Exhibit 10.1

 

EXECUTION VERSION

LEASE AGREEMENT

 

THIS LEASE is entered into on September 6, 2005, by and between BMR-2282 FARADAY
AVENUE LLC, a Delaware limited liability company (the “Landlord”), and ISIS
PHARMACEUTICALS, INC., a Delaware corporation, (the “Tenant”).

 

ARTICLE 1

 

Description of Premises

 

1.1           Premises.  Landlord hereby leases to Tenant and Tenant leases from
Landlord, pursuant to the terms, conditions and uses herein set forth, that
certain real property commonly known as 2282 Faraday Avenue, Carlsbad,
California and more particularly described in Exhibit ’A’ attached hereto (the
“Premises”), including a building located on the Premises containing
approximately 28,704 square feet of rentable space, as shown on the drawing
attached hereto as Exhibit ”B” (the “Building”).

 

ARTICLE 2

 

Term

 

2.1           Lease Term.  The term of this Lease will be for 180 months
commencing on September [  ], 2005 (the “Commencement Date”)[THE LEASE TERM WILL
COMMENCE THE DATE OF THE CLOSING UNDER THE PURCHASE AGREEMENT] and ending on
September [19], 2020 (“Lease Term”).  Tenant has two options to extend the term,
as further described in Article 36.

 

ARTICLE 3

 

Rent

 

3.1           Base Monthly Rental.  Tenant shall pay to Landlord at the address
set forth in Section 35.10, or such other address as Landlord may advise Tenant
in writing, without deduction, offset or prior notice or demand, and Landlord
shall accept, as rent for the Premises the sum of $74,630.40 per month, subject
to adjustments pursuant to Section 3.3 below, in lawful money of the United
States payable in advance on the first day of each month of the term of this
Lease.  Said monthly installments shall hereinafter be referred to as the “Base
Monthly Rental.”  Tenant has delivered to Landlord the Base Monthly Rental for
the first month of the term hereof upon execution and delivery of this Lease. 
For purposes of this Lease, “Rent” will mean the Base Monthly Rent plus the
Additional Rent plus any other charges due Landlord by Tenant under this Lease.

 

3.2           Proration of Rent.  Prior to the first day of the first full
calendar month of occupancy, in lieu of the Base Monthly Rental, Tenant will pay
Landlord an amount equal to the

 

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Base Monthly Rental multiplied by a factor having as its numerator the number of
days remaining in the month from, after and including the Commencement Date and
as its denominator the number thirty.  Thereafter, rent shall be payable in
accordance with the terms of Section 3. 1.  The total consideration for the term
of this Lease shall be increased by the amount of the installment required by
this Section 3.2.

 

3.3           Biennial Adjustments.  The Base Monthly Rental will be increased
biennially commencing on the first day of the calendar month immediately
following the second anniversary of the Commencement Date, and on each two-year
anniversary thereafter, by an amount equal to 5% of the Base Monthly Rental for
the preceding year.

 

3.4           Additional Rent, Expenses and Costs.  Tenant shall pay as
additional rent the cost of: insurance pursuant to Section 10, taxes pursuant to
Section 12, maintenance, roof and structural repairs pursuant to Sections 11.2
and 11.3, and a management fee pursuant to Section 13.3 or other charges,
expenses and cost provided for herein, (“Additional Rent”) as described and in
the manner provided in Article 13.  Notwithstanding anything to the contrary in
this Lease, in no event will Additional Rent or any other expense to be paid by
Tenant include the costs and expenses listed on Schedule 3.4 attached hereto.

 

3.5           Late Fees.  Tenant acknowledges that late payment by Tenant to
Landlord of the Base Monthly Rental or other charges incurred under this Lease
will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of such costs being extremely difficult and impracticable to fix.  Such
costs include, without limitation, processing, administrative and accounting
charges.  If any payment of Base Monthly Rental, Additional Rent, or other
charges due from Tenant is not received by Landlord within 5 business days of
when due, such unpaid amounts shall bear interest at the rate of eight percent
(8%) per annum (“Default Rate”) from the date due to the date of payment.  In
addition to interest, Tenant shall pay a sum of the greater of (i) 3% of the
overdue rent or (ii) $15.00 as a late charge; provided, however, that twice but
only twice in any twelve (12) month period during the Lease Term, Tenant shall
be entitled to written notice of non-receipt of Base Monthly Rental or
Additional Rent from Landlord, and Tenant shall not be liable for any late
charge hereunder with respect thereto if such installment of Base Monthly Rental
or Additional Rent is received by Landlord within five (5) days after Tenant’s
receipt of such notice from Landlord.  Late charges shall constitute Additional
Rent.  The parties agree that the late charge represents a fair and reasonable
estimate of the costs that Landlord will incur by reason of late payment by
Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant’s
default with respect to the overdue amount, or prevent Landlord from exercising
any of the other rights and remedies available to Landlord hereunder.

 

3.6           Security Deposit.  Tenant will pay a security deposit of $500,000
(payable in cash or in the form of a letter of credit reasonably acceptable to
Landlord) (the “Security Deposit”).

 

3.6.1        In lieu of depositing cash as the Security Deposit, Tenant shall
have the right to deliver to Landlord an unconditional, irrevocable, standby
letter of credit in the amount of the cash Security Deposit otherwise required
hereunder, which letter of credit shall (i) be in a form reasonably acceptable
to Landlord, (ii) be issued by a financial institution selected by Tenant and
reasonably acceptable to Landlord, (iii) be for the benefit of Landlord, but
shall be

 

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transferable at Tenant’s sole cost and expense by Landlord to any subsequent
purchaser or encumbrancer of the Building, (iv) be automatically renewable from
year to year throughout the Lease Term, (v) be payable by draft sight in a
location reasonably acceptable to Landlord upon presentation of a certification
signed by an officer of Landlord which states that Tenant has failed to perform
any of its monetary or non-monetary obligations, and (vi) be payable in the
event such letter of credit is not renewed on or before the date which is thirty
(30) days prior to its expiration. Any amounts of cash drawn on a letter of
credit Security Deposit will thereafter be treated as a cash Security Deposit
hereunder.

 

3.6.2        Tenant shall have the right at any time during the Lease Term upon
thirty (30) days prior written notice to Landlord (i) to replace a cash Security
Deposit with a letter of credit which complies with all the terms of
Section 3.6.1, or (ii) to replace a letter of credit Security Deposit with a
corresponding amount of cash.

 

3.6.3        Starting with the third anniversary of the Commencement Date, this
Security Deposit will be reduced by $100,000 on such third anniversary, on the
sixth anniversary, on the ninth anniversary and on the twelfth anniversary of
the Commencement Date, provided Tenant has not been in default after the
expiration of the applicable cure periods set forth in Section 18.1 during the
36-month period prior to the date of such reduction and has had positive net
income (according to US generally accepted accounting principles) for the twelve
month fiscal year that ended most recently before the date of such reduction, as
substantiated by financial statements that are filed with the US Securities and
Exchange Commission (“SEC”) or, in the event Tenant ceases to be required to
file annual financial statements with the SEC, the year-end financial statements
for such period that have been audited by a nationally or regionally recognized
firm of certified public accountants.

 

3.6.4        If Tenant fails to pay Rent when required or fails to perform any
other covenant contained herein, Landlord may use or retain all or any part of
the Security Deposit for the payment of any sum not so paid, or for the payment
of any amount which Landlord may spend or become obligated to spend by reason of
Tenant’s default.  If any portion of said Security Deposit is so applied or
used, then Tenant shall, within 5 days after written notice thereof, deposit an
additional amount with Landlord sufficient to restore said Security Deposit to
the amount set forth above and Tenant’s failure to do so shall constitute a
breach of this Lease.

 

3.6.5        If Tenant has performed all of its monetary and other obligations
hereunder at the termination of this Lease, Landlord shall return said Security
Deposit to Tenant within 30 days after termination of this Lease, less any
amounts required to restore the Premises to good condition and repair,
reasonable wear and tear excepted, including repairing any damage resulting from
the removal by Tenant of its trade fixtures or equipment.

 

3.6.6        Landlord’s obligation with respect to any Security Deposit is that
of a debtor and not as a trustee, consequently, such sums may be commingled with
rental receipts or dissipated and no interest shall accrue thereon.

 

3.6.7        In the event of the sale of the real property of which the Premises
constitute a part, Landlord’s successor in interest shall assume Landlord’s
obligations with respect to the sums held as security or advance rent and notify
Tenant in writing setting forth the

 

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particularity of such transfer, including the successor’s name and address. 
Upon such assumption and written notification, Tenant shall have no further
claim against Landlord with respect to any such Security Deposit and hereby
waives all rights against Landlord in such regard.  Notwithstanding the
foregoing, Landlord will remain personally liable to the extent Landlord’s
successor in interest fails to assume the Landlord’s obligations with respect to
the deposit as specified above.

 

3.6.8        In the event of foreclosure by the holder of any mortgage or deed
of trust encumbering the Premises, Landlord shall continue to be liable for any
security deposit and any such mortgagee shall have no liability or
responsibility therefore, except to the extent the Security Deposit is delivered
to such mortgagee and such mortgagee assumes responsibility for such Security
Deposit.

 

ARTICLE 4

 

Possession

 

4.1           Possession.  Tenant hereby acknowledges that it currently owns and
is in possession of the Premises, and is familiar with the condition thereof and
accepts the Premises in its “as is” condition with all faults, and Landlord
makes no representation or warranty of any kind with respect the Premises, and
Landlord will have no obligation to improve, alter or repair the Premises,
except as specifically set forth herein.  Except as otherwise expressly provided
herein, it is understood and agreed that Landlord is not obligated to install
any equipment, or make any repairs, improvements or alterations to the Premises.

 

4.2           NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, IT IS EXPRESSLY
UNDERSTOOD AND AGREED THAT LANDLORD IS LEASING THE PREMISES “AS IS” AND “WHERE
IS,” AND WITH ALL FAULTS AND THAT, LANDLORD IS MAKING NO REPRESENTATIONS AND
WARRANTIES WHETHER EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE, WITH
RESPECT TO THE QUALITY OR PHYSICAL CONDITION OF THE PROPERTY, THE INCOME OR
EXPENSES FROM OR OF THE PROPERTY, OR THE COMPLIANCE WITH THE PROPERTY WITH
APPLICABLE BUILDING OR FIRE CODES, ENVIRONMENTAL LAWS OR OTHER LAWS, RULES,
ORDERS OR REGULATIONS.  WITHOUT LIMITING THE FOREGOING, IT IS UNDERSTOOD AND
AGREED THAT LANDLORD MAKES NO WARRANTY OF THE HABITABILITY, SUITABILITY,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.  TENANT AGREES THAT IT
ASSUMES FULL RESPONSIBILITY FOR, AND THAT IT HAS PERFORMED EXAMINATIONS AND
INVESTIGATIONS OF THE PREMISES, INCLUDING SPECIFICALLY, WITHOUT LIMITATION,
EXAMINATIONS AND INVESTIGATIONS FOR THE PRESENCE OF ASBESTOS, PCBS AND OTHER
HAZARDOUS SUBSTANCES, MATERIALS AND WASTES (AS THOSE TERMS MAY BE DEFINED HEREIN
OR BY APPLICABLE FEDERAL OR STATE LAWS, RULES OR REGULATIONS) ON OR IN THE
PREMISES.  WITHOUT LIMITING THE FOREGOING, EXCEPT FOR CLAIMS ARISING UNDER THE

 

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AGREEMENT FOR PURCHASE AND SALE DATED AS OF JULY 21, 2005, TENANT IRREVOCABLY
WAIVES ALL CLAIMS AGAINST LANDLORD WITH RESPECT TO ANY ENVIRONMENTAL CONDITION,
INCLUDING CONTRIBUTION AND INDEMNITY CLAIMS, WHETHER STATUTORY OR OTHERWISE,
EXCEPT TO THE EXTENT ARISING OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
OF LANDLORD.

 

ARTICLE 5

 

Use

 

5.1           Permitted Use of Premises.  The Premises shall be used and
occupied by Tenant solely for research and development and manufacture of drug
candidates and substances along with associated office, lab and warehouse uses. 
The Premises are to be used for no other purposes without first obtaining the
consent of Landlord, which consent shall not be unreasonably withheld.

 

5.2           Compliance with Laws.  Tenant, at Tenant’s sole expense, shall
promptly comply, or cause compliance, with all laws, ordinances, zoning
restrictions, rules, regulations, orders and requirements of any duly
constituted public authorities now or hereafter affecting the Premises,
including the use, safety, cleanliness and occupation of the Premises.

 

5.3           Prohibited Uses.  Tenant shall not do, bring or keep anything in
or about the Premises that will cause a cancellation of any insurance covering
the Premises or the Building.  Tenant shall not use the Premises in any manner
that will constitute waste, nuisance or unreasonable annoyance to owners or
occupants of nearby properties.  Tenant shall not do anything on the Premises
that will cause material damage to the Building.  Tenant shall place no loads
upon the floors, walls or ceiling of the Building in excess of the maximum
designed load specified by Landlord or which may materially damage the
Building.  No machinery, apparatus, or other appliance shall be used or operated
in or on the Premises that will vibrate or shake the Premises.

 

5.4           Rules and Regulations.  Tenant shall comply with all reasonable
nondiscriminatory rules and regulations (the “Rules and Regulations”) from time
to time adopted by Landlord with respect to the Premises.  Notwithstanding
anything to the contrary contained in this Lease, if any rule or regulation is
in conflict with any term, covenant or condition of this Lease, this Lease shall
prevail.  In addition, no such rule or regulation, or any subsequent amendment
thereto adopted by Landlord, shall in any way alter, reduce or adversely affect
any of Tenant’s rights or enlarge Tenant’s obligations under this Lease.

 

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ARTICLE 6

 

Alterations and Additions

 

 6.1          Prohibited Alterations.  Tenant shall not make any alterations,
improvements or additions to the Premises, except for non-structural alterations
not exceeding $100,000 per occurrence or an aggregate amount of $250,000 in any
12-month period, without obtaining Landlord’s prior written consent, which
consent shall not unreasonably be withheld.  Notwithstanding the foregoing,
Tenant shall not make any alterations that affect the structural elements of the
Premises or require a construction or building permit without Landlord’s prior
written consent, which consent may be granted or withheld in Landlord’s sole and
absolute discretion.  Any such improvements, excepting movable furniture and
trade fixtures, shall become part of the realty and belong to Landlord.  All
alterations and improvements shall be properly permitted and installed at
Tenant’s sole cost, by a licensed contractor, in a good and workmanlike manner,
and in conformity with the laws of all applicable duly constituted public
authorities.  Each such licensed contractor and any subcontractor that performs
work with a cost greater than $50,000, shall be acceptable to Landlord in its
reasonable discretion.  Any alternations that Tenant shall desire to make and
which require the consent of Landlord shall be presented to Landlord in written
form with detailed plans.  Tenant shall: (i) acquire all applicable governmental
permits; (ii) furnish Landlord with copies of both the permits and the plans and
specifications before the commencement of the work, and (iii) comply with all
conditions of said permits in a prompt and expeditious manner.  Any alterations
shall be performed in a workmanlike manner with good and sufficient materials. 
Tenant shall promptly upon completion furnish Landlord with as-built plans and
specifications.

 

6.2           Notice of Commencement.  At least 20 days prior to commencing any
work relating to any alterations, improvements or additions approved by
Landlord, Tenant shall notify Landlord in writing of the expected date of
commencement.  Landlord shall have the right at any time thereafter to post and
maintain on the Premises such notices as Landlord reasonably deems necessary to
protect Landlord and the Premises from mechanics’ liens, materialmen’s liens or
any other liens.  Tenant shall pay, when due, all claims for labor or materials
furnished to or for Tenant for use in improving the Premises.  Tenant shall not
permit any mechanics’ or materialmen’s liens to be levied against the Premises
arising out of work performed, materials furnished, or obligations to have been
performed on the Premises by or at the request of Tenant. Tenant hereby
indemnifies and holds Landlord harmless against loss, damage, attorneys’ fees
and all other expenses on account of claims of lien of laborers or materialmen
or others for work performed or materials or supplies furnished for Tenant or
its contractors, agents or employees. If Tenant fails to remove or bond any
lien(s) filed against the Premises in connection with any work performed or any
work claimed to have been performed by or at the direction of Tenant within 10
days from the date of the lien(s) filing, Landlord may remove such lien(s) at
Tenant’s expense and Tenant shall reimburse Landlord for all costs incurred by
Landlord in connection with the removal of the lien(s), which amount shall be
deemed Additional Rent, and shall include, without limitation, all sums
disbursed, incurred or deposited by Landlord, including Landlord’s costs,
expenses and actual attorneys’ fees, with interest thereon, at the Default Rate
from the date of expenditure.

 

6.3           Trade Fixtures.  Tenant may install trade fixtures, machinery or
other trade equipment in conformance with the ordinances of all applicable duly
constituted public authorities.  Tenant may remove any of such trade fixtures or
machinery upon the termination of this Lease. In the event that Tenant installs
improvements, machinery or trade fixtures, or makes any alterations, Tenant
shall, at Landlord’s option, return the Premises on termination of this

 

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Lease to the same condition as existed at the date of entry, reasonable wear and
tear excepted, including the removal of improvements or alterations approved by
Landlord in Section 6.1; provided, however, if such improvements or alterations
were approved by Landlord, Tenant shall only be required to remove such
improvements or alterations if Landlord’s approval was conditioned upon Tenant’s
removal of such improvements or alterations. Tenant shall, in any event, repair
any damage resulting from the removal of machinery or trade fixtures of Tenant.

 

ARTICLE 7

 

Surrender of Premises

 

7.1           Conditions upon Surrender.  Upon the expiration, or earlier
termination, of this Lease, Tenant shall surrender the Premises to Landlord in
its condition existing as of the Commencement Date, normal wear and tear,
casualty, condemnation and acts of God excepted, with all interior walls in good
repair and repainted if marked, all carpets shampooed and cleaned, the HVAC
equipment, plumbing, electrical and other mechanical installations in good
operating order, and all floors cleaned and waxed, all to the reasonable
satisfaction of Landlord. Tenant shall remove from Premises all of Tenant’s
alterations which Landlord requires Tenant to remove pursuant to Section 6.3 and
all Tenant’s personal property, and shall repair any damage and perform any
restoration work caused by such removal.  Landlord and Tenant shall each initial
and attach a narrative description or floor plan of the Premises to this Lease,
to be incorporated herein as Exhibit ”D”. Said narrative description or floor
plan shall describe, among other things, those interior improvements which are
to remain in the Premises upon expiration, or earlier termination, of this
Lease. It is the intent of the parties that the condition of the Premises, after
Tenant’s removal, be in substantial conformance with the layout reflected in
Exhibit ”D”. If Tenant fails to remove such alterations and Tenant’s personal
property which Tenant is authorized and obligated to remove pursuant to the
above, and such failure continues after the termination of the Lease, Landlord
may retain such property and all rights of Tenant with respect to it shall
cease, or Landlord may place all or any portion of such property in public
storage for Tenant’s account. Tenant shall pay to Landlord upon demand costs of
removal of such alterations and Tenant’s personal property and storage and
transportation costs of same, and the cost of repairing and restoring the
Premises, together with attorneys’ fees and interest at the Default Rate on said
amounts, from the date of expenditure by Landlord. If the Premises are not so
surrendered at the termination of this Lease, Landlord may, in its sole
discretion, either (a) upon written notice to Tenant, treat Tenant as a
month-to-month tenant at will, subject to all the terms, covenants and
conditions of this Lease, or (b) proceed with an unlawful detainer action and
pursue all other rights and remedies available to Landlord.

 

ARTICLE 8

 

Utilities and Services

 

8.1           Utilities.  Tenant shall make all arrangements for and pay for all
water, sewer, gas, heat, light, power, telephone service and any other service
or utility Tenant requires at the Premises. Landlord shall not be liable for any
failure or interruption of any utility service being

 

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furnished to the Premises, and no such failure or interruption shall entitle
Tenant to terminate this Lease; provided, however, that Tenant will be entitled
to rent abatement in connection with any such failure or interruption to the
extent Landlord receives lost rental income insurance proceeds.

 

8.2           Landlord Service. In the event that any utilities are furnished by
Landlord, Tenant shall pay to Landlord the cost thereof in the manner set forth
in Section 13.3. Tenant’s cost shall be the total cost shown on utility meters
servicing the Premises and any extraordinary use which may be made by Tenant.

 

ARTICLE 9

 

Indemnification

 

9.1           Indemnity of Landlord.  Tenant hereby agrees to indemnify, defend
(with attorneys approved by Landlord), protect, and hold Landlord and Landlord’s
agents, employees, directors, officers, managers, members, partners, affiliates,
independent contractors and property managers (“Landlord’s Agents”), harmless
from any and all liabilities, costs, expenses and losses by reason of injury to
person or property (“Losses”), caused by, arising out of, or related to, the
condition of the Premises or the use or occupancy of the Premises by Tenant, its
agents, directors, officers, managers, members, partners, affiliates,
independent contractors and property managers, or invitees (“Tenant’s Agents”),
including without limitation, any liability for injury to the person or property
of Tenant or Tenant’s Agents, but excepting any Loss: (i) resulting from the
willful breach of the Lease by Landlord or the negligence or willful misconduct
of Landlord or Landlord’s Agents, (ii) arising solely out of the condition of
the Premises that Tenant demonstrates existed before the Commencement Date or
(iii) resulting from the migration of Hazardous Materials onto the Premises from
adjoining properties, except to the extent caused by Tenant or Tenant’s Agents. 
Tenant’s obligation hereunder shall survive the termination of this Lease with
respect to any claims or liability arising in connection with any event
occurring prior to such termination.

 

9.2           Waiver of Claims.  Tenant, as a material part of the consideration
rendered to Landlord in entering into this Lease, hereby waives all claims
against Landlord for damages to goods, wares, machinery, trade fixtures, or
other property of Tenant, Tenant’s Agents or any other person in or about the
Premises, whether such damage or injury is caused by or results from Landlord’s
negligence, fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, but excepting any claims resulting from
the gross negligence or willful misconduct of Landlord or Landlord’s Agents or
breach of this Lease by Landlord.  Notwithstanding Landlord’s negligence or
breach of this Lease, Landlord shall under no circumstances be liable for loss
of profits or special, incidental or consequential damages arising therefrom.

 

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9.3           Landlord Indemnification.  Landlord agrees to indemnify Tenant and
hold it harmless from any and all loss, cost, damage, expense and liability
(including without limitation court costs and reasonable attorneys’ fees)
incurred in connection with or arising from any Losses, caused by the gross
negligence or willful misconduct of Landlord and/or any of Landlord’s Agents or
caused by the willful breach of this Lease by Landlord.  The obligations of
Landlord under this Section 9.3 shall survive the termination of this Lease with
respect to any claims or liability arising in connection with any event
occurring prior to such termination.

 

9.4           Claims for Indemnification.  If any indemnitee under Sections 9.2
or 9.3 above (an “Indemnitee”) shall believe that such Indemnitee is entitled to
indemnification pursuant to this Article 9 in respect of any Losses, such
Indemnitee shall give the appropriate indemnifying party (each, as applicable,
an “Indemnifying Party”) prompt written notice thereof.  Any such notice shall
set forth in reasonable detail and to the extent then known the basis for such
claim for indemnification.  The failure of such Indemnitee to give notice of any
claim for indemnification promptly shall not adversely affect such Indemnitee’s
right to indemnity hereunder except to the extent that such failure adversely
affects the right of the Indemnifying Party to assert any reasonable defense to
such claim.

 

9.5           Defense of Claims.  In connection with any claim which may give
rise to indemnity under this Article 9 resulting from or arising out of any
claim or proceeding against an Indemnitee by a person that is not a party
hereto, the Indemnifying Party shall (unless such Indemnitee elects not to seek
indemnity hereunder for such claim), upon written notice to the relevant
Indemnitee, assume the defense of any such claim or proceeding.  The
Indemnifying Party shall select counsel reasonably acceptable to such Indemnitee
to conduct the defense of such claim or proceeding, shall take all steps
necessary in the defense or settlement thereof and shall at all times diligently
and promptly perform resolution thereof.  Without the prior written consent of
the Indemnitee, which consent shall not be unreasonably withheld, the
Indemnifying Party will not enter into any settlement of, or any claim or
proceeding which would lead to liability or create any financial or other
obligation on the part of the Indemnitee for which the Indemnitee is not
entitled to indemnification hereunder. Without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld, the
Indemnitee will not enter into any settlement or any claim or proceeding which
would lead to liability or create any financial or other obligation on the part
of the Indemnifying Party unless the Indemnifying Party has failed or refused to
acknowledge responsibility for or defend such claim or proceeding within a
reasonable period of time after notice is provided pursuant to Section 9.4.

 

ARTICLE 10

 

Insurance

 

10.1         Landlord’s Insurance.  Landlord shall maintain, at Tenant’s sole
expense, which Tenant shall pay to Landlord as Additional Rent in the manner set
forth in Section 13.3, a policy or policies of insurance protecting Landlord
against the following:

 

10.1.1      Fire and other perils normally included within the classification of
fire and extended coverage, together with insurance against vandalism and
malicious mischief, to the

 

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extent of the full replacement cost of the Premises (including, without
limitation, any real property and/or fixture improvements located within the
Premises existing as of the Commencement Date), but exclusive of trade fixtures,
equipment and improvements insured by Tenant, with agreed value, full
replacement and such other endorsements Landlord elects to maintain.  Landlord
may also maintain earthquake and flood coverage if available at commercially
reasonable rates.

 

10.1.2      Eighteen (18) months of rental loss insurance and to the extent of
100% of the gross rentals from the Building of which the Premises constitute a
part.

 

10.1.3      Public liability and property damage insurance with respect to
common areas in amounts (i) not less than $1,000,000 for injury or death to any
one person in any one accident or occurrence, (ii) not less than $2,000,000 for
injury or death to more than one person in any one accident or occurrence,
(iii) not less than $4,000,000 of excess umbrella liability insurance, and,
(iv) not less than $200,000 per occurrence for damage to Premises.

 

10.1.4      At Landlord’s sole option, environmental liability or environmental
clean-up/remediation insurance in such amounts and with such deductibles and
other provisions as Landlord may determine in its sole and absolute discretion.

 

10.2         Payment.  Tenant shall pay to Landlord in the manner set forth in
Section 13.3, the cost of insurance required in Section 10.1.  To the extent
that any such insurance is maintained pursuant to a blanket or similar policy of
insurance, then the cost thereof shall be equitably allocated to the Premises by
Landlord.

 

10.3         Tenant’s Insurance.  Tenant shall maintain at its sole cost and
expense, in force a policy or policies of insurance protecting Landlord and
Tenant against each of the following:

 

10.3.1      Comprehensive general liability insurance with respect to the
Premises insuring against bodily injury or death and property damage in amounts
(i) not less than $2,000,000 in the aggregate, (ii) not less than $2,000,000 per
occurrence and (iii) not less than $5,000,000 of excess umbrella liability
insurance. Landlord shall be included as additional insured. The amount of such
public liability insurance shall be increased from time to time as Landlord may
reasonably determine. All such bodily injury and property damage insurance shall
specifically insure the performance by Tenant of the indemnity agreement as to
personal injury or property damage contained in Section 9.

 

10.3.2      Insurance covering alterations, additions or improvements permitted
under Section 6, trade fixtures and personal property made after the
Commencement Date from time to time in or upon the Premises in an amount not
less than 80% of their full replacement cost from time to time during the term
of this Lease, providing protection against any peril included within the
classification “fire and extended coverage,” for the repair or replacement of
the property damaged or destroyed unless this Lease shall terminate pursuant to
Section 20 hereof.

 

10.3.3      All policies of insurance to be provided by Tenant shall be issued
by insurance companies, with general policy holder’s rating of not less than A-
and a financial

 

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rating of not less than Class VII as rated in the most current available
“Best’s” Insurance Reports, and admitted to do business in the State of
California. Such policies shall be issued in the names of Landlord and Tenant.
The policies provided by Tenant shall be for the mutual and joint benefit and
protection of Landlord and Tenant, and executed copies of such policies of
insurance or certificates thereof shall be delivered to the Landlord within 10
days after the Commencement Date and, thereafter, within 30 days prior to the
expiration of the term of each such policy. All public liability and property
damage policies shall contain a provision that the Landlord, although named as
an insured, shall nevertheless be entitled to recover under said policies for
any loss occasioned to it or Landlord’s Agents by reason of the negligence of
the Tenant. Upon the expiration or termination of any such policy, renewal or
additional policies shall be procured and maintained by the Tenant to provide
the required coverage. All policies of insurance delivered to Landlord must
contain a provision that the company writing said policy will provide to
Landlord with 30 days notice in writing in advance of any cancellation or lapse
or the effective date of any reduction in the amounts of insurance. All public
liability, property damage and other casualty policies shall be written as
primary policies, not contributing with and not in excess of coverage which
Landlord may carry.

 

10.3.4      Notwithstanding anything to the contrary, Tenant’s obligation to
carry the insurance described in this Section may be brought within the coverage
of a so-called blanket policy or policies of insurance carried and maintained by
the Tenant, provided that (i) Landlord will be named as an additional insured
thereunder as their interests may appear, (ii) the coverage afforded Landlord
will not be reduced or diminished by reason of the use of such blanket policy of
insurance, and (iii) the requirements set forth herein are otherwise satisfied.
Tenant agrees to permit Landlord at all reasonable times to inspect the policies
of insurance of Tenant covering the Premises for policies which are not required
to be delivered to Landlord.

 

10.4         Release of Subrogation Rights.  Landlord and Tenant hereby mutually
release each other from liability and waive all right to recover against each
other for any loss from perils insured against under their respective insurance
policies, including any extended coverage and special form endorsements to said
policies; provided, however, this Section shall be inapplicable if it would have
the effect, but only to the extent that it would have the effect of invalidating
any insurance coverage of Landlord or Tenant. The parties shall obtain, if
available, from their respective insurance companies, a waiver of any right of
subrogation which said insurance company may have against the Landlord or the
Tenant, as the case may be.

 

ARTICLE 11

 

Care of the Premises

 

11.1         Care of Premises.  Tenant shall, at its sole cost and expense keep
the Premises and exterior and interior portions of windows, doors, and all other
glass or plate glass fixtures in a working neat, clean, sanitary, safe and good
condition and repair, and shall keep the Premises free from trash, rubbish and
dirt. Tenant shall make all repairs or replacements thereon or thereto, whether
ordinary or extraordinary.

 

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11.2         Maintenance of Equipment.  Tenant shall, at its sole cost and
expense, keep and maintain all utilities, fixtures and mechanical equipment
used, or available for use, by Tenant in connection with the Premises, in good
working order, condition and repair. Said items shall include, but are not
limited to, all plumbing or sewage facilities in the Premises, doors, locks and
closing devices, windows, including glass, lights, electric systems and
equipment, heating and air conditioning systems and equipment, and all other
appliances and equipment of every kind necessary for the use of the Premises.

 

11.3         Roof, Walls, Foundation and Structural.  At its cost and expense,
Tenant will keep in good condition and repair the roof, foundation, load bearing
walls and structural elements of the Premises to keep the Premises in the same
condition and repair existing as of the Commencement Date, normal wear and tear,
casualty and condemnation excepted.

 

11.3.1      Notwithstanding the foregoing, with respect to a Capital Structural
Repair (as defined below), Tenant may elect in its sole discretion to either
(i) require Landlord to complete such Capital Structural Repair with the costs
and expenses of which to be paid by Tenant as set forth in Section 11.3.2 below
or (ii) complete such Capital Structural Repair at Tenant’s own cost and
expense.  For purposes of this Article 11, “Capital Structural Repair” means a
repair of structural elements of the Premises or the building systems (a) that
requires a construction or building permit from the City of Carlsbad to conduct
such repair and (b) the estimated cost of which exceeds $250,000.  The parties
will use their diligent good faith efforts to mutually agree on the budget and
plans for any Capital Structural Repair.

 

11.3.2      At Tenant’s election, Tenant shall pay Landlord the cost and expense
plus interest (at Landlord’s actual cost of borrowing on an arms-length basis)
of any Capital Structural Repairs that Landlord completes pursuant to subpart
(i) of Section 11.3.1 above (“Capital Structural Expenses”): (i) in one lump
sum, or (ii) as equal monthly installments over the lesser of (a) the useful
life of the Capital Structural Repair for which such Capital Structural Expenses
were incurred, or (b) the remaining Term of the Lease (as may be extended).

 

11.4         Compliance with Governmental Regulations.  Tenant shall, at its
sole cost and expense, promptly and properly observe and comply with, including
the making by Tenant of any alterations to the Premises, all present and future
orders, regulations, directions, rules, laws ordinances, and requirements of all
governmental authorities (including, without limitation, state, municipal,
county and federal governments and their departments, bureaus, boards and
officials) arising from the use or occupy of, applicable to, the Premises.

 

11.5         Service Contracts.  Except to the extent self-performed by Tenant’s
qualified and experienced personnel, as reasonably determined by Landlord,
Tenant shall, at Tenant’s sole cost and expense, procure and maintain contracts,
with copies to Landlord, in customary form and substance for, and with
contractors specializing and experienced in the maintenance of the following
equipment and improvements, if any, if and when installed on the Premises:
(i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing
systems, including fire alarm and/or smoke detection, (iv) except as maintained
by Faraday Court Owners’ Association, landscaping and irrigation system,
(v) roof covering and drains, (vi) clarifiers, (vii) basic utility feed to the
perimeter of the Building, and (vii) any other equipment, if reasonably required
by

 

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Landlord.  However, Landlord reserves the right, upon notice to Tenant, to
procure and maintain any or all of such service contracts, and if Landlord so
elects, Tenant shall reimburse Landlord, upon demand, for the cost thereof.

 

11.6         Action by Landlord if Tenant Fails to Maintain.  If Tenant refuses
or neglects to repair or maintain the Premises as required by Sections 11.1,
11.2, 11.3 and 11.4 to the reasonable satisfaction of Landlord, Landlord, at any
time following 10 days from the date on which Landlord shall make written demand
on Tenant to affect such repair or maintenance, may, but shall not have the
obligation to, make such repair and/or maintenance with qualified and
experienced contractors (without liability to Tenant for any loss or damage
which may occur to Tenant’s merchandise, fixtures or other personal property, or
to Tenant’s business by reason thereof) and upon completion thereof, Tenant
shall pay to Landlord as Additional Rent Landlord’s costs for making such
repairs, plus interest at the Default Rate upon demand herefore. Moreover,
Tenant’s failure to pay any of the charges in connection with the performance of
its maintenance and repair obligations under this Lease will constitute a
material default under the Lease.

 

ARTICLE 12

 

Taxes

 

12.1         Personal Property Taxes.  Tenant shall pay prior to delinquency all
taxes, assessments, license fees, and other public charges levied, assessed or
imposed or which become payable during the term of this Lease upon any trade
fixtures, furnishings, equipment and all other personal property of Tenant
installed or located in the Premises. Whenever possible, Tenant shall cause said
trade fixtures, furnishings, equipment and personal property to be separately
assessed. If, however, any or all of said items shall be assessed and taxed with
the real property, Tenant shall pay to Landlord such taxes as are attributable
to Tenant’s trade fixtures, furnishings, equipment and personal property within
15 days after receipt of an invoice from Landlord advising Tenant of the taxes
applicable to Tenant’s property.

 

12.2         Real Property Taxes.  Tenant shall also pay at least 20 days before
delinquent any and all real estate taxes, as defined in Section 12.3, assessed
or imposed, or which become a lien upon or become chargeable against or payable
in connection with the Premises.  Within three business days of such payment,
Tenant shall provide Landlord evidence of such payment in a form reasonably
acceptable to Landlord.  In the event that the Premises are not separately
assessed, Tenant shall pay an equitable proportion of the real estate taxes and
assessments for all the land and improvements included within the tax parcel(s)
assessed, such proportion shall be determined by Landlord from the respective
valuations assigned in the Assessor’s worksheets and such other information as
is reasonably available to Landlord, including the Building and any special
improvements constructed for the benefit of Tenant. Real estate taxes for the
last year of the term of this Lease shall be prorated between Landlord and
Tenant as of the expiration date of the term. With respect to any assessments
which may be levied against or upon the Premises, or which under the laws then
in force may be evidenced by improvement or other bonds and may be paid in
annual installments, only the amount of such annual installment, with
appropriate

 

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proration for any partial year, and interest thereon, shall be included within a
computation of taxes and assessments levied against the Premises.  To the extent
tax bills are not otherwise delivered to Tenant and such tax bills are delivered
to Landlord, at least 60 days prior to the applicable delinquency date, Landlord
will provide Tenant with written notice detailing the amount and due date of
each real estate tax Tenant is required to pay pursuant to this Section 12.2. 
In the event that Tenant incurs a late charge on the payment of the Base Monthly
Rental or fails to pay the real property taxes within 20 days before delinquent,
Landlord may estimate the current real property taxes, and require that such
taxes be paid in advance to Landlord by Tenant monthly in advance with the
payment of the Base Monthly Rental.  Such monthly payment shall be equal to the
amount of the estimated installment of taxes divided by the number of months
remaining before the month in which such installment becomes delinquent.  When
the actual amount of the applicable tax bill is known, the amount of such equal
monthly advance payments shall be adjusted as required to provide the funds
needed to pay the applicable taxes.  If the amount collected by Landlord is
insufficient to pay such real estate taxes when due, Tenant shall pay Landlord,
upon demand, such additional sum as is necessary.  Upon receipt of the full
amount of the real estate taxes for such period, Landlord shall, if practicable,
pay such real estate taxes before they are delinquent.  Advance payments may be
intermingled with other moneys of Landlord and shall not bear interest.  In the
event of a breach by Tenant in the performance of its obligations under this
Lease, then any such advance payments may be treated by Landlord as an
additional security deposit; provided, however, to the extent that Landlord
applies such payments to anything other than real estate taxes, then Landlord
shall promptly give Tenant notice of such application.

 

12.3         Definition of Taxes.  For purposes of this Lease, “taxes” shall
also include each of the following:

 

12.3.1      Any form of assessment, license fee, license tax, bond or
improvement bond, business license tax, commercial rental tax, levy, charge,
penalty, or tax, imposed by any authority having the direct power to tax,
including any city, county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement or special district
thereof, as against any legal or equitable interest of Landlord in the Premises
or the real property of which the Premises constitute a part;

 

12.3.2      Any tax on Landlord’s right to rent or other income from the
Premises or as against Landlord’s business of leasing the Premises;

 

12.3.3      Any assessment, tax, fee, levy or charge in substitution, partially
or totally, of any assessment, tax, fee, levy or charge previously included with
the definition of real property tax, it being acknowledged by Tenant and
Landlord that Proposition 13 was adopted by the voters of the State of
California in the June 1978 election and that assessments, taxes, fees, levies
and charges may be imposed by governmental agencies for such services as fire
protection, street, sidewalk and road maintenance, refuse removal and for other
governmental services formerly provided without charge to property owners or
occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges and all similar
assessments, taxes, fees, levies and charges be included within the definition
of real property tax for purposes of this Lease;

 

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12.3.4      Any tax allocable to or measured by the area of the Premises or the
rental payable hereunder, including without limitation, any gross income tax or
excise tax levied by the State, any political subdivision thereof, city, or
federal government, with respect to the receipt of such rental, or upon or with
respect to the possession, leasing, operating, management, maintenance,
alteration, repair, use of occupancy by Tenant of the Premises, or any portion
thereof,

 

12.3.5      Any tax upon this transaction or any document to which Tenant is a
party, creating or transferring an interest or an estate in the Premises; and

 

12.3.5      Any tax, fee, levy, assessment or charge, or any increase therein:
(i) imposed by reason of events occurring during the term of this Lease,
including but not limited to, a change in the ownership of the Premises, and
(ii) levied or assessed on machinery or equipment, if any, provided by Landlord
to Tenant pursuant to this Lease.

 

12.3.6      Notwithstanding anything contained in this Lease, “Real estate
taxes” shall not include Landlord’s federal or state income, franchise,
inheritance or estate taxes.

 

ARTICLE 13

 

Common Areas

 

13.1         Common Area.  Common areas shall include all areas within the
Premises outside the exterior boundaries of the buildings situated thereon,
including, but not limited to, streets, driveways, parking areas, truckways,
delivery passages, loading doors, sidewalks, ramps, open and closed courts and
malls, landscaped and planted areas, exterior stairways, bus stops, retaining
and decorative walls and planters, and other areas provided for the common use
of Landlord and Tenant, their employees and invitees.

 

13.2         Maintenance.  Except to the extent maintained by Faraday Court
Owners’ Association, Landlord shall maintain said common areas in a neat, clean
and orderly condition, properly lighted and landscaped as Landlord and the
Faraday Court Owners’ Association shall determine, including, but not limited
to, general maintenance, repairs, pest control, resurfacing, painting,
restriping, cleaning, sweeping and trash removal; maintenance and repair of
sidewalks and curbs; sprinkler systems, planting and landscaping; lighting,
water, music and other utilities; directional signs and other markers and
bumpers; maintenance and repair of any fire protection systems, automatic
sprinkler systems, lighting systems, storm drainage systems and any other
utility systems; personnel to implement such service and to police the common
areas; and police and fire protection services.  Tenant shall reimburse Landlord
for all costs incurred by Landlord in connection with such maintenance of said
common areas pursuant to Section 13.3, which amount shall be deemed Additional
Rent.

 

13.3         Tenant’s Costs.  Within 60 days after the Commencement Date, and
within 60 days after the beginning of each calendar year, Landlord shall give
Tenant a written estimate, for

 

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such calendar year, of Tenant’s share of the cost of utilities, if not
separately metered, insurance provided by Landlord and expenses in connection
with maintenance of common areas. Tenant shall pay such estimated amount to
Landlord in equal monthly installments, in advance. Within 90 days after the end
of each calendar year, Landlord shall furnish to Tenant a statement showing in
reasonable detail the costs incurred by Landlord for the operation and
maintenance of the Premises during such year (the “Annual Statement”), and
Tenant shall pay to Landlord Tenant’s proportionate share of the cost incurred
in excess of the payments made by Tenant within 10 days of receipt of such
statement. In the event that the payments made by Tenant for the operation and
maintenance of the Premises exceed Tenant’s share of the cost of same, such
amount shall be credited by Landlord to the rent or other charges next due and
owing, provided that, if the Lease term has expired, Landlord shall accompany
said statement with the amount due Tenant. At the request of Tenant, to be made
within 90 days of receipt by Tenant of the Annual Statement, Landlord shall
provide Tenant with copies of invoices, or other forms of payment verification,
covering the costs incurred by Landlord as set forth in the Annual Statement.
Tenant shall have the right, within 90 days of receipt of this additional
information, to audit, through a nationally or regionally recognized firm of
certified public accountants engaged on a non-contingency basis, the Landlord’s
records in connection with the Annual Statement. Landlord shall make the records
readily available for such examination. If any audit discloses that the Annual
Statement submitted by Landlord overstates the expenses by more than 5%,
Landlord shall pay Tenant within 5 days after written request the reasonable
cost of such audit together with any overpayment which may have been made by
Tenant. Any information obtained by Tenant pursuant to the provisions of this
Section shall be treated as confidential.

 

13.4.        Management Fee. Tenant shall pay to Landlord, as Additional Rent, a
monthly fee to cover costs of property management services in an amount equal to
one percent (1%) of the Base Monthly Rental due from Tenant, whether or not
Landlord incurs fees payable to any third party to provide such services and
without regard to the actual costs incurred by Landlord for such services.

 

ARTICLE 14

 

Signs and Advertising

 

14.1 Signs.  Landlord shall designate the location on the Premises for one or
more exterior Tenant identification sign(s) and Tenant shall not display or
erect any other signs, displays, or other advertising materials that are visible
from the exterior of the building. The size, design, and other physical aspects
of the permitted sign(s) shall be subject to the Landlord’s written approval
prior to installation, which approval will not unreasonably be withheld, any
covenants, conditions, or restrictions encumbering the Premises, any applicable
municipal or other governmental permits and approvals. The cost of the sign(s),
including but not limited to the permitting, installation, maintenance and
removal thereof shall be at Tenant’s sole cost and expense. If Tenant fails to
maintain its sign(s), or if Tenant fails to remove such sign(s) upon termination
of the Lease, or fails to repair any damage caused by such removal (including
without limitation, painting the building, if required by Landlord), Landlord
may do so at Tenant’s expense. Tenant shall on demand reimburse Landlord for all
costs incurred by Landlord

 

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to effect such removal, which amounts shall be deemed Additional Rent and shall
include without limitation, all sums disbursed, incurred or deposited by
Landlord, including Landlord’s costs, expenses and actual attorneys’ fees with
interest thereon.  By executing this Lease, Landlord hereby approves the signage
currently existing on the Premises.

 

ARTICLE 15

 

Entry by Landlord

 

15.1         Entry by Landlord.  Tenant shall permit Landlord and Landlord’s
Agents, and, if accompanied by a representative of Tenant, prospective
purchasers, lenders, investors and contractors to enter the Premises at all
reasonable times, upon giving Tenant a 24 hour written notice, except in the
event of an emergency in which case neither the 24 hour written notice nor the
presence of a representative of Tenant is required: (i) for the purpose of
inspecting the same, (ii) for the purpose of maintenance, repairs, alterations,
or additions to any portion of the Building, including the erection and
maintenance of such scaffolding, canopies, fences, and props as may be required,
(iii) for the purposes of performing any of Tenant’s obligations under this
Lease, or (iv) for the purpose of posting notices of non-responsibility for
alterations, additions, or repairs.

 

15.2         Entry to Relet Premises.  Landlord may, during reasonable business
hours within 18 months prior to the expiration of this Lease, enter the Premises
for the purpose of allowing prospective tenants to view the Premises.

 

15.3         No Liability.  Landlord shall be permitted to enter the Premises
for any of the purposes stated in and in accordance with Sections 15.1 and 15.2
above without any liability to Tenant for any loss of occupation of quiet
enjoyment of the Premises resulting therefrom.

 

ARTICLE 16

 

Assignment and Subletting

 

16.1         Assignment and Subletting.  Tenant shall neither voluntarily nor by
operation of law, assign, sell, encumber, pledge or otherwise transfer all or
any part of Tenant’s leasehold estate hereunder, or permit the Premises to be
occupied by anyone other than Tenant or Tenant’s employees, or sublet the
Premises or any portion thereof, without Landlord’s prior written consent in
each instance, which consent shall not be unreasonably withheld. Any purported
assignment or subletting contrary to these provisions shall be void. Landlord’s
consent shall be based upon a determination that the same type, class, nature
and quality of business, service, management, and financial soundness of
ownership shall exist after such assignment or subletting and, provided further,
that each and every covenant, condition or obligation imposed upon Tenant by
this Lease is assumed by such assignee or subtenant and each and every right,
remedy or benefit afforded Landlord by this Lease is not thereby impaired or
diminished.

 

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Consent by Landlord to one or more assignments of this Lease or to one or more
sublettings of the Premises shall not operate to exhaust Landlord’s rights under
this Section.

 

16.2         Notice to Landlord.  If Tenant desires at any time to assign this
Lease or to sublet the Premises or any portion thereof, it shall first notify
Landlord of its desire to do so and shall submit in writing to Landlord (the
“Transfer Notice”); (i) the size and location of the space Tenant proposes to
assign or sublet; (ii) the name of the proposed Subtenant or assignee; (iii) the
date on which the Tenant proposes that the transfer be effective, which shall
not be earlier than the date which is 10 business days after the Transfer Notice
(iv) the nature of the proposed Subtenant’s or assignee’s business to be carried
on in the Premises; (v) the terms and provisions of the proposed sublease or
assignment; (vi) such reasonable financial information as Landlord may request
concerning the proposed Subtenant or assignee, and (vii) such other information
as Landlord may reasonably require. Tenant agrees to reimburse Landlord for
Landlord’s actual costs and attorneys’ fees (not to exceed $5000) incurred in
conjunction with the processing and documentation of any such requested
assignment, subletting, transfer, change or ownership or hypothecation of this
Lease.

 

16.3         Notwithstanding Section 16.1 and 16.2, Landlord agrees that Tenant
may assign its interest in this Lease or sublet the Premises, or any portion
thereof, without Landlord’s prior written consent but with written notice, to
any (each such assignment, a “Specially Permitted Assignment”):

 

(i)            successor by merger or sale of substantially all of Tenant’s
assets to which this Lease relates in a manner such that the assignee will
become liable and responsible for the performance and observance of all Tenant’s
duties and obligations hereunder;

 

(ii)           corporation or other entity which controls, is controlled by, or
is under common control with Tenant (a corporation or other entity will be
regarded as in control of another corporation or entity if its owns or controls
in excess of 50% of the voting stock or other ownership interest of the other
corporation or entity); or

 

(iii) corporation or other entity with whom Tenant has a bona fide collaboration
(by joint venture, license or otherwise) (“Other Occupants”) subject to
satisfaction of the following conditions:

 

(a)           the purpose of such collaboration is to develop and/or
commercialize any or all of Tenant’s drug products;

 

(b)           there shall be no separate identification of the portion of the
Premises occupied by the Other Occupants visible from inside or outside the
Premises,

 

(c)           there shall be no separate entrances or partitions separating the
portion of the Premises occupied by Other Occupants;

 

(d)           there shall be no agreement purporting to transfer any part of
Tenant’s leasehold to any Other Occupant, and each Other Occupant (but not their

 

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individual employees) shall affirm in writing that it is not a subtenant or
other transferee of any leasehold interest; and

 

(e) such occupancy shall not be a subterfuge or a means to circumvent the
restrictions on transfer set forth in this Section.

 

16.4         No Release of Liability.  No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant of its obligation to pay the rent
and perform all the other obligations to be performed by Tenant hereunder. The
acceptance of rent by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any provision of this Lease or to be a consent to any
assignment or subletting.

 

16.5         Transfer Premiums.  If Tenant assigns or sublets its rights under
this Lease, Tenant shall pay to Landlord as Additional Rent, after Tenant has
recovered any relevant leasing commissions, costs of real property and/or tenant
improvements and other expenses of the assignment or sublease, 50% of such
excess consideration due and payable to Tenant from said assignment or sublease
to the extent said consideration exceeds the Rent or a pro rata portion of the
Rent, in the event only a portion of the Premises is sublet or assigned
(“Profits”); provided, however, Landlord will not be entitled to any Profits
derived in connection with a Specially Permitted Assignment.

 

16.6         Landlord’s Option.  Except for Specially Permitted Assignments, if
Tenant desires at any time to assign or sublet all or substantially all of the
Premises, Landlord, within 15 days after Landlord’s receipt of all of the
information required in the Transfer Notice, may by written notice to Tenant
elect to terminate this Lease as to the entire Premises.  In the event the
Landlord elects to terminate the Lease, the Lease shall terminate on the
proposed date the transfer would be effective as specified in the Transfer
Notice and Tenant shall have no furhter obligations with respect to the Premises
other than to surrender and vacate the Premises on or before the effective date
of termination.  After any such election by Landlord, Landlord shall be entitled
to re-lease the Premises in Landlord’s sole and absolute discretion.

 

ARTICLE 17

 

Dispossession

 

17.1         No Dispossession.  If Tenant shall surrender the Premises, or be
disposed by process of law, or otherwise, Landlord may terminate this Lease,
retake possession of the Premises, pursue its remedies provided herein, and any
personal property or trade fixtures belonging to Tenant and left on the Premises
shall, at the option of Landlord, be deemed abandoned.  In such case, Landlord
may dispose of said personal property in any manner and is hereby relieved of
all liability for doing so.

 

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ARTICLE 18

 

Breach by Tenant

 

18.1         Events of Default.  The occurrence of any of the following shall
constitute a breach and material default of this Lease by Tenant:

 

18.1.1      The failure of Tenant to pay or cause to be paid when due any Base
Monthly Rental, Additional Rent, Rent, taxes, monies, or charges required by
this Lease to be paid by Tenant when such failure continues for a period of 5
business days after written notice thereof from Landlord to Tenant;

 

18.1.2      The failure of Tenant to perform any term, covenant or condition,
other than payment of rent, taxes, monies or charges, required by this Lease and
Tenant shall have failed to cure such failure within 30 days after written
notice from Landlord; provided, however, that where such failure cannot
reasonably be cured within the 30 day period, the Tenant shall not be in default
if it has commenced such cure within the same 30 day period and diligently
thereafter prosecutes the same to completion;

 

18.1.3      Subject to the notice and cure provisions of Section 18.1.3 above,
Tenant causing, permitting, or suffering, without the prior written consent of
Landlord, any act when this Lease requires Landlord’s prior written consent or
prohibits such act; or

 

18.1.4      To the extent permitted by applicable law, any act of bankruptcy
caused, suffered or permitted by Tenant. For purposes of this Lease, “act of
bankruptcy” shall include any of the following:

 

18.1.4.1.  Any general assignment or general arrangement for the

 

benefit of creditors;

 

18.1.4.2.  The filing of any petition by or against Tenant to have Tenant
adjudged a bankrupt or a petition for reorganization or arrangement under any
law relating to bankruptcy, unless such petition is filed against Tenant and
same is dismissed within 120 days;

 

18.1.4.3.  The appointment of a trustee or receiver to take possession of
substantially all of Tenant’s assets located in the Premises or of Tenant’s
interest in this Lease; or,

 

18.1.4.4.  The attachment, execution or other judicial seizure of substantially
all of Tenant’s assets located at the Premises or of Tenant’s interest in this
Lease.

 

18.2         Three-Day Notice.  In the event that Landlord issues a three-day
notice, notice of abandonment or comparable document by reason of Tenant’s
breach, and Tenant cures such default, Tenant agrees to pay to Landlord, the
reasonable cost of preparation and delivery of same.

 

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18.3         No Waiver.  The acceptance by Landlord of rent due hereunder after
breach by Tenant will not constitute a waiver of such breach, unless a written
notice to that effect has been delivered to Tenant.

 

18.4         Replacement of Statutory Notice Requirements.  When this Lease
requires service of a notice, that notice shall replace rather than supplement
any equivalent or similar statutory notice, including any notices required by
Code of Civil Procedure section 1161 or any similar or successor statute.  When
a statute requires service of a notice in a particular manner, service of that
notice (or a similar notice required by this Lease) in the manner required by
Section 35.10 shall replace and satisfy the statutory service-of-notice
procedures, including those required by Code of Civil Procedure section 1162 or
any similar or successor statute.

 

ARTICLE 19

 

Remedies Upon Breach

 

19.1         Landlord’s Remedies.  If Tenant fails to perform any of its
affirmative duties or obligations, within 30 days after written notice (or in
the case of any facts or circumstances that create an imminent risk of damage to
the Property or the Premises or injury to, or death of, persons, without written
notice), Landlord may, at its option, perform such duty or obligation on
Tenant’s behalf, including but not limited to the obtaining of reasonable
required bonds, insurance policies, or governmental licenses, permits or
approvals; provided, however, in the event Tenant begins to cure within such 30
day period, Landlord shall provide Tenant a reasonable opportunity to cure such
default.  Tenant shall pay to Landlord an amount equal to the costs and expenses
incurred by Landlord in such performance upon receipt of an invoice, with
interest thereon, at the Default Rate from the date of expenditure.   Upon the
occurrence of any breach or material default by Tenant under Section 18.1, in
addition to other rights or remedies of Landlord at law or in equity, Landlord
shall have the following remedies:

 

19.1.1      Landlord shall have the remedy in Civil Code section 1951.4, which
provides that, when a tenant has the right to sublet or assign (subject only to
reasonable limitations), the landlord may continue the lease in effect after the
tenant’s breach and abandonment and recover Rent as it become due.  Accordingly,
if Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may enforce all of Landlord’s rights and remedies under this
Lease, including the right to recover all Rent as it becomes due; and

 

19.1.2      Landlord, either as an alternative or subsequent to exercising the
remedies set forth in Section 19.1.1, may terminate Tenant’s right to possession
of the Premises by and upon delivery to Tenant of written notice of termination.
Landlord may then immediately reenter the Premises and take possession thereof
pursuant to legal proceedings and remove all persons and property from the
Premises; such property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant. No notice of termination
shall be necessary in the event that Tenant has abandoned the Premises. In the
event that Landlord elects to terminate Tenant’s right of possession, Landlord
may recover the following:

 

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19.1.2.1.  The worth at the time of the award of the unpaid rent which had been
earned at the time of termination. “Worth at the time of award” shall be
computed by allowing interest at the Default Rate from the first day the breach
occurs;

 

19.1.2.2.  The worth at the time of award of the amount by which the unpaid rent
which would have been earned after termination until the time of award exceeds
the amount of such rental loss that the Tenant proves could have been reasonably
avoided. “Worth at the time of award” shall be determined by allowing interest
at the Default Rate from the first day a breach occurs;

 

19.1.2.3.  The worth at the time of award of the amount by which the unpaid rent
for the balance of the term after the time of award exceeds the amount of such
rental loss that the Tenant proves could be reasonably avoided. “Worth at the
time of award” shall be computed by discounting such amount at the discount rate
at the Federal Reserve Bank of San Francisco at the time of award plus 1%; and

 

19.1.2.4.  Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant’s failure to perform its obligations
under the Lease or which in the ordinary course of things would be likely to
result therefrom including, but not limited to, commissions and expenses of
reletting, attorneys’ fees, costs of alterations and repairs, recording fees,
filing fees and any other expenses customarily resulting from obtaining
possession of leased premises and re-leasing.

 

19.2         Landlord Default.  If Landlord fails to perform any of its
obligations under this Lease, such failure materially interferes with the
Tenant’s use and operations within the Premises and Landlord fails to cure such
default within twenty (20) days after written notice from Tenant specifying the
nature of such default where such default could reasonably be cured within said
twenty (20) day period, or fails to commence such cure within said twenty (20)
day period and thereafter fails to continue with due diligence to prosecute such
cure to completion where such default could not reasonably be cured with said
twenty (20) day period, then (1) Tenant may proceed in equity or at law to
compel Landlord to perform its obligation and/or to recover damages proximately
caused by such failure to perform; and/or (2) Tenant may perform such
obligations and have the right to be reimbursed for the sum it actually and
reasonably expends in the performance thereof; and if Landlord does not
reimburse Tenant therefore within thirty (30) days after written demand
therefore from Tenant, Tenant shall have the right to withhold such sum from
future Rent due hereunder until Tenant is reimbursed in full therefore;
provided, however, that such right to withhold rent shall be limited to not more
than one month’s Base Monthly Rent in any twelve (12) month period.  In the
event the sum expended by Tenant exceeds one (1) month’s Base Monthly Rent,
Tenant by withholding such rent shall not be deemed to waive any of Tenant’s
rights to collect any excess proceeds pursuant to its remedies at law and/or
pursue its remedies in equity.  Notwithstanding the foregoing, Tenant shall have
no right to terminate this Lease for any such default by Landlord.

 

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ARTICLE 20

 

Damage or Destruction

 

20.1         Landlord’s Obligation to Rebuild.  If the Premises are damaged or
destroyed, Landlord shall promptly and diligently repair the Premises unless it
has the right to terminate this Lease as provided in Section 20.2 below and it
elects to so terminate.  For purposes of this Article 20, “Premises” shall
include any real property and/or fixture improvements located within the
Premises as of the Commencement Date.

 

20.2         Landlord’s Right to Terminate.  Landlord shall have the right to
terminate this Lease following damage to or destruction of the Premises if any
of the following occurs: (i) insurance proceeds together with additional amounts
Tenant agrees to contribute are not confirmed to be available to Landlord,
within 90 days following the date of damage, to pay 100% of the cost to fully
repair the damaged Premises, excluding the deductible for which Tenant shall
also be responsible; (ii) the Premises cannot, with reasonable diligence, be
fully repaired by Landlord within 12 months after the date of the damage or
destruction; (iii) the Premises cannot be safely repaired because of the
presence of hazardous factors, including, but not limited to, earthquake faults,
radiation, chemical waste and other similar dangers; (iv) the Premises are
destroyed or damaged during the last 12 months of the Term; or (v) Tenant is in
uncured material default under the terms of this Lease at the time of such
damage or destruction.

 

20.3         Tenant’s Right to Terminate.  Tenant shall have the right to
terminate this Lease following damage to or destruction of the Premises if any
of the following occurs: (i) the Premises cannot, with reasonable diligence, be
fully repaired by Landlord within 18 months after the date of the damage or
destruction; or (ii) the Premises are destroyed or damaged during the last 12
months of the Term.

 

If a party elects to terminate this Lease and has the right to so terminate,
such party will give the other party written notice of its election to terminate
within 30 days after it has knowledge of such damage or destruction, and this
Lease will terminate 15 days after receipt of such notice.  If this Lease is
terminated pursuant to Section 20.2, Landlord shall, subject to the rights of
its lender(s), be entitled to receive and retain all the insurance proceeds
resulting from such damage, except for: (i) those proceeds payable under
policies obtained by Tenant which specifically insure Tenant’s personal
property, trade fixtures and machinery, and (ii) that portion of the proceeds
which are directly attributable to that portion of the real property and/ or
fixture improvements located within the Premises and which were paid for by
Tenant after the Commencement Date.  If neither party elects to terminate the
Lease, Landlord shall, promptly following the date of such damage or destruction
and receipt of amounts required of Tenant pursuant to Section 20.2(i) above,
commence the process of obtaining necessary permits and approvals, and shall
diligently commence repair of the Premises as soon as practicable and thereafter
prosecute the same diligently to completion, in which event this Lease will
continue in full force and effect.

 

20.4         Limited Obligation to Repair.  Landlord’s obligation, should it
elect or be obligated to repair or rebuild, shall be limited to the Premises
(including any real property and/or

 

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fixture improvements existing on the Premises as of the Commencement Date),
Building and common areas, and Tenant shall, at its expense, replace or fully
repair all Tenant’s personal property and any alterations installed by Tenant
existing at the time of such damage or destruction. If the Premises are to be
repaired in accordance with the foregoing, Landlord shall make available to
Tenant any portion of insurance proceeds it receives which are allocable to the
alterations constructed by Tenant pursuant to this Lease provided Tenant is not
then in default.

 

20.5         Abatement of Rent.  Rent shall be temporarily abated in proportion
to the degree to which Tenant’s use of the Premises is impaired and only to the
extent of any proceeds received by Landlord from the rental abatement insurance
described in Section 10.1 hereof, during any period when, by reason of such
damage or destruction, Landlord and Tenant reasonably determines that there is
substantial interference with Tenant’s use of the Building. Such abatement shall
commence upon such damage or destruction and end upon substantial completion by
Landlord of the repair or reconstruction which Landlord is obligated or
undertakes to do. Tenant shall not be entitled to any compensation or damages
from Landlord for loss of the use of the Premises, damage to Tenant’s personal
property or any inconvenience occasioned by such damage, repair or restoration.
Tenant hereby waives the provisions of Section 1932(2) and Section 1933(4) of
the California Civil Code, and the provisions of any similar law hereinafter
enacted.

 

20.6         Replacement Cost.  The determination in good faith by Landlord of
the estimated cost of repair of any damage, of the replacement cost, or of the
time period required for repair shall be conclusive for purposes of this
Section.

 

ARTICLE 21

 

Condemnation

 

21.1         Total Taking – Termination.  If title to all of the Premises or so
much thereof is taken for any public or quasi-public use under any statute or by
right of eminent domain so that reconstruction of the Premises will not result
in the Premises being reasonably suitable (as reasonably determined by Landlord
and Tenant) for Tenant’s continued occupancy for the uses and purposes permitted
by this Lease, this Lease shall terminate as of the date possession of the
Premises or part thereof be taken.

 

21.2         Partial Taking.  If any part of the Premises is taken and the
remaining part after Landlord makes repairs and alterations is reasonably
suitable, as reasonably determined by Landlord and Tenant, for Tenant’s
continued occupancy for the purposes and uses permitted by this Lease, this
Lease shall, as to the part so taken terminate as of the date that possession of
such part of the Premises is taken and the Base Monthly Rental shall be reduced
in the same proportion that the floor area of the portion of the Building so
taken (less any addition thereto by reason of any reconstruction) bears to the
original floor area of the Building. Landlord shall, at its sole cost and
expense, make all necessary repairs or alterations to the Building so as to make
the portion of the Building not taken a complete architectural unit. Such work
shall not, however, exceed the scope of the work done by Landlord in originally
constructing the Building. Base

 

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Monthly Rental due and payable hereunder shall be temporarily abated during such
restoration period in proportion to the degree to which Tenant’s use of Premises
is impaired. Each party hereby waives the provisions of Section 1265.130 of the
California Code of Civil Procedure allowing either party to petition the
Superior Court to terminate in the event of a partial taking of the Building or
Premises.  Notwithstanding the foregoing, if more than twenty-five percent (25%)
of the square footage of the Building is taken or sold under such threat,
Landlord may terminate this Lease as of the date that the condemning authority
takes possession by delivery of written notice of such election within twenty
(20) days after Landlord has been notified of the taking or, in the absence
thereof, within twenty (20) days after the condemning authority shall have taken
possession.

 

21.3         No Apportionment of Award.  No award for any partial or entire
taking shall be apportioned, it being agreed and understood that Landlord shall
be entitled to the entire award for any partial or entire taking. Tenant assigns
to Landlord its interest in any award which may be made in such taking or
condemnation, together with any and all rights of Tenant arising in or to the
same or any part thereof. Nothing contained herein shall be deemed to give
Landlord any interest in or require Tenant to assign to Landlord any separate
award made to Tenant for the taking of Tenant’s personal property, trade
fixtures or machinery for the interruption of Tenant’s business, or its moving
costs, or for the loss of its goodwill.  Notwithstanding the foregoing, Tenant
shall be entitled to receive (i) an award to the extent of that portion of the
award which is directly attributable to the real property and/or fixture
improvements located within the Premises paid for by Tenant after the
Commencement Date, and (ii) 50% of the amount attributable to any excess of the
market value of the Premises for the remainder of the Lease term over the
present value as of the termination date of the fixed rent and management fee
payable for the remainder of the Lease term.  In addition, Tenant will have the
right to make a separate claim in the condemnation proceeding for (a) the taking
of the unamortized or undepreciated value of any leasehold improvements that
Tenant has the right to remove at the end of the Lease Term and that Tenant
elects not to remove, (b) loss of goodwill, and (c) any other amount in addition
to the foregoing, so long as any such claim does not reduce the amount of the
award payable to Landlord.

 

21.4         Temporary Taking.  No temporary taking of the Premises shall
terminate this Lease or give Tenant any right to any abatement of Rent, except
to the extent covered by insurance proceeds payable to Landlord. Any award made
to Tenant by reason of such temporary taking shall belong entirely to Tenant and
Landlord shall not be entitled to share therein. Each party agrees to execute
and deliver to the other all instruments that may be required to effectuate the
provisions of this Section.

 

21.5         Sale Under Threat of Condemnation.  A sale made in good faith by
Landlord to any authority having the power of eminent domain, either under
threat of condemnation or while condemnation proceedings are pending, shall be
deemed a taking under the power of eminent domain for all purposes of this
Section.

 

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ARTICLE 22

 

Surrender of Lease

 

22.1         Surrender of Lease.  The voluntary or other surrender of its
interest in this Lease by Tenant or a mutual cancellation of this Lease shall
not work a merger, and shall, at the election of Landlord, either terminate all
or any existing subleases or subtenancies or operate as an assignment to
Landlord of any or all of such subleases or subtenancies. Landlord shall
exercise its election within 30 days of any such surrender or cancellation.

 

ARTICLE 23

 

Attorneys’ Fees

 

23.1         Attorneys’ Fees.  If either party institutes or is made a party to
any action or proceeding to enforce or interpret this Lease, the prevailing
party in such action or proceeding shall be entitled to recover all costs and
attorneys’ fees incurred in connection with such action or proceeding, or any
appeal or enforcement of such action or proceeding.

 

ARTICLE 24

 

Sale of the Premises by Landlord; ROFN

 

24.1         Sale of Premises.  Notwithstanding any provisions of this Lease to
the contrary, Landlord may assign, in whole or in part, Landlord’s interest in
this Lease and may sell all or part of the real estate of which the Premises are
a part (the “Real Property”).  Should Landlord elect to sell the Real Property,
Landlord agrees to notify Tenant of its intent to do so. Landlord’s willingness
to notify Tenant is to be considered a courtesy notice only and not an offer to
sell, or an obligation of any form on the part of Landlord to sell the Real
Property to Tenant. This courtesy notice is not to be construed as an option, an
offer to negotiate, a right of first refusal, or any other form of agreement
that would obligate Landlord to pursue a sale of the Real Property to Tenant or
in any manner prohibit Landlord from its rights to sell all or part of the Real
Property as it chooses.

 

24.2         Right of First Negotiation.  If at any time during the Term,
Landlord decides to sell the Real Property, Landlord shall deliver to Tenant
written notice thereof (the “Sale Notice”).  Tenant may, within 10 business days
after its receipt of the Sale Notice, elect by written notice to Landlord to
negotiate with Landlord to purchase the Premises by delivering written notice to
Landlord (“Tenant’s Acceptance Notice”).  Promptly thereafter, the parties shall
negotiate in good faith the terms and conditions of such purchase and sale of
the Premises.  If the parties are unable to agree on mutually acceptable terms
and conditions and execute a binding commitment for the purchase and sale of the
Premises within 60 days after the date of the Sale Notice (“Offer Period”),
Landlord shall be deemed to have satisfied its obligation to provide Tenant with
the right of first negotiation provided for herein and may offer to sell the
Premises in the open market.  If Landlord fails to close on the sale of the
Premises with a third party within 6 months from the expiration of the Offer
Period (provided such period shall be extended as

 

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necessary to close the transaction if Landlord and such third party are in
escrow within the 6-month period), the right of first negotiation provided for
herein shall again apply.

 

ARTICLE 25

 

Quiet Enjoyment

 

25.1.        Quiet Enjoyment.  If Tenant is not in breach under the covenants
made in this Lease, Landlord covenants that Tenant shall have peaceful and quiet
enjoyment of the Premises without hindrance on the part of Landlord. Landlord
will defend Tenant in the peaceful and quiet enjoyment of the Premises against
claims of all persons claiming through or under Landlord.

 

ARTICLE 26

 

Estoppel Certificates and Financial Statements

 

26.1         Tenant Estoppel Certificate.  Tenant shall at any time during the
term of this Lease, within 5 business days of written notice from Landlord,
execute and deliver to Landlord a statement in writing certifying that this
Lease is unmodified and in full force and effect or, if modified, stating the
nature of such modification. Tenant’s statement shall include other details
requested by Landlord, such as the date to which rent and other charges are
paid, Tenant’s knowledge concerning any uncured defaults with respect to
Landlord’s obligations under this Lease and the nature of such defaults if they
are claimed, and such other matters as Landlord may reasonably request. Any such
statement may be relied upon conclusively by any purchaser or lender having an
interest in the Premises. Tenant’s failure to deliver such statements within
such time shall be conclusive upon the Tenant that this Lease is in full force
and effect, except as and to the extent any modification has been represented by
Landlord, and that there are no uncured defaults in Landlord’s performance, and
that not more than 1 month’s rent has been paid in advance.

 

26.2         Tenant Financial Statements.  Within 120 days after the end of each
fiscal year, Tenant shall provide Landlord, upon Landlord’s written request, a
copy of the audited financial statements that have been provided to the SEC or,
in the event Tenant is no longer required to deliver such financial statements
to the SEC, year-end financial statements, including balance sheets and income
statements, reflecting Tenant’s current financial condition for such fiscal year
that have been audited by a nationally or regionally recognized firm of
certified public accountants.  In the event Tenant is no longer required to
deliver such financial statements to the SEC, Tenant will represent and warrant
at the time it provides any financial statements, records or information
pursuant hereto that all financial statements, records and information furnished
by Tenant to Landlord in connection with this Lease are true, correct and
complete in all respects.

 

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ARTICLE 27

 

Subordination and Attornment

 

27.1         Subordination of Lease.  This Lease and Tenant’s rights under this
Lease are subject and subordinate to any Mortgage, ground lease, and to all
renewals, modifications, consolidations, replacements, or extensions thereof,
now or hereafter affecting the Premises. The provisions of this Section shall be
self-operative, and no further instrument of subordination shall be required. In
confirmation of such subordination, however, Tenant shall within ten days
execute and deliver any instruments that Landlord, the holder of any Mortgage,
or the Landlord of any ground lease may request to evidence such subordination.
If Tenant fails to execute and deliver any such instruments, Tenant irrevocably
constitutes and appoints Landlord as Tenant’s special attorney-in-fact to
execute and deliver such instruments.

 

27.2         Attornment to Lender.  If the holder of any Mortgage, or the
Landlord of any ground lease affecting the Premises, shall hereafter succeed, by
foreclosure or otherwise, to the rights of Landlord under this Lease, Tenant
shall attorn to and recognize such successor as Tenant’s Landlord under this
Lease, and shall promptly execute and deliver any instruments that may be
necessary to evidence such attornment, and Tenant hereby irrevocably appoints
Landlord as Tenant’s special attorney in fact to execute and deliver such
instruments on behalf of Tenant should Tenant refuse or fail to do so. Upon such
attornment, this Lease shall continue in effect as a direct lease between such
successor Landlord and Tenant upon and subject to all of the provisions of this
Lease. Notwithstanding the foregoing, Tenant’s agreement both to subordinate and
to attorn, as set forth in this Article, is contingent upon Tenant’s receipt of
a nondisturbance agreement from the holder of any encumbrance placed against the
Premises, in a recordable, commercially reasonable form, providing that in the
event of any foreclosure, sale under a power of sale, ground or master lease
termination, or transfer in lieu of any of the foregoing, or the exercise of any
other remedy under any such encumbrance, but subject to reasonable exceptions:
(i) Tenant’s use, possession, and enjoyment of the Premises will not be
disturbed and this Lease will continue in full force and effect so long as
Tenant is not in default; and (ii) this Lease will automatically become a lease
directly between any successor to Landlord’s interest, as landlord, and Tenant,
as if that successor were the landlord originally named in the lease.

 

ARTICLE 28

 

Holding Over

 

28.1         Holding Over.  If Tenant should remain in possession of the
Premises after the expiration of the term of this Lease without executing a new
lease or after Landlord has declared a forfeiture by reason of a default by
Tenant, the such holding over shall be construed as a tenancy from month to
month, subject to all the conditions, provisions and obligations of this Lease
insofar as they are applicable to a month to month tenancy, including the
provisions of Article 3, except that the Base Monthly Rental shall be one
hundred fifty percent (150%) of the Base Monthly Rental last due, payable
monthly in advance.  Notwithstanding the foregoing, if Tenant fails to vacate
the Premises or Tenant fulfills less than all of its obligations hereunder at
the end of the Lease Term, Tenant also shall be liable for all damages incurred
by Landlord by

 

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reason of the latter’s inability to deliver possession of the Premises or any
portion thereof to any other person.

 

ARTICLE 29

 

Mortgagee Protection

 

29.1         Mortgagee Protection.  In the event of any default on the part of
Landlord, Tenant agrees to give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgage covering the Premises whose address
shall have been furnished to the Tenant and shall offer such beneficiary or
mortgagee a reasonable opportunity to cure such default (such cure period not to
exceed 90 days after receipt of such notice).

 

ARTICLE 30

 

Liability of Successors

 

30.1         Successor’s Liability.  The covenants and conditions herein
contained shall, subject to the provisions as to assignment, apply to and bind
the heir, successors, executors, administrators, and permitted assigns of all
the parties hereto and all of the parties hereto shall be jointly and severally
liable for the covenants contained herein.

 

ARTICLE 31

 

Easements

 

31.1.        Easements.  Landlord reserves the right, from time to time, to
grant such easements, rights and dedications that Landlord deems necessary or
desirable, and to cause the recordation of parcel maps and restrictions, so long
as such easements, rights, dedications, maps and restrictions do not
unreasonably interfere with the use of the Premises by Tenant. Tenant shall sign
any documents or instruments to accomplish the foregoing upon request of
Landlord, and failure to do so shall constitute a material breach of this Lease.
Tenant irrevocably appoints Landlord as Tenant’s special attorney in fact to
execute and deliver such documents or instructions on behalf of Tenant should
Tenant refuse or fail to do so.

 

ARTICLE 32

 

Covenants, Conditions and Restrictions

 

32.1         Compliance with Covenants, Conditions and Restrictions.  In
addition to requirements imposed by law, the care of the Premises and conduct of
business thereupon, among other things, are restricted or subject to heightened
requirements pursuant to one or more recorded Covenant, Conditions and
Restrictions (“CC&R’s”). The terms of all applicable

 

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CC&R’s, in their entirety, are incorporated herein by this reference. Tenant has
received a copy of all applicable CC&R’s prior to its execution of this Lease,
and such receipt is acknowledged hereby.

 

32.2         Associations.  Tenant shall faithfully observe and comply with the
provisions of all applicable CC&R’s, and all modifications and additions which
may from time to time be enacted pursuant to their terms. Tenant shall similarly
observe and comply with all requests, demand and orders otherwise made by any
governing associations created under the authority of the CC&R’s (the
“Associations”). Any violation by Tenant of the CC&R’s or rightful orders of the
Associations created thereby after written notice to Tenant shall be a default
under this Lease, subject to the cure provisions of Section 18.1.3. However,
Landlord will not be responsible to Tenant for the nonperformance of any
provisions of such CC&R’s by its tenants occupying neighboring properties, if
any.

 

32.3         Association Fees.  All payments, charge, dues, and assessments
imposed under the authority of the CC&R’s and the Associations (“Association
Fees”) shall be the sole responsibility of Tenant, who shall timely pay such
Association Fees to Landlord as Additional Rent. Each payment shall be made
promptly on demand throughout the term of this Lease and shall be paid without
deduction or offset.

 

32.4         Faraday Court Owners Association.  Landlord shall not vote in favor
of any matter to be voted upon by the Faraday Court Owners Association that if
adopted would materially alter, reduce or adversely affect any of Tenant’s
rights or materially enlarge Tenant’s obligations under this Lease.  Landlord
will promptly copy Tenant on communications from the Faraday Court Owners
Association that relate to the Premises and the common areas.

 

ARTICLE 33

 

Quitclaim Deed

 

33.1         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, in recordable form, designating
Landlord as transferee.

 

ARTICLE 34

 

Hazardous Materials

 

34.1         Definitions:

 

34.1.1      Hazardous Materials Laws.  “Hazardous Materials Laws” means any and
all federal, state or local laws, ordinances, rules, decrees, orders,
regulations or court decisions relating to hazardous substances, hazardous
materials, hazardous waste, toxic substances,

 

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environmental conditions on, under or about the Premises, or soil and ground
water conditions, including, but not limited to, California Labor Code
Section 6382, California Health and Safety Code Section 25249.5, et seq., any
amendments to and any regulations promulgated pursuant to the foregoing, and any
similar federal, state or local laws, ordinances, rules, decrees, orders or
regulations.

 

34.1.2      Hazardous Materials.  “Hazardous Materials” means any chemical,
compound, substance or other material, including, without limitation, gasoline,
diesel, aviation fuels, lubricating oils, solvents and chemicals, that: (i) is
defined as a hazardous substance, hazardous material, hazardous waste or toxic
substance under any Hazardous Material Law; (ii) is controlled or governed by
any Hazardous Materials Law, or gives rise to any reporting, notice or
publication requirements thereunder, or gives rise to any liability,
responsibility or duty on the part of Tenant or County with respect to any third
person thereunder; or (iii) is a flammable or explosive material, asbestos,
radioactive material, nuclear medicine material, drug, vaccine, bacterial,
virus, hazardous waste, toxic substance, or related injurious or potentially
injurious material (by itself or in combination with other materials).

 

34.2         Tenant’s Obligations

 

34.2.1      Compliance with Laws.  Tenant shall strictly comply with, and shall
maintain the Premises in compliance with, all Hazardous Materials Laws. Tenant
shall obtain and maintain in full force and effect all permits, licenses and
other governmental approvals required for Tenant’s operations on the Premises
under any Hazardous Materials Laws and shall comply with all terms and
conditions thereof. At Landlord’s request, Tenant shall deliver copies of, or
allow Landlord to inspect, all such permits, licenses and approvals. Tenant
shall perform any monitoring, investigation, clean-up, removal, detoxification,
preparation of closure or other required plans and any other remedial work
(collectively, “Remedial Work’) required as a result of any release or discharge
of Hazardous Materials from the Premises or any violation of Hazardous Materials
Laws caused by Tenant or any Subtenant of Tenant or their respective agents,
contractors, employees, licensees or invitees (but not by Landlord or Landlord’s
Agents). Landlord shall have the right to intervene in any governmental action
or proceeding involving any Remedial Work, and to approve performance of the
work, in order to protect Landlord interests. Tenant shall be solely responsible
for paying all fines, damages and penalties imposed by any governmental agency
resulting from Tenant’s violation of any Hazardous Materials Laws.

 

34.2.2 Compliance with Insurance Requirements.  Tenant shall comply with the
requirements of Tenant’s insurers regarding Hazardous Materials and with such
insurers’ recommendations based upon prudent industry practices regarding
management of Hazardous Materials.

 

34.2.3      Notice; Reporting.  Tenant shall notify Landlord in writing
immediately after any of the following: (a) Tenant has knowledge, or has
reasonable cause to believe, that any Hazardous Material has been released or
discharged under or about the Premises, whether or not the Hazardous Material is
in quantities that would require reporting to a public agency; (b) Tenant
receives any order of a governmental agency requiring any Remedial Work pursuant
to any Hazardous Materials Laws; (c) Tenant receives any warning, notice of
inspection, notice of violation or alleged violation, or Tenant receives notice
or knowledge of any proceeding,

 

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investigation of enforcement action, pursuant to any Hazardous Materials Laws;
or (d) Tenant receives written notice of any claims made by any third party
against Tenant or the Premises relating to any loss or injury resulting from
Hazardous Materials. Tenant shall deliver to Landlord copies of all test
results, reports and business management plans required to be filed with any
government agency pursuant to any Hazardous Materials Laws.

 

34.2.4      Entry and Inspection; Cure.  Landlord and its agents, employees and
contractors, shall have the right to enter the Premises at all reasonable times
to inspect the Premises and Tenant’s compliance with the terms and conditions of
this Section 34, or to conduct investigations and tests. No prior notice to
Tenant shall be required in the event of any emergency, or if Landlord has
reasonable cause to believe that violations by Tenant of this Section 34 have
occurred, or if Tenant consents at the time of entry. In all other cases,
Landlord shall give at least 48 hours’ prior written notice to Tenant. Landlord
shall have the right, but not the obligation, to remedy any violation by Tenant
of the provisions of this Section 34, or to perform any Remedial Work
necessitated as a result of any discharge by Tenant of Hazardous Materials on
the Premises. Tenant shall pay, upon demand, all costs incurred by Landlord in
remedying such violations or performing all Remedial Work necessitated by the
acts or omissions of Tenant and/or its agents or employees, plus interest
thereon at the rate of 10 percent per annum from the date of demand until the
date paid by the Tenant.

 

34.2.5      Termination/Expiration. Upon termination or expiration of this
Lease, Tenant shall, at Tenant’s cost, remove any equipment, improvements or
storage facilities utilized in connection with any Hazardous Materials and shall
clean up, detoxify, repair and otherwise restore the Premises to a condition in
compliance with applicable laws governing Hazardous Materials, to the extent
such condition is caused by Tenant or any Subtenant of Tenant or their
respective agents, contractors, employees, licensees or invitees. Upon
termination or expiration of this Lease, Tenant shall permit Landlord and
Landlord’s Agents to enter the Premises upon giving Tenant a 24 hour written
notice for the purposes of inspecting, at Tenant’s cost, the environmental
condition of the Premises, including an audit of any Hazardous Materials that
are located on the Premises; provided, however, Landlord shall be responsible
for the cost of such inspection in the event such inspection determines that the
Premises are in material compliance with this Lease.

 

34.2.6      Indemnification.  Tenant shall indemnify, protect, defend and hold
Landlord (and its employees and agents) harmless from and against any and all
claims, costs, expenses, suits, judgments, actions, investigations, proceedings
and liabilities arising out of or in connection with any breach of any provision
of this Lease to the extent arising out of the use, generation, storage,
release, disposal or transportation of Hazardous Materials by Tenant or any
Subtenant, or their respective agents, contractors or employees upon the
Premises (but not by Landlord or Landlord’s Agents), on, under or about the
Premises during the Term, including, but not limited to, all foreseeable and
unforeseeable consequential damages and the cost of any Remedial Work, but
excepting any loss or injury resulting from the breach of the Lease by Landlord
or the gross negligence or willful misconduct of Landlord or Landlord’s Agents. 
Neither the consent by Landlord to the use, generation, storage, release,
disposal or transportation of Hazardous Materials, nor strict compliance with
all Hazardous Materials Laws, shall excuse Tenant from Tenant’s indemnification
obligations pursuant to this Section 34.2.6.

 

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The foregoing indemnity shall be in addition to and not a limitation of the
indemnification provisions of Section 9 of this Lease. Tenant’s obligations
pursuant to this Section 34.2.6 shall survive the termination or expiration of
the Lease.  The procedures set forth in Section 9.2 also will apply to this
Section.

 

34.2.7      Default.  The release or discharge of any Hazardous Material or
violation of any Hazardous Materials Law by Tenant or any Subtenant of Tenant
shall be a material default by Tenant under the Lease, subject to the cure
provisions set forth in 18.1.3. In addition to or in lieu of the remedies
available under the Lease as a result of such default, Landlord shall have the
right, without terminating the Lease, to require Tenant to suspend its
operations and activities on the Premises until Landlord is satisfied that
appropriate Remedial Work has been or is being adequately performed; Landlord’s
election of this remedy shall not constitute a waiver of Landlord’s right
thereafter to declare a default and pursue other remedies set forth in the
Lease.

 

ARTICLE 35

 

Miscellaneous

 

35.1         Gender.  Whenever the singular number is used in this Lease, the
same shall include the plural, and the masculine gender shall include the
feminine and neuter genders, and the word “person” shall include corporation,
firm, or association, when required by the context.

 

35.2         Headings.  The headings or title to the paragraphs of this Lease
are for convenience only and do not in any way define, limit or construe the
contents of such paragraphs.

 

35.3         Integration.  This instrument contains all of the agreements and
conditions made between the parties with respect to the hiring of the Premises
and may not be modified orally or in any other manner other than by a written
instrument signed by all the parties to this Lease.

 

35.4         Choice of Laws.  The laws of the State of California as applied to
contracts entered into between citizens of the State of California and to be
performed within the State of California shall govern the validity, performance
and enforcement of this Lease.

 

35.5         Severability.  If any provision of this Lease is determined to be
void by any court of competent jurisdiction, such determination shall not affect
any other provisions of this Lease and such other provisions shall remain in
full force and effect. If any provision of this Lease is capable of two
constructions, one which would render the provision void and one which would
render the provision valid, the provision shall be interpreted in the manner
which would render it valid.

 

35.6         Amendment for Financing.  Upon written request of Landlord, Tenant
agrees to execute any lease amendments not materially altering the terms of this
Lease, if required by the first mortgagee or beneficiary of a deed of trust
encumbering real property of which the Premises

 

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constitute a part (“Mortgagee”) incident to the financing of the real property
of which the Premises constitute a part. Any change affecting the amount or
timing of the consideration to be paid by Tenant or modifying the term of this
Lease shall be deemed as materially alter the terms hereof.

 

35.7         Payments.  Except as may otherwise be expressly stated, each
payment required to be made by Tenant shall be in addition to and not in
substitution for other payments to be made by Tenant.

 

35.8         Time of Essence.  Time is of the essence in this Lease.

 

35.9         Force Majeure.  Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes thereof, governmental restrictions, regulations, or
controls, enemy or hostile governmental action, civil commotion, fire or other
casualty, and other causes beyond the reasonable control of the party obligated
to perform, shall excuse the performance by such party for a period equal to
that resulting from such prevention, delay or stoppage, except those obligations
of Tenant to make payment for rental and other charges pursuant to the terms of
this Lease.

 

35.10.      Notices.  All notices to be given by one party to the other under
this Lease shall be in writing, mailed or delivered to the other party at the
following addresses:

 

To Landlord:

 

BMR-2282 Faraday Avenue LLC

 

 

Attn: General Counsel

 

 

17140 Bernardo Center Drive, Suite 222

 

 

San Diego, California 92128

 

 

Phone: (858) 485-9840 Fax: (858) 485-9843

 

 

 

To Tenant:

 

Isis Pharmaceuticals, Inc.

 

 

Attn: Patricia Lowenstam

 

 

1896 Rutherford Road

 

 

Carlsbad, California 92008

 

 

Phone: (760) 931-9200 Fax: (760) 918-3599

 

 

 

 

 

with a copy to: General Counsel

 

 

Fax: 760-268-4922

 

Mailed notices shall be sent by United States Postal Service, certified or
registered mail, postage prepaid and shall be deemed to have been given on the
date of posting in the United States Postal Service.

 

Either party may, with proper notice, at any time designate a different address
to which notices shall be sent.

 

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35.11.      Brokers.  Landlord and Tenant each represents to the other that it
has had no dealings with any real estate broker or agent in connection with the
negotiation and/or execution of this Lease except as follows: CB Richard
Ellis, Inc. and agree to indemnify and defend the other against all liability,
costs, expenses and charges arising from any claims that may be made against
them by any real estate broker, agent, finder, or other person, alleging to have
acted on behalf of Landlord or Tenant.

 

35.12.      Confidentiality.  During the course of this Lease the Parties may
exchange certain financial statements, accounting records and other documents
that are clearly stamped “confidential” (“Confidential Information”).  Landlord
and Tenant hereby acknowledge and agree that the Confidential Information of
each Party is to be kept strictly confidential.  Accordingly, except as may be
required by law or court order, neither Landlord nor Tenant will, without the
prior written consent of the other party, release, publish or otherwise
distribute (and shall not authorize or permit any other person or entity to
release, publish or otherwise distribute) any of the other party’s Confidential
Information to any person or entity other than such party’s prospective lenders
and purchasers of the Real Property and legal and financial advisors, each of
whom shall agree to hold such information strictly confidential as if such
persons were bound by the provisions of this Section 35.12.  The obligations of
this Section 35.12 will not apply to information that the receiving party can
establish by written records (a) was known by it prior to the receipt of the
confidential information from the disclosing Party; (b) was disclosed to the
receiving Party by a third party having the right to do so; (c) was, or
subsequently became, in the public domain through no fault of the receiving
Party, its officers, directors, employees or agents; or (d) was disclosed by the
receiving Party pursuant to any judicial, governmental or stock exchange
request, requirement or order, so long as the receiving party provides the
disclosing party with sufficient prior notice in order to allow the disclosing
party to contest such request, requirement or order.  Notwithstanding the
foregoing, Landlord and Tenant may disclose on a confidential basis such
information to such party’s accountants, attorneys and other professional
advisors in connection with the transactions contemplated by this Agreement.

 

ARTICLE 36

 

OPTION TO EXTEND

 

36.1         Options To Extend.  Tenant shall have the option to extend the term
of this Lease for two, five year periods, subject to the following provisions:

 

36.1.1      Tenant shall have no right to exercise an option: (i) during the
period commencing with the giving of any notice of default and continuing until
said default is cured, (ii) during the period of time any Rent is unpaid, or
(iii) in the event that Landlord has given three or more notices of separate
monetary or material non-monetary defaults, whether or not the defaults are
cured, during the 12 months immediately preceding the exercise of the option.

 

36.1.2      The period of time within which an option may be exercised shall not
be extended or enlarged by reason of Tenant’s inability to exercise an option
because of paragraph 36.1.1.

 

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36.1.3      An option shall terminate and be of no further force or effect,
notwithstanding Tenant’s due and timely exercise of the option, if, after such
exercise and prior to the commencement of the extended term, (i) Tenant fails to
pay Rent for a period of 30 days after such Rent becomes due, or (ii) if Tenant
commits a default under this Lease and such default is continuing after the
expiration of the applicable cure periods set forth in Section 18.1.

 

36.1.4      Tenant shall exercise the option by delivery of written notice to
Landlord not less than 12 months prior to the expiration of the initial term
and, if exercised, the first option period, of this Lease. If said notice is not
delivered within said time period(s), this option shall terminate.

 

36.2         Rent –Option.

 

36.2.1      Rent - First Option.  The Base Monthly Rental payable by Tenant
during the first option period shall be the greater of: (a) 95% of the fair
market rent for the Premises at the commencement date of such option period, and
(b) the Base Monthly Rental as increased by an amount equal to 2.5% of the Base
Monthly Rental for the preceding year.  The Base Monthly Rental payable by
Tenant would continue to be increased as of the expiration of every other year
(biennially) of the option period commencing on the second anniversary of the
commencement of such option period (i.e., the second anniversary of the
commencement of the option period and the fourth anniversary of the commencement
of the option period) by an amount equal to 5% of the Base Monthly Rental for
the preceding year.

 

36.2.2      Rent – Second Option.  The Base Monthly Rental payable by Tenant
during the first year of the second option period shall be the greater of:
(a) 95% of the fair market rent for the Premises at the commencement date of
such option period, and (b) the Base Monthly Rental as increased by an amount
equal to 2.5% of the Base Monthly Rental for the preceding year.  The Base
Monthly Rental payable by Tenant would continue to be increased as of the
expiration of every other year (biennially) of the option period commencing on
the second anniversary of the commencement of such option period (i.e., the
second anniversary of the commencement of the option period and the fourth
anniversary of the commencement of the option period) by an amount equal to 5%
of the Base Monthly Rental for the preceding year.

 

36.2.3      Fair Market Rent.  If Landlord and Tenant cannot agree on the fair
market rent of the Premises for the extension period within 30 days after the
Tenant has notified Landlord of Tenant’s exercise of the option, Landlord and
Tenant shall each select, within 15 days of such notification, an appraiser who
must be a qualified MAI appraiser with at least 5 years experience appraising
commercial properties to determine said fair market rental value. If one party
fails to so designate an appraiser within the time required, the determination
of fair market rental value of the one appraiser who has been designated by the
other party within the time required shall be binding on both parties. The
appraisers shall submit their determinations of fair market rental value to both
parties within 30 days after their selection. If the difference between the two
determinations is 10% or less of the higher appraisal, then the average between
the determinations shall be the fair market rental value of the Premises. If
said difference is greater than 10%, then the two appraisers shall within 15
days of the date the second determination is submitted to the parties designate
a third appraiser who must also be a qualified

 

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MAI appraiser. The sole responsibility of the third appraiser will be to
determine which of the determinations made by the first two appraisers is most
accurate. The third appraiser shall have no right to propose a middle ground or
any modification of either of the determinations made by the first two
appraisers. The third appraiser’s choice shall be submitted to the parties
within 20 days after his or her selection. Such determination shall bind both of
the parties and shall establish the fair market rental value of the Premises.
Each party shall pay equal shares of the fees and expenses of the third
appraiser. Fair market rent for the purposes of this Lease shall mean the then
prevailing rent for premises comparable in size, quality and location to the
demised Premises, leased on terms comparable to the terms contained in this
Lease.

 

36.2.4      Memorandum of Lease.  Except as set forth in this Section 36.2.4,
Tenant shall neither execute nor record a memorandum of this Lease.  Tenant
shall execute, acknowledge and deliver at any time after the date of this Lease,
at the request of Landlord, a “memorandum of lease” suitable for recording. 
Landlord may record such a memorandum of lease.

 

36.2.5      Absolute Net Lease.  This Lease shall be deemed and construed to be
an “absolute net lease” and, except as herein expressly provided, the Landlord
shall receive all payments required to be made by Tenant, free from all charges,
assessments, impositions, expenses, deductions of any and every kind or nature
whatsoever.  Except as otherwise expressly provided in this Lease, Landlord
shall not be required to furnish any services or facilities or to make any
repairs, replacements, or alterations of any kind in or on the Premises. Tenant
shall receive all invoices and bills relative to the Premises and, except as
otherwise provided herein, shall pay for all expenses directly to the person or
company submitting a bill without first having to forward payment for the
expenses to Landlord.  Tenant shall at Tenant’s sole cost and expense be
responsible for the management of the Premises, shall maintain the landscaping,
parking lot and shall make all additional repairs and alterations as required to
maintain the property in first class condition.

 

36.2.6      Waiver of Jury Trial.  The parties hereby waive their respective
rights to trial by jury in any action or proceeding invlving the Premises or
arising out of this Agreement.

 

36.2.7      Americans with Disabilities Act.  Since compliance with the
Americans with Disabilities Act (ADA) is dependent on Tenant’s specific use of
the Premises, Landlord makes no warranty or representation as to whether or not
the Premises comply with the ADA or any similar legislation.  In the event that
Tenant’s use of the Premises requires modifications or additions to the Premises
in order to be in ADA compliance, subject to Section 11.3, Tenant agrees to make
any such necessary modifications and/or additions at Tenant’s expense.

 

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day
and year set forth at the beginning hereof.

 

 

LANDLORD:

 

TENANT:

 

 

 

BMR-2282 FARADAY AVENUE LLC,

 

ISIS PHARMACEUTICALS, INC.

a Delaware limited liability company

 

 

 

 

 

 

 

By:

BioMed Realty, L.P.,

 

By:

     /s/ B. Lynne Parshall

 

a Maryland limited partnership,

 

 

     B. Lynne Parshall,

 

its Member

 

 

 

 

 

 

 

 

 

/s/

Gary A. Kreitzer

 

 

 

 

Name: Gary A. Kreitzer

 

 

 

 

Title: Executive Vice President

 

 

 

 

 

[FARADAY LEASE SIGNATURE PAGE]

 

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Schedule 3.4

 

OPERATING EXPENSE EXCLUSIONS

 

Notwithstanding anything contained in the Lease, the following are specifically
excluded from property operating costs and Tenant shall have no obligation to
pay directly or reimburse Landlord for all or any portion of the following
except to the extent any of the following are caused by the actions or inactions
of Tenant, or result from the failure of Tenant to comply with the terms of this
Lease:

 

(i) costs incurred because Landlord actually violated the terms and conditions
of this Lease or any other lease for premises within the Building, if any;

 

(ii) legal and auditing fees (other than those fees reasonably incurred in
connection with the maintenance and operation of all or any portion the
Building), leasing commissions, advertising expenses, and other costs incurred
in connection with the original leasing of the Real Property or future
re-leasing of any portion of the Building;

 

(iii) depreciation of the Building or any other improvements situated within the
project of which the Buildings are a part;

 

(iv) any items for which Landlord is actually reimbursed by insurance or by
direct reimbursement by Tenant or any other party;

 

(v) costs of repairs or other work necessitated by fire, windstorm or other
casualty (excluding any deductibles) and/or costs of repair or other work
necessitated by the exercise of the right of eminent domain to the extent
insurance proceeds or a condemnation award, as applicable, is actually received
by Landlord for such purposes;

 

(vi) other than any interest charges for capital improvements referred to in the
Lease, any interest or payments on any financing for the Building, interest and
penalties incurred as a result of Landlord’s late payment of any invoice, and
any bad debt loss, rent loss or reserves for same;

 

(vii) overhead and profit increment paid to Landlord or to subsidiaries or
affiliates of Landlord for goods and/or services in the project to the extent
the same exceeds the costs of such by unaffiliated third parties on a
competitive basis; or any costs included in property operating expenses
representing an amount paid to a person, firm, corporation or other entity
related to Landlord which is in excess of the amount which would have been paid
in the absence of such relationship; and

 

(viii) costs incurred in the investigation and/or remediation of hazardous
materials which either existed on the Real Property on the Commencement Date or
were brought onto the Real Property by Landlord, its agents, employee or
contractors, except those costs caused by Tenant or Tenant’s Agents whether
before or after the Commencement Date.

 

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