Exhibit 10.1

 
THIRD AMENDMENT TO LEASE

This Third Amendment to Lease ("Amendment") is entered into as of July 28, 2011
(the "Effective Date") by and between METROPOLITAN LIFE INSURANCE COMPANY, a New
York corporation ("Landlord"), and AP PHARMA, INC., a Delaware corporation
("Tenant"), with reference to the following facts ("Recitals"):

A.       Landlord and Tenant are the current parties to that certain Lease dated
as of November 7, 1997 (the “Original Lease’) executed by Landlord and Tenant's
predecessor-in-interest, Advanced Polymer Systems, as amended by that certain
Amendment to Lease Agreement dated as of March 29, 2004 executed by Landlord and
Tenant, and that certain Second Amendment to Lease dated April 1, 2011 executed
by Landlord and Tenant (as amended, the "Existing Lease") for certain Premises
described therein commonly known as 123 Saginaw Drive, Redwood City, California
94063, all as more particularly described in the Existing Lease.

B.       Tenant and Landlord desire to provide for the extension of the Term and
other amendments of the Existing Lease, but only in strict accordance with and
as more particularly set forth in this Amendment.

NOW, THEREFORE, in consideration of the foregoing, and of the mutual covenants
set forth herein and of other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:

Section 1.                       Scope of Amendment; Defined Terms.  Except as
expressly provided in this Amendment, the Existing Lease shall remain in full
force and effect.  Should any inconsistency arise between this Amendment and the
Existing Lease as to the specific matters which are the subject of this
Amendment, the terms and conditions of this Amendment shall control.  The term
"Lease" as used herein and, from and after the Effective Date, in the Existing
Lease shall refer to the Existing Lease as modified by this Amendment.  Unless
otherwise indicated, capitalized terms used in this Amendment shall be defined
as set forth in the Lease.  Landlord and Tenant agree that this Amendment shall
be effective as of the Effective Date with the same force and effect as if
executed on that date.

Section 2.                       Security Deposit.  Notwithstanding any
provision of the Existing Lease to the contrary, from and after the Effective
Date the Security Deposit shall be cash in the amount of One Hundred Two
Thousand  Five Hundred Ninety Seven Dollars and Seventy-Six Cents ($102,597.76).

Section 3.                       Extension of Term.  Landlord and Tenant
acknowledge and agree that notwithstanding any provision of the Existing Lease
to the contrary, the current Term pursuant to the Existing Lease expires on
September 30, 2011, and that the Term is hereby extended for the period of
sixty-two (62) months (the "Third Extended Term") commencing on October 1, 2011
and expiring November 30, 2016 (hereafter, the “Expiration Date” in lieu of the
date provided in the Existing Lease), unless sooner terminated pursuant to the
terms of the Lease.   This extension is with respect to the entire Premises and
this extension is further upon and subject to the same conditions, terms,
covenants and agreements contained in the Existing Lease except as otherwise
provided in this Amendment.  Landlord and Tenant acknowledge and agree that this
Amendment provides all rights and obligations of the parties with respect to
extension of the current Term, whether or not in accordance with any other
provisions, if any, of the Existing Lease or otherwise regarding renewal or
extension, and any such provisions, options or rights for renewal or extension
are hereby deleted as of the Effective Date.

Section 4.                       Basic Annual Rent.  Notwithstanding any
provision of the Existing Lease to the contrary, Basic Annual Rent and Monthly
Installments thereof shall continue to be due and payable by Tenant with respect
to the Third Extended Term in the same manner required under the Lease therefor
in the following amounts:

 
Period From/To
Monthly Installments
Basic Annual Rent
 
October 1, 2011 – September 30, 2013*
$44,313.90  
$531,766.80
 
October 1, 2013 – September 30, 2014
$46,529.60
$558,355.14
 
October 1, 2014 – September 30, 2015
$48,856.07
$586,272.90
 
October 1, 2015 -  November 30, 2016
$51,298.88
$615,586.54

             *Notwithstanding anything in the foregoing to the contrary,
provided that a monetary default
 
 

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(as set forth in Section 25 of the Original Lease) (the “Default”) by Tenant has
not occurred prior to September 30, 2014, Landlord agrees to forbear in the
collection of and abate the Basic Annual Rent due and payable for the period
beginning on October 1, 2011 and continuing through November 30, 2011 of the
Term, totaling not more than Eighty-Eight Thousand Six Hundred Twenty-Seven
Dollars and Eighty Cents ($88,627.80) in the aggregate (collectively, “Abated
Rent”); provided, further, that in the event of a monetary Default by Tenant
prior to September 30, 2014, all previously Abated Rent shall be immediately due
and payable in full at that time without the necessity of further notice or
action by Landlord.

Section 5.                       Condition of Premises.  Notwithstanding any
provision of the Existing Lease to the contrary, Tenant acknowledges and agrees
that: (1) Tenant has been in occupancy of the Premises since 1997; (2) Tenant
has investigated the condition of the Premises to the extent Tenant desires to
do so; (3) Tenant is leasing the Premises in its "As Is" condition; (4) no
representation regarding the condition of the Premises has been made by or on
behalf of Landlord; and (5) in connection with this Amendment, Landlord has no
obligation to remodel or to make any repairs, alterations or improvements in
connection with this Amendment, or to provide Tenant any allowance therefor.

Section 6.                          Assignment and Subletting.  Paragraph 15 of
the Original Lease shall be amended by inserting the following to the end of
such Paragraph:

“(i)           For purposes of this Lease, a “Permitted Transferee” shall mean
any individual, partnership, trust, corporation, firm or other
entity  (“Person”) which:  (i) is an Affiliate (defined below); or (ii) is the
corporation or other entity (the “Successor”) resulting from a merger,
consolidation or non-bankruptcy reorganization with Tenant; or (iii) is
otherwise a deemed assignee due to a transfer, assignment or hypothecation of
any stock or interest under Paragraph 15(f); or (iv) purchases substantially all
the assets of Tenant as a going concern (the “Purchaser”).  For purposes of this
Paragraph, “Affiliate” shall mean any Person which is controlled by, controls,
or is under common control with Tenant (for purposes of this definition, the
word "control," shall mean, with respect to a Person that is a corporation or a
limited liability company, the right to exercise, directly or indirectly, more
than fifty percent (50%) of the voting rights attributable to the shares or
membership interests of the controlled Person and, with respect to a Person that
is not a corporation, the possession, directly or indirectly, of the power at
all times to direct or cause the direction of the management of the controlled
Person).  Notwithstanding anything to the contrary in Paragraphs 15(a), (c), (d)
and (e), provided there is no uncured default under this Lease, Tenant shall
have the right, without the prior written consent of Landlord, to assign this
Lease to a Permitted Transferee or to sublease the Premises or any part thereof
to a Permitted Transferee provided that:  (1) Landlord receives thirty (30) days
prior written notice of an assignment or sublease (including a proposed
transaction described in subparts (i), (ii), (iii) or (iv) of this Paragraph
15(i)); (2) with respect to an assignment of the Lease or a sublease of more
than half the Premises to an entity described in subparts (ii) or (iv) of this
Paragraph 15(i), the Permitted Transferee’s net worth is not less than Tenant’s
net worth immediately prior to such assignment or subletting; (3) with respect
to an assignment of the Lease or a sublease of more than half the Premises to an
entity described in subparts (i) or (iii) of this Paragraph 15(i), Tenant (as
the assignor or sublandord) continues in existence with a net worth not less
than Tenant’s net worth immediately prior to such assignment or subletting; (4)
the Permitted Transferee expressly assumes (except a Permitted Transferee which
is a deemed assignee under subpart (iii) of this Paragraph 15(i) or which is a
sublessee in the event of a sublease under this Paragraph 15(i)) in writing
satisfactory to Landlord all of the obligations of Tenant under this Lease and
delivers such assumption to Landlord no later than fifteen (15) days prior to
the effective date of the assignment; (5) Landlord receives no later than five
(5) days before the effective date a fully executed copy of the applicable
assignment or sublease agreement between Tenant and the Permitted Transferee;
and (6) promptly after Landlord's written request, Tenant and the Permitted
Transferee provide such reasonable documents and information which Landlord
reasonably requests for the purpose of substantiating whether or not the
assignment or sublease is to a Permitted Transferee.  All determinations of net
worth for purposes of this Subparagraph shall exclude any value attributable to
goodwill or going concern value.  With respect to any proposed assignment under
subparts (ii) or (iv) of this

 
 

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Paragraph 15(i)), Tenant shall pay Landlord, no later than thirty (30) days
prior to the effective date of such proposed assignment, a processing fee of
Five Thousand Dollars ($5,000.00), which shall be Landlord’s earned fee whether
or not the proposed assignment is completed by Tenant.”

       Section 7.                          Option to Extend.

(a)           Landlord hereby grants Tenant a single option to extend the Term
of the Lease for an additional period of three (3) years (such period may be
referred to as the "Option Term"), as to the entire Premises as it then exists,
upon and subject to the terms and conditions of this Section (the "Option To
Extend"), and provided that at the time of exercise of such option (and each
Option, if more than one Option is granted), Tenant must be conducting regular,
active, ongoing business in, and be in occupancy (and occupancy by a subtenant,
licensee or other party permitted or suffered by Tenant shall not satisfy such
condition) of the Premises.

(b)           Tenant's election (the "Election Notice") to exercise the Option
To Extend must be given to Landlord in writing no earlier than the date which is
twelve (12) months prior to the Expiration Date and no later than the date which
is nine (9) months prior to the Expiration Date.  If Tenant either fails or
elects not to exercise the Option to Extend by not timely giving its Election
Notice, then the Option to Extend shall be null and void, including, if more
than one Option is granted, the then applicable Option to Extend and all further
Options to Extend.

(c)           The Option Term (and each Option Term, if more than one Option is
granted) shall commence immediately after the expiration of the preceding Term
of the Lease.  Tenant's leasing of the Premises during the Option Term shall be
upon and subject to the same terms and conditions contained in the Lease except
that (i) Tenant shall pay the "Option Term Rent", defined and determined in the
manner set forth in the immediately following Subsection; (ii) the Security
Deposit shall be increased to an amount that is the same percentage or
proportion of Option Term Rent as the prior amount of Security Deposit was in
relation to Rent for the Term prior to the Option Term, but in no event shall
the Security Deposit be decreased; and (iii) Tenant shall accept the Premises in
its "as is" condition without any obligation of Landlord to repaint, remodel,
repair, improve or alter the Premises or to provide Tenant any allowance
therefor, except to the extent tenants leasing space in Comparable Transactions
receive an allowance pursuant to the definition of Fair Market Rental Rate
defined in Exhibit A hereto, provided, however, Landlord by notice given to
Tenant within thirty (30) days after final determination of the Fair Market
Rental Rate, may elect to provide, in lieu of such allowance for alterations to
the Premises, a rent credit equal to the amount of the allowance that would have
otherwise been given, credited toward the rents applicable only to the Premises
and due starting after such rent obligation commences.  If Tenant timely and
properly exercises the Option To Extend, references in the Lease to the Term
shall be deemed to mean the preceding Term as extended by the Option Term unless
the context clearly requires otherwise.

(d)           The Option Term Rent shall mean the sum of the Basic Annual Rent
at the Fair Market Rental Rate (as defined in Exhibit A) plus Additional Rent
and/or certain Operating Expenses (if applicable, based upon a step-up to change
the base year or base amount for calculation of Operating Expenses in connection
with determination of the Fair Market Rental Rate) plus other charges pursuant
to the Lease payable to Landlord.  The determination of Fair Market Rental Rate
and Option Term Rent shall be made by Landlord, in the good faith exercise of
Landlord's reasonable business judgment.  Within forty-five (45) days after
Tenant's exercise of the Option To Extend, Landlord shall notify Tenant of
Landlord's determination of the Fair Market Rental Rate and Option Term Rent for
the Premises.  Tenant may, within fifteen (15) days after receipt thereof,
deliver to Landlord a written notice either:  (i) accepting Landlord's
determination, in which case the extension shall be effective and binding
(subject to Subsection (f) below) at the accepted rate; or (ii) setting forth
Tenant's good faith estimate, in which case Landlord and Tenant will promptly
confer and attempt to agree upon the Fair Market Rental Rate and Option Term
Rent.  Tenant's failure to timely deliver such notice within such fifteen (15)
day period shall be deemed its cancellation of the Option.  In the event Tenant
has delivered notice setting forth Tenant’s different estimate, but no agreement
in writing between Tenant and Landlord on Fair Market Rental Rate and Option
Term Rent is reached within thirty (30) days after Landlord's receipt of
Tenant's estimate, the Fair Market Rental Rate shall be determined in accordance
with the terms of

 
 

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Exhibit A.  To the extent that Tenant pays directly the utility or service
provider for utilities or services which Tenant is to obtain directly pursuant
to the Lease, Tenant shall continue to pay such amounts, but such amounts shall
not be counted as part of the Preceding Rent or the Fair Market Rental Rate as
used herein.

(e)           Promptly after final determination of the Fair Market Rental Rate,
Landlord shall prepare a memorandum confirming the specific dates, amounts and
terms of the extension for the Option Term in accordance with the terms and
conditions of this Option to Extend, in the form of an amendment to the Lease,
and Tenant shall execute such amendment within ten (10) business days after
Landlord and Tenant agree to the form of the proposed amendment and Landlord
shall execute it promptly after Tenant.  Notwithstanding any of the foregoing to
the contrary, the failure of Landlord to prepare such amendment or of either
party to execute an amendment shall not affect the validity and effectiveness of
the extension for the Option Term in accordance with the terms and conditions of
this Option to Extend.

(f)           Upon the occurrence of any of the following events, Landlord shall
have the option, exercisable at any time prior to commencement of the Option
Term, to terminate all of the provisions of this Section with respect to the
Option to Extend, whereupon any prior or subsequent exercise of this Option to
Extend shall be of no force or effect:

(i)   Tenant's failure to timely exercise or timely to perform the Option to
Extend in strict accordance with the provisions of this Section.

(ii)  The existence at the time Tenant exercises the Option to Extend or at the
commencement of the Option Term of a Default on the part of Tenant under the
Lease or of any state of facts which with the passage of time or the giving of
notice, or both, would constitute such a Default.

(g)           Without limiting the generality of any provision of the Lease,
time shall be of the essence with respect to all of the provisions of this
Section.

        (h)           This Option to Extend is personal to AP Pharma, Inc. and
may not be used by, and shall not be transferable or assignable (voluntarily or
involuntarily) to any person or entity other than a Permitted Transferee which
is an assignee of the Lease and which has satisfied the requirements of Section
6 of this Amendment.

 
Section 8.                       Time of Essence.  Without limiting the
generality of any other provision of the Existing Lease, time is of the essence
to each and every term and condition of this Amendment.

        Section 9.                       Brokers.  Notwithstanding any other
provision of the Existing Lease to the contrary, Tenant represents that in
connection with this Amendment it is represented by Chris Jacobs of CBRE
(“Tenant's Broker”) and, except for Tenant’s Broker and Kristoph Lodge of
Cornish & Carey Commercial (“Landlord’s Broker”), Tenant has not dealt with any
real estate broker, sales person, or finder in connection with this Amendment,
and no such person initiated or participated in the negotiation of this
Amendment.  Tenant hereby indemnifies and agrees to protect, defend and hold
Landlord and Landlord’s Broker harmless from and against all claims, losses,
damages, liability, costs and expenses (including, without limitation,
reasonable attorneys’ fees and expenses) by virtue of any broker, agent or other
person claiming a commission or other form of compensation by virtue of alleged
representation of, or dealings or discussions with, Tenant with respect to the
subject matter of this Amendment, except for Landlord’s Broker and except for a
commission payable to Tenant’s Broker to the extent provided for in a separate
written agreement between Tenant’s Broker and Landlord’s Broker.  Tenant is not
obligated to pay or fund any amount to Landlord's Broker, and Landlord hereby
agrees to pay such commission, if any, to which Landlord's Broker is entitled in
connection with the subject matter of this Amendment pursuant to Landlord's
separate written agreement with Landlord's Broker.  Such commission shall
include an amount to be shared by Landlord’s Broker with Tenant’s Broker to the
extent that Tenant's Broker and Landlord's Broker have entered into a separate
agreement between themselves to share the commission paid to Landlord's Broker
by Landlord.  Landlord hereby indemnifies and agrees to protect, defend and hold
Tenant harmless from and against all claims, losses, damages, liability, costs
and expenses (including, without limitation, reasonable attorneys’ fees and
expenses) by virtue of any broker, agent or other person claiming a commission
or other form of compensation by virtue of alleged representation of, or
dealings or discussions with, Landlord with respect to the subject matter of
this Amendment, except for a commission payable to Tenant’s Broker (except to
the extent provided for in a separate written agreement between Tenant’s Broker
and Landlord’s Broker).  The provisions of this Section shall survive the
expiration or earlier termination of the Amendment or the Lease.

 
 

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Section 10.                       Attorneys' Fees.  Each party to this Amendment
shall bear its own attorneys' fees and costs incurred in connection with the
discussions preceding, negotiations for and documentation of this Amendment.  In
the event any party brings any suit or other proceeding with respect to the
subject matter or enforcement of this Amendment or the Lease, the prevailing
party (as determined by the court, agency or other authority before which such
suit or proceeding is commenced) shall, in addition to such other relief as may
be awarded, be entitled to recover attorneys' fees, expenses and costs of
investigation as actually incurred, including court costs, expert witness fees,
costs and expenses of investigation, and all attorneys' fees, costs and expenses
in any such suit or proceeding (including in any action or participation in or
in connection with any case or proceeding under the Bankruptcy Code, 11 United
States Code Sections 101 et seq., or any successor statutes, in establishing or
enforcing the right to indemnification, in appellate proceedings, or in
connection with the enforcement or collection of any judgment obtained in any
such suit or proceeding).

Section 11.                       Effect of Headings.  The titles or headings of
the various parts or sections hereof are intended solely for convenience and are
not intended and shall not be deemed to or in any way be used to modify, explain
or place any construction upon any of the provisions of this Amendment.

Section 12.                       Entire Agreement; Amendment.  This Amendment
taken together with the Existing Lease, together with all exhibits, schedules,
riders and addenda to each, constitutes the full and complete agreement and
understanding between the parties hereto and shall supersede all prior
communications, representations, understandings or agreements, if any, whether
oral or written, concerning the subject matter contained in this Amendment and
the Existing Lease, as so amended, and no provision of the Lease as so amended
may be modified, amended, waived or discharged, in whole or in part, except by a
written instrument executed by all of the parties hereto.

Section 13.                       OFAC.  Landlord advises Tenant hereby that the
purpose of this Section is to provide to the Landlord information and assurances
to enable Landlord to comply with the law relating to OFAC.

Tenant hereby represents, warrants and covenants to Landlord, either that (i)
Tenant is regulated by the SEC, FINRA or the Federal Reserve (a "Regulated
Entity") or (ii) neither Tenant nor any person or entity that directly or
indirectly (a) controls Tenant or (b) has an ownership interest in Tenant of
twenty-five percent (25%) or more, appears on the list of Specially Designated
Nationals and Blocked Persons ("OFAC List") published by the Office of Foreign
Assets Control ("OFAC") of the U.S. Department of the Treasury.

If, in connection with the Lease, there is one or more Guarantors of Tenant's
obligations under the Lease, then Tenant further represents, warrants and
covenants either that  (i) any such Guarantor is a Regulated Entity or (ii)
neither Guarantor nor any  person or entity that directly or indirectly (a)
controls such Guarantor or (b) has an ownership interest in such Guarantor of
twenty-five percent (25%) or more, appears on the OFAC List.

Tenant covenants during the term of the Lease to provide to Landlord information
reasonably requested by Landlord, including, without limitation, organizational
structural charts and organizational documents, which Landlord may deem to be
necessary ("Tenant OFAC Information") in order for Landlord to confirm Tenant's
continuing compliance with the provisions of this Section.  Tenant represents
and warrants that the Tenant OFAC Information it has provided or to be provided
to Landlord or Landlord's Broker in connection with the execution of this
Amendment is true and complete.

Section 14.                       Ratification.  Tenant represents to Landlord
as of the Effective Date that: (a) the Existing Lease is in full force and
effect and has not been modified except as provided by this Amendment; (b) that
to Tenant’s actual knowledge, there are no defaults or unfulfilled obligations
on the part of Landlord under the Lease; and (c) Tenant is currently in
possession of the entire Premises and neither the Premises, nor any part
thereof, is occupied by any subtenant or other party other than
Tenant.  Landlord represents to Tenant as of the Effective Date that the
Existing Lease is in full force and effect and has not been modified except as
provided by this Amendment.

 
 

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Section 15.                       Authority.  Each person executing this
Amendment represents and warrants that he or she is duly authorized and
empowered to execute it, and does so as the act of and on behalf of the party
indicated below.

Section 16.                       Counterparts.  This Amendment may be executed
in duplicates or counterparts, or both, and such duplicates or counterparts
together shall constitute but one original of the Amendment. The parties
contemplate that they may be executing counterparts of this Amendment
transmitted by facsimile and agree and intend that a signature by facsimile
machine shall bind the party so signing with the same effect as though the
signature were an original signature.  Each duplicate and counterpart shall be
equally admissible in evidence, and each original shall fully bind each party
who has executed it.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
Effective Date.

TENANT:                                                      AP PHARMA, INC.,
a Delaware corporation

By: /s/ John B. Whelan                                                          

Print Name: John B.
Whelan                                                          

Title:       CEO                         

 
LANDLORD:                                                METROPOLITAN LIFE
INSURANCE COMPANY,
a New York corporation

By: /s/ Joel R. Redmon____________

Print Name: Joel R. Redmon_______

Title: Regional Director____________

 
 

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EXHIBIT A

FAIR MARKET RENTAL RATE

1.Definition of Fair Market Rental Rate.  "Fair Market Rental Rate" shall mean
the Basic Annual Rent equal to the monthly base rental per rentable square foot
which a willing tenant would pay and which a willing landlord would accept for
space comparable to the Premises in the Building and in other buildings of
class A standards in Seaport Centre and along the Highway 101 corridor in
Redwood City, Redwood Shores, San Carlos and Belmont (the “Applicable Market”)
for the period for which such rental is to be paid and for a lease on terms
substantially similar to those of the Lease (including, without limitation,
those applicable to Taxes, Operating Expenses and exclusions, but also
considering so-called net and triple net leases, and leases utilizing operating
expense stops or base years, and making appropriate adjustment between such
leases and this Lease, as described below), based on prevailing market
conditions in the Applicable Market at the time such determination is made
("Comparable Transactions").  Without limiting the generality of the foregoing,
Comparable Transactions shall be for a term similar to the term of tenancy and
for space comparable in use, floor levels, view and orientation, square footage
and location within the Building and in the Applicable Market as the transaction
for which Fair Market Rental Rate is being determined; however, leases of
unusual or odd shaped spaces shall not be considered.  In any determination of
Fair Market Rental Rate, the stated or contract monthly net or base rental in
Comparable Transactions shall be appropriately adjusted to take into account the
different terms and conditions prevailing in such transactions and those present
in the Lease, including, without limitation: (a) the extent to which average
annual expenses and taxes per rentable square foot payable by tenants in
Comparable Transactions vary from those payable by Tenant under the Lease, and
so, for example, if the Lease provides for payment of Additional Rent and/or
certain Operating Expenses on the basis of increases over a base year, then the
rate of Basic Annual Rent under the Lease shall be based upon a step-up to
change the calendar year which serves as the base year for calculation of the
base for such Operating Expenses for the Option Term to be the full calendar
year in which the Option Term commences, and such step-up shall be considered in
the determination of the Fair Market Rental Rate; (b) tenant improvements, value
of existing tenant improvements, the concessions, if any, being given by
landlords in Comparable Transactions, such as parking charge abatement, free
rent or rental abatement applicable after substantial completion of any tenant
improvements (and no adjustment shall be made for any free or abated rent during
any construction periods), loans at below-market interest rates, moving
allowances, space planning allowances, lease takeover payments and work
allowances, as compared to any tenant improvement, refurbishment or repainting
allowance given to Tenant under the Lease for the space for which Fair Market
Rental Rate is being determined; (c) the brokerage commissions, fees and bonuses
payable by landlords in Comparable Transactions (whether to tenant's agent, such
landlord or any person or entity affiliated with such landlord), as compared to
any such amounts payable by Landlord to the broker(s) identified with respect to
the transaction for which Fair Market Rental Rate is being determined; (d) the
time value of money; (e) any material difference between the definition of
rentable area and the ratio of project rentable to useable square feet in
Comparable Transactions, as compared to such figures applicable to the space for
which Fair Market Rental Rate is being determined; and (f) the extent to which
charges for parking by tenants in Comparable Transactions vary from those
payable by Tenant under the Lease.

2.           Sealed Estimates.  In the event the Lease requires Fair Market
Rental Rate to be determined in accordance with this Exhibit, Landlord and
Tenant shall meet within ten (10) business days thereafter and each
simultaneously submit to the other in a sealed envelope its good faith estimate
of Fair Market Rental Rate (the "Estimates").  If the higher Estimate is not
more than one hundred five percent (105%) of the lower Estimate, then Fair
Market Rental Rate shall be the average of the two Estimates.  If such
simultaneous submission of Estimates does not occur within such ten (10)
business day period, then either party may by notice to the other designate any
reasonable time within five (5) business days thereafter and any reasonable
place at or near the Building for such meeting to take place.  In the event only
one party submits an Estimate at that meeting, such Estimate shall be Fair
Market Rental.  In the event neither party submits an Estimate at that meeting,
the transaction for which Fair Market Rental Rate is being determined shall be
deemed cancelled and of no further force or effect.

3.           Selection of Arbitrators.  If the higher Estimate is more than one
hundred five percent (105%) of the lower Estimate, then either Landlord or
Tenant may, by written notice to the other within five (5) business days after
delivery of Estimates at the meeting, require that the disagreement be resolved
by arbitration.  In the event neither party gives such notice, the transaction
for which Fair Market Rental Rate is

 
 

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being determined shall be deemed cancelled and of no further force or
effect.  Within five (5) business days after such notice, the parties shall
select as arbitrators three (3) mutually acceptable independent MAI appraisers
with experience in real estate activities, including at least five (5) years
experience in appraising comparable laboratory space within Seaport Centre
("Qualified Appraisers").  If the parties cannot timely agree on such
arbitrators, then within the following five (5) business days, each shall select
and inform the other party of one (1) Qualified Appraiser and within a third
period of five (5) business days, the two appraisers (or if only one (1) has
been duly selected, such single appraiser) shall select as arbitrators a panel
of three additional Qualified Appraisers, which three arbitrators shall proceed
to determine Fair Market Rental Rate pursuant to Section 4 of this
Exhibit.  Both Landlord and Tenant shall be entitled to present evidence
supporting their respective positions to the panel of three arbitrators.

4.           Arbitration Procedure.  Once a panel of arbitrators has been
selected as provided above, then as soon thereafter as practicable each
arbitrator shall select one of the two Estimates as the one which, in its
opinion, is closer to Fair Market Rental Rate.  Upon an Estimate's selection by
two (2) of the arbitrators, it shall be the applicable Fair Market Rental Rate
and such selection shall be binding upon Landlord and Tenant.  If the
arbitrators collectively determine that expert advice is reasonably necessary to
assist them in determining Fair Market Rental Rate, then they may retain one or
more qualified persons, including but not limited to legal counsel, brokers,
architects or engineers, to provide such expert advice.  The party whose
Estimate is not chosen by the arbitrators shall pay the costs of the arbitrators
and any experts retained by the arbitrators.  Any fees of any counsel or expert
engaged directly by Landlord or Tenant, however, shall be borne by the party
retaining such counsel or expert.

5.           Rent Pending Determination of Fair Market Rental Rate.  In the
event that the determination of Fair Market Rental Rate has not been concluded
prior to commencement of the applicable rental period for the applicable space
for which the Fair Market Rental Rate is being determined, Tenant shall pay
Landlord Basic Annual Rent and Additional Rent as would apply under Landlord’s
Estimate pursuant to Section 2 of this Exhibit until the Fair Market Rental Rate
is determined.  In the event that the Fair Market Rental Rate subsequently
determined is different from the amount paid for the applicable period, then
within thirty (30) days after such determination, Tenant shall pay Landlord any
greater amounts due and Landlord shall credit Tenant (against the next Basic
Annual Rent installments due) for any reduction in the amounts due.

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