Exhibit 10.39
 
LEASE
 
THIS LEASE (the “Lease”) is made as of February 23, 1999 between LMC-SHOREHAM
INVESTMENT COMPANY, LLC, a California limited liability company, and CONVOY
COURT INVESTMENT COMPANY, LLC, a California limited liability company, as
tenants in common (the “Landlord”), and the Tenant named in the Schedule below.
 
The following schedule (the “Schedule”) is an integral part of this Lease. Terms
defined in this Schedule shall have the same meaning throughout the Lease.
 
SCHEDULE
 

 
1.  
 
Tenant:    CombiChem, Inc., a Delaware corporation.

 

 
2.  
 
Project:    Lots 1, 2 and 3 of Nexus Technology Centre Unit No. 1, in the City
of San Diego, County of San Diego, State of California, according to Map thereof
No. 11876, filed in the Office of the County Recorder of San Diego County,
August 7, 1987.

 

 
3.  
 
Building:    The building to be constructed known as 4570 Executive Drive, San
Diego, California.

 

 
4.  
 
Property:    Lot 2 of the Project.

 

 
5.  
 
Premises:    A portion of the Building as shown on Exhibit A attached hereto.
If, prior to the commencement of construction of the Tenant Improvements, Tenant
desires to modify the lay-out of the Premises, Landlord shall in good faith
accommodate Tenant’s reasonable request therefor. In addition, Landlord shall,
at Tenant’s request made prior to Landlord’s approval of the Plans for the
Tenant Improvements, provide sufficient space on the first floor of the Building
for Tenant’s staging, shipping and/or receiving activities. In the event that
Tenant does request such space for staging, shipping and/or receiving, such
space shall be part of the Premises and be included in the calculation of
Rentable Area. If the parties agree upon a revised lay-out for the Premises,
then the parties shall promptly amend Exhibit A of this Lease to include a floor
plan of each floor of the Building with those portions of the Building which
comprise the Premises marked accordingly.

 

 
6.  
 
Rentable Area:    Approximately 75,000 rentable square feet (“Rentable Area”)
subject to adjustment pursuant to Section 3B. Landlord shall use its best
efforts, however, from the date hereof through the Commencement Date to reduce
the Rentable Area of the Premises by 5,000 rentable square feet by leasing such
space to a third party. If Landlord succeeds in reducing the Rentable Area of
the Premises by this amount (which shall be proven by the measurement required
under Section 3B of this Lease) on or before the Commencement Date, Base Rent
and all other items that are based upon the Rentable Area of the Premises shall
be adjusted accordingly. If Landlord fails to reduce the Rentable Area by such

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amount on or before the Commencement Date, Landlord shall not increase the Base
Rent for the Premises for the second year of the Term, as more fully described
in item 12 of the Schedule. Thus, the Base Rent shall remain $191,250 (subject
to adjustment pursuant to Section 3B of the Lease) until the commencement of the
third year of the Term when the annual adjustments described in item 12 of the
Schedule shall commence; provided, however, the maximum increase to the Base
Rent for the third Lease Year shall not exceed ten percent (10%) of the Base
Rent for the first Lease Year.

 

 
7.  
 
Tenant’s Proportionate Share:    Approximately 62.5% with respect to the
Building. Tenant’s Proportionate Share shall be calculated by dividing the
rentable square footage of the Premises by the total rentable square footage of
the Building.

 

 
8.  
 
Security Deposit:    $191,250.

 
9.  
 
Tenant Improvements:    See the Tenant Improvement Agreement attached hereto as
Exhibit C.

 

 
10.
 
Commencement Date:    Ten (10) days following the Substantial Completion (as
defined in Exhibit C of the Tenant Improvements. Within five (5) business days
following the Commencement Date, Landlord and Tenant shall execute a
Commencement Date Confirmation substantially in the form of Exhibit E attached
hereto. Within five days following Landlord’s acquisition of fee title to the
Property, Landlord and Tenant shall execute and cause to be recorded a
Memorandum of Lease substantially in the form of Exhibit H attached hereto.

 

 
11.
 
Termination Date/Term:    The Lease term shall end fifteen (15) years after the
Commencement Date, or if the Commencement Date is not the first day of a month,
then the Lease term shall end fifteen (15) years after the first day of the
calendar month following the Commencement Date.

 

 
12.
 
Base Rent:    $191,250 per month ($2.55 per rentable square foot). Base Rent
shall be adjusted each year as follows:

 
Except as set forth in item 6 of this Schedule, at the commencement of the
second Lease Year and at the commencement of each Lease Year thereafter, the
Base Rent (as the same may have been previously increased pursuant to this
section) will be increased by multiplying the Base Rent for the first Lease Year
(i.e., $191,250/month, subject to possible adjustment based upon a determination
of change in the Rentable Area of the Premises as provided in Section 3B below)
will be multiplied by a fraction, the numerator of which is the Index (defined
below) for the last period for which the Index is published and ends before the
commencement of the Lease Year for which the calculation is being made and the
denominator of which is the Index for the same calendar period immediately
preceding the Commencement Date. As used herein, the term “Index” is that which
is published by the United States Department of Labor, Bureau of Labor

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Statistics in the Consumer Price Index for all Urban Consumers (CPI-U): San
Diego, 1982-84 Base. The Base Rent as so increased will be paid in accordance
with the provisions of Section 2A1 of this Lease. By way of illustration only,
if (1) the Commencement Date were November 1, 1999, (2) the first Lease Year
ended on October 31, 2000 and (3) the Index were published monthly, then the
Base Rent for the Lease Year beginning on November 1, 2000, would be determined
by multiplying the Base Rent for the first Lease Year (i.e., assume
$191,250/month) by a fraction, the numerator of which is the Index for October,
2000 (assume such Index equals 171.6) and the denominator of which is the Index
for October, 1999 (assume such Index equals 165.0) and, under those assumed
facts, the Base Rent for the Lease Year commencing November 1, 2000, would be
$198,900. Notwithstanding the foregoing, the maximum increase of Base Rent for
any Lease Year shall not exceed five percent (5%) of the Base Rent for the
preceding Lease Year. If the Bureau of Labor Statistics discontinues the
publication of the Index or publishes the Index less frequently or alters the
Index in some manner, then Landlord will adopt a substitute index or substitute
procedure which reasonably reflects and monitors changes in consumer prices
subject to Tenant’s reasonable approval. In no event will Base Rent be
decreased. Landlord’s failure by reason of oversight, mistake or otherwise
promptly to make the calculation or advise Tenant of the amount of increased
Base Rent or to collect any increased Base Rent determined as set forth above,
will not release Tenant of Tenant’s obligation to pay Landlord, forthwith upon
discovery of such oversight or mistake, an amount equal to the difference
between Base Rent actually paid and the increased Base Rent that should have
been paid.
 

 
13.
 
Permitted Uses:    Provided that such uses comply with all Governmental
Requirements (as hereinafter defined) and the provisions of the Rules and
Regulations attached as Exhibit B hereto, the Premises may be used for (1)
General office purposes (including, but not limited to, sales and marketing);
(2) research and development (including, but not limited to, light manufacturing
of Tenant’s products within the laboratory spaces of the Building as necessary
to produce Tenant’s chemical libraries for its partners, collaborators and
customers and otherwise without substantial changes to the Initial
Improvements); (3) warehouse, shipping and receiving; and (4) other light
manufacturing in accordance with Governmental Requirements.

 

 
14.
 
Tenant’s Parking Rights:    Tenant shall be entitled to Tenant’s Proportionate
Share of the four hundred twenty-one (421) available parking spaces. Ten (10)
such parking spaces shall be exclusive which such exclusive parking spaces shall
be the ten (10) parking spaces closest to the Building’s passenger elevators, as
determined by Tenant.

 

 
15.
 
REA:    That certain Reciprocal Easement Agreement dated as of December 21, 1993
by and between Gensia, Inc., a Delaware corporation, and Gena Property Company,
a California general partnership, and recorded in the Official Records of the
San Diego County Recorder’s Office on December 22, 1993 as Document Number
1993-0865825. Tenant has received and reviewed a copy of the REA.

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16.
 
Exhibits:    Exhibits A—I attached hereto as incorporated herein by this
reference.

 

 
17.
 
Zoning:    Landlord represents and warrants that Tenant’s intended use of the
Premises complies with the zoning applicable to the Property as of the date of
this Lease.

 

 
18.
 
Target Commencement Date:    November 1, 1999.

 
1.    LEASE AGREEMENT.    On the terms stated in this Lease, Landlord leases the
Premises to Tenant, and Tenant leases the Premises from Landlord, for the Term
beginning on the Commencement Date and ending on the Termination Date unless
extended or sooner terminated pursuant to this Lease.
 
2.    RENT.
 
A.    Types of Rent.    Tenant shall pay the following Rent, in the form of a
check payable to LMC-Shoreham Investment Company, LLC to Landlord at the
following address:
 
LMC-Shoreham Investment Company, LLC
c/o Lee Chesnut
9627 Grossmont Summit Drive
La Mesa, CA 91941
 
or, at Landlord’s option, by wire transfer to such account(s) as Landlord shall
notify Tenant, or in such other reasonable manner as Landlord may notify Tenant:
 
1.    Base Rent in monthly installments, without deduction or offset, in advance
on or before the first day of each month of the Term is the amount set forth on
the Schedule. Base Rent for the first full calendar month of the first Lease
Year shall be paid upon execution of this Lease.
 
2.    Operating Cost Share Rent in an amount equal to the Tenant’s Proportionate
Share of the Operating Costs for the applicable fiscal year of the Lease, paid
monthly in advance in an estimated amount. Definitions of Operating Costs and
Tenant’s Proportionate Share, and the method for billing and payment of
Operating Cost Share Rent are set forth in Sections 2B, 2C and 2D.
 
3.    Tax Share Rent in an amount equal to the Tenant’s Proportionate Share of
the Taxes for the applicable fiscal year of this Lease, paid to Landlord on or
before the later of thirty (30) days prior to delinquency or ten (10) days after
Tenant’s receipt from Landlord of a copy of the applicable tax bill. A
definition of Taxes and the method for billing and payment of Tax Share Rent are
set forth in Sections 2B, 2C and 2D.
 
4.    Additional Rent in the amount of all costs, expenses, liabilities, and
amounts which Tenant is required to pay under this Lease, excluding Base Rent,
Operating Cost Share Rent and Tax Share Rent, but including any interest for
late payment of any item of Rent.

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5.    Rent as used in this Lease means Base Rent, Operating Cost Share Rent, Tax
Share Rent and Additional Rent. Tenant’s agreement to pay Rent is an independent
covenant, with no right of setoff, deduction or counterclaim of any kind.
 
B.    Payment of Operating Cost Share Rent and Tax Share Rent.
 
1.    Payment of Estimated Operating Cost Share Rent and Tax Share
Rent.    Landlord shall estimate the Operating Costs and Taxes of the Property
by April 1 of each fiscal year, or as soon as reasonably possible thereafter.
Landlord may revise these estimates whenever it obtains more accurate
information, such as the final real estate tax assessment or tax rate for the
Property.
 
Within ten (10) days after receiving the original or revised estimate from
Landlord, Tenant shall pay Landlord one-twelfth (1/12th) of Tenant’s
Proportionate Share of this estimate (excluding Tenant’s Proportionate Share of
the Taxes which shall be paid pursuant to Section 2B3 below), multiplied by the
number of months that have elapsed in the applicable fiscal year to the date of
such payment including the current month, minus payments previously made by
Tenant for the months elapsed. On the first day of each month thereafter, Tenant
shall pay Landlord one-twelfth (1/12th) of Tenant’s Proportionate Share of this
estimate (excluding Tenant’s Proportionate Share of the Taxes which shall be
paid pursuant to Section 2B3 below), until a new estimate becomes applicable.
 
2.    Correction of Operating Cost Share Rent.    Landlord shall deliver to
Tenant a report for the previous fiscal year (the “Operating Cost Report”) by
May 15 of each year, or as soon as reasonably possible thereafter, setting forth
(a) the actual Operating Costs incurred, (b) the amount of Operating Cost Share
Rent due from Tenant, and (c) the amount of Operating Cost Share Rent paid by
Tenant. Within twenty (20) days after such delivery, Tenant shall pay to
Landlord the amount due minus the amount paid. If the amount paid exceeds the
amount due, Landlord shall apply the excess to Tenant’s payments of Operating
Cost Share Rent next coming due.
 
3.    Current Tax Share Rent.    Landlord shall deliver to Tenant an invoice for
the upcoming fiscal year (the “Tax Report”) by November 1 of each year, or as
soon as reasonably possible thereafter, setting forth (a) the actual Taxes, (b)
the amount of Tax Share Rent due from Tenant, and (c) the amount of Tax Share
Rent to be paid by Tenant. Tenant shall pay to Landlord the amount due from
Tenant for such Taxes on or before the later of thirty (30) days prior to
delinquency or ten (10) days after Tenant’s receipt from Landlord of a copy of
the applicable tax bill.
 
C.    Definitions.
 
1.    Included Operating Costs.    “Project Common Areas” means the common areas
designated in the REA. “Common Areas” means (a) all areas and facilities outside
the Premises and within the exterior boundary line of the Property that are
provided and designated by Landlord from time to time for the general
non-exclusive use of Landlord, Tenant and other tenants of the Property and
their respective employees, suppliers,

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shippers, customers and invitees, including, without limitation, exercise room,
shower and changing rooms, parking areas, loading and unloading areas, trash
areas, roadways, sidewalks, walkways, parkways, ramps, driveways, landscaped
areas and decorative walls, and (b) Project Common Areas. “Operating Costs”
means any expenses, costs and disbursements of any kind other than Taxes and
capital expenses (except to the extent expressly permitted herein), paid or
incurred by Landlord in connection with the management, maintenance, operation,
insurance, repair and other related activities in connection with any part of
the Building, Property, Project or Common Areas, as applicable, and of the
personal property, fixtures, machinery, equipment, systems and apparatus used in
connection therewith, including the cost of providing those services required to
be furnished by Landlord under this Lease. Operating Costs shall also include
(x) amounts billed to Landlord under the REA, (y) the costs of any Included
Capital Items (defined below); provided, that if the cost of any single Included
Capital Item shall exceed $35,000 then such cost shall be amortized by Landlord,
together with an amount equal to interest at ten percent (10%) per annum, over
the estimated useful life of such item and such amortized costs are only
included in Operating Costs for that portion of the useful life of the Included
Capital Item which falls within the Term, and (z) a management fee equal to
one-and-one-half percent (1½%) of Base Rent. Operating Costs shall also include
the reasonable wages and overhead costs of a building engineer hired by Landlord
with respect to the Property; provided, however, that such engineer helps to
repair and maintain the Building and Property and does not primarily supervise
Landlord’s repair and maintenance obligations under this Lease. Landlord shall
make such engineer available to Tenant, at no additional cost to Tenant, to
perform minor repair and maintenance functions to the Premises.
 
As used herein, the term “Included Capital Items” shall mean collectively (1)
Replacement Capital Items and (2) Permitted Capital Additions. As used herein,
the term “Replacement Capital Items” shall mean repair and replacement of the
improvements in the Property (and all components thereof) which (a) Landlord has
the obligation to maintain (other than the foundation and structural components
of (i) the exterior walls of the Building, (ii) the roof of the Building and
(iii) interior bearing walls and columns of the Building) and (b) were installed
in the Property at the Commencement Date; without limiting the generality of the
foregoing, Replacement Capital Items shall include (1) the repair of parking
areas (including resurfacing and restriping as needed), (ii) replacement of roof
covering and (iii) repair and replacement of components of HVAC, electrical,
mechanical and plumbing systems. As used herein, the term “Permitted Capital
Additions” shall mean capital improvements which are intended to (a) reduce
Operating Costs or improve safety or (b) keep the Building, Property, Project or
Common Areas, as applicable, in compliance with Governmental Requirements.
 
2.    Excluded Operating Costs.    Operating Costs shall not include:
 
(a)
  
costs of improvements or alterations of tenant premises;
(b)
  
costs of capital improvements other than Included Capital Items;

 

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(c)
  
interest and principal payments on mortgages or any other debt costs, or rental
payments on any ground lease of the Property or Project;
(d)
  
real estate brokers’ leasing commissions;
(e)
  
legal fees, space planner fees and advertising expenses incurred with regard to
leasing the Property or portions thereof;
(f)
  
any cost or expenditure for which Landlord is reimbursed, by insurance proceeds
or otherwise, except by Operating Cost Share Rent;
(g)
  
the cost of any service furnished to any other tenant of the Property which
Landlord does not make available to Tenant;
(h)
  
depreciation (except on any Included Capital Items);
(i)
  
franchise or income taxes imposed upon Landlord;
(j)
  
costs of correcting defects in construction of the Building or Property (as
opposed to the cost of normal repair, maintenance and replacement expected with
the construction materials and equipment installed in the Building or Property
in light of their specifications);
(k)
  
legal and auditing fees which are for the benefit of Landlord such as collecting
delinquent rents, preparing tax returns and other financial statements, and
audits other than those incurred in connection with the preparation of reports
required pursuant to Section 2B above;
(l)
  
the wages of any employee for services not related directly to the management,
maintenance, operation and repair of the Property and wages and expenses or for
management in excess of the management fee provided in 2.C.1;
(m)
  
fines, penalties and interest;
(n)
  
attorney’s fees and other costs and expenses incurred in connection with
negotiations or disputes with prospective tenants, tenants or other occupants of
the Property;
(o)
  
damage and repairs necessitated by the negligence or willful misconduct of
Landlord or Landlord’s employees, contractors or agents;
(p)
  
personal property taxes payable by any other occupant of the Property;
(q)
  
costs incurred due to a violation by Landlord or any tenant of the terms and
conditions of any lease of space in the Building or Property;

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(r)
  
rentals and other related expenses (other than taxes and insurance) incurred in
leasing equipment ordinarily considered to be of a capital nature, except
equipment that is presently leased for use in, or providing services to the
Property, or that is used in providing security, operational, and maintenance
services, and equipment, the cost of which would be included as an Included
Capital Item;
(s)
  
costs arising from Landlord’s charitable or political contributions or from
costs or fees associated with Landlord’s membership in a trade association;
(t)
  
maintenance, improvement, replacement or repair of the (a) exterior or interior
load-bearing walls (except for the surfaces thereof), (b) foundations, and (c)
roof structure of any building of the Property;
(u)
  
wages; fees and administrative costs for the management of the Property in
excess of one-and-one-half percent (1½%) of Base Rent; and
(v)
  
the costs of electricity used by Tenant in the Premises which is separately
metered to, and paid by, Tenant.

 
Landlord agrees that (i) Landlord shall make no profit from Landlord’s
collection of Operating Cost; and (ii) Landlord shall reduce the amount of
Operating Costs by any refund Landlord receives in connection with any costs or
expenditures previously included in Operating Costs, less any cost incurred by
Landlord by obtaining any such refund.
 
3.    Taxes.    “Taxes” means any and all taxes, assessments and charges of any
kind, general or special, ordinary or extraordinary, levied against the Property
which Landlord shall pay or become obligated to pay in connection with the
ownership, leasing, renting, management, use, occupancy, control or operation of
the Property or of the personal property, fixtures, machinery, equipment,
systems and apparatus used in connection therewith and for the benefit of the
tenants thereof. Taxes shall include real estate taxes, personal property taxes,
sewer rents, water rents, special or general assessments, transit taxes, ad
valorem taxes, and any tax levied on the rents hereunder or the interest of
Landlord under this Lease (the “Rent Tax”). Taxes shall also include all fees
and other costs and expenses paid by Landlord in reviewing any tax and in
seeking a refund or reduction of any Taxes to the extent that, if successful,
Tenant would be benefited thereby, whether or not the Landlord is ultimately
successful.
 
If, by applicable law, any taxes or assessments may be paid in installments at
the option of the taxpayer, then whether or not Landlord elects to pay taxes and
assessments in such installments, Tenant’s liability for such taxes and
assessments shall be computed as if such election had been made, and only the
installments thereof which would have become due during the Term shall be
included in Tenant’s tax obligations. Any refund or other adjustment to any.
Taxes by the taxing authority, shall apply during the year in which the
adjustment is made. If a reduction in Taxes is obtained for any year of the
Lease Term during which Tenant paid Taxes, then Operating Costs for such year
shall be

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retroactively adjusted and Landlord shall provide Tenant with a credit against
Tenant’s next due obligations for Base Rent and Operating Costs or, if none,
refund such amount to Tenant within thirty (30) days based on such adjustment.
Landlord agrees to contest increases in the tax rate and assessed valuation of
the Building or Property, which affect the general real estate tax component of
Taxes or any other increase in Taxes customarily protested by prudent owners of
commercial office buildings in the City of San Diego in a manner appropriate for
such an owner.
 
Taxes shall not include any net income (except Rent Tax), capital, stock,
succession, transfer, franchise, gift, estate or inheritance tax, except to the
extent that such tax shall be imposed in lieu of any portion of Taxes. In
addition to the foregoing exclusions, Taxes shall not include: (i) any item to
the extent otherwise included in Operating Costs; (ii) any environmental
assessments, charges or liens arising in connection with the remediation of
Hazardous Materials from the Property, the causation of which arose prior to the
Commencement Date of this Lease, or to the extent caused by Landlord, its
agents, employees or contractors or any tenant of the Property (other than
Tenant or its sublessees or assignees); (iii) costs or fees payable to public
authorities in connection with any future construction, renovation and/or
improvements to the Property other than the Work or Improvements to the Premises
made by or for Tenant, including fees for transit, housing, schools, open space,
child care, arts programs, traffic mitigation measures, environmental impact
reports, traffic studies, and transportation system management plans; (iv)
reserves for future Taxes; or (v) any personal property taxes attributable to
sculptures, paintings or other objects of art (except for objects of art
installed in the Common Areas pursuant to requirements of public authority).
 
4.    Lease Year.    “Lease Year” means each consecutive twelve-month period
beginning with the Commencement Date, except that if the Commencement Date is
not the first day of a calendar month, then the first Lease Year shall be the
period from the Commencement Date through the final day of the twelve months
after the fist day of the following month, and each subsequent Lease Year shall
be the twelve months following the prior Lease Year.
 
5.    Fiscal Year.    “Fiscal Year” means the calendar year, except that the
first fiscal year and the last fiscal year of the Term may be a partial calendar
year.
 
D.    Computation of Base Rent and Rent Adjustments.
 
1.    Prorations.    If this Lease begins on a day other than the first day of a
month, the Base Rent, Operating Cost Share Rent and Tax Share Rent shall be
prorated for such partial month based on the actual number of days in such
month. If this Lease begins on a day other than the first day, or ends on a day
other than the last day, of the fiscal year, Operating Cost Share Rent and Tax
Share Rent shall be prorated for the applicable fiscal year. If any Operating
Cost paid in one fiscal year relates to more than one fiscal year, Landlord may
proportionately allocate such Operating Cost among the related fiscal years.

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2.    Default Interest.    Any sum due from Tenant to Landlord not paid when due
shall bear interest from the date due until paid at the lesser of ten percent
(10%) per annum or the maximum rate permitted by law.
 
3.    Rent Adjustments.    If the City of San Diego grants any tax break or
conveys some other benefit due to Tenant’s occupancy of the Premises
(collectively, a “Benefit”) and such Benefit accrues all or in part to Landlord,
Landlord shall credit such amount to Tenant against Tenant’s Rent obligation
under this Lease at the time or times Landlord receives such Benefit.
 
4.    Books and Records.    Landlord shall maintain books and records reflecting
the Operating Costs and Taxes in accordance with generally accepted accounting
practices and sound management practices. Tenant and its certified public
accountant shall have the right to inspect Landlord’s records at Landlord’s
office upon at least seventy-two (72) hours’ prior notice during normal business
hours during the ninety (90) days following the respective delivery of the
Operating Cost Report or the Tax Report. The results of any such inspection
shall be kept strictly confidential by Tenant and its agents, and Tenant and its
certified public accountant must agree, in their contract for such services, to
such confidentiality restrictions and shall specifically agree that the results
shall not be made available to any other tenant of the Building. Unless Tenant
sends to Landlord any written exception to either such report within ninety (90)
days’ following the date Tenant completes its review of Landlord’s records, such
report shall be deemed final and accepted by Tenant. Tenant shall pay the amount
shown on both reports in the manner prescribed in this Lease, whether or not
Tenant takes any such written exception, without any prejudice to such
exception. If Tenant makes a timely exception, Landlord shall cause its
independent certified public accountant to issue a final and conclusive
resolution of Tenant’s exception. If Tenant’s and Landlord’s accountants cannot
agree upon a mutually-agreeable resolution to Tenant’s exception, then such
accountant shall jointly determine a mutually-acceptable accountant to resolve
such disputed exception. Tenant shall pay the cost of such certification unless
Landlord’s original determination of annual Operating Costs or Taxes overstated
the amounts thereof by more than three percent (3%), in which case Landlord
shall pay the cost of such inspection and certification.
 
5.    Miscellaneous.    So long as Tenant is in default of any obligation under
this Lease, Tenant shall not be entitled to any refund of any amount from
Landlord. If this Lease is terminated for any reason prior to the annual
determination of Operating Cost Share Rent or Tax Share Rent, either party shall
pay the full amount due to the other within fifteen (15) days after Landlord’s
notice to Tenant of the amount when it is determined. Landlord may commingle any
payments made with respect to Operating Cost Share Rent or Tax Share Rent,
without payment of interest.
 
3.    PREPARATION AND CONDITION OF PREMISES: POSSESSION AND SURRENDER OF
PREMISES.
 
A.    Condition of Premises.    Except to the extent of the Tenant Improvements
item on the Schedule, Landlord is leasing the Premises to Tenant absolutely “as
is” (subject to

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Landlord’s warranty obligations set forth below), without any obligation to
alter, remodel, improve, repair or decorate any part of the Premises. Landlord
shall cause the Premises to be completed in accordance with the Tenant
Improvement Agreement attached as Exhibit C. Landlord shall deliver the Premises
to Tenant on the Commencement Date clean and free of debris with the
installation of the Tenant Improvements completed in accordance with the terms
of the Tenant Improvement Agreement attached as Exhibit C. Landlord warrants to
tenant that the roof, plumbing, fire sprinkler system, lighting, heating,
ventilation and air conditioning systems and electrical systems in the Premises,
shall be in good operating condition on the Commencement Date and during the
initial twelve (12) months of the Term. In the event of a non-compliance with
such warranty, Landlord shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Tenant setting forth the nature
and extent of such non-compliance, rectify same at Landlord’s cost and expense.
Further, in connection with the construction of the Building structure and the
Tenant Improvements pursuant to the Tenant Improvement Agreement, Landlord shall
obtain customary warranties and guaranties from the contractor(s) performing
such work and/or the manufacturers of equipment installed therein, but shall be
under no obligation to incur additional expense in order to obtain or extend
such warranties. If Tenant is required to make repairs to any component of the
Premises or any of its systems not covered by the Landlord’s warranty contained
in this Section 3A but for which Landlord has obtained a contractor’s or
manufacturer’s warranty, then Landlord shall, upon request by Tenant, use its
good faith efforts to pursue its rights under any such warranties for the
benefit of Tenant. Tenant’s acceptance of the Premises shall be subject to the
foregoing and to the provisions of this Lease regarding delivery of possession
and completion by Landlord of all punch-list items. Tenant may obtain, at
Tenant’s sole cost and expense, extended warranties on any Building systems;
Landlord shall (i) notify Tenant prior to its purchase of any Building system
for which Tenant may obtain an extended warranty in order to give Tenant ample
opportunity to obtain such a warranty and (ii) cooperate with and assist Tenant
to obtain any such warranties.
 
B.    Measurement of Premises.    Tenant understands that the Premises is to
contain approximately seventy-five thousand (75,000) rentable square feet (as
set forth in Item 6 of the Schedule). Upon completion of the Tenant
Improvements, Landlord shall measure the Premises using the Standard Method for
Measuring Floor Area in Office Buildings (BOMA), except that the “Construction
Area” (as defined by BOMA) shall be included as gross rentable area (the
“Standard Measure”), and if such measurement indicates that either the rentable
square footage of the Premises and/or the Building differs from that set forth
in this Lease, then Landlord shall so notify Tenant and the and Basic Rent (as
shown in Items 8 and 15 of the Schedule) and all other items which are based
upon the square footage of the Premises and/or the Building shall be promptly
adjusted in proportion to the change in square footage. Tenant reserves the
right to have its space planner or architect measure the Premises upon
completion to confirm that the measurement provided by Landlord is accurate and
conforms to the Standard Measure. Any discrepancy shall be promptly resolved by
the parties through good faith negotiations or, if such negotiations fail to
resolve the issue, arbitration pursuant to Section 29 hereof. Within five (5)
business days following the Commencement Date, the parties shall memorialize the
adjustments by executing the Commencement Date Confirmation substantially in the
form of Exhibit E.

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C.    Tenant’s Possession.    Except as set forth in Section 3A above, Tenant’s
taking possession of any portion of the Premises shall be conclusive evidence
that the Premises were in good order, repair and condition, with the exception
of any latent defects in the Building, which shall be Landlord’s responsibility.
If Landlord authorizes Tenant to take possession of any part of the Premises
prior to the Commencement Date for purposes of doing business, all terms of this
Lease shall apply to such pre-Term possession, including Base Rent at the rate
set forth for the First Lease Year in the Schedule prorated for any partial
month.
 
D.    Surrender.    At the termination of this Lease, or Tenant’s right to
possession, Tenant shall return the Premises to Landlord in broom-clean, safe,
neat and sanitary condition. To the extent Tenant fails to perform either
obligation, Landlord may, but need not, restore the Premises to such condition
and Tenant shall pay the cost thereof.
 
4.    PROJECT SERVICES.    Landlord shall furnish services as follows (the cost
of each of which shall be included in Operating Costs except to the extent that
such service is separately metered to, and paid by, Tenant):
 
A.    Heating and Air Conditioning.    Landlord shall furnish heating and air
conditioning to provide a comfortable temperature, in Landlord’s reasonable
judgment, for normal business operations. Tenant shall have the ability to
control after hours heating, and air conditioning of the Premises; provided,
however, Tenant shall pay the actual cost of such after-hours heating and air
conditioning.
 
B.    Elevators.    Landlord shall provide the services of one (1) nonexclusive
freight elevator and two (2) nonexclusive passenger elevators in the Building at
all times during the Term.
 
C.    Electricity.    Landlord shall provide sufficient electricity for Tenant’s
intended use of the Premises. Tenant’s electricity usage (except for electricity
used for heating and air conditioning other than heating and air conditioning
unit(s) installed by Tenant which serve only the Premises) shall be separately
metered.
 
D.    Water.    Landlord shall furnish hot and cold tap water for use in
Tenant’s business operations, drinking and toilet purposes.
 
E.    Exercise Room and Shower.    Landlord shall furnish and maintain (a) an
exercise room not more than 1200 square feet in area, as reasonably agreed upon
by Landlord and Tenant, on the first floor of the Building and the equipment
therein and (b) two (2) men’s and two (2) women’s showers and changing rooms on
the first floor of the Building.
 
F.    Interruption of Services.    If any of the Building or Property equipment
or machinery ceases to function properly for any cause Landlord shall use
reasonable diligence to repair the same promptly. Landlord’s inability to
furnish, to any extent, the Property services set forth in this Section 4, or
any cessation thereof resulting from any causes, other than Landlord’s gross
negligence or willful failure to provide such services, including any entry for
repairs pursuant to this Lease, shall not render Landlord liable for damages to
either person or property or for interruption or loss to Tenant’s business, nor
be construed as an eviction of Tenant, nor

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work an abatement of any portion of Rent, nor relieve Tenant from fulfillment of
any covenant or agreement hereof. However, in the event that as interruption of
the Property services set forth in this Section 4 causes the Premises to be
untenantable for a period of at least five (5) consecutive business days,
monthly Rent shall be abated proportionately and retroactively, and it shall be
Landlord’s responsibility to carry any insurance it requires to cover any such
Rent abatement.
 
G.    Parking.    During the Term, Tenant and its employees shall be entitled to
use within the Project’s parking areas at no additional expense to Tenant, it
being hereby agreed that Tenant’s payment of Base Rent, Operating Cost Share
Rent and Tax Share Rent shall satisfy all parking rent obligations. Tenant shall
comply with the parking requirements of the REA in its use of the Project’s
parking areas.
 
5.    ALTERATIONS, MAINTENANCE AND REPAIRS.
 
A.    Landlord’s Consent and Conditions.    After the Commencement Date, Tenant
shall not make any improvements or alterations to the Premises (the “Work”)
without in each instance submitting plans and specifications for the Work to
Landlord. For any alterations or improvements (or series of related alterations
or improvements) costing more than $50,000 in any instance, Tenant shall also
obtain Landlord’s prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed. Landlord will be deemed to be acting
reasonably in withholding its consent for any Work which (a) materially
increases the cost of maintaining or reduces the value or utility of the base
structural components or systems of the Building, (b) impairs the use or
occupancy of any other tenant’s premises, (c) is visible from outside the
Project (other than Tenant’s signage), or (d) reduces the value or utility of
the Premises all as determined by Landlord in its reasonable and good faith
discretion. Tenant shall reimburse Landlord for actual and reasonable costs
incurred for review of the plans and all other items submitted by Tenant. Tenant
shall pay for the cost of all Work.
 
The following requirements shall apply to all Work:
 
1.    Prior to commencement, Tenant shall furnish to Landlord building permits,
certificates of insurance satisfactory to Landlord (including, without
limitation, certificates evidencing the insurance Tenant, its contractors and
subcontractors are required to maintain under Section 8C), and, at Landlord’s
request, security for payment of all costs.
 
2.    Tenant shall perform all Work so as to maintain peace and harmony among
other contractors serving the Project and shall avoid interference with other
work to be performed or services to be rendered in the Project. Tenant shall use
contractors reasonably acceptable to Landlord to perform the Work.
 
3.    The Work shall be performed in a good and workmanlike manner, meeting the
standard for construction and quality of materials in the Building, and shall
comply with all insurance requirements and all applicable governmental laws,
ordinances and regulations (“Governmental Requirements”).

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4.    Tenant shall perform all Work so as to minimize or prevent disruption to
other tenants, and Tenant shall comply with all reasonable requests of Landlord
in response to complaints from other tenants.
 
5.    Tenant shall perform all Work in compliance with Landlord’s “Policies,
Rules and Procedures for Construction Projects” in effect at the time the Work
is performed; provided that such policies, rules and procedures shall not
unreasonably increase the cost of the work.
 
6.    Landlord may, in its sole discretion, supervise all Work; however, Tenant
shall not pay Landlord any fee for such supervision.
 
7.    Upon completion, Tenant shall furnish Landlord with contractor’s
affidavits and full and final statutory waivers of liens, as-built plans and
specifications, and receipted bills covering all labor and materials, and all
other close-out documentation reasonably required in Landlord’s “Policies, Rules
and Procedures for Construction Projects.”
 
B.    Maintenance and Repairs.    Tenant shall, at its sole expense, keep the
Premises and every part thereof in good order, condition and repair (loss or
damage caused by the elements, ordinary wear and tear, and fire and other
casualty excepted) including, without limiting the generality of the foregoing,
all equipment or facilities specifically serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities, fire
hose connections if within the Premises, fixtures, interior walls, interior
surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, all
Tenant Improvements installed pursuant to the Tenant Improvement Agreement and
all improvements installed by Tenant in the Premises after the Commencement
Date. Landlord shall maintain, at Landlord’s sole cost which shall not be
included in Operating Costs, the foundation and structural components of the
Building including (1) the roof of the Building, (2) exterior walls of the
Building and (3) interior bearing walls and columns of the Building. Landlord
shall also maintain, and the cost thereof shall be an element of Operating
Costs, (1) the Project Common Areas to the extent required under the REA, (2)
the Common Areas located within the Property, including exercise room, showers
and changing rooms, sidewalks, walkways, driveways, parking areas, landscaped
areas, irrigation facilities, loading docks and interior and exterior lighting
fixtures, (3) roof covering of the Building and (4) systems installed in the
Building which service both the Premises and other portions of the Building
including, without limitation, electrical, mechanical, plumbing, heating,
ventilating, air conditioning, elevator, fire/life safety systems. Tenant shall,
at Tenant’s sole cost, be responsible for interior janitorial service of the
Premises. Landlord shall maintain a common use trash disposal area within the
Property and the cost of providing trash removal shall be an element of
Operating Costs. Tenant shall, at Tenant’s cost, be responsible for trash and/or
waste removal which requires special handling such as hazardous and/or
infectious waste. If Tenant fails to perform Tenant’s obligations under this
paragraph, Landlord shall have the right, but not the obligation, to perform
such obligations and the reasonable costs incurred by Landlord in connection
therewith shall be Additional Rent payable by Tenant upon receipt of written
demand by Landlord.

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If any of the items for which Landlord has maintenance and repair responsibility
break, fail or are damaged, Tenant shall promptly notify Landlord and Landlord
shall repair such item(s). Landlord may also at any reasonable time make any
repairs or alterations which Landlord reasonably deems necessary for the safety
or protection of the Property, or which Landlord is required to make by any
court or pursuant to any Governmental Requirement. The cost of any repairs made
by Landlord on account of Tenant’s default, or on account of the misuse or
neglect by Tenant or its invitees, contractors or agents anywhere in the
Project, shall become Additional Rent payable by Tenant on demand. If Landlord
fails to perform any of its repair and maintenance obligations under this
Section 5B or otherwise as required in this Lease, and such failure materially
affects Tenant’s ability to use or occupy the Premises for the purposes
permitted herein, Tenant shall have the right, but not the obligation, to
perform such repairs and/or maintenance if such failure continues for more than
fifteen (15) days after written notice from Tenant; provided, however, that if
the nature of the repairs and/or maintenance to be completed by Landlord is such
that more than fifteen (15) days are required to complete such repairs and/or
maintenance, Landlord shall have such additional time as is reasonably necessary
to complete such repairs and/or maintenance so long as Landlord takes
appropriate action to commence such repairs and/or maintenance within such
fifteen (15) day period and thereafter diligently pursues such repairs and/or
maintenance to completion. In such event, Landlord shall reimburse Tenant for
the reasonable costs incurred by Tenant to complete such repairs and/or
maintenance within thirty (30) days after receipt of Tenant’s written demand
therefor, together with copies of the paid invoices evidencing the costs
incurred by Tenant. Any repairs and/or maintenance permitted herein shall be
performed in a good workmanlike manner by licensed contractors. If Landlord
objects to the repairs and/or maintenance performed or the expenses incurred by
Tenant in performing such work, Landlord shall deliver a written notice of
Landlord’s objection to Tenant within thirty (30) days after Landlord’s receipt
of Tenant’s invoice evidencing the expenses incurred by Tenant. Landlord’s
notice shall set forth in reasonable detail Landlord’s reasons for its claim
that such repairs and/or maintenance were not required or were not Landlord’s
obligation in the terms of this lease and/or the reasons for Landlord’s dispute
of the expenses incurred by Tenant in performing such work. If Landlord and
Tenant fail to resolve any such dispute within said thirty (30) day period,
after Landlord has notified Tenant of Landlord’s objections, the matter shall be
resolved by binding arbitration in accordance with the provisions of Section 29
of this Lease.
 
C.    No Liens.    Tenant has no authority to cause or permit any lien or
encumbrance of any kind to affect Landlord’s (or Landlord’s Lender’s) interest
in the Property; any such lien or encumbrance shall attach to Tenant’s interest
only. If any mechanic’s lien shall be filed or claim of lien made for work or
materials furnished to Tenant, then Tenant shall at its expense within ten (10)
business days thereafter either discharge or contest the lien or claim. If
Tenant contests the lien or claim, then Tenant shall (i) within such ten (10)
business day period, provide Landlord adequate security for the lien or claim,
(ii) contest the lien or claim in good faith by appropriate proceedings that
operate to stay its enforcement, and (iii) pay promptly any final adverse
judgment entered in any such proceeding. If Tenant does not comply with these
requirements, Landlord may discharge the lien or claim, and the amount paid, as
well as attorney’s fees and other expenses incurred by Landlord, shall become
Additional Rent payable by Tenant on demand. Nothing contained in this Lease
shall constitute any consent by Landlord to subject Landlord’s estate to
liability under any mechanics’ or other lien law. Tenant shall give Landlord

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adequate opportunity, and Landlord shall have the right at all times, to post
such notices of nonresponsibility as may be allowed under California law.
 
Landlord acknowledges Tenant’s right to finance and to secure under the Uniform
Commercial Code, inventory, furnishings, furniture, equipment, machinery,
leasehold improvements and other personal property located in or at the
Premises, and Landlord agrees to execute waiver forms releasing liens in favor
of any purchase money seller, lessor or lender who has financed or may finance
in the future such items; provided, however, Tenant shall have no right to
impose a lien upon (and Landlord shall have no obligation to provide any waiver
with respect to) the Initial Improvements (defined below). Without limiting the
effectiveness of the foregoing, provided that no default shall have occurred and
be continuing, Landlord shall, upon the request of Tenant, and at the Tenant’s
sole cost and expense, execute and deliver any instruments reasonably necessary
or appropriate to confirm any such grant, release, dedication, transfer,
annexation or amendment to any person or entity permitted under this paragraph
including landlord waivers substantially in the form of Exhibit H attached
hereto with respect to any of the foregoing.
 
D.    Ownership of Improvements.    All Tenant Improvements, as defined in
Exhibit C, financed by Landlord’s Contribution plus the Tenant Improvements
financed and/or paid for by Tenant up to a maximum of $1,500,000 (together, the
“Initial Improvements”) (i) shall become Landlord’s property upon installation
without compensation to Tenant, unless Landlord consents otherwise in writing,
and (ii) shall be surrendered to Landlord with the Premises at the termination
of the Lease or Tenant’s right to possession. To the extent that the total cost
of the Initial Improvements exceeds the amount of Landlord’s Contribution plus
the $1,500,000 to be paid by Tenant, then, within 45 days following the
Commencement Date, Tenant shall submit to Landlord a list of leasehold
improvements as well as equipment and machinery, to the extent relevant, which
(1) have an installation cost equal to or less than the amount of the excess
cost for the Tenant Improvements over Landlord’s Contribution and Tenant’s
$1,500,000 payment, (2) could be removed from the Premises upon termination or
expiration of the Lease without material damage to the Building or the Premises
or otherwise materially affect the operation of systems installed in the
Building or Premises and (3) Tenant desires to retain ownership of and have the
right to remove upon termination or expiration of the Lease. Within 30 days
following Landlord’s receipt of Tenant’s list, Landlord shall approve the list
unless Landlord has a reasonable and material objection thereto. If Landlord and
Tenant are unable to resolve Landlord’s objection(s), the matter shall be
resolved pursuant to arbitration as provided under Section 29 of this Lease.
 
All improvements to the Premises made by or on behalf of Tenant at Tenant’s sole
cost and expense (except for the Initial Improvements) whether pursuant to the
Tenant Improvements Agreement attached hereto as Exhibit C or Section 5A hereto
(the “Subsequent Improvements”) shall be and remain Tenant’s property. Tenant
shall have the right to remove the Subsequent Improvements in accordance with
Section 5E below in which case Tenant shall restore the Premises to the
condition required for surrender under Section 3D hereto upon the expiration or
earlier termination of the Term.
 
E.    Removal at Termination.    Upon the termination of this Lease or Tenant’s
right of possession, Tenant shall have the right to remove from the Property the
Subsequent

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Improvements and other personal properly of Tenant. If Tenant does not timely
remove such property, then Tenant shall be conclusively presumed to have, at
Landlord’s election and to the extent applicable (i) conveyed such property to
Landlord without compensation or (ii) abandoned such property, and Landlord may
dispose of or store any part thereof in any manner at Tenant’s sole cost,
without waiving Landlord’s right to claim from Tenant all expenses arising out
of Tenant’s failure to remove the property, and without liability to Tenant or
any other person. Landlord shall have no duty to be a bailee of any such
personal property. If Landlord elects abandonment, Tenant shall pay to Landlord,
upon demand, any expenses incurred for disposition. Tenant expressly releases
Landlord of and from any and all claims and liability for damage to or
destruction or loss of property left by Tenant upon the Premises at the
expiration or other termination of this Lease and, to the extent permitted by
then applicable law, Tenant shall protect, indemnify, defend and hold Landlord
harmless from and against any and all claims and liability with respect thereto.
 
F.    Landlord’s Work.    Landlord shall have the right at any time to change
the arrangement and location of all entrances, sidewalks, driveways, parking
areas, and other public parts of the Project, provided that such changes do not
materially impair Tenant’s access to or use or occupancy of the Building, and,
upon giving Tenant reasonable notice thereof, to change any name, number or
designation by which the Premises, the Building or the Property is commonly
known, provided that Landlord shall reimburse Tenant’s reasonable out-of-pocket
costs associated with such change including printing and administrative costs.
 
6.    USE OF PREMISES.    Tenant shall use the Premises only for the permitted
use identified in this Lease. Tenant shall not allow any change in use of the
Premises which will have a material adverse effect on the cost or coverage of
Landlord’s insurance on the Property. Tenant shall not allow any inflammable or
explosive liquids or materials to be kept on the Premises except for those
liquids and materials used in the normal course of Tenant’s business, which
shall be stored and used in accordance with applicable laws and insurance
requirements. Tenant shall not allow any change in use of the Premises which
would cause the value or utility of any part of the Premises to diminish or
would interfere with any other Tenant or with the operation of the Property by
Landlord. Tenant shall not cause or permit any nuisance or waste upon the
Premises, or allow any offensive noise or odor to emanate from the Premises or
in any way obstruct or interfere with the rights of other tenants or occupants
of the Project.
 
Tenant acknowledges that the Americans With Disabilities Act of 1990 (as amended
and as supplemented by further laws from time to time, the “ADA”) imposes
certain requirements upon the owners, lessees and operators of commercial
facilities and places of public accommodation, including, without limitation,
prohibitions on discrimination against any individual on the basis of
disability. Notwithstanding any other provision of this Lease, Landlord agrees
at Landlord’s expense, to take all proper action to cause the Building structure
and the Common Areas to comply with the ADA requirements and Tenant agrees, at
Tenant’s expense, to take all proper and necessary action to cause the Premises,
any repairs, replacements, alterations and improvements thereto to be
maintained, used and occupied in compliance with the ADA requirements, to the
extent that those requirements are based upon the Tenant’s occupancy,
alteration, improvement, use of the Premises and, further, to otherwise assume
all responsibility to ensure the Premises’ continued compliance with all
provisions of the ADA throughout the Term. Tenant shall, at its expense, make
any alterations or modifications to its

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improvements to the Building, in order to bring Tenant’s use and occupancy of
the Premises into compliance with the ADA. Tenant shall pay, as Additional Rent,
Tenant’s Proportionate Share of expenses incurred by Landlord in bringing the
Common Areas of the Project into compliance with provisions of the ADA to the
extent any such compliance is required by changes in the ADA after the
Commencement Date. The Premises shall not be used as a “place of public
accommodation” under the ADA or similar laws, regulations, statutes and/or
ordinances; provided, that if any governmental authority shall deem the Premises
to be a “place of public accommodation” as a result of Tenant’s use, Tenant
shall either modify its use to cause such authority to rescind its designation
or be responsible for any alterations, structural or otherwise, required to be
made to the Property or the Premises under such laws.
 
7.    GOVERNMENTAL REQUIREMENTS AND PROJECT RULES.    Tenant shall comply with
all Governmental Requirements applying to its use of the Premises. Tenant shall
also comply with all reasonable and non-discriminatory rules established for the
Project, including, without limitation, the parking area, from time to time
either by Landlord or pursuant to the REA, of which Tenant receives notice from
Landlord. The present rules and regulations are contained in Exhibit B. Failure
by another tenant to comply with the rules or failure by Landlord to enforce
them shall not relieve Tenant of its obligation to comply with the rules or make
Landlord responsible to Tenant in any way, provided that Landlord agrees to use
commercially reasonable efforts to enforce such rules to the extent that
Tenant’s use or occupancy of the Premises is affected by such failure. Landlord
shall use reasonable efforts to apply the rules and regulations uniformly with
respect to Tenant and tenants in the Building under leases containing rules and
regulations similar to this Lease.
 
8.    WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.
 
A.    Waiver of Claims.    To the extent permitted by law, Tenant waives any
claims it may have against Landlord or its officers, directors, employees or
agents for business interruption or damage to property sustained by Tenant as
the result of any act or omission of Landlord, other than Landlord’s gross
negligence or willful misconduct.
 
To the extent permitted by law, Landlord waives any claims it may have against
Tenant or its officers, directors, employees or agents for loss of rents or
damage to property sustained by Landlord as the result of any act or omission of
Tenant, other than Tenant’s gross negligence or willful misconduct.
 
B.    Indemnification.    Tenant shall indemnify, defend and hold harmless
Landlord and its officers, directors, employees and agents against any claim by
any third party for injury to any person or damage to or loss of any property
occurring in the Properly and arising from any act or omission or negligence of
Tenant or any of Tenant’s employees or agents. Tenant’s obligations under this
section shall survive the termination of this Lease.
 
Landlord shall indemnify, defend and hold harmless Tenant and its officers,
directors, employees and agents against any claim by any third party for injury
to any person or damage to or loss of any property occurring in the Property and
arising from any act or omission or negligence of Landlord or any of Landlord’s
employees or agents. Landlord’s obligations under this section shall survive the
termination of this Lease.

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C.    Tenant’s Insurance.    Tenant shall maintain insurance as follows, with
such other terms, coverages and insurers, as Landlord shall reasonably require
from time to time:
 
1.    Commercial General Liability Insurance, with (a) Contractual Liability
including the indemnification provisions contained in this Lease, (b) a
severability of interest endorsement, (c) limits of not less than One Million
Dollars ($1,000,000) combined single limit per occurrence and not less than Two
Million Dollars ($2,000,000) in the aggregate for bodily injury, sickness or
death, and property damage, and umbrella coverage of not less than Five Million
Dollars ($5,000,000). Not more frequently than once every six years during the
term of this Lease, the limits of liability of the policy of commercial general
liability insurance shall be increased to such amounts as Landlord’s insurer or
lender may reasonably require, consistent with customary limits then being
required of comparable tenants in San Diego County.
 
2.    Property Insurance against “All Risks” of physical loss covering the
replacement cost of all of the Tenant Improvements and all of Tenant’s
improvements, fixtures and personal property in the Premises;
 
3. Workers’ compensation or similar insurance in form and amounts required by
law, and Employer’s Liability with not less than the following limits:
 
Each Accident
  
$500,000
Disease—Policy Limit
  
$500,000
Disease—Each Employee
  
$500,000

 
Tenant’s insurance shall be primary and not contributory to that carried by
Landlord, its agents, or mortgagee. Landlord, and if any, Landlord’s building
manager or agent and ground lessor shall be named as additional insureds as
respects to insurance required of the Tenant in Section 8C(1). The company of
companies writing any insurance which Tenant is required to maintain under this
Lease, as well as the form of such insurance, shall at all times be subject to
Landlord’s reasonable approval, and any such company shall be authorized to do
business in the state in which the Project is located. Such insurance companies
shall have a A.M. Best rating of A-VI or better. Tenant’s insurance policy under
paragraph 8C(1) may be covered by a “blanket policy” of insurance.
 
Tenant shall cause any contractor of Tenant performing work on the Premises to
maintain insurance as follows, with such other terms, coverages and insurers, as
Landlord shall reasonably require from time to time:
 
(1)    Commercial General Liability Insurance, including contractor’s liability
coverage, contractual liability coverage, completed operations coverage, broad
form property damage endorsement, and contractor’s protective liability
coverage, to afford protection with limits, for each occurrence, of not less
than One Million Dollars ($1,000,000) with respect to personal injury, death or
property damage.
 
(2)    Workers’ compensation or similar insurance in form and amounts required
by law, and Employer’s Liability with not less than the following limits:

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Each Accident
  
$500,000
Disease—Policy Limit
  
$500,000
Disease—Each Employee
  
$500,000

 
Tenant’s contractor’s insurance shall be primary and not contributory to that
carried by Tenant, Landlord, their agents or mortgagees. Tenant and Landlord,
and if any, Landlord’s building manager or agent, mortgagee or ground lessor
shall be named as additional insured on Tenant’s contractor’s insurance
policies.
 
D.    Insurance Certificates.    Tenant shall deliver to Landlord certificates
evidencing all required insurance no later than five (5) days prior to the
Commencement Date and each renewal date. Each certificate will provide for
thirty (30) days prior written notice of cancellation to Landlord and Tenant.
 
E.    Landlord’s Insurance.    Landlord shall, as an item of Operating Cost,
maintain “All-Risk” property insurance at replacement cost, including loss of
rents, on the Building, and Commercial General Liability insurance policies
covering the Common Area of the Property, each with such terms, coverages and
conditions as are normally carried by reasonably prudent owners of properties
similar to the Property, including, without limitation, reasonable deductibles
as are maintained by such owners (which, except with respect to earthquake
coverage shall not exceed 10% of the replacement value of the Building).
Landlord may, at Landlord’s option or if required by Landlord’s lender, as an
item of Operating Cost maintain earthquake insurance. The premiums for such
earthquake insurance shall not exceed the premium rate, as adjusted from time to
time, of the California Earthquake Authority as applicable to the Project, and
the deductible amount of such insurance shall be equal to the amount typically
held by the owners of similar commercial space in the University Towne Centre
area. In the event any earthquake damage occurs resulting in Tenant liability
for the deductible in excess of $10,000, Tenant’s payment of such deductible
shall be amortized over the useful life of the repair or replacement and shall
be payable in monthly installments for the portion of the useful life which
falls within the Lease Term. Notwithstanding the foregoing, Tenant shall not be
liable for any earthquake insurance deductible in excess of $150,000. As an item
of Operating Costs, Landlord shall also maintain (or cause to be maintained) the
insurance required under the REA.
 
Without affecting any other rights or remedies, Landlord and Tenant (“Waiving
Party”) each hereby release and relieve the other, and waive their entire right
to recover damages (whether in contract or in tort) against the other, for loss
of or damage to the Waiving Party’s property arising out of or incident the
perils required to be insured against under this Section 8. The effect of such
releases and waivers of the right to recover damages shall be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Landlord and Tenant agree to have their respective insurance companies
issuing insurance pursuant to this Lease, waive any right to subrogation that
such companies may have against Landlord or Tenant, as the case may be, so long
as the insurance is not invalidated thereby.
 
Landlord shall cause any contractor of Landlord performing work on the Premises
to maintain insurance as follows, with such other terms, coverages and insurers,
as Landlord shall reasonably require from time to time:

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(1)    Commercial General Liability Insurance, including contractor’s liability
coverage, contractual liability coverage, completed operations coverage, broad
form property damage endorsement, and contractor’s protective liability
coverage, to afford protection with limits, for each occurrence, of not less
than One Million Dollars ($1,000,000) with respect to personal injury, death or
property damage.
 
(2)    Workers’ compensation or similar insurance in form and amounts required
by law, and Employer’s Liability with not less than the following limits:
 
Each Accident
  
$500,000
Disease—Policy Limit
  
$500,000
Disease—Each Employee
  
$500,000

 
9.    FIRE AND OTHER CASUALTY.
 
A.    Termination.    If a fire or other casualty causes substantial damage to
the Building or the Premises, Landlord shall engage a registered architect to
certify within one (1) month of the casualty to both Landlord and Tenant the
amount of time needed to restore the Building and the Premises to tenantability,
using standard working methods. If the time needed exceeds 180 days from the
beginning of the restoration, or two (2) months therefrom if the restoration
would begin during the last twelve (12) months of the Lease, then in the case of
the Premises, either Landlord or Tenant may terminate this lease, and in the
case of the Building, Landlord may terminate this Lease, by notice to the other
party within ten (10) days after the notifying party’s receipt of the
architect’s certificate. The termination shall be effective thirty (30) days
from the date of the notice and Rent shall be paid by Tenant to that date, with
an abatement for any portion of the space which has been untenantable after the
casualty. Notwithstanding the foregoing, Landlord shall not be permitted to
terminate the Lease if (1) Tenant provides Landlord written notice within five
(5) business days of Tenant’s receipt of Landlord’s termination notice that it
desires that the Lease not terminate and Tenant is willing to complete the
repairs and restorations and be responsible for any costs to be incurred in
connection therewith in excess of available insurance proceeds and (2) Tenant
shall pay to Landlord Rent due under this Lease as and when due without
abatement less the amount actually received by Landlord from rental loss
insurance.
 
B.    Restoration.    If a casualty causes damage to the Building or the
Premises but this Lease is not terminated for any reason, then subject to the
rights of any mortgagees or ground lessors, Landlord shall obtain the applicable
insurance proceeds and diligently restore the Building and the Premises subject
to current Governmental Requirements. Tenant shall replace its damaged
improvements and fixtures which are deemed Landlord’s property under Section 5D
hereof. Rent shall be abated on a per diem basis from the date of the casualty
until the completion of the restoration for any portion of the Premises which is
untenantable, except to the extent that Tenant’s negligence caused the casualty
and such rental abatement is not covered by Landlord’s loss of rent insurance.
 
10.    EMINENT DOMAIN.    If a part of the Property is taken by eminent domain
or deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Tenant for the operation of its business, then either
party may terminate this Lease effective as of

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the date of the taking. If all or any portion of the parking areas of the
Project is taken which affects Tenant’s parking rights under this Lease,
Landlord shall use good faith, commercially reasonable efforts to locate
reasonable replacement parking for Tenant at no additional cost to Tenant.
Tenant shall have the right to terminate this Lease by giving written notice to
Landlord within six (6) months after the taking of all or any portion of the
parking areas of the Project if, (1) as a result of such taking, Tenant’s use of
the Premises is materially and adversely affected, and (2) Landlord is unable or
unwilling to provide Tenant with reasonably comparable replacement parking for
such lost parking. Notice of Tenant’s exercise of the right to terminate this
Lease as provided in the preceding sentence shall be delivered to Landlord in
writing and shall specify the effective date of termination which shall be not
earlier than 90 days following the date of such notice nor later than 180 days
following the date of such notice.
 
Rent shall abate from the date of the taking in proportion to any part of the
Premises taken. Tenant shall be entitled to any award which is specifically
awarded as compensation for the taking of Tenant’s personal property which was
installed at Tenant’s expense, for the value of Tenant’s goodwill, for any
damage to Tenant’s business and for costs of Tenant’s relocation to new
premises. Except as set forth herein, the entire award for a taking of any kind
shall be paid to Landlord, and Tenant shall have no right to share in the award.
All obligations accrued to the date of the taking shall be performed by each
party.
 
11.    RIGHTS RESERVED TO LANDLORD.
 
Landlord may exercise at any time any of the following rights respecting the
operation of the Project without liability to the Tenant of any kind:
 
A.    Name.    To change the name or street address of the Building or the suite
number(s) of the Premises (subject to the limitations of 5F).
 
B.    Signs.    To install, remove and maintain any signs on the exterior and in
the interior of the Building, and to approve, prior to installation, any of
Tenant’s signs in the Premises visible from the common areas or the exterior of
the Building; provided, however, Tenant, at Tenant’s sole cost, shall be
entitled to place signage on the building at a place selected by Tenant, subject
to the approval of any governmental authority with jurisdiction over the
project. Landlord shall have the right to reasonably approve the sign placement,
color and design; provided that such sign shall be visible from Eastgate Mall
and Executive Drive at Tenant’s election.
 
C.    Window Treatments.    To approve, at its discretion, prior to
installation, any shades, blinds, ventilators or window treatments of any kind,
as well as any lighting within the Premises that may be visible from the
exterior of the Building or any interior common area.
 
D.    Keys.    To retain and use in the event of an emergency only (with
immediate telephonic notice to Tenant), one set of passkeys to enter the
Premises but no keys shall be required to be given to Landlord to provide access
to any laboratory areas or other areas reasonably reserved by Tenant from
Landlord access based upon the proprietary nature of any work being performed
therein.

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E.    Access.    To have access to inspect the Premises upon 24 hours advance
notice to Tenant, and to perform its obligations, or make repairs, alterations,
additions or improvements, as permitted by this Lease.
 
F.    Preparation for Reoccupancy.    To decorate, remodel, repair, alter or
otherwise prepare the Premises for reoccupancy at any time after Tenant abandons
the Premises, without relieving Tenant of any obligation to pay Rent.
 
G.    Heavy Articles.    To approve the weight, size, placement and time and
manner of movement within the Building of any safe, central filing system or
other heavy article of Tenant’s property; provided that such approval shall not
be unreasonably withheld for any such article reasonably required for the
operation of Tenant’s business in the Premises. Tenant shall move its property
entirety at its own risk.
 
H.    Show Premises.    To show the Premises to prospective purchasers, tenants,
brokers, lenders, investors, rating agencies or others at any reasonable time,
provided that Landlord gives at least 24 hours prior notice to Tenant, agrees to
be escorted by an employee of Tenant and does not materially interfere with
Tenant’s use of the Premises.
 
I.    Use of Lockbox.    To designate a lockbox collection agent for collections
of amounts due Landlord. In that case, the date of payment of Rent or other sums
shall be the date of the agent’s receipt of such payment or the date of actual
collection if payment is made in the form of a negotiable instrument thereafter
dishonored upon presentment. However, Landlord may reject any payment for all
purposes as of the date of receipt or actual collection by mailing to Tenant
within 21 days after such receipt or collection a check equal to the amount sent
by Tenant.
 
J.    Repairs and Alterations.    To make repairs or alterations to the Property
and in doing so transport any required material through the Premises, to close
entrances, doors, corridors, elevators and other facilities in the Property and,
to the extent required by such repairs or alterations, to open any ceiling in
the Premises or temporarily suspend services or use of the Common Areas in the
Property. Landlord may perform any such repairs or alterations during ordinary
business hours, except that Tenant may require any Work in the Premises to be
done after business hours if Tenant pays Landlord for overtime and any other
expenses incurred. Landlord may do or permit any work on any nearby building,
land, street, alley or way.
 
K.    Landlord’s Agents.    If Tenant is in default under this Lease, possession
of Tenant’s funds or negotiation of Tenant’s negotiable instrument by any of
Landlord’s agents shall not waive any breach by Tenant or any remedies of
Landlord under this Lease.
 
L.    Building Services.    To install, use and maintain through the Premises,
pipes, conduits, wires and ducts serving the Building, provided that such
installation, use and maintenance does not unreasonably interfere with Tenant’s
use of the Premises.
 
M.    Other Actions.    To take any other action which Landlord deems reasonable
in connection with the operation, maintenance or preservation of the Project.

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N.    Driveway Easement.    To grant to Frazee East Property Partners, L.P. (or
its successor) a driveway easement for access to the property adjacent to the
Property known as Lots 1, 2, 3 and 4 of Chancellor Park Unit No. 2.
 
12.    TENANT’S OR LANDLORD’S DEFAULT.
 
Any of the following shall constitute a default by Tenant:
 
A.    Rent Default.    Tenant fails to pay any Rent within ten (10) days after
receipt of notice that such amount was not received when due (provided, however,
that any such notice shall be in lieu of, and not in addition to, any notice
required under Section 1161 et seq. of the California Code of Civil Procedure.)
 
B.    Performance Default.    Tenant fails to perform any other obligation to
Landlord under this Lease, and this failure continues for ten (10) days after
written notice from Landlord (provided, however, that any such notice shall be
in lieu of, and not in addition to, any notice required under Section 1161 et
seq. of the California Code of Civil Procedure), except that if Tenant begins to
cure its failure within the ten (10) day period but cannot reasonably complete
its cure within such period, then, so long as Tenant continues to diligently
attempt to cure its failure, the ten (10) day period shall be extended to sixty
(60) days, or such lesser period as is reasonably necessary to complete the
cure;
 
C.    Credit Default.    One of the following credit defaults occurs:
 
1.    Tenant commences any proceeding under any law relating to bankruptcy,
insolvency, reorganization or relief of debts, or seeks appointment of a
receiver, trustee, custodian or other similar official for the Tenant or for any
substantial part of its property, or any such proceeding is commenced against
Tenant and either remains undismissed for a period of sixty (60) days or results
in the entry of an order for relief against Tenant which is not fully stayed
within seven days after entry;
 
2.    Tenant becomes insolvent or bankrupt, does not generally pay its debts as
they become due, or admits in writing its inability to pay its debts, or makes a
general assignment for the benefit of creditors;
 
3.    Any third party obtains a levy or attachment under process of law against
Tenant’s leasehold interest.
 
D.    Abandonment Default.    Tenant abandons the Premises.
 
E.    Landlord Default.    Landlord shall not be deemed in default under this
Lease unless Landlord fails to perform an obligation to be performed by Landlord
within thirty (30) days of the date such performance is due; provided, however,
that if the nature of Landlord’s obligation is such that more than thirty (30)
days is reasonably required for its performance, then Landlord shall not be
deemed in default under this Lease if Landlord commences performance within such
thirty (30) day period and thereafter diligently pursues such performance to
completion.

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13.    LANDLORD REMEDIES.
 
A.    Termination of Lease or Possession.    If Tenant defaults, Landlord may
elect by notice to Tenant either to terminate this Lease or to terminate
Tenant’s possession of the Premises without terminating this Lease. In either
case, Tenant shall immediately vacate the Premises and deliver possession to
Landlord, and Landlord may repossess the Premises and may, at Tenant’s sole
cost, remove any of Tenant’s signs and any of its other property, without
relinquishing its right to receive Rent or any other right against Tenant.
Without limiting the generality of the foregoing, upon the termination of this
Lease or the termination of Tenant’s right of possession, it shall be lawful for
the Landlord, without formal demand or notice of any kind, to re-enter the
Premises by summary dispossession proceedings or any other action or proceeding
authorized by law and to remove Tenant and all persons and property therefrom.
 
B.    Lease Termination Damages.    Except as otherwise provided in Section 13C,
if Tenant abandons the Premises prior to the end of the term hereof or if
Tenant’s right to possession is terminated by Landlord because of a default by
Tenant under this Lease, this Lease shall terminate. Upon such termination,
Landlord may recover from Tenant the following, as provided in Section 1951.2 of
the California Civil Code: (i) the worth at the time of award of the unpaid Rent
and other charges under this Lease that had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid Rent and other charges under this Lease which would have been earned
after termination until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided; (iii) the worth at the
time of award of the amount by which the unpaid Rent and other charges under
this Lease for the balance of the term of this Lease after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant’s failure to perform its
obligations under this Lease or that in the ordinary course of things would be
likely to result therefrom. As used herein, the following terms are defined: (a)
The “worth at the time of award” of the amounts referred to in Sections (i) and
(ii) is computed by allowing interest at the lesser of eight percent (8%) per
annum or the maximum lawful rate. The “worth at the time of award” of the amount
referred to in Section (iii) is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus 1%.
 
C.    Continuation of Lease.    Even if Tenant has abandoned the Premises, this
Lease shall continue in effect for so long as Landlord does not terminate
Tenant’s right to possession, and Landlord may enforce all its rights and
remedies under this Lease, including the right to recover rent as it becomes
due. This remedy is intended to be the remedy described in California Civil Code
Section 1951.4, and the following provision from such Civil Code Section is
hereby repeated: “The Lessor has the remedy described in California Civil Code
Section 1951.4 (lessor may continue lease in effect after lessee’s breach and
abandonment and recover rent as it becomes due, if lessee has right to sublet or
assign, subject only to reasonable limitations).” Any such payments due Landlord
shall be made upon demand therefor from time to time and Tenant agrees that
Landlord may file suit to recover any sums falling due from time to time.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect in writing to terminate this Lease for such previous breach.

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D.    Possession Termination Damages.    If Landlord terminates Tenant’s right
to possession without terminating the Lease and Landlord takes possession of the
Premises itself; Landlord may relet any part of the Premises for such Rent, for
such time, and upon such terms as Landlord in its sole discretion shall
determine, without any obligation to do so prior to renting other vacant areas
in the Building. Any proceeds from reletting the Premises shall first be applied
to the expenses of reletting, including restoration, repair, alteration,
advertising, brokerage, legal, and other reasonably necessary expenses. If the
reletting proceeds after payment of expenses are insufficient to pay the full
amount of Rent under this Lease, Tenant shall pay such deficiency to Landlord
monthly upon demand as it becomes due. Any excess proceeds shall be retained by
Landlord.
 
E.    Landlord’s Remedies Cumulative.    All of Landlord’s remedies under this
Lease shall be in addition to all other remedies Landlord may have at law or in
equity. Waiver by Landlord of any breach of any obligation by Tenant shall be
effective only if it is in writing, and shall not be deemed a waiver of any
other breach, or any subsequent breach of the same obligation. Landlord’s
acceptance of payment by Tenant shall not constitute a waiver of any breach by
Tenant, and if the acceptance occurs after Landlord’s notice to Tenant, or
termination of the Lease or of Tenant’s right to possession, the acceptance
shall not affect such notice or termination. Acceptance of payment by Landlord
after commencement of a legal proceeding or final judgment shall not affect such
proceeding or judgment. Landlord may advance such monies and take such other
actions for Tenant’s account as reasonably may be required to cure or mitigate
any default by Tenant. Tenant shall immediately reimburse Landlord for any such
advance, and such sums shall bear interest at the default interest rate until
paid.
 
F.    WAIVER OF TRIAL BY JURY.    EACH PARTY WAIVES TRIAL BY JURY IN THE EVENT
OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN CONNECTION WITH THIS LEASE. EACH
PARTY SHALL BRING ANY ACTION AGAINST THE OTHER IN CONNECTION WITH THIS LEASE IN
A FEDERAL OR STATE COURT LOCATED IN SAN DIEGO, CALIFORNIA, CONSENTS TO THE
JURISDICTION OF SUCH COURTS, AND WAIVES ANY RIGHT TO HAVE ANY PROCEEDING
TRANSFERRED FROM SUCH COURTS ON THE GROUND OF IMPROPER VENUE OR INCONVENIENT
FORUM.
 
G.    Litigation Costs.    Tenant shall pay Landlord’s reasonable attorneys’
fees and other costs in enforcing this Lease, whether or not suit is filed.
 
14.    SURRENDER.    Upon termination of this Lease or Tenant’s right to
possession, Tenant shall return the Premises to Landlord in good order and
condition, ordinary wear and casualty damage excepted. If Landlord requires
Tenant to remove any alterations, then Tenant shall remove the alterations in a
good and workmanlike manner and restore the Premises to its condition prior to
their installation.
 
15.    HOLDOVER.    If Tenant retains possession of any part of the Premises
after the Term, Tenant shall become a month-to-month tenant for the entire
Premises upon all of the terms of this Lease as might be applicable to such
month-to-month tenancy, except that Tenant shall pay all of Base Rent, Operating
Cost Share Rent and Tar Share Rent at double the rate in effect immediately
prior to such holdover, computed on a monthly basis for each full or partial
month

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Tenant remains in possession. Tenant shall also pay Landlord all of Landlord’s
direct and consequential damages. No acceptance of Rent or other payments by
Landlord under these holdover provisions shall operate as a waiver of Landlord’s
right to regain possession or any other of Landlord’s remedies. Notwithstanding
the foregoing, any period of time required by Tenant for removal of its
alterations shall not be considered a holdover occupancy for purposes of this
Section 15 unless Landlord provides Tenant with at least 90 days advance written
notice of such obligations.
 
16.    SUBORDINATION TO GROUND LEASES AND MORTGAGES.
 
A.    Subordination.    This Lease shall be subordinate to any present or future
ground lease or mortgage respecting the Property, and any amendments to such
ground lease or mortgage, at the election of the ground lessor or mortgagee as
the case may be, effected by notice to Tenant in the manner provided in this
Lease; provided, however, that notwithstanding such subordination, so long as
Tenant is not in default under any of the terms, covenants and conditions of
this Lease, neither this Lease nor any of the rights of Tenant hereunder upon
Tenant’s covenanting that Tenant is not in default hereunder, shall be
terminated or subject to termination by any trustee’s sale, any action to
enforce the security, or by any proceeding or action in foreclosure. The
subordination shall be effective upon such notice, but at the request of
Landlord or ground lessor or mortgagee, Tenant shall within ten (10) business
days of the request, execute and deliver to the requesting party any reasonable
documents provided to evidence the provisions of this paragraph. Tenant
acknowledges that the subordination and non-disturbance agreement attached
hereto as Exhibit F is reasonable in form and content.
 
Landlord shall use reasonable efforts to obtain from all beneficiaries under all
deeds of trust and all mortgagees under all mortgages encumbering the Properly
which were recorded prior to the recording of the Memorandum of Lease a
notarized subordination and non-disturbance agreement in a form reasonably
acceptable to Tenant (Tenant acknowledges that the subordination and
non-disturbance agreement attached hereto as Exhibit F is reasonably acceptable
to Tenant). If, notwithstanding Landlord’s reasonable efforts, Landlord has been
unable to obtain a signed and notarized subordination and non-disturbance
agreement from all such beneficiaries and mortgagees within 60 days following
the date of this Lease, Tenant shall have the right to terminate this Lease
provided that (1) Tenant’s exercise of the right to terminate must occur within
20 days following delivery by Landlord to Tenant of written notice that Landlord
has been unable to obtain all such subordination and non-disturbance agreements
(Tenant’s failure timely to exercise the right to terminate shall result in a
waiver of the right to terminate) and (2) if Landlord has not yet notified
Tenant of Landlord’s inability to obtain all such subordination and
non-disturbance agreements, Tenant’s notice of termination shall not be
effective if, within 20 days after delivery of such notice by Tenant to
Landlord, Landlord delivers to Tenant all such subordination and non-disturbance
agreements bearing the notarized signatures of such beneficiaries and mortgagees
and (3) if this Lease is terminated, neither party shall have any further
liability to the other arising out of or relating to this Lease.
 
B.    Termination of Ground Lease or Foreclosure of Mortgage.    If any ground
lease is terminated or mortgage foreclosed or deed in lieu of foreclosure given
and the ground lessor, mortgagee, or purchaser at a foreclosure sale shall
thereby become the owner of the Property, Tenant shall attorn to such ground
lessor or mortgagee or purchaser without any deduction or

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setoff by Tenant, and this Lease shall continue in effect as a direct lease
between Tenant and such ground lessor, mortgagee or purchaser, so long as, with
respect to a new purchaser, such new purchaser assumes all of the Landlord’s
obligations arising under this Lease from and after the date of such transfer
(except that Landlord’s obligation to fund the Landlord’s Contribution under the
Tenant Improvement Agreement shall be binding upon any transferee). The ground
lessor or mortgagee or purchaser shall be liable as Landlord only during the
time such ground lessor or mortgagee or purchaser is the owner of the Property.
At the request of Landlord, ground lessor or mortgagee, Tenant shall execute and
deliver within ten (10) days of the request any document furnished by the
requesting party to evidence Tenant’s agreement to attorn.
 
C.    Security Deposit.    Any ground lessor or mortgagee shall be responsible
for the return of any security deposit by Tenant only to the extent the security
deposit is received by such ground lessor or mortgagee. As a condition to
Tenant’s attornment hereunder, the mortgagee or ground lessor shall be assigned
Landlord’s interest in the Security Deposit and any Rent prepaid in excess of
one month.
 
D.    Notice and Right to Cure.    If the Property is subject to any ground
lease or mortgage identified with name and address of ground lessor or mortgagee
in Exhibit F to this Lease (as the same may be amended from time to time by
written notice to Tenant) then Tenant agrees to send by registered or certified
mail to any ground lessor or mortgagee identified either in such Exhibit or in
any later notice from Landlord to Tenant a copy of any notice of default sent by
Tenant to Landlord. If Landlord fails to cure such default within the required
time period under this Lease, but ground lessor or mortgagee begins to cure
within ten (10) days after such period and proceeds diligently to complete such
cure, then ground lessor or mortgagee shall have such additional time as is
necessary to complete such cure, including any time necessary to obtain
possession if possession is necessary to cure, and Tenant shall not begin to
enforce its remedies so long as the cure is being diligently pursued. Should
Landlord be deemed to be in material default of this Lease, then Landlord shall
be liable to Tenant for all damages sustained by Tenant as a direct result of
Landlord’s breach. If any such default materially interferes with Tenant’s
business operation in the Premises, Tenant may give Landlord and the holder of
any first mortgage or deed of trust covering the Premises a second written
notice specifying exactly the nature of the Landlord’s failure and its impact on
Tenant’s business operation in the Premises and the further remedial action
deemed necessary by Tenant. If such remedial action is not undertaken within ten
(10) days of such second written notice, Tenant shall be entitled to terminate
this Lease, but in no event earlier than ten (10) days after the second notice
to Landlord and the holder of any first mortgage or deed of trust covering the
Premises. Notwithstanding the foregoing, Tenant shall not be entitled to
terminate this Lease as a result of Landlord’s default if Landlord or the ground
lessor or mortgagee is making diligent efforts to perform the obligations
required of Landlord under this Lease. Nothing herein contained shall be
interpreted to mean that Tenant is excused from paying any rent due hereunder as
a result of any default by Landlord.
 
E.    Definitions.    As used in this Section 16, “mortgage” shall include
“trust deed” and “mortgagee” shall include “trustee,” “mortgagee” shall include
the mortgagee of any ground lessee, and “ground lessor,” “mortgagee,” and
“purchaser at a foreclosure sale” shall include, in each case, all of its
successors and assigns, however remote.

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17.    ASSIGNMENT AND SUBLEASE.
 
A.    In General.    Tenant shall not, without the prior consent of Landlord in
each case, (i) make or allow any assignment or transfer, by operation of law or
otherwise, of any part of Tenant’s interest in this Lease, (ii) grant or allow
any lien or encumbrance, by operation of law or otherwise, upon any part of
Tenant’s interest in this Lease, (iii) sublet any part of the Premises, or (iv)
permit anyone other than Tenant and its employees to occupy any part of the
Premises. Tenant shall remain primarily liable for all of its obligations under
this Lease, notwithstanding any assignment or transfer. No consent granted by
Landlord shall be deemed to be a consent to any subsequent assignment or
transfer, lien or encumbrance, sublease or occupancy. Any assignment or
transfer, grant of lien or encumbrance, or sublease or occupancy without
Landlord’s prior written consent shall be void. If Tenant shall assign this
Lease or sublet the Premises in its entirety any rights of Tenant to renew this
Lease, extend the Term or to lease additional space in the Property shall be
extinguished thereby and will not be transferred to the assignee or subtenant,
all such rights being personal to the Tenant named herein.
 
B.    Landlord’s Consent.    Landlord will not unreasonably withhold, condition
or delay its consent to any proposed assignment or subletting. It shall be
reasonable for Landlord to withhold its consent to any assignment or sublease if
(i) Tenant is in default under this Lease under any material obligation beyond
any applicable cure period, (ii) the proposed assignee or sublessee is a tenant
in the Property or an affiliate of such a tenant or a party that Landlord has
identified as a prospective tenant in the Property and with whom Landlord is
actively negotiating, (iii) the financial responsibility, nature of business,
and character of the proposed assignee or subtenant are not all reasonably
satisfactory to Landlord, (iv) in the reasonable judgment of Landlord the
purpose for which the assignee intends to use the Premises (or a portion
thereof) is not in keeping with Landlord’s standards for the Building or are in
violation of the terms of this Lease or the REA, (v) the proposed assignee or
subtenant is a government entity, or (vi) in the case of an assignment only, the
proposed assignment is for less than the entire Premises or for less than the
remaining Term of the Lease or the REA. The foregoing shall not exclude any
other reasonable basis for Landlord to withhold its consent.
 
C.    Procedure.    Tenant shall notify Landlord of any proposed assignment or
sublease at least fifteen (15) days prior to its proposed effective date. The
notice shall include the name and address of the proposed assignee or subtenant,
its corporate affiliates in the case of a corporation and its partners in a case
of a partnership, an execution copy of the proposed assignment or sublease, and
sufficient information to permit Landlord to determine the financial
responsibility and character of the proposed assignee or subtenant. As a
condition to any effective assignment of this Lease, the assignee shall execute
and deliver in form satisfactory to Landlord at least fifteen (15) days prior to
the effective date of the assignment, an assumption of all of the obligations of
Tenant under this Lease. As a condition to any effective sublease, subtenant
shall execute and deliver in form satisfactory to Landlord at least fifteen (15)
days prior to the effective date of the sublease, an agreement to comply with
all of Tenant’s obligations under this Lease, and at Landlord’s option, an
agreement (except for the economic obligations which subtenant will undertake
directly to Tenant) to attorn to Landlord under the terms of the sublease in the
event this Lease terminates before the sublease expires.

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D.    Permitted Transfers.    Any provision in this Lease to the contrary
notwithstanding, Landlord’s consent shall not be required for any of the
following transfers (each of which shall be a “Permitted Transfer”): (a) to any
person(s) or entity who controls, is controlled by or is under common control
with Tenant; (b) to any entity resulting from the merger, consolidation or other
reorganization with Tenant, whether or not Tenant is the surviving entity, but
provided that, upon completion of such merger, consolidation or reorganization,
the net worth of the surviving entity is equal to or greater than Tenant’s net
worth immediately prior to such merger, consolidation or reorganization; (c) to
any person or legal entity which acquires all or substantially all of the assets
or stock of Tenant (each of the foregoing is hereinafter referred to as a
“Tenant Affiliate”; or (d) a sublease to any entity who operates a business in
the Premises solely for the purpose of supporting Tenant’s business operations;
provided that such use is a Permitted Use under item 12 of the Schedule. Before
an assignment to a Tenant Affiliate shall be effective, (x) said Tenant
Affiliate shall assume, in full, the obligations of Tenant under this Lease, (y)
Landlord shall be given written notice of such assignment and assumption and (z)
the use of the Premises by the Tenant Affiliate shall be as set forth in item 13
of the Schedule. For purposes of this paragraph, a public or private offering of
Tenant stock is a Permitted Transfer, and the term “control” means possession,
directly or indirectly, of the power to direct or cause the direction of the
management, affairs and policies of anyone, whether through the ownership of
voting securities, by contract or otherwise. The provisions of Section 17E of
this Lease shall not apply to an assignment or sublease by Tenant as permitted
by this Section 17D.
 
E.    Excess Payments.    If Tenant shall assign this Lease or sublet any part
of the Premises for consideration in excess of:
 
1.    the pro rata portion of Rent applicable to the space subject to the
assignment or sublet and
 
2.    Tenant’s actual out-of-pocket costs of any such assignment or subletting.
and any unamortized costs of tenant improvements benefiting such transferee and
paid for by Tenant directly (assuming all such amounts are amortized in equal
monthly installments of principal and interest over the then-remaining term of
the sublease or, in the event of an assignment, this Lease (but not including
any extension or renewal rights) at an interest rate of 10% per annum),
 
then Tenant shall pay to Landlord as Additional Rent 50% of any such excess
immediately upon receipt.
 
F.    Landlord’s Assignment.    Prior to the Commencement Date, Landlord shall
not assign its interest in this Lease to any third party without Tenant’s prior
written consent, which consent shall not be unreasonably withheld or delayed.
Tenant’s consent shall not be required in the event Landlord transfers its
interest to an entity in which Lee Chesnut owns at least a 33% beneficial
interest.
 
18.    CONVEYANCE BY LANDLORD.    If Landlord shall at any time transfer its
interest in the Property or this Lease, Landlord shall be released of any
obligations occurring after such transfer, except the obligation to return to
Tenant any security deposit or prepaid Rent not delivered to its transferee, and
Tenant shall look solely to Landlord’s successors for

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performance of such obligations. Subject to the provisions of Section 16, this
Lease shall not be affected by any such transfer.
 
19.    ESTOPPEL CERTIFICATE.    Each party shall, within ten (10) business days
of receiving a request from the other party, execute, acknowledge in recordable
form, and deliver to the other party or its designee a certificate stating,
subject to a specific statement of any applicable exceptions, that the Lease as
amended to date is in full force and effect, that the Tenant is paying Rent and
other charges on a current basis, and that to the best of the knowledge of the
certifying party, the other party has committed no uncured defaults and has no
offsets or claims. The certifying party may also be required to state the date
of commencement of payment of Rent, the Commencement Date, the Termination Date,
the Base Rent, the current Operating Cost Share Rent and Tax Share Rent
estimates, to the best of the knowledge of the certifying party the status of
any improvements required to be completed by Landlord, the amount of any
security deposit, and such other factual matters as may be reasonably requested.
Failure to deliver such statement within the time required shall be conclusive
evidence against the non-certifying party that this Lease, with any amendments
identified by the requesting party, is in full force and effect, that there are
no uncured defaults by the requesting party, that not more than one month’s Rent
has been paid in advance, that the non-certifying party has not paid any
security deposit, and that the non-certifying party has no claims or offsets
against the requesting party.
 
20.    SECURITY DEPOSIT.    Tenant shall deposit with Landlord on the date of
this Lease security (the “Security Deposit”) for the performance of all of its
obligations in the amount set forth on the Schedule. The Security Deposit shall
accrue interest at the rate of five percent (5%) per annum, and all interest
accrued on the Security Deposit shall be paid over to Tenant by Landlord within
five (5) business days of the last day of each calendar year. If Tenant defaults
under this Lease, Landlord may use any part of the Security Deposit to pay or
perform any obligation of Tenant under this Lease, or to compensate Landlord for
any loss or damage resulting from any default. To the extent any portion of the
Security Deposit is so used, Tenant shall within five (5) days after demand from
Landlord reinstate the Security Deposit to its full amount. If Tenant shall
perform all of its obligations under this Lease and return the Premises to
Landlord at the end of the Term, Landlord shall return any remaining Security
Deposit to Tenant. The Security Deposit shall not serve as an advance payment of
Rent or a measure of Landlord’s damages for any default under this Lease:
 
If Landlord transfers its interest in the Property or this Lease, Landlord shall
either (a) transfer any Security Deposit then held by Landlord to its transferee
or (b) return to Tenant any Security Deposit then held by Landlord and remaining
after the deductions permitted herein. Upon such transfer to such transferee or
the return of the Security Deposit to Tenant, Landlord shall have no further
obligation with respect to the Security Deposit, and Tenant’s right to the
return of the Security Deposit shall apply solely against Landlord’s transferee.
 
21.    FORCE MAJEURE.    Except with regard to Tenant’s obligation to pay Rent,
neither Landlord nor Tenant shall be in default under this Lease to the extent
either of them is unable to perform any of its obligations on account of any
strike or labor problem, energy shortage, governmental pre-emption or
prescription, flood, earthquake, national emergency, or any other cause of any
kind beyond such party’s reasonable control (“Force Majeure”).

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22.    NOTICES.    All notices, consents, approvals and similar communications
to be given by one party to the other under this Lease (including, without
limitation, any notice required by law to be given by Landlord to Tenant as a
condition to the filing of an action alleging an unlawful detainer of the
Premises and any three (3) day notice under Section 1161(2) or (3) of the
California Code of Civil Procedure), shall be given in writing, mailed or
personally delivered as follows:
 
A.    Landlord.    To Landlord as follows:
 
LMC-Shoreham Investment Company, LLC
c/o Lee Chesnut
9627 Grossmont Summit Drive
La Mesa, CA 91941
 
or to such other person at such other address as Landlord may designate by
notice to Tenant.
 
B.    Tenant.    To Tenant as follows:
 
Before the Commencement Date:
    
After the Commencement Date:
CombiChem, Inc.
    
CombiChem, Inc.
9050 Camino Santa Fe
    
4570 Executive Drive, Suite___
San Diego, CA 92121
    
San Diego, CA 92121
Attn: Chief Financial Officer
    
Attn: Chief Financial Officer

 
or to such other person at such other address as Tenant may designate by notice
to Landlord.
 
Mailed notices shall be sent by United States certified or registered mail, or
by a reputable national overnight courier service, postage prepaid. Mailed
notices shall be deemed to have been given on the earlier of actual delivery or
three (3) business days after posting in the United States mail in the case of
registered or certified mail, and one business day in the case of overnight
courier.
 
23.    QUIET POSSESSION.    Subject to the provisions of Section 16, so long as
Tenant shall not be in default of any of its obligations under this Lease beyond
the applicable cure period provided herein, Tenant shall enjoy peaceful and
quiet possession of the Premises against any party claiming through the
Landlord.
 
24.    REAL ESTATE BROKER.    Tenant represents to Landlord that Tenant has not
dealt with any real estate broker with respect to this Lease except for John
Burnham and Company (“Tenant’s Broker”), and no other broker claiming through
Tenant is in any way entitled to any broker’s fee or other payment in connection
with this Lease. Tenant shall indemnify and defend Landlord against any claims
by any other broker or third party claiming to represent Tenant for any payment
of any kind in connection with this Lease based upon such representation.
Landlord shall, at its sole cost and expense, pay all commissions due and owing
to Tenant’s Broker (specifically, Landlord shall pay Tenant’s Broker (i)
$125,000 on the later of the date on which Landlord acquires fee title to the
Properly (as set forth in Section 31) or the

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date on which Landlord’s lender approves this Lease (as set forth in Section 32)
and (ii) $125,000 on the Commencement Date).
 
25.    MISCELLANEOUS.
 
A.    Successors and Assigns.    Subject to the limits on Tenant’s assignment
contained in Section 17, the provisions of this Lease shall be binding upon and
inure to the benefit of all successors and assigns of Landlord and Tenant.
 
B.    Date Payments Are Due.    Except for payments to be made by Tenant under
this Lease which are expressly due upon demand or upon a date which is expressly
stated in this Lease (e.g., Base Rent), Tenant shall pay to Landlord any other
amounts due hereunder within thirty (30) days of Tenant’s receipt of a
Landlord’s statement.
 
C.    Meaning of “Landlord,” “Re-Entry,” “Including” and “Affiliate”.    The
term “Landlord” means only the owner of the Property and the lessor’s interest
in this Lease from time to time. The words “re-entry” and “re-enter” are not
restricted to their technical legal meaning. The words “including” and similar
words shall mean “without limitation” The word “affiliate” shall mean a person
or entity controlling, controlled by or under common control with the applicable
entity. “Control” shall mean the power directly or indirectly, by contract or
otherwise, to direct the management and policies of the applicable entity.
 
D.    Time of the Essence.    Time is of the essence of each provision of this
Lease.
 
E.    No Option.    This document shall not be effective for any purpose until
it has been executed and delivered by both parties; execution and delivery by
one party shall not create any option or other right in the other party.
 
F.    Severability.    The unenforceability of any provision of this Lease shall
not affect any other provision.
 
G.    Governing Law.    This Lease shall be governed in all respects by the laws
of the state of California, without regard to the principles of conflicts of
laws.
 
H.    Lease Modification.    Tenant agrees to modify this Lease in any way
requested by a mortgagee which does not cause increased expense to Tenant or
otherwise materially adversely affect Tenant’s interests under this Lease or in
the Premises.
 
I.    No Oral Modification.    No modification of this Lease shall be effective
unless it is a written modification signed by both parties.
 
J.    Landlord’s Right to Cure.    If Landlord breaches any of its obligations
under this Lease, Tenant shall notify Landlord in writing and shall take no
action respecting such breach so long as Landlord immediately begins to cure the
breach and diligently pursues such cure to its completion. Landlord may cure any
default by Tenant; any expenses reasonably incurred shall become Additional Rent
due from Tenant on demand by Landlord.

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K.    Captions.    The captions used in this Lease shall have no effect on the
construction of this Lease.
 
L.    Authority.    Landlord and Tenant each represents to the other that it has
full power and authority to execute and perform this Lease.
 
M.    Landlord’s Enforcement of Remedies.    Landlord may enforce any of its
remedies under this Lease either in its own name or through an agent.
 
N.    Entire Agreement.    This Lease, together with all Appendices, constitutes
the entire agreement between the parties. No representations or agreements of
any kind have been made by either party which are not contained in this Lease.
 
O.    Singular and Plural.    Wherever appropriate in this Lease, a singular
term shall be construed to mean the plural where necessary, and a plural term
the singular. For example, if at any time two parties shall constitute Landlord
or Tenant, then the relevant term shall refer to both parties together.
 
P.    Memorandum of Lease.    Landlord and Tenant shall execute and record a
Memorandum of lease substantially in the form of Exhibit G attached hereto
within five (5) business days following the date on which Landlord acquires fee
title to the Property.
 
Q.    Exclusivity.    Landlord does not grant to Tenant in this Lease any
exclusive right except the right to occupy its Premises.
 
R.    No Construction Against Drafting Party.    The rule of construction that
ambiguities are resolved against the drafting party shall not apply to this
Lease.
 
S.    Survival.    All obligations of Landlord and Tenant under this Lease shall
survive the termination of this Lease.
 
T.    Rent Not Based on Income.    No rent or other payment in respect of the
Premises shall be based in any way upon net income or profits from the Premises.
Tenant may not enter into or permit any sublease or license or other agreement
in connection with the Premises which provides for a rental or other payment
based on net income or profit.
 
U.    Building Manager and Service Providers.    Landlord may perform any of its
obligations under this Lease through its employees or third parties hired by the
Landlord, provided that the costs of services performed by Landlord’s employees
shall not exceed the cost of such services, if they had been submitted by
Landlord for competitive bid by competent third parties performing such services
in the San Diego Metropolitan area.
 
V.    Late Charge and Interest on Late Payments.    Without limiting the
provisions of Section 12A, if Tenant fails to pay any installment of Rent or
other charge to be paid by Tenant pursuant to this Lease when due and payable,
Landlord shall notify Tenant in writing that the installment of Rent or other
charge to be paid by Tenant is delinquent. If Tenant fails to pay such amount
within five (5) business days of its receipt of Landlord’s notice, then Tenant
shall pay a late charge equal to the greater of four percent (4%) of the amount
of such payment or

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$250. In addition, interest shall be paid by Tenant to Landlord on any late
payments of Rent from the date due until paid at the rate provided in Section
2D(2). Such late charge and interest shall constitute Additional Rent due and
payable by Tenant to Landlord upon the date of payment of the delinquent payment
referenced above.
 
W.    Lease Termination Agreement and Agreement for Purchase and
Sale.    Landlord’s and Tenant’s obligations hereunder are expressly conditioned
upon Campson Corporation’s and Tenant’s duly authorized execution and delivery
of that certain Lease Termination and Release Agreement dated as of the date
hereof as well as that certain Agreement for Purchase and Sale of Leasehold
Improvements dated as of the date hereof.
 
26.    UNRELATED BUSINESS INCOME.    If Landlord is advised by its counsel at
any time that any part of the payments by Tenant to Landlord under this Lease
may be characterized as unrelated business income under the United States
Internal Revenue Code and its regulations, then Tenant shall enter into any
amendment proposed by Landlord to avoid such income, so long as the amendment
does not require Tenant to pay more Rent or accept fewer services from Landlord,
than this Lease provides, and provided that Landlord reimburses Tenant’s
reasonable legal fees and costs associated with such amendment.
 
27.    HAZARDOUS SUBSTANCES.
 
A.    Reportable Uses Require Consent.    The term “Hazardous Substance” as used
in this Lease shall mean any product, substance, chemical, material or waste the
presence, nature, quantity and/or intensity of existence, use, manufacture,
disposal, transportation, spill, lease or effect of which, either by itself or
in combination with other materials expected to be on the Premises, is either:
(i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Landlord to any governmental agency
or third party under any Government Requirement. Hazardous Substance shall
include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or
any products, by-products or fractions thereof. Tenant may, without Landlord’s
prior consent, use Hazardous Substances in the Premises provided that Tenant’s
use of such Hazardous Substances (i) is in the normal course and scope of
Tenant’s business operations permitted in the Premises, (ii) is in compliance
with all Government Requirements, (iii) does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage and
(iv) expose Landlord to any liability therefor.
 
B.    Landlord’s Access to Records regarding Hazardous Substances.    Landlord
shall have access to and the right to audit, upon twenty-four (24) hours prior
written notice (or with no notice in the event of an emergency), all of Tenant’s
records regarding the Hazardous Substances located on the Premises. Such records
shall include, without limitation, any statements, reports, notices,
registrations, applications, permits, business plans, licenses, claims, actions
or proceedings given to, or received from, any governmental authority or private
party, or persons entering into or occupying the Premises, concerning the
presence, spill, release, discharge of, or exposure to, any Hazardous Substance
or contamination in, on, or about the Premises in violation of Governmental
Requirements. Notwithstanding the foregoing, Tenant shall immediately notify
Landlord following any material violation (as determined by Tenant in its
reasonable and good faith discretion) of its obligations under Section 27A
above.

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C.    Indemnification.    Tenant shall indemnify, protect, defend and hold
Landlord, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney’s and consultant’s fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Tenant or under
Tenant’s control. Tenant’s obligations under this Section 27 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Tenant, and the cost of
investigation (including reasonable consultant’s and attorney’s fees and
testing), removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, such that the Premises shall be returned to the
condition required by all applicable Government Requirements, and shall survive
the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Landlord and Tenant shall
release Tenant from its obligation under this Lease with respect to Hazardous
Substances or storage tanks, unless specifically so agreed by Lessor in writing
at the time of such agreement. Notwithstanding any other provision of this
Lease, Landlord represents to the best of Landlord’s actual knowledge that there
are no Hazardous Substances, including but not limited to any solvents, metals,
petroleum, lead-based paint, PCBs, or asbestos in, on, under or about the
Premises. Notwithstanding this representation, Landlord shall indemnify and hold
Tenant harmless against and from all liability and claims of any kind for loss
or damage to Tenant, its employees or agents, and for expenses and fees of
Tenant (including but not limited to reasonable costs, expenses and attorneys’
fees), incurred, directly or indirectly, as a result the existence of Hazardous
Substances in, on, under or about the Premises as of the Commencement Date.
 
D.    Exit Assessment.    Prior to Tenant’s surrender of the Premises, Tenant
shall conduct an “Exit Assessment” consisting of a Phase I Environmental
Assessment and such other tests as are listed on the Assessment Criteria
attached hereto as Exhibit H by an environmental consultant reasonably
acceptable to Landlord. Landlord shall receive a copy of the report(s) of
Tenant’s Exit Assessment and said report(s) shall be deemed the physical
condition of the Premises upon Tenant’s surrender of Premises. The cost of
Tenant’s Exit Assessment shall be paid by Tenant. In the event that the Exit
Assessment indicates contamination of the Premises resulting from Tenant’s
occupancy and/or use of the Premises, Tenant shall take such action as may be
reasonable under the circumstances to restore the Premises to the condition
required by all applicable Government Requirements; provided, however, that such
condition does not materially impair the value of the Property or the ability of
the owner to obtain financing for the Property. In the event such condition does
materially impair the value of the Property or the ability of the owner to
obtain financing for the Property, Tenant shall take such action as may be
reasonable under the circumstances to ensure that the condition of the Premises
does not materially impair the value of the Property or the ability of the owner
to obtain financing on the Property.
 
28.    EXCULPATION.    Landlord shall have no personal liability under this
Lease beyond its obligation to complete the Building shell and fund the
Landlord’s Contribution (as set forth in the Tenant Improvement Agreement), its
liability shall be limited to its interest in the Project, and shall not extend
to any other properly or assets of the Landlord (except for the amount of any
unfunded Landlord’s Contribution wrongfully withheld by Landlord). In no event

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shall any officer, director, employee, agent, shareholder, partner, member or
beneficiary of Landlord be personally liable for any of Landlord’s obligations
hereunder.
 
29.    ARBITRATION OF DISPUTES.
 
A.    Disputes Subject to Arbitration.    Except for Landlord’s right to bring
an action in unlawful detainer as a result of any monetary default, or a default
caused by Tenant’s vacation or abandonment of the Premises, all disputes or
controversies with respect to this Lease and any amendments hereof shall be
determined and settled by arbitration conducted in accordance with the
commercial rules of the American Arbitration Association. The arbitration shall
be conducted in San Diego, California, by a single arbitrator selected in
accordance with the commercial rules of the American Arbitration Association.
Notwithstanding the commercial rules of the American Arbitration Association,
the following shall apply:

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1.    Not less than three weeks in advance of the date for the commencement of
the arbitration hearing, Landlord and Tenant shall simultaneously exchange (1)
the name, address and qualifications of all experts intended to be called at the
time of the arbitration hearing and (2) any reports and/or data relied upon by
such experts in connection with forming an opinion relevant to the dispute which
is the subject of the arbitration.
 
2.    Not less than five days prior to the date set for the commencement of the
arbitration hearing, each party shall (1) make available for an oral deposition
any expert(s) whose testimony is/are expected to be given at the time of the
arbitration hearing and (2) deliver to the other party all exhibits which are
intended to be entered into evidence at the time of the arbitration hearing.
 
3.    In addition to the discovery allowed in the preceding paragraphs, the
arbitrator may, in the arbitrator’s discretion, allow for additional document
discovery as may be reasonable under the circumstances giving rise to the
dispute which is the subject of the arbitration.
 
4.    Each party shall advance one-half of the fees payable to the American
Arbitration Association and the arbitrator, provided, however, following the
arbitrator’s decision, the arbitration may, at its discretion, award to the
prevailing party such fees and costs advanced in addition to any other relief
included in the arbitrator’s award.
 
B.    Enforcement.    The judgment or the award rendered in any arbitration
initiated and conducted in accordance with this Article 29 may be entered in any
court of competent jurisdiction and shall be final and binding upon the parties.
 
Notice:    By initialing in the space below you are agreeing to have any dispute
arising out of the matters included in the “Arbitration of Disputes” provision
decided by neutral arbitration as provided by California Law and you are giving
up any rights you might possess to have the dispute litigated in a court of jury
trial. By initialing in the space below you are giving up your judicial rights
to discovery and appeal, unless such rights are specifically included in this
Article 29. Your agreement to the arbitration provision is voluntary.
 
As indicated by our initials below, we have read and understand the foregoing
and agree to submit disputes arising out of the matters included in the
“Arbitration of Disputes” provision to neutral, binding arbitration:
 
Landlord: _____________
 
Tenant: _____________

 
30.    RIGHT OF FIRST NEGOTIATION.    In the event that a tenant of the Building
decides to vacate or vacates the Building, or any portion thereof, which such
tenant is leasing (the “Additional Space”) rendering the Additional Space
available for lease, Landlord shall,

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before it starts to market the Additional Space, notify Tenant in writing that
Tenant may lease the Additional Space. Tenant shall notify Landlord that it
would like to lease within thirty (30) days of its receipt of such notice, and
Landlord and Tenant shall then prepare a letter of intent or similar preliminary
agreement (oral or written) (collectively, the “LOI”) and negotiate the terms of
a lease for the Additional Space. If Tenant fails to notify Landlord of its
desire to lease the Additional Space within such thirty (30) day period, Tenant
shall be deemed to have waived its right to the Additional Space. If Landlord
and Tenant fail to reach an agreement on the terms of such LOI and/or lease,
Landlord shall notify Tenant in writing of this fact and may then seek a third
party tenant for the Additional Space. Tenant, however, shall retain a right of
first refusal on the Additional Space if the Additional Space is offered for
lease to any party for consideration that is less than ninety-five percent (95%)
of the consideration specified in the LOI.
 
31.    CONDITION PRECEDENT: LANDLORD’S ACQUISITION OF THE
PROPERTY.    Landlord’s and Tenant’s obligations under this Lease are subject to
the condition precedent that, on or before April 30, 1999, Landlord (or
Landlord’s assignee) acquires fee title to the Property from Sunroad Corporate
Centre One, LLC. Landlord shall use reasonable efforts to acquire fee title to
the Property in accordance with that certain Purchase and Sale Agreement between
Landlord and Sunroad dated February 4, 1999. If, on or before April 30, 1999,
Landlord has not acquired fee title to the Property, then either Landlord or
Tenant may, by delivery of written notice to the other, terminate this Lease;
provided, however, Tenant’s notice of termination shall not be effective if,
within five business days after delivery of such notice, Landlord acquires fee
title to the Property.
 
32.    CONDITION PRECEDENT: LANDLORD’S LENDER APPROVAL.    Landlord’s
obligations under this Lease are subject to the condition precedent that, on or
before March 15, 1999, Landlord receives from Landlord’s lender (Tokai Bank)
written notice of approval of the terms of this Lease. Landlord shall use
reasonable efforts to obtain approval of this Lease from Landlord’s lender. If,
on or before March 15, 1999, Landlord has not received from Landlord’s lender
approval of this Lease, then Landlord or Tenant may, by delivery of written
notice to the other, terminate this Lease; provided, however, Tenant’s notice of
termination shall not be effective if, within five business days after delivery
of such notice, Landlord receives from Landlord’s lender written notice of
approval of this Lease.
 
33.    LANDLORD’S INDEMNITY AND LIQUIDATED DAMAGES.
 
In the event this Lease is terminated as a consequence of either of the
conditions precedent set forth in Sections 31 and 32 not being timely satisfied,
Landlord (or Landlord’s assignee) agrees to indemnify, defend and hold harmless
Tenant, Tenant’s agents and Tenant’s affiliates from and against any and all
claims, liabilities, costs and expenses arising out of or related to this
failure including, without limitation (i) all costs incurred in connection with
the Tenant Improvements and the Tenant Improvement Agreement (e.g., design
professional and project management fees as well as reasonable attorney’s fees
and costs) and (ii) any commission paid to Tenant’s Broker. Landlord shall be
liable for Tenant’s consequential damages; however, Landlord and Tenant agree
that it would be impractical and extremely difficult to estimate the
consequential damages which Tenant may suffer. Therefore, Landlord and Tenant
agree that $3,810.69 per day from the date of this Lease through the date that
Landlord notifies Tenant in

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writing that either of the conditions precedent set forth in Sections 31 and 32
has not been met represents a fair and reasonable amount of Tenant’s
consequential damages. Landlord shall pay such sum to Tenant promptly following
the failure of either of the conditions precedent set forth in Sections 31 and
32.
 
34.    OPTION TO RENEW.    Tenant shall have the right and option to renew this
Lease for a further term of five years commencing on the expiration date of the
15th Lease Year. The option to extend the term of this Lease may be exercised
only by delivery to Landlord, prior to the expiration date of the 14th Lease
Year, of written notice of such exercise. Tenant’s exercise of the option shall
be subject to the condition that Tenant not be in default in the performance of
Tenant’s obligations under this Lease and shall be irrevocable. Tenant’s
occupancy during the option period shall be subject to all terms and conditions
of this Lease provided, however, Base Rent shall be adjusted as provided below.
The Base Rent to be paid by Tenant to Landlord during the first Lease Year of
the option period (i.e., Lease Year 16) shall be the greater of (1) the Base
Rent payable during the 15th Lease Year or (2) the Market Rental Rate. As used
herein, the term “Market Rental Rate” shall mean that rate which is prevailing
as of the commencement of the first Lease Year of the option period for
comparable space in a comparable building in the University Town Center area of
San Diego County, California, taking into consideration the size and age of, and
improvements in, the Premises and other relevant factors, and which Market
Rental Rate shall be determined as follows:
 
A.    By mutual agreement between Landlord and Tenant evidenced in a writing
signed by each and mutually delivered; or
 
B.    If Landlord and Tenant have not agreed upon the Market Rental Rate prior
to the commencement of the first Lease Year of the option period, then either
Landlord or Tenant may submit the issue of Market Rental Rate to determination
by arbitration under the auspices of the American Arbitration Association (or
its successor) which shall be conducted pursuant to the commercial rules except
as otherwise provided in this Lease. The venue for the arbitration shall be in
the City of San Diego. With respect to the conduct of the arbitration, the
following shall apply.
 
(1)    Not less than three weeks in advance of the date for the commencement of
the arbitration hearing, Landlord and Tenant shall each exchange (1) the name,
address and qualifications of any appraiser, broker or other expert intended to
be called at the time of the arbitration (each, an “Expert”), (2) any reports
and/or data relied upon by the Expert in connection with forming an opinion as
to Market Rental Rate and (3) a statement as to each party’s determination of
the Market Rental Rate (“MRR Statement”) (i.e., Landlord shall give to Tenant
Landlord’s determination of the Market Rental Rate and vice-versa).
 
(2)    For a period of ten days following the exchange of the MRR Statements,
either party may accept the Market Rental Rate stated in the other party’s MRR
Statement and, in such event, the accepted amount will become the Base Rent for
the first Lease Year of the option period (e.g., if Landlord delivered to Tenant
timely written notice of acceptance of Tenant’s determination of Market Rental
Rate as provided in Tenant’s

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MRR Statement, then the amount shown on Tenant’s MRR Statement would become the
Base Rent for the option period).
 
(3)    If neither party accepts the other party’s determination of Market Rental
Rate, then the arbitration shall be conducted before a single arbitrator who
shall be selected pursuant to the commercial rules. Not less than five days
prior to the date set for the hearing for the arbitration, each party shall (1)
make available for an oral deposition any Expert whose testimony is expected to
be given at the time of the arbitration and (2) deliver to the other party all
exhibits which are intended to be entered into evidence at the time of the
arbitration.
 
(4)    Except as provided below, each party shall bear their own attorney’s fees
and Expert’s fees. Except as provided below, each party shall share equally any
administrative fees owed to the American Arbitration Association and the
reasonable hourly fees owed to the arbitrator. Notwithstanding the foregoing, if
the amount of the Market Rental Rate stated in Tenant’s MRR Statement is less
than 95 percent of the Market Rental Rate determined by the arbitrator, then the
arbitrator may, in the arbitrator’s discretion, assess against Tenant costs
incurred by Landlord in connection with the arbitration including, without
limitation, reasonable attorney’s fees, Expert’s fees, arbitrator’s fees and
administration fees. If the amount of the Market Rental Rate stated in
Landlord’s MRR Statement is greater than 105 percent of the Market Rental Rate
determined by the arbitrator, then the arbitrator may, in the arbitrator’s
discretion, assess against Landlord costs incurred by Tenant in connection with
the arbitration including, without limitation, reasonable attorney’s fees,
Expert’s fees, arbitrator’s fees and administration fees.
 
(5)    Following rendition of the arbitrator’s award, either party may petition
the Superior Court of the State of California for the County of San Diego to
have the award confirmed and entered as a judgment. Pending determination of the
Base Rent for the first Lease Year of the option period, Tenant shall continue
to pay to Landlord Base Rent at the rate due under the Lease for the 15th Lease
Year. If the arbitrator determines that the Market Rental Rate is more than the
Base Rent due under the Lease for the 15th Lease Year, then, within 30 days
following the arbitrator’s decision, Tenant shall pay to Landlord the amount of
the difference between the Base Rent actually paid by Tenant from the
commencement of the option period and the amount of the Base Rent at the Market
Rental Rate as determined by the arbitrator for the same period plus interest at
the rate of 10 percent per annum.
 
(6)    Base Rent for Lease Year 17 though 20 shall be subject to increase as
provided in Paragraph 12 of the Schedule except that (1) the Base Rent to be
multiplied by the fraction shall be the Base Rent for the first Lease Year of
the option period (i.e., the 16th Lease Year), (2) the numerator of the fraction
shall be the Index for the last published period prior to the commencement of
the Lease Year for which the calculation is being made and (3) The denominator
of the fraction shall be the Index for the last published period prior to the
commencement of the 16th Lease Year.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have executed this Lease.
 
LANDLORD:
 
LMC-SHOREHAM INVESTMENT COMPANY, LLC, a California limited liability company
By:
 
/s/    LEE M. CHESNUT

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Print Name:  
 
Print Title:  
 
Lee M. Chesnut

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

Member/Manager

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CONVOY COURT INVESTMENT COMPANY, LLC, a California limited liability company
By:
 
/s/    LEE M. CHESNUT

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

   
Print Name:  
 
Print Title:  
 
Lee M. Chesnut

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

Member/Manager

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

TENANT:
 
COMBICHEM, INC.
a Delaware corporation
By:
 
/s/    KARIN EASTHAM

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

   
Print Name:  
 
Print Title:  
 
Karin Eastham

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V.P., Finance & Admin.

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By:
 

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Print Name:                                       
Print Title:                                        

 
[SIGNATURE PAGE TO LEASE]

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