EXHIBIT 10.50

 

LEASE

 

This LEASE (“Lease”) is made as of January 11, 2005 (“Effective Date”) between
BMR-201 INDUSTRIAL ROAD LLC, a Delaware limited liability company (“Landlord”),
and NUVELO, INC., a Delaware corporation (“Tenant”), who agree as follows:

 

RECITALS:

 

This Lease is executed by Landlord and Tenant in contemplation of the following
facts and circumstances:

 

A. Landlord is the owner of certain real property located in the City of San
Carlos, State of California, commonly known as 201 Industrial Road, San Carlos,
California, and more particularly described on Exhibits A and B which are
attached and made a part of this Lease. The land consists of approximately 4.701
acres (together with any easements and appurtenances thereto, the “Land”) with
two existing, connected buildings containing approximately 171,965 rentable
square feet of space. The Land and the buildings are collectively referred to as
the “Project.”

 

B. Tenant desires to lease from Landlord, and Landlord is willing to lease to
Tenant, that portion of the Project (hereinafter referred to as the “Premises”)
delineated on the floor plan attached hereto as Exhibit B-1 and made a part
hereof, consisting of approximately 55,000 rentable square feet located on the
third (3rd) floor and a portion of the fourth (4th) floor of the building known
as “Building 2,” which Building 2 consists of approximately 92,048 rentable
square feet of space, upon the terms and conditions contained herein (Building 2
is hereinafter referred to as the “Building”). Landlord and Tenant agree that
for all purposes of this Lease, the total rentable square feet for the third
(3rd) floor shall be deemed to be 45,574 square feet (with 43,972 usable square
feet) and the total rentable square feet for the fourth (4th) floor shall be
deemed to be 46,474 square feet (with 44,840 usable square feet).

 

C. As consideration for Tenant entering into this Lease, Landlord shall provide
Tenant with a tenant improvement allowance to construct certain improvements to
the Premises. In addition, Landlord agrees to cooperate with Tenant to establish
a shipping and receiving area on the ground floor of the Building and to rework
the reception area on the second (2nd) floor of the Building to address Tenant’s
entry and aesthetic needs, the costs of which shall be paid from the Tenant
Improvement Allowance (as defined in Section 4.5) except for those portions
described as Landlord’s Work in the Work Letter, which shall be at Landlord’s
sole cost and not as part of the Tenant Improvement Allowance.

 

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:

 

1. DEFINITIONS. The terms defined in this paragraph, for all purposes of this
Lease, shall have the meanings herein specified. Terms defined elsewhere in this
Lease shall have the meanings as defined thereunder.

 

1.1 “Applicable Law” shall mean all federal, state, county, municipal and other
governmental statutes, laws, rules, orders, permits, licenses, regulations,
ordinances,

 

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judgments, decrees, directions and injunctions affecting the Premises or any
portion thereof or the use or occupancy thereof, whether now or hereafter
enacted or in force, whether ordinary or extraordinary, foreseen or unforeseen.

 

1.2 “Claims” shall mean any and all liabilities (statutory or otherwise),
obligations, claims, demands, damages, penalties, causes of action, costs,
expenses (including attorneys’ fees and expenses), losses and injuries arising
from the subject matter of an indemnity granted herein.

 

1.3 “Common Areas” shall mean all portions of the Project which are for the
non-exclusive use of tenants of the Project, including, without limitation,
driveways, sidewalks, parking areas, landscaped areas, service corridors,
stairways, elevators, public restrooms and building lobbies.

 

1.4 “Default Rate” shall mean the greater of (i) ten percent (10%) per annum, or
(ii) five percent (5%) per annum plus the discount rate of the Federal Reserve
Bank situated nearest the Premises; provided, however, in no event shall the
Default Rate exceed the maximum interest rate permitted under applicable law.

 

1.5 “HVAC-Building” shall mean all heating, ventilation and air conditioning
equipment and all equipment and fixtures related thereto that services the
Building or the Project.

 

1.6 “Lease Commencement Date” shall be the Effective Date.

 

1.7 “Lease Term” shall mean the period commencing with the Lease Commencement
Date and ending after the term described in Paragraph 4.1.

 

1.8 “Lender” shall mean any lender whose loan is secured by a deed of trust on
any part of the Premises or this leasehold interest.

 

1.9 “Rent” shall include all Monthly Rent, Additional Rent and all other sums of
any and every sort payable hereunder to Landlord by Tenant.

 

1.10 “Rent Commencement Date” shall be the earliest of (i) the date Tenant’s
Work (as defined in the Work Letter) is Substantially Completed; (ii) the date
Tenant occupies substantially all of the Premises for the purpose of operating
its business; (iii) such earlier date as provided in the Work Letter or as the
parties hereto may agree; or (iv) September 1, 2005. Notwithstanding the
foregoing, if Landlord does not cause temporary power to be provided to the
Building with an electricity load equal to approximately 50 amps) on or prior to
the February 1, 2005 (the “Outside Date”), then the Rent Commencement Date shall
be extended by a day for each day that Landlord fails to complete such
Landlord’s work after the Outside Date. Landlord and Tenant shall each execute
and deliver to the other written acknowledgement of the Rent Commencement Date
and the expiration date of the Lease Term when such is established and shall
attach the acknowledgement to this Lease as part of Exhibit C; provided,
however, failure to execute and deliver such acknowledgement shall not affect
Landlord or Tenant’s rights or liabilities hereunder. Notwithstanding anything
to the contrary in this Section 1.10, the Rent Commencement Date shall be
delayed until Tenant shall have received a fully executed

 

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non-disturbance and attornment agreement from any mortgagee or deed of trust
beneficiary of record as of the date of the mutual execution of this Lease, if
applicable.

 

1.11 “Security Deposit” shall be an amount equal to three (3) times the Initial
Monthly Rent.

 

1.12 “Substantially Complete(d)” and “Substantial Completion” shall mean latest
of (i) the date of issuance of a temporary certificate of occupancy subject only
to such minor work as would not unreasonably interfere with Tenant’s occupancy
and use of the Premises for the purposes for which it is to be used, (ii) the
date Tenant receive a Certificate of Substantial Completion in the form of the
American Institute of Architects document G704 executed by the project architect
and the general contractor, or (iii) the satisfaction of all requirements set
forth in the Work Letter for project completion.

 

1.13 “Subtenant” shall mean any tenant, assignee, subtenant, licensee,
concessionaire or other occupant of the Premises (other than Tenant); and the
term “sublease” shall mean any lease, assignment, sublease, license or other
agreement for the use or occupancy of any such space (other than this Lease).

 

1.14 “Taking” shall mean a taking or voluntary conveyance of title to or any
interest in all or any part of the Premises, or the right to use all or any part
thereof, pursuant to, as a result of, or in lieu or in anticipation of, the
exercise of the right of condemnation, expropriation or eminent domain; and upon
such a Taking the Premises, or such part thereof, shall be deemed to have been
“taken.”

 

1.15 “Taxes” shall mean all government impositions including, without
limitation, property tax costs consisting of real and personal property taxes
and assessments (including amounts due under any improvement bond upon the
Building or the Project, including the parcel or parcels of real property upon
which the Building and areas serving the Building are located or assessments
levied in lieu thereof) imposed by any governmental authority or agency on the
Project or improvements thereon, any tax on or measured by gross rentals
received from the rental of space in the Project, or tax based on the square
footage of the Premises, the Building or the Project as well as any parking
charges, utilities surcharges, or any other costs levied, assessed or imposed
by, or at the direction of, or resulting from statutes or regulations, or
interpretations thereof, promulgated by any federal, state, regional, municipal
or local government authority in connection with the use or occupancy of the
Project or the parking facilities serving the Project; any tax on this
transaction or any document to which Tenant is a party creating or transferring
an interest in the Premises; any fee for a business license to operate an office
building; and any expenses, including the reasonable cost of attorneys or
experts, reasonably incurred by Landlord in seeking reduction by the taxing
authority of the applicable taxes, less tax refunds obtained as a result of an
application for review thereof; provided, however, that “Taxes” shall in no
event include (i) any franchise or income tax or any tax based on net rentals
received from the rental of space in the Project or taxes which are the personal
obligation of Tenant or of another tenant of the Project; (ii) any Taxes that
are fairly allocate to any period of time prior to the Lease Commencement Date
or following the expiration or sooner termination of this Lease (except for
Tenant’s personal property taxes); and (iii) any Taxes that

 

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are fairly allocable to any other tenant’s personal property or payable as a
result of a default by Landlord under this Lease or a default of any other
tenant of the Project.

 

1.16 “Work Letter” shall mean the Work Letter attached hereto as Exhibit D.

 

2. FUNDAMENTAL LEASE PROVISIONS.

 

Initial Lease Term:   Seven (7) years Rentable Area:   55,000 square feet,
subject to adjustment pursuant to Paragraph 4.7 Rentable Area of Project:  
171,965 square feet Initial Annual Rent:   $28.20 per rentable square foot,
subject to annual adjustments pursuant to Paragraph 5 Initial Monthly Rent:  
$2.35 per rentable square foot, subject to annual adjustments pursuant to
Paragraph 5 Security Deposit:   Three (3) times the Initial Monthly Rent Target
Rent
Commencement Date:     Tenant’s Pro Rata Share of Operating Expenses:  

 

62% with respect to Operating Expenses for the Building, subject to adjustment
pursuant to Paragraph 4.7

 

32% with respect to Operating Expenses for the Project, subject to adjustment
pursuant to Paragraph 4.7

Address for Notices:     To Landlord:  

c/o BioMed Realty, L.P.

17140 Bernardo Center Drive, Suite 222

San Diego, California 92128

Attention: Gary A. Kreitzer

 

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To Tenant:  

Nuvelo, Inc.

201 Industrial Blvd. Bldg. #2

San Carlos, California 94070

Attention: Gary Titus

With a copy to:  

Hopkins & Carley

P.O. Box 1469

San Jose, California 95109-1469

Attention: Garth E. Pickett

Exhibits:  

A (Legal Description)

B (Site Plan)

B-1 (Premises)

B-2 (Roof Rights)

C (Acknowledgement of Rent Commencement Date)

D (Work Letter)

E (Rules and Regulations)

F (Estoppel Certificate)

G (Expansion Space)

 

In the event of any conflict between any Fundamental Lease Provision and the
balance of this Lease, the latter shall control.

 

3. AGREEMENT TO LEASE. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, the Premises, under the terms and conditions of this
Lease.

 

4. TERM AND POSSESSION.

 

4.1 Lease Term. The initial Lease Term shall begin as of the Lease Commencement
Date and shall continue until seven (7) years after the Rent Commencement Date
unless sooner terminated or renewed as provided in this Lease; provided that, if
the Rent Commencement Date is other than the first of a calendar month, the
initial Lease Term shall continue until seven (7) years after the first day of
the calendar month following the month in which the Rent Commencement Date
occurs. Provided that no Default has occurred and is continuing at the time
Tenant elects to extend the Lease Term, Tenant, at its sole option, may extend
the Lease Term for two (2) additional periods of five (5) years each
(individually, an “Extension Period”), subject to all the provisions of this
Lease, except, however the Rent (as defined in Paragraph 5 below) shall be
adjusted at the commencement of each Extension Period to an amount equal to
ninety-five percent (95%) of the then current fair market rental rate as agreed
to by Landlord and Tenant, but in no event shall the Rent be less than the Rent
payable on the date immediately preceding the commencement of such Extension
Period. “Fair market rental rate” of the Premises shall be determined with
reference to the then prevailing market rental rates for properties in the San
Francisco mid-peninsula area with improvements and common area improvements
comparable to those then existing in the Premises and paid for by Landlord. If
after thirty (30) days following delivery of the written extension notice
described in

 

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Paragraph 4.2 below, Landlord and Tenant are unable to agree upon the fair
market rental value of the Premises, Tenant shall obtain at its expense and
deliver to Landlord an independent appraisal of the fair market rental value of
the Premises as of the commencement of the Extension Period. Following its
receipt of Tenant’s appraisal, Landlord may elect to obtain at its expense and
deliver to Tenant a second independent appraisal of the fair market rental value
of the Premises as of the commencement of the Extension Period. If Landlord
elects not to obtain a second appraisal, or if Landlord’s appraisal is no more
than five percent (5%) greater than Tenant’s appraisal, Tenant’s appraisal shall
be conclusive. If Landlord’s appraisal is more than five percent (5%) greater
than Tenant’s appraisal, the two appraisers shall appoint a third appraiser to
appraise the fair market rental value of the Premises as of the commencement of
the Extension Period, and the fair market rental value of the Premises shall be
the arithmetical average of the two appraisals closest in their determination of
fair market rental value. Landlord and Tenant shall bear equally the expense of
the third appraiser. The Monthly Rent as so determined for each Extension Period
shall be increased annually by $0.07 per rentable square foot above its then
current amount as provided in Paragraph 5.1.4 below. All references in this
Lease to “Lease Term” shall be considered to include both the initial term of
this Lease and any properly executed Extension Period, and all references to
termination or to the end of the Lease Term shall be considered to mean the
termination or end of the initial term of this Lease or any exercised Extension
Period, as the case may be.

 

4.2 Procedure to Extend Term. Tenant may exercise its option with respect to
each Extension Period by complying with the following procedure: At least ten
(10) months before the last day of the then applicable Lease Term (the “Exercise
Period”), Tenant shall deliver written notice to Landlord setting forth Tenant’s
irrevocable election to exercise the option to extend. Extension Periods are
personal to Tenant and not assignable separate and apart from this Lease, except
for an assignment pursuant to a merger or consolidation, or an assignment to a
parent, subsidiary or affiliate of Tenant.

 

4.3 Tenant’s Default. Notwithstanding the foregoing, if a Default has occurred
and is continuing at the time Tenant elects to extend the Lease Term (unless
Tenant is diligently pursuing the cure of such Default), Tenant shall have no
right to extend the Lease Term as herein provided, and Landlord shall be free to
lease the Premises to any other party or parties. Furthermore, nothing in this
Paragraph 4.3 shall increase or extend the Exercise Period.

 

4.4 Possession. Landlord shall endeavor to tender possession of the Premises to
Tenant on or before January 5, 2005. Tenant may occupy any and all portions of
the Premises, for the purpose of constructing Tenant’s tenant improvements
therein and installing its furniture, fixtures and equipment, prior to the Rent
Commencement Date, with no obligation to pay Rent until the Rent Commencement
Date. Landlord shall have the right to perform Landlord’s Work after tendering
possession, provided it does not materially interfere with Tenant’s Work.
Delivery of possession is conditioned upon receipt by Tenant of a fully executed
non-disturbance and attornment agreement from any mortgagee or deed of trust
beneficiary of record as of the date of the mutual execution of this Lease, if
applicable. In the event Landlord does not tender possession of the Premises to
Tenant on or prior to the Outside Date, the Rent Commencement Date shall be
extended by a day for each day that Landlord fails to tender possession of the
Premises to Tenant after the Outside Date.

 

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4.5 Tenant Improvements. Tenant shall cause to be constructed the tenant
improvements in the Building (the “Tenant Improvements”) pursuant to the Work
Letter at a cost to Landlord not to exceed Seven Million Seven Hundred Thousand
Dollars ($7,700,000.00) (based upon One Hundred Forty Dollars ($140.00) per
rentable square foot and subject to adjustment in Rentable Area as provided in
Section 4.7 herein) (the “Tenant Improvement Allowance”) which shall include the
cost of construction, cost of space planning, architect, engineering and other
related services, building permits, signage, consulting fees, equipment
(including personal property and trade fixtures, which shall not exceed fifteen
percent (15%) of the Tenant Improvement Allowance), relocation costs, furniture,
cabling and other planning and inspection fees. Any costs incurred in performing
the Tenant Improvements described in the Work Letter in excess of the Tenant
Improvement Allowance shall be borne solely by Tenant; provided, however, at
Tenant’s option, Landlord shall fund such excess in an amount not to exceed
Twenty-Five Dollars ($25.00) per rentable square foot (the “Additional
Allowance,” and together with the Tenant Improvement Allowance, the “Combined
Allowance”). The Additional Allowance shall be repaid by Tenant monthly as
Additional Rent beginning with Tenant’s first Rent payment, in a monthly amount
equal to the Additional Allowance fully amortized at an interest rate of twelve
percent (12%) per annum over twelve (12) years. Tenant may prepay the remaining
Additional Allowance at any time without penalty, and shall repay the remaining
Additional Allowance in full upon expiration of the Lease Term. Any unused
portion of the Tenant Improvement Allowance shall be credited against Monthly
Rent payments as such Monthly Rent payments become due. In addition to the
Tenant Improvement Allowance and Additional Allowance, Landlord will provide
Tenant with an additional allowance of up to 15/100 Dollars ($0.15) per rentable
square foot for purposes of Dowler-Gruman Architects preparing a preliminary
space planning “test-fit,” payable upon Landlord’s receipt of such test-fit
prior to construction of any tenant improvements.

 

4.6 Termination Option. Tenant shall have an option to terminate this Lease (the
“Termination Option”) for a period commencing on the Lease Commencement Date and
ending on the fourth (4th) anniversary of the Rent Commencement Date (the
“Termination Option Period”). Tenant shall be entitled to exercise the
Termination Option by giving notice to Landlord prior to the expiration of the
Termination Option Period. If Tenant exercises the Termination Option, (a) the
termination of the Lease shall be effective as of the fifth (5th) anniversary of
the Rent Commencement Date (the “Termination Date”), (b) Tenant shall continue
to meet all of its obligations under the Lease, including the payment of Rent,
through the Termination Date and (c) on the Termination Date, Tenant will pay
Landlord the remaining unamortized portion of the Tenant Improvement Allowance,
the remaining Additional Allowance, if any, and leasing commissions (the
“Termination Penalty”), based on an eighty-four (84) month amortization period
for the Premises and the actual lease term of any Expansion Space (calculated
using a flat average, with no interest). The Termination Penalty shall be pro
rated based on the actual rentable square footage leased by Tenant under this
Lease on the Termination Date. Tenant’s right to exercise the Termination Option
shall be subject to the conditions that (i) no voluntary or involuntary petition
in bankruptcy naming Tenant as debtor has been filed, and no general assignment
for the benefit of creditors has been made by Tenant prior to the termination of
the Lease and (ii) Tenant shall not be in Default under the Lease beyond any
applicable cure period provided in the Lease at the time Tenant exercises the
Termination Option and through the Termination Date, and if Tenant is in Default
beyond any

 

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applicable cure period during such period, then any effort to exercise the
Termination Option, whether occurring before or after any such Default by
Tenant, shall be null and void. Notwithstanding the foregoing to the contrary,
in the event Tenant is in Default but is diligently pursuing the cure of such
default, Tenant may exercise the Termination Option provided that such Default
is cured by Tenant within a reasonable time thereafter but in no event later
than the Termination Date.

 

4.7 Rentable Square Footage. The term “Rentable Area” as set forth in Section 2
and as referenced within the Work Letter attached hereto as Exhibit “D” and as
may otherwise be referenced within this Lease shall be adjusted after being
calculated in accordance with the 1996 Standard Method for Measuring Floor Area
in Office Buildings as adopted by the Building Owners and Managers Association.
The calculation shall be based upon the Approved Tenant Plans, as defined in
Section 3.2 of the Work Letter, and shall be made by Dowler-Gruman Architects as
Tenant’s architect. In addition to the Premises, the Rentable Area shall include
any interior shipping and receiving area and storage area utilized by Tenant.
After finalization of the calculation of the Rentable Area, Section 2 of the
Lease shall be adjusted as to Rentable Area and Tenants Pro Rata Share of
Operating Expenses, if necessary.

 

5. RENT; SECURITY DEPOSIT.

 

5.1 Monthly Rent.

 

5.1.1 Tenant shall pay the Rent to Landlord during the Lease Term, commencing as
of the Rent Commencement Date, without deduction, setoff, prior notice or
demand. Tenant shall pay the Rent in advance on the first day of each calendar
month during the Lease Term. Rent for any partial months will be prorated based
upon the number of days in the month, and will be paid in advance on the first
day of each month.

 

5.1.2 Upon the Rent Commencement Date, Tenant shall pay to Landlord the Rent due
and payable for the first full calendar month of the Lease Term. If the Rent
Commencement Date is not on the first day of a calendar month, Tenant shall pay
to Landlord the prorated Rent for the first partial month of the Lease Term.

 

5.1.3 All Rent payable hereunder shall be paid to Landlord in lawful money of
the United States of America which shall be legal tender at the time of payment
at Landlord’s office or to such other person or at such other place as Landlord
from time to time may designate in writing.

 

5.1.4 The Initial Annual Rent shall be the amount set forth in Paragraph 2. The
Annual Rent will be payable in twelve (12) equal installments (“Monthly Rent”).
The Landlord and Tenant shall attach an acknowledgement of the Initial Annual
Rent to this Lease as part of Exhibit C; provided, however, failure to execute
and deliver such acknowledgement shall not affect Landlord’s or Tenant’s rights
or liabilities hereunder. Effective each year during the Lease Term (including
any Extension Period) on the anniversary of the first day of the calendar

 

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month following the month in which the Rent Commencement Date occurs, Monthly
Rent shall be increased by $0.07 per rentable square foot above its then current
amount.

 

5.2 Additional Rent. Commencing upon the Rent Commencement Date Tenant shall pay
to Landlord (unless otherwise expressly required hereunder to pay directly to a
third party), as additional rent (“Additional Rent”), all sums of money of any
and every sort required to be paid by Tenant under this Lease, whether or not
the same are designated as Additional Rent. If such amounts or charges are not
paid at the time provided in this Lease, they shall nevertheless be collectible
as Additional Rent with the next installment of Monthly Rent thereafter falling
due, but nothing herein contained shall be deemed to suspend or delay the
payment of any amount of money or charge at the time the same becomes due and
payable hereunder, or limit any other remedy of Landlord.

 

5.3 Late Payment. If Tenant shall fail to pay, when the same is due and payable
(after giving effect to any applicable notice and cure period), any Rent, such
unpaid amounts shall bear interest at the Default Rate from the date which is
two (2) business days after written notice from Landlord that such payment is
due. Tenant further acknowledges that late payment of Monthly Rent will cause
Landlord to incur certain costs not contemplated by this Lease, the exact amount
of such costs being extremely difficult and impractical to determine with
certainty. For this reason, in addition to interest, if Tenant shall fail to pay
(which for purposes of this paragraph, “pay” shall mean actual receipt of the
payment by Landlord) any installment of Monthly Rent by the fifth (5th) day
after receipt of written notice from Landlord of such late payment, a late
charge equal to three and one-half percent (3.5%) of the overdue installment of
Monthly Rent automatically shall be due without further notice, and shall be in
addition to all other sums due. The Parties agree that this additional late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant.

 

5.4 No Right to Setoff. Tenant shall pay to Landlord, throughout the Lease Term,
the Rent and other sums payable hereunder, free of any charges, assessments,
deductions or reductions of any kind, and without abatement, deduction or setoff
except as otherwise expressly provided for herein.

 

5.5 Payment of Security Deposit. Landlord hereby acknowledges receipt of
Tenant’s Security Deposit unless this Lease is executed on or before January 3,
2005, in which event the Security Deposit shall be delivered to Landlord on
January 5, 2005. This amount shall be deposited by Landlord into a
non-segregated, interest-bearing bank account (with interest accruing for the
benefit of Landlord) in a federally insured bank or savings institution, and
shall be held for the faithful performance of all of the provisions and
conditions of this Lease to be kept and performed by Tenant hereunder and under
the Work Letter. Landlord’s obligation with respect to the Security Deposit is
that of a debtor and not of a trustee.

 

5.6 Use of Security Deposit. If Tenant defaults with respect to the payment of
Rent or any other covenant contained herein or in the Work Letter, Landlord may
use or retain all or any part of the Security Deposit for the payment of any
Monthly Rent, Additional Rent or any other sum in default, or for the payment of
any amount which Landlord may spend or become obligated to spend by reason of
Tenant’s Default. Landlord also may apply the Security

 

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Deposit toward costs incurred to repair damages to the Premises, other than
ordinary wear and tear, and damage from casualty or condemnation, or to
reasonably clean the Premises upon termination of this Lease. If any portion of
the Security Deposit is so applied or used, Tenant shall, within five (5)
business days after written notice thereof, deposit an additional amount with
Landlord sufficient to restore the Security Deposit to the amount set forth in
Paragraph 1.11, and Tenant’s failure to do so shall constitute a material breach
of this Lease. If Tenant shall fully and faithfully perform every provision of
this Lease to be performed by Tenant, the Security Deposit (including interest
thereon), or the balance thereof, shall be returned to Tenant (or, at Landlord’s
option to the last assignee of Tenant’s interest hereunder) within thirty (30)
days after the expiration or earlier termination of the Lease, subject to the
provisions of Paragraph 27. Landlord and/or the Lender may use, apply or retain
all or any part of the Security Deposit for the payment of Tenant Improvement
costs incurred by Landlord in excess of the Combined Allowance. If any portion
of the Security Deposit is so applied, upon the Rent Commencement Date, Tenant
shall deposit cash or a replacement letter of credit with Landlord in an amount
sufficient to restore the Security Deposit to its original amount, and Tenant’s
failure to do so shall constitute a material breach of this Lease. In the event
of bankruptcy or other debtor-creditor proceedings against Tenant, the Security
Deposit shall be deemed to be applied first to the payment of Rent and other
charges due Landlord for all periods prior to the filing of such proceedings.

 

5.7 Pledge of Security Deposit. Subject to Tenant’s right, title and interest in
the Security Deposit, the Security Deposit may be pledged by Landlord as
additional collateral to the Lender.

 

5.8 Letter of Credit. The Security Deposit may be delivered either in cash or in
the form of letter of credit reasonably acceptable to Landlord.

 

5.8.1 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 (a) be in a form reasonably acceptable to Landlord,
(b) be issued by a financial institution selected by Tenant and reasonably
acceptable to Landlord, (c) be for the benefit of Landlord, but shall be
assignable by Landlord to any subsequent purchaser or encumbrancer of the
Building or the Project, (d) be automatically renewable from year to year
throughout the Lease Term, (e) 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 a default under the Lease has occurred
and has not been cured within any applicable cure period, and (f) 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.

 

5.8.2 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 Paragraph
5.8.1, or (ii) to replace a letter of credit Security Deposit with an applicable
amount of cash.

 

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6. PERMITTED USE.

 

6.1 Permitted Use. Tenant shall use the Premises for the purposes of laboratory
research (including animal testing), administration, pharmaceutical and related
health care research uses (and only for such purposes) (the “Permitted Use”).
During the Lease Term, the Premises and every part thereof shall be kept by the
Tenant in a clean and wholesome condition, free of any noises or activities,
which constitute any nuisance. Tenant shall comply with all Applicable Law in
all respects and at all times during the Lease Term.

 

6.2 No Violations. Tenant shall not use or occupy the Premises in violation of
any federal, state and local laws and regulations, zoning ordinances, or the
certificate of occupancy issued for the Building or the Project, and shall, upon
five (5) days written notice from Landlord, discontinue any use of the Premises
upon demand of any governmental authority having jurisdiction which declares or
claims a violation of law, regulation or zoning ordinance or of such certificate
of occupancy, or which in the reasonable opinion of Landlord violates law,
regulation or zoning ordinance or the certificate of occupancy. Tenant shall
comply with any direction of any governmental authority having jurisdiction
which shall, by reason of the nature of Tenant’s use or occupancy of the
Premises, impose any duty upon Tenant or Landlord with respect to the Premises
or with respect to the use or occupation thereof. Tenant shall not do or permit
anything to be done in or about the Premises, except as is reasonably consistent
with the Permitted Use, which shall in any way obstruct or interfere with the
rights of other tenants or occupants of the Project, or injure or annoy them, or
use or allow the Premises to be used for unlawful purpose, nor shall Tenant
knowingly cause, maintain or permit any nuisance or waste in, on or about the
Premises, the Building or the Project.

 

6.3 Additional Locks. No additional locks or bolts of any kind shall be placed
upon any of the doors or windows by Tenant nor shall any changes be made in
existing locks or the mechanism thereof without the prior written consent of
Landlord; provided, however. Tenant shall be entitled to change existing office,
storage and other ancillary door locks or the mechanism thereof without the
prior written consent of Landlord so long as a copy of the new key is promptly
provided to Landlord. Tenant must, upon termination of this Lease, return to
Landlord all keys to offices and restrooms either furnished to or otherwise
procured by Tenant. In the event any key so furnished is lost, Tenant shall pay
to Landlord the cost of replacing the same or of changing the lock or locks
opened by such lost key if Landlord shall deem it necessary to make such change.

 

6.4 Exterior Appearance. No awnings or other projection shall be attached to any
outside wall of the building other than as expressly permitted under this Lease.
No curtains, blinds, shades or screens shall be attached to or hung in, or used
in connection with, any window or door of the Premises other than Landlord’s
standard window coverings. Neither the interior nor exterior of any windows
shall be coated or otherwise sunscreened without the express written consent of
Landlord, nor shall any bottles, parcels, or other articles be placed on the
windowsills. No equipment, furniture or other items of personal property shall
be placed on any exterior balcony without the express written consent of
Landlord.

 

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6.5 Signs. No sign, advertisement, or notice shall be exhibited, painted or
affixed by Tenant on any part of the Premises, the Building or the Project
without the prior written consent of Landlord; provided, however, subject to the
rights of Nektar Therapeutics to have a proportionate share of external and
monument signage, in proportion to the ratio between the useable square footage
in its premises and the total useable square footage on the Project, and to
continue to display its corporate name and logo on the exterior of the buildings
and the monument in the size and manner it is displayed as of the Effective
Date, and in compliance with Applicable Laws relating to such signage, (a)
Tenant shall have the right to ground monument signage at the entrance to the
Project, and (b) during such time as the Premises encompasses the entire third
(3rd) floor of the Building, Tenant (at its sole cost and expense) shall have
the right to external, building-top signage on the southeastern side of the
Building facing Highway 101, displaying Tenant’s corporate logo, such external
signage to be the maximum available signage permitted by Applicable Laws, but
not greater than the external signage of Nectar Therapeutics as it is displayed
as of the Effective Date subject to the foregoing. Landlord agrees to cooperate
with Tenant, without any cost to itself, if Tenant chooses to seek a signage
variance from the appropriate governmental agency in order to increase the size
of its exterior signage. Common Area, Building ground monument and directory
signs on doors and the directory tablet shall be inscribed, painted or affixed
for Tenant by Landlord at the expense of Landlord (except ground monument
signage, which shall be at the expense of Tenant), and shall be of a size, color
and type typical of the Project. The directory tablet shall be provided
exclusively for the display of the name and location of tenants only. In
addition, Tenant may, at Tenant’s sole cost and with Landlord’s consent (which
consent shall not be unreasonably withheld, delayed or conditioned), install
signage in the reception area of the Building on the south wall abutting
Tenant’s Premises.

 

6.6 Structural Integrity. Landlord agrees and acknowledges that the Building
load is one hundred (100) pounds per square foot for dead load and one hundred
fifty (150) pounds per square foot for live load. Tenant shall cause any office
equipment or machinery to be installed in the Premises so as to reasonably
prevent sounds or vibrations therefrom from extending outside the Building.
Further, no equipment or machinery weighing five hundred (500) pounds, or
greater, shall be placed in the Premises without advance notice to and approval
by Landlord. Such equipment or machinery, if approved by Landlord, shall be
placed only at a location designed to carry the weight of such equipment.

 

6.7 ADA. Tenant shall be responsible for all liabilities, costs and expenses
arising out of or in connection with the compliance of Tenant’s particular use
of the Premises with the Americans With Disabilities Act, 42 U.S.C. § 12101, et
seq. (together with regulations promulgated pursuant thereto, “ADA”) and Tenant
shall indemnify, defend and hold Landlord harmless from and against any loss,
cost, liability or expense (including reasonable attorneys’ fees and
disbursements) arising out of any failure of the Premises to comply with the
ADA; provided that in no event shall Tenant be responsible for any alterations
to the Premises that are part of Landlord’s Work or any alterations to the
Common Areas that are performed by Landlord. Notwithstanding the foregoing,
Landlord represents and warrants to Tenant that, if based upon current
interpretations of ADA as of the Commencement Date, the Premises (exclusive of
furniture and equipment) fail, as of the Lease Commencement Date, to comply with
ADA, Landlord will be solely responsible, at its cost and not as an Operating
Expense, to correct such violation of ADA.

 

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6.8 Roof Rights. During the Lease Term, Tenant shall have access to the roof of
the Building for the purpose of installing and operating satellite or wireless
communication equipment, which installation and operation shall be subject to
Landlord’s prior written consent (which consent shall not be unreasonably
withheld, delayed or conditioned). Any such equipment shall be installed on the
roof of the Building, in the permitted locations shown on Exhibit B-2 hereto, by
means of a roof mount so that (1) no part of the equipment or mount can be seen
from Industrial Road or any Common Area, (2) no penetration of the roof of the
Building results from the installation of the equipment and (3) no alteration or
damage is caused to the roof of the Building as a result of such installation.
Tenant shall bear all costs related to any such equipment, including, but not
limited to, installation, maintenance, repairs, operation, permitting and other
governmental approvals, and any roofing damage, leaks, loss of warranty coverage
by Landlord or other roofing issues, and returning the roof and installation
site to its original condition at the end of the Lease Term (if so requested by
Landlord). Notwithstanding the foregoing, Tenant shall not be required to
restore any roof equipment or installation that are part of the initial Tenant
Improvements. The presence or operation of such equipment shall not interfere in
any way with or violate the rights of any other person or entity, including the
rights of existing tenants and rooftop users and uses. Tenant shall indemnify
Landlord and its officers, directors, employees, agents and affiliates from any
loss, damage or claim (including reasonable attorneys’ fees) made by any third
party due to or arising out of Tenant’s possession or operation of such
equipment. Only licensed contractors with valid liability and worker’s
compensation insurance in place shall perform any work related to any such
equipment, and Landlord, any ground lessor and any Lender (or its successors and
assigns) shall be named as additional insureds.

 

7. TAXES; OPERATING EXPENSES.

 

7.1 Payment of Real Property Taxes. Commencing with the Rent Commencement Date
and continuing for each calendar year, or tax year at Landlord’s option (such
“tax year” being a period of twelve (12) consecutive calendar months for which
the applicable taxing authority levies or assesses Taxes), for the balance of
the Lease Term, Tenant shall pay to Landlord Tenant’s Pro Rata Share of all
Taxes, pursuant to Paragraph 7.5 below. Such sum for any partial year of the
Lease Term shall be prorated on the basis of the number of days of such partial
year. At Tenant’s request, Landlord shall provide Tenant with a copy of the
applicable Tax bill or Tax statement from the taxing authority. In addition to
any other amounts due from Tenant to Landlord, if Tenant fails to pay the Taxes
to Landlord as herein required, Tenant shall pay to Landlord the amount of any
interest, penalties or late charges caused by Tenant’s late payment.

 

7.1.1 If the Premises are separately assessed, Tenant shall have the right, by
appropriate proceedings, to protest or contest in good faith any assessment or
reassessment of Taxes, any special assessment, or the validity of any Taxes or
of any change in assessment or tax rate; provided, however, that prior to any
such challenge Tenant must either (a) pay the taxes alleged to be due in their
entirety and seek a refund from the appropriate authority, or (b) post bond in
an amount sufficient to insure full payment of the Taxes. In any event, upon a
final determination with respect to such contest or protest, Tenant shall
promptly pay all sums found to be due with respect thereto. In any such protest
or contest, Tenant may act in its own name,

 

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and at the request of Tenant, Landlord shall cooperate with Tenant in any way
Tenant may reasonably require in connection with such contest or protest,
including signing such documents as Tenant reasonably shall request, provided
that such cooperation shall be at no expense to Landlord and shall not require
Landlord to attend any appeal or other hearing. Any such contest or protest
shall be at Tenant’s sole expense, and if any penalties, interest or late
charges become payable with respect to the Taxes as a result of such contest or
protest, Tenant shall pay the same.

 

7.1.2 If Tenant obtains a refund as the result of Tenant’s protest or contest
and subject to Tenant’s obligation to pay Landlord’s costs (if any) associated
therewith, Tenant shall be entitled to such refund to the extent it relates to
the Premises during the Lease Term.

 

7.2 Personal Property Taxes. Tenant shall be solely responsible for the payment
of any and all taxes levied upon personal property and trade fixtures located
upon the Premises and shall pay the same at least ten (10) days prior to
delinquency. If any such taxes on Tenant’s personal property or trade fixtures
are levied against Landlord or Landlord’s property or, if the assessed valuation
of the Building or the Project is increased by the inclusion therein of a value
attributable to Tenant’s personal property or trade fixtures, and if Landlord
after written notice to Tenant pays the taxes based upon such increase in the
assessed value, then Tenant shall upon demand repay to Landlord the taxes so
levied against Landlord.

 

7.3 Other Taxes. If at any time during the Lease Term under the laws of the
United States Government, state, county or city, or any political subdivision
thereof in which the Premises are situated, a tax or excise on rent or any other
tax, however described, is levied or assessed by any such political body against
Landlord on account of rentals payable to Landlord hereunder, such tax or excise
shall be considered “Taxes” for the purposes of this Article 7, excluding,
however, from such tax or excise any amount assessed against Landlord as state
or federal income tax.

 

7.4 Intentionally Omitted.

 

7.5 Payment of Operating Expenses

 

7.5.1 As used herein, the term “Operating Expenses” shall include:

 

(a) Taxes as defined in Paragraph 1.15 above.

 

(b) All other reasonable costs paid or incurred by Landlord in connection with
the operation and maintenance of the Building and the Project including, by way
of examples and not as a limitation upon the generality of the foregoing, costs
of repairs and replacements to improvements (other than capital improvements
described in Paragraph 7.5.1(d)) within the Project as appropriate to maintain
the Project as required hereunder; costs of utilities furnished to any Common
Areas; sewer fees; cable TV, when applicable; trash collection; cleaning,
including windows; costs of maintaining HVAC-Building; maintenance of landscape
and grounds, drives and parking areas; security services and devices; building
supplies; maintenance and replacement to equipment utilized for operation and
maintenance of the Project

 

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that are not included in the capital improvements described in Paragraph
7.5.1(d); license, permit and inspection fees; sales, use and excise taxes on
goods and services purchased by Landlord in connection with the operation,
maintenance or repair of the Project and Building systems and equipment; the
cost of furniture, draperies, carpeting, landscaping and other customary and
ordinary items of personal property provided by Landlord for use in the Common
Areas; capital expenditures costing Fifty Thousand Dollars ($50,000) or less,
provided that the cost of all other capital expenditures shall be amortized over
the useful life of any such capital expenditure (calculated in accordance with
GAAP) and included in Operating Expenses, and further provided that Tenant shall
not be responsible for any amortized capital expenditures attributed to any
period after the Lease Term; costs of complying with any applicable laws; hazard
waste remediation, rules or regulations; insurance premiums including premiums
for public liability, property casualty, earthquake and environmental coverages;
portions of insured losses paid by Landlord as part of deductible portion of
loss by reason of insurance policy terms not to exceed $100,000 per occurrence,
with such amount to be amortized over the remainder of the Lease Term (provided,
Tenant shall not be required to pay any such deductibles for events occurring in
the last year of the Lease Term); service contracts; costs of services of
independent contractors retained to do work of nature before referenced, and
costs of compensation not to exceed market rate (including employment taxes and
fringe benefits) of all persons who perform regular and recurring duties
connected with the day-to-day operation and maintenance of the Project, its
equipment, the adjacent walks, landscaped areas, drives and parking areas,
including without limitation, janitors, floor waxers, window-washers, watchmen,
gardeners, sweepers and handymen; and costs of management services, which costs
of management services shall not exceed two percent (2%) of the Monthly Rent 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.

 

(c) Notwithstanding the foregoing, Operating Expenses shall not include any
leasing commissions, including any legal fees, advertising costs, or other
related expenses incurred by Landlord in connection with the leasing of space to
individual tenants of the Project; expenses which relate to preparation of
rental space for a tenant; expenses of initial development and construction,
including but not limited to, grading, paving, landscaping and decorating (as
distinguished from maintenance repair and replacement of the foregoing); repairs
and maintenance of the structural and exterior portions and Common Areas of the
Building and Project described in Paragraph 7.5.1(d); legal expenses relating to
other tenants; costs of repair to the extent reimbursed by payment received by
Landlord of insurance proceeds or from funds provided by Tenant or any other
tenant; interest upon loans to Landlord or secured by mortgage or deed of trust
covering the Project or a portion thereof (provided interest upon a government
assessment or improvement bond payable in installments is an Operating Expense
under subparagraph (a) above); salaries of executive officers of Landlord;
depreciation claimed by Landlord for tax purposes (provided this exclusion of
“depreciation” is not intended to delete from Operating Expenses actual costs of
repairs and replacements in regard thereto which are provided for in
subparagraph (b) above); and taxes of the types that are excluded from “Taxes”
in Paragraph 1.15 above. In addition, Operating Expenses shall also not include
the following: (i) the cost of constructing tenant improvements for any other
tenant of the Project; (ii) the cost of special services, goods, or materials
provided to any other tenant of the Project; (iii) repairs, alterations,
additions, improvements, or replacements needed to rectify or correct any
defects in

 

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the original design, materials, or workmanship of the base building structural
systems of the Building and Project, including the foundations, roof structure
and exterior walls, Landlord’s Work or any latent defects in the Building or
Project; (iv) damage and repairs necessitated by the gross negligence or willful
misconduct of Landlord, Landlord’s employees, contractors, or agents; (v)
Landlord’s general overhead expenses not related to the Project; (vi) legal
fees, accountants’ fees, and other expenses incurred in connection with disputes
of tenants or other occupants of the Project or associated with the enforcement
of the terms of any leases with tenants or the defense of Landlord’s title to or
interest in the Project or any part thereof; (vii) costs incurred due to a
violation by Landlord or any other tenant of the Project of the terms and
conditions of a lease; (viii) costs of any service provided to Tenant or other
occupants of the Project for which Landlord is reimbursed; and (ix) any cost of
investigation, testing or cleanup relating to Hazardous Materials not related to
Tenant’s use or occupancy of the Premises.

 

(d) Notwithstanding anything to the contrary in this Paragraph 7.5, Landlord
agrees to perform, at its sole cost and expense and not as part of the Operating
Expenses during the Lease Term, including any renewal terms, all necessary and
customary capital repairs and capital replacements involving the base building
structural systems of the Building and Project, including the foundations, roof
structure and exterior walls.

 

7.5.2 Tenant shall pay to Landlord on the first day of each calendar month of
the Lease Term, as Additional Rent, Landlord’s estimate of Tenant’s Pro Rata
Share of Operating Expenses for such month. Tenant’s Pro Rata Share shall be as
set forth in Paragraph 2 above and shall be separately calculated with respect
to Operating Expenses of the Building, which shall include Operating Expenses
relating solely to the Building, and Operating Expenses of the Project, which
shall include Operating Expenses relating to the Project excluding Operating
Expenses relating solely to the Building. The rentable square footage of the
Premises, the Building and the Project referred to in the Recitals of this Lease
shall be deemed the actual rentable square feet in the Premises, the Building
and the Project.

 

(a) Within ninety (90) days after the conclusion of each calendar year (or such
longer period as may be reasonably required), Landlord shall furnish to Tenant a
statement showing in reasonable detail the actual Operating Expenses and
Tenant’s Pro Rata Share of Operating Expenses for the previous calendar year.
Any additional sum due from Tenant to Landlord shall be due and payable within
thirty (30) days of Landlord’s written demand. If the amounts paid by Tenant
pursuant to Paragraph 7.5.2 exceeds Tenant’s Pro Rata Share of Operating
Expenses for the previous calendar year, the difference shall be credited by
Landlord against the Rent next due and owing from Tenant; provided that, if the
Lease Term has expired, Landlord shall accompany said statement with payment for
the amount of such difference.

 

(b) Any amount due under this Paragraph 7.5.2 for any period which is less than
a full month shall be prorated (based on a 30-day month) for such fractional
month.

 

7.5.3 Landlord’s annual statement shall be final and binding upon Tenant unless
Tenant, within one hundred and twenty (120) days after Tenant’s receipt thereof,

 

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shall contest any item therein by giving written notice to Landlord, specifying
each item contested and the reason therefor. If, during such one hundred and
twenty (120) day period, Tenant reasonably and in good faith questions or
contests the correctness of Landlord’s statement of Tenant’s Pro Rata Share of
Operating Expenses, Landlord will provide Tenant with access to Landlord’s books
and records and such information as Landlord reasonably determines to be
responsive to Tenant’s questions. In the event that after Tenant’s review of
such information, Landlord and Tenant cannot agree upon the amount of Tenant’s
Pro Rata Share of Operating Expenses, then Tenant shall have the right to have
an independent public accounting firm hired by Tenant (at Tenant’s sole cost and
expense) and approved by Landlord (which approval shall not be unreasonably
withheld or delayed) audit and/or review such Landlord’s books and records for
the year in question (the “Independent Review”). The results of any such
Independent Review shall be binding on Landlord and Tenant. If the Independent
Review shows that Tenant’s Pro Rata Share of Operating Expenses actually paid
for the calendar year in question exceeded Tenant’s obligations for such
calendar year, Landlord shall, at Tenant’s option, either (1) credit the excess
to the next succeeding installments of estimated Additional Rent or (2) pay the
excess to Tenant within thirty (30) days after delivery of such statement. If
the Independent Review shows that Tenant’s payments of Tenant’s Pro Rata Share
of Operating Expenses for such calendar year were less than Tenant’s obligation
for the calendar year, Tenant shall pay the deficiency to the Landlord within
thirty (30) days after delivery of such statement.

 

7.5.4 Tenant shall not be responsible for Operating Expenses attributable to the
time period prior to the Rent Commencement Date, except to the extent owing
under any prior lease with Landlord or, if Landlord shall permit Tenant
occupancy of the Premises prior to the Rent Commencement Date for purposes of
conducting Tenant’s business therein, Tenant shall be responsible for Operating
Expenses from such earlier date of occupancy pursuant to Paragraph 4.4. The
responsibility of Tenant for Tenant’s Pro Rata Share of Operating Expenses shall
continue to the latest of (i) the date of termination of the Lease, (ii) the
date Tenant has fully vacated the Premises, or (iii) if termination of the Lease
is due to the default of Tenant, the date of rental commencement of a
replacement tenant.

 

7.5.5 Operating Expenses for the calendar year in which Tenant’s obligation to
share therein commences and in the calendar year in which such obligation
ceases, shall be prorated on a basis reasonably determined by Landlord. Expenses
such as taxes, assessments and insurance premiums which are incurred for an
extended time period shall be prorated based upon time periods to which
applicable so that the amounts attributed to the Premises relate in a reasonable
manner to the time period wherein Tenant has an obligation to share in Operating
Expenses.

 

8. CONDITION OF PREMISES.

 

8.1 Condition of Premises. Tenant has determined to lease the Premises after a
full and complete investigation and examination thereof. Subject to latent
defects in Landlord’s Work, Tenant accepts the Premises and all other rights
under this Lease “as is.” Except as is expressly provided herein or under the
Work Letter, Landlord shall not be required to furnish any services or
facilities or to make any repairs or alterations in or to the Premises
throughout the Lease Term.

 

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8.2 Landlord’s Warranties. Landlord represents and warrants that, to its
knowledge as of the date Landlord delivers possession of the Premises to Tenant,
the Building and the Project, other than the Premises and Tenant’s Work, are in
compliance with all applicable building codes, permits, laws and regulations,
including without limitation, ADA and Title 24. Landlord further represents and
warrants that it shall deliver possession of the Premises with all structural
elements and building systems, including, but not limited to, HVAC-Building
(which shall be building standard), mechanical, electrical, and plumbing
systems, in good operating order and repair and the roof watertight. Excluding
the foregoing representations and warranties in this Paragraph 8.2, Landlord has
not made and makes no representations or warranties to Tenant of any kind
regarding the Premises, the Building or the Project, including, without
limitation, any representation or warranty regarding the physical condition of
the Premises, its suitability for Tenant’s intended use, or the availability or
capacity of sewer to the Premises.

 

9. ALTERATIONS AND IMPROVEMENTS.

 

9.1 Construction Requirements. Any alterations or improvements to the Premises
of any kind by Tenant (other than those constructed pursuant to the Work Letter
which will be subject to the terms thereof), the cost of which exceeds One
Hundred Thousand Dollars ($100,000) or which alters, affects, or modifies
Building or Project systems (including, without limitation, mechanical,
electrical, plumbing, or HVAC-Building systems), structural components, or the
exterior of the Building or Project shall be subject to satisfaction of each of
the following conditions:

 

9.1.1 Architectural Review. Prior to commencement of any work, Tenant shall
submit its proposed final plans and specifications to Landlord for Landlord’s
consent, which consent shall not be unreasonably withheld, delayed or
conditioned. Landlord agrees to respond to Tenant’s proposed final plans and
specifications within ten (10) days after its receipt of such final plans and
specifications. Landlord’s failure to approve or disapprove within said ten (10)
days shall be deemed approval.

 

9.1.2 Code Compliance. Tenant shall comply with all Applicable Law, and Tenant
shall obtain all required permits and approvals, including, but not limited to,
any grading permits, building permits, zoning and planning requirements and
approvals from any and all necessary governmental agencies and bodies.

 

9.1.3 Insurance. Tenant shall deliver to Landlord certificates of insurance
evidencing that Tenant or the general contractor has obtained builder’s all-risk
risk insurance in an amount not less than Two Million Dollars ($2,000,000), or
in the alternative, a cost of construction endorsement to Tenant’s or such
general contractor’s general liability insurance. Tenant also shall deliver to
Landlord evidence of worker’s compensation insurance coverage for all persons
employed in connection with the construction and with respect to whom death or
personal injury claims could be asserted against Landlord or the Premises.
Tenant also shall deliver to Landlord evidence that Tenant has paid or caused to
be paid all premiums for the

 

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insurance described in this paragraph. Tenant shall maintain or cause to be paid
all premiums required to maintain and keep in force all insurance described in
this paragraph at all times during which the construction is in progress.

 

9.1.4 Construction Requirements. Once any work of construction has begun, Tenant
shall prosecute with reasonable diligence the same to conclusion. All
construction shall be performed in a good and workmanlike manner, shall comply
with all Applicable Law and shall be completed in conformance with the plans and
specifications approved by Landlord.

 

9.1.5 Notice of Construction; Mechanics’ Liens. Landlord and its representatives
shall have the right to go upon and inspect the Premises at all reasonable times
upon reasonable prior notice and shall have the right to post and keep posted
thereon notices of non-responsibility, or such other notices which Landlord may
deem to be proper for the protection of Landlord’s interest in the Premises;
provided, however, that such rights shall not unreasonably interfere with
Tenant’s use or possession of the Premises. Before the commencement of any work,
which might result in any lien, Tenant shall give to Landlord written notice of
its intention to do so in sufficient time to enable the posting of such notices.
Subject to Tenant’s right to contest any Claim or lien, Tenant shall keep the
Premises, the Building and the Project free and clear of any and all liens and
encumbrances which may arise at any time in connection with the improvement of
the Premises by Tenant or its agents and contractors. Subject to Tenant’s right
to contest any Claim or lien, Tenant shall pay and discharge all expenses
incurred by Tenant for the services of mechanics and for the cost of goods and
materials supplied by materialmen, and Tenant shall defend, indemnify and hold
harmless Landlord and the Premises from and against any Claims by such mechanics
or materialmen for labor or services performed or goods supplied at the request
of Tenant. Furthermore, subject to Tenant’s right to contest any Claim or lien,
Tenant shall, at its cost and expense, remove all such mechanics’ liens by bond
or otherwise within ten (10) working days after the filing thereof. If Tenant
desires to contest any Claim or lien, it shall be entitled to do so on the
condition that Tenant first shall either (1) furnish Landlord a bond of a
responsible corporate surety approved by Landlord in such amount as is
sufficient to cause discharge of the lien of record, and conditioned on the
discharge of the lien, or (2) furnish Landlord with other assurances
satisfactory to Landlord that Landlord will be protected from the effect of such
Claim or lien. If a final judgment establishing the validity or existence of a
lien for any amount is entered, Tenant shall pay and satisfy the same at once.
If Tenant shall not have paid, as and when required by this Paragraph 9.1.5, any
charge for which a mechanics’ lien claim and suit to foreclose the lien have
been filed, or if Tenant shall not have given Landlord security to protect the
Premises and Landlord against such Claim or lien as required by this Paragraph
9.1.5, Landlord, upon five (5) days notice to Tenant, may (but shall not be
required to) pay said lien or Claim including any costs, in which event the
amount so paid, together with reasonable attorneys’ fees incurred in connection
therewith, shall be immediately due and owing from Tenant to Landlord. Tenant
shall pay the same to Landlord together with interest on the full amount thereof
at the Default Rate from the date of Landlord’s payment until paid. If any
Claims or liens are filed against the Premises or, if any action affecting title
to the Premises is commenced, the party receiving notice of such lien or action
shall forthwith give the other party written notice thereof.

 

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9.1.6 Notice of Completion. Upon completion of any construction, Tenant shall
file or cause to be filed a notice of completion. Tenant hereby appoints
Landlord as Tenant’s attorney-in-fact solely for the purpose of filing the
notice of completion if Tenant fails to do so after the construction has been
substantially completed.

 

9.1.7 As-Built Plans. On completion of any construction, Tenant shall give
Landlord notice of all changes in plans or specifications made during the course
of the work and, at the same time and in the same manner, shall supply Landlord
with “as built” drawings accurately reflecting all such changes.

 

9.1.8 Ownership of Improvements. All improvements and fixtures existing on the
Premises, the Building and the Project including (without limiting the
generality of the foregoing) all wallcoverings, carpeting, flooring, built-in
cabinet work, paneling and the like, all HVAC system that are installed on the
Premises for Tenant’s laboratory or specific use (“Special HVAC”), electrical,
mechanical, and plumbing equipment and related ducts, shafts, and conduits, all
exterior venting fume hoods, walk-in freezers and refrigerators, clean-rooms,
climatized rooms, electrical panels and power back-up distribution systems shall
be the property of Landlord and shall remain upon, and be surrendered with the
Premises, as a part thereof, at the end of the Lease Term. In the event that
Tenant desires to make any alterations, additions or improvements upon the
Premises during the Lease Term, Tenant shall submit to Landlord proposed final
plans therefor, together with a request (the “Identification Notice”) that
Landlord identify to Tenant in writing which of the proposed alterations,
additions or improvements Landlord elects to remain property of Tenant to be
removed by Tenant at the end of the Lease Term (each a “Tenant-Owned
Alteration”). If Landlord fails to respond in writing to the Identification
Notice (or fails to designate in writing a proposed alteration, addition or
improvement as a Tenant-Owned Alteration) within fifteen (15) days after
Landlord’s receipt of the Identification Notice, then Landlord shall be deemed
to have elected to have any proposed alteration, addition or improvement not
expressly designated as a Tenant-Owned Alteration within such fifteen (15) day
period become property of Landlord (each a “Landlord-Owned Alteration”). If
Tenant thereafter elects to make such proposed alterations, additions or
improvements, then (a) all Landlord-Owned Alterations shall become property of
Landlord and shall remain upon, and be surrendered with, the Premises, as a part
thereof, at the end of the Lease Term, and (b) all Tenant-Owned Alterations
shall remain the property of Tenant and shall be removed by Tenant at or prior
to the end of the Lease Term. Tenant shall repair all damage resulting from its
removal of Tenant-Owned Alterations, and restore the affected area to the
condition existing prior to installation of Tenant-Owned Alterations. Nothing in
the foregoing shall be construed to imply that Tenant’s Equipment (as defined in
Paragraph 13.2 below) or other property of Tenant may become the property of
Landlord. All articles of personal property, business and trade fixtures,
machinery and equipment, furniture and movable partitions owned by Tenant or
installed by Tenant at its expense in the Premises shall be and remain the
property of Tenant and may be removed by Tenant at any time during the term of
this Lease, provided that removal of the same shall not materially affect or
damage the Building’s or Project’s electrical, mechanical, or plumbing systems.
Any items of Tenant’s improvements which are paid for by Landlord, shall belong
to Landlord and shall not be regarded as owned by Tenant. Notwithstanding the
foregoing, at Landlord’s option to be determined by written notice to Tenant at
least nine (9) months before the last day of the then applicable Lease Term, the

 

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personal property and trade fixtures acquired by Tenant and paid from the Tenant
Improvement Allowance in accordance with Paragraph 4.5 shall belong to Tenant,
shall not be regarded as owned by Landlord and shall be removed from the
Premises by Tenant at the end of the Lease Term. If Tenant does not receive such
notice from Landlord at least nine (9) months before the last day of the then
applicable Lease Term, all such personal property and trade fixtures shall
become the property of Landlord at the end of the Lease Term. If Tenant shall
fail to remove all of its effects from the Premises upon termination of this
Lease for any cause whatsoever, Landlord, at its option, upon written
notification to Tenant, may remove the same in any manner that Landlord shall
choose and store said effects without liability to Tenant for loss thereof. In
such event, Tenant agrees to pay Landlord upon demand any and all expenses
incurred in such removal, including court costs and reasonable attorneys’ fees
and storage charges on such effects, for any length of time that the same shall
be in Landlord’s possession. If Tenant shall fail to remove all of its effects
from the Premises upon termination of this Lease, Landlord, at its option,
without notice, may sell said effects, or any of the same, at private sale and
without legal process, for such price as Landlord may obtain and apply the
proceeds of such sale upon the amounts due under this Lease from Tenant to
Landlord and upon the expense incident to the removal and sale of said effects.
Tenant shall not be responsible for any restoration (or removal) of the fixed
Tenant Improvements performed in accordance with Paragraph 4.5 and the Work
Letter, except that Tenant shall be responsible for repairing any damage in
removing its personal property or trade fixtures.

 

9.2 Landlord Not Responsible. Landlord’s approvals as required by this Lease
shall not make Landlord responsible for the improvement with respect to which an
approval is given or the construction thereof, and Tenant shall indemnify,
defend (by counsel reasonably acceptable to Landlord), and hold Landlord and the
Premises harmless from and against any Claims arising out of or in connection
with any construction in, on or about the Premises or any labor dispute arising
in connection therewith.

 

10. UTILITIES AND SERVICES.

 

10.1 Tenant’s Responsibility. Tenant shall be responsible for all utility and
other services to the Premises, at Tenant’s sole cost and expense. Tenant shall
pay all costs therefor, including, without limitation, connection charges and
billing deposits. Tenant shall pay (directly to the provider and prior to
delinquency) for all water, gas, electricity, sewer, telephone, cable television
and other utilities which may be furnished to the Premises during the term of
this Lease. If any such utility is not separately metered to Tenant, Tenant
shall pay a reasonable proportion to be determined by Landlord of all charges
jointly metered with other premises as part of Tenant’s Pro Rata Share of
Operating Expenses, or in the alternative, Landlord may, at its option, monitor
the usage of such utilities by Tenant and charge Tenant with the cost of
purchasing, installing and monitoring such metering equipment, which shall be
paid by Tenant as Additional Rent. Notwithstanding the foregoing, Landlord shall
be responsible for the installation and connection of all utility and other
services to the Building at Landlord’s sole cost and expense prior to May 1,
2005. Tenant shall be entitled to rent abatement for each day that such
installation and connection is not completed after May 1, 2005, to be credited
against the first Monthly Rent payable to Landlord. On or after the Lease
Commencement Date, Tenant

 

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shall have access to the Building and the Premises, seven days a week,
twenty-four (24) hours per day, with electric and elevator service being
provided at all such times.

 

10.2 Additional Devices. Tenant shall not, without the prior written consent of
Landlord, use any device in the Premises, including, but without limitation,
data processing machines, which will in anyway materially increase the amount of
ventilation, air exchange, gas, steam, electricity or water beyond the existing
capacity of the Building and the Project as proportionately allocated to the
Premises based upon Tenant’s Pro Rata Share as usually furnished or supplied for
the uses set forth in Paragraph 6.1 or be in excess of Tenant’s Pro Rata Share
of the Building’s or Project’s capacity to provide such utilities or services;
provided, however, Tenant shall have the right, during the Lease Term, subject
to all Applicable Laws, to install, maintain and operate an emergency generator
in a size and location reasonably approved by Landlord (such approval not to be
unreasonably withheld, conditioned or delayed).

 

10.3 Excess Services. If Tenant shall require services in excess of that usually
furnished or supplied for similar space in the Building, by reason of equipment
operated and/or extended hours of business operation, then Tenant shall first
procure the consent of Landlord for the use thereof, which consent Landlord may
condition upon the availability of such excess utilities or services and
Tenant’s payment as Additional Rent of an amount equal to the cost to provide
such excess services and utility capacity.

 

10.4 Water. Landlord shall provide water in Common Areas for drinking and
lavatory purposes only, but if Tenant requires, uses or consumes water for any
purpose in addition to ordinary drinking and lavatory purposes of which fact
Tenant constitutes Landlord to be the sole judge, Landlord may install a water
meter and thereby measure Tenant’s water consumption for all purposes. Tenant
shall pay Landlord for the cost of the meter and the cost of the installation
thereof and throughout the duration of Tenant’s occupancy, thereof and
throughout the duration of Tenant’s occupancy, Tenant shall keep said meter and
installation equipment in good working order and repair at Tenant’s own cost and
expense, in default of which Landlord may cause such meter and equipment to be
replaced or repaired and collect the cost thereof from Tenant. Tenant agrees to
pay for water consumed, as shown on said meter, as and when bills are rendered,
and on default in making such payment, Landlord may pay such charges and collect
the same from Tenant. Any such costs or expenses incurred, or payments made by
Landlord for any of the reasons or purposes hereinabove stated shall be deemed
to be Additional Rent payment by Tenant and collectible by Landlord as such.

 

10.5 Landlord Not Responsible. Landlord shall not be liable in damages or
otherwise for any failure or interruption of any utility service or other
services being furnished the Premises unless such is caused by the gross
negligence or willful misconduct of Landlord, and no such failure or
interruption shall entitle Tenant to terminate this Lease, abate Rent, or be
relieved from any obligation or the operation of any covenant or agreement under
this Lease unless the same is caused by the gross negligence or willful
misconduct of Landlord. Landlord reserves the right to stop service of the
elevator, plumbing, HVAC-Building and electric systems, when necessary, by
reason of accident or emergency or for repairs, alterations or improvements, in
the reasonable judgment of Landlord desirable or necessary to be made, until
said repairs, alterations or improvements shall have been completed, and
Landlord shall further have no

 

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responsibility or liability for failure to supply elevator facilities, plumbing,
HVAC-Building or electric service, when prevented from doing so by strike or
accident, or by laws, rules, order, ordinances, directions, regulations or
requirements of any federal, state, country or municipal authority or failure to
deliver gas, oil or other suitable fuel supply or inability by exercise of
reasonable diligence to obtain gas, oil or other suitable fuel. It is expressly
understood and agreed that any covenants on Landlord’s part to furnish any
service pursuant to any of the terms, covenants, conditions, provisions or
agreements of this Lease, or to perform any act or thing for the benefit of
Tenant, shall not be deemed breached if Landlord is unable to furnish or perform
the same by virtue of a strike or labor trouble or any other cause whatsoever.

 

11. MAINTENANCE AND REPAIRS.

 

11.1 Landlord’s Responsibility. Landlord shall repair and maintain the
structural and exterior portions and Common Areas of the Building and Project to
a standard at least equal to other Class A office properties in the San
Francisco mid-peninsula, including, without limitation, roofing and covering
materials, foundations, exterior walls, the plumbing, fire sprinkler system (if
any), HVAC-Building, elevator, and electrical systems installed or furnished by
Landlord (and, except as provided in Paragraph 7.5.1(d), the full cost thereof
shall be included as a part of Operating Expenses), unless such maintenance or
repairs are required in whole or in part because of any act, neglect, fault of
or omissions of any duty by Tenant, its agents, servants, employees or invitees,
in which case Tenant shall pay to Landlord the cost of such maintenance and
repairs. There shall be no abatement of Rent and no liability of Landlord by
reason of any injury to or interference with Tenant’s business arising from the
making of any repairs, alterations or improvements in or to any portion of the
Premises, or in or to improvements, fixtures, equipment and personal property
therein unless caused by the gross negligence or willful misconduct of Landlord.
Landlord shall use its best efforts not to unreasonably interfere with Tenant’s
use and occupancy of the Premises in making such repairs, alterations or
improvements. Landlord shall not be liable for any failure to make any repairs
or to perform any maintenance which is an obligation of Landlord unless such
failure shall persist for an unreasonable time after written notice of the need
of such repairs or maintenance is given to Landlord by Tenant.

 

11.2 Tenant’s Responsibility. Except for services of Landlord, if any, required
by Paragraph 11.1, Tenant shall at Tenant’s sole cost and expense keep the
Premises and every part thereof in good condition and repair, damage thereto
from ordinary wear and tear excepted. During the Lease Term, except as expressly
provided in the Lease, Landlord shall not be required to maintain or make any
repairs or replacements of any nature or description whatsoever to the Premises.

 

11.3 Landlord’s Right of Entry for Repairs. Landlord and Landlord’s agents shall
have the right to enter upon the Premises, or any part thereof, upon prior
reasonable notice to Tenant not less than 24 hours in advance, for the purpose
of performing any repairs or maintenance Landlord is permitted or required to
make pursuant to this Lease and, provided a representative of Tenant is given
the reasonable opportunity to accompany Landlord and Landlord’s agents, of
ascertaining the condition of the Premises or whether Tenant is observing and
performing Tenant’s obligations hereunder, all without unreasonable interference
from

 

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Tenant or Tenant’s Agents. “Tenant’s Agents” shall be defined to include
Tenant’s officers, employees, agents, contractors, invitees, customers and
subcontractors. Except for emergency maintenance or repairs, the right of entry
contained in this paragraph shall be exercisable at reasonable times, and at
reasonable hours.

 

12. COMMON AREAS; PARKING.

 

12.1 Common Areas. Tenant shall have the non-exclusive right, in common with
others, to use the Common Areas, subject to the rules and regulations adopted by
Landlord and attached hereto as Exhibit E together with such other reasonable
and non-discriminatory rules and regulations as are hereafter promulgated by
Landlord in its discretion (the “Rules and Regulations”). Landlord shall not be
responsible to Tenant for the violation or non-performance by any other tenant
or any agent, employee or invitee thereof of any of said Rules and Regulations.
Landlord reserves the right to modify Common Areas including the right to add or
remove exterior and interior landscaping and to subdivide real property. It is
recognized that Landlord specifically reserves the right as to a portion of the
Building to allow exclusive use of corridors and restroom facilities located on
specific floors to one or more tenants occupying such floors, provided Tenant
herein shall not be deprived of the use of the corridors reasonably required to
serve the Premises or of restroom facilities serving the floor upon which the
Premise are located. Notwithstanding the foregoing, Landlord agrees to cooperate
with Tenant to rework the reception area, at Tenant’s option, on the second
(2nd) floor of the Building, which Tenant will share with other tenants of the
Project on a non-exclusive basis, to address Tenant’s entry and aesthetic needs,
the costs of which shall be paid from the Tenant Improvement Allowance or
Tenant’s own funds.

 

12.2 Parking. Subject to the other provisions of this Lease, and excluding those
parking spaces designated by Landlord as being reserved for Nektar Therapeutics,
commencing on the Rent Commencement Date and ending on the expiration date of
the Lease Term, Tenant shall be entitled to 3.0 unreserved parking spaces per
1,000 rentable square feet for use by Tenant and its employees, business
invitees and agents. Landlord may designate or redesignate from time to time the
location of the parking spaces, provided that at all times Tenant and its
employees shall be permitted to park in the underground garage of the Project.
Notwithstanding the foregoing, six (6) of such parking spaces shall be
designated by Landlord for Tenant’s exclusive use, such designated spaces to be
located near the main visitor entrance of the Building and marked in a manner
reasonable acceptable to both Landlord and Tenant at Tenant’s sole cost and
expense. Tenant shall not park any trucks or any delivery vehicles in the
parking areas or driveways, except as specifically designated by Landlord from
time to time, and shall confine all truck parking, loading and unloading to
times and locations specifically designated by Landlord from time to time.
Tenant shall require all trucks servicing Tenant to be promptly loaded or
unloaded and removed from the site. Landlord hereby reserves the exclusive right
with respect to the use of parking facilities, roadways, sidewalks, driveways,
islands and walkways for advertising purposes. Tenant covenants and agrees to
enforce the provisions of this Lease against Tenant’s employees and business
invitees. Landlord may from time to time circulate parking stickers for the
purpose of identifying motor vehicles of Tenant and Tenant’s employees and/or
circulate validation tickets for the purpose of identifying Tenant’s business
invitees. Landlord shall have the right, but not the obligation: (a) to police
said parking facilities, (b) to

 

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provide parking attendants, (c) to cause unauthorized and/or unregistered motor
vehicles (but only upon 48 hours verbal or written notice to Tenant for first
time offenders) to be towed away at the sole risk and expense of the owner of
such motor vehicles, (d) to designate certain areas of the parking facilities
for the exclusive use of motor vehicles having handicapped designations on their
license plates and/or for the exclusive use of visitors to the Project, (e) to
use any portion of the parking facilities from time to time and/or to deny
access to the same temporarily in order to repair, maintain or restore such
facilities or to construct improvements under, over, along, across and upon the
same for the benefit of the site and to grant easements in the parking
facilities to any authorities, (f) to adopt and modify from time to time rules
and regulations for parking and vehicular ingress, egress, speed, no parking, no
standing, and for times and places for move-in, move-out and deliveries, (g) to
designate fire lanes, loading zones and restricted parking from time to time and
to tow violators immediately with no notice and (h) to designate from time to
time specific areas for the parking of Tenant’s employees cars. Landlord shall
use commercially reasonable efforts to insure that the rules and regulations
promulgated by Landlord will be enforced in a non-discriminatory manner.

 

13. FIXTURES AND PERSONAL PROPERTY.

 

13.1 Removal of Fixtures. Except as provided in Paragraphs 9.1.8 or 13.2 herein,
Tenant shall not remove any fixtures belonging to Landlord from the Premises
without Landlord’s prior written consent (not to be unreasonably withheld,
conditioned or delayed); provided, however, Tenant shall have the right to sell
or dispose of any existing building machinery, equipment or fixtures subject to
this Lease which may have become obsolete or unfit for use or which are no
longer useful, necessary or profitable in the conduct of Tenant’s business, so
long as (i) the Premises retain its primary use consistent with the Permitted
Use, and (ii) Tenant shall have substituted or promptly shall substitute for the
property so removed from the Premises other building machinery, equipment or
fixtures not necessarily of the same character but at least of equal quality in
the performance of the particular function in question as that of the property
so removed unless, in Tenant’s reasonable opinion, the property so removed was
performing an obsolete function and replacement thereof is not necessary or
appropriate to maintain the operation or character of the Premises or its
overall value without impairment. Tenant shall give Landlord written notice of
each material fixture removed by Tenant. All built-ins and fixtures installed in
or attached to the Premises by Tenant must be new or like new when so installed
or attached.

 

13.2 Trade Fixtures and Personal Property. Except for the personal property and
trade fixtures acquired by Tenant and paid from the Tenant Improvement Allowance
in accordance with Paragraph 4.5, the ownership of which shall be governed by
Section 9.1.8, any trade fixtures, equipment, stock, inventory, machines (other
than Special HVAC or other built-in machines or machinery, as provided in
Paragraph 9.1.8), signs and other personal property of Tenant not permanently
affixed to the Premises (“Tenant’s Equipment”) shall remain the property of
Tenant. Landlord agrees that Tenant shall have the right, at any time, and from
time to time, to remove any and all of Tenant’s Equipment which it may have
stored or installed in the Premises. Tenant, at its sole cost and expense,
immediately shall repair any damage occasioned to the Premises by reason of the
removal of Tenant’s Equipment and, upon the last day of the Lease Term or upon
earlier termination of this Lease, shall leave the Premises in a neat and clean

 

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condition, free of debris, and in as good a condition as that existing on the
Rent Commencement Date, reasonable wear and tear and damage from casualty or
condemnation excepted, with all Special HVAC and other Building systems in good
and operable condition.

 

13.3 Taxes on Trade Fixtures and Personal Property. Tenant shall pay before
delinquency all taxes, assessments, license fees and public charges levied,
assessed or imposed upon its business operation, as well as upon its trade
fixtures, leasehold improvements (including, but not limited to, those Tenant is
allowed or required to make in accordance with the provisions of this Lease),
merchandise and other personal property in, on or upon the Premises. If any such
items of property are assessed together with property owned by Landlord, then,
and in such event, such assessment shall be equitably divided between Landlord
and Tenant.

 

13.4 Ownership of Tenant’s Equipment. All Tenant’s Equipment shall be and remain
the property of Tenant during the Lease Term. Tenant shall bear all costs and
expenses incurred in installing, removing, storing or disposing of Tenant’s
Equipment pursuant to this paragraph and Paragraph 27 and shall repair at its
expense all damage to the Premises caused by the installation and removal
thereof, whether effectuated by Tenant or Landlord (as provided in Paragraph
27).

 

14. TENANT’S COVENANT. Tenant covenants and agrees that as to its leasehold
estate and use and occupancy of the Premises, Tenant and all persons in
possession or holding under Tenant shall conform to and shall not violate any
Applicable Law.

 

15. INDEMNITY - WAIVER OF SUBROGATION.

 

15.1 Indemnification. Tenant shall indemnify, defend, and hold Landlord and its
agents, employees, directors, officers, managers, members, partners, affiliates,
independent contractors, and property managers (collectively, “Landlord’s
Agents” or “Agents”) harmless from and against any and all claims, demands,
liability, loss or damage, whether for injury to or death of persons or damage
to real or personal property, arising out of or in connection with the Premises,
Tenant’s use of the Premises, any activity, work, or other thing done or
permitted by Tenant in or about the Building or the Project, or arising from any
reason or cause whatsoever in connection with the use or occupancy of the
Premises by Tenant or its assignees, licensees or sublesees during the term of
this Lease. This indemnification by Tenant shall include indemnity for the acts
or omissions of Landlord and Landlord’s Agents, unless caused by the willful act
or gross negligence of the Landlord or its Agents. Tenant shall further
indemnify, defend, and hold Landlord and Landlord’s Agents harmless against and
from any and all claims arising from any breach or default in the performance of
any obligation on Tenant’s part to be performed under the terms of this Lease,
or arising from any act or negligence of Tenant or any officer, agent, employee,
guest, or invitee of Tenant, and from and against all costs, attorneys’ fees,
expenses, and liabilities incurred as a result of any such claim or any action
or proceeding brought thereon. In any case, action, or proceeding brought
against Landlord or Landlord’s Agents by reason of any such claim, Tenant, upon
notice from Landlord, shall defend the same at Tenant’s expense by counsel
reasonably satisfactory to Landlord. Tenant, as a material part of the
consideration to Landlord, hereby assumes all risk of damage to property or
injury to persons in, upon, or about the Premises from any cause arising prior
to the later of the termination of this Lease or the date

 

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Tenant is no longer in possession of the Premises (except for such damage or
injury caused by Landlord’s or its Agents’ willful misconduct or gross
negligence), and Tenant hereby waives all claims in respect thereof against
Landlord and Landlord’s Agents. Tenant’s obligation to indemnify under this
paragraph shall include reasonable attorneys’ fees, investigation costs, and
other reasonable costs, expenses, and liabilities incurred by Landlord and
Landlord’s Agents. If the ability of Tenant to use the Premises, the Building or
the Project is interrupted for any reason, Landlord and Landlord’s Agents shall
not be liable to Tenant for any loss or damages occasioned by such loss of use,
except to the extent such loss or damages is caused solely by Landlord’s or its
Agents’ willful misconduct or gross negligence, provided that Tenant shall be
entitled to rent abatement.

 

15.2 Limitation on Landlord Liability. Neither Landlord nor Landlord’s Agents
shall be liable for loss or damage to any property by theft or otherwise, or for
any injury to or damage to persons or property resulting from fire, explosion,
falling plaster, steam, gas, electricity, water, or rain which may leak from any
part of the Building or Project or from the pipes, appliances, or plumbing works
therein or from the roof, street, or subsurface or from any other place
resulting from dampness or any other cause whatsoever, unless caused by or due
solely to the gross negligence or intentional acts of Landlord or Landlord’s
Agents. Landlord shall not be liable for any damages arising from any act,
omission or neglect of any other tenant in the Building or Project or of any
other third party. Except as otherwise provided herein, neither Landlord nor
Landlord’s Agents, shall be liable for interference with the light or other
rights or loss of business by Tenant. Tenant shall give prompt notice to
Landlord in case of fire or accidents in the Premises, the Building or the
Project or of defects therein or in the fixtures or equipment belonging to
Landlord.

 

15.3 Waiver of Subrogation. Landlord and Tenant hereby waive any rights each may
have against the other on account of any loss or damage occasioned to Landlord
or Tenant, as the case may be, their respective property or the Premises, caused
by or resulting from risks insured against under any policies carried by the
parties; provided, however, that this paragraph 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. To the extent
available, the parties shall cause each insurance policy obtained by it
hereunder to provide a waiver of subrogation.

 

16. INSURANCE.

 

16.1 Landlord’s Insurance. During the Lease Term, Landlord shall keep and
maintain, or cause to be kept and maintained, as part of Operating Expenses, a
policy or policies of insurance on the Project insuring the same against loss or
damage by the following risks: fire and extended coverage, vandalism, malicious
mischief and sprinkler leakage (if sprinklers are required in the Project under
applicable building code provisions, or are installed by Tenant in the absence
of such requirement) in amounts at all times sufficient to prevent Landlord or
Tenant from becoming a co-insurer under the terms of the applicable policies,
but in any event in amounts not less than the Full Replacement Value of the
Project (including both the Project and any tenant improvements), or if greater,
the amount of such insurance Landlord’s lender requires Landlord to maintain.
The term “Full Replacement Value” shall mean actual replacement cost,

 

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including changes required by new building codes or ordinances (exclusive of the
cost of excavation, foundations and footings). Such insurance shall show, as a
loss payee in respect of the Premises, Landlord, Tenant and any ground lessor or
any Lender required to be named pursuant to its mortgage documents, as their
interests may appear. Landlord, subject to availability thereof and, as part of
Operating Expenses, shall further insure as Landlord deems appropriate coverage
against flood, earthquake, environmental remediation, loss or failure of
building equipment, rental loss for a period of eighteen (18) months for periods
of repair or rebuild, worker’s compensation insurance, fidelity bonds for
employees employed to perform services and other insurance in types and amounts
consistent with commercially reasonable practice. Landlord, as part of the
Operating Expenses, shall further carry General Liability with General Aggregate
Amount and Per Occurrence Limit insurance with a single loss limit of not less
than Five Million Dollars ($5,000,000) for death or bodily injury, or property
damage with respect to the Real Property.

 

16.2 Tenant’s Insurance.

 

16.2.1 Comprehensive Liability Insurance. During the Lease Term, Tenant shall
keep and maintain, or cause to be kept and maintained, at Tenant’s sole cost and
expense, a policy or policies of comprehensive general public liability
insurance, showing, as an additional insured in respect of the Premises,
Landlord, Tenant, any management company retained by Landlord to manage the
Premises, any ground lessor and any Lender required to be named pursuant to its
mortgage documents. Such policy shall insure against any and all Claims for
injuries to persons, loss of life and damage to property occurring upon, in or
about the Premises (including coverage for liability caused by independent
contractors of Tenant or Subtenant working in or about the Premises), with
minimum coverage in an amount not less than a Two Million Dollars ($2,000,000)
combined single limit with respect to all bodily injury, death or property
damage in any one accident or occurrence. In the event of a Claim relating to
the Premises, the amount of any deductible or self-insured retention and/or any
award in excess of the policy limits shall be the sole responsibility of Tenant.
The insurance shall include (i) personal injury insurance with endorsement
deleting the employee liability exclusions, and employee liability insurance,
(ii) a broad form contractual liability endorsement insuring Tenant’s indemnity
obligation under Paragraph 15.1, (iii) a products liability coverage endorsement
(or in the alternative, a separate product liability insurance policy), (iv) a
boiler and machinery coverage endorsement, and (v) a products completed
operations coverage endorsement (or in the alterative, a separate insurance
policy that provides coverage for products completed operations).

 

16.2.2 Tenant’s Risk. Tenant assumes the risk of damage to any fixtures, goods,
inventory, merchandise and equipment, and Landlord shall not be liable for
injury to Tenant’s business or any loss of income therefrom relative to such
damage except as more particularly heretofore set forth within this Lease.
Tenant at Tenant’s cost may carry such insurance as Tenant desires for Tenant’s
protection with respect to personal property of Tenant, business interruption or
other coverages.

 

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16.2.3 Other Insurance. In addition to all other insurance required to be
carried by Tenant, Tenant, throughout the Lease Term, shall provide and keep in
force at Tenant’s sole cost and expense:

 

(a) Such further insurance against such other hazards and risks and in such
amounts as the ground lessor or the holder of any mortgage or deed of trust lien
may require under to the terms of such liens that are commercially reasonable;

 

(b) Rental value insurance with respect to the Premises, covering risk of loss
of rental due to the occurrence of any of the hazards described above in
Paragraph 16.1, in an amount not less than the aggregate requirements for the
period of twelve (12) months following the occurrence of the casualty for Rent
and premiums on the insurance required to be carried pursuant to this Paragraph
16;

 

(c) Worker’s Compensation insurance to the full extent required under the law of
the State of California;

 

(d) Insurance on Tenant’s equipment, personal property and other contents in, on
or about the Premises insuring against loss or damage by all risks covered by
“special form” coverage, in amounts equal to ninety percent (90%) of their full
replacement value;

 

(e) During the period of construction of the Tenant Improvements and any other
construction, Builder’s All Risk Insurance with Completed Operations Coverage;
and

 

16.3 Insurers; Primary Insurance. All policies of insurance provided for herein
shall be on an occurrence basis (except for the product liability coverage,
which may be on a claims made basis) and shall be issued by insurance companies
with a general policy holder’s rating of not less than A- and a financial rating
of not less than Class XV as rated in the most current available “Best’s”
Insurance Reports. Such insurance companies shall be qualified to do business in
the State of California (except for the product liability coverage insurer,
which may be a non-admitted insurance provider). All such policies carried by
Tenant shall name Landlord, any ground lessor and any Lender (or its successors
and assigns) as additional insureds, and shall be for the mutual and joint
benefit and protection of Landlord, Tenant, any ground lessor and Landlord’s
first mortgagee or beneficiary. All public liability and property damage
policies carried by Tenant shall contain a provision that Landlord, although
named as an insured, nevertheless shall be entitled to recovery under said
policies for any loss occasioned to it, its servants, agents and employees by
reason of the negligence of Tenant. As often as any such policy shall expire or
terminate, renewal or additional policies shall be procured and maintained by
Tenant in like manner and to like extent. All policies of insurance must contain
a provision that the company writing said policy will give to Landlord thirty
(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 carried by Tenant shall
be written as primary policies, not contributing with and not in excess of
coverage which Landlord may carry. Tenant shall, upon request from Landlord from
time to time, immediately deliver to Landlord copies of all insurance policies
(including the declarations pages) in effect

 

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with respect to Tenant’s business and the Premises. All liability policies shall
contain endorsements for cross-liability, fire, legal liability, broad form
contractual liability, employer’s automobile non-ownership, and products
completed operation coverage.

 

16.4 Blanket Policy. Notwithstanding anything to the contrary contained within
this Paragraph 16, Tenant’s obligations to carry the insurance provided for
herein may be brought within the coverage of a so-called blanket policy or
policies of insurance carried and maintained by Tenant; provided, however, that
Landlord, any ground lessor and Lender shall be named as an additional insured
thereunder as their interests appear, the coverage afforded Landlord will not be
reduced or diminished by reason of the use of such blanket policy of insurance,
and the requirements set forth herein are otherwise satisfied.

 

16.5 Deductibles. The deductible amounts, if any, with respect to all insurance,
which Tenant is required to maintain hereunder, shall not exceed Twenty-Five
Thousand Dollars ($25,000) per claim or occurrence. The amount of the
deductibles, if any, within this limitation shall be a business decision by
Tenant. Under no circumstances shall Landlord be required to reimburse Tenant
for the amount of any deductible incurred by Tenant in connection with any
insured event.

 

16.6 Certificates. Upon the execution and delivery of this Lease and thereafter
not less than thirty (30) days prior to the expiration dates of the expiring
policies theretofore maintained, Tenant shall deliver to Landlord certificates
of insurance with respect to the policies of insurance required by this Lease or
duplicate originals of all such policies. Landlord, upon reasonable notice, may
inspect and copy any policies of insurance, and any records relating thereto
kept and maintained by Tenant.

 

16.7 Adjustment in the Event of Loss. Except as otherwise provided herein, all
insurance proceeds payable with respect to any damage or destruction to the
Premises (but not with respect to Tenant’s personal property, it being
understood that insurance proceeds allocable to Tenant’s personal property shall
be payable directly to Tenant) shall be payable to Landlord and Tenant, jointly,
to be held in an interest bearing account. If Tenant and Landlord undertake to
repair said damage in accordance with Article 17 below, the proceeds shall be
made available to Tenant as to the tenant improvements and to Landlord as to the
Project, Building and Common Area used to fund the reconstruction. In all other
events, the proceeds shall be the sole property of Landlord except otherwise
expressly provided herein, such as insurance proceeds with respect to Tenant’s
personal property. Each party agrees to execute and deliver to the other party
such releases, endorsements and other instruments as the other party reasonably
may require in order to compromise, adjust or settle any insurance claim which
such other party shall be entitled to compromise, adjust or settle pursuant to
this paragraph and to enable the other party or its designee to collect such
insurance proceeds as are payable in respect of such claim.

 

17. DAMAGE OR DESTRUCTION.

 

17.1 Partial Destruction. In the event of a partial destruction of the Building
wherein the Premises are located by fire or other perils covered by extended
coverage insurance, and if the damage thereto is such that the Building may be
repaired, reconstructed or restored

 

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within a period of six (6) months from the date of the happening of such
casualty and Landlord will receive insurance proceeds sufficient to cover the
cost of such repairs (except for any deductible amount provided by Landlord’s
policy, which deductible amount if paid by Landlord shall be an Operating
Expense, but not to exceed $100,000 per occurrence to be amortized over the
remaining Lease Term), Landlord shall commence and proceed diligently with the
work of repair, reconstruction and restoration and this Lease shall continue in
full force and effect. In the event insurance proceeds are not sufficient to
cover the cost of such repairs, and Landlord elects not to repair or restore,
this Lease shall terminate as of the date of the casualty.

 

17.2 Other Destruction. In the event of any damage to or destruction of the
Building wherein the Premises are located, other than as provided in Paragraph
17.1, Landlord may elect to repair, reconstruct and restore the Building, in
which case this Lease shall continue in full force and effect. If Landlord
elects not to repair then this Lease shall terminate as of date of destruction.
Landlord shall give written notice to Tenant of its election not to repair,
reconstruct or restore the Building or Project within the sixty (60) day period
following the date of damage or destruction.

 

17.3 Termination of Lease. Upon any termination of this Lease under any of the
provisions of this Article, the parties shall be released thereby without
further obligation to the other from the date possession of the Premises is
surrendered to the Landlord except for items which have theretofore occurred.

 

17.4 Abatement of Rent. In the event of repair, reconstruction and restoration
as herein provided, the rental provided to be paid under this Lease shall be
abated proportionately based on the extent to which Tenant’s use of the Premises
is impaired during the period of such repair, reconstruction or restoration,
unless Landlord provides Tenant with other space during the period of repair,
which in Tenant’s reasonable opinion is suitable for the temporary conduct of
Tenant’s business.

 

17.5 Limitations on Landlord’s Obligations. The obligations of Landlord pursuant
to this Article are subject to the following limitations:

 

(a) Notwithstanding anything to the contrary contained in this Article, should
Landlord be delayed or prevented from completing the repair or restoration of
the damage to the Premises after the occurrence of such damage or destruction by
reason of acts of God or war, governmental restrictions, inability to procure
the necessary labor or materials, strikes, or other uses beyond the control of
Landlord, the time for Landlord to commence or complete repairs shall be
extended, provided, at the election of Landlord or Tenant, Landlord shall be
relieved of its obligation to make such repairs or restoration and Tenant shall
be released from its obligation under this Lease as of the end of eight (8)
months from date of destruction, if repairs required to provide Tenant use of
the Premises are not then substantially complete.

 

(b) If Landlord is obligated to or elects to repair or restore as herein
provided, Landlord shall be obligated to make repairs or restoration only of
those portions of the Building and the Premises which were originally provided
at Landlord’s expense. The repair and restoration of items not provide at
Landlord’s expense shall be the obligation of Tenant. In the

 

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event Tenant elected to upgrade certain improvements from the standard normally
provided by Landlord, Landlord shall upon the need for replacement due to an
insured loss, provide only the standard Landlord improvements unless Tenant
shall elect to again upgrade and pay any additional cost of such upgrades,
except to such extent as insurance proceeds which, if received, the excess
proceeds are adequate to provide such upgrades, in addition to providing for
basic reconstruction and standard improvements.

 

(c) Notwithstanding anything to the contrary contained in this Article, Landlord
shall not have any obligation whatsoever to repair, reconstruct or restore the
Premises when the damage resulting from any casualty covered under this Article
occurs during the last twelve (12) months of the term of this Lease or any
extension hereof, or to the extent that insurance proceeds are not available
therefor, in which case this Lease shall terminate as of the date of the
casualty.

 

17.6 Tenant’s Right to Terminate. If the Premises are damaged by any peril and
Landlord does not elect to terminate this Lease or is not entitled to terminate
this Lease pursuant to this Paragraph 17, then as soon as reasonably
practicable, Landlord shall furnish Tenant with the written opinion of
Landlord’s architect or construction consultant as to when the restoration work
required of Landlord may be completed. Tenant shall have the right to terminate
this Lease in the event any of the following occurs, which right may be
exercised only by delivery to Landlord of a written notice of election to
terminate within thirty (30) days after Tenant receives from Landlord the
estimate of the time needed to complete such restoration:

 

(a) The Premises are damaged by any peril and, in the reasonable opinion of
Landlord’s architect or construction consultant, the restoration of the Premises
cannot be substantially completed within one hundred eighty (180) days after the
date of such damage; or

 

(b) The Premises are materially damaged by any peril within twelve (12) months
of the last day of the Lease Term and, in the reasonable opinion of Landlord’s
architect or construction consultant, the restoration of the Premises cannot be
substantially completed within sixty (60) days after the date of such damage.

 

18. ASSIGNMENT AND SUBLETTING.

 

18.1 No Assignment. 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 any other person (excepting Tenant’s
agents and employees) to occupy the Premises or any portion thereof, without
Landlord’s prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed. Consent by Landlord to one or more assignments
of this Lease or to one or more sublettings of the Premises shall not constitute
a waiver of Landlord’s right to require consent to any subsequent assignment,
subletting or other transfer. If Tenant is a corporation, unincorporated
association or partnership, the transfer, assignment or hypothecation of any
stock or interest in such corporation, association or partnership in the
aggregate in excess of forty-nine percent (49%) of all outstanding stock or
interests, or liquidation thereof, shall be deemed an assignment within the
meaning and

 

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provisions of this paragraph; provided, however, the transfer, assignment or
hypothecation of any stock in a corporation or partnership which is a reporting
company under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), shall not be deemed an assignment within the meaning and provisions of
this paragraph. The sale of all or substantially all of the assets of Tenant, or
the assignment of the Lease to an entity into which Tenant is merged or with
which Tenant is consolidated, shall be deemed an assignment within the meanings
and provisions of this paragraph, unless the successor entity has a net worth
equal to or greater than Tenant’s net worth immediately prior to the transfer.
Tenant shall reimburse Landlord for all of Landlord’s reasonable costs and
attorneys’ fees incurred in conjunction with the processing and documentation of
any required consent to assignment, subletting, transfer, change of ownership or
hypothecation of this Lease or Tenant’s interest in and to the Premises not to
exceed $1,500. Notwithstanding the foregoing, Tenant shall have the right,
without the consent of Landlord, to assign its rights and obligations pursuant
to this Lease to a parent, subsidiary or affiliate, provided that Tenant remains
obligated under the Lease. For purposes of this Paragraph, the term “subsidiary”
shall mean and refer to any subsidiary of Tenant in which Tenant owns eighty
percent (80%) or more of the voting stock of such subsidiary. For purposes of
this Paragraph, the term “affiliate” shall mean and refer to any entity in which
Tenant or parent of Tenant owns eighty percent (80%) or more of the voting stock
or ownership interest of such entity.

 

18.2 Consent Required. Landlord’s consent may be based upon a determination that
similar financial soundness of ownership shall exist after the proposed
assignment or subletting and, provided further, that each and every covenant,
condition and obligation imposed upon Tenant by this Lease and each and every
right, remedy and benefit afforded Landlord by this Lease and the underlying
purpose of this Lease is not thereby impaired or diminished. The determination
by Landlord as to whether consent will be granted in any specific instance may
be based on, without limitation, the following factors, which shall be in
Landlord’s reasonable discretion: (a) whether the transferee’s use of the
Premises will be compatible with the provisions of this Lease; (b) the financial
capacity of the transferee; (c) the business reputation of the transferee; (d)
the quality and type of the business operations of the transferee; and (e) the
business experience of the proposed transferee. This list of factors is not
intended to be exclusive, and Landlord may rely on such other basis for judgment
as may apply from time to time.

 

18.3 Procedure to Obtain Consent. If Tenant desires at any time to assign this
Lease or to sublet the Premises or any portions thereof, it first shall notify
Landlord of its desire to do so and shall submit in writing to Landlord (a) the
name and legal composition of the proposed subtenant or assignee; (b) the nature
of the proposed subtenant’s or assignee’s business to be carried on in the
Premises; (c) the terms and provisions of the proposed sublease or assignment
and all transfer documents relating to the proposed transfer; and (d) such
reasonable business and financial information as Landlord may request concerning
the proposed subtenant or assignee. Landlord shall notify Tenant of its approval
or disapproval of any such request within ten (10) business days of receipt of
the foregoing information and payment. Landlord’s failure to respond within such
ten (10) business day period shall be deemed approval by Landlord. The
provisions and conditions of any proposed sublease or assignment must not be
inconsistent with any provision of this Lease, and must address all matters
contained in this Lease. In addition, the transferee must expressly assume all
of the obligations of Tenant under

 

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this Lease. Notwithstanding the assumption of the obligations of this Lease by
the transferee, no subletting or assignment, even with the consent of Landlord,
shall relieve Tenant of its continuing obligation to pay the rent and perform
all the other obligations to be performed by Tenant hereunder. The obligations
and liability of Tenant hereunder shall continue notwithstanding the fact that
Landlord may accept rent and other performance from the transferee. 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.

 

18.4 Advertising. In no event shall Tenant display on or about the Premises any
signs for the purpose of advertising the Premises for assignment, subletting or
other transfer of rights, without Landlord’s prior written consent, which shall
not be unreasonably withheld, conditioned or delayed. It shall not be
unreasonable for Landlord to withhold its consent if, at such time, it is
advertising any other space at the Project for lease, sublease, assignment or
other transfer.

 

18.5 Writing Required. Each permitted assignment or sublease shall be
consummated by an instrument in writing executed by the transferor and
transferee in form satisfactory to Landlord. Each assignee and subtenant shall
agree in writing for the benefit of the Landlord herein to assume all
obligations of Tenant hereunder, including the payment of all amounts due or to
become due under this Lease directly to the Landlord. One executed copy of such
written instrument shall be delivered to the Landlord.

 

18.6 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 tenant improvements and
other expenses of the assignment or sublease, fifty percent (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.

 

19. NO ENCUMBRANCE. Without Landlord’s prior written consent, Tenant shall not
mortgage, encumber or hypothecate its interest in this Lease, the Premises, the
Building or the Project, and any attempt by Tenant to do so shall be a default
hereunder, and at Landlord’s option, shall terminate this Lease.

 

20. HAZARDOUS MATERIALS.

 

20.1 Hazardous Materials. Tenant shall not use, store, dispose of or permit to
remain on the Premises, the Building, the Project, the Land, or any adjacent
property other than in the normal course of its business and in compliance with
all applicable laws, any solid, liquid or gaseous matter or any combination
thereof, which is or may become, hazardous, toxic or radioactive including, but
not limited to, any substance, gas, or waste, which is included in the
definition of “hazardous substance,” “toxic substance,” “hazardous waste,” or
“toxic waste” under any federal, state, or local law, ordinance, or regulation,
including those materials identified in Sections 66680 through 66685 of Title 22
of the California Administrative Code, Division 4, Chapter 30 (as may be amended
from time to time) or any material which, if

 

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discharged, leaked or emitted or permitted to be discharged, leaked or emitted
into the atmosphere, the ground or any body of water, does or may (i) pollute or
contaminate the same, or (ii) adversely affect (A) the health or safety of
persons, whether on the Premises or anywhere else, (B) the condition, use or
enjoyment of the Premises or anywhere else, or (C) the Premises, the Building,
the Project or any of the improvements thereon (all of the foregoing
collectively referred to herein as “Hazardous Materials”).

 

20.2 Testing. At reasonable times and upon reasonable prior notice, prior to the
expiration or earlier termination of the Lease Term, Landlord shall have the
right to conduct (a) hazardous material and waste investigation(s) of the
Premises and (b) if Landlord has reasonable cause to believe that any
contamination exists on, in, under, or around the Building or the Premises, such
other tests of the Premises and the Building as Landlord may deem necessary or
desirable to demonstrate whether contamination has occurred as a result of
Tenant’s use of the Premises. Tenant shall be solely responsible for and shall
defend, indemnify and hold the Landlord, its Agents and contractors harmless
from and against any and all Claims that are attributable to Tenant’s use and
occupancy of the Premises, arising out of or in connection with any removal,
clean up, restoration and materials required hereunder to return the Premises
and any other property of whatever nature to their condition existing prior to
the time of any such contamination, except for Claims caused by Landlord’s or
its Agents’ gross negligence or willful misconduct. Tenant shall pay for the
cost of the investigations and other tests of the Premises only if it is shown
that Tenant is responsible for such contamination.

 

20.3 Duty to Dispose. Tenant shall not keep any trash, garbage, waste or other
refuse on the Premises except in sanitary containers and shall regularly and
frequently remove the same from the Premises. Tenant shall keep all
incinerators, containers or other equipment used for the storage or disposal of
such matter in a clean and sanitary condition. Tenant shall properly dispose of
all sanitary sewage and shall not use the sewage disposal system of the Building
or the Project (i) for the disposal of anything except sanitary sewage, or (ii)
for disposal of sewage in excess of the lesser of the amount (A) reasonably
contemplated by the uses permitted under this Lease, or (B) permitted by any
governmental entity.

 

20.4 Hazardous Materials Laws. Tenant, at Tenant’s own cost and expense, shall
comply with all existing and any hereinafter enacted federal, state or local
laws pertaining to or governing Hazardous Materials laws. Tenant, at Tenant’s
own cost and expense, shall make all submissions to, provide all information to
and comply with all requirements of any appropriate governmental authority
(“Authority”) under all federal, state or local laws pertaining to or governing
Hazardous Materials. In particular, Tenant shall comply with all laws relating
to the storage, use and disposal of Hazardous Materials. Should any Authority
require that a clean up or remediation plan be prepared or that a clean up or
any other remediation action be undertaken because of any spills or discharges
of Hazardous Materials at the Premises or on the Premises or any adjacent
property that occur during the Lease Term or after expiration of the Lease Term
as a result of Tenant’s use of the Premises, then Tenant, at Tenant’s own
expense, shall prepare and submit the required plans and financial assurances
and carry out the approved plans. At no expense to Landlord, Tenant promptly
shall provide all information requested by Landlord for preparation of
affidavits required by Landlord or for Landlord’s own information,

 

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to determine the applicability of the Hazardous Materials laws to the Premises
and shall execute affidavits promptly when requested to so by Landlord.

 

20.5 Tenant Indemnification. Tenant shall indemnify, defend and hold harmless
Landlord and Landlord’s Agents from and against (i) Claims in connection with or
arising out of any release, spill or discharge of Hazardous Materials due to,
contributed to or caused by the activities of Tenant, Tenant’s Agents, or
parties in contractual relationship with Tenant or any of them; and (ii) all
Claims arising out of Tenant’s failure to provide all information, make all
submissions and take all steps required by any Authority, under any federal,
state or local laws pertaining to or governing Hazardous Materials laws or any
other environmental law. Tenant’s obligations and liabilities under this
paragraph shall survive the expiration or earlier termination of this Lease.
Without limiting the foregoing, if the release, spill, leakage, or discharge of
any Hazardous Materials on or in the Premises or the Building or any adjacent
property, caused or permitted by Tenant results in any contamination of the
Premises or the Building or any adjacent property, Tenant shall promptly take
all actions at its sole expense as are necessary to return the Premises or the
Building or any adjacent property, to the condition existing prior to the time
of such contamination, provided that Landlord’s approval of such action shall
first be obtained, which approval shall not unreasonably be withheld, delayed or
conditioned so long as such actions would not potentially have any material
adverse long-term or short-term effect on the Premises or the Building.
Notwithstanding the foregoing, the indemnification herein shall not apply to the
initial introduction of Hazardous Materials on or to the Premises by anyone
other than the Tenant from and after the date that Tenant is neither the
“Tenant” hereunder nor in possession of the Premises (“Tenant Relinquishment
Date”); provided, however, that the Tenant shall bear the burden of proof that
the initial introduction of such Hazardous Materials (i) occurred subsequent to
the Tenant Relinquishment Date, (ii) did not occur as a result of any act or
inaction of the Tenant, and (iii) did not occur as a result of a continuing
migration or release of any Hazardous Materials initially introduced, stored, or
manufactured on the Premises prior to the Tenant Relinquishment Date.
Notwithstanding anything contained herein, neither Tenant nor any of Tenant’s
employees, agents, officers, contractors, directors and shareholders (“Tenant
Party”) shall be liable or responsible for any pre-existing Hazardous Materials
in, on, under or about the Premises, the Building, the Project or any adjacent
property, prior to the Lease Commencement Date, or any migration of Hazardous
Materials in, on, under or about the Premises, the Building, the Project or any
adjacent property, at any time, unless caused by Tenant or a Tenant Party.

 

20.6 Obligation to Remediate Upon Expiration of Lease. Tenant shall surrender
the Premises at the expiration or earlier termination of this Lease free of any
Hazardous Materials or contamination and free and clear of all judgments, liens,
licenses, restrictions or encumbrances relating thereto and, at its own cost and
expense, shall repair all damage and clean up or perform any remedial action
necessary relating to any Hazardous Materials or contamination caused by
Tenant’s operation. Tenant, at its sole cost and expense, shall, following
Landlord’s request, remove any alterations or improvements that may be
contaminated or contain Hazardous Materials.

 

20.7 Landlord Indemnity. To the best of Landlord’s knowledge, except as may be
in the possession of Nektar Therapeutics or any other tenant at the Project, no
Hazardous

 

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Materials are present in, on, under or about the Premises or the Project, and no
action, proceeding, or claim is pending or threatened concerning any Hazardous
Materials or pursuant to any Hazardous Materials laws or any other environmental
law. Landlord shall defend, indemnify and hold Tenant and the Tenant Parties
harmless from and against all claims, penalties, expenses and liabilities,
including attorneys’ and consultants’ fees and costs, arising out of or caused
in whole or in part, directly or indirectly, by or in connection with any
Hazardous Materials in, on, under or about the Premises or Project, except to
the extent the same results from Tenant’s or Tenant’s Agents’ release or
admission of Hazardous Substances in or about the Premises in violation of
Hazardous Materials Laws. For the purposes of the indemnity provisions hereof,
any acts or omissions of Landlord or Landlord’s employees, agents, officers,
contractors, directors and shareholders (whether or not they are negligent,
intentional or unlawful) shall be strictly attributable to Landlord. Landlord’s
obligations under this Paragraph 20.7 shall survive the termination or
expiration of this Lease.

 

21. CONDEMNATION.

 

21.1 Termination of Lease. If the Premises or any portion thereof are Taken
under the power of eminent domain, or sold by Landlord under the threat of the
exercise of such power, this Lease shall terminate as to the part so Taken as of
the date that the condemning authority takes possession. This Lease shall remain
in full force and effect with respect to the remaining portion of the Premises.
If any part of the Premises is taken or sold under such threat, and Tenant
reasonably determines the loss of such portion of the Premises materially
affects Tenant’s ability to conduct its business, either Landlord or Tenant 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 such party has been notified of the Taking or, in the absence
thereof, within twenty (20) days after the condemning authority shall have taken
possession. Notwithstanding the foregoing, Tenant’s right to terminate this
Lease under the preceding sentence is contingent upon all leasehold mortgages
(if any) of Tenant being paid in full.

 

21.2 Rent Reduction; Tenant’s Obligation To Repair. If this Lease is not
terminated by Landlord or Tenant, it shall remain in full force and effect as to
the portion of the Premises remaining; provided, however, that the Monthly Rent
shall be reduced by the proportion that the floor area of the Building taken
bears to the original floor area of the Building. In such event Tenant, at
Tenant’s sole cost and expense, but subject to the availability of condemnation
proceeds therefor, shall restore the Premises to a complete unit of like quality
and character, except as to size, as existed prior to the date on which the
condemning authority took possession.

 

21.3 Award. All awards for the Taking of any part of the Premises or proceeds
from the sale made under the threat of the exercise of the power of eminent
domain (other than the portions of such award expressly attributed by the
governmental authority to the diminution in value of the leasehold estate which
portion, subject to the rights of any ground lessor, shall be the property of
Tenant) shall be the property of Landlord, whether made for the Taking of the
fee, or as severance damages; provided, however, that Tenant shall be entitled
to any award

 

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which is made for damage to Tenant’s trade fixtures and removable personal
property and to a portion of the award necessary to restore the Premises as
provided in Paragraph 21.2 above.

 

22. DEFAULT PROVISIONS.

 

22.1 Events of Default. The occurrence of any of the following shall constitute
a default hereunder (“Default”):

 

22.1.1 The failure of Tenant to pay or cause to be paid when past due, within
five (5) days after written notice, any Rent, monies or other charge required by
this Lease to be paid by Tenant;

 

22.1.2 The abandonment of the Premises by Tenant for a period in excess of sixty
(60) days during any single twelve (12) month period;

 

22.1.3 Any default (after expiration of any applicable notice and cure period)
by Tenant under the terms of any leasehold mortgage;

 

22.1.4 The failure of Tenant, within thirty (30) days after notice, to do or
cause to be done any act required by this Lease, or the failure to observe and
perform any other provision of this Lease to be observed or performed by Tenant,
other than payment of Rent, monies or charges required by this Lease. If a cure
cannot be made within thirty (30) days, Tenant shall have an additional
reasonable amount of time necessary to complete the cure using its diligent
efforts. Notwithstanding the foregoing, if any such failure on the part of
Tenant affects the health or safety of others, or would result in the
destruction of property, Tenant shall immediately begin to cure and shall use
its diligent efforts in pursuing said cure to completion;

 

22.1.5 Tenant’s causing or permitting, without the prior written consent of
Landlord, any act for which this Lease requires Landlord’s prior consent, or if
this Lease prohibits such act, and Tenant does not reverse or undo such act
within ten (10) days after written notice from Landlord of such violation.
Notwithstanding the foregoing, if any such act on the part of Tenant affects the
health or safety of others, or would result in the destruction of property,
Tenant shall immediately begin to cure and shall use its diligent efforts in
pursuing said cure to completion;

 

22.1.6 Any act of bankruptcy caused, suffered or permitted by Tenant or, if
Tenant is a partnership, any general partner of Tenant. For purposes of this
Lease, an “act of bankruptcy” shall include the following: (i) any general
assignment or general arrangement for the benefit of creditors; (ii) 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 the same is dismissed within
ninety (90) days; (iii) the appointment of a trustee or receiver to take
possession of substantially all of Tenant’s assets located at the Premises or of
Tenant’s interest in this Lease; or (iv) 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.

 

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22.2 Rights of Landlord. Upon the occurrence, and during the continuance, of any
Default, and in addition to any or all other rights or remedies of the Landlord
hereunder or by law, Landlord, without further notice or demand of any kind to
Tenant or any other person, shall have the following rights and remedies:

 

22.2.1 Landlord has the remedy described in California Civil Code Section 1951.4
(Landlord may continue this Lease in effect after Tenant’s breach and
abandonment and recover rent as it becomes due, if Tenant has right to sublet or
assign, subject only to reasonable limitations). Landlord may continue this
Lease in full force and effect and enforce all Landlord’s rights and remedies
under this Lease, including the right to recover the Rent as it becomes due and
any other amount necessary to compensate Landlord for all detriment proximately
caused by Tenant’s failure to perform its obligations under this Lease or which,
in the ordinary course of things, would be likely to result therefrom. Landlord
may sue monthly, annually or after such equal or unequal periods as Landlord
desires for such amounts due.

 

22.2.2 Landlord (whether Landlord elects to continue this Lease in effect or
terminate this Lease and Tenant’s right to possession hereunder) may reenter the
Premises or take possession pursuant to legal proceedings or pursuant to any
notice provided by law, and thereafter collect rent from existing sub-tenants of
the Premises, if any, and(or) relet the Premises, in whole or in part, to third
parties for Tenant’s account at such rent and upon such conditions and for such
term as Landlord sees fit. Tenant shall pay to Landlord all costs actually and
reasonably incurred in reletting the Premises or improvements thereon,
including, without limitation, broker’s commissions, repairs, expenses of
remodeling required by the reletting and like costs. Landlord may do all other
acts necessary to maintain or preserve the Premises as Landlord deems reasonable
and necessary, including removal of all persons and property, which property may
be removed and stored in a public warehouse or elsewhere at the cost of and for
the account of Tenant. If Landlord shall elect to so relet, rentals received by
Landlord from such reletting shall be applied in the following order: (i) to the
payment of any indebtedness other than Rent due hereunder from Tenant to
Landlord; (ii) to the payment of any cost of such reletting; (iii) to the
payment of the cost of any alterations and repairs; (iv) to the payment of Rent
due and unpaid hereunder; (v) to the payment of any obligations of Tenant under
any leasehold mortgage; and (vi) the residue, if any, shall be held by Landlord
and applied in payment of future Rent as the same may become due and payable
hereunder. If reletting results in the actual payment of rentals at less than
the Rent payable during that month by Tenant as required hereunder, Tenant shall
pay such deficiency to Landlord from time to time immediately upon demand
therefor by Landlord.

 

22.2.3 Landlord, by written notice to Tenant, may terminate this Lease and
Tenant’s right to possession of the Premises. No act by Landlord other than
giving written notice to Tenant shall terminate this Lease. Acts of maintenance,
reletting, or the appointment of a receiver on Landlord’s initiative shall not
terminate this Lease. If Landlord elects to terminate this Lease, Landlord may
recover all of the following:

 

(a) The worth at the time of 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 to accrue at the Default Rate from the first day a breach
occurs.

 

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(b) 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.

 

(c) 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
of the Federal Reserve Bank situated nearest the Premises at the time of award
plus six percent (6%).

 

(d) Any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant’s failure to perform its obligations under this
Lease or which in the ordinary course of events would be likely to result
therefrom including, but not limited to, expenses of reletting, attorneys’ fees,
costs of alterations and repairs, recording fees, filing fees and any other
expenses customarily resulting from obtaining possession of Premises and
releasing.

 

(e) At Landlord’s election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable California law.

 

22.2.4 If Tenant shall be in Default in the observance or performance of any
term or covenant on Tenant’s part to be observed or performed under this Lease,
Landlord may perform (but is not obligated to do so) the same for the account of
Tenant, and if Landlord makes expenditures or incurs any obligation for the
payment of money thereby, including, but not limited to, attorneys’ fees in
instituting, prosecuting or defending any action or proceeding, such sums paid
or obligations incurred, with interest thereon at the Default Rate, shall be
deemed to be Additional Rent hereunder and shall be paid by Tenant to Landlord
(without offset) immediately upon demand therefor.

 

22.2.5 Landlord, where permitted by applicable law, may seek to restrain any
breach or threatened breach of any of Tenant’s obligations hereunder and/or may
exercise any and all rights and remedies of a secured party under applicable law
with respect to any property in which Landlord is granted a security interest
under this Lease or otherwise.

 

22.3 Cumulative Remedies. Any right or remedy of Landlord under this Lease and
any other right or remedy that Landlord may have at law, in equity or otherwise
upon any Default or breach of any of the Tenant’s obligations hereunder shall be
distinct, separate and cumulative rights or remedies and no right or remedy,
whether exercised or not, shall be deemed to be in exclusion of any other.

 

22.4 Determining Rent on Default; Waiver; Security Interest.

 

22.4.1 For all purposes of this Paragraph 22, Rent, except Monthly Rent, shall
be computed on the basis of the amount thereof accruing during the highest
twelve (12) month period in the immediately preceding sixty (60) month period,
except that if it becomes

 

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necessary to compute such Rent before a sixty (60) month period has occurred,
then Rent shall be computed on the basis of the amount accruing during such
shorter period.

 

22.4.2 The waiver by Landlord of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach by Tenant. The acceptance of Rent hereunder
by Landlord after any such breach shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rental so accepted,
regardless of Landlord’s knowledge of such preceding breach at the time of
acceptance of such Rent. No covenant, term or condition of this Lease or breach
thereof by Tenant shall be deemed to have been waived by Landlord unless such
waiver is in a writing executed by Landlord.

 

22.4.3 Tenant hereby grants and assigns to Landlord a security interest in all
accounts, inventory, fixtures, equipment and personal property of Tenant
originating from or hereafter placed in, on or about the Premises to secure each
and every obligation of Tenant under this Lease. Upon demand from Landlord,
Tenant shall execute, acknowledge and deliver such documents or instruments as
reasonably may be required by Landlord to perfect its security interest in the
above described property.

 

22.5 Curing of Default. Notwithstanding any other provision of this Paragraph
22, if an event of Default, other than for the payment of Rent or other monies
owing from Tenant to Landlord hereunder, is of such a nature that the same
cannot be cured upon demand by Landlord as specified in any written notice
relating thereto, then such event of Default shall be deemed to be cured if
Tenant upon such notice shall have commenced to cure such Default and shall
continue thereafter with all due diligence to so cure and does so complete the
same within a reasonable period of time.

 

22.6 Landlord’s Default. If Landlord shall neglect or fail to perform or observe
any of the covenants, provisions or conditions contained in this Lease on its
part to be performed or observed within thirty (30) days after written notice of
default (or if more than thirty (30) days shall be required because of the
nature of the default, if Landlord shall fail to proceed diligently to cure such
default after written notice thereof), Landlord shall be responsible to Tenant
for any foreseeable and unavoidable damages sustained by Tenant as a result of
Landlord’s breach.

 

22.7 Tenant’s Right to Perform. If, after such notice to Landlord and Assignee
(as defined in Paragraph 22.9 below), if any, Landlord and Assignee shall fail
to cure such default as provided herein, Tenant shall have the right, but not
the obligation, to cure any such default at Landlord’s sole cost and expense
including in such expenditure all costs and attorneys’ fees incurred to cure
such default or breach of Lease. Tenant shall have no right to terminate this
Lease for any such default by Landlord unless otherwise specifically provided in
this Lease.

 

22.8 Abatement. Except as expressly otherwise provided herein, Landlord and
Tenant hereby waive the provisions of any statutes, regulations, ordinances, or
court decisions which relate to the abatement of rent or termination of leases
when leased property is damaged or destroyed and agree that such event shall be
exclusively governed by the terms of this Lease.

 

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22.9 Tenant to Notify Mortgagees. If Landlord’s estate in the Premises or any
part thereof is at any time subject to a mortgage or a deed of trust, and if
this Lease or the rentals due from Tenant hereunder are assigned to such
mortgagee, trustee or beneficiary (called an “Assignee” for purposes of this
paragraph 22 only) and if Tenant is given written notice thereof, including the
post office address of such Assignee, Tenant shall give written notice to such
Assignee, specifying the default of Landlord in reasonable detail and affording
such Assignee a reasonable opportunity to render performance for and on behalf
of Landlord. If and when the Assignee has rendered performance on behalf of
Landlord, such default shall be deemed cured.

 

23. LIMITATION OF LANDLORD’S LIABILITY. If Landlord is in default of this Lease,
and as a consequence, Tenant recovers a money judgment against Landlord, the
judgment shall be satisfied only out of the proceeds of sale received on
execution of the judgment and levy against the right, title, and interest of
Landlord in the Premises, and out of rent or other income from the Premises
receivable by Landlord or out of the consideration received by Landlord from the
sale or other disposition of all or any part of Landlord’s right, title, and
interest in the Premises. Neither Landlord nor Landlord’s Agents shall be
personally liable for any deficiency except to the extent liability is based
upon willful and intentional misconduct. If Landlord is a partnership, joint
venture, or limited liability company, the partners or members of such
partnership or limited liability company, as the case may be, shall not be
personally liable, and no partner or member of Landlord (or of any affiliated
entity) shall be sued or named as a party in any suit or action, or service of
process be made against any partner or member of Landlord (or of any affiliated
entity), except as may be necessary to secure jurisdiction of the partnership,
joint venture, or limited liability company or to the extent liability is caused
by willful and intentional misconduct. If Landlord is a corporation, the
shareholders, directors, officers, employees, and/or agents of such corporation
shall not be personally liable, and no shareholder, director, officer, employee,
or agent of Landlord shall be sued or named as a party in any suit or action, or
service of process be made against any shareholder, director, officer, employee
or agent of Landlord, except as may be necessary to secure jurisdiction of the
corporation. No partner, member, shareholder, director, employee, or agent of
Landlord (or of any affiliated entity) shall be required to answer or otherwise
plead to any service of process and no judgment will be taken or writ of
execution levied against any partner, member shareholder, director, employee, or
agent of Landlord.

 

24. SUBORDINATION-ATTORNMENT.

 

24.1 Tenant to Give Evidence of Subordination. Upon written request of Landlord,
or any mortgagee or deed of trust beneficiary, or lessor of Landlord, Tenant in
writing shall subordinate its rights hereunder to the lien of any mortgage or
deed of trust now or hereafter in force against the land and buildings comprised
of the Premises of which the Premises are a part, and upon any building
hereafter placed upon the Premises, and to all advances made or hereafter to be
made upon the security thereof; provided that Tenant obtains a non-disturbance
agreement reasonably acceptable to Tenant from any such mortgagee or deed of
trust beneficiary. Landlord agrees that as a condition precedent to delivery of
possession of the Premises to Tenant, Landlord shall deliver to Tenant a fully
executed non-disturbance and attornment from any mortgagee or deed of trust
beneficiary of record as of the date of the mutual execution of this Lease.

 

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24.2 Attornment. If any proceedings are brought for foreclosure, or in the event
of the exercise of the power of sale under any mortgage or deed of trust made by
or to which the Landlord is subject covering the Premises, Tenant shall attorn
to the purchaser or lessor under said lease upon any such foreclosure, sale or
lease termination and recognize such purchaser or lessor as the Landlord under
this Lease; provided, however, that the purchaser or lessor shall acquire and
accept the Premises subject to this Lease and execute a subordination,
non-disturbance and attornment agreement as a condition to Tenant’s attornment.

 

24.3 Execution of Documents by Tenant. Tenant, upon request of any party in
interest, shall duly execute in recordable form such instruments and
certificates as are necessary to carry out the intent of this Paragraph 24.

 

25. QUIET POSSESSION. Subject to the provisions and matters referred to in
Paragraph 14 of this Lease, Tenant, upon paying the Rent and performing the
covenants and conditions of this Lease, may quietly have, hold and enjoy the
Premises during the Lease Term.

 

26. MISCELLANEOUS.

 

26.1 Captions and Terms. The captions to all paragraphs of this Lease are for
convenience only, are not a part of this Lease, and do not in any way limit or
amplify the terms and provisions of this Lease. The masculine pronoun used
herein shall include the feminine or the neuter as the case may be, and the use
of the singular shall include the plural when appropriate.

 

26.2 Obligations of Successors. Each of the provisions hereof are to be
construed as covenants and agreements as though the words importing such
covenants and agreements were used in each separate paragraph hereof, and all of
the provisions hereof shall bind and inure to the benefit of the parties hereto,
and their respective heirs, legal representatives, successors and assigns
(subject to any restrictions on assignment).

 

26.3 No Joint Venture. Nothing contained in this Lease shall be deemed or
construed as creating a partnership, joint venture or any other relationship
between the parties hereto other than Landlord and Tenant according to the
provisions contained herein, or cause Landlord to be responsible in any way for
the debts or obligations of Tenant or any other party.

 

26.4 Authority of Tenant. If Tenant is a corporation, the persons executing this
Lease on behalf of Tenant hereby covenant and warrant that they have the
authority to bind the Tenant to this Lease. Tenant hereby represents and
warrants that Tenant is a corporation in good standing in the state of its
origination, all steps have been taken prior to the date hereof to qualify
Tenant to do business in the State of California, all franchise and corporate
taxes have been paid to date, and all future forms, reports, fees and other
documents necessary to comply with applicable laws will be filed when due.

 

26.5 No Right of Redemption. Tenant hereby expressly waives any and all rights
of redemption granted by or under any present or future laws in the event of
Tenant being lawfully evicted or dispossessed for any cause, or in the event of
Landlord obtaining possession of the premises by reason of a Default by Tenant
hereunder.

 

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26.6 Holding Over. If Tenant remains in possession of the Premises (a) after the
expiration of the Lease Term without executing a new lease, or (b) after
Landlord has declared a forfeiture by reason of a Default by Tenant, then such
holding over shall be construed as a tenancy at sufferance 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, except that, beginning four
(4) months after the initial date of such hold over, the Monthly Rent shall be
increased to one hundred twenty-five percent (125%) of the Monthly Rent last
due, payable monthly in advance. Notwithstanding the foregoing, if Tenant fails
to vacate the Premises and fulfill all of its obligations hereunder at the end
of the Lease Term, Tenant also shall be liable for all damages incurred by
Landlord by reason of the latter’s inability to deliver possession of the
Premises or any portion thereof to any other person; provided, however, Tenant
shall not be liable for consequential damages to Landlord unless and until
Tenant has received thirty (30) days prior notice that the Premises has been
leased to such other person, and Tenant does not vacate the Premises within such
thirty (30) day period.

 

26.7 Brokers. Except for Staubach and BT Commercial Real Estate, who shall be
compensated by Landlord under separate agreements, Tenant and Landlord each
warrants and represents that it has had no dealings with any real estate brokers
or agents in connection with the negotiation of this Lease, and it knows of no
other real estate broker or agent who is entitled to a commission in connection
with this Lease. Tenant and Landlord each shall defend, indemnify and hold the
other harmless from and against any and all Claims by any person for any
finder’s fees or brokerage fees incurred as a result of any action by such
indemnifying party.

 

26.8 Non-Merger. There shall be no merger of this Lease, or of the leasehold
estate created hereby, with the fee estate in and to the Premises by reason of
the fact that this Lease, or the leasehold estate created hereby, or any
interest in either thereof, may be held directly or indirectly by or for the
account of any person who shall own the fee estate in and to the Premises, or
any portion thereof, and no such merger shall occur unless and until all persons
at the time having any interest in the fee estate and all persons having any
interest in this Lease or the leasehold estate, shall join in a written
instrument effecting such merger.

 

26.9 Recordation of Lease. Neither Landlord nor Tenant shall record this Lease
or any other document relating to this Lease without the prior written consent
of the other party.

 

26.10 Notices. No notice, request, demand, instruction or other document to be
given hereunder to any party shall be effective for any purpose unless
personally delivered to the person or delivered by reputable overnight courier,
to the addresses set forth in Paragraph 2 above. Notice shall be deemed to have
been given when received, if by personal delivery, or the next business day
after the date of the courier’s receipt of mailing, if by reputable overnight
courier. Notice shall not be deemed given unless and until, under the preceding
sentence, notice shall be deemed given to all addressees to whom notice must be
sent. The addresses and addressees for the purpose of this paragraph may be
changed by giving written notice of such change in the manner herein provided
for giving notice. Unless and until such written notice is received, the last
address and addressee as stated by written notice, or provided herein if no

 

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written notice of change has been sent or received, shall be deemed to continue
in effect for all purposes hereunder.

 

26.11 Attorneys’ Fees. If any action or proceeding (judicial or non-judicial) is
commenced to enforce or interpret this Lease, the prevailing party shall be
entitled to recover reasonable attorneys’ fees and costs, together with all
other costs and fees incurred by it in attempting to enforce the other party’s
obligations and/or to protect its rights under this Lease, whether or not such
action or proceeding proceeds to judgment.

 

26.12 No Other Agreements. This Lease represents the entire agreement between
the parties hereto and supersedes any and all previous written or oral
agreements or discussions between said parties and any other person or legal
entity concerning the transactions contemplated herein. There are no
representations, warranties or agreements except as specifically set forth in
this Lease or to be set forth in the instruments or other documents delivered or
to be delivered hereunder.

 

26.13 Amendments. No change in or addition to, or waiver or termination of this
Lease, or any part hereof, shall be valid unless in writing and signed by or on
behalf of the parties hereto.

 

26.14 No Third Party Benefit. The parties acknowledge and agree that the
provisions of this Lease are for the sole benefit of Landlord and Tenant, and
not for the benefit, directly or indirectly, of any other person or entity,
except as otherwise expressly provided herein.

 

26.15 Exhibits. Each of the Exhibits attached hereto is hereby incorporated
herein by this reference.

 

26.16 Severability. If any one or more of the provisions of this Lease are held
to be invalid, illegal or unenforceable in any respect or for any reason, the
validity, legality and enforceability of such provision or provisions in every
other respect and of the remaining provisions of this Lease shall not in any way
be impaired.

 

26.17 Governing Law/Jurisdiction. This Lease shall, in all respects, be
interpreted, enforced and governed by and under the laws of the State of
California.

 

26.18 Venue. The parties hereby expressly acknowledge and agree that if an
action is brought with respect to this Lease, sole and proper venue for such
action shall be in San Mateo, County, California.

 

26.19 Time. Time is hereby expressly made of the essence with respect to each
and every term and condition of this Lease.

 

26.20 Entry By Landlord.

 

26.20.1 Inspection. Tenant shall permit Landlord and Landlord’s agents to enter
the Premises at all reasonable times after reasonable prior notice not less than

 

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twenty-four (24) hours in advance for the purpose of inspecting the same and for
the purpose of exercising any of its other rights or performing any of its
obligations under this Lease.

 

26.20.2 Sale or Lease of Premises. Landlord may at any time place on or about
the Premises any ordinary “For Sale” signs, and at any time within ten (10)
months prior to the expiration of this Lease, place on or about the Premises any
usual or ordinary “For Lease” signs. Landlord may enter the Premises at
reasonable times upon reasonable prior notice not less than twenty-four (24)
hours in advance during the Lease Term to show the Premises to prospective
tenants, lenders, investors, or purchasers. In exercising its rights under this
Paragraph 26.20.2, Landlord shall not unreasonably interfere with Tenant’s use
or occupancy of the Premises.

 

26.20.3 Waiver. Landlord shall be permitted to enter upon the Premises in
accordance with the terms hereof for any of the purposes stated herein without
any liability to Tenant for any loss of occupation or quiet enjoyment resulting
therefrom, except resulting from Landlord’s or its Agents’ gross negligence or
willful misconduct, and Tenant hereby waives any claim for abatement of rent or
for damages for any injury or inconvenience to or interference with Tenant’s
business, any loss of occupancy or quiet enjoyment, or any other loss occasioned
thereby.

 

26.21 Estoppel Certificates. Tenant shall at any time during the Lease Term,
within ten (10) business days after written request from Landlord, execute and
deliver to Landlord a statement in writing in the form of the document attached
hereto as Exhibit F, or any reasonable equivalent requested by Landlord,
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 such other details as may be reasonably requested by Landlord. Any such
statement may be relied upon conclusively by any existing or prospective
purchaser or lender. Tenant’s failure to deliver such statements within such
time shall be conclusive upon Tenant that this Lease is in full force and
effect, except to the extent any modification has been represented in writing by
Landlord to such prospective purchaser or lender, that there are no uncured
defaults in Landlord’s performance, and that not more than one month’s rent has
been paid in advance.

 

26.22 No Surrender. Except to the extent expressly provided for herein, no event
or occurrence during the Lease Term, whether foreseen or unforeseen, however
extraordinary, shall permit Tenant to surrender or terminate this Lease or shall
relieve Tenant from any of its obligations hereunder, and Tenant waives any
rights now or hereafter conferred upon it by statute or otherwise, except any
rights set forth herein, to surrender or terminate this Lease or to claim any
abatement or suspension of Rent or other sums payable hereunder on account of
any such event or occurrence.

 

26.23 Consent of Landlord and Tenant. Whenever Landlord or Tenant is required to
give its consent or approval to any action on the part of the other, such
consent or approval shall not be unreasonably withheld, conditioned or delayed,
unless otherwise expressly provided. In the event of failure to give any such
consent, the other party hereto shall be entitled to specific performance at law
and shall have such other remedies as are reserved to it under this Lease;
provided, however that in no event shall Landlord or Tenant be responsible in
monetary

 

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damages for such failure to give consent unless said consent is withheld
maliciously or in bad faith.

 

26.24 Binding Effect. This Lease shall not be effective until fully executed by
both Landlord and Tenant.

 

26.25 Covenants and Conditions. Each provision and obligation set forth in this
Lease to be performed by Tenant shall be deemed both a covenant and a condition.

 

26.26 Furnishing of Financial Statements and Tenant’s Representations. To induce
Landlord to enter into this Lease, Tenant agrees, at any time that Tenant is not
required to publicly file such financial statements pursuant to the Exchange Act
or any successor statute, it shall promptly furnish to Landlord, from time to
time, upon Landlord’s written request, the most recent audited year-end
financial statements reflecting Tenant’s current financial condition. Tenant
represents and warrants 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.

 

26.27 Interpretation. This Lease has been negotiated at arm’s length and between
persons sophisticated and knowledgeable in the matters dealt with in this Lease.
In addition, each party has been represented by experienced and knowledgeable
legal counsel. Accordingly, any rule of law (including California Civil Code §
1654) or legal decision that would require interpretation of any ambiguities in
this Lease against the party that has drafted it is not applicable and is
waived. The provisions of this Lease shall be interpreted in a reasonable manner
to effect the purpose and intent of the parties to this Lease.

 

26.28 Waiver of Jury Trial and Counterclaims. THE PARTIES HERETO SHALL AND THEY
HEREBY DO WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT
BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON ANY MATTERS WHATSOEVER
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF
LANDLORD AND TENANT, TENANT’S USE OR OCCUPANCY OF THE PREMISES, AND OR ANY CLAIM
OF INJURY OR DAMAGE.

 

27. END OF TERM.

 

27.1 Surrender of Premises.

 

27.1.1 Upon the expiration of the Lease Term or earlier termination hereof
through the exercise of any option to terminate this Lease granted herein
(collectively referred to as the “Surrender Date”), title to the Building and
the Premises shall be vested in Landlord. Thereupon, Tenant shall peaceably and
quietly vacate the entire Premises, including the Building (a) in good order,
condition and repair, except for normal wear and tear and damage from casualty
or condemnation; and (b) free and clear of all lettings, occupancies,
agreements, easements, encumbrances or other liens other than those to which
this Lease was subject on the Lease Commencement Date and those caused, created
by or consented to in writing by Landlord or otherwise permitted by the terms
hereof.

 

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27.1.2 Notwithstanding the exercise by either party of any option contained
herein to terminate this Lease, any unsatisfied obligations of Tenant accruing
on or prior to the Surrender Date and the indemnification provisions of Tenant
contained in Paragraphs 15.1 and 20.5 shall survive the Surrender Date unless
excused as of the Surrender Date by the provisions elsewhere contained in this
Lease.

 

27.2 Re-Entry by Landlord. Upon the Surrender Date, Landlord, without further
notice, may enter upon, re-enter, possess and repossess itself of the Premises,
by summary proceedings, ejectment or otherwise, may dispossess and remove Tenant
and all other persons and property from the Premises, and may have, hold and
enjoy the Premises and the right to receive all Rent and other income of and
from the same. As used in this Lease, the words “enter” and “re-enter” are not
restricted to their technical legal meanings.

 

27.3 Tenant’s Equipment. Except as otherwise provided for in Paragraphs 9.1.8
and 13, any of Tenant’s Equipment (as defined in Paragraph 13.2 above) or other
personal property which shall remain on the Premises after the Surrender Date
and the removal of Tenant from the Premises, at the option of Landlord, may be
deemed to have been abandoned by Tenant or any Subtenant and either may be
retained by Landlord as its property or be disposed of, without accountability,
in such manner as Landlord may see fit. However, except as otherwise provided
for in Paragraphs 9.1.8 and 13, Landlord also shall have the right to require
Tenant to remove any such equipment or other personal property at any time after
the Surrender Date and the removal of Tenant from the Premises at Tenant’s own
cost and expense and to repair any damage to the Premises resulting from such
removal. From and after the Surrender Date, Landlord shall not be responsible
for any loss or damage occurring to any property owned by Tenant or any
Subtenant.

 

27.4 Survival. The provisions of this Paragraph 27 shall survive the Surrender
Date.

 

28. Modifications Required by Landlord’s Lender. If, in connection with Landlord
obtaining construction, interim or permanent financing, the lending party shall
request reasonable modifications that do not affect the material terms to this
Lease as a condition to such financing, Tenant shall execute such modifications
hereto within ten (10) business days following written request therefor.

 

29. Expansion Option.

 

29.1 Option to Expand. Subject to the conditions set forth in this Paragraph 29,
Tenant shall have the right, but not the obligation, to expand the Premises (the
“Expansion Option”) to include approximately [10,000] rentable square feet of
contiguous premises as more particularly shown on the floor plan attached hereto
as Exhibit G (the “Expansion Space”).

 

29.2 Procedure for Expansion. Tenant may exercise the Expansion Option by
providing Landlord, no later than the one year anniversary of the Rent
Commencement Date, with written notice that Tenant exercises the Expansion
Option. Within ten (10) days after the proper exercise of the Expansion Option,
Tenant and Landlord shall enter into a written amendment to the Lease (the
“Amendment”) which shall provide, unless otherwise agreed in

 

48

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writing, (a) that the Expansion Space will be delivered ready for construction
of tenant improvements no later than thirty (30) days after the proper exercise
of the Expansion Option; (b) that the rent commencement date of the Expansion
Space shall be no later than one hundred eighty (180) days after the proper
exercise of the Expansion Option; (c) that the Premises under the Lease shall be
increased to include the rentable square footage of the Expansion Space; (d) the
new Annual Rent, with the Expansion Space increasing the Annual Rent at the
square foot rental rate then applicable under the Lease; (e) Tenant’s new Pro
Rata Share of Operating Expenses based upon the addition of the Expansion Space
to the Premises (provided that Tenant shall have no obligation to pay for any
utilities or Operating Expenses with respect to the Expansion Space prior to the
rent commencement date of the Expansion Space); (f) the proportionate increase
to the Security Deposit (which shall be payable upon execution of the Amendment
or provided by letter of credit as described in Paragraph 5.8 above); and (g)
Landlord shall provide a tenant improvement allowance not to exceed One Hundred
Forty Dollars ($140.00) per rentable square foot of Expansion Space (pro rated
based on the remaining Lease Term (excluding any renewal options), and less the
amount of Landlord improvements to the Expansion Space), which shall expire as
to that portion not expended within twelve (12) months of the commencement date
of the Expansion Space. In all other respects, the Lease shall remain in full
force and effect, and shall apply to the Expansion Space.

 

29.3 Limitation on Expansion. Notwithstanding the above, the Expansion Option
shall not be exercised by Tenant during such period of time that Tenant is in
Default under any provision of the Lease beyond any applicable grace or cure
period. Any attempted exercise of an Expansion Option during a period of time in
which Tenant is in Default shall be void. Tenant shall also not be entitled to
exercise the Expansion Option if Landlord has given Tenant three (3) or more
notices of default under the Lease, whether or not the defaults are cured,
during the five (5) month period prior to the date on which Tenant seeks to
exercise any Option.

 

30. Right of First Refusal. In addition to Tenant’s rights under Paragraph 29,
for a period commencing on the Lease Commencement Date and ending on the second
(2nd) anniversary of the Rent Commencement Date (the “ROFR Period”), Tenant
shall have a right of first refusal (the “ROFR Option”) to lease any future
vacant space in the Building that may become available from time to time (any
such space, “New Space”). During the ROFR Period, Landlord shall provide notice
(the “ROFR Notice”) to Tenant of the material terms of any letter of intent from
any third party proposing to lease New Space. Tenant may exercise the ROFR
Option by providing Landlord, no later than ten (10) days after receipt of the
ROFR Notice, with written notice that Tenant exercises the ROFR Option. Within
thirty (30) days after the proper exercise of the ROFR Option, Tenant and
Landlord shall enter into a written amendment to the Lease setting forth the
terms and conditions for the lease of the New Space described in the applicable
ROFR Notice, which terms and conditions shall be no less favorable to Landlord
than those set forth in the ROFR Notice.

 

31. Right of First Offer. For a period commencing on the second (2nd)
anniversary of the Rent Commencement Date and ending upon the expiration of the
Lease Term, including any renewal terms, prior to offering any New Space to a
new tenant, Landlord shall provide notice to Tenant of the availability of such
space. The terms and conditions of any lease of such space

 

49

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shall be negotiated within ten (10) business days after Tenant receives notice
from Landlord. Landlord shall be under no obligation to lease such space to
Tenant if Tenant and Landlord are not able to reach an agreement of the material
terms and conditions with respect to such New Space within such ten (10)
business day period, then thereafter, Landlord may publicly market such space
and may negotiate with other prospective tenants for the lease of such space.

 

WHEREFORE, the parties hereto have executed this Lease effective on the
Effective Date first set forth above.

 

TENANT:       LANDLORD:

NUVELO, INC.,

a Delaware corporation

     

BMR-201 INDUSTRIAL ROAD LLC,

a Delaware limited liability company

By:

 

LOGO [g37658img003.jpg]

     

By:

 

LOGO [g37658img004.jpg]

Name:

 

Lee Bendekgey

     

Name:

 

Gary A. Kreitzer

Title:

 

CFO

     

Title:

 

Executive Vice President

 

50

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EXHIBIT A

 

Legal Description

 

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EXHIBIT B

 

Site Plan

 

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EXHIBIT C

 

Acknowledgement of Rent Commencement Date

 

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EXHIBIT D

 

Work Letter

 

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Work Letter

 

THIS WORK LETTER (this “Work Letter”) is made and entered into as of January 11,
2005 by and between BMR-201 INDUSTRIAL ROAD LLC, a Delaware limited liability
company (“Landlord”), and NUVELO, INC., a Delaware corporation (“Tenant”), and
is attached to and made a part of that certain Lease, dated as of January 11,
2005 (the “Lease”), by and between Landlord and Tenant, for the premises located
at 201 Industrial Road, San Carlos, California. All capitalized terms used but
not otherwise defined herein shall have the meanings given them in the Lease.

 

1. General Requirements.

 

1.1 Tenant’s Authorized Representative. Tenant designates Rob Middleton, Brian
McPherson, Ron Malouf and Bryce Mason (each, a “Tenant’s Authorized
Representative”), or any one of them, as the person or persons authorized to
approve and initial all plans, drawings, change orders and approvals on Tenant’s
behalf pursuant to this Work Letter. Tenant may change Tenant’s Authorized
Representative at any time upon not less than five (5) business days advance
written notice to Landlord. Landlord shall not be obligated to respond to or act
upon any such item until such item has been initialed or approved in writing by
one of Tenant’s Authorized Representatives. The contact information for the
Tenant’s Authorized Representatives are as follows:

 

Bryce Mason

1770 Pacific Avenue, #103

San Francisco, CA 94109

Phone: (415) 317-2100

Fax:     (415) 276-3065

Email: bryce@kbmpartners.com

 

Ron Malouf

675 Almanor

Sunnyvale, CA

Phone: (408) 215-4322

Email:  rmalouf@nuvelo.com

 

Rob Middleton

153 Kearny Street, #409

San Francisco, CA 94108

Phone: (415) 393-8062

Fax:     (415) 393-8008

Email: rob@colepm.com

 

Brian McPherson

153 Kearny Street, #409

San Francisco, CA 94108

 

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Phone:   (415)393-8062 Fax:   (415)393-8008 Email:   brianm@colepm.com

 

1.2 Development Schedule. The schedule for design and development of Tenant’s
Work (as hereinafter defined), including without limitation the time periods for
preparation and review of construction documents, approvals and performance,
whether by Landlord or by Tenant, shall be in accordance with that certain Time
and Responsibility Schedule prepared by Landlord and Tenant, and attached as
Schedule D-1 to this Work Letter, subject to adjustment as mutually agreed to in
writing by the parties or as provided in this Work Letter (the “Development
Schedule”).

 

1.3 Architects and Consultants. The architect, engineering consultants, design
team, general contractor and all subcontractors responsible for the construction
of Tenant’s Work shall be selected by Tenant and approved by Landlord.
Landlord’s approval of the same shall not be unreasonably withheld, conditioned
or delayed. Landlord hereby approves Dowler-Gruman Architects as Tenant’s
architect.

 

2. Landlord’s Work.

 

2.1 Landlord shall provide to Tenant on or before Rent Commencement Date the
following items in a finished condition (collectively, “Landlord’s Work”):

 

(a) Base Building HVAC to support the fourth (4th) floor Common Areas.

 

(b) Building fire exit stairways. Stair wells are considered Common Areas of the
Building. Tenant shall have the right to secure access to any of Tenant’s space
from the common areas.

 

(c) Fire alarm systems for the Building Common Areas in compliance with
applicable codes and regulations.

 

(d) Demise the fourth (4th) floor into a multi-tenant floor, which shall include
corridors.

 

(e) Utility and electrical installation for 4,000 amps in the Building and to
the Premises, including PG&E submeters for the Premises.

 

(f) Elevator service operational, with all inspections and maintenance
completed.

 

(g) Concrete slab with a floor load capacity that is comparable to other life
science laboratories in the San Francisco mid-peninsula area.

 

(h) Exterior ramp and exterior alterations to the Building or Common Areas to
accommodate a shipping and receiving area for Tenant’s use. For the avoidance of
doubt, any alterations to the interior of the Building or Common Areas related
to such shipping and receiving area shall be included in Tenant’s Work (defined
below), and

 

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Landlord’s obligation to construct improvements under this Section 2.1(h) shall
be subject to Approved Tenant Plans related to the interior portion of such
shipping and receiving area.

 

2.2 Landlord’s Work shall be substantially completed by September 1, 2005.
Landlord shall perform Landlord’s Work without any material interference to
Tenant’s construction of Tenant’s Work, and shall have the right to perform
Landlord’s Work after tendering possession to Tenant.

 

2.3 To the extent Landlord’s Work is not completed substantially by September 1,
2005 (“Delay in Landlord’s Work”), then the Rent Commencement Date shall be
extended one day for each day of Delay in Landlord’s Work.

 

3. Tenant’s Work.

 

3.1 Work Plans. All work to be performed by Tenant (“Tenant’s Work”) shall be
performed by Tenant at Tenant’s sole cost and expense and without cost to
Landlord (except for the Tenant Improvement Allowance and, at Tenant’s option,
the Additional Allowance) and in accordance with the Approved Tenant Plans (as
defined below). The quality of Tenant’s Work shall be of a nature and character
not less than the quality of other Class A life science tenants in the San
Francisco mid-peninsula area (“Standard Improvements”). The design drawings,
plans and specifications contained on Schedule D-2 to this Work Letter (the
“Work Plans”) are the initial list of plans which Tenant shall develop and
submit to Landlord for approval. Tenant shall prepare and submit to Landlord for
approval schematics covering Tenant’s Work prepared in conformity with the
applicable provisions of this Work Letter (the “Draft Plans”). The Draft Plans
shall contain sufficient information to convey Tenant’s proposed design to
Landlord and such other information as Landlord may reasonably request. Tenant
shall be solely responsible for ensuring that the Work Plans and the Draft Plans
reflect Tenant’s requirements for Tenant’s Work.

 

3.2 Landlord Approval of Plans. Landlord shall notify Tenant, within five (5)
business days after receipt of the Draft Plans whether Landlord approves or
objects to the Draft Plans and of the manner, if any, in which the Draft Plans
are unacceptable. Landlord shall not object to any Draft Plans that set forth
Standard Improvements. If Landlord makes objections to the Draft Plans, and
provided such objections are reasonable, Tenant shall revise the Draft Plans and
cause such objections to be remedied in the revised Draft Plans. Tenant shall
then resubmit the revised Draft Plans to Landlord for approval. Within two (2)
business days after Landlord receives the revised Draft Plans, Landlord shall
approve or reasonably disapprove such Draft Plans. If Landlord does not respond
within said two (2) business day period, Landlord shall be deemed to have
approved of the Draft Plans. This procedure shall be repeated until the Draft
Plans are finally approved by Landlord and written approval has been delivered
to and received by Tenant. Landlord’s approval or reasonable objection to the
revised Draft Plans and Tenant’s correction of the same shall be in accordance
with this Section 3.2. The iteration of the Draft Plans which are finally
approved by Landlord without objection are referred to as the “Approved Tenant
Plans.” For the avoidance of doubt, Landlord acknowledges that Tenant will
provide Draft Plans for the following, which following Landlord’s approval in
accordance with this Section 3.2 shall be included as part of the Approved
Tenant Plans: (a) a designated area for

 

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Tenant’s storage purposes to be located adjacent to the new non-exclusive
shipping and receiving area in the parking garage, subject to City of San
Carlos’ (“City”) minimum parking requirements; (b) a designated area for
Tenant’s Hazardous Materials storage area, which area may be located in the
parking garage or outside on the parking lot, all subject to City’s approval and
parking requirements; (c) a reasonable location for an outside generator pad;
and (d) reasonable structural improvements to the Premises to increase the
Building load for Tenant’s additional storage purposes.

 

3.3 Completion of Tenant’s Work. Tenant will perform and cause to be completed
Tenant’s Work (a) in a good and workmanlike manner; (b) in compliance with the
Lease and this Work Letter in strict conformance with the Approved Tenant Plans;
(c) otherwise in compliance with the Lease and this Work Letter; and (d) in
accordance with all Applicable Laws, Landlord’s and Tenant’s insurance carriers
and the board of fire underwriters having jurisdiction. Completion of all
Tenant’s Work shall be subject to Landlord’s reasonable approval.

 

3.4 Conditions to Performance of Tenant’s Work. Prior to the commencement of
Tenant’s Work, Tenant shall submit to Landlord, for Landlord’s approval (which
approval shall not be unreasonably withheld, conditioned or delayed), a list
(the “Contractor List”) of project managers and licensed contractors and/or
subcontractors who will perform Tenant’s Work. Landlord shall give Tenant notice
of its approval or disapproval of the Contractor List within five (5) business
days after Landlord’s receipt of the Contractor List. If Landlord does not
respond within said five (5) business day period, Landlord shall be deemed to
have approved of the Contractor List. If Landlord reasonably disapproves one or
more parties on the Contractor List, Landlord shall state the reason for its
disapproval and Tenant shall revise the Contractor List and resubmit the same to
Landlord for Landlord’s approval in accordance with the preceding two sentences.
Notwithstanding the foregoing, Landlord hereby approves BCCI Construction as
Tenant’s general contractor; provided that Landlord shall receive a credit of
$25,000 against the Tenant Improvement Allowance to cover the fees of Landlord’s
construction manager.

 

3.5 Requests for Consent. Landlord shall respond to all requests for consents,
approvals, directions or the like made by Tenant pursuant to this Work Letter
within five (5) business days following Landlord’s receipt of such request.
Requests need be sent only to Landlord’s General Counsel at Landlord’s San Diego
office, either by fax (858-485-9843) or email (gkreitzer@biomedrealty.com).
Landlord’s failure to respond within such five (5) business day period shall be
deemed approval by Landlord.

 

4. Tenant’s Construction Obligations Do Not Delay Rent Commencement Date.
Notwithstanding any Tenant Work to be performed by Tenant, the commencement of
the Lease Term and Tenant’s obligation to pay Rent shall not, under any
circumstances, be extended or delayed beyond September 1, 2005, unless Landlord
does not cause temporary power to be provided to the Building with an
electricity load equal to approximately 50 amps on or prior to February 1, 2005
(in which case the Rent Commencement Date shall be extended by a day for each
day that Landlord fails to complete such Landlord’s work after February 1,
2005); provided that the Premises are delivered to Tenant on or before February
1, 2005 and there are no delays by Landlord in performing Landlord’s Work
pursuant to this Work Letter or the Lease. Tenant shall perform promptly such of
its obligations contained in this Work Letter as are to be performed by it.
Tenant shall also observe and perform all of its obligations under the Lease

 

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from the Lease Commencement Date, while performing Tenant’s Work, other than the
payment of Rent.

 

5. Completion of Tenant’s Construction Obligations. Tenant, at Tenant’s sole
cost and expense and without cost to Landlord (except for the Tenant Improvement
Allowance and, at Tenant’s option, the Additional Allowance), shall complete
Tenant’s Work described in this Work Letter in all respects in accordance with
the provisions of the Lease, and not later than December 31, 2005, except for
extensions due to Landlord delays or force majeure, after which date Landlord’s
obligation to fund the Tenant Improvement Allowance and the Additional Allowance
shall expire. Tenant’s Work shall be completed at such time as Tenant shall (1)
furnish evidence reasonably satisfactory to Landlord that (i) all of Tenant’s
Work has been completed (which may be evidenced by the architect’s certificate
of completion and the general contractor’s and subcontractor’s final waivers and
releases of liens), (ii) such work has been accepted by Landlord, which
acceptance shall not be unreasonably withheld, (iii) any and all liens therefor
that have been or might be filed have been discharged of record (by payment,
bond, order of a court of competent jurisdiction or otherwise) or waived, and
(iv) no security interests relating thereto are outstanding; (2) furnish to
Landlord all certifications and approvals with respect to Tenant’s Work that may
be required from any governmental authority and any board of fire underwriters
or similar body for the use and occupancy of the Premises; (3) furnish to
Landlord the insurance required by the Lease; and (4) furnish an affidavit from
Tenant’s architect certifying that all of Tenant’s Work performed in the
Premises is in substantial accordance with the Approved Plans.

 

6. Insurance. Tenant shall provide, or shall cause Tenant’s contractors and
subcontractors to provide, in addition to the insurance required of Tenant
pursuant to the Lease, the following types of insurance:

 

6.1 Builders Risk Insurance. At all times during the period between the
commencement of construction of Tenant’s Work and completion of Tenant’s Work,
Tenant shall maintain, or cause to be maintained, casualty insurance in
Builder’s Risk Form, covering Landlord, Landlord’s agents, Tenant and Tenant’s
contractors, as their interests may appear, against loss or damage by fire,
vandalism, and malicious mischief and other such risks as are customarily
covered by the so-called “broad form extended coverage endorsement” upon all
Tenant’s Work and builder’s machinery, tools and equipment, all while forming a
part of, or contained in, such improvements or temporary structures while on the
Premises, or when adjacent thereto, all on a completed value basis for the full
insurable value at all times. Said Builder’s Risk Insurance shall contain an
express waiver of any right of subrogation by the insurer against Landlord, its
agents and employees.

 

6.2 Workers’ Compensation. At all times during the period of construction of
Tenant’s Work, Tenant will itself, if necessary, and will require contractors
and subcontractors to maintain statutory Workers’ Compensation insurance.

 

7. Liability.

 

7.1 Tenant’s Liability. Tenant assumes the responsibility and liability for any
and all injuries or death of any persons, including Tenant’s contractors and
subcontractors, and their

 

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respective employees and for any and all damages to property caused by, or
resulting from or arising out of any act or omission on the part of Tenant,
Tenant’s contractors or subcontractors or their respective employees, in the
prosecution of Tenant’s Work and with respect to such work. Tenant agrees to
indemnify, defend, protect and save free and harmless Landlord, from and against
all losses and/or expenses, including reasonable legal fees and expenses, which
Landlord may suffer or pay as the result of claims or lawsuits due to, because
of, or arising out of any and all such injuries or death and/or damage, whether
real or alleged and Tenant and Tenant’s contractors and/or subcontractors or
their respective insurance companies shall assume and defend at their own
expense all such claims or lawsuits; provided, however, that nothing contained
in this Work Letter shall be deemed to indemnify or otherwise hold Landlord
harmless from or against the negligent or wrongful acts or omissions of
Landlord, its agents, employees and contractors nor to affect or modify the
terms of the Lease. Any approval or consent by Landlord shall in no way obligate
Landlord in any manner whatsoever in respect of the finished product designed
and/or constructed by Tenant or its contractors. Any deficiency in design or
construction, although the same has prior approval of Landlord, shall be solely
the responsibility of Tenant. All construction materials and equipment furnished
by Tenant as Tenant Work, except for personal property, furniture and trade
equipment, shall be new or “like-new” and all work shall be performed in a
first-class workmanlike manner.

 

7.2 Landlord’s Liability. Landlord assumes the responsibility and liability for
any and all injuries or death of any persons, including Landlord’s contractors
and subcontractors, and their respective employees and for any and all damages
to property caused by, or resulting from or arising out of any act or omission
on the part of Landlord, Landlord’s contractors or subcontractors or their
respective employees, in the prosecution of Landlord’s Work and with respect to
such work. Landlord agrees to indemnify, defend, protect and save free and
harmless Tenant, from and against all losses and/or expenses, including
reasonable legal fees and expenses, which Tenant may suffer or pay as the result
of claims or lawsuits due to, because of, or arising out of any and all such
injuries or death and/or damage, whether real or alleged and Landlord and
Landlord’s contractors and/or subcontractors or their respective insurance
companies shall assume and defend at their own expense all such claims or
lawsuits; provided, however, that nothing contained in this Work Letter shall be
deemed to indemnify or otherwise hold Tenant harmless from or against the
negligent or wrongful acts or omissions of Tenant, its agents, employees and
contractors nor to affect or modify the terms of the Lease.

 

8. Tenant Improvement Allowance.

 

8.1 Application of Tenant Improvement Allowance. Landlord shall contribute first
the Tenant Improvement Allowance and second, at Tenant’s option, the Additional
Allowance toward the costs and expenses incurred in connection with the
performance of Tenant’s Work. If the entire Tenant Improvement Allowance is not
applied toward or reserved for the costs of Tenant’s Work, any unused portion of
the Tenant Improvement Allowance shall be credited against Monthly Rent payments
as such Monthly Rent payments become due.

 

8.2 Approval of Budget for Tenant’s Work. Notwithstanding anything to the
contrary set forth elsewhere in this Work Letter, Landlord shall not have any
obligation to advance to Tenant any portion of the Tenant Improvement Allowance
or Additional Allowance until Landlord shall have reasonably approved, in
writing, the project budget for the Tenant’s Work

 

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(an “Approved Budget”). Landlord shall respond to the proposed budget within
five (5) business days of submittal by Tenant, and if Landlord does not respond
within said five (5) business day period, such proposed budget shall be deemed
approved. Landlord’s consent to the proposed budget shall not be unreasonably
withheld. If the Approved Budget exceeds the Tenant Improvement Allowance, then
within five (5) business days of the day Landlord approves such budget, Tenant
may request in writing that Landlord fund the Additional Allowance in accordance
with Paragraph 4.5 of the Lease. In the event Tenant makes such election with
respect to the Additional Allowance, the Combined Allowance shall be used to
fund the Approved Budget; provided, however, that in the event Tenant does not
request the Additional Allowance, or the Combined Allowance is still not
sufficient to cover the Approved Budget (including any approved Tenant Changes),
then Tenant shall deliver to Landlord within five (5) business days a letter of
credit in favor of Landlord in an amount sufficient to cover such excess costs
(“Tenant’s Costs”). Once all funds in the Tenant Improvement Allowance and the
Additional Allowance, if applicable, have been paid by Landlord, Tenant shall
pay for the Tenant’s Costs directly to the contractors, subcontractors or
vendors, and in the event Tenant does not directly pay such Tenant’s Costs
within a reasonable period of time, Landlord shall be entitled to draw from the
letter of credit described above. In the event Tenant pays for the Tenant’s
Costs directly to Tenant’s contractors, subcontractors or vendors, Landlord
shall return said letter of credit to Tenant upon Tenant’s completion of
Tenant’s Work in accordance with Section 5 hereof.

 

8.3 Advance Requests. Upon submission by Tenant to Landlord of a statement (an
“Advance Request”) from Tenant’s contractor, subcontractor or vendor setting
forth the total amount requested therefrom and a reasonably detailed summary of
the work performed (which shall be satisfied by a copy of an AIA standard form
Application for Payment (G702) executed by the general contractor and by the
architect) accompanied by unconditional partial lien releases from the general
contractor and the relevant subcontractors in respect of the prior advance and
conditional lien releases from the general contractor and the relevant
subcontractors in respect of the current Advance Request, Landlord, within seven
(7) business days following receipt by Landlord of an Advance Request and the
accompanying materials, shall make such payment directly to Tenant’s contractor,
subcontractor or vendor, as applicable; provided, however, that Landlord shall
not be responsible for payments for Tenant’s Work once all funds in the Tenant
Improvement Allowance and the Additional Allowance, if applicable, have been
used.

 

8.4 Use of the Tenant Improvement Allowance. The Tenant Improvement Allowance
may be used for the payment of Tenant’s furniture, personal property, equipment
(including non-building system equipment), and trade fixtures in accordance with
Paragraph 4.5 of the Lease, including without limitation, data cabling,
telephone and data equipment, security, audio/visual equipment, white noise and
furniture systems (“FF&E”). As provided in Paragraph 4.5 of the Lease, in no
event shall more than fifteen percent (15%) of the Tenant Improvement Allowance
be used to purchase FF&E. The FF&E shall be part of the Approved Budget.

 

9. Existing Building Materials; Removal of Tenant’s Property. Any existing
building materials within the Premises that Tenant reuses (e.g., lights, doors,
frames, hardware, etc.) shall be at no cost to Tenant and shall not be deducted
from the Tenant Improvement Allowance or Additional Allowance.

 

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10. Changes. Any major changes requested by Landlord or Tenant to Tenant’s Work
after Landlord signs the Approved Plans shall be requested and instituted in
accordance with the provisions of this Section 10 and shall be subject to the
reasonable written approval of the party not requesting the change.

 

10.1 Tenant Change Requests.

 

10.1.1 If, after Landlord signs the Approved Plans, Tenant shall request changes
to Tenant’s Work or request major changes to the Tenant’s Work already installed
(“Tenant Changes”), Tenant shall request such Tenant Changes by notifying
Landlord in writing in substantially the same form as the AIA standard change
order form (a “Tenant Change Request”), which Tenant Change Request shall detail
(i) the nature and extent of any such Tenant Change and (ii) an estimate of the
additional cost or savings and the time savings or delay involved with respect
to such Tenant Change. If the nature of such Tenant Change requires revisions to
the Approved Plans in order to comply with Applicable Laws, then Tenant shall be
solely responsible for the cost of such revisions. Such Tenant Change Request
must be signed by one of Tenant’s Authorized Representatives or Landlord shall
not be required to process such Tenant Change Request. Landlord, before
approving a Tenant Change to Tenant’s Work, shall use its best efforts to
respond to Tenant as soon as is reasonably possible with an estimate of the time
it will take Landlord to analyze the Tenant Change Request. Landlord shall
thereafter submit to Tenant in writing, within five (5) business days receipt of
the Tenant Change Request (or such longer period of time as is reasonably
required depending on the extent of the Tenant Change Request), Landlord’s
approval or disapproval of the Tenant Change Request. If Landlord fails to
respond to the Tenant Change Request, then the Tenant Change Request shall be
deemed accepted and Tenant shall be permitted to proceed with the Tenant’s Work
in accordance with the Tenant Change Request.

 

10.1.2 Landlord shall approve or reject the Tenant Change Request according to
the guidelines established pursuant to Section 3 hereof. If Landlord does not
approve in writing the Tenant Change Request, the Tenant Change Request shall be
deemed rejected and Tenant shall not be permitted to construct Tenant’s Work in
accordance with the Tenant Change Request.

 

10.2 Landlord Change Requests.

 

10.2.1 If, after Landlord signs the Approved Plans, Landlord shall request
reasonable changes to Tenant’s Work or request reasonable changes to the
Tenant’s Work already installed (“Landlord Changes”), Landlord shall request
such Landlord Changes by notifying Tenant in writing in substantially the same
form as the AIA standard change order form (a “Landlord Change Request”), which
Landlord Change Request shall detail the nature and extent of any such Landlord
Change. If the nature of such Landlord Change requires revisions to the Approved
Plans, then Landlord shall be solely responsible for the cost of such revisions.
Tenant shall, before proceeding with any Landlord Change to Tenant’s Work, use
its best efforts to respond to Landlord as soon as is reasonably possible within
estimate of (i) the time it will take Tenant to analyze the Landlord Change
Request, and (ii) the architectural and engineering fees and costs which will be
incurred in order to analyze such Landlord Change Request and Tenant shall
thereafter submit to Landlord in writing, within five (5) days receipt of

 

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the Landlord Change Request (or such longer period of time as is reasonably
required depending on the extent of the Landlord Change Request), an estimate of
the additional cost or savings involved with respect to Tenant’s Work.

 

10.2.2 If the Landlord Change impacts on Tenant’s Work, then if Landlord
approves in writing the cost or savings, Tenant shall cause the approved
Landlord Change to be instituted. If Tenant does not approve in writing the cost
or savings and the extension in the time for completion of Tenant’s Work, then
the Landlord Change Request shall be deemed rejected and Tenant shall not be
required to construct Tenant’s Work in accordance with the Landlord Change
Request. All additional costs and expenses payable by Tenant to complete
Tenant’s Work due to the Landlord Change Request shall be reimbursed by
Landlord, but shall not result in any reduction in the Tenant Improvement
Allowance or Additional Allowance. If as a result of the Landlord Change,
Tenant’s Work is not completed by September 1, 2005, the Rent Commencement Date
shall be extended a day for each day that such Landlord Change delays completion
of Tenant’s Work.

 

11. Costs. Except as provided in Section 10.2, Landlord is under no obligation
to bear any portion of the cost of any of Tenant’s Work except to the extent of
the Tenant Improvement Allowance, Landlord’s contribution to a preliminary space
planning “test-fit” as provided in Section 4.5 of the Lease, and, at Tenant’s
option, the Additional Allowance.

 

12. Miscellaneous.

 

12.1 Consents. Whenever consent or approval of either party is required under
this Work Letter, that party shall not unreasonably withhold, condition or delay
such consent or approval, except as may be expressly set forth herein to the
contrary.

 

12.2 Modification. No modification, waiver or amendment of this Work Letter or
of any of its conditions or provisions shall be binding upon Landlord or Tenant
unless the same is in writing, signed by Landlord and Tenant.

 

12.3 Counterparts. This Work Letter may be executed in any number of
counterparts, but all counterparts taken together shall constitute a single
document.

 

12.4 Governing Law. This Work Letter shall be governed by, construed and
enforced in accordance with the laws of the State of California.

 

12.5 Time of the Essence. Time is of the essence of this Work Letter and of each
and all provisions thereof.

 

12.6 Delay. Tenant shall be excused for any delay in completion of any portion
of Tenant’s Work caused by acts of God, acts of Landlord, inclement weather,
labor trouble, acts of public utilities, or changes requested by Landlord which
are, in each case, beyond the reasonable control of Tenant.

 

12.7 Severability. If any term or provision of this Work Letter is declared
invalid or unenforceable, the remainder of this Work Letter shall not be
affected by such determination and shall continue to be valid and enforceable.

 

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12.8 Merger. All understandings and agreements, oral or written, heretofore made
between the parties hereto and relating to Tenant’s Work are merged in this Work
Letter, which alone (but inclusive of provisions of the Lease incorporated
herein and the final Approved Plans prepared pursuant hereto) fully and
completely expresses the agreement between Landlord and Tenant with regard to
the matters set forth in this Work Letter.

 

IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter to be
effective on the date first above written.

 

TENANT:

     

LANDLORD:

NUVELO, INC.,

     

BMR-201 INDUSTRIAL ROAD LLC,

a Delaware corporation

     

a Delaware limited liability company

By:  

LOGO [g37658img005.jpg]

      By:  

LOGO [g37658img006.jpg]

Name:

 

Lee Bendekgey

     

Name:

 

Gary A. Kreitzer

Title:

 

CFO

     

Title:

 

Executive Vice President

 

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EXHIBIT E

 

Rules and Regulations

 

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EXHIBIT F

 

Estoppel Certificate