behalf of Seller and Buyer to enter into this Agreement and to discharge the obligations of Seller and Buyer pursuant hereto;

11.3.2 A closing statement;

11.3.3 A General Assignment in the form attached hereto as Exhibit F;

11.3.4 A lease and subground lease agreement, in the forms attached hereto as Exhibit G-1 and G-2, respectively, whereby Seller agrees to lease from Buyer (or IWSGT, as applicable), and Buyer agrees to lease (or cause to be leased) to Seller, the Property; and

11.3.5 Such further instructions, documents and information as Seller or Title Insurer may reasonably request as necessary to consummate the purchase and sale contemplated by this Agreement.

11.4 Costs. At the Closing, Seller and Buyer shall pay their own respective costs incurred with respect to the consummation of the purchase and sale of the Property as contemplated herein, including, without limitation, attorneys’ fees. Seller shall be responsible for payment of documentary transfer taxes, escrow and recording fees, closing costs, all Survey costs and the premium for an ALTA owner’s standard policy of title insurance (without endorsements). Buyer shall be responsible for payment of any additional costs attributable to an ALTA owner’s extended coverage policy of title insurance and any endorsements to the ALTA owner’s policy of title insurance, if so desired by Buyer.

Section 12. Default and Remedies.

12.1 Buyer’s Default. In the event of a default by Buyer under the terms of this Agreement and continuation of such default for a period of five (5) calendar days after receipt of written notice from Seller (except that no such notice shall be required for a failure by Buyer to tender the Purchase Price and execute the applicable Closing Documents on the Closing Date in accordance with Section 11.2), Escrow Agent shall disburse the Earnest Money to Seller, and Seller shall be entitled, as its sole and exclusive remedy hereunder, to retain the Earnest Money as full liquidated damages for such default of Buyer, whereupon this Agreement shall terminate and the parties shall have no further rights or obligations hereunder, except for those which expressly survive any such termination. It is hereby agreed that Seller’s damages in the event of a default by Buyer hereunder are uncertain and difficult to ascertain, and that the Earnest Money constitutes a reasonable liquidation of such damages and is intended not as a penalty, but as full liquidated damages. Buyer covenants not to bring any action or suit challenging the amount of

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liquidated damages provided hereunder in the event of such default. Notwithstanding the foregoing, if Buyer interferes with or makes any attempt to interfere with Seller receiving or retaining, as the case may be, the liquidated damages provided for in this Section 12.1 (other than on the basis that Buyer, in good faith, disputes Seller’s contention that Buyer is in default hereunder), Seller shall have the right to elect to recover all collection costs necessary to enforce its rights hereunder together with the Earnest Money. This provision shall expressly survive the termination of this Agreement.

12.2 Seller’s Default. In the event of a default by Seller under the terms of this Agreement which is first discovered by Buyer prior to the Closing and is not cured by Seller within five (5) calendar days after receipt of written notice from Buyer, or as otherwise provided hereunder (except that only one (1) days notice shall be required for a failure by Seller to execute and tender the Closing Documents on the Closing Date in accordance with Section 11.2), Buyer’s sole and exclusive remedies hereunder shall be either to (i) terminate this Agreement and receive a refund of the Earnest Money from Escrow Agent (except as provided to the contrary in Section 8) or (ii) subject to compliance by Buyer with Section 12.2.1, seek specific performance of Seller’s obligations under this Agreement, without any reduction in the Purchase Price. Except as expressly provided to the contrary in this Agreement, Buyer shall have no right to seek or recover any damages from Seller in the event of a default by Seller under the terms of this Agreement. Notwithstanding the foregoing, if the remedy of specific performance is not available because of Seller’s intentional misconduct, Buyer shall be entitled to assert a claim against Seller for damages incurred by Buyer as a result thereof.

12.2.1 SPECIFIC PERFORMANCE. BUYER SHALL ONLY BE ENTITLED TO THE REMEDY OF SPECIFIC PERFORMANCE IF BUYER IS READY, WILLING AND ABLE TO PERFORM BUYER’S OBLIGATIONS UNDER THIS AGREEMENT WITHOUT ANY VARIANCE OR MODIFICATION (EXCEPT VARIANCES AND MODIFICATIONS, IF ANY, WHICH MAY BE SET FORTH IN WRITING AND EXECUTED AND DELIVERED BY BOTH SELLER AND BUYER), PROVIDED THAT BUYER SHALL NOT BE REQUIRED TO DEPOSIT INTO ESCROW THE PURCHASE PRICE AND ANY OTHER AMOUNTS REQUIRED OF BUYER TO CLOSE ESCROW HEREUNDER UNTIL ONE DAY BEFORE THE ACTUAL CLOSING. BUYER AND SELLER HEREBY EVIDENCE THEIR SPECIFIC CONSENT TO THE TERMS OF THIS SECTION 12 BY PLACING THEIR INITIALS IN THE PLACE PROVIDED HEREINAFTER.

Seller’s Initials Buyer’s Initials

12.3 Seller’s Misrepresentation or Breach of Warranty. In the event of a misrepresentation or breach of warranty by Seller under Section 8 of this Agreement which is first discovered by Buyer after the Closing Date but within one (1) year after the Closing Date, Buyer shall notify Seller, in writing, of the specifics of such default. Seller shall have sixty (60) days after receipt of Buyer’s notice in which to cure said default (or such longer time if such default cannot be reasonably cured within said sixty (60) day period, but in no event later than one hundred eighty (180) days). If Seller is unable to cure said default within said cure period, Buyer’s sole recourse against Seller shall be to file an action or proceeding against Seller for the

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actual damages (excluding any consequential or punitive damages) suffered by Buyer as a direct result of such default. No action or proceeding thereon of any kind whatsoever shall be valid or enforceable, at law or in equity, if not commenced in the appropriate jurisdiction within one (1) year after the Closing Date. Notwithstanding the foregoing, the total liability of Seller for breach of warranty discovered after the Closing Date will never exceed, in the aggregate, $500,000, except to the extent caused by Seller’s intentional misconduct.

Section 13. Condemnation or Destruction.

13.1 Condemnation. If, prior to the Closing, all or any material part of the Property is subject to a bona fide threat of condemnation by a body having the power of eminent domain, or is taken by eminent domain or condemnation, or sale in lieu thereof, then Buyer, by written notice to Seller, to be received within twenty (20) calendar days of Buyer’s receiving Seller’s notice of such threat, condemnation or taking, but no later than the Closing Date, may elect to terminate this Agreement. For the purposes of this Section 13.1, a “material” part of the Property will have been taken by condemnation or be under threat of condemnation if the loss of such part of the Property would have a material and adverse impact on access to the Property or operation of the Property as contemplated by Buyer.

13.2 Damage or Destruction. If, prior to the Closing, all or any material part of the Property is damaged or destroyed by fire or other casualty, Seller agrees to give Buyer immediate written notice of such occurrence and the nature and extent of such damage and destruction, and Buyer, by written notice to Seller, to be received within twenty (20) calendar days of Buyer’s receipt of Seller’s notice of such damage or destruction, but no later than the Closing Date, may elect to terminate this Agreement. For the purposes of this Section 13.2, a “material” part of the Property will have been damage or destroyed if Seller’s estimate of the cost to repair such damage exceeds $327,500.

13.3 Termination. If this Agreement is terminated as a result of the provisions of either Section 13.1 or Section 13.2 hereof, Buyer shall be entitled to receive a refund of the Earnest Money from Escrow Agent, whereupon the parties shall have no further rights or obligations hereunder, except for those which expressly survive any such termination.

13.4 Awards and Proceeds. If Buyer does not elect (or is not entitled) to terminate this Agreement following any notice of a threat of taking or taking by condemnation or notice of damage or destruction to the Property, as provided above, this Agreement shall remain in full force and effect and the conveyance of the Property contemplated herein, less any interest taken by eminent domain or condemnation, or sale in lieu thereof, shall be effected with no further adjustments. At the Closing, Seller shall assign, transfer and set over to Buyer all of Seller’s right, title and interest in and to any awards, payments or insurance proceeds for the actual value of the property lost or destroyed, up to but not in excess of the Purchase Price, that have been or may thereafter be made for any such taking, sale in lieu thereof or damage or destruction, to the extent such awards, payments or proceeds shall not have theretofore been used for restoration of the Property pursuant to a plan of restoration approved in advance in writing by Buyer. Seller shall also credit Buyer in cash at Closing for any deductible amount with respect to any insurance proceeds implicated by such damage or destruction.

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Section 14. Assignment.

14.1 Assignment by Buyer. Except as herein expressly provided, Buyer shall not, without the prior written consent of Seller, which Seller may withhold in its sole and absolute discretion, assign any of Buyer’s rights hereunder or any part thereof to any person, firm, partnership, corporation or other entity, other than a parent, affiliate or subsidiary, or an affiliate or subsidiary of a parent, of Buyer or a real estate investment trust sponsored by Buyer. If any assignment requiring Seller’s consent is made with the consent of Seller, or if any assignment not requiring Seller’s consent is made, then the sale contemplated by this Agreement shall be consummated in the name of, and by and through the authorized officials of, any such assignee, but Buyer shall not be relieved of its obligations under this Agreement.

14.2 Assignment by Seller. From and after the Contract Date, Seller shall not, without the prior written consent of Buyer, which consent Buyer may withhold in its sole and absolute discretion, assign, transfer, convey, hypothecate or otherwise dispose of all or any part of its right, title or interest in or to the Property. Notwithstanding the foregoing, Seller shall have the right to assign, transfer or convey, without Buyer’s consent, Seller’s right, title or interest in or to the Property (or any portion thereof) to any parent, affiliate or subsidiary of Seller, provided that Seller remains responsible for the performance of its covenants and obligations under this Agreement.

Section 15. Buyer’s Representation and Warranty. Buyer does hereby represent and warrant to Seller as of the Contract Date and the Closing Date that it is a validly formed corporation under the laws of the State of Illinois; that it is in good standing in the state of its organization and qualified to do business in the State of California; that it is not subject to any involuntary proceeding for the dissolution or liquidation thereof; that it has all requisite authorizations to enter into this Agreement with Seller and to consummate the transactions contemplated hereby; and that the parties executing this Agreement on behalf of Buyer are duly authorized to so do.

Section 16. Broker and Broker’s Commission.

16.1 If Closing actually occurs, Seller shall pay to Broker a commission, out of the Escrow, in accordance with a separate agreement between Seller and Broker. Broker shall only be entitled to such commission if and when the transaction contemplated herein actually closes. Buyer shall have no responsibility for payment of such commission.

16.2 Buyer and Seller each warrant and represent to the other that, with the exception of the Broker, such party has not employed or otherwise engaged a real estate broker or agent in connection with the transaction contemplated hereby. Each party agrees to indemnify and hold the other harmless from any loss or cost suffered or incurred by it as a result of the other’s representation herein being untrue. This Section 16 shall expressly survive the Closing hereunder and any termination of this Agreement.

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Section 17. Notices.

Wherever any notice or other communication is required or permitted hereunder, such notice or other communication shall be in writing and shall be delivered by hand, by nationally-recognized overnight express delivery service, by U. S. registered or certified mail, return receipt requested, postage prepaid, or by facsimile with prompt telephone confirmation to the addresses set out below or at such other addresses as are specified by written notice delivered in accordance herewith:

SELLER:
	COST PLUS, INC.
	200 Fourth Street
	Oakland, California 94607
	Telephone: (510) 808-9119
	Facsimile: (510) 893-3084
	Attn: Tom Willardson
With a copy to:
	Cooper, White & Cooper LLP
	201 California Street, 17th Floor
	San Francisco, CA 94111
	Telephone: (415) 433-1900
	Facsimile: (415) 433-5530
	Attn: Beau Simon
BUYER:
	INLAND REAL ESTATE ACQUISITIONS, INC.
	2901 Butterfield Road
	Oak Brook, IL 60523
	Telephone: (630) 218-4948
	Facsimile: (630) 218-4935
	Attn: G. Joseph Cosenza
With a copy to:
	Gary Pechter, Esq.
	The Inland Real Estate Group, Inc.
	2901 Butterfield Road
	Oak Brook, IL 60523
	Telephone: (630) 645-2084
	Facsimile: (630) 218-4900

Any notice or other communication mailed as hereinabove provided shall be deemed effectively given and received (a) on the date of delivery, if delivered by hand or overnight express delivery service; (b) on the date indicated on the return receipt if mailed; or (c) on the date of transmission, if sent by facsimile with prompt telephonic confirmation. If any

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notice mailed is properly addressed but returned for any reason, such notice shall be deemed to be effective notice and to be given on the date of mailing.

Section 18. Miscellaneous.

18.1 Governing Law; Headings; Rules of Construction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of in which the Land is located, without reference to the conflicts of laws or choice of law provisions thereof. The titles of sections and subsections herein have been inserted as a matter of convenience of reference only and shall not control or affect the meaning or construction of any of the terms or provisions herein. All references herein to the singular shall include the plural, and vice versa. The parties agree that this Agreement is the result of negotiation by the parties, each of whom was represented by counsel, and thus, this Agreement shall not be construed against the maker thereof.

18.2 No Waiver. Neither the failure of either party to exercise any power given such party hereunder or to insist upon strict compliance by the other party with its obligations hereunder, nor any custom or practice of the parties at variance with the terms hereof shall constitute a waiver of either party’s right to demand exact compliance with the terms hereof.

18.3 Entire Agreement. This Agreement contains the entire agreement of the parties hereto with respect to the Property and the subject matter hereof, and no representations, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein or incorporated herein by reference shall be of any force or effect.

18.4 Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors and assigns (subject to Section 14 above).

18.5 Amendments. No amendment to this Agreement shall be binding on any of the parties hereto unless such amendment is in writing and is executed by the party against whom enforcement of such amendment is sought.

18.6 Possession. Possession of the Property shall be granted by Seller to Buyer no later than the Closing Date, subject to the Permitted Title Exceptions and other title matters allowed under Section 5.

18.7 Date For Performance. If the time period by which any right, option or election provided under this Agreement must be exercised, or by which any act required hereunder must be performed, or by which the Closing must be held, expires on a Saturday, Sunday or legal or bank holiday, then such time period shall be automatically extended through the close of business on the next regularly scheduled business day.

18.8 Recording. Seller and Buyer agree that they will not record this Agreement and that they will not record a short form of this Agreement.

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18.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which, when taken together, shall constitute but one and the same instrument.

18.10 Time of the Essence. Time shall be of the essence of this Agreement and each and every term and condition hereof.

18.11 Severability. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations, and is intended, and shall for all purposes be deemed to be, a single, integrated document setting forth all of the agreements and understandings of the parties hereto with respect to the subject matter hereof, and superseding all prior negotiations, understandings and agreements of such parties. If any term or provision of this Agreement or the application thereof to any person or circumstance shall for any reason and to any extent be held to be invalid or unenforceable, then such term or provision shall be ignored, and to the maximum extent possible, this Agreement shall continue in full force and effect, but without giving effect to such term or provision.

18.12 Confidentiality. Each of Seller and Buyer shall keep the terms of this Agreement strictly confidential and shall not disclose or permit its employees or agents to disclose the terms of this Agreement, except for reasonably necessary disclosures to its attorneys, accountants, officers, directors, key employees, members and lenders. Buyer agrees to keep confidential any of the documents, material or information regarding the Property supplied to Buyer by Seller or by any third party at Seller’s request, including, without limitation any environmental site assessment reports furnished to Buyer except to Buyer’s consultants, officers, directors, key employees, prospective lenders, investors, financial advisors, attorneys and any permitted assignees of this Agreement on a “need to know” basis, unless Buyer is compelled to disclose such documents, material or information by law or by subpoena. Buyer agrees to indemnify and hold harmless the Seller Related Parties from and against any and all losses, damages, claims and liabilities of any kind (including, without limitation, reasonable attorneys’ fees) arising out of Buyer’s breach of this Section 18.12. In the event that the Closing does not occur in accordance with the terms of this Agreement, Buyer shall return to Seller all of the documents, material or information regarding the Property supplied to Buyer by Seller or at the request of Seller. The provisions of this Section 18.12 shall survive the termination of this Agreement but shall no longer be applicable following Closing in accordance with the terms of this Agreement. Notwithstanding the foregoing, the provisions of this Section 18.12 shall not apply to any information which is within the public domain.

18.13 Seller Related Parties. As used herein, the “Seller Related Parties” shall mean Seller and its officers, directors, trustees, shareholders, partners, members, participants, affiliates, subsidiaries, employees, representatives, agents, contractors, heirs, legal representatives, successors and assigns.

18.14 No Offer Until Executed. The submission of this Agreement to Buyer for examination or consideration does not constitute an offer to sell the Property and this Agreement shall become effective, if at all, only upon the full execution and delivery thereof by Buyer and Seller.

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed and sealed by its duly authorized signatory, effective as of the day and year first above written.

	SELLER:
		COST PLUS, INC., a California corporation
Date: April 7, 2006		By:	/s/ Tom Willardson
			Name:	Tom Willardson
			Title:	Executive Vice President and Chief Financial Officer
	BUYER:
		INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation
Date: April 7, 2006		By:	/s/ Joseph Cosenza
			Name:	G. Joseph Cosenza
			Title:	President

21

JOINDER BY BROKER

Broker hereby joins in execution of this Agreement in its capacity as a real estate broker licensed to business in the State of California and acknowledges the fee or commission due it from Seller as a result of the transaction described in this Agreement is set forth in the letter agreement between Seller and Broker dated _________________, 2005. Broker also acknowledges that payment of the aforesaid fee or commission is conditioned upon the Closing and the receipt of the Purchase Price by Seller. Broker agrees to deliver a receipt to Seller at the Closing for the fee or commission due Seller’s Broker and a release stating that no other fees or commissions are due it from Seller or Buyer arising out of the sale of the Property, and otherwise in a form reasonably required by Seller or the Title Insurer. Broker warrants and represents to Seller and Buyer that (a) Broker is a real estate broker licensed to do business in the State of California and (b) there are no other brokers cooperating with or claiming through or under Broker in connection with the transaction contemplated hereby. Broker further agrees to indemnify, defend and hold harmless Seller and Buyer from any claim whatsoever (including, without limitation, reasonable attorneys’ fees, court costs and costs of appeal) from a breach of any representation or warranty of Broker contained herein.

Blickman Turkus, L.P.,

dba BT Commercial Real Estate.

By:

Name:

Title:

22

EXHIBIT A

EARNEST MONEY ESCROW AGREEMENT

This Escrow Agreement is made as of the 7^th day of April, 2006, by and among COST PLUS, INC., a California corporation (“Seller”), INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation (“Buyer”), and CHICAGO TITLE & TRUST COMPANY (“Escrow Agent”).

RECITALS

Seller and Buyer have entered into a certain purchase and sale agreement and joint escrow instructions (“Purchase Agreement”) concerning real property located in Stockton, California.

In connection with the Purchase Agreement, Seller and Buyer have requested Escrow Agent to receive funds to be held in escrow and applied in accordance with the terms and conditions of this Escrow Agreement.

NOW THEREFORE, in consideration of the above recitals, the mutual promises set forth herein and other good and valuable consideration, the parties agree as follows:

1. ESCROW AGENT. CHICAGO TITLE & TRUST COMPANY hereby agrees to act as Escrow Agent in accordance with the terms and conditions hereof.

2. INITIAL DEPOSIT. Escrow Agent shall receive an initial deposit in the amount of $1,000,000. Any additional amounts deposited with Escrow Agent shall be added to the initial deposit and together with the initial deposit and all interest earned thereon shall be referred to herein collectively as the “Escrow Fund”.

3. DEPOSITS OF FUNDS. All checks, money orders or drafts will be processed for collection in the normal course of business. Escrow Agent may initially deposit such funds in its custodial or escrow accounts which may result in the funds being commingled with escrow funds of others for a time; however, as soon as the Escrow Fund has been credited as collected funds to Escrow Agent’s account, then Escrow Agent shall immediately deposit the Escrow Fund into an interest bearing account with any reputable trust company, bank, savings bank, savings association, or other financial services entity. Deposits held by Escrow Agent shall be subject to the provisions of applicable state statues governing unclaimed property. Seller and Buyer will execute the appropriate Internal Revenue Service documentation for the giving of taxpayer identification information relating to this account. Seller and Buyer do hereby certify that each is aware the Federal Deposit Insurance Corporation coverages apply to a maximum amount of $100,000 per depositor. Further, Seller and Buyer understand that Escrow Agent assumes no responsibility for, nor will Seller or Buyer hold same liable for any loss occurring which arises from a situation or event under the Federal Deposit Insurance Corporation coverages.

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All interest will accrue to and be reported to the Internal Revenue Service for the account of Buyer, as set forth below:

Name:	INLAND REAL ESTATE ACQUISITIONS, INC.
Address:	2901 Butterfield Road
	Oak Brook, IL 60523
Attn:	G. Joseph Cosenza
Telephone:	(630) 218-4948
Facsimile:	(630) 218-4935

Tax Identification Number: ______________________

Escrow Agent shall not be responsible for any penalties, or loss of principal or interest, or any delays in the withdrawal of the funds which may be imposed by the depository institution as a result of the making or redeeming of the investment pursuant to Seller and Buyer instructions.

4. DISBURSEMENT OF ESCROW FUND. Escrow Agent may disburse all or any portion of the Escrow Fund in accordance with and in reliance upon written instructions from both Seller and Buyer provided that Buyer may unilaterally withdraw the entire Escrow Fund on or before April 7, 2006. The Escrow Agent shall have no responsibility to make an investigation or determination of any facts underlying such instructions or as to whether any conditions upon which the funds are to be released have been fulfilled or not fulfilled, or to whom funds are released.

5. DEFAULT AND/OR DISPUTES. In the event any party to the transaction underlying this Agreement shall tender any performance after the time when such performance was due, Escrow Agent may proceed under this Agreement unless one of the parties to this Agreement shall give to the Escrow Agent written direction to stop further performance of the Escrow Agent’s functions hereunder. In the event written notice of default or dispute is given to the Escrow Agent by any party, or if Escrow Agent receives contrary written instructions from any party, the Escrow Agent will promptly notify all parties of such notice. Thereafter, Escrow Agent will decline to disburse funds or to deliver any instrument or otherwise continue to perform its escrow functions, except upon receipt of a mutual written agreement of the parties or upon an appropriate order of court. In the event of a dispute, the Escrow Agent is authorized to deposit the escrow into a court of competent jurisdiction for a determination as to the proper disposition of said funds. In the event that the funds are deposited in court, the Escrow Agent shall be entitled to file a claim in the proceeding for its costs and counsel fees, if any.

6. ESCROW AGENT FEES AND OTHER EXPENSES. Escrow Agent shall not charge for its services hereunder. Escrow Agent shall not be required to advance its own funds for any purpose provided that any such advance, made at its option, shall be promptly reimbursed by the party for whom it is advanced, and such optional advance shall not be an admission of liability on the part of Escrow Agent.

7. PERFORMANCE OF DUTIES. In performing any of its duties under this Agreement, or upon the claimed failure to perform its duties hereunder, Escrow Agent shall not be liable to anyone for any damages, losses or expenses which

A-2

may occur as a result of Escrow Agent so acting, or failing to act; provided, however, Escrow Agent shall be liable for damages arising out of its willful default or gross negligence under this Agreement. Accordingly, Escrow Agent shall not incur any such liability with respect to (i) any good faith act or omission upon advice of counsel given with respect to any questions relating to the duties and responsibilities of Escrow Agent hereunder, or (ii) any good faith act or omission in reliance upon any document, including any written notice or instructions provided for in the Agreement, not only as to its due execution and to the validity and effectiveness of its provisions but also as to the truth and accuracy of any information contained therein, which Escrow Agent shall in good faith believe to be genuine, to have been signed or presented by the proper person or persons and to conform with the provisions of this Agreement.

8. LIMITATIONS OF LIABILITY. Escrow Agent shall not be liable for any loss or damage resulting from the following:

(a) The effect of the transaction underlying this Agreement including without limitation, any defect in the title to the real estate, any failure or delay in the surrender of possession of the property, the rights or obligations of any party in possession of the property, the financial status or insolvency of any other party, and/or any misrepresentation of fact made by any other party;

(b) The default, error, act or failure to act by any other party to the escrow;

(c) Any loss, loss of value or impairment of funds which have been deposited in escrow while those funds are in the course of collection or while those funds are on deposit in a depository institution if such loss or loss of value or impairment results from the failure, insolvency or suspension of a depository institution;

(d) Any defects or conditions of title to any property that is the subject of this escrow provided, however, that this limitation of liability shall not affect the liability of CHICAGO TITLE & TRUST COMPANY under any title insurance policy which it has issued or may issue. NOTE: No title insurance liability is created by this Agreement.

(e) Escrow Agent’s compliance with any legal process including but not limited to, subpoena, writs, orders, judgments and decrees of any court whether issued with or without jurisdiction and whether or not subsequently vacated, modified, set aside or reversed.

9. HOLD HARMLESS. Buyer and Seller shall indemnify the Escrow Agent and hold the Escrow Agent harmless from all damage, costs, claims and expenses arising from performance of its duties as Escrow Agent including reasonable attorneys’ fees, except for those damages, costs, claims and expenses resulting form the gross negligence or willful misconduct of the Escrow Agent.

10. TERMINATION. This Agreement shall terminate upon the first to occur of (a) one year from the date hereof, in which event Escrow Agent shall disburse the Escrow Fund to the person who deposited such funds, less Escrow Agent’s fees and expenses, unless this Agreement is extended by written agreement of all

A-3

parties including the Escrow Agent; (b) the disbursement by Escrow Agent of all of the Escrow Fund; (c) the joint written instructions of Buyer and Seller.

11. RELEASE OF PAYMENT. Payment of the funds so held in escrow by the Escrow Agent, in accordance with the terms, conditions and provisions of this Escrow Agreement, shall fully and completely discharge and exonerate the Escrow Agent from any and all future liability or obligations of any nature or character at law or equity to the parties hereto or under this Agreement.

12. NOTICES.

SELLER:
	COST PLUS, INC.
	200 Fourth Street
	Oakland, California 94607
	Telephone: (510) 808-9119
	Facsimile: (510) 893-3084
	Attn: Tom Willardson
With a copy to:
	Cooper, White & Cooper LLP
	201 California Street, 17th Floor
	San Francisco, CA 94111
	Telephone: (415) 433-1900
	Facsimile: (415) 433-5530
	Attn: Beau Simon
BUYER:
	INLAND REAL ESTATE ACQUISITIONS, INC.
	2901 Butterfield Road
	Oak Brook, IL 60523
	Telephone: (630) 218-4948
	Facsimile: (630) 218-4935
	Attn: G. Joseph Cosenza
With a copy to:
	Gary Pechter, Esq.
	The Inland Real Estate Group, Inc.
	2901 Butterfield Road
	Oak Brook, IL 60523
	Telephone: (630) 645-2084
	Facsimile: (630) 218-4900

A-4

ESCROW AGENT:
	CHICAGO TITLE & TRUST COMPANY
	171 North Clark Street
	Div. II, 3rd Floor
	Chicago, IL 60601
	Attn: Nancy Castro
	Telephone:   312-223-2709
	Telecopy:     312-223-2108

13. This Agreement shall be binding upon and inure to the benefit of the parties respective successors and assigns.

14. This Agreement shall be governed by and construed in accordance with the Laws of the State of California.

15. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which, when taken together, shall constitute but one and the same instrument.

16. Time shall be of the essence of this Agreement and each and every term and condition hereof.

17. In the event a dispute arises between Buyer and Seller under this Agreement, the losing party shall pay the attorney’s fees and court costs of the prevailing party.

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed and sealed as of the date first stated above.

	SELLER:
	COST PLUS, INC., a California corporation
Date: April 7, 2006	By:	/s/ Tom Willardson
		Name:	Tom Willardson
		Title:	Executive Vice President and Chief Financial Officer

A-5

	BUYER:
Date: April 7, 2006	INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation
	By:	/s/ Joseph Cosenza
		Name: G. Joseph Cosenza
		Title:   President
Date: April 7, 2006	ESCROW AGENT:
	CHICAGO TITLE & TRUST COMPANY
	By:	/s/ Nancy R. Castro
		Name: Nancy R. Castro
		Title:   Assistant Vice-President
	By:
		Name:
		Title:

A-6

EXHIBIT B-1

LEGAL DESCRIPTION OF IMPROVED LAND

LEGAL DESCRIPTION

COST PLUS STOCKTON PROJECT

EXISTING PHASE 1 LEASE PARCEL

ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE CITY OF STOCKTON, COUNTY OF SAN JOAQUIN, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:

BEING A PORTION OF PARCEL 1 AS SAID PARCEL IS SHOWN ON THAT CERTAIN PARCEL MAP FILED APRIL 8, 2003 IN BOOK 22 OF PARCEL MAPS AT PAGE 145, SAN JOAQUIN COUNTY RECORDS, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT THE WESTERLY CORNER OF SAID PARCEL 1;

THENCE ALONG THE NORTHWESTERLY LINE OF SAID PARCEL 1, NORTH 72°45’44 EAST 928.85 FEET;

THENCE LEAVING SAID NORTHERLY LINE, SOUTH 17° 39’ 25” EAST, 1065.16 FEET TO A POINT ON THE SOUTHERLY LINE OF SAID PARCEL 1;

THENCE ALONG THE EXTERIOR BOUNDARY OF SAID PARCEL ONE, SOUTH 72° 20’ 35” WEST, 902.67 FEET;

THENCE, CONTINUING ALONG SAID EXTERIOR BOUNDARY, NORTH 62° 35’ 40” WEST, 40.26 FEET;

THENCE CONTINUING ALONG SAID EXTERIOR BOUNDARY, NORTH 17° 31’ 55” WEST, 1043.45 FEET TO THE POINT OF BEGINNING.

CONTAINING 993,348 SQUARE FEET OR 22.8041 ACRES, MORE OR LESS.

KIER AND WRIGHT CIVIL ENGINEERS & SURVEYORS, INC.

B-1

EXHIBIT B-2

LEGAL DESCRIPTION OF UNIMPROVED LAND

LEGAL DESCRIPTION

COST PLUS STOCKTON PROJECT

PHASE 2 EXPANSION LEASE PARCEL

ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE CITY OF STOCKTON, COUNTY OF SAN JOAQUIN, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:

BEING A PORTION OF PARCEL 1 AS SAID PARCEL IS SHOWN ON THAT CERTAIN PARCEL MAP FILED APRIL 8, 2003 IN BOOK 22 OF PARCEL MAPS AT PAGE 145, SAN JOAQUIN COUNTY RECORDS, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCING AT THE WESTERLY CORNER OF SAID PARCEL 1;

THENCE ALONG THE NORTHWESTERLY LINE OF SAID PARCEL 1, NORTH 72°45’44” EAST 928.85 FEET TO THE POINT OF BEGINNING OF THIS DESCRIPTION;

THENCE CONTINUING ALONG SAID NORTHERLY LINE, NORTH 72° 45’ 44” EAST, 1239.76 FEET;

THENCE CONTINUING ALONG SAID NORTHERLY LINE, NORTH 72° 53’ 47” EAST, 97.52 FEET;

THENCE LEAVING SAID NORTHERLY LINE, SOUTH 17° 39’ 25” EAST, 1055.14 FEET TO A POINT ON THE SOUTHERLY LINE OF SAID PARCEL 1;

THENCE ALONG SAID SOUTHERLY LINE, SOUTH 72° 20’ 35” WEST, 1337.24 FEET;

THENCE LEAVING SAID SOUTHERLY LINE, NORTH 17° 39’ 25” WEST, 1065.16 FEET TO THE POINT OF BEGINNING.

CONTAINING 1,417,822 SQUARE FEET OR 32.5487 ACRES, MORE OR LESS.

KIER AND WRIGHT CIVIL ENGINEERS & SURVEYORS, INC.

B-2

LEGAL DESCRIPTION

COST PLUS STOCKTON PROJECT

EXCESS LANDS PARCEL

ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE CITY OF STOCKTON, COUNTY OF SAN JOAQUIN, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:

BEING A PORTION OF PARCEL 1 AS SAID PARCEL IS SHOWN ON THAT CERTAIN PARCEL MAP FILED APRIL 8, 2003 IN BOOK 22 OF PARCEL MAPS AT PAGE 145, SAN JOAQUIN COUNTY RECORDS, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCING AT THE WESTERLY CORNER OF SAID PARCEL 1;

THENCE ALONG THE NORTHWESTERLY LINE OF SAID PARCEL 1, NORTH 72°45’44” EAST 2168.61 FEET;

THENCE CONTINUING ALONG SAID NORTHERLY LINE, NORTH 72° 53’ 47” EAST, 97.52 FEET TO THE POINT OF BEGINNING OF THIS DESCRIPTION;

THENCE LEAVING SAID NORTHERLY LINE, SOUTH 17° 39’ 25” EAST 1055.14 FEET TO A POINT ON THE SOUTHERLY LINE OF SAID PARCEL 1;

THENCE ALONG THE EXTERIOR BOUNDARY OF SAID PARCEL ONE THE FOLLOWING 10 COURSES:

THENCE NORTH 72°20’35” EAST, 987.44 FEET;

THENCE NORTH 27°34’52” EAST, 42.60 FEET;

THENCE NORTH 17°10’51” WEST, 733.14 FEET;

THENCE NORTH 19°28’17” WEST, 150.12 FEET;

THENCE NORTH 17°10’51” WEST, 70.14 FEET;

THENCE NORTH 62°08’32” WEST, 28.30 FEET;

THENCE SOUTH 72° 53’47” WEST, 401.87 FEET;

THENCE WESTERLY, ALONG THE ARC OF THE 830.00 FOOT RADIUS CURVE TO THE RIGHT, THROUGH A CENTRAL ANGLE OF 10° 02’ 59”, AN ARC DISTANCE OF 145.58 FEET;

THENCE SOUTH 82° 56’ 46” WEST, 100.00 FEET;

THENCE WESTERLY ALONG THE ARC OF A 770.00 FOOT RADIUS CURVE TO THE LEFT, THROUGH A CENTRAL ANGLE OF 10° 02’ 59”, AN ARC DISTANCE OF 135.06 FEET;

THENCE SOUTH 72° 53’ 47” WEST, 220.70 FEET TO THE POINT OF BEGINNING.

CONTAINING 1,045,461 SQUARE FEET OR 24.0005 ACRES, MORE OR LESS.

KIER AND WRIGHT CIVIL ENGINEERS & SURVEYORS, INC.

B-3

EXHIBIT C

PERMITTED TITLE EXCEPTIONS

1. Taxes and assessments for the current fiscal year or tax period in which the Closing occurs and subsequent years not yet due and payable.

2. Such state of facts which would be shown by a current survey of the Land.

3. Other title exceptions listed in Buyer’s Title Commitment or of public record.

C-1

EXHIBIT D

FORM OF GRANT DEED

GRANT DEED

RECORDING REQUESTED BY AND WHEN RECORDED MAIL THIS DEED AND, UNLESS OTHERWISE SHOWN BELOW, MAIL TAX STATEMENT TO:
Name	Inland Real Estate Acquisitions, Inc.
Street Address	2901 Butterfield Road
City & State Zip	Oak Brook, IL 60523
Title Order No.: _____________ Escrow No. ____________
		SPACE ABOVE THIS LINE FOR RECORDER’S USE

GRANT DEED

THE UNDERSIGNED GRANTOR(s) DECLARE(s)

x DOCUMENTARY TRANSFER TAX IS SET FORTH IN SEPARATE AFFIDAVIT OF CONSIDERATION

¨ __________ unincorporated area x City of Stockton

x computed on full value of interest or property conveyed, or

¨ computed on full value less value of liens or encumbrances remaining at time of sale and

FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,

COST PLUS, INC., a California corporation

hereby GRANT(S) to

Inland Real Estate Acquisitions, Inc., an Illinois corporation

the following described real property in the

county of San Joaquin, state of California:

See EXHIBIT A, attached hereto and made a part hereof.

D-1

IN WITNESS WHEREOF, said corporation has caused this Grant Deed to be executed this ____ day of _________, 2006.

STATE OF CALIFORNIA	)
	)    SS	COST PLUS, INC., a California corporation
COUNTY OF	)
		By:
On __________________________, 2006, before me, ___________________________________, Notary Public, personally appeared ________________________________ and ________________________________, 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.			Name: Title:	Tom Willardson Executive Vice President and Chief Financial Officer
WITNESS my hand and official seal.

Notary Public

MAIL TAX STATEMENTS TO PARTY SHOWN ON FOLLOWING LINE; IF NO PARTY SHOWN, MAIL AS DIRECTED ABOVE

Name Street Address City & State

D-2

EXHIBIT A TO GRANT DEED

[LEGAL DESCRIPTION OF PROPERTY]

D-3

EXHIBIT E

STATE OF CALIFORNIA

COUNTY OF SAN JOAQUIN

CERTIFICATE AND AFFIDAVIT OF NON-FOREIGN STATUS

The undersigned, being duly sworn, hereby deposes, certifies and states on oath as follows:

1. The undersigned is currently the Executive Vice President and Chief Financial Officer of COST PLUS, INC., a corporation organized and existing under the laws of the State of California (the “Company”), and that the address of the Company is 200 Fourth Street, Oakland, California 94607.

2. The Company is not a “non-resident alien” for purposes of United States income taxation or otherwise a “foreign person,” as defined in Section 1445 of the United States Internal Revenue Code of 1986 (as amended, the “Code”).

3. The Company’s United States taxpayer identification number is 94-1067937.

4. The undersigned is making this Certificate and Affidavit pursuant to the provisions of the Code in connection with the sale of the real property described on Exhibit A, attached hereto and incorporated herein by reference, by the Company to INLAND REAL ESTATE ACQUISITIONS, INC. (the “Transferee”), which sale constitutes the disposition by the Company of a United States real property interest, for the purposes of establishing that the Transferee is not required to withhold tax pursuant to Section 1445 of the Code in connection with such disposition.

5. The undersigned acknowledges that this Certificate and Affidavit may be disclosed to the Internal Revenue Service by the Transferee, that this Certificate and Affidavit is made under penalty of perjury, and that any false statement made herein could be punished by fine, imprisonment or both.

6. Under penalty of perjury, I declare that I have examined the foregoing Certificate and Affidavit and hereby certify that it is true, correct and complete.

COST PLUS, INC., a California corporation
By:
	Tom Willardson
	Executive Vice President and Chief Financial Officer

E-1

STATE OF CALIFORNIA	)
	)	SS.
COUNTY OF ______________	)

Subscribed and sworn to (or affirmed) before me on ______________________, 2006, by _____________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) who appeared before me.

Notary Public

E-2

EXHIBIT F

GENERAL ASSIGNMENT

THIS ASSIGNMENT is made as of the 7^th day of April, 2006, by COST PLUS, INC., a California corporation (“Assignor”), to INLAND REAL ESTATE ACQUISITIONS, INC., an Illinois corporation (“Assignee”).

WITNESSETH:

WHEREAS, contemporaneously with the execution and delivery of this Assignment, Assignor has sold, conveyed and assigned to Assignee all of its right, title and interest in and to the real property described in Exhibit A attached hereto and by this reference made a part hereof, together with all improvements thereon (the “Improvements”) and all rights, easements and appurtenances thereto (hereinafter collectively referred to as the “Property”); and

WHEREAS, Assignor has agreed to assign to Assignee all of Assignor’s right, title and interest in and to all assignable guaranties and warranties in connection with the Improvements and to certain property, contract rights and other matters more fully described below subject to the terms and conditions hereinafter set forth.

NOW, THEREFORE, for and in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor, subject to the terms hereof, hereby assigns, transfers, and sells to Assignee, without recourse, the following:

(1) All Assignor’s right, title, and interest in and to all transferable architectural, mechanical, engineering, and other plans and specifications, including site plans, floor plans, drawings, schematics, and surveys, relating to the Property;

(2) All transferable certificates, permissions, consents, authorizations, variances, waivers, licenses, approvals, and other permits from any governmental authority in respect of the Property;

(3) All the right, title, interest, claim and demand which Assignor has in the guaranties and warranties described on Exhibit B attached hereto and incorporated herein by this reference (collectively, the “Warranties”) in connection with the Improvements to the extent assignable. Notwithstanding anything to the contrary contained herein, if any Warranty cannot be assigned by Assignor, Assignor agrees to fully cooperate with Assignee (at no cost to Assignor) to enforce the terms of the Warranty on behalf of Assignee.

Notwithstanding anything to the contrary contained herein, this Assignment (a) shall not apply to any portion of the Warranties or other rights or instruments described herein which apply to Improvements not located on the Property and (b) shall be subject and subordinate to

F-1

Assignor’s assignment, if any, of any Warranties or other rights or instruments described herein to any tenants of the Property under leases with Assignor as of the date hereof.

IN WITNESS WHEREOF, Assignor has duly executed this Assignment the day and year first above written.

ASSIGNOR:

COST PLUS, INC., a California corporation
By:
	Name:	Tom Willardson
	Title:	Executive Vice President and Chief Financial Officer

F-2

EXHIBIT A TO ASSIGNMENT OF GUARANTIES AND WARRANTIES

[INSERT LEGAL DESCRIPTION]

F-3

EXHIBIT B TO GENERAL ASSIGNMENT

GUARANTIES AND WARRANTIES

F-4

EXHIBIT G-1

LEASE AGREEMENT

G-1

EXHIBIT G-2

SUBGROUND LEASE AGREEMENT

G-2

EX-10.2.1

Exhibit 10.2.1

LEASE AGREEMENT

Dated as of April 7, 2006

between

Inland Western Stockton Airport Way, L.L.C., as Lessor

and

Cost Plus, Inc.

as Lessee

Property:

Cost Plus World Market

Distribution Facility

Stockton, California

TABLE OF CONTENTS

			PAGE
ARTICLE 1	DEFINITIONS; RESTATEMENT		1
	Section 1.1.	Restatement
	Section 1.2.	Definitions	1
ARTICLE 2	LEASE OF PROPERTY		1
	Section 2.1.	Demise and Lease	1
ARTICLE 3	RENT		2
	Section 3.1.	Base Rent	2
	Section 3.2.	Supplemental Rent	2
	Section 3.3.	Method of Payment	2
	Section 3.4.	Late Payment	2
	Section 3.5.	Net Lease, No Setoff, Etc	2
	Section 3.6.	True Lease	2
ARTICLE 4	INTENTIONALLY OMITTED		4
ARTICLE 5	RENEWAL OPTIONS		4
	Section 5.1.	Renewal Options	4
	Section 5.2.	Lease Provisions Applicable During Renewal	5
ARTICLE 6	LESSEE'S ACCEPTANCE OF PROPERTY, ENFORCEMENT OF WARRANTIES		5
	Section 6.1.	Waivers	5
	Section 6.2.	Lessee's Right to Enforce Warranties	6
ARTICLE 7	LIENS		6
	Section 7.1.	Liens	6
ARTICLE 8	USE AND REPAIR		7
	Section 8.1.	Use	7
	Section 8.2.	Maintenance	7
	Section 8.3.	Alterations	7
	Section 8.4.	Title to Alterations	10
	Section 8.5.	Compliance with Law; Environmental Compliance	10
	Section 8.6.	Payment of Impositions	11
	Section 8.7.	Adjustment of Impositions	13
	Section 8.8.	Utility Charges	13
	Section 8.9.	Litigation; Zoning; Joint Assessment	13
ARTICLE 9	INSURANCE		14
	Section 9.1.	Coverage	14

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Table of Contents(Cont’d)

ARTICLE 10	RETURN OF PROPERTY TO LESSOR		15
	Section 10.1.	Return of Property to Lessor	15
ARTICLE 11	ASSIGNMENT BY LESSEE		16
	Section 11.1.	Assignment by Lessee	16
ARTICLE 12	LOSS; DESTRUCTION; CONDEMNATION OR DAMAGE		17
	Section 12.1.	Event of Loss	17
	Section 12.2.	Application of Payments Upon an Event of Loss When Lease Continues	19
	Section 12.3.	Application of Payments Not Relating to an Event of Loss	19
	Section 12.4.	Other Dispositions	19
	Section 12.5.	Negotiations	21
ARTICLE 13	INTENTIONALLY OMITTED		22
ARTICLE 14	SUBLEASE		22
	Section 14.1.	Subleasing Permitted; Lessee Remains Obligated	22
	Section 14.2.	Provisions of Subleases	22
	Section 14.3.	Assignment of Sublease Rents	22
ARTICLE 15	INSPECTION		23
	Section 15.1.	Inspection	23
ARTICLE 16	LEASE EVENTS OF DEFAULT		23
	Section 16.1.	Lease Events of Default	23
ARTICLE 17	ENFORCEMENT		25
	Section 17.1.	Remedies	25
	Section 17.2.	Survival of Lessee's Obligations	27
	Section 17.3.	Remedies Cumulative; No Waiver; Consents; Mitigation of Damages	27
ARTICLE 18	RIGHT TO PERFORM FOR LESSEE		28
	Section 18.1.	Right to Perform for Lessee	28
ARTICLE 19	INDEMNITIES		28
	Section 19.1.	General Indemnification	28
	Section 19.2.	Lessor’s Indemnification Obligation	30
ARTICLE 20	LESSEE REPRESENTATIONS AND COVENANTS		31
	Section 20.1.	Representations and Warranties	31
ARTICLE 21	LESSOR REPRESENTATIONS AND COVENANTS		32
	Section 21.1.	Representations and Warranties	32
ARTICLE 22	PURCHASE PROCEDURE		33
	Section 22.1.	Purchase Procedure	33

ii

Table of Contents(Cont’d)

ARTICLE 23	TRANSFER OF LESSOR'S INTEREST		34
	Section 23.1.	Permitted Transfer	34
	Section 23.2.	Effects of Transfer	34
ARTICLE 24	PERMITTED FINANCING		35
	Section 24.1.	Financing During Term.	35
	Section 24.2.	Lessee's Consent to Assignment for Indebtedness	35
ARTICLE 25	MISCELLANEOUS		36
	Section 25.1.	Binding Effect; Successors and Assigns; Survival	36
	Section 25.2.	Quiet Enjoyment	36
	Section 25.3.	Notices	37
	Section 25.4.	Severability	37
	Section 25.5.	Amendments, Complete Agreements	37
	Section 25.6.	Headings	37
	Section 25.7.	Counterparts	37
	Section 25.8.	Governing Law	37
	Section 25.9.	Memorandum	38
	Section 25.10.	Estoppel Certificates	38
	Section 25.11.	Easements	38
	Section 25.12.	No Joint Venture	39
	Section 25.13.	No Accord and Satisfaction	39
	Section 25.14.	No Merger	39
	Section 25.15.	Lessor Bankruptcy	39
	Section 25.16.	Naming and Signage of the Property	39
	Section 25.17.	Expenses	40
	Section 25.18.	Investments	40
	Section 25.19.	Further Assurances	40
	Section 25.20.	[Intentionally omitted]	40
	Section 25.21.	Independent Covenants	40
	Section 25.22.	Lessor Exculpation	41
	Section 25.23.	Remedies Cumulative	41
	Section 25.24.	Holding Over	41
	Section 25.25.	Survival	41
	Section 25.26.	[Intentionally Omitted]	42
	Section 25.27.	Lease Subordinate	42
	Section 25.28.	Lessor Representation	42
	Section 25.29.	Leasehold Financing	42

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Schedule 3.1	—	Base Rent
Schedule 9.1	—	Insurance
Schedule 12.2	—	Condemnation Allocation
Exhibit A	—	Description of Land
Exhibit B	—	Form of Estoppel Agreement
Exhibit C	—	Form of Subordination, Non-Disturbance and Attornment Agreement

iv

THIS LEASE AGREEMENT (this “Agreement”) is made and entered into as of April 7, 2006, by and between Inland Western Stockton Airport Way, L.L.C., as Lessor (“Lessor”), having its principal place of business at 2901 Butterfield Road, Oak Brook, Illinois, 60523, and Cost Plus, Inc., a California corporation, (“Lessee”), having a place of business at 200 Fourth Street, Oakland, California 94607.

RECITALS

A. Lessee was the owner of the Property, which is now owned by Lessor;

B. Lessor and Lessee now desire to enter into this Agreement;

C. Lessor desires to grant and delegate to Lessee, and Lessee desires to accept and assume from Lessor, certain rights and duties as described in this Agreement;

TERMS

NOW THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE 1

DEFINITIONS; RESTATEMENT

Section 1.1. Definitions. The capitalized terms used herein and not otherwise defined shall have the meanings assigned thereto in Appendix A hereto for all purposes hereof.

ARTICLE 2

LEASE OF PROPERTY

Section 2.1. Demise and Lease. (a) Lessor hereby demises and leases the Property to Lessee, and Lessee does hereby rent and lease the Property from Lessor, for the Base Term and, subject to the exercise by Lessee of its renewal options as provided in Article 5 hereof, for the Renewal Terms.

(b) Lessee may from time to time own or hold under lease or license from Persons other than Lessor furniture, equipment and personal property, including Lessee’s Equipment and Personalty, located on or about the Property, which shall not be subject to this Lease. Lessor shall from time to time, upon the reasonable request of Lessee, promptly acknowledge in writing to Lessee or other Persons that Lessor does not own or, except as provided in Article 10, have any other right or interest in or to such furniture, equipment and personal property, including Lessee’s Equipment and Personalty, whether now owned or hereafter acquired, and Lessor hereby waives any such right, title or interest.

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ARTICLE 3

RENT

Section 3.1. Base Rent. Lessee shall pay to Lessor Base Rent on each Rent Payment Date during the Base Term in the amount set forth on Schedule 3.1 attached hereto and incorporated herein, and shall pay to Lessor Base Rent on each Rent Payment Date during any Renewal Term as prescribed by Article 5. Each installment of Base Rent is payable monthly in advance.

Section 3.2. Supplemental Rent. Lessee shall pay to Lessor, or to such other Person as shall be entitled thereto in the manner contemplated herein or as otherwise required by Lessor, any and all Supplemental Rent as the same shall become due and payable. In the event of Lessee’s failure to pay when due and payable any Supplemental Rent, Lessor shall have all rights, powers and remedies provided for herein.

Section 3.3. Method of Payment. All Base Rent and Supplemental Rent (other than Excepted Payments) payable to Lessor shall, be paid to Lessor, or if Lessor directs (on at least ten (10) Business Days prior notice), to Lessor’s Lender in each case to the Rent Collection Account, as directed by Lessor or Lender as applicable, in immediately available funds as of the relevant payment date to the Rent Collection Account, or such other account or accounts in the continental United States as the Lender may from time to time designate (on at least ten (10) Business Days’ prior written notice) to Lessee. Upon payment in full of all amounts due to the Lender, as reasonably evidenced to Lessee, which evidence must include a written statement to that effect from the Lender, or evidence of release or assignment of the Lien of the Mortgage, or other similar evidence, Lessee shall accept instructions from Lessor (or its new lender, if so instructed by Lessor) as to the payment of Base Rent and Supplemental Rent. Each such payment of Rent shall be made by Lessee by wire or other transfer of funds consisting of lawful currency of the United States of America which shall be immediately available no later than 4:00 PM (New York City time) at the place of receipt on the scheduled date when such payment shall be due, unless such scheduled date shall not be a Business Day, in which case such payment shall be made at such time on the immediately following Business Day, with the same force and effect as though made on such scheduled dates. If any payment of Base Rent or Supplemental Rent is received after 4:00 PM (New York City time) on the dates when such rent is due, such rent shall be deemed received on the next succeeding Business Day.

Section 3.4. Late Payment. If any payment of Base Rent or any Supplemental Rent payable to Lessor shall be delinquent, Lessee shall pay interest thereon from the date such payment became due and payable to the date of receipt thereof by Lessor at a rate per annum equal to the Default Rate.

Section 3.5. Net Lease, No Setoff, Etc. It is the intention of the parties hereto that the obligations of Lessee hereunder shall be separate and independent covenants and agreements, and that Base Rent, Supplemental Rent and all other sums payable by Lessee hereunder shall continue to be payable in all events, and that the obligations of Lessee hereunder shall continue unaffected, unless the requirement to pay or perform the same shall have been terminated pursuant to an express provision of this Lease. This Lease is a net lease and it is agreed and

2

intended that Base Rent, Supplemental Rent and any other amounts payable hereunder by Lessee shall be paid without notice (except with respect to Supplemental Rent for which notice is specifically required herein), demand, counterclaim, setoff, deduction or defense and without abatement, diminution or reduction and that Lessee’s obligation to pay all such amounts, throughout the Base Term and all applicable Renewal Terms is absolute and unconditional. Under no circumstances shall Lessor be obligated to repay Lessee, refund to Lessee, or return to Lessee, any Base Rent.

This Lease shall not terminate and Lessee shall not have any rights to terminate this Lease, during the Base Term and any Renewal Terms (except as otherwise expressly provided in Article 12). Except to the extent otherwise expressly specified in this Lease, Lessee shall not take any action to terminate, rescind or void this Lease and the obligations and liabilities of Lessee hereunder shall in no way be released, discharged or otherwise affected for any reason, including without limitation: (a) any defect in the condition, merchantability, design, quality or fitness for use of the Property or any part thereof, or the failure of the Property to comply with all Applicable Laws, including any inability to occupy or use the Property by reason of such noncompliance; (b) any damage to, removal, abandonment, salvage, loss, condemnation (except as set forth in Article 12), theft, scrapping or destruction of or any requisition or taking of the Property or any part thereof, or any environmental conditions on the Property or any property in the vicinity of the Property; (c) any restriction, prevention or curtailment of or interference with any use of the Property or any part thereof including eviction; (d) any defect in title to or rights to the Property or any Lien on such title or rights to the Property; (e) any change, waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by any Person; (f) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to Lessee, Lessor or any other Person, or any action taken with respect to this Lease by any trustee or receiver of Lessee or any other Person, or by any court, in any such proceeding; (g) any right or claim that Lessee has or might have against any Person, including without limitation Lessor, the Lender, or any vendor, manufacturer, contractor of or for the Property; (h) any failure on the part of Lessor or any other Person to perform or comply with any of the terms of this Lease; (i) any invalidity, unenforceability, rejection or disaffirmance of this Lease by operation of law or otherwise against or by Lessee or Lessor or any provision hereof; (j) the impossibility of performance by Lessee or Lessor, or both; (k) any action by any court, administrative agency or other Governmental Authority; (l) any interference, interruption or cessation in the use, possession or quiet enjoyment of the Property; (m) the exercise of any remedy, including foreclosure, under the Mortgage, (n) any action with respect to this Lease (including the disaffirmance or rejection hereof) which may be taken by Lessor or Lessee under the Federal Bankruptcy Code or by any trustee, receiver or liquidator of Lessor or Lessee or by any court under the Federal Bankruptcy Code or otherwise, (o) the prohibition or restriction of Lessee’s use of the Property under any Applicable Laws or otherwise, (p) the eviction of Lessee from possession of the Property, by paramount title or otherwise, (q) any breach or default by the Lessor hereunder or under any other agreement between Lessor and Lessee; or (r) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether foreseeable or unforeseeable, and whether or not Lessee shall have notice or knowledge of any of the foregoing. Except as specifically set forth in this Lease, this Lease shall be noncancellable by Lessee for any reason whatsoever and, except as expressly provided in this Lease, Lessee, to the extent now or hereafter permitted by Applicable Laws, waives all rights now or hereafter conferred by statute or otherwise to quit,

3

terminate or surrender this Lease or to any diminution, abatement or reduction of Rent payable hereunder. Under no circumstances or conditions shall Lessor be expected or required to make any payment of any kind hereunder or have any obligations with respect to the use, possession, control, maintenance, alteration, rebuilding, replacing, repair, restoration or operation of all or any part of the Property, so long as the Property or any part thereof is subject to this Lease, and Lessee expressly waives the right to perform any such action at the expense of Lessor whether hereunder or pursuant to any law. Lessee waives all rights which are not expressly stated herein but which may now or hereafter otherwise be conferred by law (i) to quit, terminate or surrender this Lease or any of the Property; (ii) to have any setoff, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense of or to Base Rent, Supplemental Rent, or any other sums payable under this Lease, except as otherwise expressly provided herein; and (iii) to have any statutory lien or offset right against Lessor or its property.

ARTICLE 4

INTENTIONALLY DELETED

ARTICLE 5

RENEWAL OPTIONS

Section 5.1. Renewal Options.

Lessor hereby grants to Lessee the option to extend the term of this Lease for the following periods (each, a “Renewal Term”):

(a) for two consecutive terms of five (5) years each and a third consecutive terms of four (4) years, the first commencing on the date that is the day after the expiration of the Base Term and ending on the fifth (5th) anniversary of the expiration of the Base Term (the “First Renewal Term”); the second (the “Second Renewal Term”) commencing on the day that is the day after the expiration of the First Renewal Term and ending on the fifth (5th) anniversary thereof and the third (“Third Renewal Term”) commencing on the day that is the day after the expiration of the Second Renewal Term and ending on the fourth (4^th) anniversary thereof (collectively, the “Renewal Terms”).

In order to exercise its option to extend this Lease for any Renewal Term, the Lessee shall give Lessor written notice of its intent to exercise its option to extend the term of this Lease not less than twelve (12) months prior to the expiration of the Base Term or the then current Renewal Term, time being of the essence. If Lessee fails to provide such notice for any Renewal Term Lessee will be deemed to have waived its right to renew.

(b) The monthly Base Rent for the Renewal Terms shall be as set forth on Schedule 3.1 hereof.

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(c) The right of Lessee to extend the term of this Lease for any Renewal Term is contingent upon there not being any Lease Event of Default in existence on the date of Lessee’s exercise of such right or on the date that the Renewal Term commences.

5.2 Lease Provisions Applicable During Renewal. All the provisions of this Lease shall be applicable during each Renewal Term and the number of Renewal Terms shall be correspondingly reduced.

ARTICLE 6

LESSEE’S ACCEPTANCE OF PROPERTY, ENFORCEMENT OF WARRANTIES

Section 6.1. Waivers. The Property is demised and let by Lessor “AS IS” in its present condition, subject to (a) the rights of any parties in possession thereof (other than rights, if any, granted by Lessor), (b) the state of the title thereto existing at the time of the commencement of the Lease Term (other than defects in, or exceptions to, title, if any, created by Lessor, but including liens created by the Mortgage and related debt documents), (c) any state of facts which an accurate survey or physical inspection might show, (d) all Applicable Laws, (e) any violations of Applicable Laws which may exist at the commencement of the Lease Term and (f) the presence of any Hazardous Materials at or under the Property or at or under any property in the vicinity of the Property. NONE OF LESSOR, LENDER OR ANY AFFILIATE THEREOF HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE VALUE, HABITABILITY, COMPLIANCE WITH ANY PLANS AND SPECIFICATIONS, CONDITION, DESIGN, OPERATION, LOCATION, USE, DURABILITY, MERCHANTABILITY, CONDITION OF TITLE, OR FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF) FOR ANY PARTICULAR PURPOSE, OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTY (OR ANY PART THEREOF) AND NONE OF LESSOR, ANY AFFILIATE THEREOF OR LENDER OR ANY DESIGNEE THEREOF SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR FOR THE FAILURE OF THE PROPERTY TO BE CONSTRUCTED IN ACCORDANCE WITH ANY PLANS AND SPECIFICATIONS THEREFORE, FOR THE COMPLIANCE OF THE PLANS AND SPECIFICATIONS FOR THE PROPERTY WITH APPLICABLE LAWS OR FOR THE FAILURE OF THE PROPERTY, OR ANY PART THEREOF, TO OTHERWISE COMPLY WITH ANY APPLICABLE LAWS. It is agreed that Lessee or an Affiliate of Lessee has occupied the Property as tenant or owner immediately prior to entering into this Lease, has inspected the Property, is satisfied with the results of its inspections of the Property and is entering into this Lease solely on the basis of the results of its own inspections and all risks incident to the matters discussed in the preceding sentence. The provisions of this Article 6 have been negotiated, and the foregoing provisions are intended to be a complete exclusion and negation of any representations or warranties by Lessor, any Affiliate thereof or a Lender, express or implied, with respect to the Property, that may arise pursuant to any law now or hereafter in effect, or otherwise and specifically negating any warranties under the Uniform Commercial Code.

5

Section 6.2. Lessee’s Right to Enforce Warranties.

(a) Lessor hereby assigns and sets over to, and Lessee hereby accepts the assignment of all of Lessor’s right, title and interest, and estate in, to and under, any and all warranties and other claims against dealers, manufacturers, vendors, contractors and subcontractors relating to the construction, use and maintenance of the Property or any portion thereof now existing or hereafter acquired (excluding from such assignment any such warranties and claims which by their terms are not assignable by Lessor without loss of some or all of the benefits of such warranties or claims); provided, however, that Lessor shall have no obligations under, or liabilities with respect to, any such warranties and claims.

(b) Lessor authorizes Lessee (directly or through agents) at Lessee’s expense to assert during the Lease Term, all of Lessor’s rights (if any) under any applicable warranty and any other claim that Lessee or Lessor may have against any dealer, vendor, manufacturer, contractor or subcontractor with respect to the Property or any portion thereof.

(c) Lessor agrees, at Lessee’s expense, to cooperate with Lessee and take all other action necessary as specifically requested by Lessee to enable Lessee to enforce all of Lessee’s rights (if any) under this Section 6.2, such rights of enforcement to be exclusive to Lessee, and Lessor will not, during the Lease Term, amend, modify or waive, or take any action under, any applicable warranty and any other claim that Lessee may have under this Section 6.2 without Lessee’s prior written consent.

ARTICLE 7

LIENS

Section 7.1. Liens. Lessee shall not directly or indirectly create, incur, assume or suffer to exist any Lien on or with respect to any and all of the Property, title thereto or any interest therein, to this Lease or the leasehold interest created hereby, or to Rent actually paid to Lessor, or the rentals payable with respect to the subletting of the Property (up to the amount of such rentals payable to Lessor hereunder), except Permitted Liens. Lessee shall promptly, but not later than sixty (60) days after receipt of notice of the filing thereof, at its own expense, take such action as may be necessary duly to discharge or eliminate or bond in a manner reasonably satisfactory to Lessor any such Lien (other than Permitted Liens); provided, however, Lessee may contest such Lien in good faith, upon satisfaction of the conditions contained in Section 8.6, below, and need not discharge or bond such Lien while so doing provided (i) Lessee has a long term unsecured debt rating equal to or above the Trigger Rating; (ii) no action to foreclose the Lien has been brought in any judicial or quasi-judicial action; and (iii) no Lease Event of Default is then continuing.

NOTHING CONTAINED IN THIS LEASE SHALL BE CONSTRUED AS CONSTITUTING THE CONSENT OR REQUEST OF LESSOR, EXPRESS OR IMPLIED, TO OR FOR THE PERFORMANCE BY ANY CONTRACTOR, LABORER, MATERIALMAN, OR VENDOR OF ANY LABOR OR SERVICES OR FOR THE FURNISHING OF ANY MATERIALS FOR ANY CONSTRUCTION, ALTERATION, ADDITION, REPAIR OR DEMOLITION OF OR TO THE PROPERTY OR ANY PART THEREOF, WHICH WOULD

6

RESULT IN ANY LIABILITY OF LESSOR FOR PAYMENT THEREFOR. NOTICE IS HEREBY GIVEN THAT LESSOR WILL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE HOLDING AN INTEREST IN THE PROPERTY OR ANY PART THEREOF THROUGH OR UNDER LESSEE, AND THAT NO MECHANICS OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR IN AND TO THE PROPERTY.

Notwithstanding the foregoing paragraph, Lessor agrees to reasonably cooperate with Lessee (without exposing its interest in the Property), at no cost to Lessor, to allow Lessee to perform alterations on the Property in accordance with Section 8.3.

ARTICLE 8

USE AND REPAIR

Section 8.1. Use. The Property may be used (“Permitted Use”) for any lawful purpose, except (a) for the operation of a public nuisance, or any other use that would materially increase the risk of Lessor incurring environmental liability, (b) for any use that would make it impossible to obtain or would invalidate any insurance policy of the Property, provided such policy is required to be maintained hereunder, (c) for any use that would involve the mining for, or removal of, any oil, gas or minerals, or (d) for any use that involves the storage, handling or processing of Hazardous Materials in violation of Applicable Law. Lessor agrees that Lessee may exercise the rights of Lessor under any property association now existing or hereafter existing, provided (i) Lessee takes no action which could result in either a violation of this Lease or a material adverse effect on the Property, and (ii) Lessee does not encumber the Property by any lien for the payment of money, which could survive expiration of the Lease, or execute documents on behalf of the Lessor unless such documents will not have a material adverse effect on the Property, or Lessor’s interest therein.

Section 8.2. Maintenance. Lessee, at its own expense, shall at all times, (i) maintain the Property in good condition and repair appropriate for its use, reasonable wear and tear excepted, (ii) maintain the Property in accordance with the requirements of all insurance policies relating to the Property required to be maintained hereunder and in compliance with Applicable Laws and (iii) make repairs and Alterations of the Property necessary to keep the same in the condition required by the preceding clauses (i) and (ii), whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen and regardless of whether such expenditures would constitute capital expenses under GAAP if made by the owner of the Property; provided, if such repairs are structural and pursuant to Section 8.3 require the consent of the Lessor, Lessee shall obtain such consent before performing such repairs in accordance with the applicable provisions of Section 8.3 below. In no event shall Lessor be entitled to any management fee, supervisory fee, administrative fee, or any other fee payable by Lessee relating to its ownership of the Property.

Section 8.3. Alterations. (a) At any time and from time to time, without Lessor’s consent, Lessee, at its sole cost and expense, may make (1) non-structural Alterations to the Property; (2) structural Alterations to the Property costing, for each scope of work, as reasonably determined by Lessee, less than the Threshold Amount with prior notice to Lessor; and (3) Structural Alterations in an amount, for each scope of work, as reasonably determined by Lessee,

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at or above the Threshold Amount after giving prior written notice to Lessor, and obtaining Lessor’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed; provided that no Alteration (whether consent is necessary or not) shall (i) impair in any material respect the utility, remaining useful life, or fair market value of the Property, in each case assuming that the Improvements are then being operated and maintained in accordance with this Article 8, or (ii) create a violation of this Lease, or (iii) increase in any material respect the risk of liability to the Lessor including any material risk of liability under any Environmental Laws, or (iv) materially and permanently reduce the rentable square footage of the Improvements, or (v) materially weaken, temporarily (other than during construction or repair of the structure) or permanently, the structure of the Improvements or any part thereof, or (vi) reduce the permitted uses thereof under applicable zoning or land use laws so as to reduce the fair market value of the Property. Notwithstanding the requirements for notice and consent set forth above, Lessee may, in good faith, make any repairs (structural or non-structural) required by virtue of an emergency, without satisfying any otherwise applicable notice and/or consent requirement, provided Lessee notifies Lessor of such repair (to the extent otherwise required) as promptly as is reasonably practical, after the emergency and obtains Lessor’s consent in the manner required in Section 8.3(c), below, to the repairs made, and otherwise satisfies the provisions of this Section 8.3, all as promptly as practicable. Lessor shall consent to any work already performed or being performed unless such work either violates the terms of this Lease or violates Applicable Law.

(b) Every Alteration shall comply with the following terms (which compliance shall be at Lessee’s sole cost and expense): (i) except (unless required by Applicable Law) for Alterations costing less than $2,000,000 (or $500,000.00 if Lessee does not have a Required Rating equal to at least the Trigger Rating) for each scope of work, as reasonably determined by Lessee, the Alteration shall be made with plans prepared by a certified architect or civil engineer who shall be licensed in the appropriate jurisdiction to the extent required for the filing of any plans in connection with such Alteration (which architect may be an employee of Lessee or its Affiliates), and shall be done under the supervision of such architect or engineer, or other reasonably capable person, and copies of such plans and specifications shall be delivered to Lessor prior to construction, (ii) the structural integrity of the existing Improvements will not be impaired upon completion of such work, (iii) Lessee shall obtain any licenses, approvals or permits required (including final approvals), copies of which shall be delivered to Lessor upon written request by such party, and (iv) such Alterations, except as permitted pursuant to a party wall agreement granted in accordance with subsection 8.3(d) of this Lease, will not encroach upon any adjacent premises. Lessor agrees to cooperate with Lessee (at no cost to Lessor) in signing permit applications and similar documents to the extent required for any Alteration. Lessee shall submit such applications or similar documents to Lessor to the extent Lessor’s approval is required for the subject Alteration. Lessee may execute such applications or similar documents on behalf of and (if necessary) in the name of, Lessor for all Alterations for which Lessor’s consent is not required, and for Alterations for which Lessor’s consent is required, has been granted, but Lessor does not execute such documents within 10 days of request therefore. Lessee shall promptly furnish Lessor with copies of all documents Lessee has signed on behalf of Lessor. Nothing herein shall be deemed to impose any liability or responsibility on Lessor for performance or payment of such Alteration. Any Claim asserted against or incurred by Lessor arising out of the foregoing shall be indemnified by Lessee pursuant to the terms of Section 19.1, below. In connection with any Alteration, Lessee shall perform and complete all work promptly and in a good, worker-like manner in compliance with Applicable Laws and the plans and

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specifications submitted to Lessor, if applicable. Lessee shall either (i) maintain or cause to be maintained at all times during construction builder’s all risks insurance and comprehensive general liability insurance required under this Lease naming Lessor and Lender as loss payees as their interests may appear under such property insurance, and as additional insureds under such liability insurance or (ii) self insure the risk otherwise insured by the policies required in subsection (i) hereof, which self insurance shall be subject to, and available only upon satisfaction of, the provisions of Section 9.1(b). In the event Lessor and Lessee cannot agree as to whether Lessor unreasonably withheld its consent to a proposed Alteration, the parties agree to submit such dispute to the American Arbitration Association in California for binding resolution in accordance with its expedited arbitration procedures.

(c) With respect to such structural Alterations for which Lessee must obtain the consent of Lessor pursuant to the terms of this Lease, Lessor shall have fifteen (15) days after Lessee’s delivery of its request for consent, together with preliminary drawings and specifications for such Alterations, within which Lessor, may grant or not grant Lessee’s request for consent. If Lessor, shall have not within such 15-day period responded to Lessee, Lessee may give a second notice which clearly shall state in bold-face type that the failure to respond within five (5) days shall be deemed consent. If Lessor, shall not, within five (5) days after such second notice, notify Lessee that such consent will not be granted, such consent shall be deemed to have been granted. All reasonable out-of-pocket costs of review incurred by Lessor (whether or not the Alteration is approved) shall be paid by Lessee within thirty (30) days of receipt of an invoice therefore.

(d) It is contemplated that Lessee, pursuant to a subground lease (“Ground Lease”) of even date herewith will construct improvements (“Ground Lease Improvements”) on property adjacent to the Property (“Improvement Parcel”). The Ground Lease Improvements may connect to and attach to the Improvements. Lessor hereby consents to the alteration of the Improvements as necessary to permit the attachment of the Ground Lease Improvements to the Improvements, access between the Property and the Improvement parcel including, but not limited to, access between the Ground Lease Improvements and the Improvements and to the execution of a party wall agreement upon completion of the construction of the Ground Lease Improvements to permit, the continued existence of all connection points between the Improvements and the Ground Lease Improvements all in a form reasonably acceptable to Lessor and Lessee and provided all of the following conditions are satisfied to Lessor’s reasonable satisfaction: (i) both the Improvements and Ground Lease Improvements shall be capable of complete independent operation and shall, upon completion of a demising wall be separate, independent fully operational building in compliance with all Applicable Laws, (except that no computer, or information technology room will be required as part of the Ground Lease Improvements) (ii) a cost sharing agreement shall have been executed allocating the cost for repair and replacement of all common areas, (iii) a date down title insurance policy shall have been issued by the Title Insurance Company subject only to the Permitted Encumbrances and (iv) Lessee indemnifies Lessor its successors and assigns from all losses Lessor may incur as a result of the construction and operation of the Alterations connecting the Improvements to the Ground Lease Improvements. At Lessor’s request, submitted in writing at least sixty (60) days in advance, Lessee shall deliver the Property prior to the expiration or earlier termination of this Lease with a demising wall separating the Improvements and the Ground Lease Improvements (to the extent permissible under applicable Laws). Lessee shall be responsible for all costs and expenses in connection with the construction of the demising wall.

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(e) It is contemplated that Lessee pursuant to the Ground Lease will use commercially reasonable efforts to create a condominium regime separating the Property from the Improvement Parcel as separate condominium units. Upon completion of the condominium regime Lessee will assume all obligations of a condominium owner of the Property as are set forth in the condominium covenants, conditions and restrictions or otherwise established by separate documents or by applicable law except to the extent inconsistent with allocation of obligations between Lessor and Lessee as set forth in the Lease.

Section 8.4. Title to Alterations. Title to Alterations shall without further act vest in Lessor and shall be deemed to constitute a part of the Property and be subject to this Lease in the following cases:

(a) such Alteration shall be in replacement of or in substitution for a portion of the Improvements as of the date hereof,

(b) such Alteration shall be required to be made pursuant to the terms of Section 8.2; or

(c) such Alteration shall be Nonseverable.

If an Alteration is not within any of the categories set forth in Section 8.4(a) through Section 8.4(c), then title to such Alteration shall vest in Lessee and shall be removed by Lessee to the extent required in accordance with Article 10 hereof. All Alterations to which title shall vest in Lessee as aforesaid, and all Lessee’s Equipment and Personalty, so long as removal thereof shall not result in the violation of any Applicable Laws or this Lease, may be removed at any time by Lessee, provided that Lessee shall, at its expense, repair any damage to the Property caused by the removal of such Alteration. Lessee shall provide “AS-BUILT” plans to Lessor for any structural Alterations within a single scope of work (as reasonably determined by Lessee) costing in excess of $2,000,000.00.

Section 8.5. Compliance with Law; Environmental Compliance.

(a) Lessee, at Lessee’s expense, shall comply, and shall cause its subtenants and other users of the Property to comply, in all material respects at all times with all Applicable Laws, including Environmental Laws. Such compliance includes, without limitation, Lessee’s obligation, at its expense, to take Remedial Action when required by Applicable Laws (in accordance with Applicable Laws, and this Lease) whether such requirement is now or hereafter existing, currently known or unknown to Lessee and/or Lessor, as and when such requirements are known to Lessee. Lessee shall not however, be responsible to take Remedial Action in connection with a Release caused solely by the active (but not passive) actions of Lessor or its employees, agents or contractors. In the event that Lessee is required or elects to enter into any plan relating to a Material Remedial Action in connection with the Property with respect to any Environment Laws, Lessee shall periodically apprise Lessor of the status of such remediation plan and, upon Lessor’s request, provide copies of all correspondence, plans, proposals, contracts and other documents relating to such plan or proposed plan. Lessee may in good faith contest

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the applicability or alleged liability under any Environmental Law to the Property, provided (i) such contest will not result in a lien, encumbrance or judgment against the Property or Lessor, (ii) such contest satisfies the conditions set forth in subsections 8.6(i), (ii), (iii), (iv), (v), (vi) and (vii), below, (iii) Lessee then has a Required Rating equal to or better than the Trigger Rating, and (iv) compliance with such Law will be satisfied as of the expiration date or earlier termination of the Lease, and if not completed by the expiration date, Lessee will continue to remain liable to comply with such Law and shall diligently prosecute such plan, and Lessor shall provide access to the Property to allow Lessee to finish its remediation plan. Lessee shall keep Lessor regularly apprised of the status of such contest. In all events Lessee must pay any cost, fine, penalty, assessment or other charge after the contest is either adversely decided or terminated voluntarily by Lessee or because it no longer has the right to contest pursuant to the terms of the Lease. In the event Lessee does not have a Required Rating equal to or in excess of the Trigger Rating, Lessee may nonetheless contest the applicability of any Environmental Law provided that Lessee and Lessor agree upon an Approved Environmental Consultant who shall, at Lessee’s sole cost and expense, prepare a report within sixty (60) days of being retained, which report shall state the costs the Approved Environmental Consultant reasonably believes is likely to be incurred by Lessee to comply with the Environmental Law in the event Lessee loses its contest. If, within thirty (30) days of receipt of said report, Lessee posts a letter of credit or other bond in a form reasonably acceptable to Lessor or deposits cash with the Proceeds Trustee an amount equal to 110% of the cost estimated by the Approved Environmental Consultant to comply with the Environmental Law, Lessee may continue the contest, provided the other terms of this Section 8.5 are met. In the event Lessee loses the contest and is forced to incur costs to comply with the Environmental Law, the Proceeds Trustee shall dispense the amount retained by it pursuant to this paragraph from time to time, in accordance with the provisions of Section 12.4 below, with any balance remaining thereafter to be disbursed to Lessee provided no Lease Event of Default then exists and is continuing. Lessor and Lessee shall reasonably cooperate in selecting the Approved Environmental Consultant.

(b) Lessee shall notify Lessor promptly if (i) Lessee becomes aware of the presence or Release of any Hazardous Material at, on, under, emanating from, or migrating to, the Property in any quantity or manner, which could reasonably be expected to violate in any material respect any Environmental Law or give rise to any Material liability, or (ii) Lessee receives any written notice, claim, demand, request for information, or other communication from a Governmental Authority or a third party regarding the presence or Release of any Hazardous Material at, on, under, within, emanating from, or migrating to the Property or related to the Property which could reasonably be expected to violate in any material respect any Environmental Law or give rise to any Material liability. In connection with any actions undertaken by Lessee or at Lessee’s direction pursuant to this Lease, Lessee shall at all times comply with all applicable Environmental Laws and with all other Applicable Laws and shall use an Approved Environmental Consultant to perform any Remedial Action.

Section 8.6. Payment of Impositions.

(a) Lessee shall pay or cause to be paid all Impositions before any fine, penalty, premium, further interest (except as provided in the immediately succeeding sentence with respect to installments) or cost may be assessed or added for nonpayment, such payments to be made directly to the taxing authorities where feasible. If requested, Lessee shall deliver to

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Lessor copies of receipts, canceled checks or other documentation reasonably satisfactory to Lessor evidencing payment of Impositions to the extent Lessee maintains such documentation as part of its customary retention policy; provided, however, that Lessee shall maintain in its records evidence of payment of Taxes for a period of no less than four (4) years. If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (regardless whether interest shall accrue on the unpaid balance of such Imposition), Lessee may exercise the option to pay the same in installments, and in such event Lessee shall pay only those installments that become due and payable during the Lease Term or relate to the Lease Term, as the same become due and before any fine, penalty, premium, further interest or cost may be assessed or added thereto.

(b) Lessee shall pay to Lessor on each Rent Payment Date one-twelfth of the Taxes that Lessor estimates will be payable during the next ensuing twelve (12) months in order to accumulate with Lessor sufficient funds to pay all such Taxes at least thirty (30) days prior to their respective due dates and (said amounts are hereinafter called the “Tax Escrow Fund”). The Tax Escrow Fund and the other payments of Rent, shall be added together and shall be paid, monthly, as an aggregate sum by Lessee to Lessor. Lessor will apply the Tax Escrow Fund to payments of Taxes required to be made by Lessee pursuant to this Lease. In making any payment relating to the Tax Escrow Fund, Lessor may do so according to any bill, statement or estimate procured from the appropriate public office or from Lessee without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien or title or claim thereof, provided, however, Lessor shall use reasonable efforts to pay such real property taxes sufficiently early to obtain the benefit of any available discounts of which it has knowledge. If the amount of the Tax Escrow Fund shall exceed the amounts due for Taxes, Lessor shall, in its sole discretion, return any excess to Lessee or credit such excess against future payments to be made to the Tax Escrow Fund. Any amount remaining in the Tax Escrow Fund in excess of the Taxes payable by Tenant hereunder shall be promptly returned to Lessee upon the expiration or earlier termination of the Lease. If at any time Lessor reasonably determines that the Tax Escrow Fund is not or will not be sufficient to pay Taxes by the dates set forth above, Lessor shall notify Lessee of such determination and Lessee shall increase its monthly payments to Lessor by the amount that Lessor estimates is sufficient to make up the deficiency at least thirty (30) days prior to delinquency of the Taxes.

(c) Notwithstanding the foregoing paragraphs (a) and (b), Lessee shall have the right to contest any Imposition, subject to the following: (i) such contest shall be at its sole cost and expense, (ii) if the Imposition being contested is in the amount of $2,000,000.00 or more, Lessee shall provide prompt notice to Lessor of such Imposition and contest and the grounds thereof, and either (A) have a Required Rating equal to the Trigger Rating or (B) post a letter of credit or other bond in a form reasonably acceptable to Lessor or deposit cash with the Proceeds Trustee in an amount equal to 110% of the amount contested, as reasonably determined by the Lender, to the extent such contested Imposition is not paid to the applicable Governmental Authority, (iii) such contest shall be by appropriate legal proceedings conducted in good faith and with due diligence, (iv) such contest will operate to suspend the collection of, or other realization upon, such Imposition, from any Property or other interest of Lessor or from any Rent (or otherwise affect Lessee’s obligation to pay, and Lessor’s right to receive, Rent), (v) such contest will not adversely affect the Lender’s lien on any Property, or Lessor’s right to any Property (for purposes hereof, “adversely affecting” being deemed to mean such lien or Lessor’s right is subject to

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reasonable likelihood of extinguishment), (vi) such contest will not materially and adversely interfere with the possession, use or occupancy or sale of any Property, (vii) such contest will not subject Lessor or the Lender to any civil (other than for the amounts being contested) or criminal liability, (viii) Lessee shall not postpone the payment of any Imposition for such length of time as shall permit the Property to become subject to a lien created by such item being contested that is prior to the lien of the Mortgage (other than a lien of real property taxes which are already a first lien) and (ix) no Lease Event of Default is existing. Lessee shall pay any Imposition (and related costs) promptly after forgoing any contest or after receipt of a final non-appealable adverse judgment.

Section 8.7. Adjustment of Impositions. Impositions with respect to the Property for a billing period during which Lessee’s obligation to indemnify Lessor pursuant to this Lease expires or terminates as to the Property shall be adjusted and prorated on a daily basis between Lessor and Lessee, whether or not such Imposition is imposed before or after such expiration or termination, and Lessee’s and Lessor’s obligation to pay its pro rata share thereof shall survive such expiration or termination (to the extent, with respect to Lessor, it is obligated to reimburse Lessee for Impositions paid by Lessee for periods after expiration of the Lease Term). Lessor acknowledges that Lessee may bring any tax certiorari or other actions for refunds of Impositions or adjustments of Impositions for which Lessee is liable under this Lease, or relating to periods prior to the commencement date of the Term and Lessee shall be entitled to all such refunds; provided Lessee shall take no such action which could increase any Imposition for a period after the expiration of the Lease. During the Term, Lessor agrees to cooperate with Lessee in such proceedings, at no cost to Lessor.

Section 8.8. Utility Charges. Lessee shall pay or cause to be paid, directly to the party entitled, all charges for electricity, power, gas, oil, water, telephone, sanitary sewer services and all other utilities used in or on the Property prior to and during the Lease Term, and such obligation on the part of Lessee shall survive the expiration or earlier termination of this Lease until all such outstanding balances for services rendered prior to or during the term of this Lease have been paid. Any refunds of such charges attributable to the Term or the period prior to the commencement of the Term shall be the property of Lessee, and Lessor shall pay the same to Lessee promptly upon its receipt thereof. Lessee shall have the right to select all service providers for the Property. Lessor shall not be entitled to charge any fees associated with Lessee’s acquisition and/or use of utilities.

Section 8.9. Litigation; Zoning; Joint Assessment. Lessee shall give prompt written notice to Lessor of any litigation or governmental proceedings pending or threatened against Lessee or the Property of which Lessee has actual knowledge, which could reasonably be expected to materially adversely affect the condition or business of the Property. Without the prior written consent of Lessor, which consent shall not be unreasonably withheld, conditioned, or delayed, Lessee shall not initiate any zoning reclassification for the Property, or any portion thereof, or seek any variance under any existing zoning ordinances or use or permit the use of any portion of the Property in any manner that could result in such use becoming a non-conforming use under any zoning ordinance or any other Applicable Law. Lessee shall not initiate any proceeding to cause the Property to be jointly assessed with any other property or with any personal property of Lessee, or take any other action or initiate any proceeding which might cause the personal property of the Lessee to be taxed in a manner whereby such taxes or levies could be assessed against the Property.

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ARTICLE 9

INSURANCE

Section 9.1. Coverage.

(a) Subject to Section 9.1(b), Lessee shall maintain insurance of the types and in the amounts set forth on Schedule 9.1 attached hereto and made a part hereof.

(b) So long as (i) no Lease Event of Default has occurred and is continuing and (ii) Lessee has a Required Rating at least equal to the Trigger Rating, Lessee shall be entitled to self-insure against any and all risks it would otherwise be required to insure against under Section 9.1(a), provided that such self-insurance program of this subsection (b) does not violate any Applicable Law. During any period that Lessee is self insuring, Lessee shall not be required to deliver any policies, certificates or other evidence of insurance other than a certificate of self-insurance acknowledging Lessee’s insurance obligation under the Lease, and confirming Lessee’s decision to self-insure (to the extent Lessee is in fact self insuring). If Lessee does not, or is not permitted to, self-insure, then (i) Lessee shall maintain a policy or policies of commercial general liability insurance with respect to the Property, and shall cause Lessor and the Lender to be named as an additional insured on such policy or policies and (ii) Lessee shall maintain a policy or policies of property insurance with respect to the Property, and Lessee shall cause Lessor and the Lender to be named loss payee as their interests may appear on such policy or policies, all in forms and amounts as set forth in Schedule 9.1.

(c) Nothing in this Article 9 shall prohibit the Lessee from maintaining at its expense insurance on or with respect to the Property, naming the Lessee as insured and/or loss payee for an amount greater than the insurance required to be maintained under this Section 9.1, unless such insurance would conflict with or otherwise limit the availability of or coverage afforded by insurance required to be maintained under Section 9.1. Nothing in this Section 9.1 shall prohibit the Lessor from maintaining at its expense other insurance on or with respect to the Property or the operation, use and occupancy of the Property, naming the Lessor as insured and/or payee, unless such insurance would conflict with, cause the Lessor to be a coinsurer or otherwise limit or adversely affect the ability to obtain, or the cost of the insurance required to be maintained under Section 9.1.

(d) Copies of any certificates required to be delivered under Schedule 9.1 shall be delivered to Lessor at the same time delivered to the Lender.

(e) Irrespective of the cause thereof, Lessor shall not be liable for any loss or damage to any buildings or other portion of the Property resulting from fire, explosion or any other casualty. In the event of Lessee’s failure to obtain or maintain the insurance called for under this Lease after notice and applicable grace, Lessor shall have the right, together with Lessor’s remedies set forth herein, to obtain the policies of insurance required under this Lease and to bill Lessee for the premium payments therefor, together with interest at the Default Rate. Lessor shall have no obligation to maintain insurance of any nature or type whatsoever.

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(f) In the event Lessee elects to self-insure, it shall be obligated to use or pay to third parties, all amounts that Lessor, or such third party, would have received had Lessee not self-insured. The foregoing shall not, however, act as a limit on Lessee’s liability. Sums due from Lessee in lieu of insurance proceeds because of Lessee’s self-insurance program shall be treated as insurance proceeds for all purposes under this Lease.

(g) Each policy required to be carried by Lessee under this Lease shall also provide that any loss otherwise payable thereunder shall be payable notwithstanding any act or omission of Lessor or Lessee which might, absent such provision, result in a forfeiture of all or a part of such insurance payment.

(h) Lessee shall comply with all insurance requirements applicable under any insurance policies required to be maintained under this Lease.

ARTICLE 10

RETURN OF PROPERTY TO LESSOR

Section 10.1. Return of Property to Lessor. Lessee shall, upon the expiration or termination of this Lease, and at its own expense, return the Property to Lessor by surrendering the same into the possession of Lessor:

(a) free and clear of all Liens (whether by payment or bonding), except that Lessee shall have no responsibility or liability in respect of (i) Lessor Liens, (ii) any Lien created by the Mortgage and related debt documents, and (iii) Liens for taxes not yet due and payable; and

(b) in compliance in all material respects with all Applicable Laws and in compliance with the maintenance conditions required by this Lease. All Alterations and Lessee’s Equipment and Personalty not removed by Lessee by the last day of the Lease Term (but in the event of a termination other than upon the expiration of the Base Term or any Renewal Term, within thirty (30) days after said termination of this Lease), other than those Alterations as to which title shall vest in Lessor pursuant to Section 8.4, shall be deemed abandoned in place by Lessee and shall become the property of Lessor. Lessee shall pay or reimburse Lessor for any reasonable, actual, out-of-pocket costs incurred by Lessor in connection with the removal or disposal of such relinquished property, which obligation shall survive the expiration or termination of this Lease. In no event shall Lessee be required to remove or pay for the removal of any built in, permanent fixtures or improvements existing on, or within, the Property as of the date of this Lease or for any raised computer floors built during the Term or for any other Alterations made in compliance with the terms of this Agreement, or for any cabling or wiring (or similar property) now or hereafter located on or in the Property.

Upon the return of the Property, Lessee shall deliver therewith:

(i) all transferable licenses and permits pertaining to the Property by general assignment, without warranty or recourse;

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(ii) as built-drawings including plans for HVAC, mechanical and electrical systems, to the extent in Lessee’s possession and not previously delivered to Lessor, without warranty or recourse;

(iii) keys to the Property; and

(iv) assignment of all maintenance contracts (to the extent required by Lessor) and existing warranties applicable to the Property by general assignment, without warranty or recourse to the extent assignable.

Lessee agrees to reasonably cooperate with Lessor and its representatives to effectuate a smooth transition of the operation and maintenance of the Property. Notwithstanding anything expressly to the contrary hereunder, providing Lessee surrenders the Property and all Alterations and Equipment upon the expiration or termination of this Lease in compliance with all Applicable Laws, the failure to remove any of Lessee’s Alterations or Equipment in accordance with the provisions hereof shall not result in Lessee being deemed a holdover tenant hereunder.

ARTICLE 11

ASSIGNMENT BY LESSEE

Section 11.1. Assignment by Lessee. So long as no Lease Event of Default has occurred and is continuing, Lessee may, at Lessee’s sole expense, without the consent of Lessor, assign this Lease for a period that does not extend beyond the Lease Term, to any Person, provided, however, that any such Person or other Person is not a debtor or debtor-in- possession in a voluntary or involuntary bankruptcy proceeding at the commencement of the assignment. For purposes hereof, an assignment shall include a merger or consolidation of Lessee. Any assignee shall assume in writing any obligations of Lessee arising from and after the effective date of the assignment, provided, however, that no such assignment shall become effective until (i) a fully executed copy of an assignment and assumption agreement shall have been delivered to Lessor and the Lender, and (ii) such assignee shall have executed such instruments and other documents and provided such further assurances as the Lender shall reasonably request to ensure that such assignment is subject to the Mortgage and any related debt documents. Notwithstanding any such assignment, Lessee shall not be released from its primary liability hereunder and shall continue to be obligated for all obligations of “Lessee” in this Lease, which obligations shall continue in full effect as obligations of a principal and not of a guarantor, as though no assignment had been made. Lessee will have the right, subsequent to any assignment (a) to receive a duplicate copy of each notice of default sent by Lessor to any assignee (but such notice shall be effective as against the Lessee, as well as any subsequent assignees, even if a copy has not been delivered to such requesting assignee), and (b) to cure any default by any assignee under the Lease within the cure period provided for hereunder. Lessee’s liability hereunder shall continue notwithstanding the rejection of this Lease by an assignee or any sublease of this Lease pursuant to Section 365 of Title 11 of the United States Code, any other provision of the Bankruptcy Code, or any similar law relating to bankruptcy, insolvency, reorganization or the rights of creditors, which arises subsequent to such assignment. In the event Lessee assigns this Lease and it shall thereafter be rejected in a bankruptcy or similar proceeding, a new lease

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identical to this Lease shall be re-instituted as between Lessor and Lessee without further act of either party, provided Lessor shall not be obligated to deliver to Lessee possession of the Property free of any tenancy created or caused by Lessee or any entity holding by or through Lessee but Lessee may, in Lessor’s name, but at Lessee’s expense, take such action as it deems appropriate to have such assignee removed from the Property. Lessor shall reasonably cooperate with Lessee in such efforts. Nothing herein shall be construed to permit Lessee to mortgage, pledge, hypothecate or otherwise collaterally assign in any manner or nature whatsoever Lessee’s interest under this Lease in whole or in part. Lessee shall provide written notice to Lessor and the Lender of any assignment of this Lease within thirty (30) days after the effective date thereof and an executed copy of the approved agreement of assignment and assumption within thirty (30) days after the execution thereof. To the extent an assignee of this Lease fails to perform on behalf of Lessee the obligations of Lessee hereunder, and Lessee performs such obligations, then Lessee shall be subrogated to the rights of Lessor as against such assignee in respect of such performance.

ARTICLE 12

LOSS; DESTRUCTION; CONDEMNATION OR DAMAGE

Section 12.1. Event of Loss. If there shall occur an Event of Loss with respect to the Property (the “Affected Property (for purposes of this Lease, the Affected Property being the entire Property)”), Lessee shall give Lessor prompt written notice thereof and elect, within sixty (60) days after the occurrence of the Event of Loss, one of the following options:

(i) Offer to purchase the Affected Property from Lessor, on a Rent Payment Date, (the “Stipulated Loss Value Date”), and which Rent Payment Date shall be the first Rent Payment Date at least forty (40) days after Lessor accepts such offer, for a purchase price equal to the sum of (A) the Stipulated Loss Value for the Affected Property, determined as of such Stipulated Loss Value Date, plus (B) all unpaid Rent with respect to the Affected Property due but unpaid through such Stipulated Loss Value Date, plus (C) an amount equal to the reasonable out-of-pocket attorneys’ fees of Lessor relating to the purchase by Lessee as a result of such Event of Loss. Lessor (subject to the consent of the Lender), shall have sixty (60) days from the date of receipt of Lessee’s offer to decide whether to reject such offer. If Lessee has not received a response after forty (40) days, it may send a second notice to the foregoing parties, stating clearly in boldface that Lessor’s failure to reject such offer by the later of (i) the original sixty (60) day period, or (ii) ten (10) days after delivery of such second notice, shall be deemed Lessor’s acceptance of such offer; or

(ii) Restore and rebuild the Improvements damaged as a result of such Event of Loss (regardless of the availability of any insurance proceeds) so as to have a value, utility and remaining useful life as nearly as reasonably practicable equal to the value, utility and remaining useful life of the Affected Property immediately prior to such Event of Loss, and in all events as required by Section 8.2, such restoration to be done as expeditiously as is commercially reasonable and to be substantially completed, subject to force majeure, within twenty four months from the date of the Event of Loss, and in any event by the expiration of the Lease Term (and Lessee shall remain liable for the completion of such restoration beyond the expiration of the Lease Term to the extent not completed prior to such expiration but Lessee’s obligation to

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complete the Improvements shall not constitute a holdover by Lessee, who shall be granted access to the Property for such completion). In the event, due to force majeure events, restoration cannot be completed by the expiration of the Term, Lessee shall diligently complete the restoration thereafter and shall be liable to pay Base Rent (based on the Base Rent in effect on the day prior to the expiration of the Term (on a per diem basis)) and Supplemental Rent, until such restoration is complete.

Notwithstanding the options described in subsections 12.1(i) and (ii) if the Event of Loss occurs in the last of two (2) years of the Term, Lessee shall have the right to terminate the Lease effective as of the date of delivery of a notice of termination to Lessor not later than sixty (60) days following the Event of Loss. Upon such termination Lessor shall be entitled to all insurance proceeds and Lessee shall credit Lessor with all deductible amounts and Rent until the effective date of such termination. Lessee shall not have the right to terminate this Lease upon an Event of Loss if Lessee has exercised or intends to exercise its early termination right as provided for in the definition of Base Term. In other words Lessee does not, under any circumstances, have the right to exercise both rights of early termination and the right to terminate this Lease upon an Event of Loss pursuant to this paragraph.

If Lessee makes an offer to purchase pursuant to clause (i) above of this Section 12.1, and Lessor accepts such offer or is deemed to accept such offer within the sixty (60) day period referred to in the last sentence of clause (i) above, the conveyance shall occur, and Lessee shall pay to Lessor the Stipulated Loss Value and Rent described in said clause (i) on the Stipulated Loss Value Date; provided that any Net Proceeds related to the Affected Property then held by Lessor or the Lender shall be credited against the portion of such purchase price payable to Lessor and the balance of Net Proceeds, if any, shall be paid to or retained by Lessee. Concurrently with the payment in full of the amounts payable pursuant to said clause (i), the terms of Article 22 shall be complied with.

In the event Lessor rejects the offer of Lessee to purchase the Affected Property as provided in clause (i) of this Section 12.1 (which it may not do without the Lender’s written consent unless it first pays to the Lender an amount sufficient to pay all amounts due Lender with respect to the Affected Property ), the following amount shall be paid to or retained by Lessor on such Stipulated Loss Value Date: (A) all Net Proceeds related to the Affected Property, provided that, if Lessee is self-insured (as permitted above) by means of deductibles, retained risks or no insurance whatsoever, Lessee shall pay such amounts or additional amounts so that Lessor receives in total (including any Net Proceeds) an amount that would have been paid by a third-party insurer under a customary commercial all-risk full replacement-value insurance policy substantially similar to that described in Schedule 9.01(a)(ii) without deductibles or retained risks (but in any case amounts paid to Lessor will not be in excess of the replacement value of the Improvements immediately preceding the Event of Loss, which replacement value shall be as mutually agreed between Lessee and Lessor and, failing such agreement within fifteen (15) days of the request of either party to do so, by the Appraisal Procedure), plus (B) unpaid Rent due with respect to the Affected Property on and through such Stipulated Loss Value Date.

Upon payment in full of the amounts set forth in clauses (A) and (B) of the preceding paragraph (in the event Lessor rejected Lessee’s offer) or upon payment in full of the amounts set forth in clause (i) of the first sentence of this Section 12.1 and consummation of the sale to

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Lessee (or its designee) (in the event Lessor accepted Lessee’s offer to purchase), (1) the Lease Term shall end, and (2) the obligations of Lessee hereunder (other than any obligations expressed herein as surviving termination of this Lease) shall terminate as of the date of such payment.

If Lessor elects to reject the offer of Lessee hereunder to purchase the Property pursuant to this Section 12.1 while a Mortgage encumbers the Property, any notice of rejection shall only be effective, and Lessor shall only be entitled to reject such offer, if such notice is in writing and either such rejection is concurrently consented to in writing by the Lender or Lessor concurrently with delivery of its rejection notice pays to the Lender all amounts secured by the Mortgage with respect to the Affected Property, and reasonably evidences such payment to Lessee, and absent such repayment or consent by the Lender within the period referred to in the last sentence of clause (i) above, Lessor shall be deemed to have accepted Lessee’s offer.

Section 12.2. Application of Payments Upon an Event of Loss When Lease Continues. Payments received at any time by Lessor or Lessee from any Governmental Authority or insurance carrier or other Person with respect to any Event of Loss in a case in which this Lease will not terminate (and there will occur no abatement or reduction of rent) because Lessee has elected to proceed under clause (ii) of Section 12.1, shall be paid to Lessee to be applied, as necessary, to the repair or restoration of the Property as described in clause (ii) of Section 12.1. Any excess insurance proceeds remaining thereafter shall be retained by Lessee. In the event of a condemnation which does not result in a termination of the Lease, the proceeds of the Condemnation award remaining after repair and restoration, to the extent the excess equals or exceeds $500,000.00, shall be paid to the Lessor. The first $500,000.00 of excess Condemnation proceeds shall be allocated between Lessor and Lessee as set forth on Schedule 12.2 attached hereto. In no event shall Rent be adjusted.

Section 12.3. Application of Payments Not Relating to an Event of Loss. In case of a Condemnation or Casualty which is not an Event of Loss or which does not result in a termination of this Lease in accordance with the above provisions of Article 12, this Lease shall remain in full force and effect, without any abatement or reduction of Rent. Subject to Section 12.4, all Net Casualty Proceeds and all Net Condemnation Proceeds, as the case may be, shall be paid to Lessee to be applied, as necessary, to the repair or restoration of the Property so such Property shall have a value, utility and remaining useful life as close as reasonably practicable to the value, utility and remaining useful life existing immediately prior to such Casualty or Condemnation. Any excess insurance proceeds remaining thereafter shall be retained by Lessee and any excess condemnation award remaining thereafter in excess of $500,000.00 shall be paid to Lessor. The first $500,000.00 of excess condemnation proceeds shall be divided by Lessor and Lessee as set forth on Schedule 12.2.

Section 12.4. Other Dispositions. Net Casualty Proceeds or Net Condemnation Proceeds, as the case may be, in excess of the Threshold Amount (each, as applicable, the “Restoration Fund”) in respect of such Casualty or Condemnation, as the case may be, shall be paid to the Proceeds Trustee for release to Lessee as restoration progresses, subject to and in accordance with Section 12.4(a). Lessor and Lessee hereby authorize and direct (i) any insurer, to make payment in excess of the Threshold Amount under policies of casualty insurance required to be maintained by Lessee pursuant to Section 9.1(a) directly to the Proceeds Trustee instead of to Lessor and Lessee jointly, and (ii) any Governmental Agency to make payments of

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any Net Condemnation Proceeds in excess of the Threshold Amount directly to the Proceeds Trustee instead of to Lessor and/or Lessee; and each of Lessee and Lessor hereby appoints the Proceeds Trustee as its attorney-in-fact to endorse any draft therefor for the purposes set forth in this Lease after approval by Lessee of the Proceeds Trustee, if the Proceeds Trustee is other than the Lender. In the event that a Casualty shall occur at such time as Lessee shall not have maintained property or casualty insurance to the extent required by said Section 9.1(a) (i.e., Lessee is self insuring in whole, or in part), Lessee shall be obligated to pay itself towards restoration the amount it self insures. Lessee shall be obligated to pay the Threshold Amount (or any amount it self-insured) towards restoration costs prior to the disbursement of any funds from the Restoration Fund.

(a) The Restoration Fund, if any, shall be disbursed by the Proceeds Trustee by wire transfer of immediately available funds within five (5) Business Days of the last submission made pursuant to and in accordance with the following conditions (provided that there shall be no more than one disbursement during each month):

(i) At the time of any disbursement, no Lease Event of Default shall exist and, subject to Article 7, no mechanics’ or materialmen’s liens shall have been filed and remain undischarged, unbonded or not insured over.

(ii) Disbursements (subject to the holdback in Section 12.4(a)(iv) below) shall be made from time to time in an amount not exceeding the hard and soft cost of the work and costs incurred since the last disbursement upon receipt of (1) satisfactory evidence, including architects’ certificates when required pursuant to Section 8.3, of the stage of completion, of the estimated cost of completion and of performance of the work to date in a good and workmanlike manner in accordance with the contracts, plans and specifications, (2) partial releases of liens from Lessee’s general contractor in respect of the disbursement made pursuant to the immediately preceding request, and (3) other reasonable evidence of cost incurred (whether or not paid) so that the Proceeds Trustee is able to verify that the amounts disbursed from time to time are represented by work that is completed in place or delivered to the site and free and clear of (subject to Article 7), mechanics’ and materialmen’s lien claims.

(iii) Each request for disbursement shall be accompanied by a certificate of Lessee (1) agreeing to use amounts disbursed for the costs described in Section 12.4(a)(iv), (2) describing the work, materials or other costs or expenses for which payment is requested, (3) stating the cost incurred in connection therewith, (4) stating that Lessee has paid costs and expenses for such work in an amount equal to the self insured and/or deductible amounts as permitted by Section 9.1(b) (and attaching thereto evidence thereof reasonable satisfactory to Lessor) and (5) stating that Lessee has not previously received payment for such work or expense and the certificate to be delivered by Lessee upon completion of the work shall, in addition, state that the work has been substantially completed and complies with the applicable requirements of this Lease.

(iv) The Proceeds Trustee shall retain ten percent (10%) of the amounts otherwise disbursable until the restoration is at least fifty percent (50%) complete, and thereafter five percent (5%) until the restoration is substantially complete.

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(v) The Restoration Fund shall be kept by the Proceeds Trustee in a separate interest-bearing federally insured account or invested in Permitted Investments (as directed by, or on behalf of, Lessee).

(vi) Prior to commencement of restoration and at any time during restoration, if the estimated cost of restoration, as reasonably determined by the Proceeds Trustee, exceeds the then amount of the Restoration Fund, Lessee shall fund at its own expense the costs of such restoration until the remaining Restoration Fund is sufficient for the completion of the restoration. In the case of Casualty, any sum in the Restoration Fund which remains in the Restoration Fund upon the completion of restoration shall be paid to Lessee. In the case of Condemnation, any sum in the Restoration Fund which remains in the Restoration Fund upon the completion of restoration shall be applied as set forth in Section 12.2.

Section 12.5 Negotiations. In the event the Property becomes subject to condemnation or requisition proceedings, Lessee shall control the negotiations with the relevant Governmental Authority, unless: (i) a Lease Event of Default shall be continuing, or (ii) the Net Condemnation Proceeds will likely be in excess of the Threshold Amount (which determination shall be made in Lessor’s reasonable discretion), in which case Lessor may elect in writing to control such negotiations; provided that in any event Lessor may elect to participate in such negotiations. Lessee shall give to Lessor and the Lender such information, and copies of such documents, which relate to such proceedings and are in the possession of Lessee, as are reasonably requested by Lessor or the Lender. Lessor shall confer with Lessee as to any negotiations with Governmental Authorities material to Lessee’s operations and shall not agree to any act that would have a material adverse effect on Lessee’s business. Notwithstanding the foregoing, in jurisdictions where a separate award may be granted for Lessee’s Equipment and Personalty, moving and relocation expenses, business loss, business damages, loss of goodwill, unamortized costs of any Alterations title for which has not vested in Lessor pursuant to the terms of this Lease, and Lessee’s attorneys’ fees, costs and expenses in the proceedings, Lessee may assert claims for and control the negotiations pertaining to such interests, provided that the Lessor’s award in respect to the Property is not diminished by the award to Lessee. Lessee acknowledges that no payments shall be permitted hereunder other than on a Rent Payment Date.

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ARTICLE 13

INTENTIONALLY OMITTED

ARTICLE 14

SUBLEASE

Section 14.1. Subleasing Permitted; Lessee Remains Obligated. Provided that no Lease Event of Default shall have occurred and be continuing at the time the sublease is entered into, upon fifteen (15) days’ prior written notice to Lessor (except for subleases to Affiliates, in which case no notice shall be required), Lessee may at any time and from time to time sublease the Property or any portion or portions thereof to any Person or permit the occupancy of the Property or any portion or portions thereof by any Person who is not a debtor or debtor-in-possession in a voluntary or involuntary bankruptcy proceeding at the commencement of the sublease term. Any such sublease, sub-sublease, license, occupancy agreement or similar agreement (each, a “Sublease”) shall not release Lessee from its primary liability for the performance of its duties and obligations hereunder, and Lessee shall continue to be obligated for all obligations of “Lessee” in this Lease, which obligations shall continue in full effect as obligations of a principal and not of a guarantor, as though no Sublease had been made. From time to time, but in no event more than once annually, upon Lessor’s request, Lessee shall forward to Lessor the names, businesses and square footage leased (or location) of all subtenants (other than Subleases to Affiliates).

Section 14.2. Provisions of Subleases. Each Sublease will:

(a) be expressly subject and subordinate to this Lease and any mortgage (including (the Mortgage) encumbering the Property;

(b) not extend beyond the Lease Term minus one day; and

(c) terminate upon any termination of this Lease, unless Lessor elects in writing (which election must be consented to by the Lender), to cause the sublessee to attorn to and recognize Lessor as the lessor under such Sublease, whereupon such Sublease shall continue as a direct lease between the sublessee and Lessor upon all the terms and conditions of such Sublease (it being agreed that all Subleases with Affiliates of Lessee shall automatically terminate upon termination of this Lease).

Section 14.3. Assignment of Sublease Rents. To secure the prompt and full payment by Lessee of the Rent and the faithful performance by Lessee of all the other terms and conditions herein contained on its part to be kept and performed, Lessee hereby absolutely, presently assigns, transfers and sets over unto Lessor, subject to the conditions hereinafter set forth in this Section 14.3, all of Lessee’s right, title and interest in and to all Subleases, and hereby confers upon Lessor, its agents and representatives, a right of entry in, and sufficient possession of, the Property to permit and ensure the collection by Lessor of the rentals and other sums payable under the Subleases, and further agrees that the exercise of the right of entry and qualified possession by Lessor shall not constitute an eviction of Lessee from the Property or any portion thereof; provided, however, that Lessee shall continue to have the right to collect, use, enjoy and

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distribute all Sublease revenue (a) except during the continuance of a Lease Event of Default, or (b) until this Lease and the Lease Term shall be canceled or terminated pursuant to the terms, covenants and conditions hereof, or (c) until there occurs repossession under a dispossess warrant or other judgment, order or decree of a court of competent jurisdiction and then only as to such of the Subleases that Lessor may elect to take over and assume. Notwithstanding the foregoing, if the events described in Section 14.3(b) and Section 14.3(c) herein above have not occurred and if the Lease Event of Default which caused such collection of revenue by Lessor shall have been cured by Lessee or otherwise not continue to exist, upon the written demand of Lessee, Lessor shall cease to exercise the rights granted hereunder to Lessor with respect to the Subleases, and amounts collected under the Subleases and not applied to Lessee’s obligations hereunder shall promptly be paid over to Lessee.

ARTICLE 15

INSPECTION

Section 15.1. Inspection. Upon at least five (5) Business Days’ prior written notice to Lessee (or immediately if a Lease Event of Default shall be continuing) Lessor or its respective representatives and agents (each, an “Inspecting Party”), may, in a commercially reasonable manner and at their own risk, inspect the Property, during normal business hours, to verify compliance with the provisions of this Lease. No Sublease shall contain any restrictions on inspection other than as set forth herein. The Inspecting Party shall repair any damage caused by any inspection performed pursuant to Section 15.1. Unless a Lease Event of Default is continuing, no intrusive tests are permitted. Lessee shall have the right during such inspection to have its representatives present at any such inspection, including security guards. In addition, Lessee may designate one or more reasonably sized “secure areas” to which Lessor or Lender shall have no access, except during the continuance of a Lease Event of Default. Each Inspecting Party agrees to hold in confidence all proprietary information and trade secrets of which it becomes aware during such inspection. All such inspections shall be at Lessor’s expense, unless a Lease Event of Default occurs and is continuing. Further, upon fifteen (15) Business Days’ prior notice to Lessee, but no more than once annually, the Inspecting Parties, at their expense, may inspect the books and records as they relate to the maintenance and care of the Property during the term of this Lease (other than Lessee’s Equipment and Personalty), that are in the possession of Lessee, which shall be made available at the Property or the headquarters of the Lessee. Such inspection shall be at the cost of the Inspecting Party unless a Lease Event of Default exists, in which event Lessee shall pay such costs.

ARTICLE 16

LEASE EVENTS OF DEFAULT

Section 16.1. Lease Events of Default. The following events shall constitute a “Lease Events of Default”:

(a) Lessee shall fail to make any payment of Base Rent, within five (5) Business Days after notice that such amount is due and unpaid;

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(b) Lessee shall fail to make any late payment and/or pay interest at the Default Rate within ten (10) days after notice that such amount is due and unpaid;

(c) Lessee shall fail to make any other payment of Supplemental Rent, other than any amount described in clause (a) or clause (b) of this Article 16, and such failure shall continue for a period of ten (10) days after notice of such failure to Lessee from Lessor or Lender;

(d) Lessee shall fail to timely perform or observe any covenant or agreement (not otherwise specified in this Article 16) to be performed or observed by it hereunder and such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor or the Lender; provided that the continuation of such a failure for thirty (30) days or longer after such notice shall not constitute a Lease Event of Default if such failure can be cured, but cannot reasonably be cured within such thirty (30) day period, and Lessee shall commence to cure such failure within such thirty (30) day period and shall be diligently and continuously prosecuting the cure of such failure.

(e) except to the extent the Lessee is permitted to self-insure pursuant to Section 9.1(b) and Schedule 9.1, Lessee shall fail to carry or maintain in full force any insurance required hereunder, and such failure shall continue for ten (10) business days after such obligations arises. but not beyond the expiration date of any required policy of insurance;

(f) any representation or warranty made by the Lessee herein shall prove to have been incorrect in any material respect when such representation or warranty was made and shall remain materially incorrect at the time in question, and is not cured in all material respects within thirty (30) days of notice to Lessee of such breach; provided that the continuation of such a failure for thirty (30) days or longer after such notice shall not constitute a Lease Event of Default if such failure can be cured, but cannot reasonably be cured within such thirty (30) day period, and Lessee shall commence to cure such failure within such thirty (30) day period and shall be diligently and continuously prosecuting the cure of such failure.

(g) (A) Lessee makes any general arrangement or assignment for the benefit of creditors; (B) Lessee becomes a “debtor” as defined in 11 U.S.C. § 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within ninety (90) days); (C) the appointment of a trustee or receiver to take possession of substantially all of the assets of Lessee where possession is not restored to Lessee within ninety (90) days; (D) the attachment, execution or other judicial seizure of substantially all of the assets of Lessee where such seizure is not discharged within ninety (90) days; (E) Lessee admits in writing its inability to pay its debts generally as they become due; (F) Lessee files a petition or answer seeking reorganization or arrangement or other protection under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any State thereof; (G) Lessee is liquidated or dissolved, or placed under conservatorship or other protection under any applicable federal or state law; (H) any petition is filed by or against Lessee under Federal bankruptcy laws, or any other proceeding is instituted by or against Lessee seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for Lessee, or for any substantial part of the property of Lessee, and such proceeding is not dismissed within ninety (90) days after institution thereof, or Lessee shall take any action to authorize or effect any of the actions set forth above in this subsection (g).

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(h) Lessee shall commit a Lessee Event of Default under the Ground Lease.

ARTICLE 17

ENFORCEMENT

Section 17.1. Remedies. Upon the occurrence of any Lease Event of Default and at any time thereafter so long as the same shall be continuing, Lessor may, at its option, by notice to Lessee do one or more of the following as Lessor in its sole discretion shall determine:

(a) Lessor may, by notice to Lessee, terminate this Lease as of the date specified in such notice; provided (i) no reletting, reentry or taking of possession of any or all of the Property by Lessor will be construed as an election on Lessor’s part to terminate this Lease unless a written notice of such intention is given to Lessee, (ii) notwithstanding any reletting, reentry or taking of possession, Lessor may at any time thereafter elect to terminate this Lease with respect to any or all of the Property, and (iii) no act or thing done by Lessor or any of its agents, representatives or employees and no agreement accepting a surrender of any or all of the Property shall be valid unless the same be made in writing and executed by Lessor. If Lessor shall have terminated the Lease, Lessor may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, the amounts set forth in subparagraphs (c) or (e) below.

(b) Lessor may whether or not the Lease is terminated (i) demand that Lessee, and Lessee shall upon the written demand of Lessor, return the Property promptly to Lessor in the manner and condition required by, and otherwise in accordance with all of the provisions of, Article 10 as if the Property were being returned at the end of the Lease Term, and Lessor shall not be liable for the reimbursement of Lessee for any costs and expenses incurred by Lessee in connection therewith, and (ii) without prejudice to any other remedy which Lessor may have for possession of the Property, enter upon the Property and take immediate possession of (to the exclusion of Lessee) the Property and expel or remove Lessee and any other person who may be occupying the same (subject to the terms of any nondisturbance agreements with Lessor in favor of any subtenants), by summary proceedings or otherwise, all without liability to Lessor for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise and, in addition to Lessor’s other damages, Lessee shall be responsible for the reasonably necessary costs and expenses of reletting actually incurred.

(c) Lessor may sell the Property at public or private sale, as Lessor may determine, free and clear of any rights of Lessee and without any duty to account to Lessee with respect to such action or inaction or any proceeds with respect thereto (except to the extent required by the next succeeding sentence if Lessor shall elect to exercise its rights thereunder), in which event Lessee’s obligation to pay Base Rent hereunder for periods commencing after the Stipulated Loss Value Date next succeeding the date of such sale shall be terminated. If Lessor shall have sold any of the Property pursuant to the above terms of this Section 17.1(c), Lessor may demand that Lessee pay to Lessor, and Lessee shall promptly pay to Lessor, on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (the parties agreeing

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that Lessor’s actual damages would be difficult to predict, but the liquidated damages described below represent a reasonable approximation of such amount), in lieu of Base Rent in respect of the Property due for the period commencing on the Stipulated Loss Date next succeeding the date of sale, an amount equal to the sum of:

(1) all unpaid Rent with respect to the Property due but unpaid through such Stipulated Loss Date; plus

(2) an amount equal to the present value of the amount of the Base Rent payments payable on the Business Day before the date preceding the remaining scheduled Rent Payment Dates, discounted monthly at the Reference Rate;

(3) interest at the Default Rate on all of the foregoing amounts from the date due until the date of actual payment;

to the extent such amount exceeds the net proceeds of such sale.

(d) Except as Lessor may otherwise be required by Applicable Laws, Lessor may hold, keep idle or lease to others the Property as Lessor in its sole discretion may determine, free and clear of any rights of Lessee and without any duty to account to Lessee with respect to such action or inaction or for any proceeds with respect to such action or inaction, except that Lessee’s obligation to pay Base Rent from and after the occurrence of a Lease Event of Default, but prior to the termination of the Lease or the foreclosure of the Lien of the Lender, shall be reduced by the net proceeds, if any, received by Lessor from leasing the Property to any Person, or allowing any Person to use the Property, other than Lessee for the same periods or any portion thereof,

(e) Lessor may, whether or not Lessor shall have exercised or shall thereafter at any time exercise any of its rights under Section 17.1(b) or 17.1(d), but only if the Property shall not have been sold under Section 17.1(c), demand, by written notice to Lessee specifying a Stipulated Loss Value Date (the “Final Payment Date”) not earlier than twenty (20) days after the date of such notice, that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the Final Payment Date, as liquidated damages for loss of a bargain and not as a penalty (the parties agreeing that Lessor’s actual damages would be difficult to predict, but the aforementioned liquidated damages represent a reasonable approximation of such amount), in lieu of Base Rent for periods commencing after the Final Payment Date, an amount equal to the sum of:

(1) all unpaid Rent with respect to the Property due but unpaid through such Stipulated Loss Value Date; plus

(2) an amount equal to the present value of the amount of the Base Rent payments payable on the Business Day before the dates preceding the remaining scheduled Rent Payment Dates, discounted monthly at the Reference Rate;

(3) interest at the Default Rate on all of the foregoing amounts from the date due until the date of actual payment.

(f) Lessor may retain and apply against Lessor’s damages all sums which Lessor would, absent such Lease Event of Default, be required to pay to, or turn over to, Lessee pursuant to the terms of this Lease; or

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(g) Lessor may exercise any other right or remedy that may be available to it under Applicable Laws or in equity, or proceed by appropriate court action (legal or equitable) to enforce the terms hereof or to recover damages for the breach hereof. A single or separate suits may be brought to collect any such damages for any period or periods with respect to which Rent shall have accrued, and such suits shall not in any manner prejudice Lessor’s right to collect any such damages for any subsequent period, or Lessor may defer any such suit until after the expiration of the Base Term or the then current Renewal Term, in which event such suit shall be deemed not to have accrued until the expiration of the Base Term, or the then current Renewal Term.

Section 17.2. Survival of Lessee’s Obligations. Except to the extent prohibited by Applicable Laws, no repossession of any or all of the Property or exercise of any remedy under this Lease, including termination of this Lease, shall, except as specifically provided herein, relieve Lessee of any of its liabilities and obligations hereunder, including the obligation to pay Rent. In addition, except as specifically provided herein, Lessee shall be liable for any and all unpaid Rent due hereunder before, after or during the exercise of any of the foregoing remedies, including all reasonable legal fees and other costs and expenses incurred by Lessor by reason of the occurrence of any Lease Event of Default or the exercise of Lessor’s remedies with respect thereto, and including all costs and expenses incurred in connection with the return of the Property in the manner and condition required by, and otherwise in accordance with the provisions of, Article 10 as if the Property were being returned at the end of the Lease Term. At any sale of any or all of the Property or any other rights pursuant to Section 17.1, Lessor or the Lender may bid for and purchase the Property.

Section 17.3. Remedies Cumulative; No Waiver; Consents; Mitigation of Damages. To the extent permitted by, and subject to the mandatory requirements of, Applicable Laws, each and every right, power and remedy herein specifically given to Lessor or otherwise in this Lease shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by Lessor, and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any right, power or remedy. No delay or omission by Lessor in the exercise of any right, power or remedy or in the pursuit of any remedy shall impair any such right, power or remedy or be construed to be a waiver of any default on the part of Lessee or to be an acquiescence therein. Lessor’s consent to any request made by Lessee shall not be deemed to constitute or preclude the necessity for obtaining Lessor’s consent, in the future, to all similar requests. No express or implied waiver by Lessor of any Lease Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Lease Event of Default. Lessor shall use reasonable efforts to mitigate any damages suffered by Lessor that result from a Lease Event of Default.

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ARTICLE 18

RIGHT TO PERFORM FOR LESSEE

Section 18.1.Right to Perform for Lessee. If Lessee shall fail to perform or comply with any of its agreements contained herein, following applicable notice and cure periods, Lessor may perform or comply with such agreement, and Lessor shall not thereby be deemed to have waived any default caused by such failure, and the amount of payment required to be made by Lessee hereunder and made by Lessor on behalf of Lessee, and the reasonable out-of-pocket third-party costs and expenses of Lessor (including reasonable attorneys’ fees and expenses) incurred in connection with the performance of or compliance with such agreement, as the case may be, together with interest thereon at the Default Rate, shall be deemed Supplemental Rent, payable by Lessee to Lessor upon demand. In addition, during the continuance of a Lease Event of Default in respect of Lessee’s obligations under Section 8.2 and/or Section 8.5, then, in addition to the rights above and at the cost of Lessee, (a) Lessor shall have the right to hire Persons (as selected by Lessor in its reasonable discretion) to cure such Lease Event of Default, and to take any and all other actions necessary to cure such Lease Event of Default, and (b) Lessee shall cooperate with Lessor, and the Persons hired by Lessor, in the performance of such cure, including, without limitation, (i) providing access to the subject Property at reasonable times every day of the week, (ii) making available water, electricity and other utilities existing at or on the subject Property, and (iii) restricting or closing the Property, but only if such restriction or closure is reasonably necessary for the performance of such cure and provided that such closure shall be done for and during a time period and in such manner that balances the need for the maintenance or repair of the Property (and doing so in a safe manner) and the continuing operations of the Property.

ARTICLE 19

INDEMNITIES

Section 19.1. General Indemnification.

(a) Lessee agrees to indemnify, defend, and keep harmless each Indemnitee, from and against any and all Claims arising out of acts, or failures to act, prior to the expiration or earlier termination of the Term (whether during the Lease Term, or prior to the Closing Date), whenever they may be suffered, imposed on or asserted against any Indemnitee, to the extent arising out of (i) the ownership, leasing, subleasing, assignment, financing, refinancing, renewal, return, operation, possession, use, non-use, maintenance, modification, alteration, reconstruction, restoration, or replacement of the Property or the Lease, or from the granting by Lessor at Lessee’s request of easements, licenses or any similar rights with respect to all or any part of the Property, or from the construction, design, purchase or condition of the Property (including any Claims (whether by Governmental Authority or other Person) arising, directly or indirectly, out of the actual or alleged presence, use, storage, generation, Release or threat of Release of any Hazardous Materials, and any Claims for patent, trademark or copyright infringement and latent or other defects, whether or not discoverable), including any liability under Applicable Laws (including, without limitation, any Claims arising directly or indirectly out of any actual or alleged violation, now or hereafter existing, of any Environmental Laws), (ii) this Lease or any modification, amendment or supplement thereto, to the extent arising out of the operation,

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maintenance, use or possession of the Property whether before or after the Closing Date, (iii) the non-compliance of the Property with Applicable Laws (including because of the existence of the Permitted Liens), (iv) without limiting any other indemnities herein, any other matters relating to the Property or any operations thereon, and not already covered by this Section 19.1(a), to the extent such matters arise out of the operation, maintenance, use or possession of the Property by Lessee, whether before or after the Closing Date, including matters relating to Environmental Laws or Hazardous Materials, the breach by Lessee of its representations, warranties, covenants and obligations in this Lease whether or not such Claim arises or accrues prior to the date of this Lease, (v) the business and activities of Lessee, except to the extent arising out of relationships not related to this transaction, (vi) the cost of any Remedial Action, assessment, containment, monitoring, treatment and/or removal of any and all Hazardous Materials from all or any portion of the Property or any surrounding areas over which Lessee has responsibility, the cost of any actions taken in response to a release or threat of release of any Hazardous Materials on, in, under, relating to or affecting any portion of the Property or any surrounding areas over which Lessee has responsibility to prevent or minimize such release or threat of release so that it does not migrate or otherwise cause or threaten danger to present or future public health, safety, welfare or the environment, and costs incurred to comply with Environmental Laws in connection with all or any portion of the Property or any surrounding areas over which Lessee has responsibility, (vii) a Lease Default or a Lease Event of Default, (viii) any litigation, suit, cause of action, writ, decree, injunction, order, judgment, proceeding or Claim now or hereafter asserted against the Property, Lessor (by virtue of its ownership of, leasing or financing of the Property), or Lessee with respect to the Property or this Lease, and (ix) any defects in title caused, created or permitted by Lessee, or anyone acting by, through or under Lessee. Lessee acknowledges that the foregoing includes any costs incurred by Lessor, or the Lender in performing any inspections of any Property if such inspection reveals a violation by Lessee of Section 8.5. Lessee shall not be required to indemnify any Indemnitee under this Section 19.1 for any Claim to the extent resulting from (A) the willful misconduct or negligence or breach of representation or warranty of such Indemnitee or a member of such Indemnitee’s Group, (B) any amounts payable to Lender unless such amounts are payable by Lessee under this Lease, (C) any acts or events to the extent first occurring after the expiration of the Lease Term and return of the Property to Lessor in the condition required in this Lease (but any indemnification first arising after the expiration of the Term (and not otherwise covered hereby) shall include only those matters relating to Lessee’s failure to return the Property in the condition required), (D) any taxes, except to the extent covered in Sections 8.6 of this Lease, (E) any voluntary transfers of the Property made by Lessor (other than arising out of a Lease Event of Default by Lessee), and (F) any voluntary transfer made by the Lender. Lessee shall be entitled to credit against any payments due under this Section 19.1 any insurance recoveries or other reimbursements received by the Indemnitee to be indemnified in respect of the related Claim under or from insurance paid for, directly or indirectly, by Lessee or assigned to Lessor by Lessee, to the extent such insurance recoveries exceed such Indemnitee’s costs and expenses incurred in recouping such insurance recovery.

(b) In case any Claim shall be made or brought against any Indemnitee, such Indemnitees shall give prompt notice thereof to Lessee, provided that failure to so notify Lessee shall not reduce Lessee’s obligations to indemnify any Indemnitee hereunder unless and only to the extent such failure results in additional liability on Lessee’s part. Lessee shall be entitled, at its expense, acting through counsel selected by Lessee (and reasonably satisfactory to such

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Indemnitee), to participate in, and, to the extent that Lessee desires, to assume and control, the negotiation, litigation and/or settlement of any such Claim (subject to the provisions of the last sentence of subparagraph (c) of this Section 19.1). Such Indemnitee may (but shall not be obligated to) participate in a reasonable manner at its own expense (unless Lessee is not properly performing its obligations hereunder) and with its own counsel in any proceeding conducted by Lessee in accordance with the foregoing. If Lessee shall defend the Indemnitee in any such suit or proceeding, then, unless such Indemnitee shall determine (in its reasonable discretion) that a conflict of interest exists between Lessee and such Indemnitee, Lessee shall not be obligated to reimburse the Indemnitee for the cost of such Indemnitee’s attorneys’ fees or expenses incurred in connection with such suit or proceeding.

(c) Each Indemnitee shall at Lessee’s expense supply Lessee with such information and documents reasonably requested by Lessee in connection with any Claim for which Lessee may be required to indemnify any Indemnitee under this Section 19.1. Unless a Lease Event of Default is continuing, no Indemnitee shall enter into any settlement or other compromise with respect to any Claim for which indemnification is required under this Section 19.1 without the prior written consent of Lessee. Lessee shall have the authority to settle or compromise any Claim against an Indemnitee hereunder, provided that no admission of wrongdoing shall be required of such Indemnitee and such Indemnitee shall be released of all liability in connection with any such Claim.

(d) Upon payment in full of any Claim by Lessee pursuant to this Section 19.1 to or on behalf of an Indemnitee, Lessee, without any further action, shall be subrogated to any and all claims that such Indemnitee may have relating thereto, and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be necessary to preserve any such claims and otherwise reasonably cooperate with Lessee to enable Lessee to pursue such claims.

(e) Prior to paying any amount otherwise payable to an Indemnitee pursuant to this Section 19.1, Lessee shall be entitled to receive from such Indemnitee (i) a written statement describing the amount so payable, (ii) a general release from Indemnitee upon such payment with respect to the claim made and (iii) such additional information as Lessee may reasonably request and which is reasonably available to such Indemnitee to properly substantiate the requested payment.

(f) Subject to the penultimate sentence of Section 19.1(a) above, Lessee’s liability hereunder shall in no way be limited or impaired by any act, including, without limitation, (i) any amendment or modification to the Lease, (ii) any waiver of any Lease Event of Default, default, or extension of time or any failure to enforce any remedies or rights of either Lessor or Lender, (iii) any sale or transfer of the Property, or (iv) any assignment of the Lease.

Section 19.2 Lessor’s Indemnification Obligation. Lessor agrees to indemnify, defend, and hold harmless the Lessee, from and against any and all loss incurred by Lessee resulting from Claims arising out of active actions prior to the expiration or earlier termination of the Term, to the extent arising solely out of Lessor’s (or its employees’ agents or contractors’) willful misconduct or gross negligence.

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ARTICLE 20

LESSEE REPRESENTATIONS AND COVENANTS

Section 20.1. Representations and Warranties. Lessee represents and warrants to Lessor that the following are true and correct as of the Closing Date:

(a) Due Organization. Lessee is a corporation duly organized, validly existing and in good standing in the State of California and qualified to do business in, and in good standing, in the State of California. Lessee has the corporate power and authority to conduct its business as now conducted, to lease the Property and to enter into and perform its obligations under the Lease. Lessee is duly qualified to do business and is in good standing as a foreign corporation in any jurisdiction where the failure to so qualify would have a material adverse effect on its ability to perform its obligations under the Lease.

(b) Due Authorization; No Conflict. The Lease has been duly authorized by all necessary corporate action on the part of Lessee and has been duly executed and delivered by Lessee, and the execution, delivery and performance thereof by Lessee will not, (i) require any approval of the stockholders of Lessee or any approval or consent of any trustee or holder of any indebtedness or obligation of Lessee, other than such consents and approvals as have been obtained, (ii) contravene any Applicable Law binding on Lessee or (iii) contravene or result in any breach of or constitute any default under Lessee’s charter or by-laws or other organizational documents, or any indenture, judgment, order, mortgage, loan agreement, contract, partnership or joint venture agreement, lease or other agreement or instrument to which Lessee is a party or by which Lessee is bound, or result in the creation of any Lien upon any of the property of Lessee.

(c) Governmental Actions. All Governmental Action required in connection with the execution, delivery and performance by Lessee of the Lease, has been or will have been obtained, given or made.

(d) Enforceability. The Lease constitutes the legal, valid and binding obligation of Lessee, enforceable against Lessee in accordance with the terms thereof, except as enforceability may be limited by bankruptcy, moratorium, fraudulent conveyance, insolvency, equitable principles or other similar laws affecting the enforcement of creditors’ rights in general.

(e) Bankruptcy. No bankruptcy, reorganization, arrangement or insolvency proceedings are pending, threatened or contemplated by Lessee, and Lessee has not made a general assignment for the benefit of creditors.

(f) Tax Filings. All tax returns and reports of Lessee required by law to be filed with respect to the Property have been duly filed, and all taxes, interests and penalties assessed by any Governmental Authority upon the Property or Lessee (with respect to the Property), which are due and payable, have been paid, except to the extent being contested in good faith by the Lessee.

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(g) Condition of Property: Condemnation. The Property is, to the Lessee’s knowledge, free and clear of any damage that would materially and adversely affect its value. The Lessee has not received notice of any proceeding pending for the total or partial condemnation of or affecting the Property, such that such proceeding would have a material adverse effect on the Property. To the Lessee’s knowledge, as of the Closing Date, all of the material Improvements lie wholly within the boundaries and building restriction lines of such Property, except for encroachments that are insured against by the Title Policy or that do not materially and adversely affect the value or marketability of the Property, and no improvements on adjoining properties materially encroach upon the Property so as to materially and adversely affect the value or marketability of the Property.

(h) Environmental Conditions. To the Lessee’s knowledge, there are no circumstances or conditions with respect to the Property that render the Property in violation (other than to a de minimis effect) of any applicable Environmental Laws.

(i) Legal Proceedings. There are no pending or to the Lessee’s knowledge, threatened actions, suits or proceedings by or before any court or governmental authority against or affecting the Lessee with respect to the Property that, if determined adversely to such Lessee or Property, would materially and adversely affect the value of the Property.

(j) Licenses and Permits. To the Lessee’s knowledge, (i) it possesses all material licenses, permits and authorizations required by applicable law for the operation of the Property and (ii) all such licenses, permits and authorizations are valid and in full force and effect.

The phrase “the Lessee’s knowledge” and other words and phrases of like import shall mean the actual state of knowledge of Jane Baughman, Vice President – Financial Planning and Treasurer. Lessee represents that the foregoing individuals are the people who are likely to know of any matters covered by these representations and warranties.

ARTICLE 21

LESSOR REPRESENTATIONS AND COVENANTS

Section 21.1. Representations and Warranties. Lessor represents and warrants to Lessee that the following are true and correct as of the Closing Date:

(a) Due Organization. Lessor is a limited liability company duly organized, validly existing and in good standing in the State of Delaware and qualified to do business in, and in good standing, in the State of California. Lessor has the corporate power and authority to conduct its business as now conducted and to enter into and perform its obligations under the Lease. Lessor is duly qualified to do business and is in good standing as a foreign limited liability company in any jurisdiction where the failure to so qualify would have a material adverse effect on its ability to perform its obligations under the Lease.

(b) Due Authorization; No Conflict. The Lease has been duly authorized by all necessary corporate action on the part of Lessor and has been duly executed and delivered by Lessor, and the execution, delivery and performance thereof by Lessor will not, (i) require any approval of the members of Lessor or any approval or consent of any trustee or holder of any

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indebtedness or obligation of Lessor, other than such consents and approvals as have been obtained, (ii) contravene any Applicable Law binding on Lessor or (iii) contravene or result in any breach of or constitute any default under Lessor’s charter or by-laws or other organizational documents, or any indenture, judgment, order, mortgage, loan agreement, contract, partnership or joint venture agreement, lease or other agreement or instrument to which Lessor is a party or by which Lessor is bound.

(c) Governmental Actions. All Governmental Action required in connection with the execution, delivery and performance by Lessor of the Lease, has been or will have been obtained, given or made.

(d) Enforceability. The Lease constitutes the legal, valid and binding obligation of Lessor, enforceable against Lessor in accordance with the terms thereof, except as enforceability may be limited by bankruptcy, moratorium, fraudulent conveyance, insolvency, equitable principles or other similar laws affecting the enforcement of creditors’ rights in general.

(e) Bankruptcy. No bankruptcy, reorganization, arrangement or insolvency proceedings are pending, threatened or contemplated by Lessor, and Lessor has not made a general assignment for the benefit of creditors.

ARTICLE 22

PURCHASE PROCEDURE

Section 22.1. Purchase Procedure. In the event of the purchase of Lessor’s interest in the Property by Lessee pursuant to any provision of this Lease, the terms and conditions of this Section 22.1 shall apply.

(a) On the closing date fixed for the purchase of Lessor’s interest in the Property, which shall be a Rent Payment Date:

(i) Lessee shall pay to Lessor, in lawful money of the United States, at Lessor’s address hereinabove stated or at any other place in the United States which Lessor may designate, in immediately available funds, the applicable purchase price or Stipulated Loss Value, and all other costs due as of such Closing, including, without limitation, any applicable prepayment premium; and

(ii) Lessor shall execute and deliver to Lessee a deed with covenants against grantor’s acts, assignment and/or such other instrument or instruments as may be appropriate, which shall transfer Lessor’s interest in the Property, subject to, (A) Permitted Liens (except for any mortgage indebtedness of Lessor if the sale is pursuant to Article 12), (B) all liens, encumbrances, charges, exceptions and restrictions attaching to the Property after the Closing Date which shall not have been created or caused by Lessor (unless consented to by Lessee), and (C) all applicable laws, rules, regulations, ordinances and governmental restrictions then in effect.

(b) Lessee shall pay all costs, charges and expenses of incident to such transfer, including, without limitation, all recording fees, transfer taxes, title insurance premiums, and federal, state and local taxes, except for any net income taxes, if the sale is pursuant to Section 12.1, otherwise, such costs shall be as set forth in the terms.

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(c) In the event Lessor and Lessee enter into a purchase agreement for the sale of the Property, Lessor agrees to cause the entity that owns the Property to be sold to Lessee, in lieu of a sale of the Property to Lessee, in the event (i) Lessee requests Lessor so to do; and (ii) the sale of the interests in Lessor (rather than the Property) to Lessee shall not impose any obligations on Lessor that would not be imposed had Lessor sold the Property, will not decrease any rights Lessor would have had Lessor sold the Property, and will not create any increased possibility of additional liability to Lessor (including without limitation, for ongoing corporate acts, taxes, etc.), all as shall be reasonably evidenced to Lessor by certificates, affidavits, opinions or otherwise. Lessor agrees to cooperate with Lessee in effectuating such a transfer of equity interests, subject to the terms hereof.

ARTICLE 23

TRANSFER OF LESSOR’S INTEREST

Section 23.1. Permitted Transfer. Subject to Article 4, Lessor may transfer all, or any part of, its right, title and interest in and to any Property and its rights under this Lease and the other documents relating thereto with respect to such Property on the following terms and conditions, each of which shall be satisfied prior to the effective date of the transfer (other than a transfer by a deed-in-lieu of foreclosure or similar transfer made in connection with an exercise of remedies under the Mortgage):

(a) such transfer shall be in compliance with the Mortgage and related documents, (if still in place), and with Applicable Laws and shall not create a relationship which would violate Applicable Laws;

(b) the transferor shall have given or at closing give to Lessee, notice of such transfer, if of the entire Property, which notice shall contain such information and evidence as shall be reasonably necessary to establish compliance with this Article 23 and the name and address of the transferee for notices.

Section 23.2. Effects of Transfer. From and after any transfer effected in accordance with this Article 23, the transferor shall be released, to the extent of the interest transferred and the obligations assumed, in writing, by the transferee, from its liability hereunder and under the other documents to which it is a party relating to, the interests being transferred. Such release shall be in respect of obligations (that are assumed, in writing, by the transferee) arising on or after the date of such transfer. Upon any transfer by Lessor of the Property as above provided, any such transferee shall be deemed the “Lessor” for all purposes of such documents and each reference herein to Lessor shall thereafter be deemed a reference to such transferee for all purposes, except as provided in the preceding sentence. Lessee agrees to execute any and all documents reasonably appropriate to effectuate the contemplated transfer by Lessor, including, without limitation, an amendment to this Lease providing that the new Lessor shall be Lessor and the existing Lessor shall be released from its liabilities.

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ARTICLE 24

PERMITTED FINANCING

Section 24.1. Financing During Term.

Lessee hereby expressly consents to the Lien imposed in favor of any first mortgage indebtedness. With respect to any financing or refinancing during the Base Term and during any Renewal Term, Lessor shall be free to encumber the Property, provided that under no circumstances shall any such financing adversely affect the rights and privileges of Lessee under this Lease in any material respect, or increase in any material respect the nature, scope or amount of any obligations or liabilities (including any contingent liabilities) of Lessee in excess of those existing prior to any such further encumbrances by Lessor. Lessee and its Affiliates will have no obligation to amend this Lease to facilitate such financing; but shall execute and deliver a subordination and attornment agreement to any lender to Lessor permitted by the above terms of this Section 24.1 if such lender shall in turn deliver a nondisturbance agreement to Lessee, in each case with terms reasonably acceptable to the parties. Lessee agrees to cooperate with any refinancing by Lessor permitted hereunder. Such cooperation shall include, without limitation, (i) naming such new lender(s) as additional insureds; and (ii) making payments of Base Rent and/or Supplemental Rent to or at the direction of such lender(s).

Section 24.2. Lessee’s Consent to Assignment for Indebtedness. Lessee acknowledges that in order to secure Lessor’s obligations to a Lender, Lessor may agree, among other things, to the assignment (to the extent provided therein) to the Lender of Lessor’s right, title and interest to this Lease. While the Mortgage or any replacements thereof are in effect, Lessee hereby:

(a) consents to such assignment in this Lease;

(b) covenants to make in full, in funds that are immediately available, to Lender or its designee in accordance with the terms of this Lease:

(i) each payment of Base Rent and Supplemental Rent payable to Lessor (except under Article 19 hereof); and

(ii) all purchase prices, termination amounts, and other sums payable to Lessor under this Lease;

(c) agrees:

(i) that it shall not, except as provided under Applicable Law, seek to recover from the Lender any moneys paid to the Lender by virtue of the foregoing provisions; provided, however, that the foregoing provisions shall not limit Lessee’s right to recover (A) any duplicate payment made to the Lender whether due to computational or administrative error or otherwise, if the Lender has received such payment, (B) all or any portion of a payment in excess of the amount then due under this Lease or otherwise owed by Lessor to Lessee under this Lease, and (C) any amounts that have been paid to or are actually held by the Lender that is required to be refunded to, repaid, or otherwise released to or for the benefit of Lessee under this Lease;

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(ii) that Lessee shall not pay any Rent more than thirty (30) days prior to such payment’s scheduled due date except as provided in this Lease;

(iii) that Lessee shall not enter into any agreement subordinating or (except as expressly permitted by the terms of this Lease as in effect on the date hereof) surrendering, canceling, or terminating this Lease without the prior written consent of the Lender, and any such attempted subordination or termination without such consent shall be void;

(iv) that Lessee shall not enter into any amendment or modification of this Lease without the prior written consent of the Lender, and any such attempted amendment or modification without such consent shall be void;

(v) that if this Lease shall be amended, it shall continue to constitute collateral under the Mortgage without the necessity of any further act by Lessor, Lessee or the Lender; and;

(vi) that except as expressly provided in this Lease, Lessee shall not take any action to terminate, rescind or avoid this Lease, notwithstanding, to the fullest extent permitted by law, the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution or other proceeding affecting Lessor or any assignee or Lessor and notwithstanding any action with respect to the Lease which may be taken by an assignee, Lender or receiver or Lessor or of any such assignee or by any court in any such proceedings.

Nothing herein shall be construed as Lessee’s agreement to be bound and perform the obligations of Lessor under any Mortgage or other debt documents. If Lessee receives conflicting direction from Lessor and the Lender, or is in good faith uncertain as to whether it should comply with a direction from either Lessor or the Lender, Lessee shall be permitted to seek written confirmation from Lessor and the Lender, or if the matter in dispute regards the payment of money by Lessee, pay the same into a court and provide Lessor and the Lender with reasonably prompt notice of such payment.

ARTICLE 25

MISCELLANEOUS

Section 25.1. Binding Effect; Successors and Assigns; Survival. The terms and provisions of this Lease, and the respective rights and obligations hereunder of Lessor and Lessee, shall be binding upon their respective successors, legal representatives and assigns (including, in the case of Lessor, any Person to whom Lessor may transfer the Property) and inure to the benefit of their respective permitted successors and assigns, and the rights hereunder of the Lender shall inure (subject to such conditions as are contained herein) to the benefit of its permitted successors and assigns.

Section 25.2. Quiet Enjoyment. Lessee shall have the right to peaceably and quietly hold, possess and use any and all of the Property hereunder during the Lease Term, so long as no Lease Event of Default has occurred and is continuing.

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Section 25.3. Notices. Unless otherwise specifically provided herein, all notices, consents, directions, approvals, instructions, requests and other communications required or permitted by the terms hereof to be given to any Person shall be in writing sent to either that Person’s Address, and a copy thereof shall be sent to each Person to receive a copy pursuant to the definition of “Address”, by (i) a prepaid nationally recognized overnight courier service, and any such notice shall be deemed received one (1) Business Day after delivery to a nationally recognized courier service specifying overnight delivery, or (ii) U.S. certified or registered mail, return receipt requested, postage prepaid, and such notice shall be deemed received when actually received, as evidenced by the return receipt, or when delivery is first refused. From time to time any party may designate a new Address for purposes of notice hereunder by giving fifteen (15) days’ written notice thereof to each of the other parties hereto. All notices given hereunder shall be irrevocable unless expressly specified otherwise. Lessor shall endeavor to label any envelope which contains a notice of default with the legend: “Default Notice,” but its failure to do so shall not invalidate or affect in any way such notice.

Section 25.4. Severability. Any provision of this Lease that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction, and each party hereto shall remain liable to perform its obligations hereunder except to the extent of such unenforceability. To the extent permitted by applicable law, Lessee hereby waives any provision of law that renders any provision hereof prohibited or unenforceable in any respect.

Section 25.5. Amendments, Complete Agreements. Neither this Lease nor any of the terms hereof may be terminated, amended, supplemented, waived or modified orally, but may be terminated, amended, supplemented, waived or modified only by an instrument in writing signed by the party against which the enforcement of the termination, amendment, supplement, waiver or modification shall be sought and, as required by the Mortgage or related documents, by the Lender. This Lease is intended by the parties as a final expression of their lease agreement and as a complete and exclusive statement of the terms thereof, all negotiations, considerations and representations between the parties having been incorporated herein. No representations, undertakings, or agreements have been made or relied upon in the making of this Lease other than those specifically set forth herein.

Section 25.6. Headings. The Table of Contents and headings of the various Articles and Sections of this Lease are for convenience of reference only and shall not modify, define or limit any of the terms or provisions hereof.

Section 25.7. Counterparts. This Lease may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.

Section 25.8. Governing Law. This Lease shall be governed by, and construed in accordance with, the laws of the State in which the Property is situated.

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LESSOR AND LESSEE HEREBY SUBMIT TO NON-EXCLUSIVE PERSONAL JURISDICTION IN THE COUNTY OF ALAMEDA, STATE OF CALIFORNIA AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE COUNTY OF ALAMEDA, STATE OF CALIFORNIA (AND ANY APPELLATE COURTS TAKING APPEALS THEREFROM) FOR THE ENFORCEMENT OF SUCH PERSON’S OBLIGATIONS HEREUNDER AND WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY OTHER STATE TO OBJECT TO JURISDICTION WITHIN SUCH STATE FOR THE PURPOSES OF SUCH ACTION, SUIT, PROCEEDING OR LITIGATION TO ENFORCE SUCH OBLIGATIONS OF LESSEE OR LESSOR. LESSOR AND LESSEE HEREBY WAIVE AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS LEASE (A) THAT IT IS NOT SUBJECT TO SUCH JURISDICTION OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN THOSE COURTS OR THAT IT IS EXEMPT OR IMMUNE FROM EXECUTION, (B) THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR (C) THAT THE VENUE OF THE ACTION, SUIT OR PROCEEDING IS IMPROPER. LESSEE AND LESSOR EACH HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATED TO THE ENFORCEMENT OF THIS LEASE.

Section 25.9. Memorandum. Lessee and Lessor agree that a memorandum of this Lease (and any amendment hereof) shall be executed and recorded, at Lessee’s expense, in the land records of the jurisdiction in which the Property is situate.

Section 25.10. Estoppel Certificates. Each party hereto agrees that at any time and from time to time during the Lease Term (but on no more than two occasions during each Lease Year), it will promptly, but in no event later than ten (10) days after request by the other party hereto, execute, acknowledge and deliver to such other party a certificate in the form of Exhibit B attached hereto. In addition, each party agrees to include in such certificate such other items as may be reasonably requested under the circumstances giving rise to the delivery of such certificate. Such certificate may be relied upon by any bona fide, permitted purchaser of, or mortgagee together with its successors and assigns with respect to, Lessor’s or Lessee’s interest in the Property (direct or indirect), or any prospective sublessee of Lessee in respect of all or a portion of the Property.

Section 25.11. Easements. So long as no Lease Event of Default has occurred and is then continuing, and provided that no such action could in either the Lender’s or Lessor’s reasonable judgment be expected to have a material adverse effect upon Lessee’s ability to perform its obligations under the Lease, or on the Fair Market Rental Value or Fair Market Sales Value of the Property, Lessor will join with Lessee from time to time at the request of Lessee (and at Lessee’s sole cost and expense) to:

(a) subject to the terms of Article 12, sell, assign, convey or otherwise transfer an interest in any or all of the Property to any Person legally empowered to take such interest under the power of eminent domain, and dedicate or transfer unimproved portions of any or all of the Property for road, highway or other public purposes;

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(b) upon approval by Lessor, which approval may not be unreasonably withheld: (i) grant new (or release existing) easements, servitudes, licenses, rights of way and other rights and privileges in the nature of easements, with respect to the Property, and (ii) execute amendments to any covenants and restrictions affecting the Property; and

(c) execute and deliver any instrument, in form and substance reasonably acceptable to Lessor, necessary or appropriate to make or confirm the grants, releases or other actions described above in Section 25.11(a) and Section 25.11(b).

Lessor agrees that it shall not grant any easements, licenses or other possessory interests in the Property to any party without Lessee’s prior written consent, which shall not be unreasonably withheld or delayed, provided, however, Lessee’s consent shall not be required (i) during the continuation of a Lease Event of Default, and (ii) to the extent such easement, license or other possessory interest is required by law.

Section 25.12. No Joint Venture. Any intention to create a joint venture or partnership relation between Lessor and Lessee is hereby expressly disclaimed.

Section 25.13. No Accord and Satisfaction. The acceptance by Lessor of any sums from Lessee (whether as Rent or otherwise) in amounts which are less than the amounts due and payable by Lessee hereunder is not intended, nor shall be construed, to constitute an accord and satisfaction, or compromise, of any dispute between such parties regarding sums due and payable by Lessee hereunder, unless Lessor specifically deems it as such in writing.

Section 25.14. No Merger. In no event shall the leasehold interests, estates or rights of Lessee hereunder, or of the Lender, merge with any interests, estates or rights of Lessor in or to any and all of the Property, it being understood that such leasehold interests, estates and rights of Lessee hereunder, and of the Lender, shall be deemed to be separate and distinct from Lessor’s interests, estates and rights in or to the Property, notwithstanding that any such interests, estates or rights shall at any time or times be held by or vested in the same person, corporation or other entity.

Section 25.15. Lessor Bankruptcy. During the Lease Term the parties hereto agree that if Lessee elects to remain in possession of any and all of the Property after the rejection of the Lease by Lessor under Section 365(h) of the Bankruptcy Code, all of the terms and provisions of this Lease shall be effective during such period of possession by Lessee, including the Renewal Terms and Lessee’s purchase rights hereunder, even if Lessor becomes subject to a case or proceeding under the Bankruptcy Code prior to the commencement of any such Renewal Term or the exercise by Lessee of such purchase rights.

Section 25.16. Naming and Signage of the Property. So long as Lessee (or a sublessee) is the occupant of, at least, a majority of the Improvements located on the Property Lessee shall have the sole and exclusive right, at any time and from time to time, to select the name or names of the Property and the Improvements, and the sole and exclusive right to determine not to use any name in connection with the Property, as well as all rights in respect of signage for or in connection with the Property. Lessor shall not have or acquire any right or interest with respect to any such name or names used at any time by Lessee, or any trade name, trademark service

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mark or other intellectual property of any type of Lessee. Lessor shall cooperate with Lessee to effectuate Lessee’s sign rights hereunder, at no cost to Lessor. Lessee may install any sign or signs on the Property as it elects, at its sole cost and in compliance with Applicable Laws. Any signs installed by Lessee (other than those existing as of the Commencement of the Term) shall be removed by Lessee at the expiration or earlier termination of the Term, and Lessee shall repair any damage caused by such removal.

Section 25.17. Expenses. Whenever this Lease provides for the reimbursement by Lessee of costs and expenses of Lessor or any other party, then such reimbursement obligation shall be limited to actual, out-of pocket third-party costs and expenses including, but not limited to, reasonable attorneys’ fees. In addition to any other costs payable hereunder by Lessee, Lessee acknowledges and agrees that whenever (i) it seeks Lessor’s consent to an Alteration, (ii) it makes a rejectable offer, (iii) Fair Market Sales Value, Fair Market Rental Value or Base Rent during a Renewal Term need to be calculated, (iv) Lessee assigns its lease (if such assignment requires Lessor’s consent, (v) Lessor is asked to sign a landlord waiver with respect to Lessee’s personal property, or (vi) a casualty or condemnation (or an Event of Loss) occurs, Lessee shall pay all reasonable costs incurred by Lessor, arising out of the foregoing.

Section 25.18. Investments. Any moneys held by Lessor (or by the Lender or Proceeds Trustee) pursuant to this Lease, including Section 12.4, shall, until paid to Lessee, be invested by Lessor or the Proceeds Trustee, or by the Lender (if there is one), in Permitted Investments. Any gain (including interest received) realized as a result of any such investment shall be retained with, and distributed and re-invested in the same manner, as the original principal amount. Lessor (and the Lender) shall have no liability for any losses arising from any such investments or reinvestments. At such time as there no longer exists a requirement under this Lease for the Proceeds Trustee to hold such amounts, such amounts, together with any income thereon, shall be disbursed to Lessee.

Section 25.19. Further Assurances. Lessor and Lessee, at the cost and expense of the requesting party (except as otherwise set forth in this Lease to the contrary), will cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts, documents and assurances as any of the others reasonably may request from time to time in order to carry out more effectively the intent and purposes of this Lease. Nothing herein shall obligate Lessee to provide to Lessor or the Lender any proprietary or confidential information relating to the manner, method and procedures of Lessee’s business operations, or relating to Lessee’s business plan. Lessee also agrees to cooperate with Lessor in determining how to allocate the purchase price paid for the Property for purposes of depreciation, including review of the applicable portions of Lessee’s books applicable to Lessee’s depreciation of the Property, as prior owner and as Lessee.

Section 25.20. [Intentionally omitted]

Section 25.21. Independent Covenants. The covenants of Lessor and Lessee herein are independent and several covenants and not dependent on the performance of any other covenant in this Lease.

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Section 25.22. Lessor Exculpation. Anything to the contrary in this Lease notwithstanding, the covenants contained in this Lease to be performed by Lessor shall not be binding on any member of Lessor in its or his or her individual capacity, but instead said covenants are made for the purpose of binding only all of Lessor’s right, title and interest in and to the Property, and none of Lessor or any of its Affiliate or any of its successors and assigns shall have any liability under this Lease in excess of, and Lessee shall have no recourse under this Lease against Lessor or any Affiliate of it except for Lessor’s interest (to the extent not pledged or assigned), the Property, Net Proceeds and Rent.

Section 25.23. Remedies Cumulative. To the extent permitted by, and subject to the mandatory requirements of, Applicable Laws, each and every right, power and remedy herein specifically given to the Lessor or otherwise in this Lease shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by Lessor. No delay or omission by Lessor in the exercise of any right, power or remedy or in the pursuit of any remedy shall impair any such right, power or remedy or be construed to be a waiver or any default on the part of Lessee or to be an acquiescence therein. Lessor’s consent to any request made by Lessee shall not be deemed to constitute or preclude the necessity for obtaining Lessor’s consent, in the future, to all similar requests. No waiver by Lessor of any default shall in any way be, or be construed to be, a waiver of any future or subsequent default.

Section 25.24. Holding Over. Subject to Section 12.1 and the last sentence of Section 10.1(b) Lessee covenants that if for any reason Lessee or any subtenant of Lessee shall fail to vacate and surrender possession of a Property or any part thereof, in the condition required herein, on or before the expiration or earlier termination of this Lease and the Term, then Lessee’s continued possession of the Property shall be as a tenant at sufferance, during which time, without prejudice and in addition to any other rights and remedies Lessor may have hereunder or at law, Lessee shall pay to Lessor an amount equal to: (a) one hundred twenty-five percent (125%) of the total monthly amount of Rent payable hereunder immediately prior to such termination (the “Existing Rent”) for the first ninety (90) days during which Lessee holds over, and (b) one hundred fifty percent (150%) of the Existing Rent thereafter. The provisions of this Section shall not in any way be deemed to (i) permit Lessee to remain in possession of the Property after the expiration date or sooner termination of this Lease, or (ii) imply any right of Lessee to use or occupy the Property upon expiration or termination of this Lease and the Term and no acceptance by Lessor of payments from Lessee after the expiration date or sooner termination of the Term shall be deemed to be other than on account of the amount to be paid by Lessee in accordance with the provisions of this Section. Lessee’s obligations under this Section shall survive the expiration or earlier termination of this Lease.

Section 25.25. Survival. The following provisions shall survive the termination of this Lease: (i) Sections 3.5, 6.1, 8.4, 8.5, 8.6 (only with respect to Impositions arising during the Term) 8.7, 8.8, 17.2, 22.1, Articles 7, 10, 19 and 25 to the extent relating to unfulfilled obligations of Lessee arising or occurring prior to the date of termination of this Lease, and (ii) any provision of this Lease pursuant to which the Lessor or Lessee had an existing obligation which was unsatisfied at the time of termination of this Lease and remains unsatisfied, including,

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without limitation, to the extent there was any unsatisfied obligation under, Sections 12.1, and Article 3, provided, however, that nothing in this Section 25.25 shall be deemed to extend any applicable statute of limitations.

Section 25.26. [Intentionally Omitted]

Section 25.27. Lease Subordinate. This Lease, the leasehold estate of Lessee created hereby and all rights of Lessee hereunder are and shall be subject and subordinate to the Mortgage and to all renewals, modifications, consolidations, replacements and extensions of the Mortgage, subject to the parties executing a subordination, non-disturbance and attornment agreement in the form attached hereto as Exhibit C. Such agreement shall provide that, so long as no Lease Event of Default has occurred and is continuing, Lessee’s occupancy and use of the Property pursuant to the terms of this Lease shall not be disturbed and Lessee’s rights under this Lease are and shall always be subordinate to the Mortgage and to all renewals, modification, consolidation, replacements and extension of the Mortgage.

Section 25.28. Lessor Representation. The Lease has been duly authorized by all necessary action on the part of Lessor and has been duly executed and delivered by Lessor, and the execution, delivery and performance thereof by Lessor will not, (i) require any consent or approval of any Person, other than such consents and approvals as have been obtained, (ii) contravene any Applicable Law binding on Lessor or the organizational documents of Lessor or (iii) contravene or result in any breach of or constitute any default under Lessor’s organizational documents, or any indenture, mortgage, loan agreement, contract, partnership or joint venture agreement, lease or other agreement or instrument to which Lessor is a party or by which Lessor is bound.

Section 25.29. Leasehold Financing. During the entire Lease Term as such Lease Term may be extended Lessee shall not be permitted to obtain a loan using this Lease or Lessee’s interest in the Property as collateral therefore.

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IN WITNESS WHEREOF, Lessor and Lessee have duly authorized, executed and delivered this Lease as of the date first hereinabove set forth.

LESSOR:
INLAND WESTERN STOCKTON AIRPORT WAY, L.L.C, a Delaware limited liability company
By:	Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member
	By:	/s/ G. Joseph Cosenza
	Name:	G. Joseph Cosenza
	Title:	Authorized Representative

LESSEE:
COST PLUS, INC., a California corporation
By:	/s/ Tom Willardson
Name:	Tom Willardson
Title:	Executive Vice President And Chief Financial Officer

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APPENDIX A

[Definitions]

Unless otherwise specified or the context otherwise requires:

(a) any term defined below by reference to another instrument or document shall continue to have the meaning ascribed thereto whether or not such other instrument or document remains in effect;

(b) words which include a number of constituent parts, things or elements, shall be construed as referring separately to each constituent part, thing or element thereof, as well as to all of such constituent parts, things or elements as a whole;

(c) references to any Person include such Person’s successors and assigns and in the case of an individual, the word “successors” includes such Person’s heirs, devisees, legatees, executors, administrators and personal representatives;

(d) words importing the singular include the plural and vice versa;

(e) words importing a gender include any gender;

(f) the words “consent”, “approve”, “agree” and “request”, and derivations thereof or words of similar import, mean the prior written consent, approval, agreement or request of the Person in question;

(g) a reference to a part, clause, party, section, article, exhibit or schedule is a reference to a part and clause of, and a party, section, article, exhibit and schedule to, the document referenced;

(h) a reference to any statute, regulation, proclamation, ordinance or law includes all statutes, regulations, proclamations, ordinances or laws varying, consolidating or replacing them, and a reference to a statute includes all regulations, proclamations and ordinances issued or otherwise applicable under that statute;

(i) a reference to a document includes an amendment or supplement to, or replacement or novation of, that document;

(j) a reference to a party to a document includes that party’s successors and permitted delegees and/or assigns,

(k) the words “including” and “includes,” and words of similar import, shall be deemed to be followed by the phrase “without limitation”;

(l) the words “hereof” and “hereunder,” and words of similar import, shall be deemed to refer to the Lease as a whole and not to the specific section or provision where such word appears;

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(m) unless the context shall otherwise require, a reference to the “Property” or “Improvements” shall be deemed to be followed by the phrase “or a portion thereof”;

(n) the Schedules and Exhibits of the Lease are incorporated herein by reference;

(o) the titles and headings of Articles, Sections, Schedules, Exhibits, subsections, paragraphs and clauses are inserted as a matter of convenience and shall not affect the construction of the Lease;

(p) all obligations of the Lessor under the Mortgage and any related documents shall be satisfied by the Lessor at Lessor’s sole cost and expense;

“Actual Knowledge” with respect to any Person, shall mean the present, conscious, actual knowledge of, or receipt of notice by, (i) senior officers of such Person or the officers or employees of such Person charged with the oversight on its behalf of the Overall Transaction or (ii) with respect to a matter covered by a representation and warranty, the property or asset manager having responsibility for the matters covered by such representation and the person to whom such manager reports. Actual Knowledge of Lessee as of the Closing Date shall be as set forth in Section 20.1 of the Lease with respect to the matters represented in the Lease as of the Closing Date.

“Address” shall mean, subject to the rights of the party in question to change its Address in accordance with the terms of the Lease:

(i)	with respect to Lessee:	Cost Plus, Inc.
		3610 South Airport Way
		Stockton, California 95206
	with a copy to:	Cost Plus, Inc.
		200 Fourth Street
		Oakland, California 94607
		Attention: Real Estate Department
	with a copy to:	Cooper, White & Cooper LLP
		201 California Street, 17th Floor
		San Francisco, California 94111
		Attention: Beau Simon
(ii)	with respect to Lessor:	Inland Western Stockton Airport Way, L.L.C.
		c/o The Inland Real Estate Group, Inc.
		2901 Butterfield Road
		Oak Brook, Illinois 60523
		Attention: Roberta Matlin
	with a copy to:	The Inland Real Estate Group, Inc.
		2901 Butterfield Road
		Oak Brook, Illinois 60523
		Attention: Robert H. Baum, General Counsel

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“Affected Property” shall have the meaning specified in Section 12.1 of the Lease.

“Affiliate” of any Person shall mean any other Person directly or indirectly controlling, controlled by or under common control with, such person and shall include, if such Person is an individual, members of the Family of such Person and trusts for the benefit of such individual or Family members. For purposes of this definition, the term, “control” (including the correlative meanings of the terms “controlling” “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

“Alterations” shall mean alterations, improvements, installations, demolitions, modifications, changes and additions to the Property, but shall not include Lessee’s Equipment and Personalty.

“Applicable Laws” shall mean (i) all existing and future applicable laws (including common laws), rules, regulations, statutes, treaties, codes, ordinances, permits, certificates, orders and licenses of and interpretations by, any Governmental Authorities, and applicable judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other administrative, judicial or quasi-judicial tribunal or agency of competent jurisdiction (including those pertaining to the environment and those pertaining to the construction, use or occupancy of the Property), and (ii) any reciprocal easement agreement, covenant, other agreement or deed restriction or easement of record affecting the Property as of the date hereof or subsequent hereto pursuant to the terms of the Lease (but excluding for purposes of this definition the Mortgage and related debt documents). Applicable Laws include Environmental Laws.

“Appraisal Procedure” shall mean the following procedure for determining any one or more of the Fair Market Sales Value of the Property, the Fair Market Rental Value of the Property or any other amount which may, pursuant to any provision of this Lease, be determined by the Appraisal Procedure: one Qualified Appraiser shall be chosen by the Lessor and one Qualified Appraiser shall be chosen by Lessee. If the Lessee or Lessor fails to choose a Qualified Appraiser within twenty (20) Business Days after written notice from the other party of the selection of its Qualified Appraiser followed by a second notice (which notice shall specifically state that failure to select a Qualified Appraiser within ten (10) Business Days shall prohibit appointment of a Qualified Appraiser by the addressed party) given at least ten (10) Business Days prior to the expiration of such twenty-day period, then the appraisal by such appointed Qualified Appraiser shall be binding on the parties. If the two Qualified Appraisers cannot agree on a value within twenty (20) Business Days after the appointment of the Second Qualified Appraiser, then a third Qualified Appraiser shall be selected by the two Qualified Appraisers or, failing agreement as to such third Qualified Appraiser within thirty (30) Business Days after the appointment of the Second Qualified Appraiser, by the American Arbitration

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Association office in San Francisco, California. The appraisals of the three Qualified Appraisers shall be given within twenty (20) Business Days of the appointment of the third Qualified Appraiser and the appraisal of the Qualified Appraiser most different from the average of the other two shall be discarded and such average of the remaining two Appraisers shall be binding on the parties; provided that if the highest appraisal and the lowest appraisal are equidistant from the third appraisal, the third appraisal shall be binding on the parties. The fees and expenses of the Qualified Appraiser appointed by a party shall be paid by such party (such fees and expenses not being indemnifiable by Lessee); the fees and expenses of the third Qualified Appraiser shall be divided equally between the two parties, except that all fees and expenses of all the Qualified Appraisers shall be paid by Lessee in the case of an appraisal or determination under Article 17 of the Lease.

“Approved Environmental Consultant” shall mean any environmental consultant to Lessee of national standing and reasonably approved by Lessor.

“Authorized Officer” shall mean with respect to a Person if the Person is not an individual, any officer or principal of the Person, any trustee of the Person (if the Person is a trust), any general partner or joint venturer of the Person (if the Person is a partnership or joint venture) or any manager or member that is a manager of the Person (if the Person is a limited liability company) who shall be duly authorized to execute the Lease.

“Bankruptcy Code” shall mean the Bankruptcy Reform Act of 1978 as amended and as may be further amended.

“Base Rent” shall mean, for the Base Term, the rent payable pursuant to Section 3.1 of the Lease and, for any Renewal Term, the rent payable pursuant to Article 5 of the Lease as such amounts may be adjusted from time to time.

“Base Term” shall mean the period commencing on the Closing Date and ending on April 30, 2026, or such shorter period as may result from earlier termination of the Lease as provided therein. At any time prior to the commencement of the tenth (10^th) Lease year, Lessee shall have the one time right to terminate the Lease upon, delivery of, at least, one (1) year’s prior written notice to Lessor provided in no event shall the Base Term be less then ten (10) years. The failure of Lessee to exercise its one time right to terminate the Lease prior to the commencement of the tenth (10) Lease Year in the manner set forth above, shall be deemed a waiver of Lessee’s rights of early termination hereunder. In the event of Lessee’s completion of the Ground Lease Improvements pursuant to the Ground Lease and modification of the Ground Lease pursuant to Article 4 thereof, Lessee’s right to terminate the Lease upon delivery of, at least, one (1) years prior written notice to Lessor shall not apply until ten (10) years following modification of the Ground Lease. As an example, if construction of the Ground Lease Improvements was completed in December, 2007 the expiration of the Base Term would continue as April 30, 2026, but for purposes of early termination rights Lessee’s tenth (10^th) Lease Year would commence in December 2016 and end in December 2017, and with the five percent (5%) increase in Base Rent commencing on May 1, 2011 i.e. five (5) years following the commencement of the Base Term.

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“Business Day” shall mean any day other than a Saturday, Sunday or other day on which banks are authorized to be closed in the State of California or the State of Illinois.

“Casualty” shall mean any damage or destruction caused to the Property by any reason, whether or not constituting an Event of Loss.

“Claims” shall mean Liens (including, without limitation, lien removal and bonding costs) liabilities, obligations, damages, losses, demands, penalties, assessments, payments, fines, claims, actions, suits, judgments, settlements, costs, expenses and disbursements (including, without limitation, reasonable, actually-incurred legal fees and expenses and costs of investigation and Remedial Action) of any kind and nature whatsoever.

“Closing Date” shall mean April 7, 2006.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

“Condemnation” shall mean any condemnation, requisition or other taking or sale of the use, occupancy or title to any or all of the Property, by or on account of any eminent domain proceeding or other action by any Governmental Authority or other Person under the power of eminent domain or otherwise or any transfer in lieu of or in anticipation thereof.

“Default Rate” shall mean three percent (3%) above the annual rate of interest set by Citibank, N.A. (or any successor thereto) as its “Prime Rate” from time to time.

“Environmental Laws” shall mean all federal, state or local laws, ordinances, rules, orders, statutes, decrees, judgments, injunctions, codes, regulations and common law (a) relating to the environment, human health or natural resources; (b) regulating, controlling or imposing liability or standards of conduct concerning Hazardous Materials; (c) relating to the remediation of the Mortgaged Property, including investigation, response, clean-up, remediation, prevention, mitigation or removal of Hazardous Materials; or (d) requiring notification or disclosure of releases of Hazardous Materials or any other environmental conditions on the Mortgaged Property, as any of the foregoing may have been or may be amended, supplemented or supplanted from time to time, including the Resource Conservation and Recovery Act of 1976 (“RCRA”), 42 U.S.C. §§ 6901 et seq., as amended by the Hazardous and Solid Waste Amendments of 1984, the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq. (“CERCLA”), the Hazardous Materials Transportation Act of 1975, 49 U.S.C. §§ 1801-1812, the Toxic Substances Control Act, 15 U.S.C. §§ 2601-2671, the Clean Air Act, 42 U.S.C. §§ 7041 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§ 136 et seq., as any of the foregoing may have been or may be amended, supplemented or supplanted from time to time.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974.]

“Event of Loss” shall mean (y) the damage, by fire or otherwise, and whether total or partial, that (A) the Lessee in its reasonable discretion shall determine that as a result of such

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damage the Property is no longer useful for its intended purpose, and (B) the cost of repair or restoration would exceed twenty-five percent (25%) of the appraised value for the Improvements on the Closing Date, (z) the permanent or material taking by Condemnation effecting (A) title to all or substantially all of the Property, or (B) the principal points of ingress or egress of the Property to public roadways, or (C) such a material part of the Land or the Improvement so as to have a material and adverse effect on the business of the Lessee as conducted from the Property. Any decision regarding whether the Property is no longer useful for its intended purpose shall be made by Lessee in good faith and evidenced by an Officer’s Certificate of Lessee delivered to Lessor and the Lender.

“Excepted Payments” shall mean and include (i) the amount by which Base Rent exceeds all amounts then due and payable under any debt documents, any amount payable to Lessor as a reimbursement for losses suffered by Lessor pursuant to Section 12.1 above and any other amounts payable directly to Lessor under Article 18 or 19 as set forth in the Lease, (ii) proceeds of public liability or property damage insurance maintained under the Lease solely for the benefit of any Person other than the Lender, and (iii) any payment required under the Lease to be made directly by Lessee to a third party such as taxes, utility charges, ground rent, if any, and similar payments.

“Existing Rent” shall have the meaning specified in Section 25.24 of the Lease.

“Fair Market Rental Value” with respect to any Property shall mean the fair market monthly rental value that would be obtained in an arm’s-length transaction between an informed and willing lessee and an informed and willing lessor, in either case under no compulsion to lease, and neither of which is related to Lessor or Lessee, for the lease of such Property on the terms set forth in the Lease, and taking into consideration the fact that no brokerage commission will be payable, and that Lessee will not be receiving any tenant improvement allowance, period of free rent, or other economic concession. Such fair market rental value shall be calculated as the value for the use of such Property assuming that such Property is in the condition and repair required to be maintained by the terms of the Lease, including, without limitation, in compliance with all Applicable Laws and assuming no Hazardous Materials present in, on, under or about the Property.

“Fair Market Sales Value” with respect to any Property shall mean the fair market sales value that would be obtained in an arm’s-length transaction between an informed and willing buyer and an informed and willing seller, under no compulsion, respectively, to buy or sell, and neither of which is related to Lessor or Lessee, for the purchase of the Property. Such Fair Market Sales Value shall be calculated as the value for such Property using the same methodology as used in the appraisal delivered on or before the Closing Date and assuming that the Property is in the condition and repair required to be maintained by the terms of the Lease, including, without limitation, in compliance with all Applicable Laws and assuming no Hazardous Materials present in, on, under or about the Property.

“Family” shall mean, as to any Person, such Person’s grandparents, all lineal descendants of such Person’s grandparents, Persons adopted by, or stepchildren of, any such grandparent or descendant and Persons currently married to, or who are widows or widowers of, any such grandparent, descendant, adoptee or stepchild.

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“Final Payment Date” shall have the meaning specified in Section 17.1(e) of the Lease.

“Fixtures” shall have the meaning specified in the term “Property”.

“GAAP” shall mean generally accepted accounting principles in the United States, as in effect from time to time, consistently applied.

“Governmental Action” shall mean all permits, authorizations, registrations, consents, approvals, waivers, exceptions, variances, orders, judgments, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Governmental Authority, or required by any Applicable Laws, and shall include, without limitation, all citings, environmental and operating permits and licenses that are required for the use, occupancy, zoning and operation of the Property.

“Governmental Authority” shall mean any federal, state, county, municipal or other governmental or regulatory authority, agency, board, body, commission, instrumentality, court or quasi governmental authority (or private entity in lieu thereof).

“Hazardous Material” shall mean any substance (whether solid, liquid or gas), pollutant, contaminant, waste or material (including those that are toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous or considered pollutants including petroleum, its derivatives, by-products and other hydrocarbons and asbestos), in each case that is or becomes regulated by any Governmental Authority, including any agency, department, commission, board or instrumentality of the United States and/or each State in which the Property is situated, or that may form the basis of liability under any Environmental Law.

“Impositions” shall mean, collectively, all real estate taxes on the Property, all ad valorem, sales and use, gross receipts, transaction privilege, rent or similar taxes levied or incurred with respect to the Property, or the use, lease, ownership or operation thereof, personal property tax on any property covered by the Lease that is classified by government authorities as personal property, assessments (including all assessments for public improvements or benefits, whether or not commenced or completed within the Lease Term) (collectively “Taxes”), water, sewer, utilities or other rents and charges, excises, levies, fees and all other governmental charges of any kind or nature whatsoever, general or special, foreseen or unforeseen, ordinary or extraordinary, with respect to the Property or any part thereof and/or the Rent, including all interest and penalties thereon, which at any time prior to, during or with respect to the Lease Term may be assessed or imposed on or with respect to or be a Lien upon Lessor or the Property or any part thereof or any rent therefrom or any estate, title or interest therein. Impositions shall exclude, however, and nothing contained in the Lease or any debt documents or related Mortgage shall be construed to require Lessee to pay, (i) any tax imposed on Lessor, or the Lender based on the net income of Lessor, or the Lender or any transfer tax imposed on Lessor, the Lender or any other Person, except to the extent that any tax described in this clause (i) is

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levied, assessed or imposed as a total or partial substitute for a tax, assessment, levy or charge upon the Property, the Rent or any part thereof or interest therein which Lessee would otherwise be required to pay thereunder; (ii) any tax imposed with respect to the sale, exchange or other disposition by (A) Lessor of the Property or (B) the Lender of its debt; or (iii) any gross receipts, transaction privilege, rent or similar tax, assessment, levy or charge upon Lessor, the Property, the Rent or any part of any thereof or interest therein, but solely to the extent that the same is levied, assessed or imposed as a total or partial substitute for a tax, assessment, levy or charge described in clause (i) or clause (ii) which Lessee would otherwise not be required to pay hereunder.

“Improvements” shall have the meaning specified in the term “Property”.

“Indemnitee” shall mean the Lessor, its member, the Lender, any trustee under a Mortgage which is a deed of trust, and each of their Affiliates and their respective officers, directors, employees, shareholders, members or partners.

“Indemnitee’s Group” shall mean, with respect to a particular Indemnitee, such Indemnitee (including its Affiliates and their respective officers, directors, employees, agents, shareholders, trustees, members or partners) and their successors and assigns.

“Inspecting Parties” shall have the meaning specified in Article 15 of the Lease.

“Land” shall have the meaning specified in the term “Property”.

“Lease” shall mean the Lease Agreement dated as of the Closing Date between Lessor, as lessor, and Lessee, as lessee.

“Lease Default” shall mean any event, condition or failure which, with notice or lapse of time or both, would become a Lease Event of Default.

“Lease Event of Default” shall have the meaning specified in Article 16 of the Lease.

“Lease Term” shall mean the full term of the Lease, including the Base Term and any Renewal Terms as to which Lessee exercises a renewal option pursuant to Article 5 of the Lease, or such shorter period as may result from earlier termination of the Lease as provided therein.

“Lease Year” shall mean each consecutive period of twelve (12) full calendar months occurring after the Closing Date, provided, however, that, if the Closing Date shall not be the first day of a month, then the first Lease Year shall also include the partial month in which the Closing Date occurs.

“Lender” shall mean, from time to time, the holder of the first lien Mortgage on the Property. During periods when there is no Lender, references herein to Lender shall have no force or effect.

“Lessee” shall mean the Lessee named in the Lease to which this Appendix is attached.

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“Lessee’s Equipment and Personalty” shall mean all furniture, equipment and personal property of Lessee, which includes, without limitation, inventory, racking, shelving, conveyer equipment, lifts, cabling, antennae, machinery, air compressors, battery chargers, communication equipment, data cabinets, automated teller machines, hoist equipment, lockers, plug-in light fixtures, propane tanks, storage racks, trash compactors, signs, desks, movable partitions, vending machines, computer software and hardware, movable storage and utility rooms and removable trade fixtures and equipment, even if bolted or otherwise affixed to the floors, including, without limitation, telecommunication switches, in each case, as now or may hereafter exist in or on any of the Improvements and any other personal property owned by Lessee or a sublessee of Lessee or other occupant of the Property. In no case shall Lessee’s Equipment and Personalty include fixtures or built-in heating, ventilating, air-conditioning, and electrical equipment (including power panels) to be utilized in connection with the operation of the Property.

“Lessor” shall mean the Lessor named in the Lease to which this Appendix is attached.

“Lessor Liens” shall mean Liens on or against the Property or the Lease or any payment of Rent (a) which result from any act of, or any Claim against, Lessor, or which result from any violation by Lessor of any of the terms of the Mortgage or any related debt documents, other than a violation due to a default by Lessee under the Lease, (b) which result from Liens in favor of any taxing authority by reason of any tax owed and payable by Lessor, except that Lessor Liens shall not include any Lien resulting from any tax for which Lessee is obligated to indemnify Lessor until such time as Lessee shall have already paid to or on behalf of Lessor the Tax or the required indemnity with respect to the same, or (c) which result from any expenses owed, caused or occasioned by Lessor or any of its employees, contractors or agents which are not indemnified by Lessee pursuant to Section 19.1 of the Lease, but shall exclude Permitted Liens and any Liens created by the Mortgage and any other debt documents, except to the extent any such Lien arises by the Lender’s payment of any of the foregoing.

“Lien” shall mean any lien, mortgage, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, including, without limitation, any thereof arising under any conditional sale agreement, capital lease or other title retention agreement.

“Material” as used to describe Lessee’s compliance requirement in Section 8.5 of the Lease shall mean that the failure to so comply may reasonably be expected to result in material risk of (i) physical injury or illness to any individual, (ii) criminal liability, or (iii) fines or Remedial Action or compliance costs in excess of $500,000.00.

“Moody’s” shall mean Moody’s Investors Service, Inc. and its successors.

“Mortgage” shall mean a first lien deed of trust or mortgage (together with any related assignment of rents) between the Lessor, as mortgagor or trustor, and the Lender, as mortgagee or beneficiary, and as the same may be renewed, amended, modified, consolidated, replaced or extended from time to time. During periods when there is no Mortgage, references in the Lease to the Mortgage shall have no force or effect.

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“Mortgaged Property” shall mean the Mortgaged Property or Trust Property, as defined in the Mortgage.

“Net Casualty Proceeds” shall mean the compensation and/or insurance payments (whether received from a third party insurance company or from Lessee because it has self-insured) net of the reasonable expenses of collecting such amounts incurred by the Lessor and Lender if a Lease Event of Default exists, received by the Lender, the Lessor or the Lessee in respect of the Property by reason of and on account of an Event of Loss described in clause (y) of the definition thereof or a casualty.

“Net Condemnation Proceeds” shall mean any award or compensation net of the reasonable expenses of collecting such amounts incurred by the Lessor and the Lender if a Lease Event of Default exists, received by the Lender, the Lessor or the Lessee in respect of the Property by reason of and on account of a Condemnation.

“Net Proceeds” shall mean Net Casualty Proceeds and Net Condemnation Proceeds.

“Nonseverable” shall describe an Alteration or part of an Alteration which cannot be removed from the existing Improvements or the Land without causing material damage to the Property; provided that Lessee’s Equipment and Personalty shall not be construed as Nonseverable.

“Officer’s Certificate” of a Person or any Person signing on behalf of a Person shall mean a certificate signed, in the case of a partnership, by a general partner of such partnership, or in the case of a corporation, by an Authorized Officer of such Person, or, in the case of a limited liability company, by the manager of such limited liability company.

“Overall Transaction” shall mean all the transactions and activities referred to in or contemplated by the Lease.

“Permits” shall mean as to the Property all licenses, authorizations, certificates, variances, concessions, grants, registrations, consents, permits and other approvals issued by a Governmental Authority now or hereafter pertaining to the ownership, management, occupancy, use or operation of such Premises, including certificates of occupancy.

“Permitted Encumbrances” shall mean the easements, rights of way, reservations, servitudes and rights of others against the Property which are listed in the title policy issued to the Lessor by the Title Insurance Company on the Closing Date.

“Permitted Investments” shall mean any one or more of the following obligations or securities having (a) a predetermined fixed dollar of principal due at maturity that cannot vary or change, (b) bearing interest that may either be fixed or variable but which is tied to a single interest rate index plus a single fixed rate spread (if any) and move proportionately with that index, and (c) having the required ratings, if any, provided for in this definition:

(i) direct obligations of, and obligations fully guaranteed as to timely payment of principal and interest by, the United States of America or any agency or instrumentality of the United States of America, the obligations of which are backed by the full faith and credit of the United States of America that mature in thirty (30) days or less after the date of issuance and that does not have a “r” highlighter affixed to its rating;

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(ii) time deposits, unsecured certificates of deposit, or bankers’ acceptances that mature in thirty (30) days or less after the date of issuance and are issued or held by any depository institution or trust company (including the Lender) incorporated or organized under the laws of the United States of America or any State thereof and subject to supervision and examination by federal or state banking authorities, so long as the commercial paper or other short-term debt obligations of such depository institution or trust company are rated at least “A-1” and “P-1” by Standard & Poor’s and Moody’s, respectively, or such other rating as would not result in the downgrading, withdrawal or qualification of the then current rating assigned by the Rating Agencies to the Pass-Through Certificates, as evidenced in writing and that does not have a “r” highlighter affixed to its rating;

(iii) repurchase agreements or obligations with respect to any security described in clause (i) above where such security has a remaining maturity of thirty (30) days or less and where such repurchase obligation has been entered into with a depository institution or trust company (acting as principal) described in clause (ii) above;

(iv) debt obligations bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States of America or any state thereof which mature in thirty (30) days or less from the date of issuance, which debt obligations have ratings from Moody’s and Standard & Poor’s in the highest category possible, or such other rating as would not result in the downgrading, withdrawal or qualification of the then-current rating assigned by the Rating Agencies to any Pass-Through Certificate as specified in writing by the Rating Agencies and that does not have a “r” highlighter affixed to its rating; provided, however, that securities issued by any particular corporation will not be Permitted Investments to the extent that investment therein will cause the then-outstanding principal amount of securities issued by such corporation and held in the accounts established hereunder to exceed 10% of the sum of the aggregate principal balance and the aggregate principal amount of all Permitted Investments in such accounts; and

(v) commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations) payable on demand or on a specified date maturing in thirty (30) days or less after the date of issuance thereof and which is rated in the highest category possible by Moody’s and Standard & Poor’s and that does not have a “r” highlighter affixed to such rating.

“Permitted Liens” shall mean:

(a) the respective rights and interests of the Lessee, the Lessor and the Lender under the Lease and any Mortgage,

(b) Liens for Taxes either not yet due or being contested in good faith and by appropriate proceedings, so long as such proceedings shall not involve any danger of the sale, forfeiture or loss of any part of the Property, title thereto or any interest therein (other than to a de minimis extent) and are undertaken in accordance with the terms of any documents securing the Lender’s loan to Lessor, (including, without limitation, posting of any bonds or other collateral to the extent required by such documents),

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(c) materialmen’s, mechanics’, workers’, repairmen’s, employees or other like Liens for amounts either not yet due or being contested in good faith and by appropriate proceedings so long as such proceedings shall not involve any danger of the sale, forfeiture or loss of any part of the Property, title thereto or any interest therein (other than to a de minimis extent), provided

Lessee agrees that it shall pay, discharge or record or bond any such lien within sixty (60) days after Lessee receives notice thereof, if Lessee does not have a Required Rating equal to or greater than the Trigger Rating, or if a Lease Event of Default under Section 16.1(a), (b) or (c) exists,

(d) Liens arising out of judgments or awards with respect to which at the time an appeal or proceeding for review is being prosecuted in good faith and either which have been bonded or for the payment of which adequate reserves shall have been provided to Lessor’s reasonable satisfaction, provided that if the long-term unsecured debt of Lessee shall not have a Required Rating of at least the Trigger Rating, then any such amount in excess of $500,000.00 (unless Lessee is insured therefor), shall be bonded or discharged by Lessee within thirty (30) days after Lessee’s knowledge thereof,

(e) easements, rights of way, reservations, servitudes and rights of others against the Property which are granted pursuant to Section 25.11 of the Lease and which could not reasonably be expected to have a material adverse effect on the Property,

(f) Permitted Encumbrances, and

(g) assignments and subleases expressly permitted by the Lease.

No lien, judgment, charge or other agreement shall be deemed to be Permitted Lien if such lien, judgment, charge or other agreement, individually or in the aggregate with other liens, judgments, charges or agreements, materially and adversely affect (i) the value of the Property, (ii) Lessee’s ability to pay all Rent, as and when due hereunder, or (iii) Lessee’s right to use and operate the Property.

“Permitted Use” shall have the meaning given to such term in Section 8.1 of the Lease.

“Person” shall mean individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability company, non-incorporated organization or government or any agency or political subdivision thereof.

“Proceeds Trustee” shall mean the Lender or, if the Property shall not at the time in question be encumbered by a Mortgage, a federally insured bank or other financial institution, selected by Lessor and reasonably satisfactory to Lessee.

“Property” shall mean the real property whose parcel or parcels of land are described on Exhibit A to the Lease (the “Land”); together with all buildings, structures, and other improvements of every kind situated on the Land (collectively, the “Improvements”); together with all easements, rights and appurtenances relating to the Land or the Improvements; and together with all fixtures, including all components thereof, on and in respect to the Improvements, including, without limitation, all built-in refrigeration and freezer equipment used in the operation of the Property, together with all replacements, modifications, alterations and additions thereto (collectively, the “Fixtures”), provided that in no event shall “Property” include Lessee’s Equipment and Personalty.

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“Qualified Appraiser” means an independent nationally recognized appraiser who shall be a member of The Appraisal Institute (or its successor organization) with not less than five (5) years experience appraising properties similar to the Property in the market in which the Property is located.

“Rating Agencies” shall mean Moody’s and Standard & Poor’s.

“Reference Rate” shall mean on any day, the rate at which prepayments would be discounted under any note secured by a Mortgage (or if no Mortgage is in effect, the rate at which prepayments would by discounted under the note secured by the Mortgage in effect on or promptly following the Closing Date).

“Release” shall mean the release or threatened release of any Hazardous Material into or upon or under any land or water or air, or otherwise into the environment, including, without limitation, by means of burial, disposal, discharge, emission, injection, spillage, leakage, seepage, leaching, dumping, pumping, pouring, escaping, emptying, placement and the like.

“Remedial Action” means the investigation, response, clean-up, remediation, prevention, mitigation or removal of contamination, environmental degradation or damage caused by, related to or arising from the existence, generation, use, handling, treatment, storage, transportation, disposal, discharge, Release (including a continuous Release), or emission of Hazardous Materials, including, without limitation, investigations, response, removal, monitoring and remedial actions under CERCLA; corrective action under the Resource Conservation and Recovery Act of 1976, as amended, the investigation, removal or closure of any underground storage tanks, and any related soil or groundwater investigation, remediation or other action, and investigation, clean-up or other actions required under or necessary to comply with any Environmental Laws.

“Renewal Term” shall have the meaning specified in Section 5.1 of the Lease.

“Rent” shall mean Base Rent and Supplemental Rent, collectively.

“Rent Collection Account” shall mean the account established by the Lender from time to time, and to which Lessee is directed to make all payments of Rent due to the Lender.

“Rent Payment Dates” shall mean the 1st day of each month during the Lease Term, commencing May 1, 2006, provided, however, in the event such date is not a Business Day, the Rent Payment Date shall be the immediately following Business Day; provided further, however that Base Rent for the period commencing on the Closing Date and terminating on April 30, 2006 shall be payable in advance on the Closing Date.

“Required Rating” shall mean a rating of the Lessee at the level set forth in the Lease as required for Lessee to have the benefit conferred, issued by Standard & Poors and Moody’s (or any replacement of either of them made by the Lender (in which case the rating shall be the equivalent)).

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“Restoration Fund” shall have the meaning specified in Section 12.4(a) of the Lease.

“Sale and Purchase Agreement” shall mean the Purchase and Sale Agreement dated as of April 7, 2006 between Lessee’s as Seller and Inland Real Estate Acquisitions, Inc. as Purchaser.

“Standard & Poor’s” shall mean Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors.

“Stipulated Loss Value” shall mean $36,025,000 (110% of the purchase price set forth in the Sale and Purchase Agreement).

“Stipulated Loss Value Date” shall have the meaning specified in Section 12.1(i) of the Lease, and after expiration of the Base Term shall mean the first day of each month during a Renewal Term.

“Sublease” shall have the meaning given such term in Section 14.1 of the Lease.

“Subsidiary” shall mean any corporation whose assets and liabilities are consolidated with that of Lessee.

“Supplemental Rent” shall mean any and all amounts, fees, expenses, liabilities, obligations, late charges, Taxes and Impositions other than Base Rent which Lessee assumes or agrees or is otherwise obligated to pay under the Lease, including, without limitation, to the Lessor, the Lender or any other party, including Fair Market Sales Value payments, Stipulated Loss value payments, and indemnities and damages for breach of any covenants, representations, warranties or agreements; provided that, when Supplemental Rent is used with respect to the Property, then Supplemental Rent shall be such amounts determined in respect of the Property.

“Term” shall mean the Base Term and Renewal Term (if any).

“Terms” shall have the meaning specified in Section 4.1 of the Lease.

“Threshold Amount” shall mean $2,000,000.00, but if the Lessee does not have a credit rating (as calculated under the definition of Trigger Rating) at least equal to the Trigger Rating, Threshold Amount shall mean $500,000.

“Title Insurance Company” shall mean Chicago Title Insurance Company.

“Trigger Rating”, with respect to any Person, shall mean that the senior unsecured obligations of such Person shall have a rating, (or if the senior unsecured obligations of such Person shall not be rated, such Person shall have a confidential debt rating) of BBB by Standard & Poor’s, and by Baa2 by Moody’s.

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SCHEDULE 3.1

Rental Payments

Years	Rent Per Annum
1-5	$1,846,110.00
6-10	$1,938,415.50
11-15	$2,035,336.28
16-20	$2,137,103.09
Renewal Terms	The Base Rent for each Renewal Term shall be increased to an amount which is 105% of the immediate preceding Base Rent.

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SCHEDULE 9.1

Insurance Requirements

(a) Lessee covenants and agrees that it will at all times keep in full force and effect the following insurance coverage:

(i) A broad form commercial general liability insurance policy or its then current industry acceptable equivalent (unamended except for amendments increasing coverages or adding additional insured parties)), including but not limited to premises, operations, automobile liability (which may be carried by separate policy) and products liability, personal injury liability, contractual liability, and property damage liability coverage at the Property and the business conducted by Lessee thereon. The policy shall provide coverage limits of not less than One Million Dollars ($1,000,000) per occurrence Two Million Dollars ($2,000,000) aggregate. Lessee shall also provide a commercial excess or umbrella liability of Ten Million Dollars ($10,000,000) insuring Lessor and the Lender and its successors and assigns as additional insureds, as their interest may appear. Lessor may reasonably require other types of general liability insurance, based upon (A) the loss history at the Property, and (B) industry standards, and taking into account Lessee’s (or its parent’s, if applicable) insurance program, and other types of coverage being obtained in similar transactions. To the extent commercially available, such policy shall contain a deductible of not more than Twenty-Five Thousand Dollars ($25,000.00) per occurrence, (One Hundred Thousand Dollars ($100,000.00) per occurrence so long as Lessee maintains a net worth of, at least, One Hundred Million Dollars ($100,000,000.00)). In the event Lessee maintains a deductible in excess of $25,000 or $100,000 as required above (but not more than $250,000) Lessee may provide a letter of credit in form approved by Lessor which approval shall not unreasonably be withheld in the amount of the difference between the actual deductible and the applicable limits to the deductible as described above.

(ii) A comprehensive all risk “special form” policy of standard 100% replacement cost insurance with agreed amount endorsements and no coinsurance against physical loss or damage by fire, lightning and other risks and supplementary perils from time to time included under all risk policies, with standard and extended coverage or all risk endorsement, including without limitation, vandalism and malicious mischief and also including against terrorist acts based upon the relevant provisions of the Terrorist Risk Insurance Act of 2002 (“TRIA”) or if TRIA is no longer applicable against foreign terrorist acts (to the extent commercially available) of all building and other facilities and improvements constructed on the Property and all tenant finish and leasehold improvements and fixtures and loss of rents for actual loss sustained for a period of at last twenty-four (24) months. This policy shall name Lessor and the Lender its successors and assigns as loss payees and mortgagee as their interest may appear. To the extent commercially available, such policy shall contain a deductible of not more than Twenty Five Thousand Dollars ($25,000.00) per occurrence (One Hundred Thousand Dollars ($100,000.00) per occurrence if Lessee maintains a net worth of at least, One Hundred Millions Dollars ($100,000,000.00) unless Lessee has a Required Rating at least equal to

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the Trigger Rating, in which case the deductible may be no more than five percent (5%) of the replacement cost of the Improvements, excluding footings and foundation, as reasonably evidenced to Lessor and Lender upon request of Lessor on behalf of the Lender. Lessee shall be responsible for all deductibles.

(iii) Workers’ compensation or other such insurance in accordance with applicable state law requirements covering all of Lessee’s employees.

If Lessee is self-insuring, its obligations shall be that of an insurer under the form of policy delivered to Lessor as of the Closing.

(iv) To the extent the use of the Property is legal, but nonconforming to existing zoning laws from time to time, Lessee shall also provide law and ordinance insurance.

(b) If the Lessee fails to satisfy the condition necessary to maintain a program of self-insurance adequate to satisfy the requirements set forth herein, Lessee shall have a period of five (5) days in which to obtain the necessary insurance coverage and deliver to Lessor and the Lender a certificate of insurance evidencing compliance with the requirements set forth in Section 9.1.

(c) All policies of insurance described in this Schedule which Lessee is required to procure and maintain shall be issued by one or more primary insurers having a Standard & Poor’s rating equal to A- or better.

(d) Unless Lessee elects (and is permitted) to self-insure as provided in Section 9.1(b), certificates of such insurance will be delivered to Lessor and the Lender, and any additional insureds upon execution of this Lease and any renewals or extensions of said policies or certificates of insurance shall be delivered to Lessor and the Lender at least ten (10) days prior to the expiration or termination of such policies. Upon request of Lessor or Lender, Lessee shall provide certified copies of those portions of any policy requested covering all aspects of how a claim can or may be made under such policy, within thirty (30) days of request. In the alternative, Lessee may provide a certificate from its insurance broker setting forth all of the foregoing, in form and substance reasonably satisfactory to Lessor and the Lender. Unless Lessee elects (and is permitted) to self-insure as provided in Section 9.1(b), all liability and property damage policies will contain the following provisions:

(i) The company writing such policy will agree to give the insured and additionally named insured parties or loss payees not less than thirty (30) days (ten (10) days for nonpayment of premium) notice in writing prior to any cancellation, reduction, or material modification of such insurance;

(ii) Lessor and the Lender shall be named as additional insured or loss payees, as their interests may appear, for each insurance policy required to be maintained by Lessee (except (a)(iv) above), with all proceeds under any policy under (a)(ii) and (iii) to be paid in accordance with the provisions of the Lease.

(e) Any insurance required by the Lease (excluding, however, the coverage identified in Section (a)(ii) above) may be brought within the coverage of a so-called blanket policy or

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policies of insurance carried by and maintained by the insuring party insuring the combined operations at the Property with other premises leased or owned by Lessee, so long as the insured party and the additional insureds required hereunder are named under such policies as their interest may appear with coverage at least as good as required herein.

(f) If Lessee fails to acquire or maintain the insurance required pursuant to this Schedule and Article 9 or to pay the premiums for such insurance and deliver the required certificates, Lessor may, in addition to other rights and remedies available to Lessor, acquire such insurance and/or pay the requisite premiums therefor. Such premiums so paid by Lessor will be reimbursable and payable by Lessee immediately upon written demand therefor made to Lessee by Lessor, plus interest at the Default Rate from the date paid by Lessor until reimbursement by Lessee.

(g) Except to the extent otherwise provided in the Lease, the parties hereto release each other, and their respective representatives, agents, contractors and employees from any claims for damage to the Property and all improvements located in the Property, and to the fixtures, personal property, improvements, and alteration of either Lessor or Lessee in or upon the Property, that are caused by or result from risks insured against under any property insurance policies carried by the parties (or which should have been carried by the parties pursuant to the terms hereof) or, in the case of Lessee’s self-insurance, all risks that would otherwise be insured against under the property policies identified herein; provided, however, the foregoing shall not impair any claim against Lessee in its capacity as self insurer. Each party shall cause each property insurance policy obtained by it (recognizing that Lessor may not in fact obtain any insurance) to provide that the insurance company waives in writing all right of recovery by way of subrogation against the other party in connection with any damage covered by such policy. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against (or to be insured against) under any property insurance policy required by the Lease or self-insurance maintained in lieu of any such required insurance.

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SCHEDULE 12.2

The first $500,000.00 of any excess Condemnation shall be divided between the Lessor and Lessee as follows:

If the taking takes place in:	The Lessor receives:		The Lessee receives:
2006	8.3	%	91.7	%
2007	16.7	%	83.3	%
2008	25	%	75	%
2009	33.3	%	66.7	%
2010	41.7	%	58.3	%
2011	50	%	50	%
2012	58.3	%	41.7	%
2013	66.7	%	33.3	%
2014	75	%	25	%
2015	83.3	%	16.7	%
2016	91.7	%	8.3	%
2017	100	%	0	%
[    ]

During any Renewal Term the proceeds shall be allocated 100% to the Lessor.

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EXHIBIT A

LEGAL DESCRIPTION OF PROPERTY

ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE CITY OF STOCKTON, COUNTY OF SAN JOAQUIN, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:

BEING A PORTION OF PARCEL 1 AS SAID PARCEL IS SHOWN ON THAT CERTAIN PARCEL MAP FILED APRIL 8, 2003 IN BOOK 22 OF PARCEL MAPS AT PAGE 145, SAN JOAQUIN COUNTY RECORDS, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT THE WESTERLY CORNER OF SAID PARCEL 1;

THENCE ALONG THE NORTHWESTERLY LINE OF SAID PARCEL 1, NORTH 72°45’44 EAST 928.85 FEET;

THENCE LEAVING SAID NORTHERLY LINE, SOUTH 17° 39’ 25” EAST, 1065.16 FEET TO A POINT ON THE SOUTHERLY LINE OF SAID PARCEL 1;

THENCE ALONG THE EXTERIOR BOUNDARY OF SAID PARCEL ONE, SOUTH 72° 20’ 35” WEST, 902.67 FEET;

THENCE, CONTINUING ALONG SAID EXTERIOR BOUNDARY, NORTH 62° 35’ 40” WEST, 40.26 FEET;

THENCE CONTINUING ALONG SAID EXTERIOR BOUNDARY, NORTH 17° 31’ 55” WEST, 1043.45 FEET TO THE POINT OF BEGINNING.

CONTAINING 993,348 SQUARE FEET OR 22.8041 ACRES, MORE OR LESS.

KIER AND WRIGHT CIVIL ENGINEERS & SURVEYORS, INC.

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EXHIBIT B

Form of Estoppel Agreement

                    , the                      of [Lessee][Lessor] hereby certifies that as of                          (the “Certification Date”), the following is true and correct:

(a) the Lease dated as of                          , 2006 is unmodified and in force and effect [(or if there have been modifications, that the Lease is in force and effect as modified, and identifying the modification agreements];

(b) the date to which Base Rent has been paid is                          ,             ;

(c) to the best of Lessee’s knowledge there is no default by Lessee in the payment of Base Rent or any other Rent payable to Lessor hereunder, and there is no other existing default by either party with respect to which a notice of default or notice of termination (by Lessor) has been served, [and, if there is any such default, specifying the nature and extent thereof], and, to the actual knowledge of the property or asset manager of Lessee having responsibility for the Lease and Property, and the officer to which he or she reports, there are no acts under the Lease that have occurred that would constitute a Lease Event of Default with notice, and the passage of time;

(d) to the knowledge of the signer, there are no setoffs, defenses or counterclaims against enforcement of the obligations to be performed hereunder existing in favor of the party executing such certificate.

(e) the term of the Lease and the payment of rent commenced on                     , 2006, and is scheduled to expire on                             , 20    , unless renewed or terminated in accordance with the terms of the Lease. Pursuant to the Lease, Lessee is entitled to renew the Lease for two (2) terms of five (5) years each and a third (3^rd) term of four (4) years.

[(f) Lessee is not the subject of any filing for bankruptcy or reorganization under any applicable law.]¹

[LESSOR/LESSEE]

¹ Only if Lessee is delivering estoppel certificate.

EXHIBIT C

SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT

THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (the “Agreement”) is made as of the          day December 2005 by and between BEAR STEARNS COMMERICAL MORTGAGE, INC., having an address at 383 Madison Avenue, New York, New York 10179 (“Lender”) and Cost Plus, Inc., a California corporation (“Tenant”).

RECITALS:

A. Tenant is the holder of a leasehold estate in a portion of the property known as Cost Plus Facility located at 3610 South Airport Way, Stockton, California as more particularly described on Schedule A (the “Property”) under and pursuant to the provisions of a certain lease dated                             , 200   between                         , as landlord (“Landlord”) and Tenant or its predecessor in interest, as tenant (as amended through the date hereof, the “Lease”);

B. The Property is or is to be encumbered by one or more mortgages, deeds of trust, deeds to secure debt or similar security agreements (collectively, the “Security Instrument”) from Landlord, or its successor in interest, in favor of Lender; and

C. Tenant has agreed to subordinate the Lease to the Security Instrument and to the lien thereof and Lender has agreed to grant non-disturbance to Tenant under the Lease on the terms and conditions hereinafter set forth.

AGREEMENT:

NOW, THEREFORE, the parties hereto mutually agree as follows:

1. Subordination. The Lease shall be subject and subordinate in all respects to the lien and terms of the Security Instrument, to any and all advances to be made thereunder and to all renewals, modifications, consolidations, replacements and extensions thereof.

2. Nondisturbance. So long as Tenant is not in default (beyond applicable notice and cure periods) of any of its obligations and covenants pursuant to the Lease, Lender agrees for itself and its successors in interest and for any other person acquiring title to the Property through a foreclosure (an “Acquiring Party”), that Tenant’s possession of the premises as described in the Lease will not be disturbed during the term of the Lease, as said term may be extended pursuant to the terms of the Lease or as said premises may be expanded as specified in the Lease, by reason of a foreclosure. For purposes of this agreement, a “foreclosure” shall include (but not be limited to) a sheriff’s or trustee’s sale under the power of sale contained in the Security Instrument, the termination of any superior lease of the Property and any other transfer of the Landlord’s interest in the Property under peril of foreclosure, including, without limitation to the generality of the foregoing, an assignment or sale in lieu of foreclosure.

3. Attornment. Tenant agrees to attorn to, accept and recognize any Acquiring Party as the landlord under the Lease pursuant to the provisions expressly set forth therein for the then remaining balance of the term of the Lease, and any extensions thereof as made pursuant to the Lease. The foregoing provision shall be self-operative and shall not require the execution of any further instrument or agreement by Tenant as a condition to its effectiveness. Tenant agrees, however, to execute and deliver, at any time and from time to time, upon the request of the Lender or any Acquiring Party any reasonable instrument which may be necessary or appropriate to evidence such attornment.

4. No Liability. Notwithstanding anything to the contrary contained herein or in the Lease, it is specifically understood and agreed that neither the Lender, any receiver nor any Acquiring Party shall be:

(a) liable for any act, omission, negligence or default of any prior landlord (other than to cure defaults of a continuing nature with respect to the maintenance or repair of the demised premises or the Property); provided, however, that any Acquiring Party shall be liable and responsible for the performance of all covenants and obligations of landlord under the Lease accruing from and after the date that it takes title to the Property; or

(b) except as set forth in (a), above, liable for any failure of any prior landlord to construct any improvements;

(c) subject to any offsets, credits, claims or defenses which Tenant might have against any prior landlord; or

(d) bound by any rent or additional rent which is payable on a monthly basis and which Tenant might have paid for more than one (1) month in advance to any prior landlord; or

(e) liable to Tenant hereunder or under the terms of the Lease beyond its interest in the Property or

(f) liable or responsible for or with respect to the retention, application and or/return to the Tenant of any security deposit paid to Landlord or any prior landlord, unless and until Lender or such Acquiring Party has actually received for its own account as landlord the full amount of such security deposit.

Notwithstanding the foregoing, Tenant reserves its rights to any and all claims or causes of action against such prior landlord for prior losses or damages and against the successor landlord for all losses or damages arising from and after the date that such successor landlord takes title to the Property.

5. Rent. Tenant has notice that the Lease and the rents and all other sums due thereunder have been assigned to Lender as security for the loan secured by the Security Instrument. In the event Lender notifies Tenant of the occurrence of a default under the Security Instrument and demands that Tenant pay its rents and all other sums due or to become due under the Lease directly to Lender, Tenant shall honor such demand and pay its rent and all other sums due under the Lease directly to Lender or as otherwise authorized in writing by Lender. Landlord hereby irrevocably authorizes Tenant to make the foregoing payments to Lender upon such notice and demand.

6. Lender to Receive Notices. Tenant shall notify Lender of any default by Landlord under the Lease which would entitle Tenant to cancel the Lease, and agrees that, notwithstanding any provisions of the Lease to the contrary, no notice of cancellation thereof shall be effective unless Lender shall have received notice of default giving rise to such cancellation and shall have failed within thirty (30) days after receipt of such notice to cure such default, or if such default cannot be cured within thirty (30) days, shall have failed within thirty (30) days after receipt of such notice to commence and thereafter diligently pursue any action necessary to cure such default.

7. Notices. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person with receipt acknowledged by the recipient

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thereof, (ii) one (1) Business Day (hereinafter defined) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed to the receiving party at its address set forth above, and:

if to Tenant, to
the attention of:	Cost Plus, Inc.
	200 4th Street
	Oakland, California 94607
	Attn: Lease Administrator
and if to Lender:	Bear Stearns Commercial Mortgage, Inc.
	its successors and/or assigns
	383 Madison Avenue
	New York, New York 10179
	Attention: J. Christopher Hoeffel

or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this Paragraph 7, the term “Business Day” shall mean any day other than Saturday, Sunday or any other day on which banks are required or authorized to close in New York, New York.

Either party by notice to the other may designate additional or different addresses for subsequent notices or communications.

8. Successors. The obligations and rights of the parties pursuant to this Agreement shall bind and inure to the benefit of the successors, assigns, heirs and legal representatives of the respective parties. In addition, Tenant acknowledges that all references herein to Landlord shall mean the owner of the landlord’s interest in the Lease, even if said owner shall be different than the Landlord named in the Recitals.

9. Duplicate Originals; Counterparts. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Agreement. The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder.

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IN WITNESS WHEREOF, Lender and Tenant have duly executed this Agreement as of the date first above written.

LENDER:

BEAR STEARNS COMMERCIAL MORTGAGE, INC., a New York corporation

By:

Name:

Authorized Signatory

TENANT:

COST PLUS, INC.

A California corporation

By:

Name:

Title:

The undersigned as the Landlord named in the Recitals or as successor thereto hereby accepts and agrees to be bound by the provisions of Paragraph 5 hereof.

INLAND WESTERN STOCKTON AIRPORT WAY, L.L.C., a Delaware limited liability company

By: Inland Western Retail Real Estate Trust, Inc. a Maryland corporation

        By:

        Name:

        Title:

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STATE OF	)
	)
COUNTY OF	)

I, the undersigned, a Notary Public of the County and State aforesaid, certify that                                      personally came before me this day and acknowledged that he/she is the                              of BEAR STEARNS COMMERCIAL MORTGAGE, INC., a New York corporation and that he/she as its                             , being duly authorized to do so, executed the foregoing instrument on behalf of the corporation.

WITNESS my hand and official seal, this          day of                     , 200  .

Notary Public

My commission expires:                         

[NOTARIAL SEAL]

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STATE OF	)
	)
COUNTY OF	)

I, the undersigned, a Notary Public of the County and State aforesaid, certify that                                          personally came before me this day and acknowledged that he/she is the                      of                             , a                              and that he/she as its                             , being duly authorized to do so, executed the foregoing instrument on behalf of the corporation.

WITNESS my hand and official seal, this      day of                     , 200  .

Notary Public

My commission expires:                         

[NOTARIAL SEAL]

6

STATE OF                         

COUNTY OF                     

I, the undersigned, a Notary Public of the County and State aforesaid, certify that                              personally came before me this day and acknowledged that he/she is the                              of INLAND RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, which is the general partner of INLAND RETAIL REAL ESTATE LIMITED PARTNERSHIP, an Illinois limited partnership, which is the sole member and manager of INLAND SOUTHEAST                             , L.L.C., a Delaware limited liability company and that he/she as its                             , being duly authorized to do so, executed the foregoing instrument on behalf of the corporation.

WITNESS my hand and official seal, this      day of                     , 200  .

Notary Public

My commission expires:                         

[NOTARIAL SEAL]

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EXHIBIT “A”

(Attach Legal Description)

8

EX-10.2.2

Exhibit 10.2.2

SUBGROUND LEASE AGREEMENT

Dated as of April 7, 2006

between

Inland Western Stockton Ground Tenant, L.L.C., as Lessor

and

Cost Plus, Inc.

as Lessee

Property:

Cost Plus World Market

Stockton, California

TABLE OF CONTENTS

ARTICLE 1	DEFINITIONS; RESTATEMENT		2
	Section 1.1.	Restatement	2
	Section 1.2.	Definitions	2
ARTICLE 2	LEASE OF PROPERTY		2
	Section 2.1.	Demise and Lease	2
ARTICLE 3	RENT		3
	Section 3.1.	Base Rent	3
	Section 3.2.	Supplemental Rent	3
	Section 3.3.	Method of Payment	3
	Section 3.4.	Late Payment	3
	Section 3.5.	Net Lease, No Setoff, Etc	4
ARTICLE 4	IMPROVEMENTS		5
	Section 4.1.	The Improvements	5
	Section 4.2.	Construction Loan Financing	6
	Section 4.3.	Earnout	6
	Section 4.4.	Third Party Sale	7
	Section 4.5.	Condominium Regime	8
ARTICLE 5	RENEWAL OPTIONS		9
	Section 5.1.	Renewal Options	9
	Section 5.2.	Lease Provisions Applicable During Renewal	9
ARTICLE 6	LESSEE’S ACCEPTANCE OF PROPERTY, ENFORCEMENT OF WARRANTIES		10
	Section 6.1.	Waivers	10
	Section 6.2.	Lessee’s Right to Enforce Warranties	10
ARTICLE 7	LIENS		11
	Section 7.1.	Liens	11
ARTICLE 8	USE AND REPAIR		12
	Section 8.1.	Use	12
	Section 8.2.	Maintenance	12
	Section 8.3.	Alterations	12
	Section 8.4.	Title to Alterations	14
	Section 8.5.	Compliance with Law; Environmental Compliance	15
	Section 8.6.	Payment of Impositions	16
	Section 8.7.	Adjustment of Impositions	17
	Section 8.8.	Utility Charges	18
	Section 8.9.	Litigation; Zoning; Joint Assessment	18

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ARTICLE 9	INSURANCE		18
	Section 9.1.	Coverage	18
ARTICLE 10	RETURN OF PROPERTY TO LESSOR		20
	Section 10.1.	Return of Property to Lessor	20
ARTICLE 11	ASSIGNMENT BY LESSEE		21
	Section 11.1.	Assignment by Lessee	21
ARTICLE 12	LOSS; DESTRUCTION; CONDEMNATION OR DAMAGE		22
	Section 12.1.	Event of Loss	22
	Section 12.2.	Application of Payments Upon an Event of Loss When Lease Continues	24
	Section 12.3.	Application of Payments Not Relating to an Event of Loss	24
	Section 12.4.	Other Dispositions	24
	Section 12.5.	Negotiations	26
ARTICLE 13	INTENTIONALLY OMITTED		27
ARTICLE 14	SUBLEASE		27
	Section 14.1.	Subleasing Permitted; Lessee Remains Obligated	27
	Section 14.2.	Provisions of Subleases	27
	Section 14.3.	Assignment of Sublease Rents	27
ARTICLE 15	INSPECTION		28
	Section 15.1.	Inspection	28
ARTICLE 16	LEASE EVENTS OF DEFAULT		28
	Section 16.1.	Lease Events of Default	28
ARTICLE 17	ENFORCEMENT		30
	Section 17.1.	Remedies	30
	Section 17.2.	Survival of Lessee’s Obligations	32
	Section 17.3.	Remedies Cumulative; No Waiver; Consents; Mitigation of Damages	32
ARTICLE 18	RIGHT TO PERFORM FOR LESSEE		33
	Section 18.1.	Right to Perform for Lessee	33
ARTICLE 19	INDEMNITIES		33
	Section 19.1.	General Indemnification	33
	Section 19.2.	Lessor’s Indemnification Obligation	35
ARTICLE 20	LESSEE REPRESENTATIONS AND COVENANTS		36
	Section 20.1.	Representations and Warranties	36
ARTICLE 21	LESSOR PRESENTATIONS AND COVENANTS		37
	Section 21.1.	Representations and Warranties	37

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ARTICLE 22	PURCHASE PROCEDURE		38
	Section 22.1.	Purchase Procedure	38
ARTICLE 23	TRANSFER OF LESSOR’S INTEREST		39
	Section 23.1.	Permitted Transfer	39
	Section 23.2.	Effects of Transfer	39
ARTICLE 24	PERMITTED FINANCING		40
	Section 24.1.	Financing During Term.	40
	Section 24.2.	Lessee’s Consent to Assignment for Indebtedness	40
ARTICLE 25	MISCELLANEOUS		42
	Section 25.1.	Binding Effect; Successors and Assigns; Survival	42
	Section 25.2.	Quiet Enjoyment	42
	Section 25.3.	Notices	42
	Section 25.4.	Severability	42
	Section 25.5.	Amendments, Complete Agreements	42
	Section 25.6.	Headings	43
	Section 25.7.	Counterparts	43
	Section 25.8.	Governing Law	43
	Section 25.9.	Memorandum	43
	Section 25.10.	Estoppel Certificates	43
	Section 25.11.	Easements	44
	Section 25.12.	No Joint Venture	44
	Section 25.13.	No Accord and Satisfaction	44
	Section 25.14.	No Merger	44
	Section 25.15.	Lessor Bankruptcy	45
	Section 25.16.	Naming and Signage of the Property	45
	Section 25.17.	Expenses	45
	Section 25.18.	Investments	45
	Section 25.19.	Further Assurances	45
	Section 25.20.	[Intentionally omitted]	46
	Section 25.21.	Independent Covenants	46
	Section 25.22.	Lessor Exculpation	46
	Section 25.23.	Remedies Cumulative	46
	Section 25.24.	Holding Over	46
	Section 25.25.	Survival	47
	Section 25.26.	[Intentionally Omitted]	47
	Section 25.27.	Lease Subordinate	47
	Section 25.28.	Lessor Representation	47
	Section 25.29	Leasehold Financing	47
	Section 25.30	Direct Lease	47

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Table of Contents(Cont’d)

Schedule 3.1	—	Base Rent
Schedule 9.1	—	Insurance
Schedule 12.2	—	Condemnation Allocation
Exhibit A	—	Description of Land
Exhibit B	—	Form of Estoppel Agreement
Exhibit C-1	—	Site Plan and legal description of the Improvements Parcel
Exhibit C-2	—	Site Plan and legal description of the Adjacent Parcel
Exhibit C-3	—	Site Plan and legal description of the Remainder Parcel
Exhibit D	—	Form of Subordination, Non-Disturbance and Attornment Agreement
Exhibit E	—	Form of Recognition and Attornment Agreement

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THIS SUBGROUND LEASE AGREEMENT (this “Agreement”) is made and entered into as of April 7, 2006, by and between Inland Western Stockton Ground Tenant, L.L.C., as Lessor (“Lessor”), having its principal place of business at 2901 Butterfield Road, Oak Brook, Illinois, 60523, and Cost Plus, Inc., a California corporation, (“Lessee”), having a place of business at 200 Fourth Street, Oakland, California 94607.

RECITALS

A. Lessee was the owner of the Property, which is now owned by Inland Western Stockton Airport Way, L.L.C. (“Ground Lessor);

B. Lessor leases the Property from Ground Lessor pursuant to the terms of a ground lease (“Ground Lease”) of even date herewith. Lessee hereby acknowledges that its rights to use and occupy the Property are subject and subordinate to the rights of the Ground Lessor under the Ground Lease.

C. Lessor and Lessee now desire to enter into this Agreement;

D. Lessor desires to grant and delegate to Lessee, and Lessee desires to accept and assume from Lessor, certain rights and duties as described in this Agreement;

TERMS

NOW THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE 1

DEFINITIONS

Definitions. The capitalized terms used herein and not otherwise defined shall have the meanings assigned thereto in Appendix A hereto for all purposes hereof.

ARTICLE 2

LEASE OF PROPERTY

Section 2.1 Demise and Lease. (a) Lessor hereby demises and leases the Property to Lessee, and Lessee does hereby rent and lease the Property from Lessor, for the Base Term (as such Base Term may be modified pursuant to the provisions of Article 4) and, subject to the exercise by Lessee of its renewal options as provided in Article 5 hereof, for the Renewal Terms.

(b) Lessee may from time to time own or hold under lease or license from Persons other than Lessor furniture, equipment and personal property, including Lessee’s Equipment and

2

Personalty, located on or about the Property, which shall not be subject to this Lease. Lessor shall from time to time, upon the reasonable request of Lessee, promptly acknowledge in writing to Lessee or other Persons that Lessor does not own or, except as provided in Article 10, have any other right or interest in or to such furniture, equipment and personal property, including Lessee’s Equipment and Personalty, whether now owned or hereafter acquired, and Lessor hereby waives any such right, title or interest.

ARTICLE 3

RENT

Section 3.1 Base Rent. Lessee shall pay to Lessor Base Rent on each Rent Payment Date during the Base Term in the amount (except to the extent such amount may be modified pursuant to the provisions of Article 4 of this Lease), set forth on Schedule 3.1 attached hereto and incorporated herein, and shall pay to Lessor Base Rent on each Rent Payment Date during any Renewal Term as prescribed by Article 5. Each installment of Base Rent is payable monthly in advance.

Section 3.2 Supplemental Rent. Lessee shall pay to Lessor, or to such other Person as shall be entitled thereto in the manner contemplated herein or as otherwise required by Lessor, any and all Supplemental Rent as the same shall become due and payable. In the event of Lessee’s failure to pay when due and payable any Supplemental Rent, Lessor shall have all rights, powers and remedies provided for herein.

Section 3.3 Method of Payment. All Base Rent and Supplemental Rent (other than Excepted Payments) payable to Lessor shall, be paid to Lessor, or if Lessor directs (on at least ten (10) Business Days prior notice), to Lessor’s Lender in each case to the Rent Collection Account, as directed by Lessor or Lender as applicable, in immediately available funds as of the relevant payment date to the Rent Collection Account, or such other account or accounts in the continental United States as the Lender may from time to time designate (on at least ten (10) Business Days’ prior written notice) to Lessee. Upon payment in full of all amounts due to the Lender, as reasonably evidenced to Lessee, which evidence must include a written statement to that effect from the Lender, or evidence of release or assignment of the Lien of the Mortgage, or other similar evidence, Lessee shall accept instructions from Lessor (or its new lender, if so instructed by Lessor) as to the payment of Base Rent and Supplemental Rent. Each such payment of Rent shall be made by Lessee by wire or other transfer of funds consisting of lawful currency of the United States of America which shall be immediately available no later than 4:00 PM (New York City time) at the place of receipt on the scheduled date when such payment shall be due, unless such scheduled date shall not be a Business Day, in which case such payment shall be made at such time on the immediately following Business Day, with the same force and effect as though made on such scheduled dates. If any payment of Base Rent or Supplemental Rent is received after 4:00 PM (New York City time) on the dates when such rent is due, such rent shall be deemed received on the next succeeding Business Day.

Section 3.4 Late Payment. If any payment of Base Rent or any Supplemental Rent payable to Lessor shall be delinquent, Lessee shall pay interest thereon from the date such payment became due and payable to the date of receipt thereof by Lessor at a rate per annum equal to the Default Rate.

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Section 3.5 Net Lease, No Setoff, Etc. It is the intention of the parties hereto that the obligations of Lessee hereunder shall be separate and independent covenants and agreements, and that Base Rent, Supplemental Rent and all other sums payable by Lessee hereunder shall continue to be payable in all events, and that the obligations of Lessee hereunder shall continue unaffected, unless the requirement to pay or perform the same shall have been terminated pursuant to an express provision of this Lease. This Lease is a net lease and it is agreed and intended that Base Rent, Supplemental Rent and any other amounts payable hereunder by Lessee shall be paid without notice (except with respect to Supplemental Rent for which notice is specifically required herein), demand, counterclaim, setoff, deduction or defense and without abatement, diminution or reduction and that Lessee’s obligation to pay all such amounts, throughout the Base Term and all applicable Renewal Terms is absolute and unconditional. Under no circumstances shall Lessor be obligated to repay Lessee, refund to Lessee, or return to Lessee, any Base Rent.

This Lease shall not terminate and Lessee shall not have any rights to terminate this Lease, during the Base Term and any Renewal Terms (except as otherwise expressly provided in Article 12). Except to the extent otherwise expressly specified in this Lease, Lessee shall not take any action to terminate, rescind or void this Lease and the obligations and liabilities of Lessee hereunder shall in no way be released, discharged or otherwise affected for any reason, including without limitation: (a) any defect in the condition, merchantability, design, quality or fitness for use of the Property or any part thereof, or the failure of the Property to comply with all Applicable Laws, including any inability to occupy or use the Property by reason of such noncompliance; (b) any damage to, removal, abandonment, salvage, loss, condemnation (except as set forth in Article 12), theft, scrapping or destruction of or any requisition or taking of the Property or any part thereof, or any environmental conditions on the Property or any property in the vicinity of the Property; (c) any restriction, prevention or curtailment of or interference with any use of the Property or any part thereof including eviction; (d) any defect in title to or rights to the Property or any Lien on such title or rights to the Property; (e) any change, waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by any Person; (f) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to Lessee, Lessor or any other Person, or any action taken with respect to this Lease by any trustee or receiver of Lessee or any other Person, or by any court, in any such proceeding; (g) any right or claim that Lessee has or might have against any Person, including without limitation Lessor, the Lender, or any vendor, manufacturer, contractor of or for the Property; (h) any failure on the part of Lessor or any other Person to perform or comply with any of the terms of this Lease; (i) any invalidity, unenforceability, rejection or disaffirmance of this Lease by operation of law or otherwise against or by Lessee or Lessor or any provision hereof; (j) the impossibility of performance by Lessee or Lessor, or both; (k) any action by any court, administrative agency or other Governmental Authority; (l) any interference, interruption or cessation in the use, possession or quiet enjoyment of the Property; (m) the exercise of any remedy, including foreclosure, under the Mortgage, (n) any action with respect to this Lease (including the disaffirmance or rejection hereof) which may be taken by Lessor or Lessee under the Federal Bankruptcy Code or by any trustee, receiver or liquidator of Lessor or Lessee or by any court under the Federal Bankruptcy Code or otherwise, (o) the prohibition or restriction of Lessee’s use of the

4

Property under any Applicable Laws or otherwise, (p) the eviction of Lessee from possession of the Property, by paramount title or otherwise, (q) any breach or default by the Lessor hereunder or under any other agreement between Lessor and Lessee; or (r) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether foreseeable or unforeseeable, and whether or not Lessee shall have notice or knowledge of any of the foregoing. Except as specifically set forth in this Lease, this Lease shall be noncancellable by Lessee for any reason whatsoever and, except as expressly provided in this Lease, Lessee, to the extent now or hereafter permitted by Applicable Laws, waives all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Lease or to any diminution, abatement or reduction of Rent payable hereunder. Under no circumstances or conditions shall Lessor be expected or required to make any payment of any kind hereunder or have any obligations with respect to the use, possession, control, maintenance, alteration, rebuilding, replacing, repair, restoration or operation of all or any part of the Property, so long as the Property or any part thereof is subject to this Lease, and Lessee expressly waives the right to perform any such action at the expense of Lessor whether hereunder or pursuant to any law. Lessee waives all rights which are not expressly stated herein but which may now or hereafter otherwise be conferred by law (i) to quit, terminate or surrender this Lease or any of the Property; (ii) to have any setoff, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense of or to Base Rent, Supplemental Rent, or any other sums payable under this Lease, except as otherwise expressly provided herein; and (iii) to have any statutory lien or offset right against Lessor or its property.

ARTICLE 4

IMPROVEMENTS

4.1 The Improvements. Lessee, at its sole cost and expense, may at any time during the first six (6) years of the Base Term, construct a new building (the “Improvements”) on the Property. The Improvements if and when constructed shall be built in accordance with plans and specifications reasonably acceptable to Lessor and pursuant to a budget (“Approved Budget”) which remain subject to Lessor’s approval and which approval shall not unreasonably be denied; provided such Approved Budget is subject to reasonable modifications (which modifications shall in no event, in the aggregate, exceed ten percent (10%) of the initial Approved Budget), which modifications remain subject to Lessor’s approval, which approval shall not unreasonably be denied. All Improvements shall be built in compliance with all Applicable Laws, the applicable provisions of this Lease and for a cost which will not exceed the Approved Budget as the Approved Budget may be modified pursuant to the immediately preceding sentence. The Property consists of approximately 56.5492 acres and is part of a larger parcel (“Total Parcel”) of land consisting of approximately 79.3533 acres. The portion of Total Parcel other then the Property (“Adjacent Parcel”) consists of approximately 22.8041 acres and is leased by Lessor to Lessee pursuant to a Lease (“Building Lease”). There is an existing building (“Existing Building”) located on the Adjacent Parcel. The Adjacent Parcel and approximately 32.5487 acres upon which the Improvements will be constructed (“Improvements Parcel”) are sometimes collectively referred to as the “Merged Parcel”. Lessee intends, at its sole cost and expense, to subdivide the Total Parcel into two (2) parcels as soon as reasonably possible following the date of this Lease. The two parcels consist of the Merged Parcel, and the remainder parcel (“Remainder Parcel”) consisting of approximately 24.0005 acres. The approximate location and descriptions of the Improvements

5

Parcel, the Adjacent Parcel and the Remainder Parcel are shown and described on Exhibits C-1-C-3 attached hereto. Lessee shall use commercially reasonable efforts to legally resubdivide the Total Parcel into the Merged Parcel and Remainder Parcel. Lessee shall obtain separate tax identification numbers for each of the Adjacent Parcel, Improvements Parcel and the Remainder Parcel. Subject to Lessee’s obligation, at its sole cost and expense, to retain all liability, including, but not limited to, environmental liability related thereto (subject to the provisions of Section 8.5(a) and Article 19), Lessor shall permit the use of the Remainder Parcel to store fill material relating to construction of the Improvements.

4.2 Construction Loan Financing. Provided that Lessee’s net worth and net income, at the date of the first funding of the Construction Loan, both remain, at least, at a level which is, at least, ninety percent (90%) of its net worth (except for reductions in Lessee’s net worth resulting from Lessee’s repurchase of its own stock) and annual net income, respectively, as of the effective date of this Lease, Lessor on behalf of itself and its affiliates hereby agrees to provide construction financing (“Construction Loan”) until the end of the sixth Lease Year for construction of the Improvements. If actual physical construction of the Improvements is commenced on or before June 30, 2006 the Construction Loan shall earn interest at the rate of 7.16936% (“Base Rent Divider”) and if the actual physical construction of the Improvements commences after June 30, 2006 and prior to the end of the sixth (6^th) Lease Year, the Construction Loan shall earn interest at an interest rate (“Combined Interest Rate”) equal to the sum of the (i) ten (10) year Treasury Rate at the time the Construction Loan is funded, plus (ii) 2.01436% plus (iii) a “lender’s spread” based upon the average of three (3) quotes above the ten (10) year Treasury Rate from institutional lenders (one of which will be Bank of America) primarily engaged in the business of commercial real estate and construction loan financing of leases and tenants similar to the Lease and of a credit the same or similar to Lessee. The Construction Loan documents will be on forms generally acceptable in the industry for large commercial warehouse facilities. The Construction Loan documents will require a guaranty of completion of the Improvements, from Lessee, by no later than 455 days after the first funding of the Construction Loan plus such additional time as may be required solely due to force majeure items i.e. those items beyond Lessee’s reasonable control, but not including delays which are caused by matters that are merely inconvenient or should have been anticipated. Lessee’s net worth for the fiscal year ending January 28, 2006 was approximately $316,081,000 and Lessee’s net income for the fiscal year ending January 28, 2006 was approximately $20,233,000.

4.3 Earnout: Upon satisfaction of all of the following items (i) – (vi) Lessor shall pay Lessee an earnout payment equal to the total cost of construction of the Improvements (“Total Cost”): (i) completion of the Improvements in accordance with all Applicable Laws, the approved plans and specifications, and the Approved Budget, (ii) issuance by the City of Stockton of an unconditional certificate of occupancy, together with evidence that the Lessee is in occupancy of the Improvements and is conducting its business therein, (iii) issuance by the Title Company of a date down title policy subject only to Permitted Exceptions insuring the Lessor’s interest in the Property lien free and insuring the value of the Improvements, and including such endorsements as Lessor reasonably requests, (iv) issuance of an ALTA survey including all Table A Items 1, 2, 3, 4, 6, 7(a), (b)(i) (c), 8, 9, 10, 11(a), 12-16 and certified to Lessor and Lender, (v) issuance of a zoning letter from the City of Stockton confirming that the Improvements located on the Property are in compliance with all applicable zoning laws and constitute a conforming use, and (vi) a modification

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of this Lease to (a) extend Lessee’s right to early termination until, at least, ten (10) years from the effective date of the modification, (b) increase the Base Rent to an amount equal to the product obtained by multiplying the (i) Total Cost times the Combined Interest Rate plus (ii) the Base Rent payable under this Lease as of the effective date of the modification of this Lease with five percent (5%) increases to the Base Rent every five (5) years commencing on the first day of the initial Base Term and (c) extend Lessee’s right of early termination until, at least, ten (10) years following the date of the modification, which shall be a period coterminous with the Building Lease. As an example, if construction of the Improvements was completed in December 2007 the expiration date of the Building Lease would continue as April 30, 2026, but, for purposes of early termination, Lessee’s tenth (10^th) Lease Year shall commence in December, 2016, and end in December, 2017 with the first five percent (5%) increases to the Base Rent commencing on May 1, 2011 i.e. five (5) years following the commencement date of the initial Base Term. For purposes hereof Total Cost shall mean the actual hard cost of construction of the Improvements and the cost to prepare the plans and specifications, all fees and costs of regulating agencies and utility companies; all professional fees and costs; and all other costs that are customary in the development of this type of building, but in no event including the cost of the Property, the cost of the racking systems and distribution systems which are to be installed as part of the Improvements, commissions, developer fees or amounts in excess of the Approved Budget, as such Approved Budget may be modified pursuant to Subsection 4.1

4.4 Remainder Parcel.

(a) Not later than thirty (30) days immediately following Lessor’s receipt of written notice from Lessee of the subdivision of the Remainder Parcel from the Total Parcel, together with evidence of such subdivision reasonably acceptable to Lessor and (i) a revised survey of the Property reflecting the deletion of the Remainder Parcel and (ii) a revised title policy reflecting the deletion of the Remainder Parcel, but otherwise containing all of the endorsements contained in the title insurance policy issued to Ground Lessor on the Closing Date including, but not limited to, a zoning endorsement, separate tax index number endorsement, comprehensive endorsement and access endorsement, Lessor shall cause Ground Lessor to convey the Remainder Parcel to Lessee by grant deed, at no additional consideration, and cause the Mortgage to be released against the Remainder Parcel. Simultaneous with such conveyance the Lease will be modified to delete the reference to the Remainder Parcel without, however, reducing the Rent. Lessor shall retain all cross easement rights as is reasonably deemed necessary for parking, access and signage. Lessee shall be responsible for payment of documentary transfer taxes, escrow and recording fees, closing costs, all survey costs and the premium for an owner’s policy of title insurance with respect to such conveyance of the Remainder Parcel. During Ground Lessor’s period of ownership of the Remainder Parcel, Lessor shall not, and shall ensure that Ground Lessor does not, transfer any interest in the Remainder Parcel or take any action that would materially impair or otherwise materially negatively affect the value of the Remainder Parcel or give rise to any lien or encumbrance affecting the Remainder Parcel.

(b) If Lessee, despite its diligent, good faith, efforts, is unable to subdivide the Remainder Parcel from the Total Parcel within twelve (12) months after the Closing Date and there is no uncured Lease Event of Default, Lessor shall

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cause Ground Lessor to deliver written instructions to the Escrow Agent (as defined in the “Purchase and Sale Agreement” of even date herewith by and between Lessee, as Seller, and Ground Lessor, as Buyer) to promptly disburse to Lessee the Holdback Amount (as defined in the Purchase and Sale Agreement), together with all interest accrued thereon. In that event, Schedule 3.1 shall be modified to reflect an increase in Base Rent attributable to the rent payable for the Remainder Parcel.

4.5 Condominium Regime: Lessee shall, at its sole cost and expense including, but not limited to, all engineering, survey and legal costs necessary to legally create a condominium regime (except for Lessor’s agreement to pay one half of all legal costs not to exceed Twelve Thousand Five Hundred Dollars ($12,500)), use commercially reasonable efforts to create a condominium regime for the Total Parcel comprised of separate condominium units for the Improvements Parcel, Adjacent Property and the Remainder Parcel, including, but not limited to preparation and filing of a condominium map, creation of an association for the operation of the parcels as condominium units and preparation of covenants, conditions or restrictions for the mutual benefit and protection of the condominium unit owners and occupants. Provided, in the event the Remainder Parcel has been legally subdivided from the Adjacent Property prior to creation of the condominium regime, the Remainder Parcel may be excluded therefrom. The form of condominium map and ancillary condominium documents shall comply with all applicable laws, ordinances and regulations and shall be subject to the prior written approval of Lessor and Lender. Nothing contained herein shall be construed as authorizing Lessee to execute documents creating the condominium regime on behalf or as agent for Lessor. Lessor shall cooperate and shall cause the Ground Lessor to cooperate with Lessee and will cause Ground Lessor to execute all documents necessary to create the condominium regime as owner of the Improvements Parcel and the Adjacent Property. In the event Lessee after using its commercially reasonable efforts to form the condominium regime as soon as reasonably possible after the Closing Date, is unable to complete the condominium regime not later than one hundred and eighty (180) days immediately following the Closing Date then, at the sole option of Lessor, such attempts to create a condominium regime may be abandoned. Following creation of the condominium regime Lessee shall assume all of Lessor’s obligations as a condominium owner of the Improvements Parcel as are set forth in the condominium covenants, conditions and restrictions or otherwise established by separate document or by applicable law except to the extent inconsistent with the allocation of obligations between Lessor and Lessee as set forth in the Lease. The parties

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hereto hereby release each other from any and all claims arising out of or in connection with creation of the condominium regime and covenant not to sue each other in connection therewith; provided that each party hereby covenants to cooperate with one another and to take all action reasonably necessary to remediate any error which is subsequently discovered regarding development, creation or operation of the condominium regime.

ARTICLE 5

RENEWAL OPTIONS

Section 5.1. Renewal Options.

Lessor hereby grants to Lessee the option to extend the term of this Lease for the following periods (each, a “Renewal Term”):

(a) for two consecutive terms of five (5) years each and a third consecutive terms of four (4) years, the first commencing on the date that is the day after the expiration of the Base Term and ending on the fifth (5th) anniversary of the expiration of the Base Term (the “First Renewal Term”); the second (the “Second Renewal Term”) commencing on the day that is the day after the expiration of the First Renewal Term and ending on the fifth (5th) anniversary thereof and the third (“Third Renewal Term”) commencing on the day that is the day after the expiration of the Second Renewal Term and ending on the fourth (4^th) anniversary thereof (collectively, the “Renewal Terms”).

In order to exercise its option to extend this Lease for any Renewal Term, the Lessee shall give Lessor written notice of its intent to exercise its option to extend the term of this Lease not less than twelve (12) months prior to the expiration of the Base Term or the then current Renewal Term, time being of the essence. If Lessee fails to provide such notice for any Renewal Term Lessee will be deemed to have waived its right to renew.

(b) The monthly Base Rent for the Renewal Terms shall be as set forth on Schedule 3.1 hereof.

(c) The right of Lessee to extend the term of this Lease for any Renewal Term is contingent upon there not being any Lease Event of Default in existence on the date of Lessee’s exercise of such right or on the date that the Renewal Term commences.

5.2 Lease Provisions Applicable During Renewal. All the provisions of this Lease shall be applicable during each Renewal Term and the number of Renewal Terms shall be correspondingly reduced.

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ARTICLE 6

LESSEE’S ACCEPTANCE OF PROPERTY, ENFORCEMENT OF WARRANTIES

Section 6.1. Waivers. The Property is demised and let by Lessor “AS IS” in its present condition, subject to (a) the rights of any parties in possession thereof (other than rights, if any, granted by Lessor), (b) the state of the title thereto existing at the time of the commencement of the Lease Term (other than defects in, or exceptions to, title, if any, created by Lessor, but including liens created by the Mortgage and related debt documents), (c) any state of facts which an accurate survey or physical inspection might show, (d) all Applicable Laws, (e) any violations of Applicable Laws which may exist at the commencement of the Lease Term and (f) the presence of any Hazardous Materials at or under the Property or at or under any property in the vicinity of the Property. NONE OF LESSOR, LENDER OR ANY AFFILIATE THEREOF HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE VALUE, HABITABILITY, COMPLIANCE WITH ANY PLANS AND SPECIFICATIONS, CONDITION, DESIGN, OPERATION, LOCATION, USE, DURABILITY, MERCHANTABILITY, CONDITION OF TITLE, OR FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF) FOR ANY PARTICULAR PURPOSE, OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTY (OR ANY PART THEREOF) AND NONE OF LESSOR, ANY AFFILIATE THEREOF OR LENDER OR ANY DESIGNEE THEREOF SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR FOR THE FAILURE OF THE PROPERTY TO BE CONSTRUCTED IN ACCORDANCE WITH ANY PLANS AND SPECIFICATIONS THEREFOR, FOR THE COMPLIANCE OF THE PLANS AND SPECIFICATIONS FOR THE PROPERTY WITH APPLICABLE LAWS OR FOR THE FAILURE OF THE PROPERTY, OR ANY PART THEREOF, TO OTHERWISE COMPLY WITH ANY APPLICABLE LAWS. It is agreed that Lessee or an Affiliate of Lessee has occupied the Property as tenant or owner immediately prior to entering into this Lease, has inspected the Property, is satisfied with the results of its inspections of the Property and is entering into this Lease solely on the basis of the results of its own inspections and all risks incident to the matters discussed in the preceding sentence. The provisions of this Article 6 have been negotiated, and the foregoing provisions are intended to be a complete exclusion and negation of any representations or warranties by Lessor, any Affiliate thereof or a Lender, express or implied, with respect to the Property, that may arise pursuant to any law now or hereafter in effect, or otherwise and specifically negating any warranties under the Uniform Commercial Code.

Section 6.2. Lessee’s Right to Enforce Warranties.

(a) Lessor hereby assigns and sets over to, and Lessee hereby accepts the assignment of all of Lessor’s right, title and interest, and estate in, to and under, any and all warranties and other claims against dealers, manufacturers, vendors, contractors and subcontractors relating to the construction, use and maintenance of the Property or any portion thereof now existing or hereafter acquired (excluding from such assignment any such warranties and claims which by their terms are

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not assignable by Lessor without loss of some or all of the benefits of such warranties or claims); provided, however, that Lessor shall have no obligations under, or liabilities with respect to, any such warranties and claims.

(b) Lessor authorizes Lessee (directly or through agents) at Lessee’s expense to assert during the Lease Term, all of Lessor’s rights (if any) under any applicable warranty and any other claim that Lessee or Lessor may have against any dealer, vendor, manufacturer, contractor or subcontractor with respect to the Property or any portion thereof.

(c) Lessor agrees, at Lessee’s expense, to cooperate with Lessee and take all other action necessary as specifically requested by Lessee to enable Lessee to enforce all of Lessee’s rights (if any) under this Section 6.2, such rights of enforcement to be exclusive to Lessee, and Lessor will not, during the Lease Term, amend, modify or waive, or take any action under, any applicable warranty and any other claim that Lessee may have under this Section 6.2 without Lessee’s prior written consent.

ARTICLE 7

LIENS

Section 7.1. Liens. Lessee shall not directly or indirectly create, incur, assume or suffer to exist any Lien on or with respect to any and all of the Property, title thereto or any interest therein, to this Lease or the leasehold interest created hereby or to Rent actually paid to Lessor or the rentals payable with respect to the subletting of the Property (up to the amount of such rentals payable to Lessor hereunder), except Permitted Liens. Lessee shall promptly, but not later than sixty (60) days after receipt of notice of the filing thereof, at its own expense, take such action as may be necessary duly to discharge or eliminate or bond in a manner reasonably satisfactory to Lessor any such Lien (other than Permitted Liens); provided, however, Lessee may contest such Lien in good faith, upon satisfaction of the conditions contained in Section 8.6, below, and need not discharge or bond such Lien while so doing provided (i) Lessee has a long term unsecured debt rating equal to or above the Trigger Rating; (ii) no action to foreclose the Lien has been brought in any judicial or quasi-judicial action; and (iii) no Lease Event of Default is then continuing.

NOTHING CONTAINED IN THIS LEASE SHALL BE CONSTRUED AS CONSTITUTING THE CONSENT OR REQUEST OF LESSOR, EXPRESS OR IMPLIED, TO OR FOR THE PERFORMANCE BY ANY CONTRACTOR, LABORER, MATERIALMAN, OR VENDOR OF ANY LABOR OR SERVICES OR FOR THE FURNISHING OF ANY MATERIALS FOR ANY CONSTRUCTION, ALTERATION, ADDITION, REPAIR OR DEMOLITION OF OR TO THE PROPERTY OR ANY PART THEREOF, WHICH WOULD RESULT IN ANY LIABILITY OF LESSOR FOR PAYMENT THEREFOR. NOTICE IS HEREBY GIVEN THAT LESSOR WILL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE HOLDING AN INTEREST IN THE PROPERTY OR ANY PART THEREOF THROUGH OR UNDER LESSEE, AND THAT NO MECHANICS OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR IN AND TO THE PROPERTY.

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Notwithstanding the foregoing paragraph, Lessor agrees to reasonably cooperate with Lessee (without exposing its interest in the Property), at no cost to Lessor, to allow Lessee to perform alterations on the Property in accordance with Section 8.3.

ARTICLE 8

USE AND REPAIR

Section 8.1. Use. The Property may be used (“Permitted Use”) for any lawful purpose, except (a) for the operation of a public nuisance, or any other use that would materially increase the risk of Lessor incurring environmental liability, (b) for any use that would make it impossible to obtain or would invalidate any insurance policy of the Property, provided such policy is required to be maintained hereunder, (c) for any use that would involve the mining for, or removal of, any oil, gas or minerals, or (d) for any use that involves the storage, handling or processing of Hazardous Materials in violation of Applicable Law. Lessor agrees that Lessee may exercise the rights of Lessor under any property association now existing or hereafter existing, provided (i) Lessee takes no action which could result in either a violation of this Lease or a material adverse effect on the Property, and (ii) Lessee does not encumber the Property by any lien for the payment of money, which could survive expiration of the Lease, or execute documents on behalf of the Lessor unless such documents will not have a material adverse effect on the Property, or Lessor’s interest therein.

Section 8.2. Maintenance. Lessee, at its own expense, shall at all times, (i) maintain the Property in good condition and repair appropriate for its use, reasonable wear and tear excepted, and (ii) maintain the Property in accordance with the requirements of all insurance policies relating to the Property required to be maintained hereunder and in compliance with Applicable Laws and (iii) make repairs and Alterations of the Property necessary to keep the same in the condition required by the preceding clauses (i) and (ii), whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen and regardless of whether such expenditures would constitute capital expenses under GAAP if made by the owner of the Property; provided, if such repairs are structural and pursuant to Section 8.3 require the consent of the Lessor, Lessee shall obtain such consent before performing such repairs in accordance with the applicable provisions of Section 8.3 below. In no event shall Lessor be entitled to any management fee, supervisory fee, administrative fee, or any other fee payable by Lessee relating to its ownership of the Property.

Section 8.3. Alterations. (a) At any time and from time to time, after completion of the Improvements pursuant to the provisions of Article 4 of this Lease, and without Lessor’s consent, Lessee, at its sole cost and expense, may make (1) non-structural Alterations to the Property; (2) structural Alterations to the Property costing, for each scope of work, as reasonably determined by Lessee, less than the Threshold Amount with prior notice to Lessor; and (3) Structural Alterations in an amount, for each scope of work, as reasonably determined by Lessee, at or above the Threshold Amount after giving prior written notice to Lessor, and obtaining Lessor’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed; provided that no Alteration (whether consent is necessary or not) shall (i) impair in any material respect the utility, remaining useful life, or fair market value of the Property, in each case assuming that the Improvements are

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then being operated and maintained in accordance with this Article 8, or (ii) create a violation of this Lease, or (iii) increase in any material respect the risk of liability to the Lessor including any material risk of liability under any Environmental Laws, or (iv) materially and permanently reduce the rentable square footage of the Improvements, or (v) materially weaken, temporarily (other than during construction or repair of the structure) or permanently, the structure of the Improvements or any part thereof, or (vi) reduce the permitted uses thereof under applicable zoning or land use laws so as to reduce the fair market value of the Property. Notwithstanding the requirements for notice and consent set forth above, Lessee may, in good faith, make any repairs (structural or non-structural) required by virtue of an emergency, without satisfying any otherwise applicable notice and/or consent requirement, provided Lessee notifies Lessor of such repair (to the extent otherwise required) as promptly as is reasonably practical, after the emergency and obtains Lessor’s consent in the manner required in Section 8.3(c), below, to the repairs made, and otherwise satisfies the provisions of this Section 8.3, all as promptly as practicable. Lessor shall consent to any work already performed or being performed unless such work either violates the terms of this Lease or violates Applicable Law.

(b) Every Alteration shall comply with the following terms (which compliance shall be at Lessee’s sole cost and expense): (i) except (unless required by Applicable Law) for Alterations costing less than $2,000,000 (or $500,000.00 if Lessee does not have a Required Rating equal to at least the Trigger Rating) for each scope of work, as reasonably determined by Lessee, the Alteration shall be made with plans prepared by a certified architect or civil engineer who shall be licensed in the appropriate jurisdiction to the extent required for the filing of any plans in connection with such Alteration (which architect may be an employee of Lessee or its Affiliates), and shall be done under the supervision of such architect or engineer, or other reasonably capable person, and copies of such plans and specifications shall be delivered to Lessor prior to construction, (ii) the structural integrity of the existing Improvements will not be impaired upon completion of such work, (iii) Lessee shall obtain any licenses, approvals or permits required (including final approvals), copies of which shall be delivered to Lessor upon written request by such party, and (iv) such Alterations, except as permitted pursuant to an easement granted in accordance with subsection 8.3(d) of this Lease, will not encroach upon any adjacent premises. Lessor agrees to cooperate with Lessee (at no cost to Lessor) in signing permit applications and similar documents to the extent required for any Alteration. Lessee shall submit such applications or similar documents to Lessor to the extent Lessor’s approval is required for the subject Alteration. Lessee may execute such applications or similar documents on behalf of and (if necessary) in the name of, Lessor for all Alterations for which Lessor’s consent is not required, and for Alterations for which Lessor’s consent is required, has been granted, but Lessor does not execute such documents within 10 days of request therefore. Lessee shall promptly furnish Lessor with copies of all documents Lessee has signed on behalf of Lessor. Nothing herein shall be deemed to impose any liability or responsibility on Lessor for performance or payment of such Alteration. Any Claim asserted against or incurred by Lessor arising out of the foregoing shall be indemnified by Lessee pursuant to the terms of Section 19.1, below. In connection with any Alteration, Lessee shall perform and complete all work promptly and in a good, worker-like manner in compliance with Applicable Laws and the plans and specifications submitted to Lessor, if applicable. Lessee shall either (i) maintain or cause to be maintained at all times during construction builder’s all risks insurance and comprehensive general liability insurance required under this Lease naming Lessor and Lender as loss payees as their interests may appear under such

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property insurance, and as additional insureds under such liability insurance or (ii) self insure the risk otherwise insured by the policies required in subsection (i) hereof, which self insurance shall be subject to, and available only upon satisfaction of, the provisions of Section 9.1(b). In the event Lessor and Lessee cannot agree as to whether Lessor unreasonably withheld its consent to a proposed Alteration, the parties agree to submit such dispute to the American Arbitration Association in California for binding resolution in accordance with its expedited arbitration procedures.

(c) With respect to such structural Alterations for which Lessee must obtain the consent of Lessor pursuant to the terms of this Lease, Lessor shall each have fifteen (15) days after Lessee’s delivery of its request for consent, together with preliminary drawings and specifications for such Alterations, within which Lessor, may grant or not grant Lessee’s request for consent. If Lessor shall have not within such 15-day period responded to Lessee, Lessee may give a second notice which clearly shall state in bold-face type that the failure to respond within five (5) days shall be deemed consent. If Lessor shall not, within five (5) days after such second notice, notify Lessee that such consent will not be granted, such consent shall be deemed to have been granted. All reasonable out-of-pocket costs of review incurred by Lessor (whether or not the Alteration is approved) shall be paid by Lessee within thirty (30) days of receipt of an invoice therefore.

(d) Improvements may connect to and attach to the Existing Building leased to Lessee on the Adjacent Property. Lessor hereby consents to the construction of the Improvements as necessary to permit the attachment of the Improvements to the Existing Building, access between the Property and the Adjacent Property and shall include, without limitation, access between the Existing Building and the Improvements and to the execution of a party wall agreement upon completion of the Improvements to permit the continued existence of all connection points between the Improvements and the Existing Building all in a form reasonably acceptable to Lessor and Lessee and provided all of the following conditions are satisfied to Lessor’s reasonable satisfaction: (i) both the Improvements and the Existing Building shall be capable of complete independent operation and shall, upon completion of a demising wall be separate, independent fully operational buildings in compliance with all Applicable Laws (except that no computer or information technology room will be required as part of the Improvements), (ii) a cost sharing agreement shall have been executed allocating the cost for repair and replacement of all common areas, (iii) a date down title insurance policy shall have been issued by the Title Insurance Company subject only to the Permitted Encumbrances and (iv) Lessee indemnifies Lessor its successors and assigns from all losses Lessor may incur as a result of the construction and operation of the Alterations connecting the Improvements to the Existing Building. At Lessor’s request, submitted in writing at least sixty (60) days in advance, Lessee shall deliver the Property prior to the expiration or earlier termination of this Lease with a demising wall separating the Improvements and the Existing Building (to the extent permissible under Applicable Laws). Lessee shall be responsible for all costs and expenses in connection with the construction of the demising wall.

Section 8.4. Title to Alterations. Title to Alterations shall without further act vest in Lessor and shall be deemed to constitute a part of the Property and be subject to this Lease in the following cases:

(a) such Alteration shall be in replacement of or in substitution for a portion of the Improvements as of the date hereof,

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(b) such Alteration shall be required to be made pursuant to the terms of Section 8.2; or

(c) such Alteration shall be Nonseverable.

If an Alteration is not within any of the categories set forth in Section 8.4(a) through Section 8.4(c), then title to such Alteration shall vest in Lessee and shall be removed by Lessee to the extent required in accordance with Article 10 hereof. All Alterations to which title shall vest in Lessee as aforesaid, and all Lessee’s Equipment and Personalty, so long as removal thereof shall not result in the violation of any Applicable Laws or this Lease, may be removed at any time by Lessee, provided that Lessee shall, at its expense, repair any damage to the Property caused by the removal of such Alteration. Lessee shall provide “AS-BUILT” plans to Lessor for any structural Alterations within a single scope of work (as reasonably determined by Lessee) costing in excess of $2,000,000.00.

Section 8.5. Compliance with Law; Environmental Compliance.

(a) Lessee, at Lessee’s expense, shall comply, and shall cause its subtenants and other users of the Property to comply, in all material respects at all times with all Applicable Laws, including Environmental Laws. Such compliance includes, without limitation, Lessee’s obligation, at its expense, to take Remedial Action when required by Applicable Laws (in accordance with Applicable Laws, and this Lease) whether such requirement is now or hereafter existing, currently known or unknown to Lessee and/or Lessor, as and when such requirements are known to Lessee. Lessee shall not however, be responsible to take Remedial Action in connection with a Release caused solely by the active (but not passive) actions of Lessor or its employees, agents or contractors. In the event that Lessee is required or elects to enter into any plan relating to a Material Remedial Action in connection with the Property with respect to any Environment Laws, Lessee shall periodically apprise Lessor of the status of such remediation plan and, upon Lessor’s request, provide copies of all correspondence, plans, proposals, contracts and other documents relating to such plan or proposed plan. Lessee may in good faith contest the applicability or alleged liability under any Environmental Law to the Property, provided (i) such contest will not result in a lien, encumbrance or judgment against the Property or Lessor, (ii) such contest satisfies the conditions set forth in subsections 8.6(i), (ii), (iii), (iv), (v), (vi) and (vii), below, (iii) Lessee then has a Required Rating equal to or better than the Trigger Rating, and (iv) compliance with such Law will be satisfied as of the expiration date or earlier termination of the Lease, and if not completed by the expiration date, Lessee will continue to remain liable to comply with such Law and shall diligently prosecute such plan, and Lessor shall provide access to the Property to allow Lessee to finish its remediation plan. Lessee shall keep Lessor regularly apprised of the status of such contest. In all events Lessee must pay any cost, fine, penalty, assessment or other charge after the contest is either adversely decided or terminated voluntarily by Lessee or because it no longer has the right to contest pursuant to the terms of the Lease. In the event Lessee does not have a Required Rating equal to or in excess of the Trigger Rating, Lessee may nonetheless contest the applicability of any Environmental Law provided that Lessee and Lessor agree upon an Approved Environmental Consultant who shall, at Lessee’s sole cost and expense, prepare a report within sixty (60) days of being retained, which report shall state the costs the Approved Environmental Consultant reasonably

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believes is likely to be incurred by Lessee to comply with the Environmental Law in the event Lessee loses its contest. If, within thirty (30) days of receipt of said report, Lessee procures a letter of credit or other bonds in a form reasonably acceptable to Lessor or deposits cash with the Proceeds Trustee an amount equal to 110% of the cost estimated by the Approved Environmental Consultant to comply with the Environmental Law, Lessee may continue the contest, provided the other terms of this Section 8.5 are met. In the event Lessee loses the contest and is forced to incur costs to comply with the Environmental Law, the Proceeds Trustee shall dispense the amount retained by it pursuant to this paragraph from time to time, in accordance with the provisions of Section 12.4 below, with any balance remaining thereafter to be disbursed to Lessee provided no Lease Event of Default then exists and is continuing. Lessor and Lessee shall reasonably cooperate in selecting the Approved Environmental Consultant.

(b) Lessee shall notify Lessor promptly if (i) Lessee becomes aware of the presence or Release of any Hazardous Material at, on, under, emanating from, or migrating to, the Property in any quantity or manner, which could reasonably be expected to violate in any material respect any Environmental Law or give rise to any Material liability, or (ii) Lessee receives any written notice, claim, demand, request for information, or other communication from a Governmental Authority or a third party regarding the presence or Release of any Hazardous Material at, on, under, within, emanating from, or migrating to the Property or related to the Property which could reasonably be expected to violate in any material respect any Environmental Law or give rise to any Material liability. In connection with any actions undertaken by Lessee or at Lessee’s direction pursuant to this Lease, Lessee shall at all times comply with all applicable Environmental Laws and with all other Applicable Laws and shall use an Approved Environmental Consultant to perform any Remedial Action.

Section 8.6. Payment of Impositions.

(a) Lessee shall pay or cause to be paid all Impositions before any fine, penalty, premium, further interest (except as provided in the immediately succeeding sentence with respect to installments) or cost may be assessed or added for nonpayment, such payments to be made directly to the taxing authorities where feasible. If requested, Lessee shall deliver to Lessor copies of receipts, canceled checks or other documentation reasonably satisfactory to Lessor evidencing payment of Impositions to the extent Lessee maintains such documentation as part of its customary retention policy; provided, however, that Lessee shall maintain in its records evidence of payment of Taxes for a period of no less than four (4) years. If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (regardless whether interest shall accrue on the unpaid balance of such Imposition), Lessee may exercise the option to pay the same in installments, and in such event Lessee shall pay only those installments that become due and payable during the Lease Term or relate to the Lease Term, as the same become due and before any fine, penalty, premium, further interest or cost may be assessed or added thereto.

(b) Lessee shall pay to Lessor on each Rent Payment Date one-twelfth of the Taxes that Lessor estimates will be payable during the next ensuing twelve (12) months in order to accumulate with Lessor sufficient funds to pay all such Taxes at least thirty (30) days prior to their respective due dates and (said amounts are hereinafter called the “Tax Escrow Fund”). The Tax Escrow Fund

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and the other payments of Rent, shall be added together and shall be paid, monthly, as an aggregate sum by Lessee to Lessor. Lessor will apply the Tax Escrow Fund to payments of Taxes required to be made by Lessee pursuant to this Lease. In making any payment relating to the Tax Escrow Fund, Lessor may do so according to any bill, statement or estimate procured from the appropriate public office or from Lessee without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien or title or claim thereof, provided, however, Lessor shall use reasonable efforts to pay such real property taxes sufficiently early to obtain the benefit of any available discounts of which it has knowledge. If the amount of the Tax Escrow Fund shall exceed the amounts due for Taxes, Lessor shall, in its sole discretion, return any excess to Lessee or credit such excess against future payments to be made to the Tax Escrow Fund. Any amount remaining in the Tax Escrow Fund in excess of the Taxes payable by Tenant hereunder shall be promptly returned to Lessee upon the expiration or earlier termination of the Lease. If at any time Lessor reasonably determines that the Tax Escrow Fund is not or will not be sufficient to pay Taxes by the dates set forth above, Lessor shall notify Lessee of such determination and Lessee shall increase its monthly payments to Lessor by the amount that Lessor estimates is sufficient to make up the deficiency at least thirty (30) days prior to delinquency of the Taxes.

(c) Notwithstanding the foregoing paragraphs (a) and (b), Lessee shall have the right to contest any Imposition, subject to the following: (i) such contest shall be at its sole cost and expense, (ii) if the Imposition being contested is in the amount of $2,000,000.00 or more, Lessee shall provide prompt notice to Lessor of such Imposition and contest and the grounds thereof, and either (A) have a Required Rating equal to the Trigger Rating or (B) post a letter of credit or other bond in a form reasonably acceptable to Lessor or deposit cash with the Proceeds Trustee in an amount equal to 110% of the amount contested, as reasonably determined by the Lender, to the extent such contested Imposition is not paid to the applicable Governmental Authority, (iii) such contest shall be by appropriate legal proceedings conducted in good faith and with due diligence, (iv) such contest will operate to suspend the collection of, or other realization upon, such Imposition, from any Property or other interest of Lessor or from any Rent (or otherwise affect Lessee’s obligation to pay, and Lessor’s right to receive, Rent), (v) such contest will not adversely affect the Lender’s lien on any Property, or Lessor’s right to any Property (for purposes hereof, “adversely affecting” being deemed to mean such lien or Lessor’s right is subject to reasonable likelihood of extinguishment), (vi) such contest will not materially and adversely interfere with the possession, use or occupancy or sale of any Property, (vii) such contest will not subject Lessor or the Lender to any civil (other than for the amounts being contested) or criminal liability, (viii) Lessee shall not postpone the payment of any Imposition for such length of time as shall permit the Property to become subject to a lien created by such item being contested that is prior to the lien of the Mortgage (other than a lien of real property taxes which are already a first lien) and (ix) no Lease Event of Default is existing. Lessee shall pay any Imposition (and related costs) promptly after forgoing any contest or after receipt of a final non-appealable adverse judgment.

Section 8.7. Adjustment of Impositions. Impositions with respect to the Property for a billing period during which Lessee’s obligation to indemnify Lessor pursuant to this Lease expires or terminates as to the Property shall be adjusted and prorated on a daily basis between Lessor and Lessee, whether or not such Imposition is imposed before or after such expiration or

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termination, and Lessee’s and Lessor’s obligation to pay its pro rata share thereof shall survive such expiration or termination (to the extent, with respect to Lessor, it is obligated to reimburse Lessee for Impositions paid by Lessee for periods after expiration of the Lease Term). Lessor acknowledges that Lessee may bring any tax certiorari or other actions for refunds of Impositions or adjustments of Impositions for which Lessee is liable under this Lease, or relating to periods prior to the commencement date of the Term and Lessee shall be entitled to all such refunds; provided Lessee shall take no such action which could increase any Imposition for a period after the expiration of the Lease. During the Term, Lessor agrees to cooperate with Lessee in such proceedings, at no cost to Lessor.

Section 8.8. Utility Charges. Lessee shall pay or cause to be paid, directly to the party entitled, all charges for electricity, power, gas, oil, water, telephone, sanitary sewer services and all other utilities used in or on the Property prior to and during the Lease Term, and such obligation on the part of Lessee shall survive the expiration or earlier termination of this Lease until all such outstanding balances for services rendered prior to or during the term of this Lease have been paid. Any refunds of such charges attributable to the Term or the period prior to the commencement of the Term shall be the property of Lessee, and Lessor shall pay the same to Lessee promptly upon its receipt thereof. Lessee shall have the right to select all service providers for the Property. Lessor shall not be entitled to charge any fees associated with Lessee’s acquisition and/or use of utilities.

Section 8.9. Litigation; Zoning; Joint Assessment. Lessee shall give prompt written notice to Lessor of any litigation or governmental proceedings pending or threatened against Lessee or the Property of which Lessee has actual knowledge, which could reasonably be expected to materially adversely affect the condition or business of the Property. Without the prior written consent of Lessor, which consent shall not be unreasonably withheld, conditioned, or delayed, Lessee shall not initiate any zoning reclassification for the Property, or any portion thereof, or seek any variance under any existing zoning ordinances or use or permit the use of any portion of the Property in any manner that could result in such use becoming a non-conforming use under any zoning ordinance or any other Applicable Law. Lessee shall not initiate any proceeding to cause the Property to be jointly assessed with any other property or with any personal property of Lessee, or take any other action or initiate any proceeding which might cause the personal property of the Lessee to be taxed in a manner whereby such taxes or levies could be assessed against the Property.

ARTICLE 9

INSURANCE

Section 9.1. Coverage.

(a) Subject to Section 9.1(b), Lessee shall maintain insurance of the types and in the amounts set forth on Schedule 9.1 attached hereto and made a part hereof.

(b) So long as (i) no Lease Event of Default has occurred and is continuing and (ii) Lessee has a Required Rating at least equal to the Trigger Rating, Lessee shall be entitled to self-insure against any and all risks it would otherwise be required to insure against under Section 9.1(a), provided that such self-insurance program of this subsection (b) does not violate any Applicable Law. During any period that Lessee is self insuring, Lessee shall not be required to

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deliver any policies, certificates or other evidence of insurance other than a certificate of self-insurance acknowledging Lessee’s insurance obligation under the Lease, and confirming Lessee’s decision to self-insure (to the extent Lessee is in fact self insuring). If Lessee does not, or is not permitted to, self-insure, then (i) Lessee shall maintain a policy or policies of commercial general liability insurance with respect to the Property, and shall cause Lessor and the Lender to be named as an additional insured on such policy or policies and (ii) Lessee shall maintain a policy or policies of property insurance with respect to the Property, and Lessee shall cause Lessor and the Lender to be named loss payee as their interests may appear on such policy or policies, all in forms and amounts as set forth in Schedule 9.1.

(c) Nothing in this Article 9 shall prohibit the Lessee from maintaining at its expense insurance on or with respect to the Property, naming the Lessee as insured and/or loss payee for an amount greater than the insurance required to be maintained under this Section 9.1, unless such insurance would conflict with or otherwise limit the availability of or coverage afforded by insurance required to be maintained under Section 9.1. Nothing in this Section 9.1 shall prohibit the Lessor from maintaining at its expense other insurance on or with respect to the Property or the operation, use and occupancy of the Property, naming the Lessor as insured and/or payee, unless such insurance would conflict with, cause the Lessor to be a coinsurer or otherwise limit or adversely affect the ability to obtain, or the cost of the insurance required to be maintained under Section 9.1.

(d) Copies of any certificates required to be delivered under Schedule 9.1 shall be delivered to Lessor at the same time delivered to the Lender.

(e) Irrespective of the cause thereof, Lessor shall not be liable for any loss or damage to any buildings or other portion of the Property resulting from fire, explosion or any other casualty. In the event of Lessee’s failure to obtain or maintain the insurance called for under this Lease after notice and applicable grace, Lessor shall have the right, together with Lessor’s remedies set forth herein, to obtain the policies of insurance required under this Lease and to bill Lessee for the premium payments therefore, together with interest at the Default Rate. Lessor shall have no obligation to maintain insurance of any nature or type whatsoever.

(f) In the event Lessee elects to self-insure, it shall be obligated to use or pay to third parties, all amounts that Lessor, or such third party, would have received had Lessee not self-insured. The foregoing shall not, however, act as a limit on Lessee’s liability. Sums due from Lessee in lieu of insurance proceeds because of Lessee’s self-insurance program shall be treated as insurance proceeds for all purposes under this Lease.

(g) Each policy required to be carried by Lessee under this Lease shall also provide that any loss otherwise payable thereunder shall be payable notwithstanding any act or omission of Lessor or Lessee which might, absent such provision, result in a forfeiture of all or a part of such insurance payment.

(h) Lessee shall comply with all insurance requirements applicable under any insurance policies required to be maintained under this Lease.

(i) All insurance shall contain waivers of the right of subrogation.

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ARTICLE 10

RETURN OF PROPERTY TO LESSOR

Section 10.1. Return of Property to Lessor. Lessee shall, upon the expiration or termination of this Lease, and at its own expense, return the Property to Lessor by surrendering the same into the possession of Lessor:

(a) free and clear of all Liens (whether by payment or bonding), except that Lessee shall have no responsibility or liability in respect of (i) Lessor Liens, (ii) any Lien created by the Mortgage and related debt documents, and (iii) Liens for taxes not yet due and payable; and

(b) in compliance in all material respects with all Applicable Laws and in compliance with the maintenance conditions required by this Lease. All Alterations and Lessee’s Equipment and Personalty not removed by Lessee by the last day of the Lease Term (but in the event of a termination other than upon the expiration of the Base Term or any Renewal Term, within thirty (30) days after said termination of this Lease), other than those Alterations as to which title shall vest in Lessor pursuant to Section 8.4, shall be deemed abandoned in place by Lessee and shall become the property of Lessor. Lessee shall pay or reimburse Lessor for any reasonable, actual, out-of-pocket costs incurred by Lessor in connection with the removal or disposal of such relinquished property, which obligation shall survive the expiration or termination of this Lease. In no event shall Lessee be required to remove or pay for the removal of any built in, permanent fixtures or improvements existing on, or within, the Property as of the date of this Lease or for any raised computer floors built during the Term or for any other Alterations made in compliance with the terms of this Agreement, or for any cabling or wiring (or similar property) now or hereafter located on or in the Property.

Upon the return of the Property, Lessee shall deliver therewith:

(i) all transferable licenses and permits pertaining to the Property by general assignment, without warranty or recourse;

(ii) as built-drawings including plans for HVAC, mechanical and electrical systems, to the extent in Lessee’s possession and not previously delivered to Lessor, without warranty or recourse;

(iii) keys to the Property; and

(iv) assignment of all maintenance contracts (to the extent required by Lessor) and existing warranties applicable to the Property by general assignment, without warranty or recourse to the extent assignable.

Lessee agrees to reasonably cooperate with Lessor and its representatives to effectuate a smooth transition of the operation and maintenance of the Property. Notwithstanding anything

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expressly to the contrary hereunder, providing Lessee surrenders the Property and all Alterations and Equipment upon the expiration or termination of this Lease in compliance with all Applicable Laws, the failure to remove any of Lessee’s Alterations or Equipment in accordance with the provisions hereof shall not result in Lessee being deemed a holdover tenant hereunder.

ARTICLE 11

ASSIGNMENT BY LESSEE

Section 11.1. Assignment by Lessee. So long as no Lease Event of Default has occurred and is continuing, Lessee may, at Lessee’s sole expense, without the consent of Lessor, (but, except for assignments to an Affiliate of Lessee, not prior to occupancy by Lessee of the Improvements following construction thereof in accordance with the provisions of Article 4 of this Lease) assign this Lease for a period that does not extend beyond the Lease Term, to any Person, provided, however, that any such Person or other Person is not a debtor or debtor-in- possession in a voluntary or involuntary bankruptcy proceeding at the commencement of the assignment. For purposes hereof, an assignment shall include a merger or consolidation of Lessee. Any assignee shall assume in writing any obligations of Lessee arising from and after the effective date of the assignment, provided, however, that no such assignment shall become effective until (i) a fully executed copy of an assignment and assumption agreement shall have been delivered to Lessor and the Lender, and (ii) such assignee shall have executed such instruments and other documents and provided such further assurances as the Lender shall reasonably request to ensure that such assignment is subject to the Mortgage and any related debt documents. Notwithstanding any such assignment, Lessee shall not be released from its primary liability hereunder and shall continue to be obligated for all obligations of “Lessee” in this Lease, which obligations shall continue in full effect as obligations of a principal and not of a guarantor, as though no assignment had been made. Lessee will have the right, subsequent to any assignment (a) to receive a duplicate copy of each notice of default sent by Lessor to any assignee (but such notice shall be effective as against the Lessee, as well as any subsequent assignees, even if a copy has not been delivered to such requesting assignee), and (b) to cure any default by any assignee under the Lease within the cure period provided for hereunder. Lessee’s liability hereunder shall continue notwithstanding the rejection of this Lease by an assignee or any sublease of this Lease pursuant to Section 365 of Title 11 of the United States Code, any other provision of the Bankruptcy Code, or any similar law relating to bankruptcy, insolvency, reorganization or the rights of creditors, which arises subsequent to such assignment. In the event Lessee assigns this Lease and it shall thereafter be rejected in a bankruptcy or similar proceeding, a new lease identical to this Lease shall be re-instituted as between Lessor and Lessee without further act of either party, provided Lessor shall not be obligated to deliver to Lessee possession of the Property free of any tenancy created or caused by Lessee or any entity holding by or through Lessee but Lessee may, in Lessor’s name, but at Lessee’s expense, take such action as it deems appropriate to have such assignee removed from the Property. Lessor shall reasonably cooperate with Lessee in such efforts. Nothing herein shall be construed to permit Lessee to mortgage, pledge, hypothecate or otherwise collaterally assign in any manner or nature whatsoever Lessee’s interest under this Lease in whole or in part. Lessee shall provide written notice to Lessor and the Lender of any assignment of this Lease within thirty (30) days after the effective date thereof and an executed copy of the

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approved agreement of assignment and assumption within thirty (30) days after the execution thereof. To the extent an assignee of this Lease fails to perform on behalf of Lessee the obligations of Lessee hereunder, and Lessee performs such obligations, then Lessee shall be subrogated to the rights of Lessor as against such assignee in respect of such performance.

ARTICLE 12

LOSS; DESTRUCTION; CONDEMNATION OR DAMAGE

Section 12.1. Event of Loss. If there should be an Event of Loss after commencement but prior to completion of the construction of the Improvements, Lessee shall repair all damage, regardless of the availability of insurance proceeds and continue to pay all Rent without abatement of any kind. If there shall occur (i) an Event of Loss to the Existing Building pursuant to the terms of the Building Lease prior to substantial completion of the Improvements and the Lessee thereunder agrees to purchase the Affected Property pursuant to the terms of the Building Lease or (ii) an Event of Loss to the Improvements following substantial completion of construction of the Improvements (or with respect to condemnation prior to completion of construction of the Improvements) with respect to the Property (the “Affected Property (for purposes of this Lease, the Affected Property being the entire Property)”), Lessee shall give Lessor prompt written notice thereof and elect, within sixty (60) days after the occurrence of the Event of Loss, one of the following options:

(i) Offer to purchase the Affected Property from Ground Lessor, on a Rent Payment Date, (the “Stipulated Loss Value Date”), and which Rent Payment Date shall be the first Rent Payment Date at least forty (40) days after Ground Lessor accepts such offer, for a purchase price equal to the sum of (A) the Stipulated Loss Value for the Affected Property, determined as of such Stipulated Loss Value Date, plus (B) all unpaid Rent with respect to the Affected Property due but unpaid through such Stipulated Loss Value Date, plus (C) an amount equal to the reasonable out-of-pocket attorneys’ fees of Ground Lessor and Lessor relating to the purchase by Lessee as a result of such Event of Loss. Ground Lessor (subject to the consent of the Lender), shall have sixty (60) days from the date of receipt of Lessee’s offer to decide whether to reject such offer. If Lessee has not received a response after forty (40) days, it may send a second notice to the foregoing parties, stating clearly in boldface that Ground Lessor’s failure to reject such offer by the later of (i) the original sixty (60) day period, or (ii) ten (10) days after delivery of such second notice, shall be deemed Ground Lessor’s acceptance of such offer; or

(ii) Restore and rebuild the Improvements damaged as a result of such Event of Loss (regardless of the availability of any insurance proceeds) so as to have a value, utility and remaining useful life as nearly as reasonably practicable equal to the value, utility and remaining useful life of the Affected Property immediately prior to such Event of Loss, and in all events as required by Section 8.2, such restoration to be done as expeditiously as is commercially reasonable and to be substantially completed, subject to force majeure, within twenty four months from the date of the Event of Loss, and in any event by the expiration of the Lease Term (and Lessee shall remain liable for the completion of such restoration beyond the expiration of the Lease Term to the extent not completed prior to such expiration but Lessee’s obligation to complete the Improvements shall not constitute a holdover by Lessee, who shall be granted access to the Property for such completion).

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In the event, due to force majeure events, restoration cannot be completed by the expiration of the Term, Lessee shall diligently complete the restoration thereafter and shall be liable to pay Base Rent (based on the Base Rent in effect on the day prior to the expiration of the Term (on a per diem basis)) and Supplemental Rent, until such restoration is complete.

Notwithstanding the options described in subsections 12.1(i) and (ii) and following completion of construction of the Improvements if the Event of Loss occurs in the last two (2) years of the Term, Lessee shall have the right to terminate the Lease effective as of the date of delivery of a notice of termination to Lessor not later than sixty (60) days following the Event of Loss. Upon such termination Lessor shall be entitled to all insurance proceeds and Lessee shall credit Lessor with all deductible amounts and Rent until the effective date of such termination. Lessee shall not have the right to terminate this Lease if Lessee has exercised or intends to exercise its early termination right as provided for in the definition of Base Term. In other words Lessee does not, under any circumstances, have the right to exercise both rights of early termination and the right to terminate this Lease upon an Event of Loss pursuant to this paragraph.

If Lessee makes an offer to purchase pursuant to clause (i) above of this Section 12.1, and Ground Lessor accepts such offer or is deemed to accept such offer within the sixty (60) day period referred to in the last sentence of clause (i) above, the conveyance shall occur, and Lessee shall pay to Ground Lessor the Stipulated Loss Value and Rent described in said clause (i) on the Stipulated Loss Value Date; provided that any Net Proceeds related to the Affected Property then held by Ground Lessor or the Lender shall be credited against the portion of such purchase price payable to Ground Lessor and the balance of Net Proceeds, if any, shall be paid to or retained by Lessee. Concurrently with the payment in full of the amounts payable pursuant to said clause (i), the terms of Article 22 shall be complied with.

In the event Ground Lessor rejects the offer of Lessee to purchase the Affected Property as provided in clause (i) of this Section 12.1 (which it may not do without the Lender’s written consent unless it first pays to the Lender an amount sufficient to pay all amounts due Lender with respect to the Affected Property ), the following amount shall be paid to or retained by Lessor on such Stipulated Loss Value Date: (A) all Net Proceeds related to the Affected Property, provided that, if Lessee is self-insured (as permitted above) by means of deductibles, retained risks or no insurance whatsoever, Lessee shall pay such amounts or additional amounts so that Lessor receives in total (including any Net Proceeds) an amount that would have been paid by a third-party insurer under a customary commercial all-risk full replacement-value insurance policy substantially similar to that described in Schedule 9.01(a)(ii) without deductibles or retained risks (but in any case amounts paid to Lessor will not be in excess of the replacement value of the Improvements immediately preceding the Event of Loss, which replacement value shall be as mutually agreed between Lessee and Lessor and, failing such agreement within fifteen (15) days of the request of either party to do so, by the Appraisal Procedure), plus (B) unpaid Rent due with respect to the Affected Property on and through such Stipulated Loss Value Date.

Upon payment in full of the amounts set forth in clauses (A) and (B) of the preceding paragraph (in the event Ground Lessor rejected Lessee’s offer) or upon payment in full of the amounts set forth in clause (i) of the first sentence of this Section 12.1 and consummation of the sale to Lessee (or its designee) (in the event Ground Lessor accepted Lessee’s offer to purchase), (1) the

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Lease Term shall end, and (2) the obligations of Lessee hereunder (other than any obligations expressed herein as surviving termination of this Lease) shall terminate as of the date of such payment.

If Ground Lessor elects to reject the offer of Lessee hereunder to purchase the Property pursuant to this Section 12.1 while a Mortgage encumbers the Property, any notice of rejection shall only be effective, and Ground Lessor shall only be entitled to reject such offer, if such notice is in writing and either such rejection is concurrently consented to in writing by the Lender or Ground Lessor concurrently with delivery of its rejection notice pays to the Lender all amounts secured by the Mortgage with respect to the Affected Property, and reasonably evidences such payment to Lessee, and absent such repayment or consent by the Lender within the period referred to in the last sentence of clause (i) above, Ground Lessor shall be deemed to have accepted Lessee’s offer.

Section 12.2. Application of Payments Upon an Event of Loss When Lease Continues. Payments received at any time by Lessor or Lessee from any Governmental Authority or insurance carrier or other Person with respect to any Event of Loss following completion of construction of the Improvements in a case in which this Lease will not terminate (and there will occur no abatement or reduction of rent) because Lessee has elected to proceed under clause (ii) of Section 12.1, shall be paid to Lessee to be applied, as necessary, to the repair or restoration of the Property as described in clause (ii) of Section 12.1. Any excess insurance proceeds remaining thereafter shall be retained by Lessee. In the event of a condemnation which does not result in a termination of the Lease, the proceeds of the Condemnation award remaining after repair and restoration, to the extent the excess equals or exceeds $500,000.00, shall be paid to the Lessor. The first $500,000.00 of excess Condemnation proceeds shall be allocated between Lessor and Lessee as set forth on Schedule 12.2 attached hereto. In no event shall Rent be adjusted.

Section 12.3. Application of Payments Not Relating to an Event of Loss. In case of a Condemnation or Casualty which is not an Event of Loss or which does not result in a termination of this Lease in accordance with the above provisions of Article 12, this Lease shall remain in full force and effect, without any abatement or reduction of Rent. Subject to Section 12.4, all Net Casualty Proceeds and all Net Condemnation Proceeds, as the case may be, shall be paid to Lessee to be applied, as necessary, to the repair or restoration of the Property so such Property shall have a value, utility and remaining useful life as close as reasonably practicable to the value, utility and remaining useful life existing immediately prior to such Casualty or Condemnation. Any excess insurance proceeds remaining thereafter shall be retained by Lessee and any excess condemnation award remaining thereafter in excess of $500,000.00 shall be paid to Lessor. The first $500,000.00 of excess condemnation proceeds shall be divided by Lessor and Lessee as set forth on Schedule 12.2.

Section 12.4. Other Dispositions. Net Casualty Proceeds or Net Condemnation Proceeds, as the case may be, in excess of the Threshold Amount (each, as applicable, the “Restoration Fund”) in respect of such Casualty or Condemnation, as the case may be, shall be paid to the Proceeds Trustee for release to Lessee as restoration progresses, subject to and in accordance with Section 12.4(a). Lessor and Lessee hereby authorize and direct (i) any insurer, to make payment in excess of the Threshold Amount under policies of casualty insurance required to be maintained by Lessee pursuant to Section 9.1(a) directly to the Proceeds Trustee instead of to Lessor and Lessee jointly, and (ii) any Governmental Agency to make payments of any Net Condemnation Proceeds in

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excess of the Threshold Amount directly to the Proceeds Trustee instead of to Lessor and/or Lessee; and each of Lessee and Lessor hereby appoints the Proceeds Trustee as its attorney-in-fact to endorse any draft therefore for the purposes set forth in this Lease after approval by Lessee of the Proceeds Trustee, if the Proceeds Trustee is other than the Lender. In the event that a Casualty shall occur at such time as Lessee shall not have maintained property or casualty insurance to the extent required by said Section 9.1(a) (i.e., Lessee is self insuring in whole, or in part), Lessee shall be obligated to pay itself towards restoration the amount it self insures. Lessee shall be obligated to pay the Threshold Amount (or any amount it self-insured) towards restoration costs prior to the disbursement of any funds from the Restoration Fund.

(a) The Restoration Fund, if any, shall be disbursed by the Proceeds Trustee by wire transfer of immediately available funds within five (5) Business Days of the last submission made pursuant to and in accordance with the following conditions (provided that there shall be no more than one disbursement during each month):

(i) At the time of any disbursement, no Lease Event of Default shall exist and, subject to Article 7, no mechanics’ or materialmen’s liens shall have been filed and remain undischarged, unbonded or not insured over.

(ii) Disbursements (subject to the holdback in Section 12.4(a)(iv) below) shall be made from time to time in an amount not exceeding the hard and soft cost of the work and costs incurred since the last disbursement upon receipt of (1) satisfactory evidence, including architects’ certificates when required pursuant to Section 8.3, of the stage of completion, of the estimated cost of completion and of performance of the work to date in a good and workmanlike manner in accordance with the contracts, plans and specifications, (2) partial releases of liens from Lessee’s general contractor in respect of the disbursement made pursuant to the immediately preceding request, and (3) other reasonable evidence of cost incurred (whether or not paid) so that the Proceeds Trustee is able to verify that the amounts disbursed from time to time are represented by work that is completed in place or delivered to the site and free and clear of (subject to Article 7), mechanics’ and materialmen’s lien claims.

(iii) Each request for disbursement shall be accompanied by a certificate of Lessee (1) agreeing to use amounts disbursed for the costs described in Section 12.4(a)(ii), (2) describing the work, materials or other costs or expenses for which payment is requested, (3) stating the cost incurred in connection therewith, (4) stating that Lessee has paid costs and expenses for such work in an amount equal to the self insured and/or deductible amounts as permitted by Section 9.1(b) (and attaching thereto evidence thereof reasonable satisfactory to Lessor) and (5) stating that Lessee has not previously received payment for such work or expense and the certificate to be delivered by Lessee upon completion of the work shall, in addition, state that the work has been substantially completed and complies with the applicable requirements of this Lease.

(iv) The Proceeds Trustee shall retain ten percent (10%) of the amounts otherwise disbursable until the restoration is at least fifty percent (50%) complete, and thereafter five percent (5%) until the restoration is substantially complete.

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(v) The Restoration Fund shall be kept by the Proceeds Trustee in a separate interest-bearing federally insured account or invested in Permitted Investments (as directed by, or on behalf of, Lessee).

(vi) Prior to commencement of restoration and at any time during restoration, if the estimated cost of restoration, as reasonably determined by the Proceeds Trustee, exceeds the then amount of the Restoration Fund, Lessee shall fund at its own expense the costs of such restoration until the remaining Restoration Fund is sufficient for the completion of the restoration. In the case of Casualty, any sum in the Restoration Fund which remains in the Restoration Fund upon the completion of restoration shall be paid to Lessee. In the case of Condemnation, any sum in the Restoration Fund which remains in the Restoration Fund upon the completion of restoration shall be applied as set forth in Section 12.2.

Section 12.5 Negotiations. In the event the Property becomes subject to condemnation or requisition proceedings, Lessee shall control the negotiations with the relevant Governmental Authority, unless: (i) a Lease Event of Default shall be continuing, or (ii) the Net Condemnation Proceeds will likely be in excess of the Threshold Amount (which determination shall be made in Lessor’s reasonable discretion), in which case Lessor may elect in writing to control such negotiations; provided that in any event Lessor may elect to participate in such negotiations. Lessee shall give to Lessor and the Lender such information, and copies of such documents, which relate to such proceedings and are in the possession of Lessee, as are reasonably requested by Lessor or the Lender. Lessor shall confer with Lessee as to any negotiations with Governmental Authorities material to Lessee’s operations and shall not agree to any act that would have a material adverse effect on Lessee’s business. Notwithstanding the foregoing, in jurisdictions where a separate award may be granted for Lessee’s Equipment and Personalty, moving and relocation expenses, business loss, business damages, loss of goodwill, unamortized costs of any Alterations title for which has not vested in Lessor pursuant to the terms of this Lease, and Lessee’s attorneys’ fees, costs and expenses in the proceedings, Lessee may assert claims for and control the negotiations pertaining to such interests, provided that the Lessor’s award in respect to the Property is not diminished by the award to Lessee. Lessee acknowledges that no payments shall be permitted hereunder other than on a Rent Payment Date.

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ARTICLE 13

INTENTIONALLY OMITTED

ARTICLE 14

SUBLEASE

Section 14.1. Subleasing Permitted; Lessee Remains Obligated. Provided that no Lease Event of Default shall have occurred and be continuing at the time the sublease is entered into, upon fifteen (15) days’ prior written notice to Lessor (except for subleases to Affiliates, in which case no notice shall be required), Lessee may at any time (but, except for a sublet to an Affiliate, not prior to occupancy by Lessee of the Improvements following construction of the Improvements in accordance with the provisions of Article 4) and from time to time sublease the Property or any portion or portions thereof to any Person or permit the occupancy of the Property or any portion or portions thereof by any Person who is not a debtor or debtor-in-possession in a voluntary or involuntary bankruptcy proceeding at the commencement of the sublease term. Any such sublease, sub-sublease, license, occupancy agreement or similar agreement (each, a “Sublease”) shall not release Lessee from its primary liability for the performance of its duties and obligations hereunder, and Lessee shall continue to be obligated for all obligations of “Lessee” in this Lease, which obligations shall continue in full effect as obligations of a principal and not of a guarantor, as though no Sublease had been made. From time to time, but in no event more than once annually, upon Lessor’s request, Lessee shall forward to Lessor the names, businesses and square footage leased (or location) of all subtenants (other than Subleases to Affiliates).

Section 14.2. Provisions of Subleases. Each Sublease will:

(a) be expressly subject and subordinate to this Lease and any mortgage (including (the Mortgage) encumbering the Property;

(b) not extend beyond the Lease Term minus one day; and

(c) terminate upon any termination of this Lease, unless Lessor elects in writing (which election must be consented to by the Lender), to cause the sublessee to attorn to and recognize Lessor as the Lessor under such Sublease, whereupon such Sublease shall continue as a direct lease between the sublessee and Lessor upon all the terms and conditions of such Sublease (it being agreed that all Subleases with Affiliates of Lessee shall automatically terminate upon termination of this Lease).

Section 14.3. Assignment of Sublease Rents. To secure the prompt and full payment by Lessee of the Rent and the faithful performance by Lessee of all the other terms and conditions herein contained on its part to be kept and performed, Lessee hereby absolutely, presently assigns, transfers and sets over unto Lessor, subject to the conditions hereinafter set forth in this Section 14.3, all of Lessee’s right, title and interest in and to all Subleases, and hereby confers upon Lessor, its agents and representatives, a right of entry in, and sufficient possession of, the Property to permit and ensure the collection by Lessor of the rentals and other sums payable under the Subleases, and further agrees that the exercise of the right of entry and qualified possession by Lessor shall not

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constitute an eviction of Lessee from the Property or any portion thereof; provided, however, that Lessee shall continue to have the right to collect, use, enjoy and distribute all Sublease revenue (a) except during the continuance of a Lease Event of Default, or (b) until this Lease and the Lease Term shall be canceled or terminated pursuant to the terms, covenants and conditions hereof, or (c) until there occurs repossession under a dispossess warrant or other judgment, order or decree of a court of competent jurisdiction and then only as to such of the Subleases that Lessor may elect to take over and assume. Notwithstanding the foregoing, if the events described in Section 14.3(b) and Section 14.3(c) herein above have not occurred and if the Lease Event of Default which caused such collection of revenue by Lessor shall have been cured by Lessee or otherwise not continue to exist, upon the written demand of Lessee, Lessor shall cease to exercise the rights granted hereunder to Lessor with respect to the Subleases, and amounts collected under the Subleases and not applied to Lessee’s obligations hereunder shall promptly be paid over to Lessee.

ARTICLE 15

INSPECTION

Section 15.1. Inspection. Upon at least five (5) Business Days’ prior written notice to Lessee (or immediately if a Lease Event of Default shall be continuing) Lessor or its respective representatives and agents (each, an “Inspecting Party”), may, in a commercially reasonable manner and at their own risk, inspect the Property, during normal business hours, to verify compliance with the provisions of this Lease. No Sublease shall contain any restrictions on inspection other than as set forth herein. The Inspecting Party shall repair any damage caused by any inspection performed pursuant to Section 15.1. Unless a Lease Event of Default is continuing, no intrusive tests are permitted. Lessee shall have the right during such inspection to have its representatives present at any such inspection, including security guards. In addition, Lessee may designate one or more reasonably sized “secure areas” to which Lessor or Lender shall have no access, except during the continuance of a Lease Event of Default. Each Inspecting Party agrees to hold in confidence all proprietary information and trade secrets of which it becomes aware during such inspection. All such inspections shall be at Lessor’s expense, unless a Lease Event of Default occurs and is continuing. Further, upon fifteen (15) Business Days’ prior notice to Lessee, but no more than once annually, the Inspecting Parties, at their expense, may inspect the books and records as they relate to the maintenance and care of the Property during the term of this Lease (other than Lessee’s Equipment and Personalty), that are in the possession of Lessee, which shall be made available at the Property or the headquarters of the Lessee. Such inspection shall be at the cost of the Inspecting Party unless a Lease Event of Default exists, in which event Lessee shall pay such costs.

ARTICLE 16

LEASE EVENTS OF DEFAULT

Section 16.1. Lease Events of Default. The following events shall constitute a “Lease Events of Default”:

(a) Lessee shall fail to make any payment of Base Rent, within five (5) Business Days after notice that such amount is due and unpaid;

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(b) Lessee shall fail to make any late payment and/or pay interest at the Default Rate within ten (10) days after notice that such amount is due and unpaid;

(c) Lessee shall fail to make any other payment of Supplemental Rent, other than any amount described in clause (a) or clause (b) of this Article 16, and such failure shall continue for a period of ten (10) days after notice of such failure to Lessee from Lessor or Lender;

(d) Lessee shall fail to timely perform or observe any covenant or agreement (not otherwise specified in this Article 16) to be performed or observed by it hereunder and such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor or the Lender; provided that the continuation of such a failure for thirty (30) days or longer after such notice shall not constitute a Lease Event of Default if such failure can be cured, but cannot reasonably be cured within such thirty (30) day period, and Lessee shall commence to cure such failure within such thirty (30) day period and shall be diligently and continuously prosecuting the cure of such failure.

(e) except to the extent the Lessee is permitted to self-insure pursuant to Section 9.1(b) and Schedule 9.1, Lessee shall fail to carry or maintain in full force any insurance required hereunder, and such failure shall continue for ten (10) business days after such obligations arises. but not beyond the expiration date of any required policy of insurance;

(f) any representation or warranty made by the Lessee herein shall prove to have been incorrect in any material respect when such representation or warranty was made and shall remain materially incorrect at the time in question, and is not cured in all material respects within thirty (30) days of notice to Lessee of such breach; provided that the continuation of such a failure for thirty (30) days or longer after such notice shall not constitute a Lease Event of Default if such failure can be cured, but cannot reasonably be cured within such thirty (30) day period, and Lessee shall commence to cure such failure within such thirty (30) day period and shall be diligently and continuously prosecuting the cure of such failure.

(g) (A) Lessee makes any general arrangement or assignment for the benefit of creditors; (B) Lessee becomes a “debtor” as defined in 11 U.S.C. § 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within ninety (90) days); (C) the appointment of a trustee or receiver to take possession of substantially all of the assets of Lessee where possession is not restored to Lessee within ninety (90) days; (D) the attachment, execution or other judicial seizure of substantially all of the assets of Lessee where such seizure is not discharged within ninety (90) days; (E) Lessee admits in writing its inability to pay its debts generally as they become due; (F) Lessee files a petition or answer seeking reorganization or arrangement or other protection under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any State thereof; (G) Lessee is liquidated or dissolved, or placed under conservatorship or other protection under any applicable federal or state law; (H) any petition is filed by or against Lessee under Federal bankruptcy laws, or any other proceeding is instituted by or against Lessee seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to

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bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for Lessee, or for any substantial part of the property of Lessee, and such proceeding is not dismissed within ninety (90) days after institution thereof, or Lessee shall take any action to authorize or effect any of the actions set forth above in this subsection (g).

(h) Lessee shall commit a Lessee Event of Default under the Building Lease.

ARTICLE 17

ENFORCEMENT

Section 17.1. Remedies. Upon the occurrence of any Lease Event of Default and at any time thereafter so long as the same shall be continuing, Lessor may, at its option, by notice to Lessee do one or more of the following as Lessor in its sole discretion shall determine:

(a) Lessor may, by notice to Lessee, terminate this Lease as of the date specified in such notice; provided (i) no reletting, reentry or taking of possession of any or all of the Property by Lessor will be construed as an election on Lessor’s part to terminate this Lease unless a written notice of such intention is given to Lessee, (ii) notwithstanding any reletting, reentry or taking of possession, Lessor may at any time thereafter elect to terminate this Lease with respect to any or all of the Property, and (iii) no act or thing done by Lessor or any of its agents, representatives or employees and no agreement accepting a surrender of any or all of the Property shall be valid unless the same be made in writing and executed by Lessor. If Lessor shall have terminated the Lease, Lessor may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, the amounts set forth in subparagraphs (c) or (e) below.

(b) Lessor may whether or not the Lease is terminated (i) demand that Lessee, and Lessee shall upon the written demand of Lessor, return the Property promptly to Lessor in the manner and condition required by, and otherwise in accordance with all of the provisions of, Article 10 as if the Property were being returned at the end of the Lease Term, and Lessor shall not be liable for the reimbursement of Lessee for any costs and expenses incurred by Lessee in connection therewith, and (ii) without prejudice to any other remedy which Lessor may have for possession of the Property, enter upon the Property and take immediate possession of (to the exclusion of Lessee) the Property and expel or remove Lessee and any other person who may be occupying the same (subject to the terms of any nondisturbance agreements with Lessor in favor of any subtenants), by summary proceedings or otherwise, all without liability to Lessor for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise and, in addition to Lessor’s other damages, Lessee shall be responsible for the reasonably necessary costs and expenses of reletting actually incurred.

(c) Lessor may sell the Property at public or private sale, as Lessor may determine, free and clear of any rights of Lessee and without any duty to account to Lessee with respect to such action or inaction or any proceeds with respect thereto (except to the extent required by the next succeeding sentence if Lessor shall elect to exercise its rights thereunder), in which event Lessee’s obligation to pay Base Rent hereunder for periods commencing after the Stipulated Loss Value Date

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next succeeding the date of such sale shall be terminated. If Lessor shall have sold any of the Property pursuant to the above terms of this Section 17.1(c), Lessor may demand that Lessee pay to Lessor, and Lessee shall promptly pay to Lessor, on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (the parties agreeing that Lessor’s actual damages would be difficult to predict, but the liquidated damages described below represent a reasonable approximation of such amount), in lieu of Base Rent in respect of the Property due for the period commencing on the Stipulated Loss Date next succeeding the date of sale, an amount equal to the sum of:

(1) all unpaid Rent with respect to the Property due but unpaid through such Stipulated Loss Date; plus

(2) an amount equal to the present value of the amount of the Base Rent payments payable on the Business Day before the date preceding the remaining scheduled Rent Payment Dates, discounted monthly at the Reference Rate;

(3) interest at the Default Rate on all of the foregoing amounts from the date due until the date of actual payment;

to the extent such amount exceeds the net proceeds of such sale.

(d) Except as Lessor may otherwise be required by Applicable Laws, Lessor may hold, keep idle or lease to others the Property as Lessor in its sole discretion may determine, free and clear of any rights of Lessee and without any duty to account to Lessee with respect to such action or inaction or for any proceeds with respect to such action or inaction, except that Lessee’s obligation to pay Base Rent from and after the occurrence of a Lease Event of Default, but prior to the termination of the Lease or the foreclosure of the Lien of the Lender, shall be reduced by the net proceeds, if any, received by Lessor from leasing the Property to any Person, or allowing any Person to use the Property, other than Lessee for the same periods or any portion thereof,

(e) Lessor may, whether or not Lessor shall have exercised or shall thereafter at any time exercise any of its rights under Section 17.1(b) or 17.1(d), but only if the Property shall not have been sold under Section 17.1(c), demand, by written notice to Lessee specifying a Stipulated Loss Value Date (the “Final Payment Date”) not earlier than twenty (20) days after the date of such notice, that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the Final Payment Date, as liquidated damages for loss of a bargain and not as a penalty (the parties agreeing that Lessor’s actual damages would be difficult to predict, but the aforementioned liquidated damages represent a reasonable approximation of such amount), in lieu of Base Rent for periods commencing after the Final Payment Date, an amount equal to the sum of:

(1) all unpaid Rent with respect to the Property due but unpaid through such Stipulated Loss Value Date; plus

(2) an amount equal to the present value of the amount of the Base Rent payments payable on the Business Day before the dates preceding the remaining scheduled Rent Payment Dates, discounted monthly at the Reference Rate;

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(3) interest at the Default Rate on all of the foregoing amounts from the date due until the date of actual payment.

(f) Lessor may retain and apply against Lessor’s damages all sums which Lessor would, absent such Lease Event of Default, be required to pay to, or turn over to, Lessee pursuant to the terms of this Lease; or

(g) Lessor may exercise any other right or remedy that may be available to it under Applicable Laws or in equity, or proceed by appropriate court action (legal or equitable) to enforce the terms hereof or to recover damages for the breach hereof. A single or separate suits may be brought to collect any such damages for any period or periods with respect to which Rent shall have accrued, and such suits shall not in any manner prejudice Lessor’s right to collect any such damages for any subsequent period, or Lessor may defer any such suit until after the expiration of the Base Term or the then current Renewal Term, in which event such suit shall be deemed not to have accrued until the expiration of the Base Term, or the then current Renewal Term.

Section 17.2. Survival of Lessee’s Obligations. Except to the extent prohibited by Applicable Laws, no repossession of any or all of the Property or exercise of any remedy under this Lease, including termination of this Lease, shall, except as specifically provided herein, relieve Lessee of any of its liabilities and obligations hereunder, including the obligation to pay Rent. In addition, except as specifically provided herein, Lessee shall be liable for any and all unpaid Rent due hereunder before, after or during the exercise of any of the foregoing remedies, including all reasonable legal fees and other costs and expenses incurred by Lessor by reason of the occurrence of any Lease Event of Default or the exercise of Lessor’s remedies with respect thereto, and including all costs and expenses incurred in connection with the return of the Property in the manner and condition required by, and otherwise in accordance with the provisions of, Article 10 as if the Property were being returned at the end of the Lease Term. At any sale of any or all of the Property or any other rights pursuant to Section 17.1, Lessor or the Lender may bid for and purchase the Property.

Section 17.3. Remedies Cumulative; No Waiver; Consents; Mitigation of Damages. To the extent permitted by, and subject to the mandatory requirements of, Applicable Laws, each and every right, power and remedy herein specifically given to Lessor or otherwise in this Lease shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by Lessor, and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any right, power or remedy. No delay or omission by Lessor in the exercise of any right, power or remedy or in the pursuit of any remedy shall impair any such right, power or remedy or be construed to be a waiver of any default on the part of Lessee or to be an acquiescence therein. Lessor’s consent to any request made by Lessee shall not be deemed to constitute or preclude the necessity for obtaining Lessor’s consent, in the future, to all similar requests. No express or implied waiver by Lessor of any Lease Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Lease Event of Default. Lessor shall use reasonable efforts to mitigate any damages suffered by Lessor that result from a Lease Event of Default.

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ARTICLE 18

RIGHT TO PERFORM FOR LESSEE

Section 18. 1. Right to Perform for Lessee. If Lessee shall fail to perform or comply with any of its agreements contained herein, following applicable notice and cure periods, Lessor may perform or comply with such agreement, and Lessor shall not thereby be deemed to have waived any default caused by such failure, and the amount of payment required to be made by Lessee hereunder and made by Lessor on behalf of Lessee, and the reasonable out-of-pocket third-party costs and expenses of Lessor (including reasonable attorneys’ fees and expenses) incurred in connection with the performance of or compliance with such agreement, as the case may be, together with interest thereon at the Default Rate, shall be deemed Supplemental Rent, payable by Lessee to Lessor upon demand. In addition, during the continuance of a Lease Event of Default in respect of Lessee’s obligations under Section 8.2 and/or Section 8.5, then, in addition to the rights above and at the cost of Lessee, (a) Lessor shall have the right to hire Persons (as selected by Lessor in its reasonable discretion) to cure such Lease Event of Default, and to take any and all other actions necessary to cure such Lease Event of Default, and (b) Lessee shall cooperate with Lessor, and the Persons hired by Lessor, in the performance of such cure, including, without limitation, (i) providing access to the subject Property at reasonable times every day of the week, (ii) making available water, electricity and other utilities existing at or on the subject Property, and (iii) restricting or closing the Property, but only if such restriction or closure is reasonably necessary for the performance of such cure and provided that such closure shall be done for and during a time period and in such manner that balances the need for the maintenance or repair of the Property (and doing so in a safe manner) and the continuing operations of the Property.

ARTICLE 19

INDEMNITIES

Section 19.1. General Indemnification.

(a) Lessee agrees to indemnify, defend, and keep harmless each Indemnitee, from and against any and all Claims arising out of acts, or failures to act, prior to the expiration or earlier termination of the Term (whether during the Lease Term, or prior to the Closing Date), whenever they may be suffered, imposed on or asserted against any Indemnitee, to the extent arising out of (i) the ownership, leasing, subleasing, assignment, financing, refinancing, renewal, return, operation, possession, use, non-use, maintenance, modification, alteration, reconstruction, restoration, or replacement of the Property or the Lease, or from the granting by Lessor at Lessee’s request of easements, licenses or any similar rights with respect to all or any part of the Property, or from the construction, design, purchase or condition of the Property (including any Claims (whether by Governmental Authority or other Person) arising, directly or indirectly, out of the actual or alleged presence, use, storage, generation, Release or threat of Release of any Hazardous Materials, and any Claims for patent, trademark or copyright infringement and latent or other defects, whether or not discoverable), including any liability under Applicable Laws (including, without limitation, any

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Claims arising directly or indirectly out of any actual or alleged violation, now or hereafter existing, of any Environmental Laws), (ii) this Lease or any modification, amendment or supplement thereto, to the extent arising out of the operation, maintenance, use or possession of the Property whether before or after the Closing Date, (iii) the non-compliance of the Property with Applicable Laws (including because of the existence of the Permitted Liens), (iv) without limiting any other indemnities herein, any other matters relating to the Property or any operations thereon, and not already covered by this Section 19.1(a), to the extent such matters arise out of the operation, maintenance, use or possession of the Property by Lessee, whether before or after the Closing Date, including matters relating to Environmental Laws or Hazardous Materials, the breach by Lessee of its representations, warranties, covenants and obligations in this Lease whether or not such Claim arises or accrues prior to the date of this Lease, (v) the business and activities of Lessee, except to the extent arising out of relationships not related to this transaction, (vi) the cost of any Remedial Action, assessment, containment, monitoring, treatment and/or removal of any and all Hazardous Materials from all or any portion of the Property or any surrounding areas over which Lessee has responsibility, the cost of any actions taken in response to a release or threat of release of any Hazardous Materials on, in, under, relating to or affecting any portion of the Property or any surrounding areas over which Lessee has responsibility to prevent or minimize such release or threat of release so that it does not migrate or otherwise cause or threaten danger to present or future public health, safety, welfare or the environment, and costs incurred to comply with Environmental Laws in connection with all or any portion of the Property or any surrounding areas over which Lessee has responsibility, (vii) a Lease Default or a Lease Event of Default, (viii) any litigation, suit, cause of action, writ, decree, injunction, order, judgment, proceeding or Claim now or hereafter asserted against the Property, Lessor (by virtue of its ownership of, leasing or financing of the Property), or Lessee with respect to the Property or this Lease, and (ix) any defects in title caused, created or permitted by Lessee, or anyone acting by, through or under Lessee. Lessee acknowledges that the foregoing includes any costs incurred by Lessor, or the Lender in performing any inspections of any Property if such inspection reveals a violation by Lessee of Section 8.5. Lessee shall not be required to indemnify any Indemnitee under this Section 19.1 for any Claim to the extent resulting from (A) the willful misconduct or negligence or breach of representation or warranty of such Indemnitee or a member of such Indemnitee’s Group, (B) any amounts payable to Lender unless such amounts are payable by Lessee under this Lease, (C) any acts or events to the extent first occurring after the expiration of the Lease Term and return of the Property to Lessor in the condition required in this Lease (but any indemnification first arising after the expiration of the Term (and not otherwise covered hereby) shall include only those matters relating to Lessee’s failure to return the Property in the condition required), (D) any taxes, except to the extent covered in Sections 8.6 of this Lease, (E) any voluntary transfers of the Property made by Ground Lessor or Lessor (other than arising out of a Lease Event of Default by Lessee), and (F) any voluntary transfer made by the Lender. Lessee shall be entitled to credit against any payments due under this Section 19.1 any insurance recoveries or other reimbursements received by the Indemnitee to be indemnified in respect of the related Claim under or from insurance paid for, directly or indirectly, by Lessee or assigned to Lessor by Lessee, to the extent such insurance recoveries exceed such Indemnitee’s costs and expenses incurred in recouping such insurance recovery.

(b) In case any Claim shall be made or brought against any Indemnitee, such Indemnitees shall give prompt notice thereof to Lessee, provided that failure to so notify Lessee shall not reduce

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Lessee’s obligations to indemnify any Indemnitee hereunder unless and only to the extent such failure results in additional liability on Lessee’s part. Lessee shall be entitled, at its expense, acting through counsel selected by Lessee (and reasonably satisfactory to such Indemnitee), to participate in, and, to the extent that Lessee desires, to assume and control, the negotiation, litigation and/or settlement of any such Claim (subject to the provisions of the last sentence of subparagraph (c) of this Section 19.1). Such Indemnitee may (but shall not be obligated to) participate in a reasonable manner at its own expense (unless Lessee is not properly performing its obligations hereunder) and with its own counsel in any proceeding conducted by Lessee in accordance with the foregoing. If Lessee shall defend the Indemnitee in any such suit or proceeding, then, unless such Indemnitee shall determine (in its reasonable discretion) that a conflict of interest exists between Lessee and such Indemnitee, Lessee shall not be obligated to reimburse the Indemnitee for the cost of such Indemnitee’s attorneys’ fees or expenses incurred in connection with such suit or proceeding.

(c) Each Indemnitee shall at Lessee’s expense supply Lessee with such information and documents reasonably requested by Lessee in connection with any Claim for which Lessee may be required to indemnify any Indemnitee under this Section 19.1. Unless a Lease Event of Default is continuing, no Indemnitee shall enter into any settlement or other compromise with respect to any Claim for which indemnification is required under this Section 19.1 without the prior written consent of Lessee. Lessee shall have the authority to settle or compromise any Claim against an Indemnitee hereunder, provided that no admission of wrongdoing shall be required of such Indemnitee and such Indemnitee shall be released of all liability in connection with any such Claim.

(d) Upon payment in full of any Claim by Lessee pursuant to this Section 19.1 to or on behalf of an Indemnitee, Lessee, without any further action, shall be subrogated to any and all claims that such Indemnitee may have relating thereto, and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be necessary to preserve any such claims and otherwise reasonably cooperate with Lessee to enable Lessee to pursue such claims.

(e) Prior to paying any amount otherwise payable to an Indemnitee pursuant to this Section 19.1, Lessee shall be entitled to receive from such Indemnitee (i) a written statement describing the amount so payable, (ii) a general release from Indemnitee upon such payment with respect to the claim made and (iii) such additional information as Lessee may reasonably request and which is reasonably available to such Indemnitee to properly substantiate the requested payment.

(f) Subject to the penultimate sentence of Section 19.1(a) above, Lessee’s liability hereunder shall in no way be limited or impaired by any act, including, without limitation, (i) any amendment or modification to the Lease, (ii) any waiver of any Lease Event of Default, default, or extension of time or any failure to enforce any remedies or rights of either Lessor or Lender, (iii) any sale or transfer of the Property, or (iv) any assignment of the Lease.

Section 19.2 Lessor’s Indemnification Obligation. Lessor agrees to indemnify, defend, and hold harmless the Lessee, from and against any and all loss incurred by Lessee resulting from

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Claims arising out of active actions prior to the expiration or earlier termination of the Term, to the extent arising solely out of Lessor’s or Ground Lessor’s (or either of their employees, agents or contractors) willful misconduct or gross negligence.

ARTICLE 20

LESSEE REPRESENTATIONS AND COVENANTS

Section 20.1. Representations and Warranties. Lessee represents and warrants to Lessor that the following are true and correct as of the Closing Date:

(a) Due Organization. Lessee is a corporation duly organized, validly existing and in good standing in the State of California and qualified to do business in, and in good standing, in the State of California. Lessee has the corporate power and authority to conduct its business as now conducted, to lease the Property and to enter into and perform its obligations under the Lease. Lessee is duly qualified to do business and is in good standing as a foreign corporation in any jurisdiction where the failure to so qualify would have a material adverse effect on its ability to perform its obligations under the Lease.

(b) Due Authorization; No Conflict. The Lease has been duly authorized by all necessary corporate action on the part of Lessee and has been duly executed and delivered by Lessee, and the execution, delivery and performance thereof by Lessee will not, (i) require any approval of the stockholders of Lessee or any approval or consent of any trustee or holder of any indebtedness or obligation of Lessee, other than such consents and approvals as have been obtained, (ii) contravene any Applicable Law binding on Lessee or (iii) contravene or result in any breach of or constitute any default under Lessee’s charter or by-laws or other organizational documents, or any indenture, judgment, order, mortgage, loan agreement, contract, partnership or joint venture agreement, lease or other agreement or instrument to which Lessee is a party or by which Lessee is bound, or result in the creation of any Lien upon any of the property of Lessee.

(c) Governmental Actions. All Governmental Action required in connection with the execution, delivery and performance by Lessee of the Lease, has been or will have been obtained, given or made.

(d) Enforceability. The Lease constitutes the legal, valid and binding obligation of Lessee, enforceable against Lessee in accordance with the terms thereof, except as enforceability may be limited by bankruptcy, moratorium, fraudulent conveyance, insolvency, equitable principles or other similar laws affecting the enforcement of creditors’ rights in general.

(e) Bankruptcy. No bankruptcy, reorganization, arrangement or insolvency proceedings are pending, threatened or contemplated by Lessee, and Lessee has not made a general assignment for the benefit of creditors.

(f) Tax Filings. All tax returns and reports of Lessee required by law to be filed with respect to the Property have been duly filed, and all taxes, interests and penalties assessed by any Governmental Authority upon the Property or Lessee (with respect to the Property), which are due and payable, have been paid, except to the extent being contested in good faith by the Lessee.

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(g) Condition of Property: Condemnation. The Property is, to the Lessee’s knowledge, free and clear of any damage that would materially and adversely affect its value. The Lessee has not received notice of any proceeding pending for the total or partial condemnation of or affecting the Property, such that such proceeding would have a material adverse effect on the Property. To the Lessee’s knowledge, as of the Closing Date, all of the material Improvements lie wholly within the boundaries and building restriction lines of such Property, except for encroachments that are insured against by the Title Policy or that do not materially and adversely affect the value or marketability of the Property, and no improvements on adjoining properties materially encroach upon the Property so as to materially and adversely affect the value or marketability of the Property.

(h) Environmental Conditions. To the Lessee’s knowledge, there are no circumstances or conditions with respect to the Property that render the Property in violation (other than to a de minimis effect) of any applicable Environmental Laws.

(i) Legal Proceedings. There are no pending or to the Lessee’s knowledge, threatened actions, suits or proceedings by or before any court or governmental authority against or affecting the Lessee with respect to the Property that, if determined adversely to such Lessee or Property, would materially and adversely affect the value of the Property.

(j) Licenses and Permits. To the Lessee’s knowledge, (i) it possesses all material licenses, permits and authorizations required by applicable law for the operation of the Property and (ii) all such licenses, permits and authorizations are valid and in full force and effect.

The phrase “the Lessee’s knowledge” and other words and phrases of like import shall mean the actual state of knowledge of Jane Baughman, Vice President – Financial Planning and Treasurer. Lessee represents that the foregoing individuals are the people who are likely to know of any matters covered by these representations and warranties.

ARTICLE 21

LESSOR REPRESENTATIONS AND COVENANTS

Section 21.1. Representations and Warranties. Lessor represents and warrants to Lessee that the following are true and correct as of the Closing Date:

(a) Due Organization. Lessor is a limited liability company duly organized, validly existing and in good standing in the State of Delaware and qualified to do business in, and in good standing, in the State of California. Lessor has the corporate power and authority to conduct its business as now conducted and to enter into and perform its obligations under the Lease. Lessor is duly qualified to do business and is in good standing as a foreign limited liability company in any jurisdiction where the failure to so qualify would have a material adverse effect on its ability to perform its obligations under the Lease.

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(b) Due Authorization; No Conflict. The Lease has been duly authorized by all necessary corporate action on the part of Lessor and has been duly executed and delivered by Lessor, and the execution, delivery and performance thereof by Lessor will not, (i) require any approval of the members of Lessor or any approval or consent of any trustee or holder of any indebtedness or obligation of Lessor, other than such consents and approvals as have been obtained, (ii) contravene any Applicable Law binding on Lessor or (iii) contravene or result in any breach of or constitute any default under Lessor’s charter or by-laws or other organizational documents, or any indenture, judgment, order, mortgage, loan agreement, contract, partnership or joint venture agreement, lease or other agreement or instrument to which Lessor is a party or by which Lessor is bound.

(c) Governmental Actions. All Governmental Action required in connection with the execution, delivery and performance by Lessor of the Lease, has been or will have been obtained, given or made.

(d) Enforceability. The Lease constitutes the legal, valid and binding obligation of Lessor, enforceable against Lessor in accordance with the terms thereof, except as enforceability may be limited by bankruptcy, moratorium, fraudulent conveyance, insolvency, equitable principles or other similar laws affecting the enforcement of creditors’ rights in general.

(e) Bankruptcy. No bankruptcy, reorganization, arrangement or insolvency proceedings are pending, threatened or contemplated by Lessor, and Lessor has not made a general assignment for the benefit of creditors.

ARTICLE 22

PURCHASE PROCEDURE

Section 22.1. Purchase Procedure. In the event of the purchase of the Ground Lessor’s interest in the Property by Lessee pursuant to any provision of this Lease, the terms and conditions of this Section 22.1 shall apply.

(a) On the closing date fixed for the purchase of Ground Lessor’s interest in the Property, which shall be a Rent Payment Date:

(i) Lessee shall pay to Ground Lessor, in lawful money of the United States, at Ground Lessor’s address hereinabove stated or at any other place in the United States which Lessor may designate, in immediately available funds, the applicable purchase price or Stipulated Loss Value, and all other costs due as of such Closing, including, without limitation, any applicable prepayment premium; and

(ii) Lessor shall cause Ground Lessor to execute and deliver to Lessee a deed with covenants against grantor’s acts, assignment and/or such other instrument or instruments as may be appropriate, which shall transfer Ground Lessor’s interest in the Property, subject to, (A) Permitted Liens (except for any mortgage indebtedness of Ground Lessor if the sale is pursuant to Article 12), (B) all liens, encumbrances, charges, exceptions and restrictions

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attaching to the Property after the Closing Date which shall not have been created or caused by Ground Lessor (unless consented to by Lessee), and (C) all applicable laws, rules, regulations, ordinances and governmental restrictions then in effect.

(b) Lessee shall pay all costs, charges and expenses of incident to such transfer, including, without limitation, all recording fees, transfer taxes, title insurance premiums, and federal, state and local taxes, except for any net income taxes, if the sale is pursuant to Section 12.1, otherwise, such costs shall be as set forth in the terms.

(c) In the event Lessor and Lessee enter into a purchase agreement for the sale of the Property, Lessor agrees to cause Ground Lessor to cause the entity which owns the Property to be sold to Lessee, in lieu of a sale of the Property to Lessee, in the event (i) Lessee requests Lessor so to do; and (ii) the sale of the interests in Lessor (rather than the Property) to Lessee shall not impose any obligations on Lessor that would not be imposed had Ground Lessor sold the Property, will not decrease any rights Lessor would have had Ground Lessor sold the Property, and will not create any increased possibility of additional liability to Lessor (including without limitation, for ongoing corporate acts, taxes, etc.), all as shall be reasonably evidenced to Lessor by certificates, affidavits, opinions or otherwise. Lessor agrees to cooperate with Lessee in effectuating such a transfer of equity interests, subject to the terms hereof.

ARTICLE 23

TRANSFER OF LESSOR’S INTEREST

Section 23.1. Permitted Transfer. Subject to Article 4, Lessor may transfer all, or any part of, its right, title and interest in and to any Property and its rights under this Lease and the other documents relating thereto with respect to such Property on the following terms and conditions, each of which shall be satisfied prior to the effective date of the transfer (other than a transfer by a deed-in-lieu of foreclosure or similar transfer made in connection with an exercise of remedies under the Mortgage):

(a) such transfer shall be in compliance with the Mortgage and related documents, ( if still in place), and with Applicable Laws and shall not create a relationship which would violate Applicable Laws;

(b) the transferor shall have given or at closing give to Lessee, notice of such transfer, if of the entire Property, which notice shall contain such information and evidence as shall be reasonably necessary to establish compliance with this Article 23 and the name and address of the transferee for notices.

Section 23.2. Effects of Transfer. From and after any transfer effected in accordance with this Article 23, the transferor shall be released, to the extent of the interest transferred and the obligations assumed, in writing, by the transferee, from its liability hereunder and under the other documents to which it is a party relating to the interests being transferred. Such release shall be in respect of obligations (that are assumed, in writing by the transferee) arising on or after the date of

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such transfer. Upon any transfer by Lessor of the Property as above provided, any such transferee shall be deemed the “Lessor” for all purposes of such documents and each reference herein to Lessor shall thereafter be deemed a reference to such transferee for all purposes, except as provided in the preceding sentence. Lessee agrees to execute any and all documents reasonably appropriate to effectuate the contemplated transfer by Lessor, including, without limitation, an amendment to this Lease providing that the new Lessor shall be Lessor and the existing Lessor shall be released from its liabilities.

ARTICLE 24

PERMITTED FINANCING

Section 24.1. Financing During Term.

Lessee hereby expressly consents to the Lien imposed in favor of any first mortgage indebtedness. With respect to any financing or refinancing during the Base Term and during any Renewal Term, Lessor shall be free to encumber the Property, provided that under no circumstances shall any such financing adversely affect the rights and privileges of Lessee under this Lease in any material respect, or increase in any material respect the nature, scope or amount of any obligations or liabilities (including any contingent liabilities) of Lessee in excess of those existing prior to any such further encumbrances by Lessor. Lessee and its Affiliates will have no obligation to amend this Lease to facilitate such financing; but shall execute and deliver a subordination and attornment agreement to any lender to Lessor permitted by the above terms of this Section 24.1 if such lender shall in turn deliver a nondisturbance agreement to Lessee, in each case with terms reasonably acceptable to the parties. Lessee agrees to cooperate with any refinancing by Lessor permitted hereunder. Such cooperation shall include, without limitation, (i) naming such new lender(s) as additional insureds; and (ii) making payments of Base Rent and/or Supplemental Rent to or at the direction of such lender(s).

Section 24.2. Lessee’s Consent to Assignment for Indebtedness. Lessee acknowledges that in order to secure Lessor’s obligations to a Lender, Lessor may agree, among other things, to the assignment (to the extent provided therein) to the Lender of Lessor’s right, title and interest to this Lease. While the Mortgage or any replacements thereof are in effect, Lessee hereby:

(a) consents to such assignment in this Lease;

(b) covenants to make in full, in funds that are immediately available, to Lender or its designee in accordance with the terms of this Lease:

(i) each payment of Base Rent and Supplemental Rent payable to Lessor (except under Article 19 hereof); and

(ii) all purchase prices, termination amounts, and other sums payable to Lessor under this Lease;

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(c) agrees:

(i) that it shall not, except as provided under Applicable Law, seek to recover from the Lender any moneys paid to the Lender by virtue of the foregoing provisions; provided, however, that the foregoing provisions shall not limit Lessee’s right to recover (A) any duplicate payment made to the Lender whether due to computational or administrative error or otherwise, if the Lender has received such payment, (B) all or any portion of a payment in excess of the amount then due under this Lease or otherwise owed by Lessor to Lessee under this Lease, and (C) any amounts that have been paid to or are actually held by the Lender that is required to be refunded to, repaid, or otherwise released to or for the benefit of Lessee under this Lease;

(ii) that Lessee shall not pay any Rent more than thirty (30) days prior to such payment’s scheduled due date except as provided in this Lease;

(iii) that Lessee shall not enter into any agreement subordinating or (except as expressly permitted by the terms of this Lease as in effect on the date hereof) surrendering, canceling, or terminating this Lease without the prior written consent of the Lender, and any such attempted subordination or termination without such consent shall be void;

(iv) that Lessee shall not enter into any amendment or modification of this Lease without the prior written consent of the Lender, and any such attempted amendment or modification without such consent shall be void;

(v) that if this Lease shall be amended, it shall continue to constitute collateral under the Mortgage without the necessity of any further act by Lessor, Lessee or the Lender; and;

(vi) that except as expressly provided in this Lease, Lessee shall not take any action to terminate, rescind or avoid this Lease, notwithstanding, to the fullest extent permitted by law, the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution or other proceeding affecting Lessor or any assignee or Lessor and notwithstanding any action with respect to the Lease which may be taken by an assignee, Lender or receiver or Lessor or of any such assignee or by any court in any such proceedings.

Nothing herein shall be construed as Lessee’s agreement to be bound and perform the obligations of Lessor under any Mortgage or other debt documents. If Lessee receives conflicting direction from Lessor and the Lender, or is in good faith uncertain as to whether it should comply with a direction from either Lessor or the Lender, Lessee shall be permitted to seek written confirmation from Lessor and the Lender, or if the matter in dispute regards the payment of money by Lessee, pay the same into a court and provide Lessor and the Lender with reasonably prompt notice of such payment.

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ARTICLE 25

MISCELLANEOUS

Section 25.1. Binding Effect; Successors and Assigns; Survival. The terms and provisions of this Lease, and the respective rights and obligations hereunder of Lessor and Lessee, shall be binding upon their respective successors, legal representatives and assigns (including, in the case of Lessor, any Person to whom Lessor may transfer the Property) and inure to the benefit of their respective permitted successors and assigns, and the rights hereunder of the Lender shall inure (subject to such conditions as are contained herein) to the benefit of its permitted successors and assigns.

Section 25.2. Quiet Enjoyment. Lessee shall have the right to peaceably and quietly hold, possess and use any and all of the Property hereunder during the Lease Term, so long as no Lease Event of Default has occurred and is continuing.

Section 25.3. Notices. Unless otherwise specifically provided herein, all notices, consents, directions, approvals, instructions, requests and other communications required or permitted by the terms hereof to be given to any Person shall be in writing sent to either that Person’s Address, and a copy thereof shall be sent to each Person to receive a copy pursuant to the definition of “Address”, by (i) a prepaid nationally recognized overnight courier service, and any such notice shall be deemed received one (1) Business Day after delivery to a nationally recognized courier service specifying overnight delivery, or (ii) U.S. certified or registered mail, return receipt requested, postage prepaid, and such notice shall be deemed received when actually received, as evidenced by the return receipt, or when delivery is first refused. From time to time any party may designate a new Address for purposes of notice hereunder by giving fifteen (15) days’ written notice thereof to each of the other parties hereto. All notices given hereunder shall be irrevocable unless expressly specified otherwise. Lessor shall endeavor to label any envelope which contains a notice of default with the legend: “Default Notice,” but its failure to do so shall not invalidate or affect in any way such notice.

Section 25.4. Severability. Any provision of this Lease that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction, and each party hereto shall remain liable to perform its obligations hereunder except to the extent of such unenforceability. To the extent permitted by applicable law, Lessee hereby waives any provision of law that renders any provision hereof prohibited or unenforceable in any respect.

Section 25.5. Amendments, Complete Agreements. Neither this Lease nor any of the terms hereof may be terminated, amended, supplemented, waived or modified orally, but may be terminated, amended, supplemented, waived or modified only by an instrument in writing signed by the party against which the enforcement of the termination, amendment, supplement, waiver or modification shall be sought and, as required by the Mortgage or related documents, by the Lender. This Lease is intended by the parties as a final expression of their lease agreement and as a complete and exclusive statement of the terms thereof, all negotiations, considerations and representations

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between the parties having been incorporated herein. No representations, undertakings, or agreements have been made or relied upon in the making of this Lease other than those specifically set forth herein.

Section 25.6. Headings. The Table of Contents and headings of the various Articles and Sections of this Lease are for convenience of reference only and shall not modify, define or limit any of the terms or provisions hereof.

Section 25.7. Counterparts. This Lease may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.

Section 25.8. Governing Law. This Lease shall be governed by, and construed in accordance with, the laws of the State in which the Property is situated.

LESSOR AND LESSEE HEREBY SUBMIT TO NON-EXCLUSIVE PERSONAL JURISDICTION IN THE COUNTY OF ALAMEDA, STATE OF CALIFORNIA AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE COUNTY OF ALAMEDA, STATE OF CALIFORNIA (AND ANY APPELLATE COURTS TAKING APPEALS THEREFROM) FOR THE ENFORCEMENT OF SUCH PERSON’S OBLIGATIONS HEREUNDER AND WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY OTHER STATE TO OBJECT TO JURISDICTION WITHIN SUCH STATE FOR THE PURPOSES OF SUCH ACTION, SUIT, PROCEEDING OR LITIGATION TO ENFORCE SUCH OBLIGATIONS OF LESSEE OR LESSOR. LESSOR AND LESSEE HEREBY WAIVE AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS LEASE (A) THAT IT IS NOT SUBJECT TO SUCH JURISDICTION OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN THOSE COURTS OR THAT IT IS EXEMPT OR IMMUNE FROM EXECUTION, (B) THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR (C) THAT THE VENUE OF THE ACTION, SUIT OR PROCEEDING IS IMPROPER. LESSEE AND LESSOR EACH HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATED TO THE ENFORCEMENT OF THIS LEASE.

Section 25.9. Memorandum. Lessee and Lessor agree that a memorandum of this Lease (and any amendment hereof) shall be executed and recorded, at Lessee’s expense, in the land records of the jurisdiction in which the Property is situate.

Section 25.10. Estoppel Certificates. Each party hereto agrees that at any time and from time to time during the Lease Term (but on no more than two occasions during each Lease Year), it will promptly, but in no event later than ten (10) days after request by the other party hereto, execute, acknowledge and deliver to such other party a certificate in the form of Exhibit B attached hereto. In addition, each party agrees to include in such certificate such other items as may be reasonably requested under the circumstances giving rise to the delivery of such certificate. Such certificate may be relied upon by any bona fide, permitted purchaser of, or mortgagee together with its successors and assigns with respect to, Lessor’s or Lessee’s interest in the Property (direct or indirect), or any prospective sublessee of Lessee in respect of all or a portion of the Property.

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Section 25.11. Easements. So long as no Lease Event of Default has occurred and is then continuing, and provided that no such action could in either the Lender’s or Lessor’s reasonable judgment be expected to have a material adverse effect upon Lessee’s ability to perform its obligations under the Lease, or on the Fair Market Rental Value or Fair Market Sales Value of the Property, Lessor will join with Lessee from time to time at the request of Lessee (and at Lessee’s sole cost and expense) to:

(a) subject to the terms of Article 12, sell, assign, convey or otherwise transfer an interest in any or all of the Property to any Person legally empowered to take such interest under the power of eminent domain, and dedicate or transfer unimproved portions of any or all of the Property for road, highway or other public purposes;

(b) upon approval by Lessor, which approval may not be unreasonably withheld: (i) grant new (or release existing) easements, servitudes, licenses, rights of way and other rights and privileges in the nature of easements, with respect to the Property, and (ii) execute amendments to any covenants and restrictions affecting the Property; and

(c) execute and deliver any instrument, in form and substance reasonably acceptable to Lessor, necessary or appropriate to make or confirm the grants, releases or other actions described above in Section 25.11(a) and Section 25.11(b).

Lessor agrees that it shall not grant any easements, licenses or other possessory interests in the Property to any party without Lessee’s prior written consent, which shall not be unreasonably withheld or delayed, provided, however, Lessee’s consent shall not be required (i) during the continuation of a Lease Event of Default, and (ii) to the extent such easement, license or other possessory interest is required by law.

Section 25.12. No Joint Venture. Any intention to create a joint venture or partnership relation between Lessor and Lessee is hereby expressly disclaimed.

Section 25.13. No Accord and Satisfaction. The acceptance by Lessor of any sums from Lessee (whether as Rent or otherwise) in amounts which are less than the amounts due and payable by Lessee hereunder is not intended, nor shall be construed, to constitute an accord and satisfaction, or compromise, of any dispute between such parties regarding sums due and payable by Lessee hereunder, unless Lessor specifically deems it as such in writing.

Section 25.14. No Merger. In no event shall the leasehold interests, estates or rights of Lessee hereunder, or of the Lender, merge with any interests, estates or rights of Lessor in or to any and all of the Property, it being understood that such leasehold interests, estates and rights of Lessee hereunder, and of the Lender, shall be deemed to be separate and distinct from Lessor’s interests, estates and rights in or to the Property, notwithstanding that any such interests, estates or rights shall at any time or times be held by or vested in the same person, corporation or other entity.

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Section 25.15. Lessor Bankruptcy. During the Lease Term the parties hereto agree that if Lessee elects to remain in possession of any and all of the Property after the rejection of the Lease by Lessor under Section 365(h) of the Bankruptcy Code, all of the terms and provisions of this Lease shall be effective during such period of possession by Lessee, including the Renewal Terms and Lessee’s purchase rights hereunder, even if Lessor becomes subject to a case or proceeding under the Bankruptcy Code prior to the commencement of any such Renewal Term or the exercise by Lessee of such purchase rights.

Section 25.16. Naming and Signage of the Property. So long as Lessee (or a sublessee) is the occupant of, at least, a majority of the Improvements located on the Property, Lessee shall have the sole and exclusive right, at any time and from time to time, to select the name or names of the Property and the Improvements, and the sole and exclusive right to determine not to use any name in connection with the Property, as well as all rights in respect of signage for or in connection with the Property. Lessor shall not have or acquire any right or interest with respect to any such name or names used at any time by Lessee, or any trade name, trademark service mark or other intellectual property of any type of Lessee. Lessor shall cooperate with Lessee to effectuate Lessee’s sign rights hereunder, at no cost to Lessor. Lessee may install any sign or signs on the Property as it elects, at its sole cost and in compliance with Applicable Laws. Any signs installed by Lessee (other than those existing as of the Commencement of the Term) shall be removed by Lessee at the expiration or earlier termination of the Term, and Lessee shall repair any damage caused by such removal.

Section 25.17. Expenses. Whenever this Lease provides for the reimbursement by Lessee of costs and expenses of Lessor or any other party, then such reimbursement obligation shall be limited to actual, out-of pocket third-party costs and expenses including, but not limited to, reasonable attorneys’ fees. In addition to any other costs payable hereunder by Lessee, Lessee acknowledges and agrees that whenever (i) it seeks Lessor’s consent to an Alteration, (ii) it makes a rejectable offer, (iii) Fair Market Sales Value, Fair Market Rental Value or Base Rent during a Renewal Term need to be calculated, (iv) Lessee assigns its lease (if such assignment requires Lessor’s consent), (v) Lessor is asked to sign a landlord waiver with respect to Lessee’s personal property, or (vi) a casualty or condemnation (or an Event of Loss) occurs, Lessee shall pay all reasonable costs incurred by Lessor, arising out of the foregoing.

Section 25.18. Investments. Any moneys held by Lessor (or by the Lender or Proceeds Trustee) pursuant to this Lease, including Section 12.4, shall, until paid to Lessee, be invested by Lessor or the Proceeds Trustee, or by the Lender (if there is one), in Permitted Investments. Any gain (including interest received) realized as a result of any such investment shall be retained with, and distributed and re-invested in the same manner, as the original principal amount. Lessor (and the Lender) shall have no liability for any losses arising from any such investments or reinvestments. At such time as there no longer exists a requirement under this Lease for the Proceeds Trustee to hold such amounts, such amounts, together with any income thereon, shall be disbursed to Lessee.

Section 25.19. Further Assurances. Lessor and Lessee, at the cost and expense of the requesting party (except as otherwise set forth in this Lease to the contrary), will cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts, documents and assurances as any of the others reasonably may request from time to time in order to carry out more

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effectively the intent and purposes of this Lease. Nothing herein shall obligate Lessee to provide to Lessor or the Lender any proprietary or confidential information relating to the manner, method and procedures of Lessee’s business operations, or relating to Lessee’s business plan. Lessee also agrees to cooperate with Lessor in determining how to allocate the purchase price paid for the Property for purposes of depreciation, including review of the applicable portions of Lessee’s books applicable to Lessee’s depreciation of the Property, as prior owner and as Lessee.

Section 25.20. [Intentionally omitted]

Section 25.21. Independent Covenants. The covenants of Lessor and Lessee herein are independent and several covenants and not dependent on the performance of any other covenant in this Lease.

Section 25.22. Lessor Exculpation. Anything to the contrary in this Lease notwithstanding, the covenants contained in this Lease to be performed by Lessor shall not be binding on any member of Lessor in its or his or her individual capacity, but instead said covenants are made for the purpose of binding only all of Lessor’s right, title and interest in and to the Property, and none of Lessor or any of its Affiliate or any of its successors and assigns shall have any liability under this Lease in excess of, and Lessee shall have no recourse under this Lease against Lessor or any Affiliate of it except for Lessor’s interest (to the extent not pledged or assigned), the Property, Net Proceeds and Rent.

Section 25.23. Remedies Cumulative. To the extent permitted by, and subject to the mandatory requirements of, Applicable Laws, each and every right, power and remedy herein specifically given to the Lessor or otherwise in this Lease shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by Lessor. No delay or omission by Lessor in the exercise of any right, power or remedy or in the pursuit of any remedy shall impair any such right, power or remedy or be construed to be a waiver or any default on the part of Lessee or to be an acquiescence therein. Lessor’s consent to any request made by Lessee shall not be deemed to constitute or preclude the necessity for obtaining Lessor’s consent, in the future, to all similar requests. No waiver by Lessor of any default shall in any way be, or be construed to be, a waiver of any future or subsequent default.

Section 25.24. Holding Over. Subject to Section 12.1 and the last sentence of Section 10.1(b) Lessee covenants that if for any reason Lessee or any subtenant of Lessee shall fail to vacate and surrender possession of a Property or any part thereof, in the condition required herein, on or before the expiration or earlier termination of this Lease and the Term, then Lessee’s continued possession of the Property shall be as a tenant at sufferance, during which time, without prejudice and in addition to any other rights and remedies Lessor may have hereunder or at law, Lessee shall pay to Lessor an amount equal to: (a) one hundred twenty-five percent (125%) of the total monthly amount of Rent payable hereunder immediately prior to such termination (the “Existing Rent”) for the first ninety (90) days during which Lessee holds over, and (b) one hundred fifty percent (150%)

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of the Existing Rent thereafter. The provisions of this Section shall not in any way be deemed to (i) permit Lessee to remain in possession of the Property after the expiration date or sooner termination of this Lease, or (ii) imply any right of Lessee to use or occupy the Property upon expiration or termination of this Lease and the Term and no acceptance by Lessor of payments from Lessee after the expiration date or sooner termination of the Term shall be deemed to be other than on account of the amount to be paid by Lessee in accordance with the provisions of this Section. Lessee’s obligations under this Section shall survive the expiration or earlier termination of this Lease.

Section 25.25. Survival. The following provisions shall survive the termination of this Lease: (i) Sections 3.5, 6.1, 8.4, 8.5, 8.6 (only with respect to Impositions arising during the Term) 8.7, 8.8, 17.2, 22.1, Articles 7, 10, 19 and 25 to the extent relating to unfulfilled obligations of Lessee arising or occurring prior to the date of termination of this Lease, and (ii) any provision of this Lease pursuant to which the Lessor or Lessee had an existing obligation which was unsatisfied at the time of termination of this Lease and remains unsatisfied, including, without limitation, to the extent there was any unsatisfied obligation under, Sections 12.1, and Article 3, provided, however, that nothing in this Section 25.25 shall be deemed to extend any applicable statute of limitations.

Section 25.26. [Intentionally Omitted]

Section 25.27. Lease Subordinate. This Lease, the leasehold estate of Lessee created hereby and all rights of Lessee hereunder are and shall be subject and subordinate to the Mortgage and to all renewals, modifications, consolidations, replacements and extensions of the Mortgage, subject to the parties executing a subordination, non-disturbance and attornment agreement in the form attached hereto as Exhibit D. Such agreement shall provide that, so long as no Lease Event of Default has occurred and is continuing, Lessee’s occupancy and use of the Property pursuant to the terms of this Lease shall not be disturbed and Lessee’s rights under this Lease are and shall always be subordinate to the Mortgage and to all renewals, modification, consolidation, replacements and extension of the Mortgage.

Section 25.28. Lessor Representation. The Lease has been duly authorized by all necessary action on the part of Lessor and has been duly executed and delivered by Lessor, and the execution, delivery and performance thereof by Lessor will not, (i) require any consent or approval of any Person, other than such consents and approvals as have been obtained, (ii) contravene any Applicable Law binding on Lessor or the organizational documents of Lessor or (iii) contravene or result in any breach of or constitute any default under Lessor’s organizational documents, or any indenture, mortgage, loan agreement, contract, partnership or joint venture agreement, lease or other agreement or instrument to which Lessor is a party or by which Lessor is bound.

Section 25.29. Leasehold Financing. During the entire Lease Term as such Lease Term may be extended Lessee shall not be permitted to obtain a loan using this Lease or Lessee’s interest in the Property as collateral therefore.

Section 25.30. Direct Lease. If the Ground Lease is terminated for any reason during the Lease Term, this Agreement shall continue in full force and effect as a direct lease between Lessee and Ground Lessor subject to the terms and conditions of the Recognition and Attornment Agreement attached hereto and incorporated herein as Exhibit E.

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IN WITNESS WHEREOF, Lessor and Lessee have duly authorized, executed and delivered this Lease as of the date first hereinabove set forth.

LESSOR:
INLAND WESTERN STOCKTON GROUND TENANT, L.L.C, a Delaware limited liability company
	By:	Inland Western Retail Real Estate Trust,   Inc., a Maryland corporation, its sole   member
			By:	/s/ G. Joe Cosenza
			Name:	G. Joe Cosenza
			Title:	Authorized Representative
LESSEE:
COST PLUS, INC., a California corporation
By:	/s/ Tom Willardson
Name:	Tom Willardson
Title:	Executive Vice President and
	Chief Financial Officer

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APPENDIX A

[Definitions]

Unless otherwise specified or the context otherwise requires:

(a) any term defined below by reference to another instrument or document shall continue to have the meaning ascribed thereto whether or not such other instrument or document remains in effect;

(b) words which include a number of constituent parts, things or elements, shall be construed as referring separately to each constituent part, thing or element thereof, as well as to all of such constituent parts, things or elements as a whole;

(c) references to any Person include such Person’s successors and assigns and in the case of an individual, the word “successors” includes such Person’s heirs, devisees, legatees, executors, administrators and personal representatives;

(d) words importing the singular include the plural and vice versa;

(e) words importing a gender include any gender;

(f) the words “consent”, “approve”, “agree” and “request”, and derivations thereof or words of similar import, mean the prior written consent, approval, agreement or request of the Person in question;

(g) a reference to a part, clause, party, section, article, exhibit or schedule is a reference to a part and clause of, and a party, section, article, exhibit and schedule to, the document referenced;

(h) a reference to any statute, regulation, proclamation, ordinance or law includes all statutes, regulations, proclamations, ordinances or laws varying, consolidating or replacing them, and a reference to a statute includes all regulations, proclamations and ordinances issued or otherwise applicable under that statute;

(i) a reference to a document includes an amendment or supplement to, or replacement or novation of, that document;

(j) a reference to a party to a document includes that party’s successors and permitted delegees and/or assigns,

(k) the words “including” and “includes,” and words of similar import, shall be deemed to be followed by the phrase “without limitation”;

(l) the words “hereof” and “hereunder,” and words of similar import, shall be deemed to refer to the Lease as a whole and not to the specific section or provision where such word appears;

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(m) unless the context shall otherwise require, a reference to the “Property” or “Improvements” shall be deemed to be followed by the phrase “or a portion thereof”;

(n) the Schedules and Exhibits of the Lease are incorporated herein by reference;

(o) the titles and headings of Articles, Sections, Schedules, Exhibits, subsections, paragraphs and clauses are inserted as a matter of convenience and shall not affect the construction of the Lease;

(p) all obligations of the Lessor under the Mortgage and any related documents shall be satisfied by the Lessor at Lessor’s sole cost and expense;

“Actual Knowledge” with respect to any Person, shall mean the present, conscious, actual knowledge of, or receipt of notice by, (i) senior officers of such Person or the officers or employees of such Person charged with the oversight on its behalf of the Overall Transaction or (ii) with respect to a matter covered by a representation and warranty, the property or asset manager having responsibility for the matters covered by such representation and the person to whom such manager reports. Actual Knowledge of Lessee as of the Closing Date shall be as set forth in Section 20.1 of the Lease with respect to the matters represented in the Lease as of the Closing Date.

“Address” shall mean, subject to the rights of the party in question to change its Address in accordance with the terms of the Lease:

(i)	with respect to Lessee:	Cost Plus, Inc.
		3610 South Airport Way
		Stockton, California 95206
	with a copy to:	Cost Plus, Inc.
		200 Fourth Street
		Oakland, California 94607
		Attention: Real Estate Department
	with a copy to:	Cooper, White & Cooper LLP
		201 California Street, 17th Floor
		San Francisco, California 94111
		Attention: Beau Simon
(ii)	with respect to Lessor:	Inland Western Stockton Ground Tenant, L.L.C.
		c/o The Inland Real Estate Group, Inc.
		2901 Butterfield Road
		Oak Brook, Illinois 60523
		Attention: Roberta Matlin
	with a copy to:	The Inland Real Estate Group, Inc.
		2901 Butterfield Road
		Oak Brook, Illinois 60523
		Attention: Robert H. Baum, General Counsel

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and with a copy to:	Inland Western Stockton Airport Way, L.L.C.
	c/o The Inland Real Estate Group, Inc.
	2901 Butterfield Road
	Oak Brook, IL 60523
	Attention: Roberta Matlin

“Affected Property” shall have the meaning specified in Section 12.1 of the Lease.

“Affiliate” of any Person shall mean any other Person directly or indirectly controlling, controlled by or under common control with, such person and shall include, if such Person is an individual, members of the Family of such Person and trusts for the benefit of such individual or Family members. For purposes of this definition, the term, “control” (including the correlative meanings of the terms “controlling” “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

“Alterations” shall mean alterations, improvements, installations, demolitions, modifications, changes and additions to the Property, but shall not include Lessee’s Equipment and Personalty.

“Applicable Laws” shall mean (i) all existing and future applicable laws (including common laws), rules, regulations, statutes, treaties, codes, ordinances, permits, certificates, orders and licenses of and interpretations by, any Governmental Authorities, and applicable judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other administrative, judicial or quasi-judicial tribunal or agency of competent jurisdiction (including those pertaining to the environment and those pertaining to the construction, use or occupancy of the Property), and (ii) any reciprocal easement agreement, covenant, other agreement or deed restriction or easement of record affecting the Property as of the date hereof or subsequent hereto pursuant to the terms of the Lease (but excluding for purposes of this definition the Mortgage and related debt documents). Applicable Laws include Environmental Laws.

“Appraisal Procedure” shall mean the following procedure for determining any one or more of the Fair Market Sales Value of the Property, the Fair Market Rental Value of the Property or any other amount which may, pursuant to any provision of this Lease, be determined by the Appraisal Procedure: one Qualified Appraiser shall be chosen by the Lessor and one Qualified Appraiser shall be chosen by Lessee. If the Lessee or Lessor fails to choose a Qualified Appraiser within twenty (20) Business Days after written notice from the other party of the selection of its Qualified Appraiser followed by a second notice (which notice shall specifically state that failure to select a Qualified Appraiser within ten (10) Business Days shall prohibit appointment of a Qualified Appraiser by the addressed party) given at least ten (10) Business Days prior to the expiration of such twenty-day period, then the appraisal by such appointed Qualified Appraiser shall be binding on the parties. If the two Qualified Appraisers cannot agree on a value within twenty (20) Business Days after the appointment of the Second Qualified Appraiser, then a third Qualified Appraiser shall be selected by the two Qualified Appraisers or, failing agreement as to such third Qualified

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Appraiser within thirty (30) Business Days after the appointment of the Second Qualified Appraiser, by the American Arbitration Association office in San Francisco, California. The appraisals of the three Qualified Appraisers shall be given within twenty (20) Business Days of the appointment of the third Qualified Appraiser and the appraisal of the Qualified Appraiser most different from the average of the other two shall be discarded and such average of the remaining two Appraisers shall be binding on the parties; provided that if the highest appraisal and the lowest appraisal are equidistant from the third appraisal, the third appraisal shall be binding on the parties. The fees and expenses of the Qualified Appraiser appointed by a party shall be paid by such party (such fees and expenses not being indemnifiable by Lessee); the fees and expenses of the third Qualified Appraiser shall be divided equally between the two parties, except that all fees and expenses of all the Qualified Appraisers shall be paid by Lessee in the case of an appraisal or determination under Article 17 of the Lease.

“Approved Environmental Consultant” shall mean any environmental consultant to Lessee of national standing and reasonably approved by Lessor.

“Authorized Officer” shall mean with respect to a Person if the Person is not an individual, any officer or principal of the Person, any trustee of the Person (if the Person is a trust), any general partner or joint venturer of the Person (if the Person is a partnership or joint venture) or any manager or member that is a manager of the Person (if the Person is a limited liability company) who shall be duly authorized to execute the Lease.

“Bankruptcy Code” shall mean the Bankruptcy Reform Act of 1978 as amended and as may be further amended.

“Base Rent” subject to modifications of the terms upon completion of Improvements pursuant to the provisions of Article 3 shall mean, for the Base Term, the rent payable pursuant to Section 3.1 of the Lease and, for any Renewal Term, the rent payable pursuant to Article 5 of the Lease as such amounts may be adjusted from time to time.

“Base Term” shall mean the period commencing on the Closing Date and ending on April 30, 2026, or such shorter period as may result from earlier termination of the Lease as provided therein. At any time prior to the commencement of the tenth (10^th) Lease year, Lessee shall have the one time right to terminate the Lease upon delivery of, at least, one (1) year’s prior written notice to Lessor provided in no event shall the Base Term be less than ten (10) years. The failure of Lessee to exercise its one time right to terminate the Lease prior to the commencement of the tenth (10) Lease Year in the manner set forth above, shall be deemed a waiver of Lessee’s rights of early termination hereunder. Notwithstanding the foregoing upon completion of the Improvements pursuant to the provisions of Article 3 the Lessee’s right to terminate the Lease upon delivery of, at least, one (1) year’s prior written notice to Lessor shall not apply until ten (10) years following the modification of the Lease upon completion of construction of the Improvements and increase of Base Rent all as set forth in Article 3.

“Business Day” shall mean any day other than a Saturday, Sunday or other day on which banks are authorized to be closed in the State of California or the State of Illinois.

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“Casualty” shall mean any damage or destruction caused to the Property by any reason, whether or not constituting an Event of Loss.

“Claims” shall mean Liens (including, without limitation, lien removal and bonding costs) liabilities, obligations, damages, losses, demands, penalties, assessments, payments, fines, claims, actions, suits, judgments, settlements, costs, expenses and disbursements (including, without limitation, reasonable, actually-incurred legal fees and expenses and costs of investigation and Remedial Action) of any kind and nature whatsoever.

“Closing Date” shall mean April 7, 2006.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

“Condemnation” shall mean any condemnation, requisition or other taking or sale of the use, occupancy or title to any or all of the Property, by or on account of any eminent domain proceeding or other action by any Governmental Authority or other Person under the power of eminent domain or otherwise or any transfer in lieu of or in anticipation thereof.

“Default Rate” shall mean three percent (3%) above the annual rate of interest set by Citibank, N.A. (or any successor thereto) as its “Prime Rate” from time to time.

“Environmental Laws” shall mean all federal, state or local laws, ordinances, rules, orders, statutes, decrees, judgments, injunctions, codes, regulations and common law (a) relating to the environment, human health or natural resources; (b) regulating, controlling or imposing liability or standards of conduct concerning Hazardous Materials; (c) relating to the remediation of the Mortgaged Property, including investigation, response, clean-up, remediation, prevention, mitigation or removal of Hazardous Materials; or (d) requiring notification or disclosure of releases of Hazardous Materials or any other environmental conditions on the Mortgaged Property, as any of the foregoing may have been or may be amended, supplemented or supplanted from time to time, including the Resource Conservation and Recovery Act of 1976 (“RCRA”), 42 U.S.C. §§ 6901 et seq., as amended by the Hazardous and Solid Waste Amendments of 1984, the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq. (“CERCLA”), the Hazardous Materials Transportation Act of 1975, 49 U.S.C. §§ 1801-1812, the Toxic Substances Control Act, 15 U.S.C. §§ 2601-2671, the Clean Air Act, 42 U.S.C. §§ 7041 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§ 136 et seq., as any of the foregoing may have been or may be amended, supplemented or supplanted from time to time.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974.]

“Event of Loss” shall mean (y) the damage, by fire or otherwise, and whether total or partial, that (A) the Lessee in its reasonable discretion shall determine that as a result of such damage the Property is no longer useful for its intended purpose, and (B) the cost of repair or restoration would exceed twenty-five percent (25%) of the appraised value for the Improvements on the Closing Date, (z) the permanent or material taking by Condemnation effecting (A) title to all or substantially all of the Property, or (B) the principal points of ingress or egress of the Property to public roadways, or

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(C) such a material part of the Land or the Improvement so as to have a material and adverse effect on the business of the Lessee as conducted from the Property. Any decision regarding whether the Property is no longer useful for its intended purpose shall be made by Lessee in good faith and evidenced by an Officer’s Certificate of Lessee delivered to Lessor and the Lender.

“Excepted Payments” shall mean and include (i) the amount by which Base Rent exceeds all amounts then due and payable under any debt documents, any amount payable to Lessor as a reimbursement for losses suffered by Lessor pursuant to Section 12.1 above and any other amounts payable directly to Lessor under Article 18 or 19 as set forth in the Lease, (ii) proceeds of public liability or property damage insurance maintained under the Lease solely for the benefit of any Person other than the Lender, and (iii) any payment required under the Lease to be made directly by Lessee to a third party such as taxes, utility charges, ground rent, if any, and similar payments.

“Existing Rent” shall have the meaning specified in Section 25.24 of the Lease.

“Fair Market Rental Value” with respect to any Property shall mean the fair market monthly rental value that would be obtained in an arm’s-length transaction between an informed and willing lessee and an informed and willing lessor, in either case under no compulsion to lease, and neither of which is related to Lessor or Lessee, for the lease of such Property on the terms set forth in the Lease, and taking into consideration the fact that no brokerage commission will be payable, and that Lessee will not be receiving any tenant improvement allowance, period of free rent, or other economic concession. Such fair market rental value shall be calculated as the value for the use of such Property assuming that such Property is in the condition and repair required to be maintained by the terms of the Lease, including, without limitation, in compliance with all Applicable Laws and assuming no Hazardous Materials present in, on, under or about the Property.

“Fair Market Sales Value” with respect to any Property shall mean the fair market sales value that would be obtained in an arm’s-length transaction between an informed and willing buyer and an informed and willing seller, under no compulsion, respectively, to buy or sell, and neither of which is related to Lessor or Lessee, for the purchase of the Property. Such Fair Market Sales Value shall be calculated as the value for such Property using the same methodology as used in the appraisal delivered on or before the Closing Date and assuming that the Property is in the condition and repair required to be maintained by the terms of the Lease, including, without limitation, in compliance with all Applicable Laws and assuming no Hazardous Materials present in, on, under or about the Property.

“Family” shall mean, as to any Person, such Person’s grandparents, all lineal descendants of such Person’s grandparents, Persons adopted by, or stepchildren of, any such grandparent or descendant and Persons currently married to, or who are widows or widowers of, any such grandparent, descendant, adoptee or stepchild.

“Final Payment Date” shall have the meaning specified in Section 17.1(e) of the Lease.

“Fixtures” shall have the meaning specified in the term “Property”.

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“GAAP” shall mean generally accepted accounting principles in the United States, as in effect from time to time, consistently applied.

“Governmental Action” shall mean all permits, authorizations, registrations, consents, approvals, waivers, exceptions, variances, orders, judgments, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Governmental Authority, or required by any Applicable Laws, and shall include, without limitation, all citings, environmental and operating permits and licenses that are required for the use, occupancy, zoning and operation of the Property.

“Governmental Authority” shall mean any federal, state, county, municipal or other governmental or regulatory authority, agency, board, body, commission, instrumentality, court or quasi governmental authority (or private entity in lieu thereof).

“Hazardous Material” shall mean any substance (whether solid, liquid or gas), pollutant, contaminant, waste or material (including those that are toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous or considered pollutants including petroleum, its derivatives, by-products and other hydrocarbons and asbestos), in each case that is or becomes regulated by any Governmental Authority, including any agency, department, commission, board or instrumentality of the United States and/or each State in which the Property is situated, or that may form the basis of liability under any Environmental Law.

“Impositions” shall mean, collectively, all real estate taxes on the Property, all ad valorem, sales and use, gross receipts, transaction privilege, rent or similar taxes levied or incurred with respect to the Property, or the use, lease, ownership or operation thereof, personal property tax on any property covered by the Lease that is classified by government authorities as personal property, assessments (including all assessments for public improvements or benefits, whether or not commenced or completed within the Lease Term), water, sewer, utilities or other rents and charges, excises, levies, fees and all other governmental charges of any kind or nature whatsoever, general or special, foreseen or unforeseen, ordinary or extraordinary, with respect to the Property or any part thereof and/or the Rent, including all interest and penalties thereon, which at any time prior to, during or with respect to the Lease Term may be assessed or imposed on or with respect to or be a Lien upon Lessor or the Property or any part thereof or any rent therefrom or any estate, title or interest therein. Impositions shall exclude, however, and nothing contained in the Lease or any debt documents or related Mortgage shall be construed to require Lessee to pay, (i) any tax imposed on Lessor, or the Lender based on the net income of Lessor, or the Lender or any transfer tax imposed on Lessor, the Lender or any other Person, except to the extent that any tax described in this clause (i) is levied, assessed or imposed as a total or partial substitute for a tax, assessment, levy or charge upon the Property, the Rent or any part thereof or interest therein which Lessee would otherwise be required to pay thereunder; (ii) any tax imposed with respect to the sale, exchange or other disposition by (A) Lessor of the Property or (B) the Lender of its debt; or (iii) any gross receipts, transaction privilege, rent or similar tax, assessment, levy or charge upon Lessor, the Property, the Rent or any part of any thereof or interest therein, but solely to the extent that the same is levied, assessed or imposed as a total or partial substitute for a tax, assessment, levy or charge described in clause (i) or clause (ii) which Lessee would otherwise not be required to pay hereunder.

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“Improvements” shall have the meaning specified in the term “Property”.

“Indemnitee” shall mean the Lessor, its member, the Lender, any trustee under a Mortgage which is a deed of trust, and each of their Affiliates and their respective officers, directors, employees, shareholders, members or partners.

“Indemnitee’s Group” shall mean, with respect to a particular Indemnitee, such Indemnitee (including its Affiliates and their respective officers, directors, employees, agents, shareholders, trustees, members or partners) and their successors and assigns.

“Inspecting Parties” shall have the meaning specified in Article 15 of the Lease.

“Land” shall have the meaning specified in the term “Property”.

“Lease” shall mean the Lease Agreement dated as of the Closing Date between Lessor, as lessor, and Lessee, as lessee.

“Lease Default” shall mean any event, condition or failure which, with notice or lapse of time or both, would become a Lease Event of Default.

“Lease Event of Default” shall have the meaning specified in Article 16 of the Lease.

“Lease Term” shall mean the full term of the Lease, including the Base Term and any Renewal Terms as to which Lessee exercises a renewal option pursuant to Article 5 of the Lease, or such shorter period as may result from earlier termination of the Lease as provided therein.

“Lease Year” shall mean each consecutive period of twelve (12) full calendar months occurring after the Closing Date, provided, however, that, if the Closing Date shall not be the first day of a month, then the first Lease Year shall also include the partial month in which the Closing Date occurs.

“Lender” shall mean, from time to time, the holder of the first lien Mortgage on the Property. During periods when there is no Lender, references herein to Lender shall have no force or effect.

“Lessee” shall mean the Lessee named in the Lease to which this Appendix is attached.

“Lessee’s Equipment and Personalty” shall mean all furniture, equipment and personal property of Lessee, which includes, without limitation, inventory, racking, shelving, conveyer equipment, lifts, cabling, antennae, machinery, air compressors, battery chargers, communication equipment, data cabinets, automated teller machines, hoist equipment, lockers, plug-in light fixtures, propane tanks, storage racks, trash compactors, signs, desks, movable partitions, vending machines, computer software and hardware, movable storage and utility rooms and removable trade fixtures and equipment, even if bolted or otherwise affixed to the floors, including, without limitation, telecommunication switches, in each case, as now or may hereafter exist in or on any of the Improvements and any other personal property owned by Lessee or a sublessee of Lessee or other occupant of the Property. In no case shall Lessee’s Equipment and Personalty include fixtures or built-in heating, ventilating, air-conditioning, and electrical equipment (including power panels) to be utilized in connection with the operation of the Property.

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“Lessor” shall mean the Lessor named in the Lease to which this Appendix is attached.

“Lessor Liens” shall mean Liens on or against the Property or the Lease or any payment of Rent (a) which result from any act of, or any Claim against, Lessor, or which result from any violation by Lessor of any of the terms of the Mortgage or any related debt documents, other than a violation due to a default by Lessee under the Lease, (b) which result from Liens in favor of any taxing authority by reason of any tax owed and payable by Lessor, except that Lessor Liens shall not include any Lien resulting from any tax for which Lessee is obligated to indemnify Lessor until such time as Lessee shall have already paid to or on behalf of Lessor the Tax or the required indemnity with respect to the same, or (c) which result from any expenses owed, caused or occasioned by Lessor or any of its employees, contractors or agents which are not indemnified by Lessee pursuant to Section 19.1 of the Lease, but shall exclude Permitted Liens and any Liens created by the Mortgage and any other debt documents, except to the extent any such Lien arises by the Lender’s payment of any of the foregoing.

“Lien” shall mean any lien, mortgage, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, including, without limitation, any thereof arising under any conditional sale agreement, capital lease or other title retention agreement.

“Material” as used to describe Lessee’s compliance requirement in Section 8.5 of the Lease shall mean that the failure to so comply may reasonably be expected to result in material risk of (i) physical injury or illness to any individual, (ii) criminal liability, or (iii) fines or Remedial Action or compliance costs in excess of $500,000.00.

“Moody’s” shall mean Moody’s Investors Service, Inc. and its successors.

“Mortgage” shall mean a first lien deed of trust or mortgage (together with any related assignment of rents) between the Lessor, as mortgagor or trustor, and the Lender, as mortgagee or beneficiary, and as the same may be renewed, amended, modified, consolidated, replaced or extended from time to time. During periods when there is no Mortgage, references in the Lease to the Mortgage shall have no force or effect.

“Mortgaged Property” shall mean the Mortgaged Property or Trust Property, as defined in the Mortgage.

“Net Casualty Proceeds” shall mean the compensation and/or insurance payments (whether received from a third party insurance company or from Lessee because it has self-insured) net of the reasonable expenses of collecting such amounts incurred by the Lessor and Lender if a Lease Event of Default exists, received by the Lender, the Lessor or the Lessee in respect of the Property by reason of and on account of an Event of Loss described in clause (y) of the definition thereof or a casualty.

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“Net Condemnation Proceeds” shall mean any award or compensation net of the reasonable expenses of collecting such amounts incurred by the Lessor and the Lender if a Lease Event of Default exists, received by the Lender, the Lessor or the Lessee in respect of the Property by reason of and on account of a Condemnation.

“Net Proceeds” shall mean Net Casualty Proceeds and Net Condemnation Proceeds.

“Nonseverable” shall describe an Alteration or part of an Alteration which cannot be removed from the existing Improvements or the Land without causing material damage to the Property; provided that Lessee’s Equipment and Personalty shall not be construed as Nonseverable.

“Officer’s Certificate” of a Person or any Person signing on behalf of a Person shall mean a certificate signed, in the case of a partnership, by a general partner of such partnership, or in the case of a corporation, by an Authorized Officer of such Person, or, in the case of a limited liability company, by the manager of such limited liability company.

“Overall Transaction” shall mean all the transactions and activities referred to in or contemplated by the Lease.

“Permits” shall mean as to the Property all licenses, authorizations, certificates, variances, concessions, grants, registrations, consents, permits and other approvals issued by a Governmental Authority now or hereafter pertaining to the ownership, management, occupancy, use or operation of such Premises, including certificates of occupancy.

“Permitted Encumbrances” shall mean the easements, rights of way, reservations, servitudes and rights of others against the Property which are listed in the title policy issued to the Lessor by the Title Insurance Company on the Closing Date.

“Permitted Investments” shall mean any one or more of the following obligations or securities having (a) a predetermined fixed dollar of principal due at maturity that cannot vary or change, (b) bearing interest that may either be fixed or variable but which is tied to a single interest rate index plus a single fixed rate spread (if any) and move proportionately with that index, and (c) having the required ratings, if any, provided for in this definition:

(i) direct obligations of, and obligations fully guaranteed as to timely payment of principal and interest by, the United States of America or any agency or instrumentality of the United States of America, the obligations of which are backed by the full faith and credit of the United States of America that mature in thirty (30) days or less after the date of issuance and that does not have a “r” highlighter affixed to its rating;

(ii) time deposits, unsecured certificates of deposit, or bankers’ acceptances that mature in thirty (30) days or less after the date of issuance and are issued or held by any depository institution or trust company (including the Lender) incorporated or organized under the laws of the United States of America or any State thereof and subject to supervision and examination by federal or state banking authorities, so long as the commercial paper or other short-term debt obligations of such depository institution or trust company are rated at least “A-1” and “P-1” by Standard & Poor’s and Moody’s, respectively, or such other rating as would not result in the downgrading, withdrawal or qualification of the then current rating assigned by the Rating Agencies to the Pass-Through Certificates, as evidenced in writing and that does not have a “r” highlighter affixed to its rating;

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(iii) repurchase agreements or obligations with respect to any security described in clause (i) above where such security has a remaining maturity of thirty (30) days or less and where such repurchase obligation has been entered into with a depository institution or trust company (acting as principal) described in clause (ii) above;

(iv) debt obligations bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States of America or any state thereof which mature in thirty (30) days or less from the date of issuance, which debt obligations have ratings from Moody’s and Standard & Poor’s in the highest category possible, or such other rating as would not result in the downgrading, withdrawal or qualification of the then-current rating assigned by the Rating Agencies to any Pass-Through Certificate as specified in writing by the Rating Agencies and that does not have a “r” highlighter affixed to its rating; provided, however, that securities issued by any particular corporation will not be Permitted Investments to the extent that investment therein will cause the then-outstanding principal amount of securities issued by such corporation and held in the accounts established hereunder to exceed 10% of the sum of the aggregate principal balance and the aggregate principal amount of all Permitted Investments in such accounts; and

(v) commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations) payable on demand or on a specified date maturing in thirty (30) days or less after the date of issuance thereof and which is rated in the highest category possible by Moody’s and Standard & Poor’s and that does not have a “r” highlighter affixed to such rating.

“Permitted Liens” shall mean:

(a) the respective rights and interests of the Lessee, the Lessor and the Lender under the Lease and any Mortgage,

(b) Liens for Taxes either not yet due or being contested in good faith and by appropriate proceedings, so long as such proceedings shall not involve any danger of the sale, forfeiture or loss of any part of the Property, title thereto or any interest therein (other than to a de minimis extent) and are undertaken in accordance with the terms of any documents securing the Lender’s loan to Lessor, (including, without limitation, posting of any bonds or other collateral to the extent required by such documents),

(c) materialmen’s, mechanics’, workers’, repairmen’s, employees or other like Liens for amounts either not yet due or being contested in good faith and by appropriate proceedings so long as such proceedings shall not involve any danger of the sale, forfeiture or loss of any part of the Property, title thereto or any interest therein (other than to a de minimis extent), provided

Lessee agrees that it shall pay, discharge or record or bond any such lien within sixty (60) days after Lessee receives notice thereof, if Lessee does not have a Required Rating equal to or greater than the Trigger Rating, or if a Lease Event of Default under Section 16.1(a), (b) or (c) exists,

(d) Liens arising out of judgments or awards with respect to which at the time an appeal or proceeding for review is being prosecuted in good faith and either which have been bonded or for the payment of which adequate reserves shall have been provided to Lessor’s reasonable satisfaction, provided that if the long-term unsecured debt of Lessee shall not have a Required Rating of at least the Trigger Rating, then any such amount in excess of $500,000.00 (unless Lessee is insured therefor), shall be bonded or discharged by Lessee within thirty (30) days after Lessee’s knowledge thereof,

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(e) easements, rights of way, reservations, servitudes and rights of others against the Property which are granted pursuant to Section 25.11 of the Lease and which could not reasonably be expected to have a material adverse effect on the Property,

(f) Permitted Encumbrances, and

(g) assignments and subleases expressly permitted by the Lease.

No lien, judgment, charge or other agreement shall be deemed to be Permitted Lien if such lien, judgment, charge or other agreement, individually or in the aggregate with other liens, judgments, charges or agreements, materially and adversely affect (i) the value of the Property, (ii) Lessee’s ability to pay all Rent, as and when due hereunder, or (iii) Lessee’s right to use and operate the Property.

“Permitted Use” shall have the meaning given to such term in Section 8.1 of the Lease.

“Person” shall mean individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability company, non-incorporated organization or government or any agency or political subdivision thereof.

“Proceeds Trustee” shall mean the Lender or, if the Property shall not at the time in question be encumbered by a Mortgage, a federally insured bank or other financial institution, selected by Lessor and reasonably satisfactory to Lessee.

“Property” shall mean the real property whose parcel or parcels of land are described on Exhibit A to the Lease (the “Land”); together with all buildings, structures, and other improvements of every kind situated on the Land or to be constructed pursuant to the provisions of Article 4 (collectively, the “Improvements”); together with all easements, rights and appurtenances relating to the Land or the Improvements; and together with all fixtures, including all components thereof, on and in respect to the Improvements, including, without limitation, all built-in refrigeration and freezer equipment used in the operation of the Property, together with all replacements, modifications, alterations and additions thereto (collectively, the “Fixtures”), provided that in no event shall “Property” include Lessee’s Equipment and Personalty.

“Qualified Appraiser” means an independent nationally recognized appraiser who shall be a member of The Appraisal Institute (or its successor organization) with not less than five (5) years experience appraising properties similar to the Property in the market in which the Property is located.

“Rating Agencies” shall mean Moody’s and Standard & Poor’s.

“Reference Rate” shall mean on any day, the rate at which prepayments would be discounted under any note secured by a Mortgage (or if no Mortgage is in effect, the rate at which prepayments would by discounted under the note secured by the Mortgage in effect on or promptly following the Closing Date).

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“Release” shall mean the release or threatened release of any Hazardous Material into or upon or under any land or water or air, or otherwise into the environment, including, without limitation, by means of burial, disposal, discharge, emission, injection, spillage, leakage, seepage, leaching, dumping, pumping, pouring, escaping, emptying, placement and the like.

“Remedial Action” means the investigation, response, clean-up, remediation, prevention, mitigation or removal of contamination, environmental degradation or damage caused by, related to or arising from the existence, generation, use, handling, treatment, storage, transportation, disposal, discharge, Release (including a continuous Release), or emission of Hazardous Materials, including, without limitation, investigations, response, removal, monitoring and remedial actions under CERCLA; corrective action under the Resource Conservation and Recovery Act of 1976, as amended, the investigation, removal or closure of any underground storage tanks, and any related soil or groundwater investigation, remediation or other action, and investigation, clean-up or other actions required under or necessary to comply with any Environmental Laws.

“Renewal Term” shall have the meaning specified in Section 5.1 of the Lease.

“Rent” shall mean Base Rent and Supplemental Rent, collectively.

“Rent Collection Account” shall mean the account established by the Lender from time to time, and to which Lessee is directed to make all payments of Rent due to the Lender.

“Rent Payment Dates” shall mean the 1st day of each month during the Lease Term, commencing May 1, 2006, provided, however, in the event such date is not a Business Day, the Rent Payment Date shall be the immediately following Business Day; provided further, however that Base Rent for the period commencing on the Closing Date and terminating on April 30, 2006 shall be payable in advance on the Closing Date.

“Required Rating” shall mean a rating of the Lessee at the level set forth in the Lease as required for Lessee to have the benefit conferred, issued by Standard & Poors and Moody’s (or any replacement of either of them made by the Lender (in which case the rating shall be the equivalent)).

“Restoration Fund” shall have the meaning specified in Section 12.4(a) of the Lease.

“Sale and Purchase Agreement” shall mean the Purchase and Sale Agreement dated as of April 7, 2006 between Lessee’s as Seller and Inland Real Estate Acquisitions, Inc. as Purchaser.

“Standard & Poor’s” shall mean Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors.

“Stipulated Loss Value” shall mean $36,025,000 (110% of the purchase set forth in the Sale and Purchase Agreement.)

“Stipulated Loss Value Date” shall have the meaning specified in Section 12.1(i) of the Lease, and after expiration of the Base Term shall mean the first day of each month during a Renewal Term.

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“Sublease” shall have the meaning given such term in Section 14.1 of the Lease.

“Subsidiary” shall mean any corporation whose assets and liabilities are consolidated with that of Lessee.

“Supplemental Rent” shall mean any and all amounts, fees, expenses, liabilities, obligations, late charges, Taxes and Impositions other than Base Rent which Lessee assumes or agrees or is otherwise obligated to pay under the Lease, including, without limitation, to the Lessor, the Lender or any other party, including Fair Market Sales Value payments, Stipulated Loss value payments, and indemnities and damages for breach of any covenants, representations, warranties or agreements; provided that, when Supplemental Rent is used with respect to the Property, then Supplemental Rent shall be such amounts determined in respect of the Property.

“Term” shall mean the Base Term and Renewal Term (if any).

“Terms” shall have the meaning specified in Section 4.1 of the Lease.

“Threshold Amount” shall mean $2,000,000.00, but if the Lessee does not have a credit rating (as calculated under the definition of Trigger Rating) at least equal to the Trigger Rating, Threshold Amount shall mean $500,000.

“Title Insurance Company” shall mean Chicago Title Insurance Company.

“Trigger Rating”, with respect to any Person, shall mean that the senior unsecured obligations of such Person shall have a rating, (or if the senior unsecured obligations of such Person shall not be rated, such Person shall have a confidential debt rating) of BBB by Standard & Poor’s, and by Baa2 by Moody’s.

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SCHEDULE 3.1

Rental Payments

Years	Rent Per Annum*
1-5	$288,859.00
6-10	$303,301.95
11-15	$318,467.05
16-20	$334,390.40
Renewal Terms	The Base Rent for each Renewal Term shall be increased to an amount which is 105% of the immediate preceding Base Rent.

The Rents per annum will be modified pursuant to the provisions of Article 4 upon completion of the Improvements.

* Pursuant to the provisions of Section 4.4(b) of this Lease, Lessee will use its diligent, good faith, efforts to subdivide the Remainder Parcel from the Total Parcel. Until such time as Lessee is able to complete the subdivision, Lessee shall pay, in addition to the Rent Per Annum set forth above, the sum of $17,749.67 per month as Rent applicable to the Remainder Parcel. If the Remainder Parcel is not subdivided from the Total Parcel within twelve (12) months after the Closing Date the Rents Per Annum set forth above shall be modified to include the Rent applicable to the Remainder Parcel and such Rent will be subject to all of the increases set forth above.

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SCHEDULE 9.1

Insurance Requirements

(a) Lessee covenants and agrees that it will at all times keep in full force and effect the following insurance coverage:

(i) A broad form commercial general liability insurance policy or its then current industry acceptable equivalent (unamended except for amendments increasing coverages or adding additional insured parties), including but not limited to premises, operations, automobile liability (which may be carried by separate policy) and products liability, personal injury liability, contractual liability, and property damage liability coverage at the Property and the business conducted by Lessee thereon. The policy shall provide coverage limits of not less than One Million Dollars per occurrence Two Million Dollars ($2,000,000) aggregate. Lessee shall also provide a commercial excess or umbrella liability of Ten Million Dollars ($10,000,000) insuring Lessor and the Lender and its successors and assigns as additional insureds, as their interest may appear. Lessor may reasonably require other types of general liability insurance, based upon (A) the loss history at the Property, and (B) industry standards, and taking into account Lessee’s (or its parent’s, if applicable) insurance program, and other types of coverage being obtained in similar transactions. To the extent commercially available, such policy shall contain a deductible of not more than Twenty-Five Thousand Dollars ($25,000.00) per occurrence. (One Hundred Thousand Dollars ($100,000.00) per occurrence so long as Lessee maintains a net worth of, at least, One Hundred Million Dollars ($100,000,000.00). In the event Lessee maintains a deductible in excess of $25,000 or $100,000 as required above, (but not more than $250,000) Lessee may provide a letter of credit in form approved by Lessor which approval shall not unreasonably be withheld in the amount of the difference between the actual deductible and the applicable limits to the deductible as described above.

(ii) A comprehensive all risk “special form” policy of standard 100% replacement cost insurance with agreed amount endorsements and no coinsurance against physical loss or damage by fire, lightning and other risks and supplementary perils from time to time included under all risk policies, with standard and extended coverage or all risk endorsement, including without limitation, vandalism and malicious mischief and also including terrorist acts based upon the relevant provisions of the Terrorist Risk Insurance Act of 2002 (“TRIA”) or, if TRIA is no longer applicable against foreign terrorist acts (to the extent commercially available) of all building and other facilities and improvements constructed on the Property and all tenant finish and leasehold improvements and fixtures and loss of rent for actual loss sustained for a period of at least twenty-four (24) months. This policy shall name Lessor and the Lender its successors and assigns as loss payees and mortgagee as their interest may appear. To the extent commercially available, such policy shall contain a deductible of not more than Twenty Five Thousand Dollars ($25,000) per occurrence (One Hundred Thousand Dollars ($100,000.00) per occurrence if Lessee maintains a new worth of at least One Hundred Million Dollars ($100,000,000.00) unless Lessee has a Required Rating at least equal to the Trigger Rating, in which case the deductible may be no more than five percent (5%) of the replacement cost of the

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Improvements, excluding footings and foundation, as reasonably evidenced to Lessor and Lender upon request of Lessor on behalf of the Lender. Lessee shall be responsible for all deductibles.

(iii) Workers’ compensation or other such insurance in accordance with applicable state law requirements covering all of Lessee’s employees.

If Lessee is self-insuring, its obligations shall be that of an insurer under the form of policy delivered to Lessor as of the Closing.

(iv) To the extent the use of the Property is legal, but nonconforming to existing zoning laws from time to time, Lessee shall also provide law and ordinance insurance.

(b) If the Lessee fails to satisfy the condition necessary to maintain a program of self-insurance adequate to satisfy the requirements set forth herein, Lessee shall have a period of five (5) days in which to obtain the necessary insurance coverage and deliver to Lessor and the Lender a certificate of insurance evidencing compliance with the requirements set forth in Section 9.1.

(c) All policies of insurance described in this Schedule which Lessee is required to procure and maintain shall be issued by one or more primary insurers having a Standard & Poor’s rating equal to A- or better.

(d) Unless Lessee elects (and is permitted) to self-insure as provided in Section 9.1(b), certificates of such insurance will be delivered to Lessor and the Lender, and any additional insureds upon execution of this Lease and any renewals or extensions of said policies or certificates of insurance shall be delivered to Lessor and the Lender at least ten (10) days prior to the expiration or termination of such policies. Upon request of Lessor or Lender, Lessee shall provide certified copies of those portions of any policy requested covering all aspects of how a claim can or may be made under such policy, within thirty (30) days of request. In the alternative, Lessee may provide a certificate from its insurance broker setting forth all of the foregoing, in form and substance reasonably satisfactory to Lessor and the Lender. Unless Lessee elects (and is permitted) to self-insure as provided in Section 9.1(b), all liability and property damage policies will contain the following provisions:

(i) The company writing such policy will agree to give the insured and additionally named insured parties or loss payees not less than thirty (30) days (ten (10) days for nonpayment of premium) notice in writing prior to any cancellation, reduction, or material modification of such insurance;

(ii) Lessor and the Lender shall be named as additional insured or loss payees, as their interests may appear, for each insurance policy required to be maintained by Lessee (except (a)(iv) above), with all proceeds under any policy under (a)(ii) and (iii) to be paid in accordance with the provisions of the Lease.

(e) Any insurance required by the Lease (excluding, however, the coverage identified in Section (a)(ii) above) may be brought within the coverage of a so-called blanket policy or policies of insurance carried by and maintained by the insuring party insuring the combined operations at the Property with other premises leased or owned by Lessee, so long as the insured party and the additional insureds required hereunder are named under such policies as their interest may appear with coverage at least as good as required herein.

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(f) If Lessee fails to acquire or maintain the insurance required pursuant to this Schedule and Article 9 or to pay the premiums for such insurance and deliver the required certificates, Lessor may, in addition to other rights and remedies available to Lessor, acquire such insurance and/or pay the requisite premiums therefor. Such premiums so paid by Lessor will be reimbursable and payable by Lessee immediately upon written demand therefor made to Lessee by Lessor, plus interest at the Default Rate from the date paid by Lessor until reimbursement by Lessee.

(g) Except to the extent otherwise provided in the Lease, the parties hereto release each other, and their respective representatives, agents, contractors and employees from any claims for damage to the Property and all improvements located in the Property, and to the fixtures, personal property, improvements, and alteration of either Lessor or Lessee in or upon the Property, that are caused by or result from risks insured against under any property insurance policies carried by the parties (or which should have been carried by the parties pursuant to the terms hereof) or, in the case of Lessee’s self-insurance, all risks that would otherwise be insured against under the property policies identified herein; provided, however, the foregoing shall not impair any claim against Lessee in its capacity as self insurer. Each party shall cause each property insurance policy obtained by it (recognizing that Lessor may not in fact obtain any insurance) to provide that the insurance company waives in writing all right of recovery by way of subrogation against the other party in connection with any damage covered by such policy. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against (or to be insured against) under any property insurance policy required by the Lease or self-insurance maintained in lieu of any such required insurance.

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SCHEDULE 12.2

The first $500,000.00 of any Condemnation shall be divided between the Lessor and Lessee as follows:

If the taking takes place in:	The Lessor receives:		The Lessee receives:
2006	8.3	%	91.7	%
2007	16.7	%	83.3	%
2008	25	%	75	%
2009	33.3	%	66.7	%
2010	41.7	%	58.3	%
2011	50	%	50	%
2012	58.3	%	41.7	%
2013	66.7	%	33.3	%
2014	75	%	25	%
2015	83.3	%	16.7	%
2016	91.7	%	8.3	%
2017	100	%	0	%
[    ]

During any Renewal Term the proceeds shall be allocated 100% to the Lessor.

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EXHIBIT A

LEGAL DESCRIPTION OF TOTAL PARCEL

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF STOCKTON, COUNTY OF SAN JOAQUIN, STATE OF CALIFORNIA AND IS DESCRIBED AS FOLLOWS:

A PORTION OF THE SOUTH HALF OF SECTION 35, AND THE NORTH HALF O F SECTION 36 OF C.M. WEBER GRANT, EL RANCHO DEL CAMPO DE LOS FRANCESES DESCRIBED AS FOLLOWS:

PARCEL 1, AS SHOWN UPON THAT CERTAIN PARCEL MAP FILED FOR RECORD APRIL 8, 2003, IN BOOK 22 OF PARCEL MAPS, AT PAGE 145, SAN JOAQUIN COUNTY RECORDS.

ASSESSOR’S PARCEL NO: a portion of 177-140-08

APN: a portion of 177-140-25

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EXHIBIT B

Form of Estoppel Agreement

                                , the                                  of [Lessee][Lessor] hereby certifies that as of                  (the “Certification Date”), the following is true and correct:

(a) the Lease dated as of                     , 2006 is unmodified and in force and effect [(or if there have been modifications, that the Lease is in force and effect as modified, and identifying the modification agreements];

(b) the date to which Base Rent has been paid is                          ,         ;

(c) to the best of Lessee’s knowledge there is no default by Lessee in the payment of Base Rent or any other Rent payable to Lessor hereunder, and there is no other existing default by either party with respect to which a notice of default or notice of termination (by Lessor) has been served, [and, if there is any such default, specifying the nature and extent thereof], and, to the actual knowledge of the property or asset manager of Lessee having responsibility for the Lease and Property, and the officer to which he or she reports, there are no acts under the Lease that have occurred that would constitute a Lease Event of Default with notice, and the passage of time;

(d) to the knowledge of the signer, there are no setoffs, defenses or counterclaims against enforcement of the obligations to be performed hereunder existing in favor of the party executing such certificate.

(e) the term of the Lease and the payment of rent commenced on                     , 2006, and is scheduled to expire on                     , 20    , unless renewed or terminated in accordance with the terms of the Lease. Pursuant to the Lease, Lessee is entitled to renew the Lease for two (2) terms of five (5) years each and a third (3^rd) term of four (4) years.

[(f) Lessee is not the subject of any filing for bankruptcy or reorganization under any applicable law.]¹

[LESSOR/LESSEE]

¹ Only if Lessee is delivering estoppel certificate.

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EXHIBIT C -1

COMMENCING AT THE WESTERLY CORNER OF SAID PARCEL 1;

THENCE ALONG THE NORTHWESTERLY LINE OF SAID PARCEL 1, NORTH 72°45’44” EAST 928.85 FEET TO THE POINT OF BEGINNING OF THIS DESCRIPTION;

THENCE CONTINUING ALONG SAID NORTHERLY LINE, NORTH 72° 45’ 44” EAST, 1239.76 FEET;

THENCE CONTINUING ALONG SAID NOTERHLY LINE, NORTH 72° 53’ 47” EAST, 97.52 FEET;

THENCE LEAVING SAID NORTHERLY LINE, SOUTH 17° 39’ 25” EAST, 1055.14 FEET TO A POINT ON THE SOUTHERLY LINE OF SAID PARCEL1;

THENCE ALONG SAID SOUTHERLY LINE, SOUTH 72° 20’ 35” WEST, 1337.24 FEET;

THENCE LEAVING SAID SOUTHERLY LINE, NORTH 17° 39” 25” WEST, 1065.16 FEET TO THE POINT OF BEGINNING.

CONTAINING 1,417,822 SQUARE FEET OR 32.5487 ACRES, MORE OR LESS.

KIER AND WRIGHT CIVIL ENGINEERS & SURVEYORS, INC.

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EXHIBIT C-2

LEGAL DESCRIPTION OF ADJACENT PROPERTY

ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE CITY OF STOCKTON, COUNTY OF SAN JOAQUIN, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:

BEING A PORTION OF PARCEL 1 AS SAID PARCEL IS SHOWN ON THAT CERTAIN PARCEL MAP FILED APRIL 8, 2003 IN BOOK 22 OF PARCEL MAPS AT PAGE 145, SAN JOAQUIN COUNTY RECORDS, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT THE WESTERLY CORNER OF SAID PARCEL 1;

THENCE ALONG THE NORTHWESTERLY LINE OF SAID PARCEL 1, NORTH 72°45’44 EAST 928.85 FEET;

THENCE LEAVING SAID NORTHERLY LINE, SOUTH 17° 39’ 25” EAST, 1065.16 FEET TO A POINT ON THE SOUTHERLY LINE OF SAID PARCEL 1;

THENCE ALONG THE EXTERIOR BOUNDARY OF SAID PARCEL ONE, SOUTH 72° 20’ 35” WEST, 902.67 FEET;

THENCE, CONTINUING ALONG SAID EXTERIOR BOUNDARY, NORTH 62° 35’ 40” WEST, 40.26 FEET;

THENCE CONTINUING ALONG SAID EXTERIOR BOUNDARY, NORTH 17° 31’ 55” WEST, 1043.45 FEET TO THE POINT OF BEGINNING.

CONTAINING 993,348 SQUARE FEET OR 22.8041 ACRES, MORE OR LESS.

KIER AND WRIGHT CIVIL ENGINEERS & SURVEYORS, INC.

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EXHIBIT C-3

LEGAL DESCRIPTION OF REMAINDER PARCEL

ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE CITY OF STOCKTON, COUNTY OF SAN JOAQUIN, STATE OF CALIFORNA, DESCRIBED AS FOLLOWS:

BEING A PORTION OF PARCEL 1 AS SAID PARCEL IS SHOWN ON THAT CERTAIN PARCEL MAP FILED APRIL 8, 2003 IN BOOK 22 OF PARCEL MAPS AT PAGE 145, SAN JOAQUIN COUNTY RECORDS, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCING AT THE WESTERLY CORNER OF SAID PARCEL 1;

THENCE ALONG THE NORTHWESTERLY LINE OF SAID PARCEL 1, NORTH 72°45’44” EAST 2168.61 FEET;

THENCE CONTINUING ALONG SAID NORTHERLY LINE, NORTH 72° 53’ 47” EAST, 97.52 FEET TO THE POINT OF BEGINNING OF THIS DESCRIPTION;

THENCE LEAVING SAID NORTHERLY LINE, SOUTH 17° 39’ 25” EAST 1055.14 FEET TO A POINT ON THE SOUTHERLY LINE OF SAID PARCEL 1;

THENCE ALONG THE EXTERIOR BOUNDARY OF SAID PARCEL ONE THE FOLLOWING 10 COURSES:

THENCE NORTH 72°20’35” EAST, 987.44 FEET;

THENCE NORTH 27°34’52” EAST, 42.60 FEET;

THENCE NORTH 17°10’51” WEST, 733.14 FEET;

THENCE NORTH 19°28’17” WEST, 150.12 FEET;

THENCE NORTH 17°10’51” WEST, 70.14 FEET;

THENCE NORTH 62°08’32” WEST, 28.30 FEET;

THENCE SOUTH 72° 53’47” WEST, 401.87 FEET;

THENCE WESTERLY, ALONG THE ARC OF THE 830.00 FOOT RADIUS CURVE TO THE RIGHT, THROUGH A CENTRAL ANGLE OF 10° 02’ 59”, AN ARC DISTANCE OF 145.58 FEET;

THENCE SOUTH 82° 56’ 46” WEST, 100.00 FEET;

THENCE WESTERLY ALONG THE ARC OF A 770.00 FOOT RADIUS CURVE TO THE LEFT, THROUGH A CENTRAL ANGLE OF 10° 02’ 59”, AN ARC DISTANCE OF 135.06 FEET;

THENCE SOUTH 72° 53’ 47” WEST, 220.70 FEET TO THE POINT OF BEGINNING.

CONTAINING 1,045,461 SQUARE FEET OR 24.0005 ACRES, MORE OR LESS.

KIER AND WRIGHT CIVIL ENGINEERS & SURVEYORS, INC.

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EXHIBIT D

SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT

THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (the “Agreement”) is made as of the        day December 2005 by and between BEAR STEARNS COMMERICAL MORTGAGE, INC., having an address at 383 Madison Avenue, New York, New York 10179 (“Lender”) and Cost Plus, Inc., a California corporation (“Tenant”).

RECITALS:

A. Tenant is the holder of a leasehold estate in a portion of the property known as Cost Plus Facility located at 3610 South Airport Way, Stockton, California as more particularly described on Schedule A (the “Property”) under and pursuant to the provisions of a certain lease dated                         , 200     between                                         , as landlord (“Landlord”) and Tenant or its predecessor in interest, as tenant (as amended through the date hereof, the “Lease”);

B. The Property is or is to be encumbered by one or more mortgages, deeds of trust, deeds to secure debt or similar security agreements (collectively, the “Security Instrument”) from Landlord, or its successor in interest, in favor of Lender; and

C. Tenant has agreed to subordinate the Lease to the Security Instrument and to the lien thereof and Lender has agreed to grant non-disturbance to Tenant under the Lease on the terms and conditions hereinafter set forth.

AGREEMENT:

NOW, THEREFORE, the parties hereto mutually agree as follows:

1. Subordination. The Lease shall be subject and subordinate in all respects to the lien and terms of the Security Instrument, to any and all advances to be made thereunder and to all renewals, modifications, consolidations, replacements and extensions thereof.

2. Nondisturbance. So long as Tenant is not in default (beyond applicable notice and cure periods) of any of its obligations and covenants pursuant to the Lease, Lender agrees for itself and its successors in interest and for any other person acquiring title to the Property through a foreclosure (an “Acquiring Party”), that Tenant’s possession of the premises as described in the Lease will not be disturbed during the term of the Lease, as said term may be extended pursuant to the terms of the Lease or as said premises may be expanded as specified in the Lease, by reason of a foreclosure. For purposes of this agreement, a “foreclosure” shall include (but not be limited to) a sheriff’s or trustee’s sale under the power of sale contained in the Security Instrument, the termination of any superior lease of the Property and any other transfer of the Landlord’s interest in the Property under peril of foreclosure, including, without limitation to the generality of the foregoing, an assignment or sale in lieu of foreclosure.

3. Attornment. Tenant agrees to attorn to, accept and recognize any Acquiring Party as the landlord under the Lease pursuant to the provisions expressly set forth therein for the then remaining balance of the term of the Lease, and any extensions thereof as made pursuant to the Lease. The foregoing provision shall be self-operative and shall not require the execution of any further instrument or agreement by Tenant as a condition to its effectiveness. Tenant agrees, however, to execute and deliver, at any time and from time to time, upon the request of the Lender or any Acquiring Party any reasonable instrument which may be necessary or appropriate to evidence such attornment.

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4. No Liability. Notwithstanding anything to the contrary contained herein or in the Lease, it is specifically understood and agreed that neither the Lender, any receiver nor any Acquiring Party shall be:

(a) liable for any act, omission, negligence or default of any prior landlord (other than to cure defaults of a continuing nature with respect to the maintenance or repair of the demised premises or the Property); provided, however, that any Acquiring Party shall be liable and responsible for the performance of all covenants and obligations of landlord under the Lease accruing from and after the date that it takes title to the Property; or

(b) except as set forth in (a), above, liable for any failure of any prior landlord to construct any improvements;

(c) subject to any offsets, credits, claims or defenses which Tenant might have against any prior landlord; or

(d) bound by any rent or additional rent which is payable on a monthly basis and which Tenant might have paid for more than one (1) month in advance to any prior landlord; or

(e) liable to Tenant hereunder or under the terms of the Lease beyond its interest in the Property or

(f) liable or responsible for or with respect to the retention, application and or/return to the Tenant of any security deposit paid to Landlord or any prior landlord, unless and until Lender or such Acquiring Party has actually received for its own account as landlord the full amount of such security deposit.

Notwithstanding the foregoing, Tenant reserves its rights to any and all claims or causes of action against such prior landlord for prior losses or damages and against the successor landlord for all losses or damages arising from and after the date that such successor landlord takes title to the Property.

5. Rent. Tenant has notice that the Lease and the rents and all other sums due thereunder have been assigned to Lender as security for the loan secured by the Security Instrument. In the event Lender notifies Tenant of the occurrence of a default under the Security Instrument and demands that Tenant pay its rents and all other sums due or to become due under the Lease directly to Lender, Tenant shall honor such demand and pay its rent and all other sums due under the Lease directly to Lender or as otherwise authorized in writing by Lender. Landlord hereby irrevocably authorizes Tenant to make the foregoing payments to Lender upon such notice and demand.

6. Lender to Receive Notices. Tenant shall notify Lender of any default by Landlord under the Lease which would entitle Tenant to cancel the Lease, and agrees that, notwithstanding any provisions of the Lease to the contrary, no notice of cancellation thereof shall be effective unless Lender shall have received notice of default giving rise to such cancellation and shall have failed within thirty (30) days after receipt of such notice to cure such default, or if such default cannot be cured within thirty (30) days, shall have failed within thirty (30) days after receipt of such notice to commence and thereafter diligently pursue any action necessary to cure such default.

7. Notices. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person with receipt acknowledged by the recipient thereof, (ii) one (1) Business Day (hereinafter defined) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by

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registered or certified mail, postage prepaid, return receipt requested, addressed to the receiving party at its address set forth above, and:

if to Tenant, to
the attention of:	Cost Plus, Inc.
	200 4th Street
	Oakland, California 94607
	Attn: Lease Administrator
and
if to Lender:	Bear Stearns Commercial Mortgage, Inc.
	its successors and/or assigns
	383 Madison Avenue
	New York, New York 10179
	Attention: J. Christopher Hoeffel

or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this Paragraph 7, the term “Business Day” shall mean any day other than Saturday, Sunday or any other day on which banks are required or authorized to close in New York, New York.

Either party by notice to the other may designate additional or different addresses for subsequent notices or communications.

8. Successors. The obligations and rights of the parties pursuant to this Agreement shall bind and inure to the benefit of the successors, assigns, heirs and legal representatives of the respective parties. In addition, Tenant acknowledges that all references herein to Landlord shall mean the owner of the landlord’s interest in the Lease, even if said owner shall be different than the Landlord named in the Recitals.

9. Duplicate Originals; Counterparts. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Agreement. The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder.

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IN WITNESS WHEREOF, Lender and Tenant have duly executed this Agreement as of the date first above written.

LENDER:
BEAR STEARNS COMMERCIAL MORTGAGE, INC., a New York corporation
By:
Name:
	Authorized Signatory
TENANT:
COST PLUS, INC.
A California corporation
By:
Name:
Title:
The undersigned as the Landlord named in the Recitals or as successor thereto hereby accepts and agrees to be bound by the provisions of Paragraph 5 hereof.
INLAND WESTERN STOCKTON AIRPORT WAY, L.L.C., a Delaware limited liability company
By:	Inland Western Retail Real Estate Trust, Inc., a Maryland corporation
		By:
		Name:
		Title:

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STATE OF	)
	)
COUNTY OF	)

I, the undersigned, a Notary Public of the County and State aforesaid, certify that                                          personally came before me this day and acknowledged that he/she is the                              of BEAR STEARNS COMMERCIAL MORTGAGE, INC., a New York corporation and that he/she as its                             , being duly authorized to do so, executed the foregoing instrument on behalf of the corporation.

WITNESS my hand and official seal, this      day of                         , 200    .

Notary Public

My commission expires:                             

[NOTARIAL SEAL]

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STATE OF	)
	)
COUNTY OF	)

I, the undersigned, a Notary Public of the County and State aforesaid, certify that                                          personally came before me this day and acknowledged that he/she is the                                  of                                                  , a                                                   and that he/she as its                                         , being duly authorized to do so, executed the foregoing instrument on behalf of the corporation.

WITNESS my hand and official seal, this      day of                         , 200    .

Notary Public

My commission expires:                             

[NOTARIAL SEAL]

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STATE OF                                              

COUNTY OF                                          

I, the undersigned, a Notary Public of the County and State aforesaid, certify that                                                   personally came before me this day and acknowledged that he/she is the                          of INLAND RETAIL REAL ESTATE TRUST, INC., a Maryland corporation, which is the general partner of INLAND RETAIL REAL ESTATE LIMITED PARTNERSHIP, an Illinois limited partnership, which is the sole member and manager of INLAND SOUTHEAST                         , L.L.C., a Delaware limited liability company and that he/she as its                         , being duly authorized to do so, executed the foregoing instrument on behalf of the corporation.

WITNESS my hand and official seal, this      day of                         , 200    .

Notary Public

My commission expires:                             

[NOTARIAL SEAL]

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EXHIBIT “A”

(Attach Legal Description)

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EXHIBIT E

RECOGNITION AND ATTORNMENT AGREEMENT

This Recognition and Attornment Agreement (the “Agreement”) is entered into as of                         , by and among Inland Western Stockton Airport Way, L.L.C., a Delaware limited liability company, whose address is c/o The Inland Real Estate Group, Inc., 2901 Butterfield Road, Oak Brook, Illinois 60523, Attention: Roberta Matlin (with a copy to The Inland Real Estate Group, Inc., 2901 Butterfield Road, Oak Brook, Illinois 60523, Attention: Robert H. Baum, General Counsel) (“Ground Lessor”); Inland Western Stockton Ground Tenant, L.L.C., a Delaware limited liability company, whose address is c/o The Inland Real Estate Group, Inc., 2901 Butterfield Road, Oak Brook, Illinois 60523, Attention: Roberta Matlin (with a copy to The Inland Real Estate Group, Inc., 2901 Butterfield Road, Oak Brook, Illinois 60523, Attention: Robert H. Baum, General Counsel) (“Lessor”); and Cost Plus, Inc., a California corporation, whose address is 200 Fourth Street, Oakland, California 94607, Attention: Real Estate Department (with a copy to Cooper, White & Cooper LLP, 201 California Street, 17^th Floor, San Francisco, California 94111, Attention: Beau Simon) (“Lessee”).

RECITALS

This Agreement is entered into on the basis of the following facts, understandings, and intentions.

A. Ground Lessor, as lessor, and Lessor, as lessee, are parties to that certain Ground Lease Agreement of even date herewith (the “Ground Lease”) with respect to that certain real property located in the City of Stockton, State of California, as more particularly described in the Ground Lease (the “Property”).

B. Lessor and Lessee are parties to that certain Subground Lease Agreement of even date herewith (the “Sublease”) with respect to the Property.

C. Lessee would not enter into the Sublease but for the willingness of Ground Lessor and Lessor to enter into this Agreement.

D. The parties now wish to enter into this Agreement.

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and promises set forth herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows.

AGREEMENT

1. Ground Lessor’s Consent. Ground Lessor hereby consents to the Sublease.

2. Representations, Warranties, and Covenants with Respect to Ground Lease. Ground Lessor and Lessor represent and warrant to Lessee that, as of the date of this Agreement, Ground Lessor is the fee owner of the Property, the Ground Lease is in full force and effect and

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is unmodified, and neither Ground Lessor nor Lessor is in breach or default of any of the provisions of the Ground Lease. In addition, Ground Lessor and Lessor covenant and agree, for the benefit of Lessee, that they will not enter into any modification of the Ground Lease that adversely affects (or, in the case of modification of the Ground Lease required by a lender of Ground Lessor or Lessor, that materially adversely affects) the Sublease or Lessee’s rights under the Sublease (and, in any event, Ground Lessor and Lessor shall provide Lessee with prior written notice of any contemplated modification of the Ground Lease) and that they will not take any action or perform any act, or fail to take any action or perform any act, that would result in a breach or default of any of the provisions of the Ground Lease beyond the expiration of the applicable notice and cure period set forth in the Ground Lease.

3. Non-Disturbance. So long as Lessee is not in default under the Sublease beyond the expiration of the applicable notice and cure period under the Sublease, Ground Lessor shall not, in the exercise of any rights arising out of or in connection with the Ground Lease (or any modification or replacement thereof, whether or not resulting from Lessor’s breach or default under the Ground Lease), disturb or deprive Lessee in or of its possession or right to possession of the Property pursuant to the Sublease or of any right or privilege granted to or inuring to the benefit of Lessee under the Sublease.

4. Recognition and Attornment. In the event of termination of the Ground Lease by breach or default (of either party), re-entry, notice, surrender, summary proceeding, or other action or proceeding, or otherwise, and if immediately prior to such termination the Sublease shall be in effect, Lessee shall not be made a party in any removal or eviction action or proceeding nor shall Lessee be evicted or removed of its possession or right to possession of the Property (nor shall its possession or right to possession of the Property be disturbed or interfered with in any way), and the Sublease shall continue in full force and effect as a direct lease between Ground Lessor and Lessee. In such event, Ground Lessor shall recognize the rights and interests of Lessee under the Sublease and Lessee shall attorn to Ground Lessor under the Sublease.

5. Miscellaneous.

a. Nothing in this Agreement shall be deemed to change the provisions of the Ground Lease or to release Lessor from its obligations under the Ground Lease or to waive any right that Ground Lessor may have against Lessor under the Ground Lease. Except as specifically set forth in this Agreement, Ground Lessor shall have no obligation or liability to Lessee.

b. Any notice, demand, request, consent, approval, or other communication under this Agreement shall be in writing and shall be sent, postage prepaid, either by certified or registered mail (return receipt requested) or nationally recognized overnight courier service to the appropriate party at its address(es) specified in the opening paragraph of this Agreement. Notice shall be deemed effective upon receipt (or refusal of receipt). Any party to this Agreement may change its address for notices hereunder by notice given in accordance with the provisions of this paragraph.

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c. If any party commences any action or proceeding against another party arising out of or in connection with this Agreement, or institutes any proceeding in a bankruptcy or similar court which has jurisdiction over such other party or any or all of its property or assets, the unsuccessful party in such action or proceeding shall pay to the prevailing party all costs and expenses, including without limitation reasonable attorneys’ fees, court costs, expenses, and other costs of investigation and preparation (including without limitation in connection with any appeal).

d. This Agreement shall be binding upon, and shall inure to the benefit of, the parties and their respective successors and assigns.

e. The terms of this Agreement are intended by the parties as the final expression of their agreement with respect to such terms as are included in this Agreement, and may not be contradicted by the evidence of any prior or contemporaneous agreement, arrangement, understanding, or negotiation (whether oral or written).

f. No waiver or modification of any provision of this Agreement shall be valid unless in writing, and, in the case of a modification, unless signed by all parties. No waiver of a breach of any provision hereof shall be deemed a waiver of such provision or of any subsequent breach of the same or similar nature, or of any other provision of this Agreement.

g. If any provision of this Agreement is determined to be invalid or unenforceable, the remainder of this Agreement shall be enforceable and shall in no way be invalidated.

h. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California applicable to agreements made and entirely performed therein by California residents.

i. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, each party has caused its duly authorized representative(s) to execute this Agreement for and on its behalf as of the date first above written.

Ground Lessor:		Lessee:
Inland Western Stockton Airport Way, L.L.C., a Delaware limited liability company		Cost Plus, Inc., a California corporation
By	Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member	By
		Name
		Title
	By	By
	Name	Name
	Title	Title

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Lessor:
Inland Western Stockton Ground Tenant, L.L.C., a Delaware limited liability company
By:	Inland Western Retail Real Estate Trust, Inc., a Maryland corporation, its sole member
	By
	Name
	Title

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EX-10.3

Exhibit 10.3

AMENDMENT TO CREDIT AGREEMENT

This AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of April 7, 2006, is entered into by and among COST PLUS, INC., a California corporation (the “Borrower”), each lender from time to time party to the Credit Agreement referred to below (each, a “Lender”, and collectively, the “Lenders”), and BANK OF AMERICA, N.A., as Administrative Agent (in such capacity, the “Administrative Agent”) and L/C Issuer.

RECITALS

A. The Borrower, the Lenders and the Administrative Agent are party to a Credit Agreement dated as of November 10, 2004, (as amended, restated, extended, supplemented or otherwise modified from time to time, the “Credit Agreement”), pursuant to which the Administrative Agent and the Lenders have extended certain credit facilities to the Borrower.

B The Borrower has requested that the Administrative Agent and the Lenders agree to certain amendments to the Credit Agreement, and the Lenders have agreed to such request, subject to the terms and conditions of this Amendment.

NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings assigned to such terms in the Credit Agreement. As used herein, “Amendment Documents” means this Amendment, the Credit Agreement (as amended by this Amendment), the Guarantor Consent and each certificate and other document executed and delivered by the Borrowers pursuant to Section 6 hereof.

2. Interpretation. The rules of interpretation set forth in Sections 1.02, 1.03, 1.04, 1.05, and 1.06 of the Credit Agreement shall be applicable to this Amendment and are incorporated herein by this reference.

3. Amendments to Credit Agreement. Subject to the terms and conditions hereof, and with effect from and after the Effective Date, the Credit Agreement shall be amended as follows:

(a) The definition of “Proposed New Stockton Facility” shall be amended and restated to read as follows:

“ “Proposed New Stockton Facility” means, collectively, (i) the 500,000 square-foot distribution facility located on Airport Way, Stockton, California and acquired in fiscal year ending January 28, 2006 (the “Stage 1 Stockton Facility”), and (ii) a 500,000 square-foot distribution facility adjacent to the Stage 1 Stockton Facility, to be constructed commencing fiscal year ending February 3, 2007.”

(b) Section 2.03 shall be amended by inserting the following at the end thereof:

“(l) Letters of Credit Issued for Subsidiaries. Notwithstanding any term or provision of this Section 2.03 to the contrary, the Lenders, Administrative Agent, L/C Issuer and Loan Parties agree that Letters of Credit otherwise permitted to be requested, issued and outstanding hereunder for the account of the Borrower may instead be requested, issued and outstanding for the account of any other Subsidiary of the Borrower that is a Loan Party (any such Subsidiary, an “AP Subsidiary,” any such Letter of Credit, a “Subsidiary Letter of Credit”). In connection with any such Subsidiary Letter of Credit:

(i) The Borrower acknowledges and agrees that it is and shall be jointly and severally and unconditionally liable for the reimbursement of and any and all other payments of fees and other amounts arising out of such Letter of Credit, without demand upon such AP Subsidiary, and the Borrower hereby acknowledges and agrees that the issuance of such Subsidiary Letter of Credit inures to the benefit of the Borrower;

(ii) Each Letter of Credit Application issued by the Borrower on behalf or for the account of any AP Subsidiary shall specify the applicable AP Subsidiary;

(iii) The Borrower shall promptly upon request deliver to the Administrative Agent and L/C Issuer such additional documents and instruments as either the Administrative Agent or L/C Issuer may request in order to evidence the valid and binding authority of the Borrower to request such Subsidiary Letter of Credit on behalf and for the Account of such AP Subsidiary (which authority shall be deemed represented by the Borrower to exist upon the issuance of any Letter of Credit Application by the Borrower on behalf or for the account of any AP Subsidiary) and to evidence the AP Subsidiary’s obligations in connection therewith, and

(iv) Any such Subsidiary Letter of Credit shall be deemed a “Letter of Credit” for all purposes under this Agreement and the other Loan Documents.”

(c) Section 7.01 shall be amended by amending and restating clause (xvii) thereof to read as follows:

“(xvii) Liens on the Proposed New Stockton Facility securing only Indebtedness permitted by Section 7.03(k) and Section 7.03(l).”

(d) Section 7.03 shall be amended by deleting “and” at the end of subsection (j), and deleting the “.” at the end of subsection (k) thereof and inserting the following in lieu of such “.”:

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“; and

(l) Indebtedness consisting of lease obligations incurred pursuant to the sale–leaseback transactions in respect of the Proposed New Stockton Facility, provided that the aggregate amount of such Indebtedness does not exceed as of the date incurred, the fair market value of the Proposed New Stockton Facility.”

(e) Section 7.03 shall be further amended, at subsection (f) thereof, by inserting after the phrase “without regard to Section 7.11)” the following;

“and further excluding the leases relating to the Proposed New Stockton Facility permitted under Section 7.03(l)”

(f) Section 7.05(f) shall be amended and restated to read as follows:

“(f) Dispositions by the Borrower and its Subsidiaries of PP&E pursuant to sale-leaseback transactions resulting solely in operating lease obligations, provided that (i) the sale-leaseback of the Proposed New Stockton Facility may entail leases permitted under Section 7.03(l), and (ii) the aggregate fair market value of all PP&E so Disposed of in any fiscal year of the Borrower (commencing as of February 1, 2004 and other than in respect of any such sale-leaseback transaction involving the Proposed New Stockton Facility and undertaken during the fiscal year of the Borrower ending February 3, 2007) shall not exceed $10,000,000;”

(g) Section 7.11 shall be amended and restated to read as follows:

“7.11 Capital Expenditures. Make or become legally obligated to make any expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations), not exceeding, in the aggregate for the Borrower and it Subsidiaries during each fiscal year set forth below, the amount set forth opposite such fiscal year:

Fiscal Year Ending	Amount
2005	$	80,000,000
2006	$	50,000,000
2007	$	75,000,000
2008	$	65,000,000
2009	$	63,000,000
2010	$	72,000,000

provided that the Borrower and its Subsidiaries may make or become obligated to make an additional $55,000,000 of

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capital expenditures over the term of this Agreement so long as such additional capital expenditures relate directly to the acquisition, construction or sale-leaseback of the Proposed New Stockton Facility.”

4. Waiver. The Lenders hereby waive the Events of Default existing on the Effective Date or thereafter under Section 8.01(e) of the Credit Agreement, by virtue of cross-defaults existing on the Effective Date and continuing thereafter, arising pursuant to (i) that Standing Loan Agreement and Swap Commitment, dated as of February 1, 2005, between Borrower and Bank of America, N.A. and (ii) that Loan Agreement dated May 14, 2004 and between Borrower and Bank of America, as a result of the merger of Cost Plus Marketing Services, Inc. with and into Cost Plus Management Services, Inc. (the “Waived Defaults”).

5. Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent and the Lenders as follows:

(a) No Default has occurred and is continuing (or would result from the amendment to the Credit Agreement contemplated hereby).

(b) The execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, or notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable.

(c) The Amendment Documents constitute the legal, valid and binding obligations of the Borrower or Guarantor party thereto, enforceable against it in accordance with their respective terms, without defense, counterclaim or offset.

(d) All representations and warranties of the Borrower contained in Article V of the Credit Agreement are true and correct on and as of the Effective Date, except to the extent that any such representation and warranty specifically relates to an earlier date, in which case they shall be true and correct as of such earlier date. Other than the Waived Defaults, there exists as of the time immediately prior to the Effective Date, no Default on Event of Default under the Credit Agreement.

(e) The Borrower is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Administrative Agent and the Lenders or any other Person.

(f) The Obligations of the Borrower under the Credit Agreement and each other Loan Document are not subject to any defense, counterclaim, set-off, right of recoupment, abatement or other claim.

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6. Effective Date. (a) This Amendment will become effective when each of the conditions precedent set forth in this Section 6 has been satisfied (the “Effective Date”):

(i) The Administrative Agent shall have received from the Borrower and the Required Lenders a duly executed original (or, if elected by the Administrative Agent, an executed facsimile copy) counterpart to this Amendment.

(ii) The Administrative Agent shall have received from each Guarantor a duly executed original (or, if elected by the Administrative Agent, an executed facsimile copy) counterpart to the Guarantor Consent attached hereto as Exhibit A (the “Guarantor Consent”), and, from the Borrower, satisfactory evidence of the merger of Cost Plus Marketing Services, Inc. into Cost Plus Management Services, Inc.

(iii) The Administrative Agent shall have received from the Borrower a certificate signed by the secretary or assistant secretary of the Borrower, dated as of the Effective Date, in form and substance satisfactory to the Administrative Agent, and certifying evidence of the authorization of the execution, delivery and performance by such Persons of the Amendment Documents to which they are party.

(iv) The Administrative Agent shall have received from the Borrower a certificate executed by a Responsible Officer of the Borrower, in form and substance satisfactory to the Administrative Agent, dated as of the Effective Date and certifying that all representations and warranties contained herein are true and correct as of the Effective Date, as though made on such date.

(v) The Borrower shall have paid all Attorney Costs of the Administrative Agent to the extent invoiced prior to the Effective Date (including any previously invoiced and outstanding Attorney Costs that relate to services previously provided), plus such additional amounts of Attorney Costs as shall constitute the Administrative Agent’s reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings related to this Amendment (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Administrative Agent).

(vi) The Administrative Agent shall have received, in form and substance satisfactory to it, such additional approvals, consents, opinions, documents and other information as the Administrative Agent shall request.

(b) For purposes of determining compliance with the conditions specified in this Section 6, each Lender that has executed this Amendment and delivered it to the Administrative Agent shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document or other matter either sent, or made available for inspection, by the Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Lender.

(c) From and after the Effective Date, the Credit Agreement is amended as set forth herein. Except as expressly amended pursuant hereto, the Credit Agreement shall remain unchanged and in full force and effect and is hereby ratified and confirmed in all respects.

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(d) The Administrative Agent will notify the Borrower and the Lenders of the occurrence of the Effective Date.

7. Reservation of Rights. The Borrower acknowledges and agrees that neither the execution nor the delivery by the Administrative Agent and the Required Lenders of this Amendment, shall (a) be deemed to create a course of dealing or otherwise obligate the Administrative Agent or the Lenders to execute similar amendments under the same or similar circumstances in the future or (b) be deemed to create any implied waiver of any right or remedy of the Administrative Agent or any Lender with respect to any term or provision of any Loan Document (including any term or provision relating to the occurrence of a Material Adverse Effect). Nothing contained herein shall be deemed a waiver of (or otherwise affect any Lender’s or the Administrative Agent’s ability to enforce) any Default or Event of Default, other than the Waived Defaults, under any of the Loan Documents, including without limitation, (i) any Default or Event of Default as may now or hereafter exist and arise from or otherwise be related to the Waived Defaults (including without limitation any other cross-default arising under the Credit Agreement by virtue of any matters resulting from the Waived Defaults), and (ii) any Default or Event of Default arising at any time after the Effective Date and which is the same as or similar to any of the Waived Defaults.

8. Miscellaneous.

(a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement.

(b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment.

(c) THIS AMENDMENT IS SUBJECT TO THE PROVISIONS OF SECTIONS 10.17 AND 10.18 OF THE CREDIT AGREEMENT RELATING TO GOVERNING LAW, VENUE AND WAIVER OF RIGHT TO TRIAL BY JURY, THE PROVISIONS OF WHICH ARE BY THIS REFERENCE INCORPORATED HEREIN IN FULL.

(d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party hereto or thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and the receipt by the Administrative Agent of a facsimile transmitted document purportedly bearing the signature of a Lender or the Borrower shall bind such Lender or the Borrower, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Administrative Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the

6

facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Administrative Agent.

(e) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 10.01 of the Credit Agreement.

(f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively.

(g) The Borrower covenants to pay to or reimburse the Administrative Agent, upon demand, for all costs and expenses (including allocated costs of in-house counsel) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment.

(h) This Amendment shall constitute a “Loan Document” under and as defined in the Credit Agreement.

[Remainder of this page intentionally left blank]

* * *

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

COST PLUS, INC., as the Borrower
By:	/s/ Jane L. Baughman
Name:	Jane L. Baughman
Title:	VP Treasurer

Signature Page 1 to Amendment to Credit Agreement

BANK OF AMERICA, N.A., as Administrative Agent
By:	/s/ Dora A. Brown
Name:	Dora A. Brown
Title:	Vice President
BANK OF AMERICA, N.A., as a Lender and L/C Issuer
By:	/s/ Ronald J. Drobny
Name:	Ronald J. Drobny
Title:	Senior Vice President

Signature Page 2 to Amendment to Credit Agreement

UNION BANK OF CALIFORNIA, N.A., as a Lender
By:	/s/ Michael Stahl
Name:	Michael Stahl
Title:	Credit Officer

Signature Page 3 to Amendment to Credit Agreement

WELLS FARGO HSBC TRADE BANK, N.A., as a Lender
By:	/s/ Juan J. Sanchez
Name:	Juan J. Sanchez
Title:	Vice President

Signature Page 4 to Amendment to Credit Agreement

EXHIBIT A

GUARANTOR CONSENT

The undersigned, in its capacity as a Guarantor, acknowledges that its consent to the foregoing Amendment to Credit Agreement (the “Amendment”) is not required, but the undersigned nevertheless does hereby consent to the foregoing Amendment and to the documents and agreements referred to therein. Nothing herein shall in any way limit any of the terms or provisions of the Guaranty of the undersigned, or any other Loan Document executed by the undersigned (as the same may be amended from time to time), all of which are hereby ratified and affirmed in all respects.

COST PLUS MANAGEMENT SERVICES, INC., as a Guarantor

By:

Name:

Title:

Signature Page Guarantor Consent

EX-10.4

Exhibit 10.4

MODIFICATION AGREEMENT

(Long Form)

This Modification Agreement (“Agreement”) is made as of April 7, 2006 by Cost Plus, Inc., a California corporation (“Borrower”), and Bank of America, National Association, a national banking association (“Bank”).

Factual Background

A. Under a loan agreement dated May 14, 2004 (the “Loan Agreement”), Bank agreed to make a loan (the “Loan”) to Borrower. Capitalized terms used herein without definition have the meanings ascribed to them in the Loan Agreement.

B. The Loan is evidenced by (a) a Commercial Real Estate Loan Note dated May 14, 2004, made payable to Bank in the stated principal amount of $20,000,000.00 (the “Term Note”) and (b) a Revolving Loan Note dated May 14, 2004, made payable to Bank in the stated principal amount of $20,000,000.00 (the “Revolving Note”). The Term Note and the Revolving Note are referred to individually as a “Note” and collectively as “Notes”. The Notes are secured by a Deed of Trust dated May 14, 2004, executed by Borrower, as trustor, to PRLAP, Inc. as trustee, for the benefit of Bank as beneficiary. The Deed of Trust was recorded on May 14, 2004 in the Clerk’s Office of the Circuit Court of Isle of Wight County, Virginia as Instrument No. 04000005663. The Deed of Trust encumbers certain Property located in Isle of Wight County, Virginia, as more particularly therein described.

C. In connection with the Loan, Borrower executed an Environmental Indemnity Agreement (“Borrower’s Unsecured Indemnity”). Borrower’s Unsecured Indemnity is not a Loan Document, as defined below.

D. Cost Plus Management Services, Inc., a California corporation (“Management”), Cost Plus of Texas, a Texas corporation (“Texas”), and Cost Plus Marketing Services, Inc., a California corporation (“Marketing”) (each of Management, Texas and Marketing being a “Guarantor” and collectively, “Guarantors”) have guaranteed Borrower’s obligations to Bank, each in accordance with a Guaranty dated May 14, 2004.

E. Marketing has been merged into Management, with Management being the surviving corporation (“Guarantor Merger”).

F. Each of the Guarantors executed an Environmental Indemnity Agreement dated May 14, 2004 (an “Indemnity Agreement”), in connection with the Loan. In those Indemnity Agreements, the Guarantors, as indemnitors, agreed to indemnify Bank and certain other parties against certain environmental and other risks which may result from Bank’s having made the Loan.

G. As used herein, the term “Loan Documents” means the Loan Agreement, the Notes, the Deed of Trust, and any other documents executed in connection with the Loan, including those which evidence, guarantee, secure or modify the Loan, as any or all of them may have been amended to date. The Loan Documents, however, do not include Borrower’s Unsecured Indemnity or the Indemnity Agreements. This Agreement is a Loan Document.

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H. As of the date of this Agreement, the outstanding principal balance of the Loan is $35,940,609.00 and no funds remain available to be advanced thereunder.

E. Borrower and Bank now wish to modify the Loan as set forth below.

Agreement

Therefore, Borrower and Bank agree as follows:

1. Modification of Loan Documents. The Loan Documents are hereby amended as follows:

(a) Borrower is entering into that certain Amendment to Credit Agreement dated as of April __, 2006, among Borrower, Bank as Administrative Agent, and the Lenders named therein (the “Amendment”). The Amendment modifies portions of the negative covenants set forth in Article VII of that certain Credit Agreement dated November 10, 2004, Bank among Borrower, as Administrative Agent and L/C Issuer, and the Lenders named therein (the “Credit Agreement”) with which Borrower is obligated to comply. Borrower acknowledges such modifications in the Amendment. Borrower further covenants to comply at all times with the negative covenants set forth in Article VII of the Credit Agreement as modified by the Amendment and as the Credit Agreement may be further amended, renewed, extended or replaced from time to time.

(b) The number “$7,500,000.00” in Section 6.15 of the Loan Agreement is deleted and replaced with “$15,000,000.00”.

(c) Section 6.16 of the Loan Agreement is amended and restated in full as follows:

“Unless the written consent of Lender is previously obtained, all or substantially all of the business assets of Borrower or any Guarantor are sold, Borrower or any Guarantor is dissolved, or there occurs any change in the form of business entity through which Borrower or any Guarantor presently conducts its business other than as permitted under Section 7.04 of the Credit Agreement.”

(d) The numbers “$5,000,000.00” and “$7,500,000.00” in Section 6.17 of the Loan Agreement are each deleted and replaced with “$15,000,000.00” in each instance.

(e) Section 8.17 of the Loan Agreement is amended and restated in full as follows:

8.17 Arbitration and Waiver of Jury Trial.

(a) This paragraph concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this agreement (including any renewals, extensions or modifications); or (ii) any document related to this agreement (collectively a “Claim”). For the purposes of this arbitration provision only, the term “parties” shall include any

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parent corporation, subsidiary or affiliate of the Bank involved in the servicing, management or administration of any obligation described or evidenced by this agreement.

(b) At the request of any party to this agreement, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the “Act”). The Act will apply even though this agreement provides that it is governed by the law of a specified state. The arbitration will take place on an individual basis without resort to any form of class action.

(c) Arbitration proceedings will be determined in accordance with the Act, the then-current rules and procedures for the arbitration of financial services disputes of the American Arbitration Association or any successor thereof (“AAA”), and the terms of this paragraph. In the event of any inconsistency, the terms of this paragraph shall control. If AAA is unwilling or unable to (i) serve as the provider of arbitration or (ii) enforce any provision of this arbitration clause, any party to this agreement may substitute another arbitration organization with similar procedures to serve as the provider of arbitration.

(d) The arbitration shall be administered by AAA and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in the state specified in the governing law section of this agreement. All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators. All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days. The arbitrator(s) shall provide a concise written statement of reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed, judgment entered and enforced.

(e) The arbitrator(s) will give effect to statutes of limitation in determining any Claim and may dismiss the arbitration on the basis that the Claim is barred. For purposes of the application of the statute of limitations, the service on AAA under applicable AAA rules of a notice of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s). The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this agreement.

(f) This paragraph does not limit the right of any party to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

(g) The procedure described above will not apply if the Claim, at the time of the proposed submission to arbitration, arises from or relates to an obligation to the Bank secured by real property. In this case, all of the parties to this agreement must consent to submission of the Claim to arbitration. If both parties do not consent to arbitration, the Claim will be resolved

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as follows: The parties will designate a referee (or a panel of referees) selected under the auspices of AAA in the same manner as arbitrators are selected in AAA administered proceedings. The designated referee(s) will be appointed by a court as provided in California Code of Civil Procedure Section 638 and the following related sections. The referee (or presiding referee of the panel) will be an active attorney or a retired judge. The award that results from the decision of the referee(s) will be entered as a judgment in the court that appointed the referee, in accordance with the provisions of California Code of Civil Procedure Sections 644 and 645.

(h) The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

(i) By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim. Furthermore, without intending in any way to limit this agreement to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim. This provision is a material inducement for the parties entering into this agreement.

(f) The Guarantor Merger occurred without the prior written consent of Bank which is an Event of Default under Section 6.16 of the Loan Agreement. Bank hereby waives such Event of Default and any resulting cross default under Section 6.17 of the Loan Agreement caused by the Guarantor Merger (the “Waived Defaults”).

(g) Secured Obligations. The Deed of Trust is modified to secure payment and performance of the Loan as amended to date, in addition to all other “Secured Obligations” as therein defined. The foregoing notwithstanding, certain obligations continue to be excluded from the Secured Obligations, as provided in the Deed of Trust.

2. Conditions Precedent. Before this Agreement becomes effective and any party becomes obligated under it, all of the following conditions shall have been satisfied at Borrower’s sole cost and expense in a manner acceptable to Bank in the exercise of Bank’s sole judgment:

(a) Bank shall have received such assurance as Bank may require that the validity and priority of the Deed of Trust have not been and will not be impaired by this Agreement or the transactions contemplated by it.

(b) Bank shall have received fully executed and, where appropriate, acknowledged originals of this Agreement, the attached consents signed by each Guarantor and any other documents which Bank may require or request in accordance with this Agreement or the other Loan Documents.

(c) Bank shall have received reimbursement, in immediately available funds, of all costs and expenses incurred by Bank in connection with this Agreement, including legal fees and expenses of Bank’s counsel, including the market value of services of in-house counsel.

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3. Borrower’s Representations and Warranties. Borrower represents and warrants to Bank as follows:

(a) Recitals. The recitals set forth above in the Factual Background are true, accurate and correct.

(b) Loan Documents. All representations and warranties made and given by Borrower in the Loan Documents and Borrower’s Unsecured Indemnity are true, accurate and correct.

(c) No Default. Other than the Waived Defaults, no Event of Default has occurred and is continuing, and no event has occurred and is continuing which, with notice or the passage of time or both, would be an Event of Default.

(d) Property. Borrower lawfully possesses and holds fee simple title to all of the Property which is real property, and the Deed of Trust is a first and prior lien on that property. Borrower owns all of the Property which is personal property free and clear of any reservations of title and conditional sales contracts, and also of any security interests other than the Deed of Trust, which is a first and prior lien on such property. There is no financing statement affecting the Property on file in California or Virginia except for financing statements in favor of Bank.

(e) Borrowing Entity. Borrower is a corporation having its chief executive office in the State of California. Borrower’s state of incorporation is California and Borrower is validly existing under the laws of that State. There have been no changes in the legal structure of Borrower since the inception of the Loan. Borrower’s exact legal name is set forth in the first paragraph of this Agreement.

(f) Financial Information. All financial information which has been and will be delivered to Bank, including all information relating to the financial condition of Borrower or any shareholders, guarantor or the Property, fairly and accurately represents the financial condition being reported on, including all material contingent liabilities. All such information was prepared in accordance with generally accepted accounting principles consistently applied, unless otherwise noted, and was in compliance with all government regulations that apply. Since the dates of the financial information specified above, there has been no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of Borrower or any other subject thereof.

4. WAIVER OF JURY TRIAL. BORROWER AND BANK WAIVE TRIAL BY JURY IN RESPECT OF ANY “CLAIM” AS DEFINED IN SECTION 8.17 OF THE LOAN AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY BORROWER AND BANK, AND BORROWER AND BANK HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LOAN MODIFICATION. BORROWER AND BANK ARE EACH HEREBY

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AUTHORIZED TO FILE A COPY OF THIS SECTION 4 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL. BORROWER FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

5. Incorporation. This Agreement shall form a part of each Loan Document, and all references to a given Loan Document shall mean that document as hereby modified.

6. No Prejudice; Reservation of Rights. This Agreement shall not prejudice any rights or remedies of Bank under the Loan Documents or Borrower’s Unsecured Indemnity. Bank reserves, without limitation, all rights which it has against any indemnitor, guarantor, or endorser of the Note.

7. Reaffirmation; No Impairment; No Novation. Borrower hereby reaffirms all of its obligations under the Loan Documents and Borrower’s Unsecured Indemnity. Except as specifically hereby amended, the Loan Documents and Borrower’s Unsecured Indemnity shall each remain unaffected by this Agreement and all such documents shall remain in full force and effect. Nothing in this Agreement shall impair the lien of the Deed of Trust, which as hereby amended shall remain one deed of trust with one power of sale, creating a first lien encumbering the Property. The execution and delivery of this Agreement shall not constitute a novation of the Loan.

8. Purpose and Effect of Bank’s Approval. Bank’s approval of any matter in connection with the Loan shall be for the sole purpose of protecting Bank’s security and rights. No such approval shall result in a waiver of any default of Borrower other than the Waived Defaults. In no event shall Bank’s approval be a representation of any kind with regard to the matter being approved.

9. Disclosure to Title Company. Without notice to or the consent of Borrower, Bank may disclose to any title insurance company which insures any interest of Bank under the Deed of Trust (whether as primary insurer, coinsurer or reinsurer) any information, data or material in Bank’s possession relating to Borrower, the Loan, the Improvements or the Property.

10. Further Assurances. Borrower agrees that immediately upon Bank’s demand, Borrower shall execute and deliver to Bank, and shall cause any necessary third parties to execute and deliver to Bank, all documents and filings (including “account control agreements”), and shall otherwise take all other actions that may be requested by Bank in order to maintain and provide to Bank a first-priority perfected security interest in all collateral, and Borrower hereby agrees to pay all fees and costs associated therewith, including the reasonable fees and costs of Bank’s inside and outside counsel.

11. Integration. The Loan Documents, including this Agreement, and Borrower’s Unsecured Indemnity: (a) integrate all the terms and conditions mentioned in or incidental to the

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Loan Documents and Borrower’s Unsecured Indemnity; (b) supersede all oral negotiations and prior and other writings with respect to their subject matter; and (c) are intended by the parties as the final expression of the agreement with respect to the terms and conditions set forth in those documents and as the complete and exclusive statement of the terms agreed to by the parties. If there is any conflict between the terms, conditions and provisions of this Agreement and those of any other agreement or instrument, including any of the other Loan Documents or Borrower’s Unsecured Indemnity, the terms, conditions and provisions of this Agreement shall prevail.

12. Miscellaneous. This Agreement and any attached consents or exhibits requiring signatures may be executed in counterparts, and all counterparts shall constitute but one and the same document. If any court of competent jurisdiction determines any provision of this Agreement or any of the other Loan Documents or Borrower’s Unsecured Indemnity to be invalid, illegal or unenforceable, that portion shall be deemed severed from the rest, which shall remain in full force and effect as though the invalid, illegal or unenforceable portion had never been a part of the Loan Documents or Borrower’s Unsecured Indemnity. This Agreement shall be governed by the laws of the State of California, without regard to the choice of law rules of that State. As used herein, the word “include(s)” means “includes(s), without limitation,” and the word “including” means “including, but not limited to.”

Dated: April 7, 2006	BORROWER:
	Cost Plus, Inc.,
	a California corporation
	By:	/s/ Jane Baughman
	Name:	Jane Baughman
	Title:	VP Treasurer
	BANK:
	BANK OF AMERICA, NATIONAL ASSOCIATION,
	a national banking association
	By:	/s/ Ronald J. Drobny
	Name:	Ronald J. Drobny
	Title:	Senior Vice President

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GUARANTORS’ CONSENT

1. Cost Plus Management Services, Inc., a California corporation and successor by merger to Cost Plus Marketing Services, Inc., a California corporation, and Cost Plus of Texas, Inc., a Texas corporation (each a “Guarantor”) each hereby consents to the terms, conditions and provisions of the foregoing Modification Agreement and the transactions contemplated by that agreement. Each Guarantor hereby reaffirms the full force and effectiveness of its Guaranty Agreement dated May 14, 2004, (“Guaranty”) and each Guarantor reaffirms the full force and effectiveness of its Environmental Indemnity Agreement dated May 14, 2004 (“Indemnity”). In addition, each Guarantor acknowledges that its obligations under the Guaranty and Indemnity are separate and distinct from those of Borrower on the Loan.

2. Each Guarantor agrees that Section 21 of its Guaranty is amended and restated as follows:

21. Arbitration and Waiver of Jury Trial.

(a) This paragraph concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this agreement (including any renewals, extensions or modifications); or (ii) any document related to this agreement (collectively a “Claim”). For the purposes of this arbitration provision only, the term “parties” shall include any parent corporation, subsidiary or affiliate of the Bank involved in the servicing, management or administration of any obligation described or evidenced by this agreement.

(b) At the request of any party to this agreement, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the “Act”). The Act will apply even though this agreement provides that it is governed by the law of a specified state. The arbitration will take place on an individual basis without resort to any form of class action.

(c) Arbitration proceedings will be determined in accordance with the Act, the then-current rules and procedures for the arbitration of financial services disputes of the American Arbitration Association or any successor thereof (“AAA”), and the terms of this paragraph. In the event of any inconsistency, the terms of this paragraph shall control. If AAA is unwilling or unable to (i) serve as the provider of arbitration or (ii) enforce any provision of this arbitration clause, any party to this agreement may substitute another arbitration organization with similar procedures to serve as the provider of arbitration.

(d) The arbitration shall be administered by AAA and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in the state specified in the governing law section of this agreement. All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators. All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing. However,

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the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days. The arbitrator(s) shall provide a concise written statement of reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed, judgment entered and enforced.

(e) The arbitrator(s) will give effect to statutes of limitation in determining any Claim and may dismiss the arbitration on the basis that the Claim is barred. For purposes of the application of the statute of limitations, the service on AAA under applicable AAA rules of a notice of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s). The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this agreement.

(f) This paragraph does not limit the right of any party to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

(g) The procedure described above will not apply if the Claim, at the time of the proposed submission to arbitration, arises from or relates to an obligation to the Bank secured by real property. In this case, all of the parties to this agreement must consent to submission of the Claim to arbitration. If both parties do not consent to arbitration, the Claim will be resolved as follows: The parties will designate a referee (or a panel of referees) selected under the auspices of AAA in the same manner as arbitrators are selected in AAA administered proceedings. The designated referee(s) will be appointed by a court as provided in California Code of Civil Procedure Section 638 and the following related sections. The referee (or presiding referee of the panel) will be an active attorney or a retired judge. The award that results from the decision of the referee(s) will be entered as a judgment in the court that appointed the referee, in accordance with the provisions of California Code of Civil Procedure Sections 644 and 645.

(h) The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

(i) By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim. Furthermore, without intending in any way to limit this agreement to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim. This provision is a material inducement for the parties entering into this agreement.

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Dated: April 7, 2006	GUARANTOR:
	Cost Plus Management Services, Inc.,
	a California corporation
	By:	/s/ Barry Feld
	Name:	Barry Feld
	Title:	CEO
	Cost Plus of Texas, Inc.,
	a Texas corporation
	By:	/s/ Gerry Keith Biffle
	Name:	Gerry Keith Biffle
	Title:	President

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EX-10.6

Exhibit 10.6

FOURTH AMENDED AND RESTATED EMPLOYMENT SEVERANCE AGREEMENT

This Fourth Amended and Restated Employment Severance Agreement (the “Agreement”) is made and entered into effective as of 4-17-2006 (the “Effective Date”), by and between Mike Allen (the “Executive”) and Cost Plus, Inc. (the “Company”).

R E C I T A L S

A. The Company desires to retain the services of the Executive, and the Executive desires to be employed by the Company, on the terms and subject to the conditions set forth in this Agreement.

B. The Board of Directors of the Company (the “Board”) believes the Company should provide the Executive with certain severance benefits should the Executive’s employment with the Company terminate under certain circumstances, such benefits to provide the Executive with enhanced financial security and sufficient incentive and encouragement to remain with the Company.

C. This Agreement amends and restates the Third Amended and Restated Employment Severance Agreement dated April 29, 2005 between the Company and the Executive.

D. Certain capitalized terms used in the Agreement are defined in Section 6 below.

AGREEMENT

In consideration of the mutual covenants herein contained, and in consideration of the continuing employment of the Executive by the Company, the Third Amended and Restated Employment Severance Agreement is hereby amended and restated in its entirety as set forth herein, and the parties further agree as follows:

1. Duties and Scope of Employment. The Company shall employ the Executive in the position of Executive Vice President in charge of Stores with such duties, responsibilities and compensation as in effect as of the Effective Date. The Board and the Chief Executive Officer of the Company (the “CEO”) shall have the right to revise such responsibilities and compensation from time to time as the Board or the CEO may deem necessary or appropriate. If any such revision constitutes “Involuntary Termination” as defined in Section 6(d) of this Agreement, the Executive shall be entitled to benefits upon such Involuntary Termination as provided under this Agreement.

2. At-Will Employment. The Company and the Executive acknowledge that the Executive’s employment is and shall continue to be at-will, as defined under applicable law. If the Executive’s employment terminates for any reason, the Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company’s established employee plans and practices or in accordance with other agreements between the Company and the Executive. This

Agreement shall remain in effect until the earlier of (i) the date that all obligations of the parties hereunder have been satisfied or (ii) the date upon which this Agreement terminates by consent of the parties hereto.

3. Severance Benefits.

(a) Benefits upon Termination. Unless the Executive is entitled to benefits under Section 3(b) of this Agreement, if the Executive’s employment terminates as a result of Involuntary Termination prior to June 15, 2007 and the Executive signs and does not revoke a Release of Claims, then the Company shall pay the Executive’s Base Compensation on a salary continuation basis in accordance with the Company’s normal payroll practices to the Executive for twelve (12) months from the Termination Date. The Executive shall not be entitled to receive any payments if the Executive voluntarily terminates employment other than as a result of an Involuntary Termination.

(b) Benefits upon Termination After a Change of Control. If after a Change of Control the Executive’s employment terminates as a result of Involuntary Termination prior to June 15, 2007 and the Executive signs and does not revoke a Release of Claims, then the Company shall pay the Executive’s Base Compensation on a salary continuation basis in accordance with the Company’s normal payroll practices to the Executive for eighteen (18) months from the Termination Date. The Executive shall not be entitled to receive any payments if the Executive voluntarily terminates employment other than as a result of an Involuntary Termination.

(c) Stock Options. Unless otherwise provided in the Company’s stock option plans or in the Executive’s stock option agreements, the Executive shall not be entitled to acceleration of any unvested stock options upon the termination of the Executive’s employment for any reason, including an Involuntary Termination.

(d) Miscellaneous. In addition to the benefits described in Section 3(a) or Section 3(b) of this Agreement, upon the termination of the Executive’s employment, (i) the Company shall pay the Executive any unpaid base salary due for periods prior to the Termination Date; (ii) the Company shall pay the Executive all of the Executive’s accrued and unused vacation through the Termination Date; (iii) following submission of proper expense reports by the Executive, the Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by the Executive in connection with the business of the Company prior to the Termination Date; and (iv) if benefits will be paid under Section 3(a) or Section 3(b) of this Agreement, the Company shall pay the Executive a pro-rata portion of his fiscal year bonus, if any, under the Company’s Management Incentive Plan in effect for the fiscal year in which the Termination Date occurs. Such amount shall be paid at the time bonuses for the completed fiscal year are paid to other executives (but no later than the period of time required to fit within the short-term deferral rule of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)), shall be pro-rated for the period of time during the fiscal year that the Executive was an employee of the Company and shall only be paid if, and to the extent, that the relevant performance targets have been achieved by the Company. Except for any bonus payment under clause (iv) of the preceding sentence, these

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payments shall be made promptly upon termination and within the period of time mandated by applicable law.

4. Limitations on Payments.

(a) Code Section 409A. If the Company reasonably determines that Section 409A will result in the imposition of additional tax to an earlier payment of the severance and other benefits provided in this Agreement or otherwise payable to the Executive, then the first six (6) months of the Executive’s severance benefits under Section 3 of this Agreement will accrue during the six (6)-month period following the Executive’s termination and will become payable in a lump sum payment on the date that is six (6) months and one (1) day following the date of the Executive’s termination of employment. The remaining severance benefits will be payable as provided in Section 3 of this Agreement.

(b) Code Section 280G. In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Executive (i) constitute “parachute payments” within the meaning of Section 280G of the Code and (ii) but for this Section 4, would be subject to the excise tax imposed by Section 4999 of the Code, then the Executive’s severance benefits under Section 3(b) of this Agreement shall be either:

(i) delivered in full, or

(ii) delivered as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code,

whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999 of the Code, results in the receipt by the Executive on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and the Executive otherwise agree in writing, any determination required under this Section 4 shall be made in writing by the Company’s independent public accountants immediately prior to Change of Control (the “Accountants”), whose determination shall be conclusive and binding upon the Executive and the Company for all purposes. For purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4.

5. Non-Solicitation. In consideration for the mutual agreements as set forth herein, the Executive agrees that the Executive shall not, at any time, within twelve (12) months following termination of the Executive’s employment with the Company for any reason, directly or

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indirectly solicit the employment or other services of any individual who at that time shall be or within the prior twelve (12) months shall have been an employee of the Company.

6. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

(a) Base Compensation. “Base Compensation” means the Executive’s monthly base salary paid by the Company for services performed calculated as the average base salary for the six (6) months completed prior to the Termination Date. If the Executive has not been employed by the Company for six (6) complete months prior to the Termination Date, Base Compensation shall be calculated as the average base salary for the period of the Executive’s employment.

(b) Cause. “Cause” means the Executive’s (i) intentional failure to perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the performance of duties, (iii) engaging in a transaction in connection with the performance of duties to the Company or any of its subsidiaries thereof which transaction is adverse to the interests of the Company or any of its subsidiaries and which is engaged in for the Executive’s personal enrichment or (iv) willful violation of any material law, rule or regulation in connection with the performance of duties.

(c) Change of Control. “Change of Control” means the consummation of any of the following events:

(i) The acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of the “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities;

(ii) A change in the composition of the Board of Directors of the Company occurring within a two (2)-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company);

(iii) A merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the approval by the

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stockholders of the Company of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets;

(iv) The sale of all or substantially all of the assets of the Company determined on a consolidated basis; or

(v) The complete liquidation or dissolution of the Company.

(d) Involuntary Termination. “Involuntary Termination” means:

(i) termination of the Executive’s employment by the Company for any reason other than Cause;

(ii) a material reduction in the Executive’s salary, other than any such reduction which is part of, and generally consistent with, a general reduction of officer salaries;

(iii) a material reduction by the Company in the kind or level of employee benefits (other than salary and bonus) to which the Executive is entitled immediately prior to such reduction with the result that the Executive’s overall benefits package (other than salary and bonus) is substantially reduced (other than any such reduction applicable to officers of the Company generally);

(iv) any material breach by the Company of any material provision of this Agreement which continues uncured for thirty (30) days following notice thereof; or

(v) a material reduction in the Executive’s titles, duties, responsibilities, or authority;

provided that none of the foregoing shall constitute Involuntary Termination to the extent the Executive has agreed thereto. Any purported Involuntary Termination pursuant to Section 6(d)(ii) through 6(d)(v) will not be effective until the Executive has delivered to the Company a written explanation which describes the basis for the Executive’s belief that the Executive should be permitted to terminate his employment and have it treated as an Involuntary Termination and the Company has been given thirty (30) days to cure any curable violation.

(e) Release of Claims. “Release of Claims” shall mean a waiver by the Executive, in a form satisfactory to the Company, of all employment-related obligations of and claims and causes of action against the Company.

(f) Termination Date. “Termination Date” shall mean the date on which an event that would constitute Involuntary Termination occurs, or the later of (i) the date on which a notice of termination is given, or (ii) the date (which shall not be more than thirty (30) days after the giving of such notice) specified in such notice.

(g) Management Incentive Plan. “Management Incentive Plan” shall mean the Company’s bonus program, as implemented by the Company’s board of directors from

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time to time and pursuant to which the Executive may receive incentive-based compensation at fiscal year end.

7. Confidentiality. The Executive acknowledges that during the course of the Executive’s employment, the Executive will have produced and/or have access to confidential information, records, notebooks, data, formula, specifications, trade secrets, customer lists and secret inventions, and processes of the Company and its affiliated companies. Therefore, during or subsequent to the Executive’s employment by the Company, the Executive agrees to hold in confidence and not directly or indirectly to disclose or use or copy or make lists of any such information, except to the extent authorized by the Company in writing. All records, files, drawings, documents, equipment, and the like, or copies thereof, relating to the Company’s business, or the business of an affiliated company, which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company, or of an affiliated company, and shall not be removed from the Company’s or the affiliated company’s premises without its written consent, and shall be promptly returned to the Company upon termination of employment with the Company.

8. Successors.

(a) Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement pursuant to this subsection (a) or which becomes bound by the terms of this Agreement by operation of law.

(b) Executive’s Successors. The terms of this Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

9. Notice.

(a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to the Executive at the home address that the Executive most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its CEO.

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(b) Notice of Termination. Any termination by the Company for Cause or by the Executive as a result of a voluntary resignation or an Involuntary Termination shall be communicated by a notice of termination to the other party hereto given in accordance with Section 9(a) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date (which shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive’s rights hereunder.

10. Miscellaneous Provisions.

(a) Non-Disparagement. The Executive agrees to refrain from any defamation, libel or slander of the Company and its respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns or tortious interference with the contracts and relationships of the Company and its respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns. The Executive acknowledges and agrees that any breach of this paragraph shall constitute a material breach of the Agreement and shall entitle the Company immediately to recover all consideration paid under this Agreement, including, but not limited to the consideration described in Section 3.

(b) No Duty to Mitigate. The Executive shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Executive may receive from any other source.

(c) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(d) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof.

(e) Severance Provisions in Other Agreements. The Executive acknowledges and agrees that the severance provisions set forth in this Agreement shall supersede any such provisions in any other agreement entered into between the Executive and the Company.

(f) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California.

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(g) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

(h) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this subsection shall be void.

(i) Employment Taxes. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.

(j) Code Section 409A. This Agreement will be deemed amended to the extent necessary to avoid imposition of any additional tax or income recognition prior to actual payment to the Executive under Section 409A of the Code and any temporary, proposed or final Treasury Regulations and guidance promulgated thereunder and the parties agree to cooperate with each other and to take reasonably necessary steps in this regard.

(k) Assignment by the Company. The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Executive.

(l) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

COMPANY:	COST PLUS, INC.
	By	/s/ Barry Feld
	Title	CEO
EXECUTIVE:		/s/ Mike Allen
		Mike Allen

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EX-10.7

Exhibit 10.7

EMPLOYMENT SEVERANCE AGREEMENT

This Employment Severance Agreement (the “Agreement”) is made and entered into effective as of 4-17-06 (the “Effective Date”), by and between Frank Castiglione (the “Executive”) and Cost Plus, Inc. (the “Company”).

R E C I T A L S

A. Cost Plus desires to retain the services of the Executive, and the Executive desires to be employed by Cost Plus, on the terms and subject to the conditions set forth in this Agreement.

B. The Board of Directors of the Company (the “Board”) believes the Company should provide the Executive with certain severance benefits should the Executive’s employment with the Company terminate under certain circumstances, such benefits to provide the Executive with enhanced financial security and sufficient incentive and encouragement to remain with the Company.

C. Certain capitalized terms used in the Agreement are defined in Section 6 below.

AGREEMENT

In consideration of the mutual covenants herein contained, the parties agree as follows:

1. Duties and Scope of Employment. The Company shall employ the Executive in the position of Senior Vice President, Marketing and Advertising, with such duties, responsibilities and compensation as in effect as of the Effective Date. The Board and the Chief Executive Officer of the Company (the “CEO”) shall have the right to revise such responsibilities and compensation from time to time as the Board or the CEO may deem necessary or appropriate. If any such revision constitutes “Involuntary Termination” as defined in Section 6(d) of this Agreement, the Executive shall be entitled to benefits upon such Involuntary Termination as provided under this Agreement.

2. At-Will Employment. The Company and the Executive acknowledge that the Executive’s employment is and shall continue to be at-will, as defined under applicable law. If the Executive’s employment terminates for any reason, the Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company’s established employee plans and practices or in accordance with other agreements between the Company and the Executive. This Agreement shall remain in effect until the earlier of (i) the date that all obligations of the parties hereunder have been satisfied or (ii) the date upon which this Agreement terminates by consent of the parties hereto.

3. Severance Benefits.

(a) Benefits upon Termination. Unless the Executive is entitled to benefits under Section 3(b) of this Agreement, if the Executive’s employment terminates as a result of Involuntary Termination prior to June 15, 2007 and the Executive signs and does not revoke a Release of Claims, then the Company shall pay the Executive’s Base Compensation on a salary continuation basis in accordance with the Company’s normal payroll practices to the Executive for twelve (12) months from the Termination Date. The Executive shall not be entitled to receive any payments if the Executive voluntarily terminates employment other than as a result of an Involuntary Termination.

(b) Benefits upon Termination After a Change of Control. If after a Change of Control the Executive’s employment terminates as a result of Involuntary Termination prior to June 15, 2007 and the Executive signs and does not revoke a Release of Claims, then the Company shall pay the Executive’s Base Compensation on a salary continuation basis in accordance with the Company’s normal payroll practices to the Executive for eighteen (18) months from the Termination Date. The Executive shall not be entitled to receive any payments if the Executive voluntarily terminates employment other than as a result of an Involuntary Termination.

(c) Stock Options. Unless otherwise provided in the Company’s stock option plans or in the Executive’s stock option agreements, the Executive shall not be entitled to acceleration of any unvested stock options upon the termination of the Executive’s employment for any reason, including an Involuntary Termination.

(d) Miscellaneous. In addition to the benefits described in Section 3(a) or Section 3(b) of this Agreement, upon the termination of the Executive’s employment, (i) the Company shall pay the Executive any unpaid base salary due for periods prior to the Termination Date; (ii) the Company shall pay the Executive all of the Executive’s accrued and unused vacation through the Termination Date; (iii) following submission of proper expense reports by the Executive, the Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by the Executive in connection with the business of the Company prior to the Termination Date; and (iv) if benefits will be paid under Section 3(a) or Section 3(b) of this Agreement, the Company shall pay the Executive a pro-rata portion of his fiscal year bonus, if any, under the Company’s Management Incentive Plan in effect for the fiscal year in which the Termination Date occurs. Such amount shall be paid at the time bonuses for the completed fiscal year are paid to other executives (but no later than the period of time required to fit within the short-term deferral rule of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)), shall be pro-rated for the period of time during the fiscal year that the Executive was an employee of the Company and shall only be paid if, and to the extent, that the relevant performance targets have been achieved by the Company. Except for any bonus payment under clause (iv) of the preceding sentence, these payments shall be made promptly upon termination and within the period of time mandated by applicable law.

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4. Limitation on Payments.

(a) Code Section 409A. If the Company reasonably determines that Section 409A will result in the imposition of additional tax to an earlier payment of the severance and other benefits provided in this Agreement or otherwise payable to the Executive, then the first six (6) months of the Executive’s severance benefits under Section 3 of this Agreement will accrue during the six (6)-month period following the Executive’s termination and will become payable in a lump sum payment on the date that is six (6) months and one (1) day following the date of the Executive’s termination of employment. The remaining severance benefits will be payable as provided in Section 3 of this Agreement.

(b) Code Section 280G. In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Executive (i) constitute “parachute payments” within the meaning of Section 280G of the Code and (ii) but for this Section 4, would be subject to the excise tax imposed by Section 4999 of the Code, then the Executive’s severance benefits under Section 3(b) of this Agreement shall be either:

(i) delivered in full, or

(ii) delivered as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code,

whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999 of the Code, results in the receipt by the Executive on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and the Executive otherwise agree in writing, any determination required under this Section 4 shall be made in writing by the Company’s independent public accountants immediately prior to Change of Control (the “Accountants”), whose determination shall be conclusive and binding upon the Executive and the Company for all purposes. For purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4.

5. Non-Solicitation. In consideration for the mutual agreements as set forth herein, the Executive agrees that the Executive shall not, at any time, within twelve (12) months following termination of the Executive’s employment with the Company for any reason, directly or indirectly solicit the employment or other services of any individual who at that time shall be or within the prior twelve (12) months shall have been an employee of the Company.

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6. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

(a) Base Compensation. “Base Compensation” means the Executive’s monthly base salary paid by the Company for services performed calculated as the average base salary for the six (6) months completed prior to the Termination Date. If the Executive has not been employed by the Company for six (6) complete months prior to the Termination Date, Base Compensation shall be calculated as the average base salary for the period of the Executive’s employment.

(b) Cause. “Cause” means the Executive’s (i) intentional failure to perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the performance of duties, (iii) engaging in a transaction in connection with the performance of duties to the Company or any of its subsidiaries which transaction is adverse to the interests of the Company or any of its subsidiaries and which is engaged in for the Executive’s personal enrichment or (iv) willful violation of any material law, rule or regulation in connection with the performance of duties.

(c) Change of Control. “Change of Control” means the consummation of any of the following events:

(i) The acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of the “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities;

(ii) A change in the composition of the Board of Directors of the Company occurring within a two (2)-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company);

(iii) A merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the approval by the stockholders of the Company of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets;

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(iv) The sale of all or substantially all of the assets of the Company determined on a consolidated basis; or

(v) The complete liquidation or dissolution of the Company.

(d) Involuntary Termination. “Involuntary Termination” means:

(i) termination of the Executive’s employment by the Company for any reason other than Cause;

(ii) a material reduction in the Executive’s salary, other than any such reduction which is part of, and generally consistent with, a general reduction of officer salaries;

(iii) a material reduction by the Company in the kind or level of employee benefits (other than salary and bonus) to which the Executive is entitled immediately prior to such reduction with the result that the Executive’s overall benefits package (other than salary and bonus) is substantially reduced (other than any such reduction applicable to officers of the Company generally);

(iv) any material breach by the Company of any material provision of this Agreement which continues uncured for thirty (30) days following notice thereof; or

(v) a material reduction in the Executive’s titles, duties, responsibilities or authority;

provided that none of the foregoing shall constitute Involuntary Termination to the extent the Executive has agreed thereto. Any purported Involuntary Termination pursuant to Section 6(d)(ii) through 6(d)(v) will not be effective until the Executive has delivered to the Company a written explanation which describes the basis for the Executive’s belief that the Executive should be permitted to terminate his employment and have it treated as an Involuntary Termination and the Company has been given thirty (30) days to cure any curable violation.

(e) Release of Claims. “Release of Claims” shall mean a waiver by the Executive, in a form satisfactory to the Company, of all employment-related obligations of and claims and causes of action against the Company.

(f) Termination Date. “Termination Date” shall mean the date on which an event that would constitute Involuntary Termination occurs, or the later of (i) the date on which a notice of termination is given, or (ii) the date (which shall not be more than thirty (30) days after the giving of such notice) specified in such notice.

(g) Management Incentive Plan. “Management Incentive Plan” shall mean the Company’s bonus program, as implemented by the Company’s board of directors from time to time and pursuant to which the Executive may receive incentive-based compensation at fiscal year end.

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7. Confidentiality. The Executive acknowledges that during the course of the Executive’s employment, the Executive will have produced and/or have access to confidential information, records, notebooks, data, formula, specifications, trade secrets, customer lists and secret inventions, and processes of the Company and its affiliated companies. Therefore, during or subsequent to the Executive’s employment by the Company, the Executive agrees to hold in confidence and not directly or indirectly to disclose or use or copy or make lists of any such information, except to the extent authorized by the Company in writing. All records, files, drawings, documents, equipment, and the like, or copies thereof, relating to the Company’s business, or the business of an affiliated company, which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company, or of an affiliated company, and shall not be removed from the Company’s or the affiliated company’s premises without its written consent, and shall be promptly returned to the Company upon termination of employment with the Company.

8. Successors.

(a) Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement pursuant to this subsection (a) or which becomes bound by the terms of this Agreement by operation of law.

(b) Executive’s Successors. The terms of this Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

9. Notice.

(a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to the Executive at the home address that the Executive most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its CEO.

(b) Notice of Termination. Any termination by the Company for Cause or by the Executive as a result of a voluntary resignation or an Involuntary Termination shall be communicated by a notice of termination to the other party hereto given in accordance with Section 9(a) of this Agreement. Such notice shall indicate the specific termination provision in this

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Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date (which shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive’s rights hereunder.

10. Miscellaneous Provisions.

(a) Non-Disparagement. The Executive agrees to refrain from any defamation, libel or slander of the Company and its respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns or tortious interference with the contracts and relationships of the Company and its respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns. The Executive acknowledges and agrees that any breach of this paragraph shall constitute a material breach of the Agreement and shall entitle the Company immediately to recover all consideration paid under this Agreement, including, but not limited to the consideration described in Section 3.

(b) No Duty to Mitigate. The Executive shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Executive may receive from any other source.

(c) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(d) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof.

(e) Severance Provisions in Other Agreements. The Executive acknowledges and agrees that the severance provisions set forth in this Agreement shall supersede any such provisions in any other agreement entered into between the Executive and the Company.

(f) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California.

(g) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

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(h) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this subsection shall be void.

(i) Employment Taxes. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.

(j) Code Section 409A. This Agreement will be deemed amended to the extent necessary to avoid imposition of any additional tax or income recognition prior to actual payment to the Executive under Section 409A of the Code and any temporary, proposed or final Treasury Regulations and guidance promulgated thereunder and the parties agree to cooperate with each other and to take reasonably necessary steps in this regard.

(k) Assignment by Company. The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Executive.

(l) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

[Signature Page to Follow]

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

COMPANY:	COST PLUS, INC.
	By	/s/ Barry Feld
	Title	CEO
EXECUTIVE:		/s/ Frank J. Castiglione
		Frank Castiglione

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EX-10.8

Exhibit 10.8

FOURTH AMENDED AND RESTATED EMPLOYMENT SEVERANCE AGREEMENT

This Fourth Amended and Restated Employment Severance Agreement (the “Agreement”) is made and entered into effective as of 4-17-06 (the “Effective Date”), by and between Joan Fujii (the “Executive”) and Cost Plus, Inc. (the “Company”).

R E C I T A L S

A. The Company desires to retain the services of the Executive, and the Executive desires to be employed by the Company, on the terms and subject to the conditions set forth in this Agreement.

B. The Board of Directors of the Company (the “Board”) believes the Company should provide the Executive with certain severance benefits should the Executive’s employment with the Company terminate under certain circumstances, such benefits to provide the Executive with enhanced financial security and sufficient incentive and encouragement to remain with the Company.

C. This Agreement amends and restates the Third Amended and Restated Employment Severance Agreement dated April 29, 2005 between the Company and the Executive.

D. Certain capitalized terms used in the Agreement are defined in Section 6 below.

AGREEMENT

In consideration of the mutual covenants herein contained, and in consideration of the continuing employment of the Executive by the Company, the Third Amended and Restated Employment Severance Agreement is hereby amended and restated in its entirety as set forth herein, and the parties further agree as follows:

1. Duties and Scope of Employment. The Company shall employ the Executive in the position of Senior Vice President in charge of Human Resources with such duties, responsibilities and compensation as in effect as of the Effective Date. The Board and the Chief Executive Officer of the Company (the “CEO”) shall have the right to revise such responsibilities and compensation from time to time as the Board or the CEO may deem necessary or appropriate. If any such revision constitutes “Involuntary Termination” as defined in Section 6(d) of this Agreement, the Executive shall be entitled to benefits upon such Involuntary Termination as provided under this Agreement.

2. At-Will Employment. The Company and the Executive acknowledge that the Executive’s employment is and shall continue to be at-will, as defined under applicable law. If the Executive’s employment terminates for any reason, the Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company’s established employee plans and practices or in accordance with other agreements between the Company and the Executive. This Agreement shall remain in effect until the earlier of (i) the date that all obligations of the parties

hereunder have been satisfied or (ii) the date upon which this Agreement terminates by consent of the parties hereto.

3. Severance Benefits.

(a) Benefits upon Termination. Unless the Executive is entitled to benefits under Section 3(b) of this Agreement, if the Executive’s employment terminates as a result of Involuntary Termination prior to June 15, 2007 and the Executive signs and does not revoke a Release of Claims, then the Company shall pay the Executive’s Base Compensation on a salary continuation basis in accordance with the Company’s normal payroll practices to the Executive for twelve (12) months from the Termination Date. The Executive shall not be entitled to receive any payments if the Executive voluntarily terminates employment other than as a result of an Involuntary Termination.

(b) Benefits upon Termination After a Change of Control. If after a Change of Control the Executive’s employment terminates as a result of Involuntary Termination prior to June 15, 2007 and the Executive signs and does not revoke a Release of Claims, then the Company shall pay the Executive’s Base Compensation on a salary continuation basis in accordance with the Company’s normal payroll practices to the Executive for eighteen (18) months from the Termination Date. The Executive shall not be entitled to receive any payments if the Executive voluntarily terminates employment other than as a result of an Involuntary Termination.

(c) Stock Options. Unless otherwise provided in the Company’s stock option plans or in the Executive’s stock option agreements, the Executive shall not be entitled to acceleration of any unvested stock options upon the termination of the Executive’s employment for any reason, including an Involuntary Termination.

(d) Miscellaneous. In addition to the benefits described in Section 3(a) or Section 3(b) of this Agreement, upon the termination of the Executive’s employment, (i) the Company shall pay the Executive any unpaid base salary due for periods prior to the Termination Date; (ii) the Company shall pay the Executive all of the Executive’s accrued and unused vacation through the Termination Date; (iii) following submission of proper expense reports by the Executive, the Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by the Executive in connection with the business of the Company prior to the Termination Date; and (iv) if benefits will be paid under Section 3(a) or Section 3(b) of this Agreement, the Company shall pay the Executive a pro-rata portion of his fiscal year bonus, if any, under the Company’s Management Incentive Plan in effect for the fiscal year in which the Termination Date occurs. Such amount shall be paid at the time bonuses for the completed fiscal year are paid to other executives (but no later than the period of time required to fit within the short-term deferral rule of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)), shall be pro-rated for the period of time during the fiscal year that the Executive was an employee of the Company and shall only be paid if, and to the extent, that the relevant performance targets have been achieved by the Company. Except for any bonus payment under clause (iv) of the preceding sentence, these

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payments shall be made promptly upon termination and within the period of time mandated by applicable law.

4. Limitation on Payments.

(a) Code Section 409A. If the Company reasonably determines that Section 409A will result in the imposition of additional tax to an earlier payment of the severance and other benefits provided in this Agreement or otherwise payable to the Executive, then the first six (6) months of the Executive’s severance benefits under Section 3 of this Agreement will accrue during the six (6)-month period following the Executive’s termination and will become payable in a lump sum payment on the date that is six (6) months and one (1) day following the date of the Executive’s termination of employment. The remaining severance benefits will be payable as provided in Section 3 of this Agreement.

(b) Code Section 280G. In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Executive (i) constitute “parachute payments” within the meaning of Section 280G of the Code and (ii) but for this Section 4, would be subject to the excise tax imposed by Section 4999 of the Code, then the Executive’s severance benefits under Section 3(b) of this Agreement shall be either:

(i) delivered in full, or

(ii) delivered as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code,

whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999 of the Code, results in the receipt by the Executive on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and the Executive otherwise agree in writing, any determination required under this Section 4 shall be made in writing by the Company’s independent public accountants immediately prior to Change of Control (the “Accountants”), whose determination shall be conclusive and binding upon the Executive and the Company for all purposes. For purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4.

5. Non-Solicitation. In consideration for the mutual agreements as set forth herein, the Executive agrees that the Executive shall not, at any time, within twelve (12) months following termination of the Executive’s employment with the Company for any reason, directly or

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indirectly solicit the employment or other services of any individual who at that time shall be or within the prior twelve (12) months shall have been an employee of the Company.

6. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

(a) Base Compensation. “Base Compensation” means the Executive’s monthly base salary paid by the Company for services performed calculated as the average base salary for the six (6) months completed prior to the Termination Date. If the Executive has not been employed by the Company for six (6) complete months prior to the Termination Date, Base Compensation shall be calculated as the average base salary for the period of the Executive’s employment.

(b) Cause. “Cause” means the Executive’s (i) intentional failure to perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the performance of duties, (iii) engaging in a transaction in connection with the performance of duties to the Company or any of its subsidiaries thereof which transaction is adverse to the interests of the Company or any of its subsidiaries and which is engaged in for the Executive’s personal enrichment or (iv) willful violation of any material law, rule or regulation in connection with the performance of duties.

(c) Change of Control. “Change of Control” means the consummation of any of the following events:

(i) The acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of the “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities;

(ii) A change in the composition of the Board of Directors of the Company occurring within a two (2)-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company);

(iii) A merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such

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surviving entity outstanding immediately after such merger or consolidation, or the approval by the stockholders of the Company of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets;

(iv) The sale of all or substantially all of the assets of the Company determined on a consolidated basis; or

(v) The complete liquidation or dissolution of the Company.

(d) Involuntary Termination. “Involuntary Termination” means:

(i) termination of the Executive’s employment by the Company for any reason other than Cause;

(ii) a material reduction in the Executive’s salary, other than any such reduction which is part of, and generally consistent with, a general reduction of officer salaries;

(iii) a material reduction by the Company in the kind or level of employee benefits (other than salary and bonus) to which the Executive is entitled immediately prior to such reduction with the result that the Executive’s overall benefits package (other than salary and bonus) is substantially reduced (other than any such reduction applicable to officers of the Company generally);

(iv) any material breach by the Company of any material provision of this Agreement which continues uncured for thirty (30) days following notice thereof; or

(v) a material reduction in the Executive’s titles, duties, responsibilities or authority;

provided that none of the foregoing shall constitute Involuntary Termination to the extent the Executive has agreed thereto. Any purported Involuntary Termination pursuant to Section 6(d)(ii) through 6(d)(v) will not be effective until the Executive has delivered to the Company a written explanation which describes the basis for the Executive’s belief that the Executive should be permitted to terminate her employment and have it treated as an Involuntary Termination and the Company has been given thirty (30) days to cure any curable violation.

(e) Release of Claims. “Release of Claims” shall mean a waiver by the Executive, in a form satisfactory to the Company, of all employment-related obligations of and claims and causes of action against the Company.

(f) Termination Date. “Termination Date” shall mean the date on which an event that would constitute Involuntary Termination occurs, or the later of (i) the date on which a notice of termination is given, or (ii) the date (which shall not be more than thirty (30) days after the giving of such notice) specified in such notice.

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(g) Management Incentive Plan. “Management Incentive Plan” shall mean the Company’s bonus program, as implemented by the Company’s board of directors from time to time and pursuant to which the Executive may receive incentive-based compensation at fiscal year end.

7. Confidentiality. The Executive acknowledges that during the course of the Executive’s employment, the Executive will have produced and/or have access to confidential information, records, notebooks, data, formula, specifications, trade secrets, customer lists and secret inventions, and processes of the Company and its affiliated companies. Therefore, during or subsequent to the Executive’s employment by the Company, the Executive agrees to hold in confidence and not directly or indirectly to disclose or use or copy or make lists of any such information, except to the extent authorized by the Company in writing. All records, files, drawings, documents, equipment, and the like, or copies thereof, relating to the Company’s business, or the business of an affiliated company, which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company, or of an affiliated company, and shall not be removed from the Company’s or the affiliated company’s premises without its written consent, and shall be promptly returned to the Company upon termination of employment with the Company.

8. Successors.

(a) Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement pursuant to this subsection (a) or which becomes bound by the terms of this Agreement by operation of law.

(b) Executive’s Successors. The terms of this Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

9. Notice.

(a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to the Executive at the home address that the Executive most recently communicated to the Company in writing. In the case of

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the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its CEO.

(b) Notice of Termination. Any termination by the Company for Cause or by the Executive as a result of a voluntary resignation or an Involuntary Termination shall be communicated by a notice of termination to the other party hereto given in accordance with Section 9(a) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date (which shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive’s rights hereunder.

10. Miscellaneous Provisions.

(a) Non-Disparagement. The Executive agrees to refrain from any defamation, libel or slander of the Company and its respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns or tortious interference with the contracts and relationships of the Company and its respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns. The Executive acknowledges and agrees that any breach of this paragraph shall constitute a material breach of the Agreement and shall entitle the Company immediately to recover all consideration paid under this Agreement, including, but not limited to the consideration described in Section 3.

(b) No Duty to Mitigate. The Executive shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Executive may receive from any other source.

(c) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(d) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof.

(e) Severance Provisions in Other Agreements. The Executive acknowledges and agrees that the severance provisions set forth in this Agreement shall supersede any such provisions in any other agreement entered into between the Executive and the Company.

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(f) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California.

(g) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

(h) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this subsection shall be void.

(i) Employment Taxes. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.

(j) Code Section 409A. This Agreement will be deemed amended to the extent necessary to avoid imposition of any additional tax or income recognition prior to actual payment to the Executive under Section 409A of the Code and any temporary, proposed or final Treasury Regulations and guidance promulgated thereunder and the parties agree to cooperate with each other and to take reasonably necessary steps in this regard.

(k) Assignment by Company. The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Executive.

(l) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

[Signature Page to Follow]

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

COMPANY:	COST PLUS, INC.
	/s/ Barry Feld
	By
	CEO
	Title
EXECUTIVE:	/s/ Joan Fujii
	Joan Fujii

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EX-10.9

Exhibit 10.9

EMPLOYMENT SEVERANCE AGREEMENT

This Employment Severance Agreement (the “Agreement”) is made and entered into effective as of 4-17-06 (the “Effective Date”), by and between Rayford K. Whitley (the “Executive”) and Cost Plus, Inc. (the “Company”).

R E C I T A L S

A. Cost Plus desires to retain the services of the Executive, and the Executive desires to be employed by Cost Plus, on the terms and subject to the conditions set forth in this Agreement.

B. The Board of Directors of the Company (the “Board”) believes the Company should provide the Executive with certain severance benefits should the Executive’s employment with the Company terminate under certain circumstances, such benefits to provide the Executive with enhanced financial security and sufficient incentive and encouragement to remain with the Company.

C. Certain capitalized terms used in the Agreement are defined in Section 6 below.

AGREEMENT

In consideration of the mutual covenants herein contained, the parties agree as follows:

1. Duties and Scope of Employment. The Company shall employ the Executive in the position of Senior Vice President, Supply Chain, with such duties, responsibilities and compensation as in effect as of the Effective Date. The Board and the Chief Executive Officer of the Company (the “CEO”) shall have the right to revise such responsibilities and compensation from time to time as the Board or the CEO may deem necessary or appropriate. If any such revision constitutes “Involuntary Termination” as defined in Section 6(d) of this Agreement, the Executive shall be entitled to benefits upon such Involuntary Termination as provided under this Agreement.

2. At-Will Employment. The Company and the Executive acknowledge that the Executive’s employment is and shall continue to be at-will, as defined under applicable law. If the Executive’s employment terminates for any reason, the Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company’s established employee plans and practices or in accordance with other agreements between the Company and the Executive. This Agreement shall remain in effect until the earlier of (i) the date that all obligations of the parties hereunder have been satisfied or (ii) the date upon which this Agreement terminates by consent of the parties hereto.

3. Severance Benefits.

(a) Benefits upon Termination. Unless the Executive is entitled to benefits under Section 3(b) of this Agreement, if the Executive’s employment terminates as a result of Involuntary Termination prior to June 15, 2007 and the Executive signs and does not revoke a

Release of Claims, then the Company shall pay the Executive’s Base Compensation on a salary continuation basis in accordance with the Company’s normal payroll practices to the Executive for twelve (12) months from the Termination Date. The Executive shall not be entitled to receive any payments if the Executive voluntarily terminates employment other than as a result of an Involuntary Termination.

(b) Benefits upon Termination After a Change of Control. If after a Change of Control the Executive’s employment terminates as a result of Involuntary Termination prior to June 15, 2007 and the Executive signs and does not revoke a Release of Claims, then the Company shall pay the Executive’s Base Compensation on a salary continuation basis in accordance with the Company’s normal payroll practices to the Executive for eighteen (18) months from the Termination Date. The Executive shall not be entitled to receive any payments if the Executive voluntarily terminates employment other than as a result of an Involuntary Termination.

(c) Stock Options. Unless otherwise provided in the Company’s stock option plans or in the Executive’s stock option agreements, the Executive shall not be entitled to acceleration of any unvested stock options upon the termination of the Executive’s employment for any reason, including an Involuntary Termination.

(d) Miscellaneous. In addition to the benefits described in Section 3(a) or Section 3(b) of this Agreement, upon the termination of the Executive’s employment, (i) the Company shall pay the Executive any unpaid base salary due for periods prior to the Termination Date; (ii) the Company shall pay the Executive all of the Executive’s accrued and unused vacation through the Termination Date; (iii) following submission of proper expense reports by the Executive, the Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by the Executive in connection with the business of the Company prior to the Termination Date; and (iv) if benefits will be paid under Section 3(a) or Section 3(b) of this Agreement, the Company shall pay the Executive a pro-rata portion of his fiscal year bonus, if any, under the Company’s Management Incentive Plan in effect for the fiscal year in which the Termination Date occurs. Such amount shall be paid at the time bonuses for the completed fiscal year are paid to other executives (but no later than the period of time required to fit within the short-term deferral rule of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)), shall be pro-rated for the period of time during the fiscal year that the Executive was an employee of the Company and shall only be paid if, and to the extent, that the relevant performance targets have been achieved by the Company. Except for any bonus payment under clause (iv) of the preceding sentence, these payments shall be made promptly upon termination and within the period of time mandated by applicable law.

4. Limitation on Payments.

(a) Code Section 409A. If the Company reasonably determines that Section 409A will result in the imposition of additional tax to an earlier payment of the severance and other benefits provided in this Agreement or otherwise payable to the Executive, then the first six (6) months of the Executive’s severance benefits under Section 3 of this Agreement will accrue during the six (6)-month period following the Executive’s termination and will become payable in a

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lump sum payment on the date that is six (6) months and one (1) day following the date of the Executive’s termination of employment. The remaining severance benefits will be payable as provided in Section 3 of this Agreement.

(b) Code Section 280G. In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Executive (i) constitute “parachute payments” within the meaning of Section 280G of the Code and (ii) but for this Section 4, would be subject to the excise tax imposed by Section 4999 of the Code, then the Executive’s severance benefits under Section 3(b) of this Agreement shall be either:

(i) delivered in full, or

(ii) delivered as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code,

whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999 of the Code, results in the receipt by the Executive on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and the Executive otherwise agree in writing, any determination required under this Section 4 shall be made in writing by the Company’s independent public accountants immediately prior to Change of Control (the “Accountants”), whose determination shall be conclusive and binding upon the Executive and the Company for all purposes. For purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4.

5. Non-Solicitation. In consideration for the mutual agreements as set forth herein, the Executive agrees that the Executive shall not, at any time, within twelve (12) months following termination of the Executive’s employment with the Company for any reason, directly or indirectly solicit the employment or other services of any individual who at that time shall be or within the prior twelve (12) months shall have been an employee of the Company.

6. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

(a) Base Compensation. “Base Compensation” means the Executive’s monthly base salary paid by the Company for services performed calculated as the average base salary for the six (6) months completed prior to the Termination Date. If the Executive has not been employed by the Company for six (6) complete months prior to the Termination Date, Base

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Compensation shall be calculated as the average base salary for the period of the Executive’s employment.

(b) Cause. “Cause” means the Executive’s (i) intentional failure to perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the performance of duties, (iii) engaging in a transaction in connection with the performance of duties to the Company or any of its subsidiaries which transaction is adverse to the interests of the Company or any of its subsidiaries and which is engaged in for the Executive’s personal enrichment or (iv) willful violation of any material law, rule or regulation in connection with the performance of duties.

(c) Change of Control. “Change of Control” means the consummation of any of the following events:

(i) The acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of the “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities;

(ii) A change in the composition of the Board of Directors of the Company occurring within a two (2)-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company);

(iii) A merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the approval by the stockholders of the Company of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets;

(iv) The sale of all or substantially all of the assets of the Company determined on a consolidated basis; or

(v) The complete liquidation or dissolution of the Company.

(d) Involuntary Termination. “Involuntary Termination” means:

(i) termination of the Executive’s employment by the Company for any reason other than Cause;

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(ii) a material reduction in the Executive’s salary, other than any such reduction which is part of, and generally consistent with, a general reduction of officer salaries;

(iii) a material reduction by the Company in the kind or level of employee benefits (other than salary and bonus) to which the Executive is entitled immediately prior to such reduction with the result that the Executive’s overall benefits package (other than salary and bonus) is substantially reduced (other than any such reduction applicable to officers of the Company generally);

(iv) any material breach by the Company of any material provision of this Agreement which continues uncured for thirty (30) days following notice thereof; or

(v) a material reduction in the Executive’s titles, duties, responsibilities or authority;

provided that none of the foregoing shall constitute Involuntary Termination to the extent the Executive has agreed thereto. Any purported Involuntary Termination pursuant to Section 6(d)(ii) through 6(d)(v) will not be effective until the Executive has delivered to the Company a written explanation which describes the basis for the Executive’s belief that the Executive should be permitted to terminate his employment and have it treated as an Involuntary Termination and the Company has been given thirty (30) days to cure any curable violation.

(e) Release of Claims. “Release of Claims” shall mean a waiver by the Executive, in a form satisfactory to the Company, of all employment-related obligations of and claims and causes of action against the Company.

(f) Termination Date. “Termination Date” shall mean the date on which an event that would constitute Involuntary Termination occurs, or the later of (i) the date on which a notice of termination is given, or (ii) the date (which shall not be more than thirty (30) days after the giving of such notice) specified in such notice.

(g) Management Incentive Plan. “Management Incentive Plan” shall mean the Company’s bonus program, as implemented by the Company’s board of directors from time to time and pursuant to which the Executive may receive incentive-based compensation at fiscal year end.

7. Confidentiality. The Executive acknowledges that during the course of the Executive’s employment, the Executive will have produced and/or have access to confidential information, records, notebooks, data, formula, specifications, trade secrets, customer lists and secret inventions, and processes of the Company and its affiliated companies. Therefore, during or subsequent to the Executive’s employment by the Company, the Executive agrees to hold in confidence and not directly or indirectly to disclose or use or copy or make lists of any such information, except to the extent authorized by the Company in writing. All records, files, drawings,

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documents, equipment, and the like, or copies thereof, relating to the Company’s business, or the business of an affiliated company, which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company, or of an affiliated company, and shall not be removed from the Company’s or the affiliated company’s premises without its written consent, and shall be promptly returned to the Company upon termination of employment with the Company.

8. Successors.

(a) Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement pursuant to this subsection (a) or which becomes bound by the terms of this Agreement by operation of law.

(b) Executive’s Successors. The terms of this Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

9. Notice.

(a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to the Executive at the home address that the Executive most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its CEO.

(b) Notice of Termination. Any termination by the Company for Cause or by the Executive as a result of a voluntary resignation or an Involuntary Termination shall be communicated by a notice of termination to the other party hereto given in accordance with Section 9(a) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date (which shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive’s rights hereunder.

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10. Miscellaneous Provisions.

(a) Non-Disparagement. The Executive agrees to refrain from any defamation, libel or slander of the Company and its respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns or tortious interference with the contracts and relationships of the Company and its respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns. The Executive acknowledges and agrees that any breach of this paragraph shall constitute a material breach of the Agreement and shall entitle the Company immediately to recover all consideration paid under this Agreement, including, but not limited to the consideration described in Section 3.

(b) No Duty to Mitigate. The Executive shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Executive may receive from any other source.

(c) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(d) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof.

(e) Severance Provisions in Other Agreements. The Executive acknowledges and agrees that the severance provisions set forth in this Agreement shall supersede any such provisions in any other agreement entered into between the Executive and the Company.

(f) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California.

(g) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

(h) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this subsection shall be void.

(i) Employment Taxes. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.

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(j) Code Section 409A. This Agreement will be deemed amended to the extent necessary to avoid imposition of any additional tax or income recognition prior to actual payment to the Executive under Section 409A of the Code and any temporary, proposed or final Treasury Regulations and guidance promulgated thereunder and the parties agree to cooperate with each other and to take reasonably necessary steps in this regard.

(k) Assignment by Company. The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Executive.

(l) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

[Signature Page to Follow]

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

COMPANY:	COST PLUS, INC.
	By	/s/ Barry Feld
	Title	CEO
EXECUTIVE:		/s/ Rayford K. Whitley
		Rayford K. Whitley

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EX-10.10

Exhibit 10.10

EMPLOYMENT SEVERANCE AGREEMENT

This Employment Severance Agreement (the “Agreement”) is made and entered into effective as of 4-17-06 (the “Effective Date”), by and between Thomas D. Willardson (the “Executive”) and Cost Plus, Inc. (the “Company”).

RECITALS

A. Cost Plus desires to retain the services of the Executive, and the Executive desires to be employed by Cost Plus, on the terms and subject to the conditions set forth in this Agreement.

B. The Board of Directors of the Company (the “Board”) believes the Company should provide the Executive with certain severance benefits should the Executive’s employment with the Company terminate under certain circumstances, such benefits to provide the Executive with enhanced financial security and sufficient incentive and encouragement to remain with the Company.

C. Certain capitalized terms used in the Agreement are defined in Section 6 below.

AGREEMENT

In consideration of the mutual covenants herein contained, the parties agree as follows:

1. Duties and Scope of Employment. The Company shall employ the Executive in the position of Executive Vice President and Chief Financial Officer, with such duties, responsibilities and compensation as in effect as of the Effective Date. The Board and the Chief Executive Officer of the Company (the “CEO”) shall have the right to revise such responsibilities and compensation from time to time as the Board or the CEO may deem necessary or appropriate. If any such revision constitutes “Involuntary Termination” as defined in Section 6(d) of this Agreement, the Executive shall be entitled to benefits upon such Involuntary Termination as provided under this Agreement.

2. At-Will Employment. The Company and the Executive acknowledge that the Executive’s employment is and shall continue to be at-will, as defined under applicable law. If the Executive’s employment terminates for any reason, the Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company’s established employee plans and practices or in accordance with other agreements between the Company and the Executive. This Agreement shall remain in effect until the earlier of (i) the date that all obligations of the parties hereunder have been satisfied or (ii) the date upon which this Agreement terminates by consent of the parties hereto.

3. Severance Benefits.

(a) Benefits upon Termination. Unless the Executive is entitled to benefits under Section 3(b) of this Agreement, if the Executive’s employment terminates as a result

of Involuntary Termination prior to June 15, 2007 and the Executive signs and does not revoke a Release of Claims, then the Company shall pay the Executive’s Base Compensation on a salary continuation basis in accordance with the Company’s normal payroll practices to the Executive for twelve (12) months from the Termination Date. The Executive shall not be entitled to receive any payments if the Executive voluntarily terminates employment other than as a result of an Involuntary Termination.

(b) Benefits upon Termination After a Change of Control. If after a Change of Control the Executive’s employment terminates as a result of Involuntary Termination prior to June 15, 2007 and the Executive signs and does not revoke a Release of Claims, then the Company shall pay the Executive’s Base Compensation on a salary continuation basis in accordance with the Company’s normal payroll practices to the Executive for eighteen (18) months from the Termination Date. The Executive shall not be entitled to receive any payments if the Executive voluntarily terminates employment other than as a result of an Involuntary Termination.

(c) Stock Options. Unless otherwise provided in the Company’s stock option plans or in the Executive’s stock option agreements, the Executive shall not be entitled to acceleration of any unvested stock options upon the termination of the Executive’s employment for any reason, including an Involuntary Termination.

(d) Miscellaneous. In addition to the benefits described in Section 3(a) or Section 3(b) of this Agreement, upon the termination of the Executive’s employment, (i) the Company shall pay the Executive any unpaid base salary due for periods prior to the Termination Date; (ii) the Company shall pay the Executive all of the Executive’s accrued and unused vacation through the Termination Date; (iii) following submission of proper expense reports by the Executive, the Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by the Executive in connection with the business of the Company prior to the Termination Date; and (iv) if benefits will be paid under Section 3(a) or Section 3(b) of this Agreement, the Company shall pay the Executive a pro-rata portion of his fiscal year bonus, if any, under the Company’s Management Incentive Plan in effect for the fiscal year in which the Termination Date occurs. Such amount shall be paid at the time bonuses for the completed fiscal year are paid to other executives (but no later than the period of time required to fit within the short-term deferral rule of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)), shall be pro-rated for the period of time during the fiscal year that the Executive was an employee of the Company and shall only be paid if, and to the extent, that the relevant performance targets have been achieved by the Company. Except for any bonus payment under clause (iv) of the preceding sentence, these payments shall be made promptly upon termination and within the period of time mandated by applicable law.

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4. Limitation on Payments.

(a) Code Section 409A. If the Company reasonably determines that Section 409A will result in the imposition of additional tax to an earlier payment of the severance and other benefits provided in this Agreement or otherwise payable to the Executive, then the first six (6) months of the Executive’s severance benefits under Section 3 of this Agreement will accrue during the six (6)-month period following the Executive’s termination and will become payable in a lump sum payment on the date that is six (6) months and one (1) day following the date of the Executive’s termination of employment. The remaining severance benefits will be payable as provided in Section 3 of this Agreement.

(b) Code Section 280G. In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Executive (i) constitute “parachute payments” within the meaning of Section 280G of the Code and (ii) but for this Section 4, would be subject to the excise tax imposed by Section 4999 of the Code, then the Executive’s severance benefits under Section 3(b) of this Agreement shall be either:

(i) delivered in full, or

(ii) delivered as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code,

whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999 of the Code, results in the receipt by the Executive on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and the Executive otherwise agree in writing, any determination required under this Section 4 shall be made in writing by the Company’s independent public accountants immediately prior to Change of Control (the “Accountants”), whose determination shall be conclusive and binding upon the Executive and the Company for all purposes. For purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4.

5. Non-Solicitation. In consideration for the mutual agreements as set forth herein, the Executive agrees that the Executive shall not, at any time, within twelve (12) months following termination of the Executive’s employment with the Company for any reason, directly or indirectly solicit the employment or other services of any individual who at that time shall be or within the prior twelve (12) months shall have been an employee of the Company.

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6. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

(a) Base Compensation. “Base Compensation” means the Executive’s monthly base salary paid by the Company for services performed calculated as the average base salary for the six (6) months completed prior to the Termination Date. If the Executive has not been employed by the Company for six (6) complete months prior to the Termination Date, Base Compensation shall be calculated as the average base salary for the period of the Executive’s employment.

(b) Cause. “Cause” means the Executive’s (i) intentional failure to perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the performance of duties, (iii) engaging in a transaction in connection with the performance of duties to the Company or any of its subsidiaries which transaction is adverse to the interests of the Company or any of its subsidiaries and which is engaged in for the Executive’s personal enrichment or (iv) willful violation of any material law, rule or regulation in connection with the performance of duties.

(c) Change of Control. “Change of Control” means the consummation of any of the following events:

(i) The acquisition by any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of the “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities;

(ii) A change in the composition of the Board of Directors of the Company occurring within a two (2)-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company);

(iii) A merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the approval by the stockholders of the Company of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets;

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(iv) The sale of all or substantially all of the assets of the Company determined on a consolidated basis; or

(v) The complete liquidation or dissolution of the Company.

(d) Involuntary Termination. “Involuntary Termination” means:

(i) termination of the Executive’s employment by the Company for any reason other than Cause;

(ii) a material reduction in the Executive’s salary, other than any such reduction which is part of, and generally consistent with, a general reduction of officer salaries;

(iii) a material reduction by the Company in the kind or level of employee benefits (other than salary and bonus) to which the Executive is entitled immediately prior to such reduction with the result that the Executive’s overall benefits package (other than salary and bonus) is substantially reduced (other than any such reduction applicable to officers of the Company generally);

(iv) any material breach by the Company of any material provision of this Agreement which continues uncured for thirty (30) days following notice thereof; or

(v) a material reduction in the Executive’s titles, duties, responsibilities or authority;

provided that none of the foregoing shall constitute Involuntary Termination to the extent the Executive has agreed thereto. Any purported Involuntary Termination pursuant to Section 6(d)(ii) through 6(d)(v) will not be effective until the Executive has delivered to the Company a written explanation which describes the basis for the Executive’s belief that the Executive should be permitted to terminate his employment and have it treated as an Involuntary Termination and the Company has been given thirty (30) days to cure any curable violation.

(e) Release of Claims. “Release of Claims” shall mean a waiver by the Executive, in a form satisfactory to the Company, of all employment-related obligations of and claims and causes of action against the Company.

(f) Termination Date. “Termination Date” shall mean the date on which an event that would constitute Involuntary Termination occurs, or the later of (i) the date on which a notice of termination is given, or (ii) the date (which shall not be more than thirty (30) days after the giving of such notice) specified in such notice.

(g) Management Incentive Plan. “Management Incentive Plan” shall mean the Company’s bonus program, as implemented by the Company’s board of directors from time to time and pursuant to which the Executive may receive incentive-based compensation at fiscal year end.

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7. Confidentiality. The Executive acknowledges that during the course of the Executive’s employment, the Executive will have produced and/or have access to confidential information, records, notebooks, data, formula, specifications, trade secrets, customer lists and secret inventions, and processes of the Company and its affiliated companies. Therefore, during or subsequent to the Executive’s employment by the Company, the Executive agrees to hold in confidence and not directly or indirectly to disclose or use or copy or make lists of any such information, except to the extent authorized by the Company in writing. All records, files, drawings, documents, equipment, and the like, or copies thereof, relating to the Company’s business, or the business of an affiliated company, which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company, or of an affiliated company, and shall not be removed from the Company’s or the affiliated company’s premises without its written consent, and shall be promptly returned to the Company upon termination of employment with the Company.

8. Successors.

(a) Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement pursuant to this subsection (a) or which becomes bound by the terms of this Agreement by operation of law.

(b) Executive’s Successors. The terms of this Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

9. Notice.

(a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall be addressed to the Executive at the home address that the Executive most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its CEO.

(b) Notice of Termination. Any termination by the Company for Cause or by the Executive as a result of a voluntary resignation or an Involuntary Termination shall be communicated by a notice of termination to the other party hereto given in accordance with Section 9(a) of this Agreement. Such notice shall indicate the specific termination provision in this

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Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date (which shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive’s rights hereunder.

10. Miscellaneous Provisions.

(a) Non-Disparagement. The Executive agrees to refrain from any defamation, libel or slander of the Company and its respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns or tortious interference with the contracts and relationships of the Company and its respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns. The Executive acknowledges and agrees that any breach of this paragraph shall constitute a material breach of the Agreement and shall entitle the Company immediately to recover all consideration paid under this Agreement, including, but not limited to the consideration described in Section 3.

(b) No Duty to Mitigate. The Executive shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Executive may receive from any other source.

(c) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(d) Whole Agreement. No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof.

(e) Severance Provisions in Other Agreements. The Executive acknowledges and agrees that the severance provisions set forth in this Agreement shall supersede any such provisions in any other agreement entered into between the Executive and the Company.

(f) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California.

(g) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

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(h) No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this subsection shall be void.

(i) Employment Taxes. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.

(j) Code Section 409A. This Agreement will be deemed amended to the extent necessary to avoid imposition of any additional tax or income recognition prior to actual payment to the Executive under Section 409A of the Code and any temporary, proposed or final Treasury Regulations and guidance promulgated thereunder and the parties agree to cooperate with each other and to take reasonably necessary steps in this regard.

(k) Assignment by Company. The Company may assign its rights under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Company or to the Company; provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Company at the time of assignment. In the case of any such assignment, the term “Company” when used in a section of this Agreement shall mean the corporation that actually employs the Executive.

(l) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

[Signature Page to Follow]

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

COMPANY:		COST PLUS, INC.
	By	/s/ Barry Feld
	Title	CEO
EXECUTIVE:		/s/ Thomas D. Willardson
		Thomas D. Willardson

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Barry J. Feld, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cost Plus, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 8, 2006

/s/ BARRY J. FELD

Barry J. Feld

Chief Executive Officer, President

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Thomas D. Willardson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cost Plus, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 8, 2006

/s/ THOMAS D. WILLARDSON

Thomas D. Willardson

Executive Vice President, Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certification of the Chief Executive Officer

and the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Cost Plus, Inc. (the “Company”) on Form 10-Q for the period ended April 29, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Barry J. Feld, Chief Executive Officer and President of the Company, and Thomas D. Willardson, Executive Vice President and Chief Financial Officer, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ BARRY J. FELD

Barry J. Feld

Chief Executive Officer, President

(Principal Executive Officer)

June 8, 2006

/s/ THOMAS D. WILLARDSON

Thomas D. Willardson

Executive Vice President,

Chief Financial Officer

(Principal Financial and Accounting Officer)

June 8, 2006