EXHIBIT 10.24
SUBLEASE AGREEMENT
     This SUBLEASE AGREEMENT (“Sublease”) is made as of the 18th day of June,
2009 (“Effective Date”), by and between PHENOMIX CORPORATION, a Delaware
corporation (the “Sublandlord”) and ANADYS PHARMACEUTICALS, INC., a Delaware
corporation (the “Subtenant”) with regard to the following facts.
R E C I T A L S:
     A. Sublandlord is the tenant under that certain Lease Agreement dated as of
July 31, 2003 (the “Master Lease”), with VPI Oberlin I, L.P., a California
limited partnership (the “Landlord”) (a copy of which Master Lease is attached
hereto as Exhibit A and by this reference made a part hereof, subject to the
exclusions in Section 7 below and elsewhere in this Sublease) concerning
approximately 16,603 rentable square feet of space (the “Premises”) located in
Suite 200 of the building located at 5871 Oberlin Drive, San Diego, California
92121 (the “Building”).
     B. Subtenant desires to sublease from Sublandlord a portion of the Premises
consisting of approximately 13,893 rentable square feet of space (which portion
shall be hereafter referred to as the “Subleased Premises”) more particularly
set forth on Exhibit B, attached hereto, and Sublandlord has agreed to sublease
the Subleased Premises to Subtenant upon the terms, covenants and conditions
herein set forth.
     C. All capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed to those terms in the Master Lease.
A G R E E M E N T:
     In consideration of the mutual covenants contained herein, the sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
     1. Sublease. Sublandlord hereby subleases and demises to Subtenant and
Subtenant hereby hires and takes from Sublandlord the Subleased Premises. For
the avoidance of doubt, the Subleased Premises do not include any portion of the
vivarium within the Premises and Subtenant shall have no responsibility or
liability whatsoever with respect to such vivarium, and any references in the
Master Lease to the vivarium are not applicable to this Sublease. Sublandlord
may elect to sublet the vivarium separately, in which case, Sublandlord will be
responsible for securing the vivarium and all access to such vivarium separate
from the Subleased Premises and in a manner so as to avoid interference with
Subtenant’s use and occupancy of the Subleased Premises.
     2. Term. The term of this Sublease shall commence on the date Sublandlord
delivers the Subleased Premises to Subtenant; provided such date shall occur no
later than ten (10) business days after Landlord provides its consent to this
Sublease or July 15, 2009 (provided Landlord has provided its consent prior to
such date), whichever is sooner (“Commencement Date”) and shall end, unless
sooner terminated as provided in the Master Lease on January 31, 2011
(“Expiration Date”). Sublandlord will use good faith efforts and reasonable
diligence to

 

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

 

cause Landlord to provide its consent to this Sublease as soon as possible after
the date of full execution of this Sublease. In the event such consent is not
obtained on or before July 15, 2009, Subtenant shall have the option, by written
notice to Sublandlord, to terminate this Sublease.
     3. Rent. From and after the Commencement Date, Subtenant shall pay base
rent during the term of this Sublease in the amount of Two and 15/100 Dollars
($2.15) per rentable square foot of the Subleased Premises per month, payable in
advance on the first day of each month in equal monthly installments of
Twenty-Nine Thousand Eight Hundred Sixty-Nine and 95/100 Dollars ($29,869.95).
Additionally, Subtenant shall pay eighty-three and sixty-seven one-hundredths
percent (83.67%) of all Operating Expenses charged to Sublandlord under the
terms of the Master Lease and Subtenant shall be responsible for all separately
metered utilities, trash and janitorial services provided to the Subleased
Premises. In the event Sublandlord finds a third party subtenant for the
vivarium, Sublandlord and Subtenant will mutually agree to an equitable method
for pro rating utilities and services between the Subleased Premises and the
vivarium. In the event that the term of this Sublease shall begin or end on a
date which is not the first day of a month, base rent shall be prorated as of
such date. On the Commencement Date, Subtenant shall deliver to Sublandlord the
first month’s rent, plus the amount of $29,869.95 as a Security Deposit to be
held by Sublandlord pursuant to the terms of Section 18 of the Master Lease.
     4. Use. Subtenant covenants and agrees to use the Premises in accordance
with the provisions of the Master Lease and for no other purpose and otherwise
in accordance with the terms and conditions of the Master Lease and this
Sublease. Subtenant may require the use of areas outside the Subleased Premises
for equipment used in connection with its business activities, and Subtenant
will obtain Sublandlord’s consent prior to such use and, if such consent is
provided by Sublandlord, Sublandlord agrees to use commercially reasonable
efforts to obtain Landlord’s consent to such use.
     5. Master Lease. As applied to this Sublease, the words “Landlord” and
“Tenant” as used in the Master Lease shall be deemed to refer to Sublandlord and
Subtenant hereunder, respectively. Subtenant and this Sublease shall be subject
in all respects to the terms of, and the rights of the Landlord under, the
Master Lease. Except as otherwise expressly provided in Section 7 hereof, the
covenants, agreements, terms, provisions and conditions of the Master Lease
insofar as they relate to the Subleased Premises and insofar as they are not
inconsistent with the terms of this Sublease are made a part of and incorporated
into this Sublease as if recited herein in full, and the rights and obligations
of the Landlord and the Tenant under the Master Lease shall be deemed the rights
and obligations of Sublandlord and Subtenant respectively hereunder and shall be
binding upon and inure to the benefit of Sublandlord and Subtenant respectively.
As between the parties hereto only, in the event of a conflict between the terms
of the Master Lease and the terms of this Sublease, the terms of this Sublease
shall control.
     6. Landlord’s Performance Under Master Lease.
          6.1 Subtenant recognizes that Sublandlord is not in a position to
render any of the services or to perform any of the obligations required of the
Landlord by the terms of the Master Lease. Therefore, notwithstanding anything
to the contrary contained in this Sublease, Subtenant agrees that performance by
Sublandlord of its obligations hereunder to the extent such

-2-

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

 

obligations are dependent on performance by Landlord, are conditional upon due
performance by the Landlord of its corresponding obligations under the Master
Lease and Sublandlord shall not be liable to Subtenant for any default of the
Landlord under the Master Lease. Subtenant shall not have any claim against
Sublandlord by reason of the Landlord’s failure or refusal to comply with any of
the provisions of the Master Lease unless such failure or refusal is a result of
Sublandlord’s act or failure to act. Sublandlord hereby agrees to use
commercially reasonable efforts to enforce the terms of the Master Lease against
Landlord. This Sublease shall remain in full force and effect notwithstanding
the Landlord’s failure or refusal to comply with any such provisions of the
Master Lease and Subtenant shall pay the base rent and additional rent and all
other charges provided for herein without any abatement, deduction or setoff
whatsoever. Subtenant covenants and warrants that it fully understands and
agrees to be subject to and bound by all of the covenants, agreements, terms,
provisions and conditions of the Master Lease, except as modified herein.
Furthermore, Subtenant and Sublandlord further covenant not to take any action
or do or perform any act or fail to perform any act which would result in the
failure or breach of any of the covenants, agreements, terms, provisions or
conditions of the Master Lease on the part of the Tenant thereunder.
          6.2 Whenever the consent of Landlord shall be required by, or Landlord
shall fail to perform its obligations under, the Master Lease, Sublandlord
agrees to use its best efforts to obtain, at Subtenant’s sole cost and expense,
such consent and/or performance on behalf of Subtenant. Notwithstanding the
foregoing, Sublandlord and Subtenant will each pay one half of the amount
charged by Landlord for its consent to this Sublease.
          6.3 Sublandlord represents and warrants to Subtenant that (a) the
Master Lease is in full force and effect and the attached Exhibit A is a true,
correct and complete copy of the Master Lease; (b) all obligations of both
Landlord and Sublandlord thereunder have been satisfied; (c) Sublandlord has
neither given nor received a notice of default pursuant to the Master Lease and
(d) the Premises as of the Commencement Date are and have been in compliance
with Sections 5.2 and 24 of the Master Lease.
          6.4 Sublandlord covenants as follows: (i) not to voluntarily terminate
the Master Lease, (ii) not to modify the Master Lease so as to adversely affect
Subtenant’s rights hereunder, and (iii) to take all actions reasonably necessary
to preserve the Master Lease.
     7. Variations from Master Lease. The following covenants, agreements,
terms, provisions and conditions of the Master Lease are hereby modified or not
incorporated herein:
          7.1 Notwithstanding anything to the contrary set forth in Sections 3,
7 and 18 of the Master Lease, the term of this Sublease and base rent payable
under this Sublease and the amount of the Security Deposit required of Subtenant
shall be as set forth in Sections 2 and 3 above. In addition, the last three
(3) sentences of Section 18 (security interest in trade fixtures) shall not
apply to Subtenant or this Sublease.
          7.2 The parties hereto represent and warrant to each other that
neither party dealt with any broker other than Irving Hughes and Jones Lang
LaSalle Americas, Inc. (“Broker”) in connection with the consummation of this
Sublease and each party agrees to indemnify, hold and save the other party
harmless from and against any and all claims for

-3-

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

 

brokerage commissions arising out of either of their acts in connection with
this Sublease, other than the fees payable to Broker, which such fees shall be
paid by Sublandlord. In the event Sublandlord fails to pay the Subtenant’s
Broker its leasing commission in an amount equal to four percent (4%) of the
base rent, Subtenant may offset its rent by an amount equal to the unpaid
commission due to the Subtenant’s Broker, plus interest at the rate of 10% of
the amount due (or the highest rate permitted by law, whichever is less);
provided, however, that in the event Subtenant offsets its rental obligation by
an amount equal to the unpaid commission due to the Subtenant’s Broker,
Subtenant hereby agrees and hereby does indemnify, hold and save Sublandlord
harmless from and against any and all claims for brokerage commissions from the
Subtenant’s Broker. The provisions of this Section 7.2 shall survive the
expiration or earlier termination of this Sublease.
          7.3 Notwithstanding anything contained in the Master Lease to the
contrary, as between Sublandlord and Subtenant only, all insurance proceeds or
condemnation awards received by Sublandlord under the Master Lease shall be
deemed to be the property of Sublandlord, and any proceeds received by Subtenant
will be deemed to be the property of Subtenant.
          7.4 Any notice which may or shall be given by either party hereunder
shall be either delivered personally or sent by certified mail, return receipt
requested, addressed to Anadys Pharmaceuticals, Inc., 3115 Merryfield Row, San
Diego, California 92121, Attn: Controller, Finance (if to Subtenant prior to the
Commencement Date), or to Anadys Pharmaceuticals, Inc., 5871 Oberlin Drive,
Suite 200, San Diego, California 92121, Attn: Controller, Finance (if to
Subtenant after the Commencement Date), or c/o Phenomix Corporation, 5930
Cornerstone Court West, Suite 230, San Diego, California 92121, Attn: Corporate
Counsel (if to the Sublandlord), or to such other address as may have been
designated in a notice given in accordance with the provisions of this
Section 7.4. Upon receipt of any notice from Landlord relating to the Premises,
Sublandlord shall promptly deliver a copy of such notice to Subtenant in
accordance with the terms and conditions of this Section 7.4.
          7.5 All amounts payable hereunder by Subtenant shall be payable
directly to Sublandlord and sent to c/o Phenomix Corporation, 5930 Cornerstone
Court West, Suite 230, San Diego, California 92121, Attn: Accounts Payable. The
foregoing is subject to the assignment of rents set forth in Section 21 of the
Master Lease.
          7.6 The provisions of Sections 2.1, 2.2, 2.3, 2.5, 2.6, 2.8 (as to
payments only), 2.12, 2.13, 2.14, 2.15, 2.16, 4, 5.6, 30, 36.1, the last two
sentences of Section 14, the last three sentences of Section 18, the first
sentence of Section 24 (provided that all references in Section 24 to Landlord
shall mean and refer to the Landlord and not Sublandlord and that the
requirement to remediate, if necessary, will be determined by Landlord and not
Sublandlord, but that all notices will be delivered to both Landlord and
Sublandlord), and Exhibits A-2, D, E and F of the Master Lease shall not apply
to this Sublease.
          7.7 Sublandlord shall deliver the Subleased Premises to Subtenant in
its current “as is” condition, except that all HVAC, electrical, life safety,
security system, generator and plumbing systems shall be in good working order
on the Commencement Date hereof.

-4-

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

 

          7.8 Subtenant shall be permitted to use all existing FF&E in the
Subleased Premises at no cost during the term of this Sublease. The title to the
FF&E in the Subleased Premises shall remain with Sublandlord and a list of such
FF&E is attached hereto as Exhibit C. Subtenant shall not be required to remove
any alterations or improvements located in the Subleased Premises upon the
expiration of the term hereof or to perform any other restoration requirements
set forth in the Master Lease (including Section 14 of the Master Lease);
provided however that Subtenant will surrender the Subleased Premises in as good
condition and repair as received, reasonable wear and tear and casualty damage
excepted (subject to Section 10 below) and shall remove its personal property
from the Subleased Premises prior to the Expiration Date.
          7.9 Sublandlord agrees to indemnify, defend, protect and hold
Subtenant harmless from and against any and all claims, actions, administrative
proceedings, judgments, damages, punitive damages, penalties, fines, costs,
liabilities, losses, including reasonable attorneys’ fees and expenses regarding
the presence and/or remediation of any Hazardous Substances at, on or about the
Subleased Premises existing prior to the term of this Sublease other than any
Hazardous Substances brought onto the Subleased Premises by Subtenant and/or its
assignees, agents, employees, contractors or licensees. The provisions of this
Section 7.9 shall survive the expiration or earlier termination of the Master
Lease and/or this Sublease.
          7.10 Sections 11.1, 11.2 and 11.3 of the Master Lease shall be
applicable to Subtenant’s insurance obligations pursuant to this Sublease with
the following changes:
               (a) Subtenant will not be required to obtain business
interruption insurance and Subtenant’s property insurance will not cover any
improvements or alterations within the Subleased Premises (which will be covered
by Sublandlord’s insurance);
               (b) The liability policy carried by Subtenant is a general
liability and not public liability policy;
               (c) Subtenant’s products and pollution liability insurance may be
written on a claims made basis, but all other insurance will be written on an
occurrence basis; and
               (d) The deductible amount of Tenant’s insurance may not exceed
$25,000.
          7.11 Subtenant shall have the right to install the phone system which
is currently in the Subleased Premises but not installed. Subtenant shall pay
for any installation and maintenance of such phone system. At no cost to
Subtenant, Sublandlord shall leave the existing network cabling, patch panel,
and rack, with all wires labeled, for Subtenant’s use. The title of such phone
system shall remain with Sublandlord.
          7.12 Sublandlord agrees to allow Subtenant access to the roof top for
the maintenance of equipment, subject to receipt of approval from the Landlord.
     8. Indemnity. Except to the extent any such claims, losses and damages are
caused by, or are the result of, the negligence of Sublandlord and/or its
assignees, agents, employees, contractors or licensees, Subtenant hereby agrees
to indemnify and hold Sublandlord harmless

-5-

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

 

from and against any and all claims, losses and damages, including, without
limitation, reasonable attorneys’ fees and disbursements, which may at any time
be asserted against Sublandlord by (a) the Landlord for failure of Subtenant to
perform any of the covenants, agreements, terms, provisions or conditions
contained in the Master Lease which by reason of the provisions of this Sublease
Subtenant is obligated to perform, or (b) any person by reason of Subtenant’s
use and/or occupancy of the Subleased Premises. Sublandlord hereby agrees to
defend, indemnify and hold harmless Subtenant from and against any and all
claims, actions, liabilities, losses, damages, costs and expenses (including,
without limitation, reasonable attorneys’ fees and disbursements) arising from
Sublandlord’s breach of any provisions of this Sublease. The provisions of this
Section 8 shall survive the expiration or earlier termination of the Master
Lease and/or this Sublease.
     9. Cancellation of Master Lease. In the event of the cancellation or
termination of the Master Lease for any reason whatsoever or of the involuntary
surrender of the Master Lease by operation of law prior to the expiration date
of this Sublease, Subtenant agrees to make full and complete attornment to the
Landlord under the Master Lease for the balance of the term of this Sublease and
upon the then executory terms hereof at the option of the Landlord at any time
during Subtenant’s occupancy of the Premises, which attornment shall be
evidenced by an agreement in form and substance reasonably satisfactory to the
Landlord and Subtenant. Subtenant agrees to execute and deliver such an
agreement at any time within ten (10) business days after request of the
Landlord, and Subtenant waives the provisions of any law now or hereafter in
effect which may give Subtenant any right of election to terminate this Sublease
or to surrender possession of the Subleased Premises in the event any proceeding
is brought by the Landlord under the Master Lease to terminate the Master Lease.
     10. Hazardous Substances. On or before the Commencement Date, Sublandlord
shall deliver to Subtenant a Phase I Environmental Site Assessment with respect
to the Subleased Premises in accordance with the standards set forth in
Exhibit G to the Master Lease; provided, however, that Sublandlord makes no
representation or warranty regarding such report, except that in the event any
contamination is evidenced in such report, such contamination will not be the
responsibility of Subtenant and Sublandlord will indemnify, defend and hold
Subtenant harmless from and against any claims made against Subtenant as a
result of such contamination. Within three (3) business days of the Expiration
Date, Subtenant shall deliver to Sublandlord a Phase I Environmental Site
Assessment dated through the Expiration Date in accordance with the standards
set forth in Exhibit G to the Master Lease; provided, however, that Subtenant
makes no representation or warranty regarding such report.
     11. Certificates. Each party hereto shall at any time and from time to time
as requested by the other party upon not less than ten (10) days prior written
notice, execute, acknowledge and deliver to the other party, a statement in
writing certifying that this Sublease is unmodified and in full force and effect
(or if there have been modifications that the same is in full force and effect
as modified and stating the modifications, if any), certifying the dates to
which rent and any other charges have been paid and stating whether or not, to
the knowledge of the person signing the certificate, the other party is in
default beyond any applicable grace period provided herein in performance of any
of its obligations under this Sublease, and if so, specifying each such default
of which the signer may have knowledge, it being intended that any

-6-

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

 

such statement delivered pursuant hereto may be relied upon by others with whom
the party requesting such certificate may be dealing.
     12. Assignment or Subletting. Subject to all of the rights of the Landlord
under the Master Lease and the restrictions contained in the Master Lease,
Subtenant shall not be entitled to assign this Sublease or to sublet all or any
portion of the Premises without the prior written consent of Sublandlord, which
consent may be withheld by Sublandlord in its sole discretion. Notwithstanding
the foregoing, Subtenant may enter into a “Permitted Transfer” as defined in the
Master Lease without obtaining Landlord’s or Sublandlord’s consent.
     13. Severability. If any term or provision of this Sublease or the
application thereof to any person or circumstances shall, to any extent, be
invalid and unenforceable, the remainder of this Sublease or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each term
or provision of this Sublease shall be valid and be enforced to the fullest
extent permitted by law.
     14. Entire Agreement; Waiver. This Sublease contains the entire agreement
between the parties hereto and shall be binding upon and inure to the benefit of
their respective heirs, representatives, successors and permitted assigns. Any
agreement hereinafter made shall be ineffective to change, modify, waive,
release, discharge, terminate or effect an abandonment hereof, in whole or in
part, unless such agreement is in writing and signed by the parties hereto.
     15. Captions and Definitions. Captions to the Sections in this Sublease are
included for convenience only and are not intended and shall not be deemed to
modify or explain any of the terms of this Sublease.
     16. Further Assurances. The parties hereto agree that each of them, upon
the request of the other party, shall execute and deliver, in recordable form if
necessary, such further documents, instruments or agreements and shall take such
further action that may be necessary or appropriate to effectuate the purposes
of this Sublease.
     17. Governing Law. This Sublease shall be governed by and in all respects
construed in accordance with the internal laws of the State of California.
     18. Attorneys’ Fees. If either party commences legal action against the
other party in connection with this Sublease, the prevailing party will be
entitled to recover costs of suit and reasonable attorneys’ fees.
     19. Consent of Landlord. The validity of this Sublease shall be subject to
the Landlord’s prior written consent hereto pursuant to the terms of the Master
Lease, and if Landlord’s consent shall not be obtained and a copy thereof
delivered to Subtenant within thirty (30) days of the date hereof, Subtenant
shall have the option to cancel this Sublease by notice to Sublandlord within
forty (40) days from the date hereof.
[Remainder of Page Intentionally Left Blank]

-7-

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

 

     IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be
executed as of the day and year first above written.

                   Sublandlord:   PHENOMIX CORPORATION,         a Delaware
corporation    
 
           
 
  By:   /s/ Hans-Peter Guler
 
   
 
  Name:   Hans-Peter Guler, M.D.    
 
  Title:   Chief Medical Officer    
 
                 Subtenant:   ANADYS PHARMACEUTICALS, INC.,         a Delaware
corporation    
 
           
 
  By:   /s/ Stephen T. Worland
 
   
 
  Name:   Stephen T. Worland, Ph.D.    
 
  Title:   President and Chief Executive Officer    
 
           
 
  By:   /s/ James T. Glover
 
   
 
  Name:   James T. Glover    
 
  Title:   Senior Vice President, Operations and Chief    
 
      Financial Officer    

-8-

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

 

EXHIBIT A
THE MASTER LEASE
LEASE AGREEMENT
     This Lease Agreement (this “Lease”) is entered into as of July 31, 2003,
between VPI OBERLIN I, L.P., a California limited partnership (“Landlord”), and
PHENOMIX CORPORATION, a Delaware corporation (“Tenant”), who agree as follows
with respect to the real property located at 5871 Oberlin Drive, San Diego,
California, described on the attached Exhibit A-1 (the “Project”) on which is
located a building consisting of approximately 33,728 square feet (the
“Building”) as depicted on the Building Floor Plan attached to this Lease as
Exhibit B (the “Building Floor Plan”):
     1. Agreement to Let. Landlord leases to Tenant, and Tenant leases from
Landlord, the premises defined below, along with the non-exclusive right to use
those portions of the Project owned by Landlord and intended for common use by
tenants and invitees of the Project, including the Building lobby, landscaped
areas, common passageways, walkways, hallways, parking areas, and driveways (the
“Common Area”). Except as specifically set forth herein, this Lease confers no
rights, however, to the roof, exterior walls, or utility raceways of the
Building, nor with regard to either the subsurface of the land below the ground
level of the Project or with regard to the air space above the ceiling of the
Building, or to parking spaces not assigned to Tenant. Tenant’s rental
obligations and rights to possession do not begin until the Commencement Date as
defined below.
     2. Principal Lease Provisions and Definitions. The following are the
“Principal Lease Provisions” of and definitions applicable to this Lease. Other
portions of this Lease explain and define the Principal Lease Provisions in more
detail and should be read in conjunction with this Article.
          2.1 “Basic Monthly Rent” means the sum of the following, on a fully
net basis: (a) the product of $2.65 multiplied by the number of Rentable Square
Feet of the Premises, plus (b) the product of 0.01559 multiplied by the
Additional Allowance, if any. Basic Monthly Rent is increased by 3.5% on the
first day of the calendar month that is one year after the Commencement Date,
and again on each anniversary of such date of rent increase.
          2.2 “Broker” means Steve Bollert of Burnham Real Estate. The parties
acknowledge and agree that the Broker is acting as a dual agent, and the parties
consent to such dual agency, but neither broker nor any of its agents may bind
Landlord or Tenant or make any representations on behalf of Landlord or Tenant
(and neither Landlord nor Tenant may rely on any representations, warranties, or
commitments made by Broker).
          2.3 “Commencement Date,” as to all portions of the Premises other than
the vivarium, means the earliest of the following: (a) the date on which Phase 1
of Landlord’s Work is Substantially Completed (as defined below); (b) the date
on which Phase 1 of Landlord’s Work would have been substantially completed if
not for Tenant Delay; and (c) the date on which Tenant first conducts business
on the Premises. “Commencement Date,” as to the vivarium, means the earliest of
the following: (a) the date on which construction of

 

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

 

the vivarium is Substantially Completed (as defined below); (b) the date on
which construction of the vivarium would have been substantially completed if
not for Tenant Delay; and (c) the date on which Tenant first conducts operations
in the vivarium. For purposes of this Lease, “Substantially Completed” means the
date on which all of the following have occurred: (i) the City of San Diego
Building Inspector gives its final sign-off on any building inspection record
card for the applicable Phase of Landlord’s Work or a temporary certificate of
occupancy is issued for the applicable Phase of Landlord’s Work, and (ii) the
applicable Phase of Landlord’s Work is in a condition that Tenant can begin
operations from the applicable portion of the Premises, subject only to minor
punch-list items. Within 30 days after substantial completion of the applicable
Phase of Landlord’s work, Landlord and Tenant shall: (a) participate in a joint
walk through of the Premises for the purpose of preparing a punch-list of items
of required repair or other deficiencies in construction (and Landlord shall use
commercially reasonable efforts to cause the punch-list items to be corrected as
soon as possible); and (b) acknowledge, in a mutually executed instrument, the
Commencement Date as to such phase, Tenant’s acceptance of the Premises
including the applicable Phase of Landlord’s Work, the Expiration Date, the
Rentable Square Feet of Premises, and the Basic Monthly Rent. Notwithstanding
anything to the contrary contained in the paragraph, if the vivarium is not
completed in accordance with this Lease within 20 weeks after issuance of the
Vivarium Permit, as defined in Section 2.5 (the “Vivarium Deadline”) for any
reason other than Tenant Delay or force majeure delay, then Basic Monthly Rent
will be abated as follows (prorated for the number of days within the applicable
delay period):

          Period of Delay after Vivarium Deadline   Applicable Monthly Rent
Abated  
First 30 days
  $ 7,420  
31st – 60th day
  $ 13,250  
61st – 90th day
  $ 26,500  
Any subsequent delay
  All Basic Monthly Rent

          2.4 “Expiration Date” means the date that is the seventh anniversary
of the last day of the calendar month in which the Commencement Date occurs.
          2.5 Landlord’sWork. Landlord’s Work is defined and addressed in the
attached Exhibit A-2.
          2.6 “Landlord’s Warranty Obligations” means Landlord’s obligations to
Tenant to correct any defects in Landlord’s Work that are specifically
identified in writing by Tenant to Landlord during the first year after the
Commencement Date, and to complete Landlord’s Work in compliance with all
Applicable Regulations. Landlord shall to fulfill Landlord’s Warranty
Obligations.
          2.7 Notice Addresses for Tenant: At the Premises.
          2.8 Notice and Payment Address for Landlord: VPI Oberlin I, L.P.,
ATTN: Daniel Ryan, 4350 La Jolla Village Drive, Suite 960, San Diego,
California, 92122; with a copy of notices to: Vanguard Law Group, LLP, ATTN:
Jeffrey A. Schneider, Esq., 8910 University Center Lane, Suite 500, San Diego,
California 92122.

- 2 -

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

 

          2.9 “Operations Plan” means a detailed lists of chemicals (including
all codes and classifications) to be used or located in the Premises or used or
transported by Tenant or its Invitees on the Project. Tenant shall deliver the
Operations Plan to Landlord concurrent with the execution of this Lease and an
updated Operations Plan on each anniversary of this Lease. If, at any time
during the Term, Tenant desires to use material amounts of chemicals not
identified in the Operations Plan on a regular basis, Tenant shall provide
Landlord with an updated Operations Plan before integrating the use of the new
chemicals into Tenant’s operations.
          2.10 “Permitted Use” means Tenant’s use of the Premises for general
office, laboratory, and support areas for biomedical research and development in
accordance with the Operations Plan (as amended from time to time) and all
Applicable Regulations (subject to Section 5.6 below).
          2.11 “Premises” means the portion of the Building depicted on the site
plan attached as Exhibit “C” to this Lease.
          2.12 Rent Holiday: Tenant is not obligated to pay Basic Monthly Rent
or Tenant’s Pro Rata Share of Operating Expenses for the Premises (other than
the vivarium) on account of the first 120 days after the Commencement Date of
the Premises unless and until Tenant commits a default under this Lease (that is
not cured within the applicable cure period). Similarly, Tenant is not obligated
to pay Basic Monthly Rent or Tenant’s Pro Rata Share of Operating Expenses for
the vivarium space on account of the first 120 days after the Commencement Date
for the vivarium as determined in accordance with Section 2.3 unless and until
Tenant commits a default under this Lease (that is not cured within the
applicable cure period).
          2.13 “Rentable Square Feet” of the Building means 33,728 square feet
(based on drip line). Rentable Square Feet of the Premises means the number of
square feet of the Premises plus Tenant’s Pro Rata Share of the number of square
feet of Common Area in the Building based on the customary industrial drip-line”
measurement standard, as reasonably determined by the TI Architect. Within 30
days after Landlord’s Work is Substantially Completed, Landlord shall cause the
TI Architect to measure the Premises and the Common Area and to certify the
Rentable Square Feet of the Premises. Landlord and Tenant agree that such
figures are deemed accurate and, therefore, not subject to re-measurement or
adjustment by Landlord or Tenant. Landlord and Tenant estimate that the Rentable
Square Feet of the Premises will be approximately 16,603 square feet.
          2.14 “Security Deposit” means cash or letter of credit in an amount
equal to four months of Basic Monthly Rent, as that amount may change from time
to time. If, at any time during the Term, after Landlord’s request, Tenant
cannot reasonably establish to Landlord that Tenant’s unencumbered cash holdings
equal or exceed $3.5 million, then Tenant shall increase the Security Deposit to
an amount equal to six months of the then current Basic Monthly Rent.
          2.15 “Tenant Delay” means delay to any portion of Landlord’s Work
caused by Tenant or its agents, such as delays for long lead-time items
requested by Tenant, delays resulting from Tenant or its agents interference
with the construction process, delays resulting

- 3 -

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

 

from requests by Tenant to make changes to Landlord’s Work, and delays resulting
from Tenant’s failure to appropriately respond within five business days after
Landlord’s written request for information relating to construction of
Landlord’s Work or otherwise within any time period prescribed in this Lease.
Tenant shall cause its authorized representative to attend each weekly
construction meeting relating to Landlord’s Work (and information requested from
Tenant in any such meeting and included in the minutes for the meeting
constitutes written request for information contemplated by the preceding
sentence).
          2.16 “Tenant’s Pro Rata Share” means the ratio of Rentable Square Feet
of the Premises to the Rentable Square Feet of the Building. Landlord and Tenant
estimate that Tenant’s Pro Rata Share will be approximately 49.23%.
     3. Term. The term of this Lease (the “Term”) commences on the date of this
Lease and expires on the Expiration Date, subject to earlier termination in
accordance with this Lease.
     4. Possession. Tenant is entitled to possession of the Premises on
substantial completion of Landlord’s Work. When taking possession of the
Premises, Tenant will be deemed to have thoroughly inspected the Premises and
accepted the Premises in its as-is condition with no right to require Landlord
to perform any work to the Premises or the Project (except any minor items set
forth on a “punch-list” of excepted items with respect to Landlord’s Work
delivered to and accepted by Landlord within 30 days after Tenant takes
possession of the Premises), subject to Landlord’s Warranty Obligations set
forth above. Except as Landlord’s Warranty Obligations, Tenant waives all
warranties, whether express or implied (including any warranties of
merchantability or fitness for a particular purpose), with respect to the
Premises.
     5. Use of Premises.
          5.1 Permitted Use. Tenant may use the Premises for the Permitted Use
and for no other use. Any change in the Permitted Use requires Landlord’s prior
written consent, which consent may be granted or withheld in Landlord’s
reasonable discretion.
          5.2 Compliance with Laws. Subject to Landlord’s Warranty Obligations,
Tenant shall comply with all laws concerning the Premises or Tenant’s use of the
Premises, including the obligation at Tenant’s sole cost to alter, maintain, and
restore the Premises in compliance with all applicable laws, even if the laws
are enacted after the date of this Lease, even if compliance entails costs to
Tenant of a substantial nature, and even if compliance requires structural
alterations. Such obligation to comply with laws includes compliance with the
Americans With Disabilities Act of 1990 (42 U.S.C. 12181 et seq.) (the “ADA”).
If because of changes in the law, including changes to the ADA, modifications to
the Common Area are required, Landlord shall cause the Common Area to conform
with such new laws or regulations (the costs of which are to be paid by Landlord
and amortized in Operating Expenses to the extent described in Section 8.1
below); provided, however, if Tenant’s particular use of the Premises results in
the need for modifications or alterations to the Project (beyond Landlord’s
Work), then Tenant shall promptly cause the completion of such modifications and
alterations, at Tenant’s sole cost, in accordance with Article 13 below.

- 4 -

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

 

          5.3 General Covenants and Limitations on Use. Tenant may not do,
bring, or keep anything in or about the Premises that will cause a cancellation
of any insurance covering the premises or the Project, provided Landlord has
notified Tenant and given Tenant a reasonable opportunity to bring its use into
compliance to avoid cancellation of insurance or to procure alternative
insurance reasonably acceptable to Landlord. If the rate of any insurance
carried by Landlord is increased as a result of Tenant’s particular use of the
Premises, Tenant shall pay to Landlord, within 10 days after Landlord delivers
to Tenant a notice of such increase, the amount of such increase. Furthermore,
Tenant shall take all reasonable precautions to prevent any noxious activity
from being carried on, in, on, or around the Premises, and to prevent anything
from being done or kept in, on, or around the Premises that may be or become a
public nuisance or that may cause disturbance, or annoyance to others in the
Project, or on adjacent or nearby property. For example, Tenant shall take all
reasonable measures to eliminate or minimize any noxious odors emanating from
the Premises; provided, however, if in Landlord’s reasonable opinion, the
vivarium is producing offensive or noxious odors, Tenant shall install and
maintain carbon filters (at its sole costs), but the filter-housing will be
provided by Landlord at its costs. Without limiting the generality of the
foregoing, all unsightly equipment, objects, and conditions shall be kept
enclosed within the Premises; no refuse, scraps, debris, garbage, trash, bulk
materials, or waste shall be kept, stored, or allowed to accumulate except as
may be properly enclosed within the Premises or in any trash areas in the
Project designated by Landlord (provided that Landlord has provided adequate
trash areas for the Project); and all pipes, wires, poles, antennas, and other
facilities for utilities or the transmission or reception of audio or visual
signals shall be kept and maintained enclosed within the Premises. Tenant may
not keep or permit to be kept any motorcycle, or other vehicle, nor any animal
(excluding certified service dogs), bird, reptile, or other exotic creature in,
on or around the Premises, except for any research rodents (i.e., mice,
hamsters, gerbils, and rats) residing in enclosed cages within the vivarium area
in accordance with all Applicable Regulations subject to Section 5.6 below.
Neither Tenant nor Tenant’s Invitees may do anything that will cause damage or
waste to the Project. No machinery, apparatus, or other appliance may be used or
operated in or on the Premises that will in any manner injure, vibrate, or shake
all or any part of the Project. Tenant shall ensure that none of its employees,
agents or Tenant’s Invitees prop open any doors or window or circumvent any
security for the Project.
          5.4 Use of Common Area. Tenant shall, and shall cause its guests,
invitees, customers, service-providers, and licensees (collectively, “Tenant’s
Invitees”) to, comply with all rules and regulations regarding the Common Area
as Landlord may from time to rime reasonably adopt. Landlord need not enforce
the rules and regulations against other tenants of the Project, but if Landlord
enforces such rules, it must do so in a non-discriminatory manner. Tenant may
not store any property in the Common Area, whether temporarily or permanently
(except that Tenant may locate its generator on the generator pad to be located
in the Common Area and designated by Landlord for Tenant’s use and, subject to
reasonable approval of Landlord and the other tenant(s) of the Project,
establish a reception desk in the lobby area of the Building). Any property
stored in the Common Area in violation of the foregoing may be removed by
Landlord and disposed of, and the cost of such removal, storage, and disposal is
payable by Tenant on demand. Additionally, in no event may Tenant use any
portion of the Common Area for loading, unloading, or parking, except in those
areas specifically designated by Landlord for such purposes, nor for any
sidewalk sale, advertising, or other commercial purpose. Tenant acknowledges the
unique nature of the Common Area lobby. Although Tenant’s use of such

- 5 -

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

 

special Common Area is subject to Landlord’s rules and regulations, Tenant
recognizes that it may suffer conflicts with other tenant(s) within the Project.
The intent of parties is that the lobby will allow for each tenant of the
Project to locate its own employee for reception purposes or to make its own
arrangements (of which Landlord will have no involvement) with the other
tenant(s) of the Project for shared reception personnel. Tenant acknowledges
that it specifically negotiated for the opportunity to have such special Common
Area for its own economic purposes; and Tenant assumes all liabilities and
obligations and claims arising out of the shared use of the Common Area (and
Tenant waives any rights or claims or actions it may have against Landlord on
account of any losses, liabilities, or damages suffered by Tenant in connection
with the shared use of the Common Area) other than as caused by Landlord’s gross
negligence or willful conduct. The preceding sentence is not to be interpreted
as creating any indemnity obligation by Tenant.
          5.5 Parking. Neither Tenant nor Tenant’s invitees may use the parking
area within the Project (the “Parking Area”) except for Tenant’s Pro Rata Share
of parking spaces designated in the Parking Area for parking and the driveways
leading to them. Tenant shall comply with Landlord’s request, from time to time,
to remove all vehicles from the Parking Area for purposes of maintenance and
repair provided such maintenance and repair is conducted outside of normal
business hours or Landlord provides alternative reasonable arrangements for
Tenant’s employees to park. No personal property of any type may be stored or
located in the Parking Area, and parking spaces may only be occupied by
appropriately sized vehicles.
          5.6 Vivarium Use. The parties acknowledge that restrictions in the
covenants, conditions, and restrictions governing the Project (the “CC&R’s”) may
be interpreted to prohibit the use of the vivarium contemplated by this Lease.
If Landlord or Tenant receive a notice from the association responsible for
enforcing the CC&R’s or any “Owner” as defined in the CC&R’s (collectively
referred to as the “Association”) requesting termination of the use of the
vivarium, it shall notify the other, and Tenant and Landlord shall work together
(at Landlord’s cost and direction) to obtain the Association’s consent (whether
voluntary or involuntary) to the continued use of the vivarium. Landlord shall
reimburse Tenant for all out-of-pocket costs incurred in connection with such
defense and appeal (including attorneys fees and costs) and Landlord shall
indemnify and defend Tenant from any claims and liabilities arising out of the
CC&R’s or the Association on account of the use of the vivarium in accordance
with this Lease. If, after exhausting all appeals and remedies, Landlord and
Tenant mutually and reasonably determine that legal termination of Tenant’s use
of the vivarium is imminent on account of violation of the CC&R’s, then:
(a) Tenant shall relocate its vivarium use to another facility; (b) Basic
Monthly Rent will be reduced by the product of the Basic Monthly Rent multiplied
by the fraction, the numerator of which is the Rentable Square Feet of the
vivarium area and the denominator of which is the Rentable Square Feet of the
Premises; and (c) Landlord shall reimburse Tenant for the following costs
reasonably incurred by Tenant: (i) the costs of relocating the animals (and, if
necessary, any equipment) from the vivarium within the Premises to another local
vivarium facility; (ii) the positive difference, if any, between the
per-square-foot cost of the new vivarium facility (to the extent of its
comparable facilities) minus the per-square-foot cost of the rent abatement
described above, multiplied by the number of square feet of the vivarium
depicted on the Floor Plan; and (iii) any actual losses incurred by Tenant from
any existing contracts between Tenant and its clients resulting directly from
the delays caused by the vivarium relocation.

- 6 -

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

 

     6. Signs. Tenant is entitled to Tenant’s Pro Rata Share of signage rights
on the Premises in accordance with all applicable laws, regulations, and
covenants, conditions and restrictions governing the Premises. Such signage
rights include the right to install a monument sign and lobby directory subject
to Landlord’s prior written consent (which may not unreasonably be withheld).
Nevertheless, Tenant may not place, construct, or maintain any sign,
advertisement, awning, banner, or other exterior decoration in the Premises
which is visible from the exterior of the Premises (including inside the windows
of the Premises), without Landlord’s prior written consent, which consent may
not be unreasonably withheld. Tenant shall, at Tenant’s sole cost, make any
changes to any of Tenant’s signage on the Project as required by any new or
revised Applicable Regulation. Tenant shall install, maintain, repair, and
replace all of Tenant’s signs at its sole cost and in first class condition.
     7. Monthly Rent. Tenant shall pay to Landlord as minimum monthly rent,
without deduction, setoff, prior notice, or demand, the Basic Monthly Rent in
advance, on or before the first day of each calendar month throughout the Term
commencing on the Commencement Date. Concurrent with execution of this Lease,
Tenant shall deposit with Landlord $43,997.95 as estimated first month’s Basic
Monthly Rent. THIS LEASE IS INTENDED TO BE AN ABSOLUTE “NET LEASE” AND TENANT IS
SOLELY RESPONSIBLE FOR THE CARE, MAINTENANCE, TAXES, INSURANCE, UTILITIES,
REPAIR AND OPERATING EXPENSES OF THE PREMISES, INCLUDING ALL COSTS THEREOF, AS
THOUGH TENANT WERE THE OWNER OF THE PREMISES, AND TENANT’S PRO RATA SHARE OF
OPERATING EXPENSES EXCEPT AS SPECIFICALLY SET FORTH HEREIN. All monetary
obligations of Tenant under this Lease constitute “rent” under this Lease.
     8. Operating Expenses
          8.1 Definition of Operating Expenses. Tenant is responsible for
payment of Tenant’s Pro Rata Share of all Operating Expenses of the Project. As
used in this Lease, the term “Operating Expenses” means all costs and expenses
paid or incurred by Landlord relative to the operation, repair, restoration,
replacement, maintenance, and management of the Project, including: (i) water,
sewage disposal, drainage, refuse collection and disposal, gas, electricity, and
other utility services, and the maintenance of all components, systems, and
apparatus by which such utilities and services are provided, (ii) general
maintenance and repair of the landscaping, and structural (subject to the
limitations below) and non-structural components of the improvements located on
the Project and any janitorial, and security services (if any), (iii) expenses
payable by Landlord pursuant to the provisions of any recorded covenants,
conditions, and restrictions, reciprocal easement agreements, and any other
recorded documents affecting the Project (other than Landlord’s loan(s) secured
by the Premises), (iv) all real property or real estate taxes, assessments,
association dues, and other impositions, whether general, special, ordinary, or
extraordinary, and of every kind and nature, which may be levied, assessed,
imposed on the Project (“Real Estate Taxes”), (v) any personal property taxes,
assessments, or other impositions levied, assessed, or imposed upon any personal
property of Landlord used in connection with the Project, (vi) Insurance
Expenses (as defined below), (vii) property management fees to Landlord or its
agent in the amount of 3.5% of base rent payable by all tenants of the Project
(including Tenant), and legal, accounting, inspection, and consultation fees,
and (viii) capital improvements required by any change in Applicable
Regulations, or other capital improvements, repairs, or replacements deemed
reasonably necessary by Landlord or

- 7 -

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

 

appropriate to reduce Operating Expenses for the Project or Premises (but
excluding any initial improvements to the Project, such as Landlord’s Work);
provided, however, any costs of such capital improvements shall be amortized
(including a commercially reasonable interest factor reasonably determined by
Landlord) over the anticipated useful life of such capital improvements.
          Notwithstanding the foregoing, Operating Expenses shall not include
any of the following,: (a) legal fees, brokerage commissions, and advertising
costs incurred in connection with the sale of any portion of the Project or the
leasing of other premises within the Project; (b) costs incurred in connection
with damage or repairs to the extent reimbursed from any insurance policy
carried by Landlord in connection with the Project; (c) expenses for repair or
replacement paid by condemnation awards; (d) executive or management salaries;
(e) the cost of offsite service personnel to the extent that such personnel are
not engaged in the management, operation, repair or maintenance of the Project;
(f) Landlord’s general overhead; (g) ground lease payments and all principal,
interest, loan fees, and other carrying costs related to any mortgage or deed of
trust encumbering the Project, unless such costs are directly attributable to
Tenant’s, its agents’ or employees’ activities in, on or about the Project, or
as a result of a Tenant’s breach or default under this Lease; (h) legal fees,
accountant fees and other expenses incurred in disputes regarding or associated
with the enforcement or defense of Landlord’s title to or interest in the
Project or any part thereof; (i) capital costs incurred for the repair or
replacement of the structural aspects of the Building’s foundation, footings,
structural support columns, exterior walls, and roof structure (which does not
include the roof membrane); and (j) any costs, expenses, or liability incurred
by Landlord on account of its obligations under Section 5.6 above.
          8.2 Payment of Operating Expenses. Landlord shall deliver to Tenant an
annual statement setting forth the estimated Operating Expenses Landlord expects
to incur for the applicable year (“Expense Statement”), Tenant shall pay
one-twelfth of Tenant’s Pro Rata Share of the amount set forth in the Expense
Statement with each payment of Basic Monthly Rent. Tenant’s payment obligations
under this paragraph constitute additional rent under this Lease. If the sum of
Tenant’s payments on account of Operating Expenses during any calendar year
exceeds the actual Operating Expenses for the calendar year, then the excess
will be credited against future Operating Expenses due from Tenant, or paid
directly to Tenant. If the sum of Tenant’s Operating Expense payments for any
calendar year is less than the actual Operating Expenses for the calendar year,
then Tenant shall pay Landlord the amount of the deficiency within 30 days after
delivery of Landlord’s statement reconciling the year’s Operating Expenses.
Landlord’s delay in delivering any Expense Statement or reconciliation statement
will not release Tenant of its obligation to pay any portion of the Operating
Expenses.
     9. Utilities and Services. Landlord shall cause the Premises, the
neighboring Premises within the Project, and the Common Areas (the Common Areas
include any cooling towers, chillers and boilers, and any other equipment of
Landlord for the common use of the Building) to be separately metered for
electricity and Tenant shall pay the cost of all separately-metered utilities
furnished to the Premises directly to the applicable utility provider. Tenant
shall pay the Cost of all utilities and services (including any connection
charges and taxes thereon) furnished to the Premises or used by Tenant,
including electricity, water, heating, ventilating, air-conditioning, oil,
sewer, gas, telephone, communication services, trash collection, and janitorial
services. Landlord may furnish to the Premises any of the utilities and services
set forth in the

- 8 -

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

 

preceding sentence, in which case Tenant shall reimburse Landlord for Landlord’s
cost of furnishing such utilities and services. Landlord may not be held liable
for failure to furnish any utilities or services to the Premises when such
failure results from causes beyond Landlord’s reasonable control. If Landlord
constructs new or additional utility facilities not included in Landlord’s Work,
including wiring, plumbing, conduits, or mains, resulting from Tenant’s changed
or increased utility requirements, Tenant shall promptly pay to Landlord the
total cost of such items. The discontinuance of any utilities or services,
including Landlord’s discontinuance or failure to provide any of the utilities
or services furnished by Landlord to the Premises, shall neither be deemed an
actual or constructive eviction, nor release Tenant from its obligations under
this Lease including Tenant’s obligation to pay rent. Notwithstanding the
foregoing, Landlord will be liable to Tenant, as Tenant’s sole remedy, for 110%
of the Basic Monthly Rent on account of any periods of interruption of utility
services to the Premises during normal business days suffered by Tenant as the
result of Landlord’s or its contractors’, agents’, employees’ or invitees’ gross
negligence or willful misconduct.
     10. Maintenance.
          10.1 Tenant’s Maintenance Obligations. Tenant shall at its sole cost
(i) maintain, repair, replace, and repaint, all in first class condition, all
aspects and portions of the Premises other than those for which Landlord is
responsible under Section 10.2, (ii) arrange for the removal of trash from the
Premises, (iii) maintain service agreements reasonably satisfactory to Landlord
relative to maintenance, repair, and replacement of the laboratory gas equipment
and security systems within the Premises, (iv) maintain janitorial contracts
(which contracts must at least include semi-annual floor waxing, grill cleaning
and, when needed, carpet cleaning) and pest and termite control service
agreements with respect to the Premises, reasonably acceptable to Landlord.
Tenant shall provide Landlord with current copies of all maintenance, service
and cleaning contracts throughout the Term. Tenant is additionally liable for
any damage to the Premises or the Project resulting from the acts or omissions
of Tenant, Tenant’s Invitees or, with respect to the Premises only, any other
person not controlled by Landlord. If Tenant fails to maintain, repair, replace,
or repaint any portion of the Premises as provided above (after notice from
Landlord and a reasonable opportunity to complete the repair, maintenance, or
replacement), then Landlord may maintain, repair, replace, or repaint any such
portion of the Premises or Project and Tenant shall promptly reimburse Landlord
for Landlord’s actual cost thereof, plus a supervisory fee in the amount of five
percent of such actual cost, which sum constitutes additional rent under this
Lease. Landlord, at Landlord’s sole discretion, may require Tenant to use
specific contractors or construction techniques for the purpose of maintaining
warranties or the integrity of the Premises provided such contractors or
techniques are commercially reasonable. Tenant waives the provisions of
California Civil Code Section 1942 (or any successor statute), and any similar
principals of law with respect to Landlord’s obligations for tenantability of
the Premises and Tenant’s right to make repairs and deduct the expense of such
repairs from rent.
          10.2 Landlord’s Maintenance Obligations. Landlord shall, subject to
reimbursement in accordance with Article 8 above, use its best efforts to
maintain, repair, and replace the Common Area and the structural and building
systems of the Project, which are the foundations, exterior walls, roof, and
central HVAC, mechanical, electrical, and plumbing systems outside the Premises
in first class condition and good working order. Landlord’s failure

- 9 -

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

 

to perform its obligations set forth in the preceding sentence will not release
Tenant of its obligations under this Lease, including Tenant’s obligation to pay
rent, but Tenant may bring a claim against Landlord for damages. Tenant waives
the provisions of California Civil Code Section 1942 (or any successor statute),
and any similar principals of law with respect to Landlord’s obligations for
tenantability of the Premises and Tenant’s right to make repairs and deduct the
expense of such repairs from rent. If Landlord fails, within 30 days after
receipt of written notice of such failure or within such longer period of time
if such failure is not reasonably susceptible to cure within a 30-day period, to
perform any of its material obligations hereunder to Tenant and such failure is
material and adverse to Tenant, then, Tenant may, as its sole remedy, by process
of law, compel Landlord to perform its obligations. Should Tenant be the
prevailing party in such process to compel, then Landlord will pay Tenant upon
demand all reasonable out-of-pocket costs incurred by Tenant pursuing such
preceding remedy, including but not limited to reasonable attorneys’ fees.
     11. Insurance.
          11.1 Public Liability and Property Damage Insurance. Tenant shall
maintain throughout the Term public liability and property damage insurance
(i) with a single combined liability limit and property damage limit of not less
than $2,000,000.00 per occurrence, (ii) insuring (a) against all liability of
Tenant and Tenant’s Invitees arising out of or in connection with Tenant’s use
or occupancy of the Premises, including products liability and pollution
coverage, and (b) performance by Tenant of the indemnity provisions set forth in
this Lease, and (iii) naming Landlord, its agents, and any ground lessor or
lender holding a security interest in the Premises (“Lender”) as additional
named insured, and (c) with umbrella coverage of $5 million. Not more frequently
than once every year, if, in the reasonable opinion of Landlord or at the
request of any Lender, the amount of such insurance at that time is not
adequate, then Tenant shall increase such insurance as reasonably required by
Landlord (provided such increase is commercially reasonable in comparison to the
amounts and types of insurance required by landlords of similar properties in
San Diego).
          11.2 Fire and Extended Coverage Insurance. Tenant shall maintain
throughout the Term on Tenant’s Alterations and Tenant’s Personal Property (as
defined below) a policy of standard fire and extended coverage insurance, with
vandalism and malicious mischief endorsements, coverage with respect to
increased costs due to building ordinances, demolition coverage, boiler and
machinery insurance, and sprinkler leakage coverage, in each case to the extent
of at least 100 percent of full replacement value, and business interruption
insurance (covering at least a one-year interruption). Such “full replacement
value” shall be determined by the company issuing such policy at the time the
policy is initially obtained. Not more frequently than once every two years,
either Landlord or Tenant may notify the other that it elects to have the
replacement value re-determined by an insurance company. Such re-determination
shall be made promptly and in accordance with the rules and practices of the
Board of Fire Underwriters, or a like board recognized and generally accepted by
the insurance company, and Landlord and Tenant shall be promptly notified of the
results by the company. Such policy shall be promptly adjusted according to such
re-determination. Tenant shall additionally maintain full coverage plate-glass
insurance on the Premises, in which Landlord and any Lender be named as
additional insureds.

- 10 -

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

 

          11.3 Tenant’s Insurance Generally. Insurance required to be maintained
by Tenant under this Lease: (i) shall be issued as a primary policy (not
contributed with, and in excess of coverage Landlord may carry) by insurance
companies authorized to do business in California with a Best’s Rating of at
least “A” and a Best’s Financial Size Category rating of at least “XIV,” as set
forth in the most current edition of “Best’s Insurance Reports” (unless
otherwise approved by Landlord); (ii) shall name Landlord and any Lender as
additional named insureds, but the policy must provide that notwithstanding the
fact that Landlord is an additional insured, it is entitled to recover under the
policy for any loss suffered by Landlord by reason of Tenant’s negligence;
(iii) shall consist of “occurrence” based coverage, without provision for
subsequent conversion to “claims” based coverage; (iv) may not be cancelable or
subject to reduction of coverage or other modification except after 30-days’
prior written notice to Landlord and any Lender; and (v) may not provide for a
deductible or co-insurance provision in excess of $5,000.00. Tenant shall, at
least 60 days before the expiration of each such policy, furnish Landlord with a
renewal of or “binder” extending the policy. Tenant shall promptly upon request
deliver to Landlord copies of such policy or policies or certificates evidencing
the existence and amounts of such insurance together with evidence of payment of
premiums.
          11.4 Landlord’s Insurance. Landlord shall maintain throughout the Term
policies of insurance written by good and solvent insurance companies, worker’s
compensation insurance as required by law and shall maintain a standard special
purpose all-risk property insurance policy in an amount equal to the full
replacement cost of the Building (including, without limitation, the Landlord’s
Work) with reasonable deductibles. Additionally, Landlord may maintain any of
the following insurance, in such amounts and with such limits as Landlord
determines in its reasonable discretion: (i) public liability and products
liability insurance; (ii) fire and extended coverage insurance, with vandalism
and malicious mischief endorsements, coverage with respect to increased costs
due to building ordinances, demolition coverage, and sprinkler leakage coverage;
(iii) boiler and machinery insurance; (iv) fidelity insurance to the extent
required by a Lender; (v) earthquake insurance to the extent either required by
a Lender or commonly maintained by owners or tenants of similarly situated
research/development properties in the general vicinity of the Building;
(vi) plate-glass insurance to the extent either required by a Lender or commonly
maintained by owners or tenants of properties similar to the Premises;
(vii) pollution liability insurance; and (viii) rental value insurance not to
exceed 12 months rent. The premiums, costs, expenses, and deductibles (or
similar costs or charges) of or with respect to any such insurance (all of the
preceding, collectively, “Insurance Expenses”) are included in Operating
Expenses.
          11.5 Waiver of Subrogation. Landlord and Tenant release each other,
Tenant’s Invitees, and Landlord’s guests, invitees, customers and licensees
(collectively, “Landlord’s Invitees”) from all claims for damage, loss, or
injury to the Premises, to Tenant’s Personal Property, and to the fixtures and
Alterations of either Landlord or Tenant in or on the Premises to the extent the
damage, loss or injury is covered by any insurance policies carried by Landlord
and Tenant and in force at the time of such damage. Landlord and Tenant shall
each use its best efforts to cause all insurance policies obtained by it
pursuant to this Lease to provide that the insurance company waives all right of
recovery by way of subrogation against Landlord and Tenant in connection with
any damage, loss, or injury covered by such policy.

- 11 -

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

 

     12. Taxes. Tenant shall pay before delinquency all taxes, assessments,
license fees, and other charges that are levied or assessed against, or based on
the value of, Tenant’s personal property installed or located in or on the
Premises including trade fixtures, furnishings, equipment, and inventory
(collectively, “Tenant’s Personal Property”) and any real property or real
estate taxes, assessments, and other impositions, whether general, special,
ordinary, or extraordinary, and of every kind and nature, which may be
separately levied, assessed, imposed upon or with respect to the Premises (to
the extent separately assessed from the remainder of the Building). On demand by
Landlord, Tenant shall furnish Landlord with satisfactory evidence of such
payments. If any such taxes, assessments, license fees, or other charges are
levied against Landlord or Landlord’s property, or if the assessed value of the
Premises is increased by the inclusion of a value placed on Tenant’s Personal
Property, then Tenant, on demand, shall immediately reimburse Landlord for the
sum of such taxes, assessments, license fees, and other charges so levied
against Landlord which amounts constitute additional rent under this Lease.
Landlord may pay such taxes, assessments, license fees, or other charges or such
proportion, and receive such reimbursement, regardless of the validity of the
levy.
     13. Alterations. Tenant may make alterations, improvements, additions,
installations, or changes to the Premises (any of the preceding, “Alterations”)
only if: (i) Tenant first obtains Landlord’s written consent (which consent may
not unreasonably be withheld, conditioned, or delayed), (ii) Tenant complies
with all conditions, which may be imposed by Landlord, including but not limited
to Landlord’s selection of specific contractors or construction techniques (but
Landlord may not unreasonably impose such restrictions), and (iii) Tenant pays
to Landlord the reasonable costs and expenses of Landlord for architectural,
engineering, or other consultants which reasonably may be incurred by Landlord
in determining whether to approve any such Alterations. At least 30 days before
making any Alterations, Tenant shall submit to Landlord, in written form,
proposed detailed plans of such Alterations. Tenant shall, before commencing any
Alterations, at Tenant’s sole cost, (i) acquire (and deliver to Landlord a copy
of) a permit from appropriate governmental agencies to make such Alterations
(any conditions of which permit Tenant shall comply with, at Tenant’s sole cost,
in a prompt and expeditious manner), (ii) provide Landlord with 10 days’ prior
written notice of the date the installation of the Alterations is to commence,
which notice must explicitly remind Landlord to post and record an appropriate
notice of non-responsibility, and (iii) obtain (and deliver to Landlord proof
of) reasonably adequate workers compensation insurance with respect to any of
Tenant’s employees installing or involved with such Alterations (which insurance
Tenant shall maintain in force until completion of the Alterations). All
Alterations shall upon installation become the property of Landlord and shall
remain on and be surrendered with the Premises on termination of this Lease,
except that Landlord may, at its election, require Tenant to remove any or all
of the Alterations, by so notifying Tenant in writing at the time Landlord
consents to the Alteration, in which event, Tenant shall, at its sole cost, on
or before the Expiration Date or earlier termination of this Lease, repair and
restore the Premises to the condition of the Premises prior to the installation
of the Alterations which are to be removed. Tenant shall pay all costs for
Alterations and other construction done or caused to be done by Tenant and
Tenant shall keep the Premises free and clear of all mechanics’ and
materialmen’s lien’s resulting from or relating to any Alterations or other
construction. The term “Alteration” does not include any of the following that
are paid for and installed by Tenant and Tenant may remove any of the following
that are paid for and installed by Tenant at any time: Tenant’s personal
property, equipment, capital equipment, fume hoods, fume snorkels, de-ionized
water skids, vacuum pumps,

- 12 -

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

 

dehumidification units, uninterruptible power supplies, warehouse racks, parts
racks, scientific research equipment, portable cold rooms, moveable unattached
lunch room and office furnishings and equipment, telecommunications and data
equipment (other than cabling), machine shop tools and portable equipment,
portable glass wash equipment, equipment monitoring systems, air compressors and
emergency generators (collectively, the “Equipment”). Notwithstanding the
foregoing, if installation of any of the Equipment materially effects any of the
improvements within the Project, the installation itself (but not the Equipment)
is considered an Alteration and subject to the requirements of this Article 13.
Landlord acknowledges that Landlord has no lien, right, claim, interest or title
in or to the Equipment, except to the extent remaining at the Project after
termination of this Lease. Tenant may grant a security interest in the
Equipment. Within 14 days following Tenant’s written request, Landlord shall
execute an acknowledgement of the foregoing in a commercially reasonable form
for the benefit of the secured party under a security interest granted in
accordance with the preceding sentence, allowing the secured party or equipment
lessor access to the Premises for removal of the Equipment, subject to
Landlord’s reasonable restrictions.
     14. Surrender of Premises and Holding Over. On the Expiration Date or
earlier termination of this Lease, Tenant shall (i) surrender to Landlord the
Premises in good and clean condition (normal wear and tear excepted), along with
all keys to the Premises and Project (including any keys to any exterior or
interior doors), (ii) remove all of Tenant’s Personal Property and perform all
repairs and restoration required by the removal of any Alterations (to the
extent required under this Lease) or Tenant’s Personal Property, (iii) take all
action, and pay all costs, necessary to provide Landlord with an environmental
site assessment effective as of the Expiration Date, front a reputable, licensed
environmental engineering company reasonably acceptable to Landlord and
conducted and reported in accordance with the attached Exhibit G (the “Exit
Assessment”) establishing that the Premises and Common Area are free of any
Hazardous Materials, and (iv) “close out” all operating permits, including any
hazardous material and radioactive permits to the extent required by or
appropriate under applicable law. Landlord may elect to retain or dispose of in
any manner any Alterations or Tenant’s Personal Property that Tenant does not
remove from the Project on the Expiration Date or earlier termination of this
Lease as required by this Lease by giving written notice to Tenant. Any such
Alterations or Tenant’s Personal Property that Landlord elects to retain or
dispose of will vest in Landlord immediately on notice to Tenant. Tenant waives
all claims against Landlord for any damage to Tenant resulting front Landlord’s
retention or disposition of any such Alterations or Tenant’s Personal Property.
Tenant is liable to Landlord for Landlord’s costs for storing, removing or
disposing of any such Alterations or Tenant’s Personal Property. If for any
reason Tenant fails to surrender the Project to Landlord on the Expiration Date
or earlier termination of this Lease, Tenant shall indemnify Landlord against
all actions, liabilities, damages, losses, costs, expenses, attorneys’ fees and
claims resulting from such failure, including any claim for damages made by a
succeeding tenant. If Tenant, with Landlord’s consent, remains in possession of
the Premises after the Expiration Date or earlier termination of this Lease,
such possession by Tenant shall be deemed to be a month-to-month tenancy
terminable on 30-days’ written notice given at any time by Landlord or Tenant.
During any such month-to-month tenancy, Tenant shall pay, as Basic Monthly Rent,
125 percent of the Basic Monthly Rent in effect immediately before the
Expiration Date or earlier termination of this Lease, as the case may be, unless
Landlord and Tenant mutually agree otherwise in writing. All provisions of this
Lease other than those pertaining to Term apply to such month-to-month tenancy.

- 13 -

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

 

     15. Default. The occurrence of any of the following constitutes a material
default and breach of this Lease by Tenant:
          15.1 Tenant’s failure to make any payment of rent within three days
after written notice from Landlord to Tenant that the payment is due. No grace
period before the imposition of a late charge extends the date when such rent is
due and payable, and Tenant is in default under this Lease if such payment is
not timely made.
          15.2 Tenant’s failure to observe or perform any other provision of
this Lease for a period of 30 days after written notice of such failure from
Landlord to Tenant; provided, however, such notice is in lieu of, and not in
addition to, any notice required under applicable unlawful detainer statute; and
provided further, however, that if the nature of Tenant’s default is such that
more than 30 days are required for its cure, then Tenant is not deemed to be in
default if Tenant commences such cure within the 30-day period and thereafter
diligently prosecutes such cure to completion within 180 days after Landlord’s
written notice.
     If Landlord accepts Tenant’s cure of a default after the applicable cure
period specified above by acknowledging in writing its acceptance, such default
is deemed permanently cured.
     16. Landlord’s Remedies. Landlord is entitled to the following remedies if
Tenant commits a default or breach under this Lease; these remedies are not
exclusive, but are cumulative and in addition to any remedies provided elsewhere
in this Lease, or now or later allowed by law.
          16.1 Continuation of Lease. No act by Landlord (including the acts set
forth in the next sentence) terminates Tenant’s right to possession unless
Landlord notifies Tenant in writing that Landlord elects to terminate Tenant’s
right to possession. As long as Landlord does not terminate Tenant’s right to
possession, Landlord may (i) continue this Lease in effect, (ii) continue to
collect rent when due and enforce all the other provisions of this Lease,
(iii) enter the Premises and relet them, or any part of them, to third parties
for Tenant’s account, for a period shorter or longer than the remaining term of
this Lease, and (iv) have a receiver appointed to collect rent and conduct
Tenant’s business. Tenant shall immediately pay to Landlord all costs Landlord
incurs in such reletting, including brokers’ commissions, attorneys’ fees,
advertising costs, and expenses of remodeling the Premises for such reletting.
If Landlord elects to relet all or any portion of the Premises as permitted
above, rent that Landlord receives from such relating will be applied to the
payment of, in the following order and priority, (i) any indebtedness from
Tenant to Landlord other than Basic Monthly Rent due front Tenant, (ii) all
costs incurred by Landlord in the reletting, and (iii) Basic Monthly Rent (and,
if applicable, percentage rent) due and unpaid under this Lease. After applying
the payments as referred to above, any sum remaining from the rent Landlord
receives from the reletting will be held by Landlord and applied in payment of
future rent as it becomes due under this Lease. Tenant will not be entitled to
any excess rent received by Landlord unless and until all obligations of Tenant
under this Lease, including all future obligations, are satisfied in full.
          16.2 Termination of Tenant’s Right to Possession. In the event of such
breach or default by Tenant, Landlord may terminate Tenant’s right to possession
of the Premises at any time, by notifying Tenant in writing that Landlord elects
to terminate Tenant’s right to

- 14 -

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

 

possession. On termination of this Lease, Landlord has the right to recover from
Tenant (i) the worth at the time of the award of the unpaid rent which had been
earned at the time of such termination, (ii) the worth at the time of the award
of the amount by which the unpaid rent which would have been earned after such
termination until the time of award exceeds the amount of such loss of rent that
Tenant proves could have been reasonably avoided, (iii) the worth at the time of
the award of the amount by which the unpaid rent for the balance of the Term
after the time of award (had there been no such termination) exceeds the amount
of such loss of rent that Tenant proves could be reasonably avoided, and
(iv) any other amount necessary to compensate Landlord for all detriment
proximately caused by Tenant’s failure to perform Tenant’s obligations under
this Lease or in the ordinary course of things would be likely to result
therefrom. The “worth at the time of the award” of the amounts referred to in
Clauses (i) and (ii) above is to be computed by allowing interest at the Default
Rate, as set forth below. The “worth at the time of the award” of the amount
referred to in Clause (iii) above is to be computed by discounting such amount
at the discount rate of the Federal Reserve Bank of San Francisco at the time of
award.
          16.3 Landlord’s Right to Cure Default. Landlord, at any time after
Tenant commits a default or breach under this Lease after notice to Tenant
(unless notice is impractical under the circumstance), may cure such default or
breach at Tenant’s sole cost, in a commercially reasonable manner. If Landlord
at any time, by reason of Tenant’s default or breach, pays any sum or does any
act that requires the payment of any sum, such sum, to the extent reasonably
incurred, shall be due immediately from Tenant to Landlord at the time such sum
is paid, and constitutes additional rent under this Lease.
          16.4 Enforcement Costs. On demand, Tenant shall pay Landlord all
reasonable costs and expenses incurred by Landlord in connection with collecting
any amounts and damages owing by Tenant under this Lease, or to enforce any
provision of this Lease, including reasonable attorneys’ fees, whether or not
any action is commenced by Landlord.
     17. Late Payments. Late payment by Tenant to Landlord of rent will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which would be impracticable or extremely difficult to fix. Costs include
processing, collection and accounting charges, and late charges that may be
imposed on Landlord by the terms of any deeds of trust covering the Premises.
Therefore, if any rent or other payment is not received by Landlord within five
days after its due date, then, notwithstanding any cure rights of Tenant
(including those under Article 15 above) without any requirement for notice to
Tenant, Tenant shall pay to Landlord an additional sum of five percent of such
overdue amount as a late charge. Such late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of any late
payment by Tenant, and therefore this paragraph is reasonable under the
circumstances existing at the time this Lease is made. Acceptance of such late
charge by Landlord does not constitute a waiver of Tenant’s default with respect
to such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies available to Landlord under this Lease. In addition to the
late charge payable by Tenant, if any rent is not paid within 30 days of the
date such rent is due, then Tenant shall pay to Landlord interest on the overdue
rent at the rate equal to the “reference rate” announced from time to time by
Bank of America, NT&SA (if such reference rate ceases to be announced, then a
reasonably comparable “prime rate” shall be utilized, selected by Landlord),
plus 10% per annum, or the maximum rate permitted by law,

- 15 -

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

 

whichever is less (the “Default Rate”). Such interest shall additionally accrue
and be payable by Tenant relative to any other amounts payable by Tenant to
Landlord under the provisions of this Lease which are not paid when due. All
late charges and interest under this paragraph constitute additional rent under
this Lease. If a late charge is payable under this Lease, whether or not
collected, for two installments of Basic Monthly Rent, Operating Expense, or
other rent due under this Lease during any 12-month period, Tenant’s monthly
payments will automatically become due and payable quarterly in advance, rather
than monthly. All monies paid to Landlord under the preceding sentence may be
commingled with other monies of Landlord and will not bear interest. If Tenant
breaches any provision of this Lease, then any balance remaining from funds paid
to Landlord under the provisions of this paragraph may, at Landlord’s election,
be applied to the payment of any monetary default of Tenant.
     18. Security. Tenant shall immediately deliver the Security Deposit to
Landlord to secure the performance by Tenant of its obligations under this
Lease, including Tenant’s obligations (i) to pay rent, (ii) to repair damages
caused by Tenant or Tenant’s Invitees, (iii) to clean the Premises on the
termination of this Lease, and (iv) to remedy any other defaults by Tenant in
the performance of any of its obligations under this Lease. If Tenant commits
any default under this Lease, Landlord may use the Security Deposit to cure such
defaults (after expiration of the applicable cure period under Article 15
above), and to compensate Landlord for damage suffered by Landlord from such
defaults, including attorneys’ fees and costs incurred by Landlord. Tenant shall
promptly pay to Landlord the amount necessary to replenish any portion of the
Security Deposit so used by Landlord. Following the Expiration Date or earlier
termination of this Lease, and within the time frame required by applicable law,
Landlord shall deliver to Tenant, at Tenant’s last known address, any portion of
the Security Deposit not used by Landlord in accordance with this paragraph.
Landlord may commingle the Security Deposit with Landlord’s other funds and
Landlord will not pay interest on such Security Deposit to Tenant. As additional
security for Tenant’s obligations under this Lease, Tenant shall grant Landlord
a first-priority security interest in certain trade fixtures included in the
equipment list contemplated under Section 2.5 above. The particular trade
fixtures must have a minimal value of $100,000.00 and be particularly identified
on a list mutually acceptable to Landlord and Tenant. The security interest must
be granted before the Commencement Date for the vivarium and be documented in
accordance with a form reasonably prescribed by Landlord and perfected by an
appropriate financing statement or other appropriate means reasonably acceptable
to Landlord.
     19. Destruction. If the Premises is totally or partially destroyed during
the Term, rendering the Premises totally or partially inaccessible or unusable,
then (i) Landlord shall restore the Premises to substantially the same condition
as it was in immediately before such destruction (including Landlord’s Work),
(ii) Landlord will not be required to restore Tenant’s Alterations or Tenant’s
Personal Property unless they are an integral part of the Premises and
specifically covered by insurance proceeds received by Landlord, such excluded
items being the sole responsibility of Tenant to restore, (iii) the destruction
will not terminate this Lease, and (iv) all obligations of Tenant under this
Lease will remain in effect, except that the Basic Monthly Rent will be abated
or reduced, between the date of the destruction and the date of completion of
restoration, by the ratio of (a) the area of the Premises rendered unusable or
inaccessible by the destruction to (b) the area of the Premises before the
destruction. Notwithstanding the foregoing, Tenant may terminate this Lease by
so notifying Landlord in writing within 30 days after the

- 16 -

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

 

destruction if (x) then-existing laws do not permit such restoration, (y) the
destruction occurs during the last year of the Term, or (z) Tenant reasonably
establishes that substantial completion of the restoration will not occur within
12 months after the date of the destruction. Conversely, notwithstanding
anything to the contrary in this Lease, Landlord may terminate this Lease by so
notifying Tenant in writing on or before the later of 90 days after the
destruction or 30 days after Landlord’s receipt of the proceeds from insurance
maintained by Landlord, if (A) then-existing Applicable Regulations do not
permit such restoration, (B) the destruction occurs during the last year of the
Term, (C) the destruction exceeds 25 percent of the then-replacement value of
the Building, or (D) Landlord reasonably determines that the cost of the
restoration exceeds the amount of insurance proceeds relating to the destruction
actually received by Landlord (excluding deductibles contemplated by the
applicable insurance policy, if any). If Tenant or landlord terminates this
Lease in accordance with this paragraph, then (1) Landlord has no obligation to
restore the Premises, (2) Landlord retains all insurance proceeds relating to
such destruction, and (3) this Lease terminates as of 30 days after the notice
of termination from Tenant or Landlord. If Landlord restores the Premises as
provided above, then Tenant waives the provisions of California Civil Code
Sections 1932(2) and 1933(4) or any successor statute with respect to any
destruction of the Premises.
     20. Condemnation. If during the Term there is any taking of all or any part
of the Premises or any interest in this Lease by the exercise of any
governmental power, whether by legal proceedings or otherwise., by any entity or
individual having the power of condemnation (any of the preceding a
“Condemnor”), or a voluntary sale or transfer by Landlord to any Condemnor,
either under threat of condemnation or while legal proceedings for condemnation
are pending (any of the preceding, a “Condemnation”), then this paragraph
applies. A temporary Condemnation of all or any part of the Premises for less
than 180 days does not constitute a Condemnation under this paragraph, but the
Basic Monthly Rent is abated as to the portion of the Premises affected during
the temporary Condemnation. If the Condemnation is of the entire Premises, then
this Lease terminates on the date the Condemnor takes possession of the Premises
(the “Date of Condemnation”). If the Condemnation is of some, but not all, of
the Premises, then this Lease remains in effect, except that, if the remaining
portion of the Premises is rendered unsuitable for Tenant’s continued use of the
Premises, as reasonably determined by Tenant, then Tenant may elect to terminate
this Lease by so notifying Landlord in writing (the “Termination Notice”) within
30 days after the date that the nature and extent of the Condemnation have been
determined. Such termination becomes effective on the earlier of (i) the date
that is 30 days after the Termination Notice, and (ii) the Date of Condemnation.
If Tenant does not give Landlord the Termination Notice within the 30-day
period, then all obligations of Tenant under this Lease remain in effect, except
that (unless the Premises are restored as set forth below) Basic Monthly Rent
will prospectively be reduced by the ratio of (a) the area of the Premises taken
to (b) the area of the Premises immediately before the Date of Condemnation.
Notwithstanding anything to the contrary in this paragraph, if within 20 days
after Landlord’s receipt of the Termination Notice Landlord notifies Tenant that
Landlord at its cost will add to the remaining Premises so that the area of the
Premises will be substantially the same after the Condemnation as they were
before the Condemnation, and Landlord commences the restoration promptly and
completes it within 180 days after Landlord so notifies Tenant, then all
obligations of Tenant under this Lease remain in effect, except that Basic
Monthly Rent shall be abated or reduced during the period from the Date of
Condemnation until the completion of such restoration by the ratio of (A) the
area of the Premises taken to (B) the area of the Premises immediately before
the Date of

- 17 -

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

 

Condemnation. Unless Landlord restores the Premises pursuant to the preceding
sentence, or unless Tenant gives Landlord the Termination Notice within the
relevant 30-day period, Tenant at its sole cost shall accomplish any restoration
required by Tenant to use the Premises. All compensation, sums, or anything of
value awarded, paid, or received on a total or partial Condemnation (the
“Award”) belongs to and must be paid to Landlord (except as provided below).
Tenant has no right to any part of the Award, and Tenant hereby assigns to
Landlord all of Tenant’s right, title, and interest in and to any part of the
Award, except that Tenant may receive from the Award any sum paid expressly to
Tenant from the Condemnor for Tenant’s loss of Tenant’s Personal Property,
Equipment, and relocation costs. Landlord and Tenant waive the provisions of any
statute (including California Code of Civil Procedure Section 1265.130 or any
successor statute) that allows Landlord or Tenant to petition the applicable
court to terminate this Lease in the event of a partial taking of the Premises.
     21. Assignment and Other Transfers. Without Landlord’s prior written
consent, which may not unreasonably be withheld, none of the following may occur
(or be permitted by Tenant to occur), voluntarily, involuntarily, by operation
of law, or otherwise (any of the following, a “Transfer”): any assignment,
sublease, disposition, sale, concession, license, mortgage, encumbrance,
hypothecation, pledge, collateral assignment, or other transfer, by Tenant of
this Lease, any interest in this Lease, or all or any portion of the Premises.
No Transfer releases or discharges Tenant from any liability, whether past,
present, or future, under this Lease and Tenant continues to remain primarily
liable under this Lease (and Tenant shall execute a guaranty of the transferee’s
obligations in form and substance satisfactory to Landlord [a “Lease
Guaranty"]). Tenant irrevocably assigns to Landlord, as security for Tenant’s
obligations under this Lease, all rent and other amounts from any Transfer, and
landlord, as assignee and as special attorney-in-fact for Tenant, or a receiver
for Tenant appointed on Landlord’s application, may collect such rent and other
amounts and apply them toward Tenant’s obligations under this Lease; except
that, unless Tenant defaults under this Lease, Tenant may collect such rent and
other amounts. Tenant shall promptly reimburse Landlord for Landlord’s
reasonable costs (less any payment made by Tenant with Landlord as set forth
above) of reviewing, consenting to, rejecting or consummating any proposed
Transfer, including reasonable attorneys’ fees. Tenant shall promptly pay to
Landlord one-half of all rents and other consideration, of whatever nature,
payable by the transferee (or receivable by Tenant) pursuant to any Transfer,
which exceeds (1) if a sublease of a portion of the Premises, the portion of the
Basic Monthly Rent that is allocable to the portion of the Premises subleased
(such allocation based on the area of the portion subleased), or (2) if any
other Transfer, the Basic Monthly Rent, in each case after deduction of all of
Tenant’s reasonable Transfer expenses (including leasing commissions, attorney’s
fees and tenant improvements).
          Any provision in this Lease to the contrary notwithstanding,
Landlord’s consent is not 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 the original Tenant
executing this Lease, (b) to any entity resulting from the merger, consolidation
or other reorganization with the original Tenant executing this Lease, whether
or not Tenant is the surviving entity or (c) to any person or legal entity which
acquires all or substantially all of the assets or stock of the original Tenant
executing this Lease (each of the foregoing, a “Tenant Affiliate”); provided
that before the transfer is effective, (x) the Tenant Affiliate must assume, in
full, the obligations of Tenant under this Lease and Tenant shall execute a
Lease Guaranty, (y)

- 18 -

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

 

Landlord shall be given advance written notice of the transfer, and (z) the use
of the Premises by the Tenant Affiliate must be as set forth in this Lease. For
purposes of this Article 21, a public offering of Tenant stock is a Permitted
Transfer and the term “control” means the power to direct or cause the direction
of all management, affairs and policies of a person or entity.
     22. Access by Landlord. Landlord and any of Landlord’s agents or employees
may enter the Premises at all reasonable times, during normal business hours if
feasible under the circumstances, and after reasonable notice, if feasible under
the circumstances, (i) to determine whether the Premises are in good condition
and whether Tenant is complying with its obligations under this Lease, (ii) to
do any necessary maintenance or make any restoration to the Premises that
Landlord has the right or obligation to perform, (iii) to serve, post, or keep
posted any notices required or allowed under this Lease, (iv) to post “for sale”
or “for rent” or “for lease” signs, (v) to show the Premises to brokers, agents,
prospective buyers, prospective tenants (during the last six months of the
Term), or other persons interested in a listing of, financing, purchasing, or
occupying the Premises, (vi) to review Tenant’s Hazardous Materials handling,
confirm chemical inventory list, and otherwise inspect the Premises for
Hazardous Materials contamination or potential contamination, including an
environmental audit of the Premises (the costs of which will be borne by Tenant
whenever (a) they reveal any contamination, chemical or environmental
irregularities in violation of Applicable Regulations, and (b) they follow an
uncured default by Tenant under this Lease after the applicable cure period),
and (vii) to shore the foundations, footings, and walls of the Project, and to
erect scaffolding and protective barricades around and about the Project and
Premises, but not so as to prevent entry to the Premises, and to do any other
act or thing necessary for the safety or preservation of the Premises or Project
if any excavation or other construction is undertaken or is about to be
undertaken on any adjacent property or nearby street. In the event of an
emergency Landlord may enter the Premises, at any time, without prior notice to
Tenant. Landlord’s rights under this paragraph extend, with Landlord’s consent,
to the owner of adjacent property on which excavation or construction is to take
place and the adjacent property owner’s agents, employees, officers, and
contractors, Landlord will not be liable for any inconvenience, disturbance,
loss of business, nuisance, or other damage arising out of any entry on the
Premises as provided in this paragraph except damage resulting directly from the
grossly negligent acts of Landlord or Landlord’s Invitees. Tenant will not be
entitled to any abatement or reduction of rent because of the exercise by
Landlord of any rights under this paragraph.
     23. Indemnity and Exemption of Landlord from Liability. Tenant shall
defend, indemnify, and hold harmless Landlord and Landlord’s agents, affiliates,
owners, employees, and independent contractors (collectively, “Landlord
Indemnitees”) against all Claims (as defined below) and all costs, expenses, and
attorneys’ fees incurred in the defense or handling of any such Claims or any
action or proceeding brought on any of such Claims. For purposes of this Lease,
“Claims” means all liabilities, damages, losses, costs, expenses, reasonable
attorneys’ fees, and claims (except to the extent they result from Landlord’s
grossly negligent acts or willful misconduct) arising from or which seek to
impose liability under or because of (i) Tenant’s or Tenant’s Invitees’ use of
the Premises or Project, (ii) the conduct of Tenant’s business, (iii) any
activity, work, or things done, permitted, or suffered by Tenant or any of
Tenant’s Invitees in or about the Premises, Project or elsewhere, (iv) any
breach or default in the performance of any obligation to be performed by Tenant
under this Lease, (v) any negligence of Tenant or any of Tenant’s Invitees, or
(vi) any event, act or omission arising on, out of, under or above the

- 19 -

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

 

Premises during the Term, except to the extent any of the foregoing is caused by
Landlord’s gross negligence or willful misconduct. Except to the extent caused
by Landlord’s grossly negligent acts or willful misconduct, Tenant assumes all
risk of, Tenant waives all claims against all Landlord Indemnitees in respect
of, and no Landlord Indemnitee is liable for, any of the matters set forth above
in this paragraph or any of the following: injury to Tenant’s business, loss of
income from such business, or damage or injury to the goods, wares, merchandise,
or other property or the person of Tenant, Tenant’s Invitees, or any other
persons in, on, or about the Project, whether such damage, loss, or injury is
caused by or results from criminal acts, fire, steam, electricity, gas, water,
rain, the breakage, leakage, obstruction or other defects of pipes, sewer lines,
sprinklers, wires, appliances, plumbing, air-conditioning or lighting fixtures,
or any other cause, conditions arising about the Premises, or other sources or
places, and regardless of whether the cause of such damage, loss, or injury or
the means of repairing such damage, loss, or injury is inaccessible to Tenant.
“Claims” also includes those arising from or relating to: (i) any discharges,
releases, or threatened releases of noise, pollutants, contaminants, herbicides,
pesticides, insecticides, or hazardous or toxic wastes, substances, or
materials, or any other chemicals or substances which are regulated by any
governmental agency or are harmful to human health (any of the preceding a
“Hazardous Material”) into ambient air, water, or land by Tenant or Tenant’s
Invitee’s, or otherwise from, on, under, or above the Premises after the
Commencement Date or caused by Tenant or Tenant’s Invitee on, under, around or
above the Project, (ii) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or hazardous or toxic wastes, substances, material, by Tenant or
Tenant’s Invitees, or otherwise from, on, or under, the Premises after the
Commencement Date or caused by Tenant or Tenant’s Invitee on, under, around or
above the Project, or (iii) a violation of any environmental law or regulation
on, under, or above the Premises after the Commencement Date or caused by Tenant
or Tenant’s Invitee on, under, around or above the Project.
     24. Hazardous Substances. Although Tenant has reviewed a Phase I
Environmental Site Assessment prepared for Dwyer Curlett by AES Due Diligence
dated September 5, 2002, (the “Entrance Assessment”) with respect to the
Premises (and Landlord makes no representation or warranty regarding such
report). Landlord shall indemnify Tenant for losses incurred by Tenant resulting
from the contamination of the Premises of Hazardous Materials to the extent
Tenant establishes that the contamination existed on the Premises before the
Commencement Date (unless caused by Tenant or Tenant’s Invitees). Neither Tenant
nor any of Tenant’s Invitees may use, manufacture, store, or dispose of any
Hazardous Materials anywhere within the Project, except in accordance with all
Applicable Regulations and as identified in Tenant’s Operations Plan, and only
if all claims, liabilities and damages arising from such Hazardous Materials are
either adequately covered (and the Hazardous Materials permitted) by Landlord’s
insurance or covered (and the Hazardous Materials permitted) by supplemental
insurance or endorsements appropriate to such use reasonably acceptable to
Landlord. If the Premises is contaminated by any Hazardous Material during the
Term or if any part of the Project is contaminated by any Hazardous Material
used by Tenant or Tenant’s Invitee, then (1) Tenant shall promptly notify
Landlord in writing of such contamination, and (2) Landlord may elect to either
(A) demand that Tenant perform all remediation required by Landlord (to
Landlord’s satisfaction and at Tenant’s sole cost, necessary to return the
Premises and Project to at least as good a condition as they were in as of the
Commencement Date, which Tenant shall immediately do upon receipt of notice from
Landlord, or (B) proceed to cause such investigation, clean-up,

- 20 -

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

 

and remediation work which Landlord reasonably deems necessary or desirable to
be undertaken, whereupon the entire cost thereof (plus a supervisory fee equal
to five percent of such cost) will be payable by Tenant to Landlord upon demand
as additional rent. If Tenant does not promptly commence and diligently pursue
such remediation, then Landlord may perform or cause to be performed such
remediation and Tenant shall immediately, upon demand, pay the cost thereof,
plus a supervisory fee in the amount of five percent of such cost. The parties
obligations and liability under this paragraph shall survive the termination of
Tenant’s tenancy and the Term of this Lease, except that nothing contained in
this paragraph shall be deemed to impose liability on Tenant for any problem
arising after the Term of this Lease or later vacation of the Premises by Tenant
or Tenant’s Invitees, provided neither Tenant nor Tenant’s Invitees contributed
to such problem during the Term of the Lease.
     25. Security Measures. Tenant acknowledges (i) that the Basic Monthly Rent
does not include the cost of any security measures for any portion of the
Premises or Project (ii) that Landlord has no obligation to provide any security
measures, (iii) that Landlord has made no representation to Tenant regarding the
safety or security of the Premises or Project, and (iv) that Tenant is solely
responsible for providing any security it deems necessary to protect itself, its
property, and Tenant’s Invitees in, on, or about the Premises and the Project.
Landlord has no duty to warn Tenant of any criminal acts or dangerous conduct
that has occurred in or near the Project, regardless of Landlord’s knowledge of
such crimes or conduct.
     26. Common Area Changes. Landlord may (i) close any of the Common Area to
the extent required in the opinion of Landlord’s legal counsel to prevent a
dedication of any of the Common Area or the accrual of any rights to any person
or to the public in and to any portion of the Common Area, (ii) close,
temporarily, any of the Common Area for maintenance purposes, (iii) designate
other property outside the boundaries of the Project to become part of the
Common Area, (iv) close off or otherwise utilize portions of the Common Area
while constructing improvements or making repairs or alterations to any portion
of the Project, and (v) make any changes to the Common Area, or any part of the
Project, including changes to buildings or other improvements, the addition of
new buildings or other improvements, or changes in the location of driveways,
entrances, exits, vehicular parking spaces, or the direction of the flow of
traffic; provided that in no event shall Landlord reduce the number of parking
spaces available to Tenant by more than 5.0% (but no such percentage limit
applies if the reduction results from the need to comply with Applicable
Regulations) or take any actions that will materially impact Tenant’s use of the
Common Area. Landlord, as owner of the Project, reserves the right from time to
time, to use portions of the Common Area for, among other things, entertainment,
advertising, displays, the leasing of kiosks, or such other uses, commercial or
otherwise, so long as such uses do not materially adversely affect Tenant’s use
of the Premises.
     27. Subordination and Attornment. This Lease and Tenant’s rights under this
Lease are subject and subordinate to any mortgage, deed of trust, ground lease,
or underlying lease (and to all renewals, modifications, consolidations,
replacements, or extensions thereof), now or hereafter affecting the Premises.
The provisions of this paragraph are self-operative, and no further instrument
of subordination is required. In confirmation of such subordination, however,
Tenant shall promptly execute and deliver any instruments that Landlord, any
Lender, or the lessor under any ground or underlying lease, may request to
evidence such subordination.

- 21 -

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

 

Notwithstanding the preceding provisions of this paragraph, if any ground lessor
or Lender elects to have this Lease prior to the lien of its ground lease, deed
of trust, or mortgage, and gives written notice thereof to Tenant, then this
Lease is deemed to be prior to the lien of such ground lease or mortgage and
such ground lease, deed of trust, or mortgage shall be deemed to be subordinate
to this Lease, and thereafter if such Lender or lessor succeeds to the rights of
Landlord under this Lease, whether by foreclosure, deed in lieu of foreclosure
or otherwise, then (i) such successor landlord will not be subject to any
offsets or defenses which Tenant might have against Landlord, (ii) such
successor landlord will not be bound by any prepayment by Tenant of more than
one month’s installment of rent, (iii) such successor landlord will not be
subject to any liability or obligation of Landlord except those arising after
such succession, (iv) Tenant shall attorn to and recognize such successor
landlord as Tenant’s landlord under this Lease, (v) Tenant shall promptly
execute and deliver any instruments that may be necessary to evidence such
attornment, provided the same is in a commercially reasonable form and (vi) on
such attornment, this Lease shall continue in effect as a direct lease between
such successor landlord and Tenant. Within ten days after Landlord’s request,
Tenant shall execute and deliver a Subordination, Non-Disturbance, and
Attornment Agreement (“SNDA”) in the applicable Lender’s standard form.
Conversely, at Tenant’s request, Landlord shall diligently seek an SNDA from its
Lender(s).
     28. Estoppel Certificates. Within 10 days after notice from Landlord,
Tenant shall execute and deliver to Landlord, a certificate stating (i) that
this Lease is unmodified and in full force and effect, or in full force and
effect as modified, and stating all modifications, (ii) the then-current Basic
Monthly Rent, (iii) the dates to which Basic Monthly Rent has been paid in
advance, (iv) the amount of any security deposit, prepaid rent or other payment
constituting rent which has been paid (including Operating Expenses),
(v) whether or not Tenant or Landlord is in default under this Lease and whether
there currently exist any defenses or rights of offset under the Lease, and
(vi) such other matters as Landlord shall reasonably request. Tenant’s failure
to deliver the certificate within the 10-day period shall be conclusive upon
Tenant for the benefit of Landlord, and any successor in interest to Landlord,
any Lender or proposed Lender, and any purchaser of the Premises that, except as
may be represented by Landlord, this Lease is unmodified and in full force and
effect, no rent has been paid more than 30 days in advance, and neither Tenant
nor Landlord is in default under this Lease. Tenant irrevocably constitutes and
appoints Landlord as its special attorney-in-fact to execute and deliver such
certificate to any third party if Tenant fails to deliver such certificate
within the 10-day period.
     29. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord in the event of any default by Tenant shall impair such right or remedy
or be construed as a waiver. The receipt and acceptance by Landlord of
delinquent rent does not constitute a waiver of any default other than the
particular rent payment accepted. Landlord’s receipt and acceptance from Tenant,
on any date (the “Receipt Date”), of an amount less than the amount due on such
Receipt Date, or to become due at a later date but applicable to a period before
the Receipt Date, does not release Tenant of its obligation (i) to pay the full
amount due on such Receipt Date or (ii) to pay when due the full amount to
become due at a later date but applicable to a period before such Receipt Date.
No act or conduct of Landlord, including the acceptance of the keys to the
Premises, constitutes an acceptance by Landlord of the surrender of the Premises
by Tenant before the Expiration Date. Only a written notice from Landlord to
Tenant stating Landlord’s election to terminate Tenant’s right to possession of
the Premises constitutes

- 22 -

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

 

acceptance of the surrender of the Premises and accomplishes a termination of
this Lease. Landlord’s consent to or approval of any act by Tenant requiring
Landlord’s consent or approval may not be deemed to waive or render unnecessary
Landlord’s consent to or approval of any other or subsequent act by Tenant. Any
waiver by Landlord of any default must be in writing and does not constitute a
waiver of any other default concerning the same or any other provision of this
Lease. Tenant waives any rights granted to Tenant under California Code of Civil
Procedure Section 1179, California Civil Code Section 3275, and any successor
statute(s). Tenant represents and warrants that if Tenant breaches this Lease
and, as a result, this Lease is terminated, Tenant will not suffer any undue
hardship as a result of the termination and, during the Term, will make such
alternative or other contingency plans to provide for its vacation of the
Premises and relocation in the event of such termination. Tenant acknowledges
that Tenant’s waivers set forth in this paragraph are a material part of the
consideration for Landlord’s entering into this Lease and that Landlord would
not have entered into this Lease in the absence of such waivers.
     30. Brokers. Tenant represents that no real estate broker, agent, finder,
or other person is responsible for bringing about or negotiating this Lease
except for the Broker and neither Landlord nor Tenant has dealt with any real
estate broker, agent, finder, or other person, relative to this Lease in any
manner, other than the Broker. Each party shall defend, indemnify, and hold
harmless the other party against all liabilities, damages, losses, costs,
expenses, attorneys’ fees and claims arising from any claims that may be made
against the indemnified party by any real estate broker, agent, finder, or other
person (other than as set forth above), alleging to have acted on behalf of or
to have dealt with the indemnifying party. Landlord shall compensate Broker in
accordance with a separate written agreement between Landlord and the Broker.
     31. Easements. Landlord may from time to time grant such easements, rights
and dedications, and cause the recordation of parcel maps, easement and
operating agreements, and restrictions affecting the Premises or Project so long
as such actions do not unreasonably interfere with Tenant’s use of the Premises
or Project or increase Tenant’s obligations under this Lease. Tenant shall
promptly sign any documents or instruments to accomplish the foregoing upon
request by Landlord. Tenant irrevocably appoints Landlord as Tenant’s special
attorney-in-fact to execute and deliver such documents or instruments on behalf
of Tenant if Tenant refuses or fails to do so.
     32. Limitations on Landlord’s Liability. If Landlord is in default of this
Lease, and as a consequence Tenant recovers a money judgment against Landlord,
such judgment shall be satisfied only out of the proceeds of sale received upon
execution of such judgment and levy against the right, title, and interest of
Landlord in the Project, and out of rent or other income from the Project
receivable by Landlord or out of the consideration received by Landlord from the
sale or other disposition of all or any part of Landlord’s right, title, and
interest in the Project. The foregoing limitation shall not apply to Landlord’s
misappropriation of the Security Deposit. Neither Landlord nor Landlord’s
affiliates, members, managers, shareholders, officers, directors, agents, or
employees shall be personally liable for any deficiency. Tenant’s rights to
pursue Landlord’s interest in the Project arise only after a judgment is entered
in the applicable tribunal against Landlord. Tenant waives any right to record a
lis pendens against any portion of the Premises. In the event of an alleged
default by Landlord under this Lease, Tenant may in no

- 23 -

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

 

event offset its rent, or perform Landlord’s obligations (except in an
emergency), or deduct any amounts from Tenant’s rental obligations under this
Lease; Tenant’s Sole remedies are to bring an appropriate action for specific
performance against Landlord or to sue Landlord for damages, and only after
giving Landlord written notice and a reasonable period of time within which to
cure its default.
     33. Sale or Transfer of Premises. If Landlord sells or transfers any
portion of the Premises, Landlord, on consummation of the sale or transfer,
shall be released from any liability thereafter accruing under this Lease. If
any security deposit or prepaid rent has been paid by Tenant, Landlord may
transfer the security deposit or prepaid rent to Landlord’s
successor-in-interest and on such transfer Landlord shall be discharged from any
further liability arising from the security deposit or prepaid rent.
     34. Quitclaim Deed. Tenant shall execute and deliver to Landlord on the
Expiration Date or earlier termination of this Lease, promptly on Landlord’s
request, a quitclaim deed to the Premises and Project, in recordable form,
designating Landlord as transferee.
     35. No Merger. The voluntary or other surrender of this Lease by Tenant, or
a mutual cancellation of this Lease, or a termination by Landlord, shall not
work a merger, and shall, at the option of Landlord, terminate any existing
subleases or may, at the option of Landlord, operate as an assignment to
Landlord of any such subleases.
     36. Miscellaneous.
          36.1 Financial Statements. On Landlord’s written request (which may be
made no more than four times in any 12 -month period), Tenant shall promptly
furnish to Landlord, from time to time, financial statements for Tenant
certified as accurate and complete by Tenant’s CFO or CEO, reflecting Tenant’s
then current financial conditions. Such financial statements shall include a
current balance sheet and a profit and loss statement covering the most recent
12- month period available. Tenant shall cooperate with any efforts by Landlord
to obtain private credit ratings for Tenant.
          36.2 Governing Law, Venue and Jurisdiction. This Lease is governed by
and construed in accordance with the laws of the State of California,
irrespective of California’s choice-of-law principles. All actions and
proceedings arising in connection with this Lease must be tried and litigated
exclusively in the State and Federal courts located in the County of San Diego,
State of California, which courts have personal jurisdiction and venue over each
of the parties to this Lease for the purpose of adjudicating all matters arising
out of or related to this Lease. Each party authorizes and accepts service of
process sufficient for personal jurisdiction in any action against it as
contemplated by this paragraph by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices set forth
in this Lease.
          36.3 Further Assurances. Each party to this Lease shall execute and
deliver all instruments and documents and take all actions as may be reasonably
required or appropriate to carry out the purposes of this Lease.
          36.4 Time of Essence. Time and strict and punctual performance are of
the essence with respect to each provision of this Lease.

- 24 -

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

 

          36.5 Attorney’s Fees. The prevailing party(ies) in any litigation,
arbitration, mediation, bankruptcy, insolvency or other proceeding
(“Proceeding”) relating to the enforcement or interpretation of this Lease may
recover from the unsuccessful party(ies) all costs, expenses, and reasonable
attorney’s fees (including expert witness and other consultants’ fees and costs)
relating to or arising out of (a) the Proceeding (whether or not the Proceeding
proceeds to judgment), and (b) any post-judgment or post-award proceeding
including, without limitation, one to enforce or collect any judgment or award
resulting from the Proceeding. All such judgments and awards shall contain a
specific provision for the recovery of all such subsequently incurred costs,
expenses, and reasonable attorney’s fees.
          36.6 Modification. This Lease may be modified only by a contract in
writing executed by the party to this Lease against whom enforcement of the
modification is sought.
          36.7 Prior Understandings. This Lease and all documents specifically
referred to and executed in connection with this Lease: (a) contain the entire
and final agreement of the parties to this Lease with respect to the subject
matter of this Lease, and (b) supersede all negotiations, stipulations,
understandings, agreements, representations and warranties, if any, with respect
to such subject matter, which precede or accompany the execution of this Lease.
          36.8 Interpretation. Whenever the context so requires in this Lease,
all words used in the singular may include the plural (and vice versa) and the
word “person” includes a natural person, a corporation, a firm, a partnership, a
joint venture, a trust, an estate or any other entity. The terms “includes” and
“including” do not imply any limitation. No remedy or election under this Lease
is exclusive, but rather, to the extent permitted by applicable law, each such
remedy and election is cumulative with all other remedies at law or in equity.
“Applicable Regulations” means all of the applicable laws and regulations and
covenants, conditions and restrictions governing the Premises (but Landlord will
not vote for or consent to any new or modified covenants, conditions or
restrictions governing the Premises that materially impact Tenant, without first
obtaining Tenant’s prior written consent). The paragraph headings in this Lease:
(a) are included only for convenience, (b) do not in any manner modify or limit
any of the provisions of this Lease, and (c) may not be used in the
interpretation of this Lease. All provisions, whether covenants or conditions,
to be performed or observed by Tenant shall be deemed to be both covenants and
conditions.
          36.9 Partial Invalidity. Each provision of this Lease is valid and
enforceable to the fullest extent permitted by law. If any provision of this
Lease (or the application of such provision to any person or circumstance) is or
becomes invalid or unenforceable, the remainder of this Lease, and the
application of such provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, are not affected by such invalidity
or unenforceability.
          36.10 Notices. Each notice and other communication required or
permitted to be given under this Lease (“Notice”) must be in writing. Notice is
duly given to another party upon: (a) hand delivery to the other party,
(b) receipt by the other party when sent by facsimile to the address and number
for such party set forth in Article 2 (provided, however, that the Notice is not
effective unless a duplicate copy of the facsimile Notice is promptly given by
one of the other methods permitted under this paragraph), (c) three business
days after the Notice has been

- 25 -

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

 

deposited with the United States postal service as first class certified mail,
return receipt requested, postage prepaid, and addressed to the party as set
forth in Article 2, or (d) the next business day after the Notice has been
deposited with a reputable overnight delivery service, postage prepaid,
addressed to the party as set forth in Article 2 with next-business-day delivery
guaranteed, provided that the sending party receives a confirmation of delivery
from the delivery-service-provider. Each party shall make a reasonable, good
faith effort to ensure that it will accept or receive Notices to it that are
given in accordance with this paragraph. A party may change its address for
purposes of this paragraph by giving the other party(ies) written notice of a
new address in the manner set forth above.
          36.11 Drafting Ambiguities. Each party to this Lease and its legal
counsel have reviewed and revised this Lease. The rule of construction that
ambiguities are to be resolved against the drafting party or in favor of the
party receiving a particular benefit under an agreement may not be employed in
the interpretation of this Lease or any amendment to this Lease.
          36.12 Third Party Beneficiaries. Nothing in this Lease is intended to
confer any rights or remedies on any person or entity other than the parties to
this Lease and their respective successors-in-interest and permitted assignees.

              LANDLORD:   VPI OBERLIN I, L.P., a California limited partnership
   
 
           
 
  By:   VPI Oberlin GPI, L.L.C., a California limited liability company, its
sole general partner    
 
           
 
  By:   /s/ Daniel J. Ryan
 
Daniel J. Ryan, President    
 
            TENANT:   PHENOMIX CORPORATION, a Delaware corporation    
 
           
 
  By:   /s/ Chris Burnley
 
Chris Burnley, Chief Business Officer    
 
           
 
  By:   /s/ Julie Rayle
 
Julie Rayle, Vice President, Assistant Secretary, and Treasurer    

- 26 -

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

 

Exhibit “A-1” — The Project
Lots 32 and 33 of Lusk Industrial Park Unit No. 1, in the City of San Diego,
County of San Diego, State of California, according to Map thereof No. 9694,
filed in the Office of the County Recorder of San Diego County, June 27, 1980.
EXCEPTING THEREFROM all coal, oil, gas, petroleum and other hydrocarbon
substances in and under such property.

- A-1-1 -

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

 

Exhibit “A-2” — Landlord’s Work
     Landlord, at its sole cost and expense, shall cause improvements to be made
to the Project in two phases (collectively “Landlord’s Work”). The first phase
of Landlord’s Work (“Phase 1”) includes the majority of Landlord’s Work,
consisting of the general office and lab space depicted on the attached
Exhibit C (the “Phase 1 Floor Plan”) and the improvements described on the
attached Exhibit D (the “Phase 1 Specifications”). The second phase of
Landlord’s Work is construction of a vivarium (the “Vivarium Phase”) in
accordance with the. floor plan depicted on the attached Exhibit E (the
“Vivarium Floor Plan”) and the improvements described on the attached Exhibit F
(the “Vivarium Specifications”). Landlord’s Work is intended to provide Tenant
with a “turn-key” facility such that upon Tenant taking possession of the
Premises with the applicable phase of Landlord’s Work completed, a tenant would
be able to conduct business in the Premises without further modifications to the
improvements at the Premises (other than installation of personal property,
equipment., and trade fixtures); provided, however, the items identified in
Exhibits C, D, E, or F as “excluded” are not to be included in Landlord’s Work
(and if Tenant requests the inclusion of any such items, or any other items not
explicitly identified on such exhibits as being included in the applicable
portion of Landlord’s Work, such inclusion constitutes a Tenant-requested change
to Landlord’s Work). Tenant may request changes to Landlord’s Work that will not
result in delay of more than 30 days to Substantial Completion of Landlord’s
Work, and Landlord may not unreasonably withhold its consent to such changes
(but any resulting delay, even if less than 30 days, constitutes Tenant Delay).
If such changes are requested, Landlord shall provide Tenant with an estimate of
the cost of the changes as soon as possible. Within one week after receiving
Landlord’s estimate, Tenant may retract its requested change, in which case
Landlord will proceed with Landlord’s Work and all delay, if any, resulting from
the request will be Tenant Delay (but the foregoing is not intended to imply
that any request for a change will necessarily result in a stoppage or delay of
Landlord’s Work); otherwise, if Landlord does not receive Tenant’s retraction
within one week after providing Tenant the estimate for the increased costs (or,
if before such deadline Tenant waives its rights to retract). Landlord shall
proceed with Landlord’s Work as modified by the requested change, in which case
Tenant will be responsible for the increased costs, if any, incurred by Landlord
for such changes and Tenant shall pay such excess directly to Landlord within
one week after Landlord’s written request for payment; provided, however, Tenant
may elect in writing within that one-week period to require Landlord to
contribute such excess costs (including any TI Overage described below) up to an
aggregate of $100,000.00 (the “Additional Allowance”), in which case the Basic
Monthly Rent will be increased as described above. In approving or disapproving
of Tenant-requested changes to Landlord’s Work, Landlord may take into account
the effect of such changes on the future marketability of the Premises (whether
independently or integrated with the balance of the Building).
     Within 30 days after the date of this Lease, Landlord shall provide Tenant
for its review and approval detailed mechanical, electrical, and plumbing plans
(“MEP Plans”) for Phase 1 of Landlord’s Work. Tenant has five days after its
receipt of the MEP Plans to disapprove of them (which disapproval may only be
made if Tenant establishes that the MEP Plans do not meet the requirements
necessary to serve the equipment contemplated by Exhibits C anti D). If Tenant
disapproves of the MEP Plans, Landlord shall diligently work revising the MEP
Plans to comport with Tenant’s needs as indicated on the attached Exhibits C and
D.

- A-2-1 -

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

 

     Tenant understands that its choice for equipment and utility location plan
for the vivarium may affect the scope of the Vivarium Phase of Landlord’s Work
contemplated by Exhibits E and F (For example, Tenant may select equipment that
requires utilities exceeding the capacity provided for in the attached
Exhibit F.) Tenant shall provide Landlord with a derailed equipment list and
utility location plan (identifying the location and nature of ionized water
service, telephone and data, nitrogen, compressed air, vacuum and electrical
outlets) for the vivarium as soon as possible, but by no later than August 14,
2003. Landlord shall then submit the equipment list and utility plan to
Landlord’s engineers and design professionals, and ultimately to the applicable
trade contractors to prepare for permitting and construction of the Vivarium
Phase of Landlord’s Work. Landlord shall require the trade contractors to
provide a written bid specifically identifying the difference between the cost
charged by such contractor to fulfill the specifications under Exhibits E and F
versus any modifications or enhancements made necessary by Tenant’s equipment
list or utility plan. The aggregate of such additional costs, plus a 10%
supervisory fee, constitutes a“T1 Overage”. Landlord shall notify Tenant of the
TI Overage as soon as reasonably available and tenant shall promptly pay
Landlord an amount equal to the TI Overage. Promptly after receiving such
payment, Landlord shall diligently proceed to obtain the governmental permits
necessary to construct the Vivarium Phase of Landlord’s Work (the “Vivarium
Permit”).

- A-2-2 -

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

 

EXHIBIT B
[MAP]

- B-1 -

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

 

Exhibit “D” — Phase 1 Specifications
Landlord’s Work is intended to include easily divisible, generic (for the
industry) improvements reflected on the floor plan attached to the Lease as
Exhibit C (the “Lab/Office Floor Plan”), reasonably necessary for Tenant and
future biotechnology and chemistry tenants to conduct their businesses on the
Premises (excluding specialized improvements and equipment not commonly used by
biotechnology or chemistry tenants in general for office and generic (for the
industry) laboratory space). In case of omissions, spec will generally conform
to same as Kemia’s. Landlord’s Work will include only those items depicted on
the Floor Plan and described below:

1.   STATE AND LOCAL CODE COMPLIANCE

All design and construction shall conform to all Federal, State and Local
building codes and ordinances to include but not be limited to the most current
version of the following documents.

  1.   1997 Uniform Building Code     2.   2001 California Building Code     3.
  2001 Uniform Plumbing Code     4.   2001 Uniform Mechanical Code     5.   1999
National Electrical Code     6.   2000 Uniform Fire Code     7   1994 ADA
Standards for Accessible Design     8.   2001 Title 24, California’s Energy
Efficiency Standards     9.   California Division of Occupational Safety and
Health     10.   San Diego Municipal Code

2.   PLANNING

Project planning will generally encompass a multi-tenancy subject to Landlord’s
discretion. General space planning and utility segregation arrangements shall be
incorporated into the design for demisability.

3.   ARCHITECTURAL

  A.   FLOORING/CASEWORK

     
General Requirements
  Moisture vapor emission testing (VET) shall be conducted by a qualified
testing agency of concrete slabs scheduled to be covered with a flooring
material. Any areas of the concrete slab which exceed the finish flooring
manufacturer/installer warranty limits for allowable moisture vapor emission
will be properly treated with vapor retarders such as “Floor Seal Technology and
Alkalinity Control System Applications” or similar applications to obtain
warranty.

- D-1 -

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

 

     
Lobby/Reception
  Ceramic/stone Tile or other similar hard surface material.
 
   
Office and Admin
  Carpeted with a minimum 28-oz./yd2 or better tile or glue-down product
throughout with a 4” rubber wall base. Carpet pads may be used in areas where
daily cart and hand-truck traffic is not anticipated.
 
   
Laboratories
  VCT with multiple colors of same product used throughout.
 
   
Glasswash
  Epoxy flooring.
 
   
Tissue Culture &
Equipment
  VCT with 4” rubber base.
 
   
Facility Support and Storage Areas
  VCT with multiple colors of same product used throughout.
 
   
Casework
  Metal casework in chemistry laboratory with Trespa counter tops. Chem surf
over plastic laminates or better in biology and Tissue Culture laboratory.
Plastic laminate in break room

  B.   WALL CONSTRUCTION

     
Non-Load Bearing
Rated
  Rated walls, ceilings and other enclosures shall be constructed of “Type-X”
gypsum drywall board (thickness and number of layers per code) on metal studs
sized appropriately by structural calculations for the height and width and
class of wall required. “Shaft-Wall” may also be utilized where allowed by local
building officials.
 
   
Non-Load Bearing
Non-Rated
  Non-Rated walls, ceilings and other enclosures shall be constructed of 5/8”
thick gypsum drywall over 20 gauge by 3-5/8” minimum width metal studs
 
   
 
  Non-rated Walls in Conference Rooms, Executive offices, Computer Rooms, and
other support spaces needing additional sound attenuation or ceiling grid layout
shall be constructed to underside of roof framing.
 
   
 
  At electrical room walls adjoining tenant space EMF shielding to be installed
as part of the wall systems.

- D-2 -

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

 

     
Interior Walls
Supporting Casework
or Fixtures
  All interior walls that will be used to mount casework, appliances, or
fixtures will have backing installed within the wall appropriate to support this
item’s weight and forces acting applied to it.

  C.   WALL FINISHES

     
All Areas Except Storage and Facility Support
  Wall finishes in these areas shall be a minimum of Level-3 smoothness capable
of receiving paint without texture or wall coverings.
 
   
Facility Support and Storage Areas Throughout
  Wall finishes in these areas shall be a minimum of Level-3 smoothness capable
of receiving paint.

  D.   DOORS/HARDWARE/INTERIOR WINDOWS

     
Office/Admin
  Doors shall generally be stain grade doors, 7 foot or taller. Doorframe
finish, color and hardware shall be selected by Landlord.
 
   
Laboratory Areas
  Doors shall generally be paint grade, 7 foot, solid core wood doors.
Doorframes shall be hollow metal. Door finish, frame finish, color(s) and
hardware shall be selected by Landlord
 
   
 
  Interior windows per Exhibit “C”.
 
   
Hardware
  Type-D (Heavy Duty Commercial) Schlage hardware or better approved by
Landlord.
 
   
Windows
  As shown on Exhibit “C”.

  E.   CEILINGS

     
Administrative Areas
  Ceilings in the reception area, conference area(s), and private offices shall
all be 2’ by 4’ tegular, suspended acoustical tiles in a metal T-bar.
 
   
 
  Ceilings in the other areas of the administrative areas shall be no larger
than a 2’ by 4’ suspended acoustical tiles in a metal T-bar grid set a minimum
height of ten feet above the finish floor where such minimum height is
practicable or achievable.
 
   
Laboratory Areas
  2’ by 4’ suspended vinyl roc tiles in a metal T-bar.
 
   
Cell Culture:
  Gypsum Board.

- D-3 -

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

 

     
Skylights:
  Four skylights, approximately 4’ x 4’. Two each to the Open Office (201) and
two each in the Open Tech Area (217).

4.   STRUCTURAL

The tenant may not alter or attach objects to the structural components
(foundation, slab, walls, columns, beams, purlins, etc.) of the facility in any
way before acquiring the following:

  A.   Approval by the Landlord or the Landlord’s representative.     B.  
Structural design calculations and construction documents from a Licensed
Structural Engineer in the State of California.

5.   MECHANICAL

The mechanical system will include: two (2) cooling towers and two
(2) associated pumps outside on grade; two (2) chillers and associated pumps
within an indoor chiller room; and two (2) air Handlers serving the Lab areas
for both tenants, heating hot water boilers, boiler pumps, vacuum, and air
compressor located on a structural steel platform located above the roofline.
The size, orientation and composition of the mechanical platform (the
“Mechanical Platform”) will be sufficient to hold appropriate mechanical
equipment and any future equipment.

  A.   CENTRAL PLANT

     
Laboratory Areas
  Air Handlers serving lab areas shall be manufactured by Energy Labs, or
approved equal. Unit quality level shall be consistent with a 15-year useful
life expectancy and rated at high-efficiency. Coils exposed to outdoor air shall
be copper finned or factory coated aluminum fins for marine environment. Air
Handlers shall be sized such that the units are capable of providing 100%
outside air to the space at minimum of 12 air changes per hour. All supporting
mechanical equipment (including, but not limited to) piping, ductwork, coil
size, chilled water capacity, heating water capacity, and controls shall be
sized and installed accordingly. All units shall be controlled via Direct
Digital Controls.
 
   
Air Handler, Piping, and Duct
  Sizing shall all be calculated and designed to satisfy typical laboratory
heating and cooling demands plus a margin of 15%.
 
   
Central Plant
Equipment
  The chilled water system shall consist of a water-cooled chiller/chiller plant
having the following items:
 
   
 
  1. Two (2) CARRIER water cooled, screw chillers of 165 tons each;
 
   
 
  2. Two (2) 200-ton EVAPCO cooling towers with two (2) pumps.

- D-4 -

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

 

  B.   PACKAGING SYSTEM

     
Administrative Area
  Package heat pumps/AC units shall be manufactured by Trane, Carrier or
approved equivalent. Unit quality level shall be consistent with a 15-year
useful life expectancy. Structural analysis and upgrades shall be made
accordingly. All units shall be rated at high efficiency (SEER = 12.00 or
higher).
 
   
IT/Phone Room
  Rooftop package cooling unit to be connected to emergency power and operate
24/7 genset/Emergency power by Tenant (see note 7.A.5.)
 
   
Package Units
  Controlled by programmable thermostats.

6.   PLUMBING SERVICES

All plumbing fixtures throughout the building will tie in directly to the City
of San Diego sanitary sewer system. Caustic or acidic waste is not allowed to be
disposed of down any fixtures (e.g. coffee grounds, undiluted DI water, etc.).

  A.   Bulk N2 (Shared between tenants)

1. Landlord shall specify outdoor location and provide housekeeping pad per
tenant provided N2 tank.
2. Size of N2 tank shall not exceed 4-0diameter.
3. Point of use filtering is not included.
4. Piping for N2 service shall be as follows: Point of connection into building
from tenant provided N2 tank and copper piping and connections to fume hood
turrets and lab bench turrets where indicated in plan, lab benches.

  B.   D1 (Shared between tenants)

1. DI piping shall provide service to fixtures as indicated in plan.
2. Shared with Kemia and to be worked out with Kemia.

  C.   Compressed air (Shared between tenants)

1. Compressor will be located on Mechanical Platform

- D-5 -

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

 

2. Compressed air will be plumbed to fume hood turrets.
3. System will provide clean, dry compressed air.
4. Point of use filtering is not included.
5. Shared with Kemia and to be worked out with Kemia.

  D.   House Vacuum (Tenant Dedicated) Vacuum will be located on rooftop.     E.
  Natural Gas (Metered Separately), if commercially reasonable In biology
laboratory

7.   ELECTRICAL

  A.   POWER

1. Each Tenant area shall be wired with its pro rata amperage of the total
service. Electrical service shall be separately metered to accommodate the
building being divided into 2 tenant suites.
2. Total Electrical design load shall be designed to code, not exceed 60% of
total capacity (at design or connected loads ) and be easily expandable to
create additional capacity.
3. Standard minimum for convenience outlets for normal office use throughout is
4 plugs.
4. 2-voice/data drop per office/cubicle/room occupant in office, administrative
and support areas.
5. Exhaust fans and air handlers as shown on MEP drawings will be wired for
emergency power and stubbed with a transfer switch on a pad at the northeast
corner of site. Emergency Generator by Tenant not to exceed 300KW. Enclosure,
raceway, and conductor by Landlord (conductors from Genset to ATS should be by
tenant as sizing will based on Genset size).
6. Each of the eight (8) fume hoods being supplied shall have two (2) 20-amp
circuit terminated at two (2) duplex receptacles at each side of the
superstructure for a total of four (4), and another 20-amp circuit for the
vacuum cabinet beneath, and an additional 20-amp circuit will be installed and
terminated for the fan and light as supplied by the manufacturer of the fume
hood.
7. Each of the nine (9) lab benches being supplied will have four (4) 20-amp
circuits, eight (8) quad receptacle devices and one (1) duplex at the end of the
bench. Additionally, a total of two (2) duplex outlets at kneeholes beneath the
bench.

- D-6 -

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

 

8. Electrical plug strip convenience outlets, equipment power and connection to
be provided as shown on Exhibit C. J. Box provided for systems furniture.

  B.   LIGHTING

1. Administrative Area Lighting shall be T-8 lamps with electronic ballast
mounted in T-bar grid) with skylighter-fixtures, and AB switching.
2. Administrative Area Lighting in each office or separate room shall be
individually switched with motion sensor override.
3. Open Laboratory Lighting shall consist of linear pendant fixtures (indirect),
down lights, and fume hood lighting.

8.   FIRE PROTECTION

  A.   ALARM PANEL

1. Connected to existing fire alarm control panel per code.
2. Semi-recessed sprinkler heads with chrome or white escutcheons throughout.
3. Cover plates on wall-mounted strobes shall be in accordance with Applicable
Law.
4. Fire extinguisher cabinets shall be white or brushed 626 finish.
5. CA code minimum fire, life, safety system will be provided.

9.   OTHER INCLUSIONS

1. Cold room
2. Flammable cabinets where indicated in the Hanson Drawings (Part of
Hoods/Benches)
3. Data, telephone and security wiring. Allowance of S50,000.

10.   EXCLUSIONS

1. Future fume hoods
2. Future benches
3. System furniture
4. Biosafety cabinets (Provisions by Landlord for one Thimble Connection where
requested)

- D-7 -

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

 

5. Lab equipment
6. Emergency generator- (equipment only) and wiring from emergency generator to
transfer switch.
7. Thimble connections other than provided by Landlord.

- D-8 -

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

 

EXHIBIT E
[MAP]

- E-1 -

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

 

Exhibit “F” — Vivarium Specifications
          Landlord’s Work is intended to include improvements reflected on the
floor plan attached to the Lease as Exhibit E (the “Vivarium Floor Plan”),
reasonably necessary for Tenant and future biotechnology and chemistry tenants
to conduct their businesses on the Premises. Landlord’s Work will include those
items depicted on the Vivarium Floor Plan and described below:

1.   STATE AND LOCAL CODE COMPLIANCE

All design and construction shall conform to all Federal, State and Local
building codes and ordinances to include but not be limited to the most current
version Of the following documents.

  1.   1997 Uniform Building Code     2.   2001 California Building Code     3.
  2001 Uniform Plumbing Code     4.   2001 Uniform Mechanical Code     5.   1999
National Electrical Code     6.   2000 Uniform Fire Code     7.   1994 ADA
Standards for Accessible Design     8.   2001 Title 24, California’s Energy
Efficiency Standards     9.   California Division of Occupational Safety and
Health     10.   San Diego Municipal Code

2.   ARCHITECTURAL

  A.   FLOORING/CASEWORK/BENCHES

     
General Requirements
  Moisture vapor emission testing (VET) shall be conducted by a qualified
testing agency of concrete slabs scheduled to be covered with a flooring
material. Any areas of the concrete slab which exceed the finish flooring
manufacturer/installer warranty limits for allowable moisture vapor emission
will be properly treated with vapor retarders such as “Floor Seal Technology and
Alkalinity Control System Applications” or similar applications to obtain
warranty.
 
   
All areas
  Expoxy flooring throughout.
 
   
Casework
  Metal Casework as shown on Exhibit E (no other overhead cupboards, soffits, or
additional tech spaces)

- F-1 -

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

 

     
Benches
  Locker room bench (1)

  B.   WALL CONSTRUCTION

     
Non-Load Bearing Rated
  Rated walls, ceilings and other enclosures shall be constructed of “Type-X”
gypsum drywall board (thickness and number of layers per code) on metal studs
sized appropriately by structural calculations for the height and width and
class of wall required.
 
   
Non-Load Bearing
Non-Rated
  Non-Rated walls, ceilings and other enclosures shall be constructed of 5/8”
thick gypsum drywall over 20 gauge by 3-5/8” minimum width metal studs
 
   
Interior Walls Supporting
Casework or Fixtures
  All interior walls that will be used to mount casework, appliances, or
fixtures will have backing installed within the wall appropriate to support this
item’s weight and forces acting applied to it.

  C.   WALL FINISHES

     
All Areas
  Wall finishes in these areas shall be a minimum of Level-4 smoothness capable
of receiving paint without texture or wall coverings. Paint shall be epoxy. PVC
wall bumpers at holding rooms, corridors, cage wash rooms and quarantine.

  D.   DOORS/HARDWARE

     
All Areas
  Doors shall be hollow metal, 7 foot. Doorframes shall be hollow metal. Door
finish, frame finish, color(s) and hardware shall be selected by Landlord
 
   
Hardware
  Type-D (Heavy Duty Commercial) Schlage hardware or better approved by
Landlord.

  E.   CEILINGS

     
All Areas
  Hardlids 5/8” thick gypsum drywall over 20 gauge by 3-5/8” minimum width metal
studs at 9’ AFF. Paint shall be epoxy

3.   STRUCTURAL

The tenant may not alter or attach objects to the structural components
(foundation, slab, walls, columns, beams, purlins, etc.) of the facility in any
way before acquiring the following:

  A.   Approval by the Landlord or the Landlord’s representative.

- F-2 -

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

 

B. Structural design calculations and construction documents from a Licensed
Structural Engineer in the State of California.

4.   MECHANICAL (VIVARIUM)

  A.   AIR HANDLER

The vivarium will be served by (1) dedicated, roof mounted, constant volume,
5800 CFM Energy Labs air handling unit (or a unit with capacity to provide air
changes as described in paragraph 4.F.) comprised of moisture eliminator, 95%
internal filtration, CHW coil, supply fan, fan section and will deliver 100%
outside air to the space.

  B.   EXHAUST FAN

The vivarium will be exhausted via (1) single dedicated roof mounted utility
exhaust fan (biosafety cabinets will not be exhausted).

  C.   ZONING.

All of the vivarium spaces will be comprised of (6) zones, the following five
zones will be the responsibility of the Landlord: (1) the Mice Holding and
Procedure Rooms (245 and 247), (2) the Rat Holding and Procedure Rooms (246 and
248), (3) the Quarantine Area (241), (4) the Glass cage wash Rooms (242 and
244), (5) the Gowning Vestibule (250), Receiving Room (240), Feed and Bedding
Room (243) and Toilet Room (251 within one zone.
The sixth and final zone and associated reheat coils serving Mice Holding (249),
will be paid for by the Tenant.

  D.   REHEAT COILS

Reheat coils will be provided at each of the Landlord provided individual zones
(total of 5) as required to maintain space temperature.

  E.   CONTROLS

The controls system is to be DDC and shall be tied into the existing DDC front
end controls system currently used in the building. There will be individual
temperature control for each zone (no humidity control has been provided).
System shall have trending capability.

  F.   AIR CHANGES

Air change rates will be 15 AC/HR for all Holding Rooms, Procedure Rooms,
Quarantine Room, Cagewash Room (or as required by the equipment’s heat load) and
Gowning Vestibule. Air change rates for Receiving, Feed & Bedding Rooms,
Corridor and toilet Room will be at 15 AC/HR.

- F-3 -

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

 

  G.   PRESSURIZATION

All zones shall be equipped with manual volume dampers that shall be locked into
position for balance and pressurization.

  H.   CENTRAL PLANT

All CHW and HHW services will be provided by existing chillers, cooling towers,
boilers and associated pumps through new piping utilities.

  I.   CAGEWASH ROOM

The ceiling mounted exhaust distribution serving the Cagewash Room is to be of
stainless steel composition and shall have Stainless steel ducting from the
grilles back to the main duct.

  J.   EXHAUST

The Holding Rooms shall have galvanized low wall exhaust ductwork, grilles and
filters. Point of use exhaust for necropsy tables. Duct work to be engineered
and fabricated for future carbon filter.

  K.   GENERAL UTILITIES

All ductwork shall be galvanized for both supply and exhaust air systems (except
as noted above). All mechanical piping utilities are to be either black iron or
hard drawn copper (no additional filtration it to be provided for any of the
vivarium areas; air handling unit has 95% filters).

5.   PLUMBING (VIVARIUM)

  A.   HOLDING ROOMS

Provide vacuum service to each bio-safety cabinet. (Floor drains or feed
watering system shall not be provided).

  B.   PROCEDURE ROOMS

Provide single bowl stainless steel sinks, with industrial H&C water faucets,
and individual eye wash stations O2 and CO2 piping to the fixtures as indicated
on the plan.

  C.   CAGEWASH

Currently serving the other tenant. Industrial cold & hot water to be utilized
at the scullery sink and a single floor sink is to be installed Floor drain in
room, Janitors sink to be provided. New water heater (gas fired). Recessed hose
bib for wash down. (Steam, if required will be provided by the Tenant.)

- F-4 -

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

 

  D.   Toilet Room

(1) water closet and (1) lavatory for small toilet room with industrial H&C
water faucet.

  E.   QUARANTINE ROOM

Wall mount sink with industrial H&C water faucet.

  F.   GOWNING/VESTIBULE

No plumbing services required.

  G.   FEED BEDDING & STORAGE

No plumbing services required.

  H.   CORRIDOR

No plumbing services required.

  I.   Vivarium Receiving

O2 and CO2 piping as indicated.

6.   ELECTRICAL

1. All holding and procedure rooms to have occupancy sensors which will control
a red light outside of each respective room
2. Each room to have “ring and string” for future data
3. Provide egress lighting per code
4. 2 level lighting control system with central timer and override for rooms:
241, 246, 245 and 249.
5. Room 240 vivarium reception area

  a.   2 receptacles     b.   A & B switching only

6. Room 241 Quarantine

  a.   3 receptacles

- F-5 -

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

 

7. Room 242 glass washing dirty

  a.   1 receptacle     b.   Power as required to dumping station

8. Room 244 cagewash clean/cage storage

  a.   1 receptacle GF1     b.   Power as required to autoclave     c.   Power
as required to washer     d.   Power as required to bottle filler

9. Room 245 Rat Holding

  a.   1 receptacle GFI

10. Room 246 Holding Area

  a.   6 receptacle GFI

11. Room 247 Rat Procedure

  a.   1 receptacle GFI     b.   Power at bench top for miscellaneous equipment
    c.   Power as required to down draft table

12. Room 248 Mice Procedure

  a.   1 receptacle GFI     b.   Power at bench top for miscellaneous equipment
    c.   Power as required to down draft table

13. Room 249

  a.   1 receptacle GFI

14. Power distribution
15. Room 250 tech vestibule

  a.   A & B Switching only     b.   2 receptacles

- F-6 -

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

 

  c.   Receptacles to tech desks

16. Toilets

  a.   1 receptacle     b.   one bathroom light fixture with local switch

17. Connections to mechanical equipment
18. General — Landlord to provide power and connections to the following
equipment in the vivarium as shown on Exhibit F, including:

  a.   Micro-isolators     b.   Biosafety cabinets     c.   Animal changing
stations     d.   Refrigerator     e.   Cagewash, Autoclave     f.   Down draft
tables     g.   Dumping station     h.   Bottle filler

CLARIFICATION:
With exception of vestibule and toilet areas all lighting in the vivarium shall
be Class 10000.
EXCLUSIONS:
All low voltage systems and low voltage conduit.
Telephone/data and security (except for allowance provided as part of lab/office
spec)
Anything not specifically listed above.
Handling, removal or disposal of any hazardous material is specifically excluded
and any direct or indirect costs incurred due to abatement or delay caused by
abatement schedules shall be considered to be outside the scope.

7.   FIRE PROTECTION

  A.   ALARM PANEL

- F-7 -

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

 

1. Tie into existing fire alarm control panel per code.
2. Full-recessed gasketed sprinkler heads with chrome or white escutcheons
throughout.
3. Cover plates on wall-mounted strobes shall be in accordance with Applicable
Law.
4. Fire extinguisher cabinets shall be semi-recessed white or brushed 626
finish.
5. CA code minimum fire, life, safety system will be provided.

8.   EXCLUSIONS

1. Surgery Lights;
2. The sixth and final zone and associated reheat coils serving Mice Holding
(249), will be paid for by the Tenant;
3. Lighting Control System, beyond what is specified;
4. Microisolators;
5. Changing Stations;
6. Bio-Safety Cabinets and thimble connections;
7. Animal Feed Water System, both loop and final connections;
8. Fiberglass reinforcement-in walls and ceilings;
9. Hepa Filtration;
10. Necropsy Tables;
11. Fold down tables for computer stations;
12. Air Shower;
13. Humidity Control;
14. Lockers/Shoe Storage;
15. Pass through to cell culture;
16. Micro isolator exhaust connections below ceiling;
17. Trench drains;

- F-8 -

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

 

18. Plant steam systems;
19. Lockers, Casework, etc., other than specified;
20. Animal Cages;
21, Cage Washer and all other equipment;
22. Glass washer and all other equipment;
23. Autoclave and all other equipment.

- F-9 -

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

 

Exhibit “G” — Standards for Exit Assessment
The following minimum studies and assessments to be conducted in accordance with
the applicable portions of ASTM Standards E-1527-93 and E-1528-93 for Phase I
Environmental Assessments as may be changed by applicable authority, subject to
follow-up testing if warranted by the following:
A. The following assessments and inspections:
1. “Interior and Exterior Site Assessment” consisting of a visual inspection of
all surfaces (including, without limitation, floors, walls, ceiling tiles,
benches, sinks, interior cabinets, exterior areas, and fume hoods) for signs of
contamination and deterioration. Visual inspection of all bench and hood sinks
and readily accessible drain lines for signs of deterioration, loss of integrity
and leakage. The Interior and Exterior Site Assessment shall include detailed
written documentation of all observations and dated photos to document the
existing condition thereof.
2. Visual Inspection of Wastewater Collection System piping exclusively serving
the Premises for any breaks in or degradation of such piping systems, or any
accumulated Hazardous Materials.
3. Assessment of biological waste storage unit and any hazardous or radioactive
waste storage units, including governmental disclosures and decontamination
certificates relating to the same.
4. In order to verify that there is no contamination of the laboratory hoods and
exhaust system, an inspection shall be made consisting of an inspection of the
laboratory hoods and exhaust system with detailed documentation of all
observances, including without limitation, observed solids, liquids, odors or
Hazardous Materials entrapment. Such inspection shall include inspection of the
roof area to determine the existence of any deterioration from condensation of
hazardous Materials produced by Tenant in the exhaust system which causes such
deterioration.
B. The Assessment Criteria shall also include such sampling and testing as the
consultant reasonably recommends based upon his or her observations, including
post-cleanup sampling to verify absence of Hazardous Materials.

- G-1 -

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

 

EXHIBIT B
SUBLEASED PREMISES
[MAP]

 

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

 

EXHIBIT C
FF&E
[To Be Inserted]

-3-

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

 

EXHIBIT D
CONSENT TO SUBLEASE AGREEMENT
(5871 Oberlin Drive)
     This CONSENT TO SUBLEASE AGREEMENT (this “Agreement”) is made as of
June 29, 2009, by and among VPI OBERLIN I, L.P., a California limited
partnership (“Landlord”) and PHENOMIX CORPORATION, a Delaware corporation
(“Tenant”) and ANADYS PHARMACEUTICALS, INC., a Delaware corporation
(“Subtenant”).
R E C I T A L S :
     A. Reference is hereby made to that certain Lease dated July 31, 2003,
between Landlord and Tenant (the “Lease”), for space on the ground floor (the
“Premises”) in that certain office building located at 5871 Oberlin Drive, San
Diego, California 92121 (the “Building”).
     B. Pursuant to the terms of Article 21 of the Lease, Tenant has requested
Landlord’s consent to that certain Sublease dated June 18, 2009, between Tenant
and Subtenant (the “Sublease”), with respect to a subletting by Subtenant of a
portion of the Premises, as more particularly described in the Sublease (the
“Sublet Premises”). A copy of the Sublease is attached hereto as Exhibit A.
Landlord is willing to consent to the Sublease on the terms and conditions
contained herein.
     C. All defined terms not otherwise expressly defined herein shall have the
respective meanings given in the Lease.
A G R E E M E N T :
     1. Landlord’s Consent. Landlord hereby consents to the Sublease; provided,
however, notwithstanding anything contained in the Sublease to the contrary,
such consent is granted by Landlord only upon the terms and conditions set forth
in this Agreement. The Sublease is subject and subordinate to the Lease. Except
as expressly provided herein, neither this Agreement nor the Sublease shall be
construed to modify, waive or amend any of the terms, covenants and conditions
of the Lease or to waive any breach thereof or any of Landlord’s rights or
remedies thereunder or to enlarge or increase any obligations of Landlord under
the Lease. Landlord shall not be bound by any of the terms, covenants,
conditions, provisions or agreements of the Sublease. However, Landlord agrees
to the modified insurance provisions in Section 7.10 of the Sublease as to
Subtenant only.
     2. Non-Release of Tenant; Further Transfers. Neither the Sublease nor this
consent thereto shall release or discharge Tenant from any liability, whether
past, present or future, under the Lease or alter the primary liability of the
Tenant to pay the rent and perform and comply with all of the obligations of
Tenant to be performed under the Lease (including the payment of all bills
rendered by Landlord for charges incurred by the Subtenant for services and
materials supplied to the Sublet Premises). Neither the Sublease nor this
consent thereto shall be construed as a waiver of Landlord’s right to consent to
any further subletting either by Tenant or by the Subtenant or to any assignment
by Tenant of the Lease or assignment by the Subtenant of the Sublease, or as a
consent to any portion of the Sublet Premises being used or occupied by any
other party. Landlord may consent to subsequent sublettings and assignments of
the Lease or the Sublease or any amendments or modifications thereto without
notifying Tenant nor anyone else liable under the Lease and without obtaining
their consent. No such action by Landlord shall relieve such persons from any
liability to Landlord or otherwise with regard to the Sublet Premises.
     3. Relationship with Landlord. Tenant hereby assigns and transfers to
Landlord the Tenant’s interest in the Sublease and all rentals and income
arising therefrom, subject to the terms of this Section 3. Landlord, by
consenting to the Sublease agrees that until a default shall occur in the
performance of Tenant’s obligations under the Lease, Tenant may receive, collect
and enjoy the rents accruing under the Sublease. In the event Tenant shall
default in the

 

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

 

performance of its obligations to Landlord under the Lease (whether or not
Landlord terminates the Lease), however, Landlord may, at its option, by giving
notice to Tenant, either (i) terminate the Sublease, (ii) elect to receive and
collect, directly from Subtenant, all rent any other sums owing and to be owed
under the Sublease, as further set forth in Section 3.1, below, and/or (iii)
elect to succeed to Tenant’s interest in the Sublease, and cause Subtenant to
attorn to Landlord, as further set forth in Section 3.2, below. If Landlord
elects to terminate the Sublease pursuant to section 3(i) above, Subtenant
acknowledges and agrees that Landlord shall have no liability to Subtenant as a
result thereof.
          3.1 Landlord’s Election to Receive Rents. Landlord shall not, by
reason of the Sublease, nor by reason of the collection of rents or any other
sums from the Subtenant pursuant to Section 3(ii), above, be deemed liable to
Subtenant for any failure of Tenant to perform and comply with any obligation of
Tenant, and Tenant hereby irrevocably authorizes and directs Subtenant, upon
receipt of any written notice from Landlord stating that a default exists in the
performance of Tenant’s obligations under the Lease, to pay to Landlord the
rents and any other sums due and to become due under the Sublease. Tenant agrees
that Subtenant shall have the right to rely upon any such statement and request
from Landlord, and that Subtenant shall pay any such rents and any other sums to
Landlord without any obligation or right to inquire as to whether such default
exists and notwithstanding any notice from or claim from Tenant to the contrary.
Tenant shall not have any right or claim against Subtenant for any such rents or
any other sums so paid by Subtenant to Landlord. Landlord shall credit Tenant
with any rent received by Landlord under such assignment but the acceptance of
any payment on account of rent from the Subtenant as the result of any such
default shall in no manner whatsoever be deemed an attornment by the Landlord to
Subtenant or by Subtenant to Landlord, be deemed a waiver by Landlord of any
provision of the Lease or serve to release Tenant from any liability under the
terms, covenants, conditions, provisions or agreements under the Lease.
Notwithstanding the foregoing, any payment of rent from the Subtenant directly
to Landlord, regardless of the circumstances or reasons therefor, shall in no
manner whatsoever be deemed an attornment by the Subtenant to Landlord in the
absence of a specific written agreement signed by Landlord to such an effect.
          3.2 Landlord’s Election of Tenant’s Attornment. In the event Landlord
elects, at its option, to cause Subtenant to attorn to Landlord pursuant to
Section 3(iii), above, Landlord shall undertake the obligations of Tenant under
the Sublease from the time of the exercise of the option, but Landlord shall not
(i) be liable for any prepayment of more than one (1) month’s rent or any
security deposit paid by Subtenant to Tenant, (ii) be liable for any previous
act or omission of Tenant under the Sublease or for any other defaults of Tenant
under the Sublease, (iii) be subject to any defenses or offsets previously
accrued which Subtenant may have against Tenant, or (iv) be bound by any changes
or modifications made to the Sublease without the written consent of Landlord.
In no event shall any such attornment increase the obligations or liability of
Subtenant beyond that which is contained in the Sublease and Subtenant will not
be responsible for any defaults by Tenant under the Lease.
          3.3 Roof Top Access. Subject to the term and conditions of the Lease,
Landlord agrees to allow Subtenant and Tenant access to the roof of the Building
at no additional charge for the purpose of performing maintenance and repairs to
that certain dedicated HVAC unit currently serving, as of the date hereof, the
computer room portion of the Premises and/or Sublet Premises and that certain
boiler currently serving, as of the date hereof, the dish wash/autoclave room
within the Premises and/or Sublet Premises. Tenant and Subtenant each hereby
agrees to indemnify, defend, protect and hold Landlord harmless from and against
any loss, cost, damage, liability, expense, claim, action or cause of action of
any third party, whether, foreseeable or not, resulting as a direct or indirect
consequence of the exercise by Tenant or Subtenant of its rights under this
Section 3.3 or the use of the roof of the Building. Tenant and/or Subtenant
shall retain Landlord’s designated roofing contractor to make any necessary
penetrations and associated repairs to the roof in order to preserve Landlord’s
roof warranty.
     4. General Provisions.
          4.1 Consideration for Sublease. Tenant and Subtenant represent and
warrant that there are no additional payments of rent or any other consideration
of any type payable by Subtenant to Tenant with regard to the Sublet Premises
other than as disclosed in the Sublease.

-4-

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

 

          4.2 Brokerage Commission. Tenant and Subtenant covenant and agree that
under no circumstances shall Landlord be liable for any brokerage commission or
other charge or expense in connection with the Sublease and Tenant agrees to
protect, defend, indemnify and hold Landlord harmless from the same and from any
cost or expense (including, but not limited to, attorney’s fees) incurred by
Landlord in resisting any claim for any such brokerage commission.
          4.3 Controlling Law. The terms and provisions of this Agreement shall
be construed in accordance with and governed by the laws of the State of
California.
          4.4 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their heirs, successors and assigns. As used
herein, the singular number includes the plural and the masculine gender
includes the feminine and neuter.
          4.5 Captions. The paragraph captions utilized herein are in no way
intended to interpret or limit the terms and conditions hereof; rather, they are
intended for purposes of convenience only.
          4.6 Partial Invalidity. If any term, provision or condition contained
in this Agreement shall, to any extent, be invalid or unenforceable, the
remainder of this Agreement, or the application of such term, provision or
condition to persons or circumstances other than those with respect to which it
is invalid or unenforceable, shall not be affected thereby, and each and every
other term, provision and condition of this Agreement shall be valid and
enforceable to the fullest extent possible permitted by law.
          4.7 Attorney’s Fees. If any party commences litigation against another
for the specific performance of this Agreement, for damages for the breach
hereof or otherwise for enforcement of any remedy hereunder, the parties hereto
agree to and hereby do waive any right to a trial by jury and, in the event of
any such commencement of litigation, the prevailing party shall be entitled to
recover from the other party such costs and reasonable attorneys’ fees as may
have been incurred.
          4.8 Landlord’s Costs. Within thirty (30) days after written request by
Landlord, Tenant shall pay to Landlord any costs and reasonable attorneys’ fees
incurred by Landlord in connection with Landlord’s review and analysis of the
Sublease and preparation of this Consent to Sublease.
     IN WITNESS WHEREOF, the parties have executed this Consent to Sublease
Agreement as of the day and year first above written.

                  “Landlord:”    
 
                VPI OBERLIN I, L.P.,         a California limited partnership  
 
 
           
 
  By:   /s/ Daniel J. Ryan    
 
           
 
  Its:   President    
 
                “Tenant:”    
 
                PHENOMIX CORPORATION,         a Delaware corporation    
 
           
 
  By:   /s/ Laura Shawver    
 
           
 
  Its:   Chief Executive Officer    

[Signatures Continue on Following Page]

-5-

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

 

                  “Subtenant:”    
 
                ANADYS PHARMACEUTICALS, INC.,         a Delaware corporation    
 
           
 
  By:   /s/ Stephen T. Worland    
 
           
 
  Its:   Chief Executive Officer    

-6-

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

 

EXHIBIT “A”
[Sublease between Anadys Pharmaceuticals, Inc. and Phenomix Corporation]

-1-