Exhibit 10.2

 

LEASE SUMMARY

 

Date of Lease

 

April 30, 2003

 

 

 

Lessor:

 

Menlo Business Park, LLC,

 

 

a California limited liability company

 

 

 

Lessee:

 

DepoMed, Inc., a California corporation

 

 

 

Premises:

 

Building #5, 1330 O’Brien Drive, Menlo Park, California 94025

 

 

 

Floor Area:

 

25,366 rentable square feet

 

 

 

Parcel Size:

 

1.36 acres

 

 

 

Lessee’s Pro Rata
 Share of Operating
 Expenses:

 

2.39%

 

 

 

Commencement
 Date:

 

May 1, 2003

 

 

 

Initial Term:

 

Sixty (60) months

 

 

 

Option to Extend:

 

One (1) option to extend – sixty (60) months

 

 

 

Monthly Base Rent:

 

5/1/03 – 7/31/03

$10,800 ($1.20 x 9,000 sf)

 

 

8/1/03 – 10/31/03

$21,600 ($1.20 x 18,000 sf)

 

 

11/1/03 – 4/30/04

$30,439.20 ($1.20 x 25,366 sf)

 

 

Annual CPI Adjustment commencing 5/1/04

(3% minimum – 6% maximum)

 

 

 

Security Deposit:

 

$34,259.58

 

 

 

Tenant Improvement

 

 

 Allowance:

 

$253,660 ($10 per sq. ft.)

 

 

 

Addresses for Notice:

 

 

 

 

 

Lessor:

 

Menlo Business Park, LLC

 

 

c/o Tarlton Properties, Inc.

 

 

955 Alma Street

 

 

Palo Alto, California 94301

 

 

 

 

 

Attention:  John C. Tarlton, President

 

 

Telephone:  (650) 330-3600

 

 

 

Lessee:

 

DepoMed, Inc.

 

 

1360 O’Brien Drive

 

 

Menlo Park, California 94025

 

 

 

 

 

Attention:

 

 

Telephone:

 

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TABLE OF CONTENTS

 

Paragraph

 

 

 

1.

Lease

2.

Initial Term

3.

Option to Extend

4

Monthly Base Rent

5

Additional Rent; Operating Expenses and Taxes

6

Payment of Rent

7

Security Deposit

8

Use

9

Hazardous Materials

10.

Taxes on Lessee’s Property

11.

Insurance

12.

Indemnification

13.

Tenant Improvement Work

14.

Maintenance and Repairs; Alterations; Surrender and Restoration

15.

Utilities and Services.

16.

Liens

17.

Assignment and Subletting

18.

Non-Waiver

19.

Holding Over

20.

Damage or Destruction

21.

Eminent Domain

22.

Remedies

23.

Lessee’s Personal Property

24.

Notices

25.

Estoppel Certificate

26.

Signage

27.

Real Estate Brokers

28.

Subordination; Attornment

29.

No Termination Right

30.

Lessor’s Entry

31.

Attorneys’ Fees

32.

Compliance with CC&Rs

33.

Quiet Enjoyment

34.

General Provisions

 

SCHEDULE OF EXHIBITS

 

 

EXHIBIT “A”

LEGAL DESCRIPTION

 

EXHIBIT “B”

Menlo Business Park Master Plan

 

EXHIBIT “C”

Floor Plan

 

EXHIBIT “D”

Commencement Memorandum

 

EXHIBIT “E”

Tenant Improvement Work

 

EXHIBIT “F”

Estoppel Certificate

 

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L E A S E

 

Building #5

Menlo Business Park

1330 O’Brien Drive

Menlo Park, California

 

THIS LEASE, referred to herein as “this Lease,” is made and entered into as of
April 30, 2003 by and between MENLO BUSINESS PARK, LLC, a California limited
liability company, hereafter referred to as “Lessor,” and DEPOMED, INC., a
California corporation, hereafter referred to as “Lessee” or “DepoMed.”

 

RECITALS:

 

A.                                   Lessor is the owner of the real property
located in Menlo Business Park, Menlo Park, California, commonly referred to as
1330 O’Brien Drive, Menlo Park, California, more particularly described on
Exhibit “A” attached hereto and incorporated by reference herein, consisting of
a parcel of land containing approximately 1.36 acres, together with all
easements and appurtenances thereto (the “Land”) and the existing building
thereon, referred to as Building #5, 1330 O’Brien Drive, containing
approximately 25,366 rentable square feet, and all other improvements located
thereon, including 78 on-site parking spaces (collectively, the
“Improvements”).  The Land and Improvements are referred to herein collectively
as the “Premises.”  The Premises are shown on the Menlo Business Park Master
Plan attached hereto as Exhibit “B.”  Building #5 is sometimes referred to
herein as “the Building.”  The floor plan of Building #5 is attached hereto as
Exhibit ”C.”

 

B.                                     Lessor and Lessee wish to enter into this
Lease of the Premises upon the terms and conditions set forth herein.

 

NOW, THEREFORE, the parties agree as follows:

 

1.                                       Lease.  Lessor hereby leases to Lessee,
and Lessee leases from Lessor the Premises at the rental and upon all of the
terms and conditions set forth herein.

 

2.                                       Initial Term.

 

(a)                                  The initial term of this Lease (the
“initial term”) shall commence on May 1, 2003 (the “Commencement Date”).  The
Commencement Date shall be confirmed in writing by Lessor and Lessee by the
execution and delivery of the Commencement Memorandum in the form attached
hereto as “Exhibit “D.”

 

(b)                                 The initial term of this Lease shall expire,
unless sooner terminated in accordance with the provisions hereof, on April 30,
2008.

 

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3.                                       Option to Extend.

 

(a)                                  Lessor hereby grants to Lessee one (1)
option to extend the term of this Lease for one period of sixty (60) calendar
months immediately following the expiration of the initial term.  Lessee may
exercise the foregoing option to extend by giving written notice of exercise to
Lessor at least six (6) months, but not more than twelve (12) months, prior to
the expiration of the initial term of this Lease, time being of the essence;
provided that if Lessee is currently in a state of uncured default after the
expiration of notice and cure periods, if applicable (referred to herein as “in
default”) under this Lease at the time of exercise of the option or on the
commencement date of the option extension period, such notice shall be void and
of no force or effect.  Such option extension period, if exercised, shall be
upon the same terms and conditions as the initial term of this Lease, including
the payment by Lessee of the Operating Expenses pursuant to Paragraph 5, except
that (i) the Monthly Base Rent during the option period shall be determined as
set forth in Paragraph 3(c) hereof, (ii) there shall be no additional option to
extend, and (iii) Lessee shall accept the Premises in their then “as is”
condition and Paragraph 13, Tenant Improvement Work, shall not apply to the
option period.  If Lessee does not exercise the option in a timely manner the
option shall lapse, time being of the essence.

 

(b)                                 The option to extend granted to Lessee by
this Paragraph 3 is granted for the personal benefit of DepoMed only, and shall
be exercisable only by DepoMed or by a “permitted affiliate” under Paragraph
17(f) below.  Said option may not be assigned or transferred by said entity to
any assignee or sublessee other than a permitted affiliate.

 

(c)                                  The initial Monthly Base Rent for the
Premises during the option extension period shall be determined pursuant to the
provisions of this subparagraph (c) and, subject to subparagraph (e) below,
shall equal ninety-five percent (95%) of the then current fair market rental for
the Premises on the commencement date of the option extension period as
determined by agreement between the Lessor and Lessee, if possible, and by the
process of appraisal if the parties cannot reach agreement.

 

If Lessor and Lessee are unable to agree upon the amount equal to ninety-five
percent (95%) of the then current fair market rent for the Premises, said amount
shall be determined by appraisal.  The appraisal shall be performed by one
appraiser if the parties are able to agree upon one appraiser.  If the parties
are unable to agree upon one appraiser, each party shall appoint an appraiser
and the two appraisers shall select a third appraiser.  Each appraiser selected
shall be a member of the American Institute of Real Estate Appraisers (AIREA)
with at least five (5) years of full-time commercial real estate appraisal
experience in the Menlo Park office market.

 

If only one appraiser is selected, that appraiser shall notify the parties in
simple letter form of its determination of the amount equal to ninety-five
percent (95%) of the fair market Monthly Base Rent for the Premises on the
commencement date of the option extension period within fifteen (15) days
following its selection.  Said appraisal

 

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shall be binding on the parties as the appraised current ninety-five percent
(95%) of the “fair market rental” for the Premises which shall be based upon the
then current rental paid by tenants for premises in the vicinity of the Premises
of similar age, size, quality of construction and specifications. If multiple
appraisers are selected, each appraiser shall within ten (10) days of being
selected make its determination of the amount equal to ninety-five percent (95%)
of the current fair market Monthly Base Rent for the Premises in simple letter
form.  If two (2) or more of the appraisers agree on said amount, such agreement
shall be binding upon the parties.  If multiple appraisers are selected and two
(2) appraisers are unable to agree on said amount, the amount equal to
ninety-five percent (95%) of the fair market Monthly Base Rent for the Premises
shall be determined by taking the mean average of the appraisals; provided, that
any high or low appraisal, differing from the middle appraisal by more than ten
percent (10%) of the middle appraisal, shall be disregarded in calculating the
average.  Said initial Monthly Base Rent shall be adjusted annually on the
anniversary of the commencement of the option term in the manner determined by
the appraisers to be consistent with the then prevailing market practice for
comparable space.

 

If only one appraiser is selected, then each party shall pay one-half of the
fees and expenses of that appraiser.  If three appraisers are selected, each
party shall bear the fees and expenses of the appraiser it selects and one-half
of the fees and expenses of the third appraiser.

 

(d)                                 Thereafter, provided that Lessee has
previously given timely notice to Lessor of the exercise by Lessee of the option
to extend the term, Lessor and Lessee shall execute an amendment to this Lease
stating that the initial Monthly Base Rent for the Premises during the option
extension period shall be equal to the determination by appraisal.

 

(e)                                  Notwithstanding anything to the contrary
contained in subparagraph (c) above, in no event shall the Monthly Base Rent at
the commencement of the option extension period be less than the Monthly Base
Rent in effect immediately prior to the commencement of the option extension
period.

 

4.                                       Monthly Base Rent.

 

(a)                                  Commencing on the Commencement Date and
continuing on the first day of each calendar month thereafter during the initial
term, Lessee shall pay to Lessor in monthly installments in advance Monthly Base
Rent in lawful money of the United States as follows:

 

(1)                                  Commencing on May 1, 2003 and continuing
through July 31, 2003, the sum of Ten Thousand Eight Hundred Dollars ($10,800)
(9,000 rentable square feet x $1.20/rentable square foot/month).

 

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(2)                                  Commencing on August 1, 2003 and continuing
through October 31, 2003, the sum of Twenty-one Thousand Six Hundred Dollars
($21,600) (18,000 rentable square feet x $1.20/rentable square foot/month).

 

(3)                                  Commencing on November 1, 2003 and
continuing through April 30, 2004, the sum of Thirty Thousand Four Hundred
Thirty-nine and Twenty Hundredths Dollars ($30,439.20) (25,366 rentable square
feet x $1.20/rentable square foot/month).  Commencing on November 1, 2003 and
continuing for the remainder of the initial term, Monthly Base Rent shall be
calculated based on the entire 25,366 rentable square feet of the Premises.

 

(b)                                 Upon the execution and delivery of this
Lease by Lessor and Lessee, Lessee shall pay to Lessor the sum of Ten Thousand
Eight Hundred Dollars ($10,800) representing the initial Monthly Base Rent for
the entire Premises.

 

(c)                                  The Monthly Base Rent shall be adjusted as
of each anniversary of the Commencement Date during the initial term, commencing
with the first anniversary of the Commencement Date and continuing on each
anniversary of the Commencement Date thereafter during the initial lease term
(the “Rental Adjustment Date”) to reflect any increases in the cost of living. 
The adjustment shall be calculated upon the basis of the United States
Department of Labor, Bureau of Labor Statistics Consumer Price Index, all
items,  for all Urban Consumers - San Francisco-Oakland-San Jose (1982-84=100),
hereafter referred to as the “Index.”  The Index for said subgroup published
most recently as of the end of the calendar month immediately preceding the
month in which the Commencement Date occurs shall be considered the “base
Index.”

 

(d)                                 The Monthly Base Rent shall be adjusted as
of each Rental Adjustment Date to an amount equal to the product obtained by
multiplying $30,439.20 (the Monthly Base Rent for the Premises commencing on
November 1, 2003 referred to in Paragraph 4(a)(3)) by a fraction, the numerator
of which is the Index most recently published as of the end of the calendar
month immediately preceding each Rental Adjustment Date and the denominator of
which is the base Index; provided that in no event shall the Monthly Base Rent
be increased on any Rental Adjustment Date to an amount less than three percent
(3%) per annum or more than six percent (6%) per annum, calculated for each
individual year from the previous Rental Adjustment Date, of the Monthly Base
Rent payable before such Rental Adjustment Date.

 

(e)                                  When the new Monthly Base Rent is
determined for each Rental Adjustment Date, Lessor shall give Lessee written
notice of the amount of the new Monthly Base Rent and how the new Monthly Base
Rent figure was computed in accordance with subparagraphs 4(c) and 4(d) above. 
Lessee shall pay to Lessor retroactively any unpaid increase in Monthly Base
Rent due from and after the Rental Adjustment Date.  If the Index does not exist
on any Rental Adjustment Date in the same format as referred to in subparagraph
(b), Lessor shall substitute in lieu thereof an index reasonably comparable to
the Index referred to above which is acceptable to Lessee and

 

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which is then published by the Bureau of Labor Statistics, or successor or
similar governmental agency, or if no governmental agency then publishes an
index, Lessor shall substitute therefor any index commonly accepted which is
published by a reputable private organization.

 

5.                                       Additional Rent; Operating Expenses and
Taxes.

 

(a)                                  In addition to the Monthly Base Rent
payable by Lessee pursuant to Paragraph 4, Lessee shall pay to Lessor, as
“Additional Rent,” (i) the operating expenses of the Premises, and (ii) Lessee’s
pro rata share of the operating expenses of Menlo Business Park of which the
Premises are a part, in accordance with Paragraph 5(b) hereof, and (iii) real
property taxes and assessments levied or assessed against the Premises in
accordance with Paragraph 5(c) hereof.  Lessee’s pro rata share of the operating
expenses of Menlo Business Park is 2.39% based upon the ratio of the number of
square feet of the Land to the total number of square feet of land in Menlo
Business Park.  The operating expenses of Menlo Business Park currently include
maintenance of the common areas of Menlo Business Park, parking lot lighting
(cost of electricity and maintenance of the fixtures), maintenance of the
network conduit, all landscape maintenance and irrigation of Menlo Business
Park, Lessor’s insurance coverages of Menlo Business Park, and security patrol. 
The operating expenses of Menlo Business Park may include other items from time
to time during the term of this Lease.  Monthly Base Rent and Additional Rent
are referred to herein collectively as “rent.”

 

(b)                                 “Operating Expenses,” as used herein, shall
include all direct costs incurred by Lessor in the of management, operation,
maintenance, repair and replacement of the Premises, including the cost of all
maintenance, repairs, and restoration of the Premises performed by Lessor
pursuant to Paragraphs 14(b) and 14(c) hereof, as determined by generally
accepted accounting principles (unless excluded by this Lease), including, but
not limited to:

 

Personal property taxes related to the Premises; any parking taxes or parking
levies imposed on the Premises in the future by any governmental agency; a pro
rata portion of the management fee charged for the management and operation of
Menlo Business Park, in an amount equal to three percent (3%) of the total gross
income received by Lessor from the operation of Menlo Business Park (including
Monthly Base Rent and Additional Rent received from tenants); water and sewer
charges; waste disposal; insurance premiums for insurance coverages maintained
by Lessor pursuant to Paragraph 11(b) hereof; license, permit, and inspection
fees; charges for electricity, heating, air conditioning, gas, and any other
utilities (including, without limitation, any temporary or permanent utility
surcharge or other exaction); security; maintenance, repair, and replacement of
the roof membrane; painting and repairing, interior and exterior; maintenance
and replacement of floor and window coverings; repair, maintenance, and
replacement of air-conditioning, heating, mechanical and electrical systems,
elevators, plumbing and sewage systems; janitorial service; landscaping,
gardening, and tree trimming; glazing; repair, maintenance, cleaning, sweeping,
striping, and resurfacing of

 

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the parking area; exterior Building lighting and parking lot lighting; supplies,
materials, equipment and tools in the maintenance of the Premises; costs for
accounting services incurred in the calculation of Operating Expenses and Taxes
as defined herein; and the cost of any other capital expenditures for any
improvements or changes to the Building which are required by laws, ordinances,
or other governmental regulations adopted after the Commencement Date, or for
any items or capital expenditures voluntarily made by Lessor which are intended
to and have the effect of reducing Operating Expenses; provided, however, that
except for capital improvements required because of Lessee’s specific use of the
Premises, if Lessor is required to or voluntarily makes such capital
improvements, Lessor shall amortize the cost of said improvements over the
useful life of said improvements (together with interest on the unamortized
balance at the rate equal to the effective rate of interest on Lessor’s bank
line of credit at the time of completion of said improvements, but in no event
in excess of twelve percent (12%) per annum) as an Operating Expense in
accordance with generally accepted accounting principles, except that with
respect to capital improvements made to save Operating Expenses such
amortization shall not be at a rate greater than the actual savings in Operating
Expenses.  Operating Expenses shall also include any other expense or charge,
whether or not described herein not specifically excluded by other provisions of
this Lease, which in accordance with generally accepted accounting principles
would be considered an expense of managing, operating, maintaining, and
repairing the Premises.

 

(c)                                  Real property taxes and assessments upon
the Premises, during each lease year or partial lease year during the term of
this Lease are referred to herein as “Taxes.”

 

As used herein, “Taxes” shall mean:

 

(1)                                  all real estate taxes, assessments and any
other taxes levied or assessed against the Premises including the Land, the
Building, and all improvements located thereon, including any increase in Taxes
resulting from a reassessment following any transfer of ownership of the
Premises or any interest therein or following any improvements to the Premises
after the Commencement Date; and

 

(2)                                  all other taxes which may be levied in lieu
of real estate taxes, assessments, and other fees, charges, and levies, general
and special, ordinary and extraordinary, unforeseen as well as foreseen, of any
kind and nature by any authority having the direct or indirect power to tax,
including without limitation any governmental authority or any improvement or
other district or division thereof, for public improvements, services, or
benefits which are assessed, levied, confirmed, imposed, or become a lien (i)
upon the Premises, and/or any legal or equitable interest of Lessor in any part
thereof; or (ii) upon this transaction or any document to which Lessee is a
party creating or transferring any interest in the Premises; and (iii) any tax
or excise, however described, imposed in addition to, or in substitution
partially or totally of, any tax previously included within the definition of
“Taxes” or any tax the nature of which was previously included in the definition
“Taxes.”

 

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Not included within the definition of “Taxes” are any net income, profits,
transfer, franchise, estate or inheritance taxes imposed by any governmental
authority.  “Taxes” also shall not include penalties or interest charges
assessed on delinquent Taxes so long as Lessee is not in default in the payment
of Monthly Base Rent or Additional Rent.

 

With respect to any assessments which may be levied against or upon the
Premises, or the Land, which under the laws then in force may be evidenced by
improvement or other bonds, or may be paid in annual installments, only the
amount of such annual installment (with appropriate proration of any partial
year) and statutory interest shall be included within the computation of the
annual Taxes levied against the Premises, the Building and Improvements thereon,
and the Land.

 

(d)                                 The following costs (“Costs”) shall be
excluded from the definition of Operating Expenses:

 

(1)                                  Costs occasioned by the act, omission or
violation of law by Lessor, or its respective agents, employees or contractors;

 

(2)                                  Costs for which Lessor receives
reimbursement from others, including reimbursement from insurance;

 

(3)                                  Interest, charges and fees incurred on debt
or payments on any deed of trust or ground lease on the Premises;

 

(4)                                  Advertising or promotional costs or other
costs incurred by Lessor in procuring tenants for the Premises or other portions
of Menlo Business Park;

 

(5)                                  Costs incurred in repairing, maintaining or
replacing any structural elements of the Building for which Lessor is
responsible pursuant to Paragraph 14(a) hereof;

 

(6)                                  Any wages, bonuses or other compensation of
employees above the grade of building manager and any executive salary of any
officer or employee of Lessor, including fringe benefits other than insurance
plans and tax-qualified benefit plans, or any fee, profit or compensation
retained by Lessor or its affiliates for management and administration of the
Premises in excess of the management fee referred to in Paragraph 5(b) of this
Lease;

 

(7)                                  General office overhead and general and
administrative expenses of Lessor, except as specifically provided in Paragraph
5(b); and

 

(8)                                  Leasing expenses and broker commissions
payable by Lessor.

 

Lessor shall at all times use its best efforts to operate the Premises in an
economically reasonable manner at costs not disproportionately higher than those

 

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experienced by other comparable premises in the market area in which the
Premises are located (Menlo Park).

 

(e)                                  At the Commencement Date, and as close as
reasonably possible to the end of each calendar year thereafter, Lessor shall
notify Lessee of the Operating Expenses estimated by Lessor for the calendar
year 2003, and for each following calendar year.  Concurrent with such notice,
Lessor shall provide a description of such Operating Expenses and Taxes. 
Commencing on the Commencement Date, and on the first (1st) day of each calendar
month thereafter, Lessee shall pay to Lessor, as Additional Rent, one-twelfth
(1/12th) of the estimated Operating Expenses and Taxes.  If at any time during
any such calendar year, it appears to Lessor that the Operating Expenses or
Taxes for such year will vary from Lessor’s estimate, Lessor may, by written
notice to Lessee, revise Lessor’s estimate for such year and the Additional Rent
and Taxes payments by Lessee for such year shall thereafter be based upon such
revised estimate.  Lessor shall furnish to Lessee with such revised estimate
written verification showing that the actual Operating Expenses or Taxes are
greater than Lessor’s estimate.  The increase in the monthly installments of
Additional Rent and Taxes resulting from Lessor’s revised estimate shall not be
retroactive, but the Additional Rent and Taxes for each calendar year shall be
subject to adjustment between Lessor and Lessee after the close of the calendar
year, as provided below.

 

Within approximately ninety (90) days after the expiration of each calendar year
of the term, Lessor shall furnish Lessee a statement certified by a responsible
employee or agent of Lessor (the “Operating Statement”) with respect to such
year, prepared by an employee or agent of Lessor, showing Operating Expenses and
Taxes broken down by component expenses, Base Taxes and Base Operating Expenses
of the Premises broken down by component expenses, and the total payments made
by Lessee on the basis of any previous estimate of such Operating Expenses and
Taxes, all in sufficient detail for verification by Lessee.  Unless Lessee
raises any objections to the Operating Statement within ninety (90) days after
receipt of the same, such statement shall conclusively be deemed correct and
Lessee shall have no right thereafter to dispute such statement or any item
therein or the computation of Operating Expenses and/or Taxes.  Lessee or its
accountants shall have the right to inspect and audit Lessor’s books and records
with respect to this Lease once each Lease Year to verify actual Operating
Expenses and/or Taxes.  Lessor’s books and records shall be kept in accord with
generally accepted accounting principles.  If Lessee’s audit of the Operating
Expenses and/or Taxes for any year reveals a net overcharge of more than five
percent (5%), Lessor promptly shall reimburse Lessee for the cost of the audit;
otherwise, Lessee shall bear the cost of Lessee’s audit.  If Lessee objects to
Lessor’s Operating Statement, Lessee shall continue to pay on a monthly basis
the Operating Expenses and/or Taxes based upon the prior year’s Operating
Statement until the dispute is resolved.

 

If the Operating Expenses and Taxes for the year as finally determined exceeds
the total payments made by Lessee based on Lessor’s estimates, Lessee shall pay
to Lessor the deficiency, within thirty (30) days after the receipt of Lessor’s
Operating

 

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Statement.  If the total payments made by Lessee based on Lessor’s estimate of
the Operating Expenses and/or Taxes exceed the Operating Expenses and/or Taxes,
Lessee’s extra payment, plus the cost of the audit if charged to Lessor, shall
be credited against payments of Monthly Base Rent and Additional Rent next due
hereunder.

 

Notwithstanding the termination of this Lease, within thirty (30) days after
Lessee’s receipt of Lessor’s Operating Statement or the completion of Lessee’s
audit regarding the Operating Expenses and/or Taxes for the calendar year in
which this Lease terminates, Lessee shall pay to Lessor or shall receive from
Lessor, as the case may be, an amount equal to the difference between the
Operating Expenses and/or Taxes for such year, as finally determined, and the
amount previously paid by Lessee on account thereof (prorated to the expiration
date or the termination date of this Lease).

 

6.                                       Payment of Rent.

 

(a)                                  All rent shall be due and payable in lawful
money of the United States of America at the address of Lessor set forth in
Paragraph 24, “Notices,” without deduction or offset and without prior demand or
notice, unless otherwise specified herein.  Monthly Base Rent and Additional
Rent shall be payable monthly, in advance, on the first day of each calendar
month.  Lessee’s obligation to pay rent for any partial month at the
commencement of the initial term, for the partial month immediately prior to the
Rental Adjustment Date (if the Rental Adjustment Date is other than the first
day of the calendar month), and for any partial month at the expiration or
termination of the lease term shall be prorated on the basis of a thirty (30)
day month.

 

(b)                                 If any installment of Monthly Base Rent,
Additional Rent or any other sum due from Lessee is not received by Lessor
within five (5) days after the same is due, Lessee shall pay to Lessor an
additional sum equal to five percent (5%) of the amount overdue as a late
charge.  The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Lessor will incur by reason of the late
payment by Lessee.  Acceptance of any late charge shall not constitute a waiver
of Lessee’s default with respect to the overdue amount.  Any amount not paid
within ten (10) days after Lessee’s receipt of written notice that such amount
is due shall bear interest from the date due until paid at the lesser rate of
(1) the prime rate of interest as published in the “Wall Street Journal,” plus
five percent (5%) or (2) the maximum rate allowed by law (the “Interest Rate”),
in addition to the late payment charge.

 

Initials:  Lessor                   Lessee

 

7.                                       Security Deposit.

 

(a)                                  Lessee shall deposit with Lessor upon
execution hereof the sum of Thirty-four Thousand Two Hundred Fifty-nine and
Fifty-eight Hundredths Dollars ($34,259.58) (the “Security Deposit”), as
security for Lessee’s faithful performance of Lessee’s obligations under this
Lease.  If Lessee fails to pay Monthly Base Rent or

 

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Additional Rent or charges due hereunder, or otherwise defaults under this Lease
(as defined in Paragraph 22), Lessor may use, apply or retain all or any portion
of said Security Deposit to the extent reasonably necessary to cure the default,
for the payment of any amount due Lessor, and to reimburse or compensate Lessor
for any liability, cost, expense, loss or damage (including attorneys’ fees)
which Lessor may suffer or incur by reason thereof.  If Lessor uses or applies
all or any portion of the Security Deposit, Lessee shall within ten (10) days
after written request therefor deposit moneys with Lessor sufficient to restore
the Security Deposit to the original amount required by this Lease.  Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts.

 

(b)                                 Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor’s option, to the last assignee, if any, of Lessee’s
interest herein), that portion of the Security Deposit not used or applied by
Lessor, provided that there is then no uncured event of default by Lessee
hereunder and there is then no unsatisfied claim by Lessor against Lessee for
damages in the event this Lease has been terminated.  No part of the Security
Deposit shall be considered to be held in trust, to bear interest or other
increment for its use, or to be prepayment for any moneys to be paid by Lessee
under this Lease.

 

8.                                       Use.  Lessee shall use and occupy the
Premises for general office uses, bio-pharmaceutical research and development
and manufacturing, warehousing, and for such other uses which are permitted by
applicable zoning ordinances and the covenants, conditions, and restrictions for
Menlo Business Park and which are reasonably approved by Lessor in writing, and
for no other use or purpose without Lessor’s prior written consent.  Use of the
Premises for the manufacture of integrated circuits or the manufacture of other
electronic components is expressly prohibited.  Any use of the Premises by
Lessee or by any sublessee or assignee approved by Lessor pursuant to Paragraph
17 shall comply with the provisions of this Paragraph 8.

 

9.                                       Hazardous Materials.

 

(a)                                  The term “Hazardous Materials” as used in
this Lease shall include any substance defined as a “hazardous substance,”
“toxic substance,” “industrial process waste,” or “special waste” in any
Environmental Laws as hereafter defined. Hazardous Materials shall include, but
not be limited to, petroleum, gasoline, natural gas, natural gas liquids,
liquified natural gas, synthetic gas, and/or crude oil or any products,
by-products or fractions thereof.

 

(b)                                 Lessor represents and warrants that to the
best of John C. Tarlton’s current actual knowledge as of the date of this Lease
(i) no Hazardous Materials are currently present in the Building or at the
Premises or the soil, surface water, or groundwater thereof, (ii) no underground
storage tanks are present at the Premises, and (iii) no action, proceeding or
claim is pending or threatened regarding the Building or the Premises concerning
any Hazardous Materials or pursuant to any Environmental Law. 

 

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Lessor further represents and warrants that Lessor has delivered to Lessee prior
to the date of this Lease true, correct and complete copies of all studies,
audits, reports, investigations, inspections, and correspondence in Lessor’s
possession regarding the presence or absence of Hazardous Materials in, on,
under or about the Premises or the Building and/or the compliance or
non-compliance of the Premises or the Building with Environmental Laws.

 

(c)                                  Lessee shall not engage in any activity in
or on the Premises which constitutes a Reportable Use of Hazardous Materials
without the express prior written consent of Lessor and timely compliance (at
Lessee’s expense) with all Environmental Laws.  “Reportable Use” shall mean (i)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of Hazardous
Materials that require a permit from, or with respect to which a report, notice,
registration or business plan is required to be filed with, any governmental
authority, and/or (iii) the presence at the Premises of Hazardous Materials with
respect to which any Environmental Law requires that a notice be given to
persons entering or occupying the Premises or neighboring properties. 
Notwithstanding the foregoing, Lessee may use any ordinary and customary
materials reasonably required to be used in the normal course of Lessee’s agreed
use of the Premises, so long as such use is in compliance with all Environmental
Laws, is not a Reportable Use, and does not expose the Premises or neighboring
property to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor.  In addition, Lessor may condition its consent to any
Reportable Use upon receiving such additional assurances as Lessor reasonably
deems necessary to protect itself, the public, the Premises and/or the
environment against damage, contamination, injury and/or liability, including,
but not limited to, the installation (and removal on or before Lease expiration
or termination) of protective modifications (such as concrete encasements)
and/or increasing the Security Deposit.

 

(d)                                 “Environmental Laws” shall mean and include
any Federal, State, or local statute, law, ordinance, code, rule, regulation,
order, or decree regulating, relating to, or imposing liability or standards of
conduct concerning, any hazardous, toxic, or dangerous waste, substance,
element, compound, mixture or material, as now or at any time hereafter in
effect including, without limitation, California Health and Safety Code §§25100
et seq., §§25300 et seq., Sections 25281(f) and 25501 of the California Health
and Safety Code, Section 13050 of the Water Code, the Federal Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
§§9601 et seq. (“CERCLA”), the Superfund Amendments and Reauthorization Act, 42
U.S.C. §§9601 et seq., the Federal Toxic Substances Control Act, 15 U.S.C.
§§2601 et seq., the Federal Resource Conservation and Recovery Act as amended,
42 U.S.C. §§6901 et seq., the Federal Hazardous Material Transportation Act, 49
U.S.C. §§1801 et seq., the Federal Clean Air Act, 42 U.S.C. §7401 et seq., the
Federal Water Pollution Control Act, 33 U.S.C. §1251 et seq., the River and
Harbors Act of 1899, 33 U.S.C. §§401 et seq., and all rules and regulations of
the EPA, the California Environmental Protection Agency, or any other state or
federal department, board or any other agency or governmental board or entity
having

 

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jurisdiction over the environment, as any of the foregoing have been, or are
hereafter amended.

 

(e)                                  If Lessee knows, or has reasonable cause to
believe, that Hazardous Materials have come to be located in, on, under or about
the Premises, other than as previously consented to by Lessor, Lessee shall
immediately give written notice of such fact to Lessor and provide Lessor with a
copy of any report, notice, claim or other documentation which it has concerning
the presence of such Hazardous Materials.

 

(f)                                    Lessee and Lessee’s agents, employees,
and contractors shall not cause any Hazardous Materials to be discharged into
the plumbing or sewage system of the Building or into or onto the Land
underlying or adjacent to the Building in violation of any Environmental Laws. 
Lessee shall promptly, at Lessee’s expense, take all investigatory and/or
remedial action reasonably recommended, whether or not formally ordered or
required, for the cleanup of any contamination caused by Lessee or caused by any
of Lessee’s employees, agents, or contractors, and for the maintenance, security
and/or monitoring of the Premises or neighboring properties if such
contamination is caused by a release or emission of any Hazardous Materials by
Lessee or by any of Lessee’s employees, agents, or contractors.

 

(g)                                 Lessee shall indemnify, defend and hold
Lessor harmless from any and all claims, damages, fines, judgments, penalties,
costs, liabilities or losses (including, without limitation, any and all sums
paid for settlement of claims, attorneys’ fees, consultant and expert fees)
arising during or after the term (as such may be extended) from or in connection
with the presence of Hazardous Materials in or on the Premises, the Building or
Menlo Business Park as a result of Lessee’s breach of the foregoing covenant, or
as a result of the negligence, willful misconduct or other acts of Lessee,
Lessee’s employees, agents, contractors or invitees.  Without limitation of the
foregoing, this indemnification shall include any and all costs incurred due to
any investigation of the site or any cleanup, removal or restoration mandated by
a federal, state or local agency or political subdivision.  The foregoing
indemnity shall survive the expiration or earlier termination of this Lease.

 

(h)                                 Lessor shall indemnify, defend and hold
Lessee harmless from any and all claims, damages, fines, judgments, penalties,
costs, liabilities or losses (including, without limitation, any and all sums
paid for settlement of claims, attorneys’ fees, consultant and expert fees)
arising before, during or after the term (as such may be extended) from or in
connection with the presence of Hazardous Materials in or on the Premises, the
Building or Menlo Business Park, unless the (1) Hazardous Materials are present
in whole or in part as a result of the breach of this Lease by Lessee, or the
negligence, willful misconduct, or other acts of Lessee, Lessee’s employees,
agents, contractors or invitees; or (2) such Hazardous Materials have flowed,
diffused, migrated, or percolated into, onto, or under the Premises, the
Building, or Menlo Business Park from other property after the Commencement
Date.  Without limitation of the foregoing, this indemnification shall include
any and all costs incurred due to any investigation of the site

 

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or any cleanup, removal or restoration mandated by a federal, state or local
agency or political subdivision, except to the extent the Hazardous Materials
are present as a result of the negligence, willful misconduct or other acts of
Lessee, Lessee’s agents, employees, contractors or invitees. The foregoing
indemnity shall survive the expiration or earlier termination of this Lease.

 

10.                                 Taxes on Lessee’s Property.  Lessee shall
pay before delinquency any and all taxes, assessments, license fees, and public
charges levied, assessed, or imposed and which become payable during the initial
lease term and any extension thereof upon Lessee’s equipment, fixtures,
furniture, and personal property installed or located in the Premises.

 

11.                                 Insurance.

 

(a)                                  Lessee shall, at Lessee’s sole cost and
expense, provide and keep in force commencing with the Commencement Date of the
initial lease term and continuing during the initial lease term and the option
extension period if exercised, a general commercial liability insurance policy
with a recognized casualty insurance company qualified to do business in
California, insuring against any and all liability occasioned by any occurrence
in, on, about, or related to the Premises, or arising out of the condition, use,
occupancy, alteration or maintenance of the Premises, and covering the
contractual liability referred to in Paragraph 12(a) of this Lease, having a
combined single limit for both bodily injury and property damage in an amount
not less than Five Million Dollars ($5,000,000).  All such insurance carried by
Lessee shall be in a form reasonably satisfactory to Lessor and its mortgage
lender and shall be carried with companies that have a general policyholder’s
rating of not less than “A” and a financial rating of not less than Class “X” in
the most current edition of Best’s Insurance Reports; shall provide that such
policies shall not be subject to material alteration or cancellation except
after at least thirty (30) days’ prior written notice to Lessor; and shall be
primary as to Lessor.  Prior to the Commencement Date and upon renewal of such
policies not less than fifteen (15) days prior to the expiration of the term of
such coverage, Lessee shall deliver to Lessor certificates of insurance
confirming such coverage, together with evidence of the payment of the premium
therefor, naming Lessor and Lessor’s property manager as additional insureds. 
If Lessee fails to procure and maintain the insurance required hereunder, Lessor
may, but shall not be required to, order such insurance at Lessee’s expense and
Lessee shall reimburse Lessor for all costs incurred by Lessor with respect
thereto.  Lessee’s reimbursement to Lessor for such amounts shall be deemed
Additional Rent, and shall include all sums disbursed, incurred or deposited by
Lessor, including Lessor’s costs, expenses and reasonable attorneys’ fees with
interest thereon at the Interest Rate.

 

(b)                                 Lessor shall obtain and carry in Lessor’s
name, as insured, as an Operating Expense of the Premises as provided in
Paragraph 5(b), during the lease term, “all risk” property insurance coverage
(with rental loss insurance coverage for a period of one year), flood insurance,
public liability and property damage insurance, and insurance against such other
risks or casualties as Lessor shall determine, including, but not limited to,
insurance coverages required of Lessor by the beneficiary of any deed of trust
which

 

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encumbers the Property, including earthquake insurance coverage insuring
Lessor’s interest in the Premises (including the Tenant Improvement Work
performed pursuant to Paragraph 13 and any other leasehold improvements to the
Premises constructed by Lessor or by Lessee with Lessor’s prior written
approval) in an amount not less than the full replacement cost of the Building
and all other Improvements from time to time.  The proceeds of any such
insurance shall be payable solely to Lessor and Lessee shall have no right or
interest therein.  Lessor shall have no obligation to insure against loss by
Lessee to Lessee’s leasehold improvements installed at Lessee’s expense, or
Lessee’s equipment, fixtures, furniture, or other personal property of Lessee in
or about the Premises occurring from any cause whatsoever.  Lessor’s public
liability insurance shall provide for contractual liability referred to in
Paragraph 12(b) of this Lease.

 

(c)                                  Notwithstanding anything to the contrary
contained in this Lease, the parties release each other, and their respective
authorized representatives, employees, officers, directors, shareholders,
managers, members, assignees, subtenants, and property managers, from any claims
for damage to any person or to the Premises and to the fixtures, personal
property, leasehold improvements and alterations of either Lessor or Lessee in
or on the Premises that are caused by or result from risks required by this
Lease to be insured against or actually insured against under any property
insurance policies carried by the parties and in force at the time of any such
damage, whichever is greater. This waiver applies whether or not the loss is due
to the negligent acts or omissions of Lessor or Lessee or their respective
officers, directors, employees, agents, contractors, or invitees.

 

(d)                                 Each party shall cause each property
insurance policy obtained by it to provide that the insurance company waives all
right of recovery by way of subrogation against either party in connection with
the above waiver and any damage covered by any policy; provided, however, that
such provision or endorsement shall not be required if the applicable policy of
insurance permits the named insured to waive rights of subrogation on a blanket
basis, in which case the blanket waiver shall be acceptable.  Neither party
shall be liable to the other for any damage caused by fire or any of the risks
insured against under any insurance policy required by this Lease.

 

12.                                 Indemnification.

 

(a)                                  Lessee waives all claims against Lessor for
damages to property, or to goods, wares, and merchandise stored in, upon, or
about the Premises, and for injuries to persons in, upon, or about the Premises
from any cause arising at any time, except as may be caused by the negligence or
willful misconduct of Lessor or its employees, agents or contractors.  Lessee
shall indemnify, defend, and hold harmless Lessor from claims, suits, actions,
or liabilities for personal injury, death or for loss or damage to property that
arise from (1) any activity, work, or thing done or permitted by Lessee in or
about the Premises, (2) for bodily injury or damage to property which arises in
or about the Land, the Building, or the Improvements to the extent the injury or
damage to property results from the negligent acts or omissions of Lessee, its
employees, agents or contractors, and (3)

 

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based on any event of default by Lessee in the performance of any obligation on
Lessee’s part to be performed under this Lease.

 

(b)                                 Lessor shall indemnify, defend, and hold
harmless Lessee from claims, suits, actions, or liabilities for personal injury,
death or for loss or damage to property that arise from (1) any activity, work,
or thing done, permitted or suffered by Lessor in or about the Premises, (2) for
bodily injury or damage to property which arises in or about the Land, the
Building or the Improvements to the extent the injury or damage to property
results from the negligent acts or omissions of Lessor, its employees, agents or
contractors, and (3) based on any breach or default by Lessor in the performance
of any obligation on Lessor’s part to be performed under this Lease.

 

(c)                                  In the absence of comparative or concurrent
negligence on the part of Lessee or Lessor, their respective agents, affiliates,
and subsidiaries, or their respective officers, directors, members, employees or
contractors, the foregoing indemnities by Lessee and Lessor shall also include
reasonable costs, expenses and attorneys’ fees incurred in connection with any
indemnified claim or incurred by the indemnitee in successfully establishing the
right to indemnity.  The indemnitor shall have the right to assume the defense
of any claim subject to the foregoing indemnities with counsel reasonably
satisfactory to the indemnitee.  The indemnitee agrees to cooperate fully with
the indemnitor and its counsel in any matter where the indemnitor elects to
defend, provided the indemnitor shall promptly reimburse the indemnitee for
reasonable costs and expenses incurred in connection with its duty to cooperate.

 

The foregoing indemnities are conditioned upon the indemnitee providing prompt
notice to the indemnitor of any claim or occurrence that is likely to give rise
to a claim, suit, action or liability that will fall within the scope of the
foregoing indemnities, along with sufficient details that will enable the
indemnitor to make a reasonable investigation of the claim.

 

When the claim is caused by the joint negligence or willful misconduct of Lessee
and Lessor or by the indemnitor party and a third party unrelated to the
indemnitor party (except indemnitor’s agents, officers, employees or invitees),
the indemnitor’s duty to indemnify and defend shall be proportionate to the
indemnitor’s allocable share of joint negligence or willful misconduct.

 

(d)                                 Lessor shall not be liable to Lessee for any
damage because of any act or negligence of any other owner or occupant of
adjoining or contiguous property, nor for overflow, breakage, or leakage of
water, steam, gas, or electricity from pipes, wires, or otherwise in the
Premises or the Building, except to the extent caused by negligence or willful
misconduct of Lessor or Lessor’s employees, agents, or contractors.  Except as
otherwise herein provided, Lessee will pay for damage to the

 

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Premises caused by the misuse or neglect of the Premises by Lessee or its
employees, agents, or contractors, including, but not limited to, the breakage
of glass in the Premises.  Any damage to the Premises caused by other tenants of
Menlo Business Park shall be paid for by such other tenants or by Lessor.

 

13.                                 Tenant Improvement Work.

 

(a)                                  Lessor shall provide Lessee with a tenant
improvement allowance of Two Hundred Fifty-Three Thousand Six Hundred Sixty
Dollars ($253,660) ($10.00 per rentable square foot) (the “Tenant Improvement
Allowance”) to defray a portion of the cost of the improvements to the Premises
which shall be mutually approved in writing by Lessor and Lessee (“Tenant
Improvement Work”).  The entire cost of the Tenant Improvement Work in excess of
the Tenant Improvement Allowance, if any, shall be paid by Lessee.  The cost of
obtaining approval by of the City of Menlo Park of a merger of the Building #5
Land (1330 O’Brien Drive) and the Building #6 Land (1360 O’Brien Drive) occupied
by Lessee pursuant to the existing Lease dated February 4, 2000 between Lessor
and Lessee, and the cost of connecting Building #5 and Building #6 pursuant to
plans approved by Lessor and Lessee shall be included in the cost of the Tenant
Improvement Work.  Subject to Lessor’s prior written approval of the plans and
specifications for the Tenant Improvement Work for both Building #5 and Building
#6, Lessee may combine the Tenant Improvement Allowance for the Premises
(Building #5) and the Tenant Improvement Allowance for 1360 O’Brien Drive
(Building #6) and apply the combined Tenant Improvement Allowance to either
Building #5 or Building #6 in its entirety, provided that Lessor shall not be
obligated to approve the plans and specifications for any of such Tenant
Improvement Work if, in Lessor’s judgment, such plans and specifications provide
for the performance of any of such Tenant Improvement Work in a manner that
could adversely affect the leasing of either Building #5 or Building #6 to a
future tenant.

 

(b)                                 Lessor shall enter into a contract with a
licensed general contractor for the construction of the Tenant Improvement
Work.  The general contractor shall be selected jointly by Lessor and Lessee
from a list of approved contractors prepared by the Lessor.  The Tenant
Improvement Work shall be performed pursuant to the plans and specifications
approved in writing by Lessor and Lessee.

 

(c)                                  The Tenant Improvement Work shall be
constructed under the direct supervision of Tarlton Properties, Inc., as
construction manager, at a fee of five percent (5%) of hard construction costs
(i.e., the amounts paid to the general contractor, subcontractors, vendors, and
suppliers for labor and materials for the construction of the Tenant
Improvements) as a cost of the Tenant Improvement Work.  The general contractor
shall perform the work pursuant to a negotiated fixed fee guaranteed maximum
price contract.  The work shall be performed on an “open book” basis with a
post-job audit of all costs by a representative from both Lessee and Tarlton
Properties, Inc.

 

(d)                                 Lessor shall deliver the Premises to Lessee
on the Commencement Date with all Building systems and subsystems in good
working condition.

 

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(e)                                  Subject to completion of the Tenant
Improvement Work, Lessee waives all right to make repairs at the expense of
Lessor, or to deduct the costs thereof from the rent, and Lessee waives all
rights under Section 1941 and 1942 of the Civil Code of the State of
California.  At the termination of this Lease, Lessee shall surrender the
Premises in a clean and good condition, except for ordinary wear and tear and
except for damage caused by casualty, the elements, acts of God, a taking by
eminent domain, alterations or other improvements made by Lessee with Lessor’s
prior written consent which Lessee is not required to remove as a condition to
Lessor’s approval of such alterations or improvements.

 

14.                                 Maintenance and Repairs; Alterations;
Surrender and Restoration.

 

(a)                                  Lessor shall, at Lessor’s sole expense,
keep in good order, condition, and repair and replace when necessary, the
structural elements of the roof (excluding the roof membrane), and the
structural elements of the foundation and exterior walls (except the interior
faces thereof), of the Building, and other structural elements of the Building
and the Premises as “structural elements” are defined in building codes
applicable to the Building, excluding any alterations, structural or otherwise,
made by Lessee to the Building which are not approved in writing by Lessor prior
to the construction or installation thereof by Lessee.  Lessor shall perform and
construct, and Lessee shall not be responsible for performing or constructing,
any repairs, maintenance, or improvements (1) required as a result of any
casualty damage (not caused by the willful or negligent acts or omissions of
Lessee) or as a result of any taking pursuant to the exercise of the power of
eminent domain, or (2) for which Lessor has a right of reimbursement from third
parties based on construction or other warranties, contractor guarantees, or
insurance claims.

 

(b)                                 Lessor shall provide or cause to be provided
and shall supervise the performance of, as an Operating Expense of the Premises
pursuant to Paragraph 5(b) hereof, all services and work relating to the
operation, maintenance, repair, and replacement, as needed, of the Premises,
including the HVAC, mechanical, electrical, and plumbing systems in the
Building; the interior of the Building; the roof membrane; the outside areas of
the Premises; the janitorial service for the Building; landscaping, tree
trimming, resurfacing and restriping of the parking lot, repairing and
maintaining the walkways; exterior building painting, exterior building
lighting, parking lot lighting, and exterior security patrol.  In the event
Lessee provides Lessor with written notice of the need for any repairs, Lessor
shall commence any such repairs promptly following receipt by Lessor of such
notice and Lessor shall diligently prosecute such repairs to completion. 
Notwithstanding the foregoing, Lessee shall have the option, at its discretion,
to operate, maintain, and repair, as needed, the HVAC systems in the Building
and to provide janitorial services to the Premises, all at its expense and under
its discretion.  Lessee shall engage contractors for the maintenance, repair and
replacement of the HVAC systems from a list of not less than three contractors
that shall have been reasonably approved by Lessor.

 

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(c)                                  Subject to the foregoing and except as
provided elsewhere in this Lease, Lessee shall at all times use and occupy the
Premises in a manner which keeps the Premises in good and safe order, condition,
and repair.  Lessor shall execute and maintain in full force and effect
throughout the term as an Operating Expense of the Premises pursuant to
Paragraph 5(b) a service contract with a recognized air conditioning service
company.  Lessor may, if Lessor determines that it is necessary to do so, obtain
on a semi-annual basis an inspection report of the HVAC system from a separate
HVAC service firm designated by Lessor for the purpose of monitoring the
performance of the HVAC maintenance and repair work performed by the HVAC
service firm which performs the regular repair and maintenance.  The cost of
such inspection report shall be an Operating Expense pursuant to Paragraph 5. 
Subject to the release of claims and waiver of subrogation contained in
Paragraphs 11(c) and 11(d), if Lessor is required to make any repairs to the
Premises by reason of Lessee’s negligent acts or omissions, Lessor may add the
cost of such repairs to the next installment of rent which shall thereafter
become due, and Lessee shall promptly pay the same upon receipt of an invoice
therefor.

 

(d)                                 Lessee may, from time to time, at its own
cost and expense and without the consent of Lessor make nonstructural
alterations to the interior of the Premises the cost of which in any one
instance is Ten Thousand Dollars ($10,000) or less, and the aggregate cost of
all such work during the term of this Lease does not exceed Fifty Thousand
Dollars ($50,000), provided Lessee first notifies Lessor in writing of any such
nonstructural alterations.  Otherwise, Lessee shall not make any additional
alterations, improvements, or additions to the Premises without delivering to
Lessor a complete set of plans and specifications for such work and obtaining
Lessor’s prior written consent thereto.  If any nonstructural alterations to the
interior of the Premises exceed Ten Thousand Dollars ($10,000) in cost in any
one instance, or exceed the aggregate cost of Fifty Thousand Dollars ($50,000)
during the term of this Lease, Lessee shall employ, at Lessee’s expense, Tarlton
Properties, Inc. as construction manager for such alterations at a fee equal to
five percent (5%) of hard construction costs.  Lessor may condition its consent
to Lessee agreeing in writing to remove any such alterations prior to the
expiration of the lease term and Lessee agreeing to restore the Premises to its
condition prior to such alterations at Lessee’s expense.  Lessor shall advise
Lessee in writing at the time consent is granted whether Lessor reserves the
right to require Lessee to remove any alterations from the Premises prior to the
termination of this Lease.

 

All alterations, trade fixtures and personal property installed in the Premises
solely at Lessee’s expense (“Lessee’s Property) shall during the term of this
Lease remain Lessee’s property and Lessee shall be entitled to all depreciation,
amortization and other tax benefits with respect thereto.  Upon the expiration
or sooner termination of this Lease all alterations, fixtures and improvements
to the Premises, whether made by Lessor or installed by Lessee at Lessee’s
expense, shall be surrendered by Lessee with the Premises and shall become the
property of Lessor.

 

(e)                                  Lessee, at Lessee’s sole cost and expense,
shall promptly and properly observe and comply with all present and future
orders, regulations, rules, laws,

 

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and ordinances of all governmental agencies or authorities, and the Board of
Fire Underwriters.  Any structural changes or repairs or other repairs or
changes of any nature which would be considered a capital expenditure under
generally accepted accounting principles to the Premises shall be made by Lessor
at Lessee’s expense if such structural repairs or changes are required by reason
of the specific nature of the use of the Premises by Lessee.  If such structural
changes or repairs are not required by reason of the specific nature of Lessee’s
use of the Premises, the cost of such structural changes or repairs shall be
treated as an Operating Expense and amortized in accordance with the provisions
of Paragraph 5(b).

 

(f)                                    Lessee shall surrender the Premises by
the last day of the lease term or any earlier termination date in accordance
with Paragraph 13(h) and this Paragraph 14(f), with all of the improvements to
the Premises, parts, and surfaces thereof clean and free of debris and in good
operating order, condition, and state of repair, ordinary wear and tear
excepted.  “Ordinary wear and tear” shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease.  The obligations of
Lessee shall include the repair of any damage occasioned by the installation,
maintenance, or removal of Lessee’s trade fixtures, furnishings, equipment, and
alterations, and the restoration by Lessee of the Premises to its condition upon
completion of the Tenant Improvement Work (1) if Lessor’s consent thereto was
conditioned upon such removal and restoration upon expiration or sooner
termination of the Lease term pursuant to Paragraph 14(d), or (2) if Lessee made
any such alterations, additions, or improvements without obtaining Lessor’s
prior written consent in breach of Paragraph 14(d) and within a reasonable time
after the expiration or sooner termination of the Lease term Lessor gives
written notice to Lessee requiring Lessee to perform such removal and
restoration.  Prior to the expiration of the term of the this Lease or any
earlier termination date, Lessee shall, at Lessee’s expense, obtain a closure
report from the San Mateo County Health Department with respect to any Hazardous
Materials used, stored, or released by Lessee on or about the Premises.  Any
removal and remediation of Hazardous Materials by Lessee shall be certified by
the San Mateo County Health Department and a copy of such certification shall be
delivered to Lessor.

 

15.                                 Utilities and Services.

 

(a)                                  Lessor shall contract for and pay for, and
Lessee shall reimburse Lessor therefor pursuant to Paragraph 5(e) as an
Operating Expense, all electricity, gas, water, heat and air conditioning
service, janitorial service, refuse pick-up, sewer charges, and all other
utilities or services supplied to or consumed by Lessee, its agents, employees,
contractors, and invitees on or about the Premises, excluding telephone service
to the Building for which Lessee shall contract and pay directly.  Furthermore,
Lessee shall have the option to contract directly for janitorial services to the
Premises pursuant to Paragraph 14(b).

 

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(b)                                 Lessor shall not be liable to Lessee for any
interruption or failure of any utility services to the Building or the Premises
which is not caused by the negligence or willful acts of Lessor, or Lessor’s
employees, agents, or contractors. Lessee shall not be relieved from the
performance of any covenant or agreement in this Lease because of any such
failure.  Unless such failure is caused by the negligence or willful acts or
omissions of Lessor or Lessor’s employees, agents, or contractors, or by
Lessor’s breach in the performance of Lessor’s express obligations hereunder,
Lessor shall make all repairs to the Premises required to restore such services
to the Premises and the cost thereof shall be payable by Lessee pursuant to
Paragraph 5(e) as a current Operating Expense, or as a capital improvement which
is amortized over its useful life (together with interest thereon) as an
Operating Expense in accordance with generally accepted accounting principles as
described in Paragraph 5(b).

 

16.                                 Liens.  Lessee agrees to keep the Premises
free from all liens arising out of any work performed, materials furnished, or
obligations incurred by Lessee.  Lessee shall give Lessor at least ten (10) days
prior written notice before commencing any work of improvement on the Premises,
the contract price for which exceeds Ten Thousand Dollars ($10,000).  Lessor
shall have the right to post notices of non-responsibility with respect to any
such work.  If Lessee shall, in good faith, contest the validity of any such
lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same, and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises.  If Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in
an amount equal to one and one-half times the amount of such contested claim or
demand, indemnifying Lessor against liability for the same, as required by law
for the holding of the Premises free from the effect of such lien or claim.

 

17.                                 Assignment and Subletting.

 

(a)                                  Except as otherwise provided in this
Paragraph 17, Lessee shall not assign this Lease, or any interest, voluntarily
or involuntarily, and shall not sublet the Premises or any part thereof, or any
right or privilege appurtenant thereto, or suffer any other person (the agents
and servants of Lessee excepted) to occupy or use the Premises, or any portion
thereof, without the prior written consent of Lessor in each instance pursuant
to the terms and conditions set forth below, which consent shall not be
unreasonably withheld, subject to the following provisions.

 

(b)                                 Prior to any assignment or sublease which
Lessee desires to make, Lessee shall provide to Lessor the name and address of
the proposed assignee or sublessee, and true and complete copies of all
documents relating to Lessee’s prospective agreement to assign or sublease, a
copy of a current financial statement for such proposed assignee or sublessee,
and Lessee shall specify all consideration to be received by Lessee for such
assignment or sublease in the form of lump sum payments, installments of rent,
or otherwise.  For purposes of this Paragraph 17, the term “consideration” shall
include all money or other consideration to be received by Lessee for such
assignment or sublease. 

 

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Within ten (10) days after the receipt of such documentation and other
information, Lessor shall (1) notify Lessee in writing that Lessor elects to
consent to the proposed assignment or sublease subject to the terms and
conditions hereinafter set forth; or (2) notify Lessee in writing that Lessor
refuses such consent, specifying reasonable grounds for such refusal.

 

In deciding whether to consent to any proposed assignment or sublease, Lessor
may take into account reasonable conditions, including, but not limited to, the
following, have been satisfied:

 

(1)                                  In Lessor’s reasonable judgment, the
proposed assignee or subtenant is engaged in such a business, that the Premises,
or the relevant part thereof, will be used in such a manner which complies with
Paragraph 8 hereof entitled “Use” and Lessee or the proposed assignee or
sublessee submits to Lessor documentary evidence reasonably satisfactory to
Lessor that such proposed use constitutes a permitted use of the Premises
pursuant to the ordinances and regulations of the City of Menlo Park;

 

(2)                                  The proposed assignee or subtenant is a
reputable entity or individual with sufficient financial net worth so as to
reasonably indicate that it will be able to meet its obligations under this
Lease or the sublease in a timely manner; and

 

(3)                                  The proposed assignment or sublease is
approved by Lessor’s mortgage lender if such lender has the right to approve or
disapprove proposed assignments or subleases.  Lessor shall use its good faith
efforts to obtain such approval from its lender within ten (10) days after
Lessor is requested to do so.

 

(c)                                  As a condition to Lessor’s granting its
consent to any assignment or sublease, (1) Lessor may require that Lessee pay to
Lessor, as and when received by Lessee, fifty percent (50%) of the amount of any
excess of the consideration to be received by Lessee in connection with said
assignment or sublease over and above the rental amount fixed by this Lease and
payable by Lessee to Lessor, after deducting only (i) the unamortized cost of
the Tenant Improvement Work paid for by Lessee which remains on the Premises at
the effective date of the assignment or on the commencement date of the sublease
which are then in a serviceable condition and useable by the assignee or
sublessee and not demolished or removed by the assignee or sublessee, (ii) a
standard leasing commission payable by Lessee in consummating such assignment or
sublease, and (iii) reasonable attorneys’ fees incurred by Lessee and Lessor in
negotiating and reviewing the assignment or sublease documentation, all of which
costs shall be subject to Lessor’s reasonable approval; and (2) Lessee and the
proposed assignee or sublessee shall demonstrate to Lessor’s reasonable
satisfaction that each of the criteria referred to in subparagraph (b) above is
satisfied.

 

(d)                                 Each assignment or sublease agreement to
which Lessor has consented shall be an instrument in writing in form
satisfactory to Lessor, and shall be executed by both Lessee and the assignee or
sublessee, as the case may be.  Each such assignment or sublease agreement shall
recite that it is and shall be subject and

 

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subordinate to the provisions of this Lease, that the assignee or sublessee
accepts such assignment or sublease, that Lessor’s consent thereto shall not
constitute a consent to any subsequent assignment or subletting by Lessee or the
assignee or sublessee, and, except as otherwise set forth in a sublease approved
by Lessor, agrees to perform all of the obligations of Lessee hereunder (to the
extent such obligations relate to the portion of the Premises assigned or
subleased), and that the termination of this Lease shall, at Lessor’s sole
election, constitute a termination of every such assignment or sublease.

 

(e)                                  In the event Lessor shall consent to an
assignment or sublease, Lessee shall nonetheless remain primarily liable for all
obligations and liabilities of Lessee under this Lease, including but not
limited to the payment of rent.

 

(f)                                    Notwithstanding the foregoing, Lessee
may, without Lessor’s prior written consent and without any participation by
Lessor in assignment and subletting proceeds, sublet a portion or the entire
Premises or assign this Lease to a subsidiary, affiliate, division or
corporation controlled or under common control with Lessee (“affiliate”), or to
a successor corporation related to Lessee by merger, consolidation or
reorganization, or to a purchaser of Lessee’s entire business operations
conducted on the Premises, provided that any such assignee or sublessee shall
have a current verifiable net worth at least equal to that of Lessee as of the
date of the execution of this Lease.  Lessee’s foregoing rights to assign this
Lease shall be subject to the following conditions:  (1) Lessee shall not be in
default hereunder past any applicable cure period; (2) in the case of an
assignment or subletting to an affiliate, Lessee shall remain liable to Lessor
hereunder; and (3) the transferee or successor entity shall expressly assume in
writing Lessee’s obligations hereunder.

 

(g)                                 Neither the sale nor transfer of Lessee’s
capital stock in any private financing raising equity capital or in a public
offering pursuant to an effective registration statement filed by Lessee with
the Securities and Exchange Commission, or the sale or transfer of Lessee’s
securities at any time after Lessee’s securities are publicly traded, shall be
deemed an assignment, subletting, or other transfer of this Lease or the
Premises, provided, that in the event of the sale, transfer or issuance of
Lessee’s securities in connection with a merger, consolidation, or
reorganization, the conditions set forth in Paragraph 17(f) shall apply.

 

(h)                                 Subject to the provisions of this Paragraph
17 any assignment or sublease without Lessor’s prior written consent shall at
Lessor’s election be void.  The consent by Lessor to any assignment or sublease
shall not constitute a waiver of the provisions of this Paragraph 17, including
the requirement of Lessor’s prior written consent, with respect to any
subsequent assignment or sublease.  If Lessee shall purport to assign this
Lease, or sublease all or any portion of the Premises, or permit any person or
persons other than Lessee to occupy the Premises, without Lessor’s prior written
consent (if such consent is required hereunder), Lessor may collect rent from
the person or persons then or thereafter occupying the Premises and apply the
net amount collected to the rent reserved herein, but no such collection shall
be deemed a waiver of Lessor’s rights and

 

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remedies under this Paragraph 17, or the acceptance of any such purported
assignee, sublessee, or occupant, or a release of Lessee from the further
performance by Lessee of covenants on the part of Lessee herein contained.

 

(i)                                     Lessee shall not hypothecate or encumber
its interest under this Lease or any rights of Lessee hereunder, or enter into
any license or concession agreement respecting all or any portion of the
Premises, without Lessor’s prior written consent which consent Lessor may grant
or withhold in Lessor’s absolute discretion without any liability to Lessee. 
Lessee’s granting of any such encumbrance, license, or concession agreement
shall constitute an assignment for purposes of this Paragraph 17.

 

(j)                                     In the event of any sale or exchange of
the Premises by Lessor and assignment of this Lease by Lessor, Lessor shall,
upon providing Lessee with written confirmation that Lessor has delivered any
Security Deposit held by Lessor to Lessor’s successor in interest, be and hereby
is entirely relieved of all liability under any and all of Lessor’s covenants
and obligations contained in or derived from this Lease with respect to the
period commencing with the consummation of the sale or exchange and assignment.

 

(k)                                  Lessee hereby acknowledges that the
foregoing terms and conditions are reasonable and, therefore, that Lessor has
the remedy described in California Civil Code Section 1951.4 (Lessor may
continue the Lease in effect after Lessee’s breach and abandonment and recover
rent as it becomes due, if Lessee has the right to sublet or assign, subject
only to reasonable limitations).

 

18.                                 Non-Waiver.

 

(a)                                  No waiver of any provision of this Lease
shall be implied by any failure of Lessor to enforce any remedy for the
violation of that provision, even if that violation continues or is repeated. 
Any waiver by Lessor of any provision of this Lease must be in writing.

 

(b)                                 No receipt of Lessor of a lesser payment
than the rent required under this Lease shall be considered to be other than on
account of the earliest rent due, and no endorsement or statement on any check
or letter accompanying a payment or check shall be considered an accord and
satisfaction.  Lessor may accept checks or payments without prejudice to
Lessor’s right to recover all amounts due and pursue all other remedies provided
for in this Lease.

 

Lessor’s receipt of monies from Lessee after giving notice to Lessee terminating
this Lease shall in no way reinstate, continue, or extend the Lease term or
affect the termination notice given by Lessor before the receipt of those
monies.  After serving notice terminating this Lease, filing an action, or
obtaining final judgment for possession of the Premises, Lessor may receive and
collect any rent, and the payment of that rent shall not waive or affect such
prior notice, action, or judgment.

 

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19.                                 Holding Over.  Lessee shall vacate the
Premises and deliver the same to Lessor upon the expiration or sooner
termination of this Lease.  In the event of holding over by Lessee after the
expiration or termination of this Lease without Lessor’s prior written consent,
such holding over shall be on a month-to-month tenancy and all of the terms and
provisions of this Lease shall be applicable during such period, except that
Lessee shall pay Lessor as Monthly Base Rent during such holdover an amount
equal to the greater of (i) one hundred fifty percent (150%) of the Monthly Base
Rent in effect at the expiration of the term, or (ii) the then market rent for
comparable research and development/office space; provided, that if such
holdover is with Lessor’s written consent given by Lessor prior to the
expiration or sooner termination of this Lease, the Monthly Base Rent during
such holdover shall be equal to one hundred twenty-five percent (125%) of the
then market rent for comparable research and development/office space, as
reasonably determined by Lessor.  If such holdover is without Lessor’s written
consent, Lessee shall be liable to Lessor for all costs, expenses, and
consequential damages incurred by Lessor as a result of such holdover.  The
rental payable during such holdover period shall be payable to Lessor on demand.

 

20.                                 Damage or Destruction.

 

(a)                                  In the event of a total destruction during
the lease term from any cause, of (1) the Building and Improvements, or (2) the
Building and Improvements referred to as Building #6, 1360 O’Brien Drive, Menlo
Park, California (the “1360 O’Brien Drive Premises”) during the term of Lessee’s
Lease of said Premises, either party may elect to terminate this Lease by giving
written notice of termination to the other party within thirty (30) days after
the casualty occurs.  A total destruction shall be deemed to have occurred for
this purpose if the Building and the Improvements which are the subject of this
Lease or the Building and Improvements consisting of the 1360 O’Brien Drive
Premises are destroyed to the extent of seventy-five percent (75%) or more of
the replacement cost thereof.  If the Lease is not terminated, Lessor shall
repair and restore the Premises and the 1360 O’Brien Drive Premises (if
applicable) in a diligent manner and this Lease shall continue in full force and
effect, except that Monthly Base Rent and Additional Rent of the Premises which
are the subject of this Lease shall be abated in accordance with Paragraph 20(d)
below.

 

(b)                                 In the event of a partial destruction of the
Building or the Premises to an extent not exceeding fifty percent (50%) of the
replacement cost thereof and if the damage thereto can be repaired,
reconstructed, or restored within a period of one hundred twenty (120) days from
the date of such casualty, and if the casualty is from a cause which is insured
under Lessor’s “all risk” property insurance, or is insured under any other
coverage then carried by Lessor, Lessor shall forthwith repair the same, and
this Lease shall continue in full force and effect, except that Monthly Base
Rent and Additional Rent shall be abated in accordance with Paragraph 20(d)
below.  If any of the foregoing conditions is not met, Lessor shall have the
option of either repairing and restoring the Building and Improvements, or
terminating this Lease by giving written notice of termination to Lessee within
thirty (30) days after the casualty, subject to the provisions of

 

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Paragraph 20(c).  Notwithstanding the foregoing, Lessor shall not have the right
to terminate this Lease if the cost to repair the damage to the Building or to
restore the Premises would cost less than five percent (5%) of the replacement
cost of the Building, regardless of whether or not the casualty is insured. 
Notwithstanding the foregoing, if the casualty is uninsured, the cost to restore
the Premises exceeds five percent (5%) of the replacement cost, and Lessor
elects to terminate this Lease, Lessee may nullify the effect of such
termination by giving Lessor written notice within ten (10) days after receipt
by Lessee of Lessor’s notice of termination that Lessee elects to restore the
Premises at Lessee’s sole cost, in which event this Lease shall remain in
effect, provided that Rent abatement shall not extend beyond the date that the
restoration is completed, or one hundred twenty (120) days after the casualty,
whichever occurs first.

 

(c)                                  In the event of a partial destruction of
the Building and Improvements of the Premises to an extent equal to or exceeding
twenty-five percent (25%) but less than seventy-five percent (75%) of the
replacement cost thereof, or if the damage thereto cannot be repaired,
reconstructed, or restored within a period of one hundred twenty (120) days from
the date of such casualty, either Lessor or Lessee may terminate this Lease (but
not the Lease of the 1360 O’Brien Drive Premises) by giving written notice of
termination to the other within thirty (30) days after the casualty.

 

Furthermore, if such casualty is from a cause which is not insured under
Lessor’s “all risk” property insurance, or is not insured under any other
insurance carried by Lessor, Lessor may elect to repair and restore the Building
and Improvements (provided that Lessee has not elected to terminate this Lease
pursuant to the first sentence of this Paragraph 20(c)), or Lessor may terminate
this Lease by giving written notice of termination to Lessee.  Lessor’s election
to repair and restore the Building and Improvements or to terminate this Lease,
shall be made and written notice thereof shall be given to Lessee within thirty
(30) days after the casualty.  Notwithstanding the foregoing, (1) if Lessor has
not obtained all necessary governmental permits for the restoration and
commenced construction of the restoration within one hundred twenty (120) days
after the casualty, Lessee may terminate this Lease by written notice to Lessor
given at any time prior to the actual commencement of construction of the
restoration; or (2) if Lessor elects to repair and restore the Building and
Improvements under subparagraph (b) or (c) above, but the repairs and
restoration are not substantially completed within one hundred eighty (180) days
after the casualty, Lessee may terminate this Lease by written notice to Lessor
given within thirty (30) days after the expiration of said period of one hundred
eighty (180) days after the casualty.

 

If this Lease is not terminated by Lessor or Lessee pursuant to the foregoing
provisions, Lessor shall complete the repairs in a diligent manner and this
Lease shall continue in full force and effect, except that Monthly Base Rent and
Additional Rent shall be abated in accordance with Paragraph 20(d) below.

 

(d)                                 Subject to the limitation in Paragraph 20(b)
above which applies if Lessee elects to restore the Premises at Lessee’s
expense, in the event of repair,

 

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reconstruction, or restoration as provided herein, the Monthly Base Rent and
Additional Rent shall be abated proportionally in the ratio which the Lessee’s
use of the Premises is impaired during the period of such repair,
reconstruction, or restoration, from the date of the casualty until such repair,
reconstruction or restoration is completed.

 

(e)                                  With respect to any destruction of the
Premises which Lessor is obligated to repair, or may elect to repair, under the
terms of this Paragraph 20, the provisions of Section 1932, Subdivision 2, and
of Section 1933, Subdivision 4, of the Civil Code of the State of California are
waived by the parties.  Lessor’s obligation to repair and restore the Premises
shall include the Tenant Improvement Work referred to in Paragraph 13 and any
other leasehold improvements constructed thereafter by Lessor or by Lessee with
Lessor’s prior written consent.  Lessor’s time for completion of the repairs and
restoration of the Premises shall be extended by a period equal to any delays
caused by strikes, labor disputes, unavailability of materials, inclement
weather, acts of God, or other causes beyond Lessor’s control.

 

(f)                                    In the event of termination of this Lease
pursuant to any of the provisions of this Paragraph 20, the monthly rent shall
be apportioned on a per diem basis and shall be paid to the date of the
casualty.  In no event shall Lessor be liable to Lessee for any damages
resulting to Lessee from the occurrence of such casualty, or from the repairing
or restoration of the Building and Improvements, or from the termination of this
Lease as provided herein, nor shall Lessee be relieved thereby from any of
Lessee’s obligations hereunder, except to the extent and upon the conditions
expressly set forth in this Paragraph 20.

 

21.                                 Eminent Domain.

 

(a)                                  If the whole or any substantial part of the
Building or the Premises shall be taken or condemned by any competent public
authority for any public use or purpose, the term of this Lease shall end upon
the earlier to occur of the date when the possession of the part so taken shall
be required for such use or purpose or the vesting of title in such public
authority.  Rent shall be apportioned as of the date of such termination. 
Lessee shall be entitled to receive any damages awarded by the court for (i)
leasehold improvements installed at Lessee’s expense or other property owned by
Lessee, and (ii) reasonable costs of moving by Lessee to another location in San
Mateo County or surrounding areas within the San Francisco Bay Area.  The entire
balance of the award shall be the property of Lessor.

 

(b)                                 If there is a partial taking of the Premises
by eminent domain which is not a substantial part of the Building and the
balance of the Premises remains reasonably suitable for continued use and
occupancy by Lessee in Lessee’s reasonable judgment for the purposes referred to
in Paragraph 8, Lessor shall complete any necessary repairs in a diligent manner
and this Lease shall remain in full force and effect with a just and
proportionate abatement of the Monthly Base Rent and Additional Rent, to reflect
the number of square feet of the Premises taken and the number of square feet
remaining.  If

 

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after a partial taking, the Premises and parking are not reasonably suitable for
Lessee’s continued use and occupancy for the uses permitted herein, Lessee may
terminate this Lease effective on the earlier of the date title vests in the
public authority or the date possession is taken.  Subject to the provisions of
Paragraph 21(a), the entire award for such taking shall be the property of
Lessor.

 

22.                                 Remedies.  If Lessee fails to make any
payment of rent or any other sum due under this Lease for ten (10) days after
receipt by Lessee of written notice from Lessor; or if Lessee fails to deliver
to Lessor a renewal Letter of Credit which complies with Paragraph 7(b) within
the time period referred to in Paragraph 7(b); or if Lessee breaches any other
term of this Lease for thirty (30) days after receipt by Lessee of written
notice from Lessor (unless such default is incapable of cure within thirty (30)
days and Lessee commences cure within thirty (30) days and diligently prosecutes
the cure to completion within a reasonable time); or if Lessee’s interest
herein, or any part thereof, is assigned or transferred, either voluntarily or
by operation of law (except as expressly permitted by other provisions of this
Lease); or if Lessee makes a general assignment for the benefit of its
creditors; or if this Lease is rejected (i) by a bankruptcy trustee for Lessee,
(ii) by Lessee as debtor in possession, or (iii) by failure of Lessee as a
bankrupt debtor to act timely in assuming or rejecting this Lease; then any of
such events shall constitute an event of default and breach of this Lease by
Lessee and Lessor may, at its option, elect the remedies specified in either
subparagraph (a) or (b) below.  Any such rejection of this Lease referred to
above shall not cause an automatic termination of this Lease.  Whenever in this
Lease reference is made to a default by Lessee, such reference shall refer to an
event of default as defined in this Paragraph 22.

 

(a)                                  Lessor may repossess the Premises and
remove all persons and property therefrom.  If Lessor repossesses the Premises
because of a breach of this Lease, this Lease shall terminate and Lessor may
recover from Lessee:

 

(1)                                  the worth at the time of award of the
unpaid rent which had been earned at the time of termination including interest
thereon at a rate equal to the discount rate established by the Federal Reserve
Bank of San Francisco for member banks, plus one percent (1%), or the maximum
legal rate of interest, whichever is less, from the time of termination until
paid;

 

(2)                                  the worth at the time of award of the
amount by which the unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that Lessee
proves could have been reasonably avoided, including interest thereon at a rate
equal to the Federal discount rate plus one percent (1%) per annum, or the
maximum legal rate of interest, whichever is less, from the time of termination
until paid;

 

(3)                                  the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss for the same period that Lessee
proves could be reasonably avoided discounted

 

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at the discount rate established by the Federal Reserve Bank of San Francisco
for member banks at the time of the award plus one percent (1%); and

 

(4)                                  any other amount necessary to compensate
Lessor for all the detriment proximately caused by Lessee’s breach or by
Lessee’s failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom.

 

(b)                                 If Lessor does not repossess the Premises,
then this Lease shall continue in effect for so long as Lessor does not
terminate Lessee’s right to possession and Lessor may enforce all of its rights
and remedies under this Lease, including the right to recover the rent and other
sums due from Lessee hereunder.  For the purposes of this Paragraph 22, the
following do not constitute a repossession of the Premises by Lessor or a
termination of the Lease by Lessor:

 

(1)                                  Acts of maintenance or preservation by
Lessor or efforts by Lessor to relet the Premises; or

 

(2)                                  The appointment of a receiver by Lessor to
protect Lessor’s interests under this Lease.

 

(c)                                  Lessor’s failure to perform or observe any
of its obligations under this Lease or to correct a breach of any warranty or
representation made in this Lease within thirty (30) days after receipt of
written notice from Lessee setting forth in reasonable detail the nature and
extent of the failure referencing pertinent Lease provisions or if more than
thirty (30) days is required to cure the breach, Lessor’s failure to begin
curing within the thirty (30) day period and diligently prosecute the cure to
completion, shall constitute a default.  If Lessor commits a default, Lessee’s
remedy shall be to institute an action against Lessor for damages or for
equitable relief, but Lessee shall not have the right to rent abatement, to
offset against rent, or to terminate this Lease in the event of any default by
Lessor.

 

(d)                                 Lessor shall have no security interest or
lien on any item of Lessee’s furniture, equipment and other personal property
which is not affixed to the Building (“Lessee’s Personal Property”).  Within ten
(10) days following Lessee’s request, Lessor shall execute documents reasonably
acceptable to Lessee to evidence Lessor’s waiver of any right, title, lien or
interest in Lessee’s Personal Property and giving any lender holding a security
interest or lien on Lessee’s Personal Property reasonable rights of access to
the Premises to remove such Lessee’s Personal Property, provided that such
lender expressly agrees in such document for the benefit of Lessor to repair at
such lender’s expense any damage caused by such removal.

 

23.                                 Lessee’s Personal Property.  If any personal
property of Lessee remains on the Premises after (1) Lessor terminates this
Lease pursuant to Paragraph 22 above following an event of default by Lessee, or
(2) after the expiration of the Lease term or after

 

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the termination of this Lease pursuant to any other provisions hereof, Lessor
shall give written notice thereof to Lessee pursuant to applicable law.  Lessor
shall thereafter release, store, and dispose of any such personal property of
Lessee in accordance with the provisions of applicable law.

 

24.                                 Notices.  All notices, statements, demands,
requests, or consents given hereunder by either party to the other shall be in
writing and shall be personally delivered or sent by United States mail,
registered or certified, return receipt requested, postage prepaid, and
addressed to the parties as follows:

 

Lessor:

 

Menlo Business Park, LLC

 

 

c/o Tarlton Properties, Inc.

 

 

955 Alma Street

 

 

Palo Alto, California 94301

 

 

 

Lessee:

 

DepoMed, Inc.

 

 

1360 O’Brien Drive

 

 

Menlo Park, California  94025

 

 

 

 

 

Attention:

 

or to such other address as either party may have furnished to the other as a
place for the service of notice.  Notices shall be deemed given upon receipt or
attempted delivery where delivery is not accepted.  As of the Commencement Date
of this Lease, Lessee’s address for purposes of notice shall be the Premises.

 

25.                                 Estoppel Certificate.  Lessee and Lessor
shall within fifteen (15) days following request by the other party (the
“Requesting Party”), execute and deliver to the Requesting Party an Estoppel
Certificate substantially in the form attached hereto as Exhibit “F” (1)
certifying that this Lease has not been modified and certifying that this Lease
is in full force and effect, or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect; (2) stating the date to which the rent and other charges are paid in
advance, if at all; (3) stating the amount of any Security Deposit held by
Lessor; and (4) acknowledging that there are not, to the responding party’s
knowledge, any uncured defaults on the part of the Requesting Party hereunder,
or if there are uncured defaults on the part of the Requesting Party, stating
the nature of such uncured defaults.

 

26.                                 Signage.  Lessor shall provide to Lessee
space for Lessee’s sign on the monument sign for the Building located in the
landscaped median in front of the Building.  Lessee may also place Lessee’s
vinyl lettering signage at the glass door entrances to the Building.  All of
Lessee’s signage shall comply with the Menlo Park sign ordinances and
regulations and shall be subject to Lessor’s approval as to the location, size
and design thereof.  The cost of the installation of the vinyl lettering on the
monument sign and at the

 

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glass door entrance shall be paid by Lessee.  Any additional signage shall be
subject to Lessor’s prior approval and, if approved, shall be installed at
Lessee’s expense.

 

27.                                 Real Estate Brokers.  Lessor shall pay a
leasing commission to Tarlton Properties, Inc., Lessor’s broker, pursuant to a
separate agreement between Lessor and said broker.  Each party represents and
warrants to the other party that it has not had any dealings with any real
estate broker, finder, or other person with respect to this Lease other than
Tarlton Properties, Inc. who has acted as exclusive leasing agent for Lessor,
and BT Commercial and Technology Commercial, Inc., who have acted as Lessee’s
agents, and each party shall hold harmless the other party from all damages,
expenses, and liabilities resulting from any claims that may be asserted against
the other party by any broker, finder, or other person with whom the other party
has or purportedly has dealt, other than the above named brokers.

 

28.                                 Subordination; Attornment.

 

(a)                                  This Lease, without any further instrument,
shall at all times be subject and subordinate to any and all mortgages and deeds
of trust which may now or hereafter affect Lessor’s estate in the real property
of which the Premises form a part, and to all advances made or hereafter to be
made upon the security thereof, and to all renewals, modifications,
consolidations, replacements and extensions thereof.  Lessor shall use
reasonable efforts to cause the beneficiary of any deed of trust executed by
Lessor as trustor after the date hereof to execute a recognition and
non-disturbance agreement in a form reasonably satisfactory to Lessor, Lessee
and such beneficiary which (i) provides that this Lease shall not be terminated
so long as Lessee is not in default under this Lease, and (ii) that upon
acquiring title to the Premises by foreclosure or otherwise such holder shall
recognize all of Lessee’s rights hereunder which accrue thereafter.

 

(b)                                 In confirmation of such subordination,
Lessee shall promptly execute any certificate or other instrument which Lessor
may deem proper to evidence such subordination, without expense to Lessor;
provided, however, that if any person or persons purchasing or otherwise
acquiring the real property of which the Premises form a part by any sale, sales
and/or other proceedings under such mortgages and/or deeds of trust, shall elect
to continue this Lease in full force and effect in the same manner and with like
effect as if such person or persons had been named as Lessor herein, then this
Lease shall continue in full force and effect as aforesaid, and Lessee hereby
attorns and agrees to attorn to such person or persons.

 

(c)                                  If Lessee is notified in writing of
Lessor’s default under any deed of trust affecting the Premises and if Lessee is
instructed in writing by the party giving notice to make Lessee’s rental
payments to beneficiary Lessee shall comply with such request without liability
to Lessor until Lessee receives written confirmation that such default has been
cured by Lessor and that the deed of trust has been reinstated.

 

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29.                                 No Termination Right.  Lessee shall not have
the right to terminate this Lease as a result of any default by Lessor and
Lessee’s remedies in the event of a default by Lessor shall be limited to the
remedy set forth in Paragraph 22(c).  Lessee expressly waives the defense of
constructive eviction.

 

30.                                 Lessor’s Entry.  Except in the case of an
emergency and except for permitted entry during Lessee’s normal working hours,
Lessor and Lessor’s agents shall provide Lessee with at least twenty-four (24)
hours’ notice prior to entry of the Premises.  Such entry by Lessor and Lessor’s
agents shall not impair Lessee’s operations more than reasonably necessary. 
Lessor and Lessor’s agents shall at all times be accompanied by Lessee during
any such entry except in case of emergency and except for janitorial work. 
Lessor may enter the Premises without prior notice to Lessee if Lessee has
vacated the Premises.

 

31.                                 Attorneys’ Fees.  If any action at law or in
equity shall be brought to recover any rent under this Lease, or for or on
account of any breach of or to enforce or interpret any of the provisions of
this Lease or for recovery of the possession of the Premises, the prevailing
party shall be entitled to recover from the other party costs of suit and
reasonable attorneys’ fees, the amount of which shall be fixed by the court and
shall be made a part of any judgment rendered.

 

32.                                 Compliance with CC&Rs.  During the term of
this Lease and any option extension period, Lessee shall comply, at Lessee’s
expense, with all of the covenants, conditions, and restrictions affecting the
Premises which are recorded in the Official Records of San Mateo County,
California, and which are in effect as of the date of this Lease.

 

33.                                 Quiet Enjoyment.  Upon payment by Lessee of
the rent for the Premises and the observance and performance of all of the
covenants, conditions, and provisions on Lessee’s part to be observed and
performed under this Lease, Lessee shall have quiet enjoyment and possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease.

 

34.                                 General Provisions.

 

(a)                                  Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by any third person to create the
relationship of principal and agent or of partnership or of joint venture of any
association between Lessor and Lessee, and neither the method of computation of
rent nor any other provisions contained in this Lease nor any acts of the
parties hereto shall be deemed to create any relationship between Lessor and
Lessee other than the relationship of landlord and tenant.

 

(b)                                 Each and all of the provisions of this Lease
shall be binding upon and inure to the benefit of the parties hereto, and except
as otherwise specifically provided elsewhere in this Lease, their respective
heirs, executors, administrators, successors, and

 

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assigns, subject at all times, nevertheless, to all agreements and restrictions
contained elsewhere in this Lease with respect to the assignment, transfer,
encumbering, or subletting of all or any part of Lessee’s interest in this
Lease.

 

(c)                                  The captions of the paragraphs of this
Lease are for convenience only and shall not be considered or referred to in
resolving questions of interpretation or construction.

 

(d)                                 This Lease is and shall be considered to be
the only agreement between the parties hereto and their representatives and
agents.  All negotiations and oral agreements acceptable to both parties have
been merged into and are included herein.  There are no other representations or
warranties between the parties and all reliance with respect to representations
is solely upon the representations and agreements contained in this instrument.

 

(e)                                  The laws of the State of California shall
govern the validity, performance, and enforcement of this Lease. 
Notwithstanding which of the parties may be deemed to have prepared this Lease,
this Lease shall not be interpreted either for or against Lessor or Lessee, but
this Lease shall be interpreted in accordance with the general tenor of the
language in an effort to reach an equitable result.

 

(f)                                    Time is of the essence with respect to
the performance of each of the covenants and agreements contained in this Lease.

 

(g)                                 Lessee hereby expressly waives any and all
rights of redemption granted by or under any present or future law in the event
of Lessee being evicted or dispossessed for any cause, or in the event of Lessor
obtaining possession of the Premises by reason of the breach by Lessee of any of
the covenants and conditions of the Lease or otherwise.  The rights given to
Lessor herein are in addition to any rights that may be given to Lessor by any
statute or otherwise.

 

(h)                                 Recourse by Lessee for breach of this Lease
by Lessor shall be expressly limited to Lessor’s interest in the Premises and
the rents, issues and profits therefrom, and in the event of any such breach or
default by Lessor Lessee hereby waives the right to proceed against any other
assets of Lessor or against any other assets of any manager or member of Lessor.

 

(i)                                     Any provision or provisions of this
Lease which shall be found to be invalid, void or illegal by a court of
competent jurisdiction, shall in no way affect, impair, or invalidate any other
provisions hereof, and the remaining provisions hereof shall nevertheless remain
in full force and effect.

 

(j)                                     This Lease may be modified in writing
only, signed by the parties in interest at the time of such modification.

 

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(k)                                  Each party represents to the other that the
person signing this Lease on its behalf is properly authorized to do so, and in
the event this Lease is signed by an agent or other third party on behalf of
either Lessor or Lessee, written authority to sign on behalf of such party in
favor of the agent or third party shall be provided to the other party hereto
either prior to or simultaneously with the return to such other party of a fully
executed copy of this Lease.

 

(l)                                     No binding agreement between the parties
with respect to the Premises shall arise or become effective until this Lease
has been duly executed by both Lessee and Lessor and a fully executed copy of
this Lease has been delivered to both Lessee and Lessor.

 

(m)                               Lessor and Lessee acknowledge that the terms
and conditions of this Lease constitute confidential information of Lessor and
Lessee.  Neither party shall disseminate orally or in written form a copy of
this Lease, lease proposals, lease drafts, or other documentation containing the
terms, details or conditions contained herein to any third party without
obtaining the prior written consent of the other party, except to the attorneys,
accountants, or other authorized business representatives or agents of the
parties, or except to the extent required to comply with applicable laws. 
Neither Lessor nor Lessee shall make any public announcement of the consummation
of this Lease transaction without the prior approval of the other party.

 

(n)                                 The rights and remedies that either party
may have under this Lease or at law or in equity, upon any breach, are distinct,
separate and cumulative and shall not be deemed inconsistent with each other,
and no one of them shall be deemed to be exclusive of any other.

 

(o)                                 Except as provided in Paragraph 19, Lessor
and Lessee waive any claim for consequential damages which one may have against
the other for breach of or failure to perform or observe the requirements and
obligations created by this Lease.

 

(p)                                 Lessor and Lessee each agree to 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
Lessor and Lessee, Lessee’s use or occupancy of the Premises and/or any claim of
injury or damage, and any statutory remedy.

 

(q)                                 This Lease shall not be recorded.

 

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IN WITNESS WHEREOF, the Lessor and Lessee have duly executed this Lease as of
the date first set forth herein.

 

 

“Lessor”

 

 

 

MENLO BUSINESS PARK, LLC

 

a California limited liability company

 

 

 

 

 

By:

   /s/ J.O. Oltmans, II

 

 

J. O. Oltmans, II, Manager

 

 

 

 

 

By:

   /s/ James R. Swartz

 

 

James R. Swartz, Manager

 

 

 

 

 

“Lessee”

 

 

 

DEPOMED, INC.,

 

a California corporation

 

 

 

 

 

By:

   /s/ John F. Hamilton

 

 

Its

 

 

 

 

 

By:

   /s/ John N. Shell

 

 

Its

 

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