**Exhibit10.25**

 

FOURTH LEASE AMENDMENT ANDASSIGNMENT AGREEMENT

 

This Fourth Lease Amendment and Assignment Agreement(the “Agreement”), dated for references purposes as of December 9, 2004,is entered into by and among TSI, L.P., a California limited partnership (“TSI”or “Landlord”); Biogen Idec Inc., a Delaware corporation formerly known as IDECPharmaceuticals Corporation (“BI”); and Tanox West, Inc., a Delawarecorporation (“Tanox West”), with reference to the following facts:

 

A.            The predecessor of TSI and BI entered intothat certain Lease dated July 9, 1992 (the “Initial Lease”) for thepremises located at 11011 Torreyana Road, San Diego, California  92121 (the “Demised Premises”).  A copy of the Initial Lease is attachedhereto as **Exhibit “A-1**.”

 

B.            The Initial Lease has been supplemented andamended from time to time by the following documents:

 

i.              First Amendment to Lease, dated November 9,1992, a copy of which is attached hereto as **Exhibit “A-2”**;

 

ii.             Lease Exhibit, dated December 22, 1994,a copy of which is attached hereto as **Exhibit“A-3”**;

 

iii.            Lease Amendment, dated December 30,1994, a copy of which is attached hereto as**Exhibit “A-4”**;

 

iv.            Third Lease Amendment Agreement, dated April 22,2004, a copy of which is attached hereto as **Exhibit “A-5**”;

 

v.             Confirmation of Lease Commencement Date,dated September 22, 1993, a copy of which is attached hereto as **Exhibit “A-6”**;

 

vi.            Letter agreement re BFP/Cell Bank Remodel,dated October 16, 2001, a copy of which is attached hereto as **Exhibit “A-7”**.

 

TheInitial Lease and the above documents and this Agreement are collectivelyreferred to as the “Lease,” all of which are applicable to the DemisedPremises.

 

C.            TSI is the owner of the Demised Premises andthe Landlord under the Lease, and BI is the Tenant for the Demised Premisesunder the Lease.

 

D.            The parties intend that, subject to all theterms and provisions of this Agreement, as of the Effective Date (as definedbelow):  (i) the Lease shall be modifiedand amended as set forth in this Agreement; and (ii) the Assignment (as definedbelow) of the Lease between BI and Tanox West shall become effective; and (iii)TSI’s consent to the Assignment, as the owner and Landlord of the DemisedPremises, shall become effective.

 

E.             Terms which are not expressly defined in thisAgreement shall have the same meaning as defined in the Lease.

 

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WHEREFORE, the parties hereby mutually agree to thematters set forth above and as follows:

 

# 1.             Extension of Current Lease Term.  TheTerm Expiration Date as set forth in Section 2.1.6(b) of the Lease ishereby amended to be September 30, 2011.

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# 2.             Options to Extend the Term of the Lease. Pursuant to Section 3.3 of the Lease, Tenant has two options toextend the term of the Lease for a period of five years each.  As a result of the extension of the TermExpiration Date set forth in Section 1 hereof, the first extension optionshall be for the period from October 1, 2011, through September 30,2016; and the second term extension option shall be for the period from October 1,2016, through September 30, 2021. If Tenant elects to exercise one or both of the extension options, itshall do so in accordance with Section 3.3 of the Lease.  In addition, Tenant may exercise such optionsif and only if as of the date Tenant exercises such option Tenant meets theCredit Test (as defined in Section 6 below).

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# 3.             Basic Annual Rent. Notwithstanding any provision of the Lease to the contrary, the BasicAnnual Rent payable for the Demised Premises for the lease year beginning October 1,2004, is $3,843,840, which is equivalent to $320,320 per month; and said BasicAnnual Rent shall be automatically increased by 4% per year over the BasicAnnual Rent for the prior year, commencing as of October 1, 2005, and oneach October 1 thereafter during the term of the Lease and any extensionsof the term of the Lease.  Accordingly,notwithstanding any provision of the Lease to the contrary, the scheduledmonthly installment of Basic Annual Rent for the twelve calendar month periodcommencing as of October 1 of each year of the term of the Lease is asfollows:

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| **Starting October 1,  in the Year:** | ** ** | **Monthly Installment of Basic  Annual Rent** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                 | ** ** | (rounded to $1.00)                            | ** ** |
|                                       |       |                                          |       |
| 2004                                       |       | $                                             | 320,320    |   |
| 2005                                       |       | $                                             | 333,133    |   |
| 2006                                       |       | $                                             | 346,458    |   |
| 2007                                       |       | $                                             | 360,316    |   |
| 2008                                       |       | $                                             | 374,729    |   |
| 2009                                       |       | $                                             | 389,718    |   |
| 2010                                       |       | $                                             | 405,307    |   |
| 2011                                       |       | $                                             | 421,519    |   |
| 2012                                       |       | $                                             | 438,380    |   |
| 2013                                       |       | $                                             | 455,915    |   |
| 2014                                       |       | $                                             | 474,152    |   |
| 2015                                       |       | $                                             | 493,118    |   |
| 2016                                       |       | $                                             | 512,843    |   |
| 2017                                       |       | $                                             | 533,356    |   |
| 2018                                       |       | $                                             | 554,690    |   |
| 2019                                       |       | $                                             | 576,878    |   |
| 2020                                       |       | $                                             | 599,953    |   |

 

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Section 5.1 of the Lease is hereby amended toreflect the new rent schedule as set forth above; and the provisions ofSections 3.3.1 (other than the last sentence thereof), 6.1 and 6.2 and thesecond sentence of Section 3.3.3 of the Lease are hereby deleted.  There shall be no “Fair Rental Value”adjustments to the Basic Annual Rent upon exercise of either of the extensionoptions referred to above.

 

# 4.             No Tenant Improvement Allowance. Sections  3.3.4 through 3.3.7 ofthe Lease are hereby deleted and Landlord shall have no obligation to provideany tenant improvement allowance upon exercise of either of extension optionsreferred to above.

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# 5.             Fees Payable by TSI.  Section 3.3.8of the Lease obligates Landlord to pay to Tenant a certain amounts inconnection with extensions of the term of the Lease under certaincircumstances.  The provisions in Section 3.3.8of the Lease are hereby amended to provide as follows:

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## a.             Conditional upon: (i)  BI delivering to Landlord by the EffectiveDate copies of the following materials (to the extent owned by BI andtransferable, and with all proprietary information redacted) utilized by, or onbehalf of, BI to market the Demised Premises for lease, including withoutlimitation: all marketing brochures; copies of all html and other computer filesrelated to the website; the list of consultants used to market the Premises;and the list of all parties contacted, and all information derived about suchtenant prospects, in response to inquiries; and (ii) Tenant not being inDefault, and there not then existing a condition which with the giving ofnotice or the passage of time or both would constitute a Default, under theLease as of the Effective Date, and the Lease then being in full force andeffect, Landlord hereby agrees to pay to BI a lease extension fee in the cashsum of $200,000, applicable to the three year extension specified in Section 1hereof, payable on the Effective Date. BI shall have a perpetual royalty-free non-exclusive license to usecopies of such materials retained by BI.

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## b.             If the first option to extend the term isproperly exercised, and Tenant is not in Default, and there is not thenexisting a condition which with the giving of notice or the passage of time orboth would constitute a Default, under the Lease as of October 1, 2011,then Landlord shall pay a leasing extension fee to Tanox West in the sum of$1,369,850, payable on October 1, 2011.

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## c.             If the second option to extend the term ofthe Lease is timely and properly exercised, and Tenant is not in Default, andthere is not then existing a condition which with the giving of notice or thepassage of time or both would constitute a Default, under the Lease as of October 1,2016, then Landlord shall pay a leasing extension fee to Tanox West in the sumof $1,666,632, payable on October 1, 2016.

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Any of the foregoing to the contrarynotwithstanding, in the event that as of any of the dates set forth above forthe payment of a leasing extension fee there exists a Default or a conditionwhich with the giving of notice or the passage of time or both would constitutea Default under the Lease, the extension fee which otherwise would have beenpayable on such date shall nevertheless be payable ninety (90) days laterprovided that upon such later date the Lease is in full force and effect andthere does not then exist a Default, or a condition which with the giving ofnotice or the passing of time or both would constitute a Default, under theLease.  If such conditions are not fullyand timely satisfied as of such later date, such leasing extension fee shall nolonger be due and payable.

 

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# 6.             Additional Security Deposit and/or Letter ofCredit.  Landlord and BI confirm that Landlordcurrently holds a Security Deposit in the amount of $192,500 (exclusive ofaccrued interest earned thereon).  At anytime throughout the term of the Lease (including any extension thereof) thatTenant does not satisfy the “Credit Test” defined below, Tenant shall, withinfive (5) business days of Tenant’s failure to meet the Credit Test, either:

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### (i)            deposit with Landlord a cash sum equal to six(6) monthly installments of then current Rent (the “Additional Cash SecurityDeposit”) to be held by Landlord as an additional Security Deposit inaccordance with and subject to, except as expressly set forth to the contraryherein, Section 5.4 of the Lease; provided, however, the Additional CashSecurity Deposit shall be in addition to any Security Deposit required under Section 5.4of the Lease and in the event that Landlord draws upon the Additional CashSecurity Deposit for any reason, Tenant shall restore the same to the fullamount required hereunder within five (5) business days of written notice fromLandlord of such draw and demand to restore; or

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### (ii)           furnish to Landlord a letter of credit in substantially the formattached hereto as **Exhibit “B”**and on the terms and conditions set forth herein (the “Letter of Credit”) in anamount equal to six (6) monthly installments of then current Rent, which Letterof Credit Landlord may draw upon from time to time upon the occurrence of anyDefault by Tenant under the Lease up to the amount necessary to compensateLandlord for any and all damages actually incurred by Landlord as a result ofsuch Default.  In the event that Landlorddraws upon the Letter of Credit, Tenant shall restore the same to the fullamount required hereunder  (or shalldeposit with Landlord, to be held as part of the Additional Cash SecurityDeposit, cash in the amount necessary to restore the Letter of Credit to thefull amount required hereunder) within five (5) business days of written noticefrom Landlord of such draw and demand to restore.

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For purposes of this Section, Tenant shall be deemedto satisfy the Credit Test if Tanox West or Tanox. Inc., a Delaware corporation(“Guarantor”)****(i) maintainsunencumbered cash and/or liquid investments (collectively, “Cash and LiquidInvestments”) balances of at least $35,000,000 which are available withoutrestriction for Tenant’s current operating expenses (the “Cash Test”), or (ii)maintains an investment-grade credit rating from Moody’s (Baa or better), orStandard & Poors (BBB or better) (the “Rating Test”).  For purposes of this Agreement, “liquidinvestments” shall mean and include only: (a) securities issued or fullyguaranteed or insured by the United States government or any agency thereof;(b) certificates of deposit, eurodollar time deposits, overnight bank depositsand bankers’ acceptances of any commercial bank organized under the laws of theUnited States, any state thereof, the District of Columbia, any foreign bank,or its branches or agencies (fully protected against currency fluctuations)which are rated at least “A-l” by Standard & Poor’s Rating Corporation, adivision of The McGraw-Hill Companies (“SP”) or “P-l” by Moody’s InvestorsService (“Moody’s”); (c) commercial paper, investment grade corporate bonds, orasset backed securities of an issuer rated at least “A-1”  by SP or “P-1” by Moody’s; and (d) shares ofany money market fund that (i) has at least 95 % of its assets invested continuouslyin the types of investments referred to in clauses (a) through (c) above, (ii)has net assets of not less than US $500,000,000 and (iii) is rated at least “A-1”by SP or “P-1” by Moody’s; provided, however, that the maturities of allobligations of the type specified in clauses (a) through (c) above shall notexceed three (3) years.  For theavoidance of doubt, all references herein to Tenant’s obligation to satisfy theRating Test and/or the Cash Test shall be deemed to refer to the obligation ofTanox West or Guarantor to satisfy such obligations, and such obligations shallbe deemed satisfied if satisfied by either Tanox West or Guarantor.

 

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If Tenant is meeting either the Rating Test or theCash Test, then Tenant shall be deemed to be meeting the “Credit Test.”  Tenant will provide written notice toLandlord within five (5) business days if at any time Tenant is not satisfyingthe Credit Test.  In addition, at anytime that Tenant is not satisfying the Credit******Test, Tenant shall furnish to Landlordwithin five (5) business days of the end of each calendar month, compliancecertificates from the chief financial officer of each of Tanox West andGuarantor in form and substance reasonably satisfactory to Landlord settingforth the amount of unencumbered Cash and Liquid Investments that Tanox Westand Guarantor each have on hand as of the end of the month then ended which areavailable without restriction for Tenant’s current operating expenses.

 

If at any time Tenant has provided to Landlord theAdditional Cash Security Deposit or the Letter of Credit, and Tenant thereaftercontinuously meets the Credit Test for a period of twelve (12) consecutivecalendar months, then Landlord shall return the Additional Cash SecurityDeposit or the Letter of Credit (as the case may be), or the portion thereofremaining, to Tenant.  In the event thatTenant thereafter again does not meet the Credit Test, Tenant shall be requiredto deposit with Landlord either the Additional Cash Security Deposit or theLetter of Credit in accordance with this Section 6.

 

The Letter of Credit shall be a negotiable,transferable, sight-demand, unconditional, irrevocable letter of credit with aterm of one year.  The Letter of Creditmay be drawn by Landlord upon the occurrence of a Default by Tenant under theLease and shall be applied by Landlord in its unfettered discretion in the samemanner that it can apply a cash security deposit.  The Letter of Credit shall be issued by abank with a branch in Los Angeles, Orange or San Diego counties as reasonablyapproved by Landlord; provided, however, in the event that at any time Landlordin good faith believes that there has been a material adverse change in thefinancial condition of the issuer of the Letter of Credit such that Landlord ingood faith believes there is, or may in the future be, a risk of nonpayment onsuch Letter of Credit, Landlord may require that Tenant replace, or cause to bereplaced, within thirty (30) days of written demand, the Letter of Credit witha new Letter of Credit on the same terms and provisions issued by a bankreasonably approved by Landlord.  If anew Letter of Credit from a bank reasonably approved by Landlord is not sorenewed and delivered to Landlord within said thirty (30) days period, Landlordshall have the right to draw the entire amount of the Letter of Credit and tothereafter hold the proceeds therefrom as a Security Deposit under Section 5.4of the Lease.

 

The Letter of Credit shall indicate that it istransferable in its entirety by Landlord as beneficiary, to any successor ofLandlord under the Lease, or to Landlord’s lender.  Any such transferee or assignee will besubject to the terms of the Lease and shall agree in writing to hold the Letterof Credit in accordance with the terms of this Agreement.  The Letter of Credit shall provide that uponreceiving written notice of transfer, and upon presentation to the issuing bankof the original Letter of Credit, the issuer or confirming bank will reissuethe Letter of Credit naming such successor in interest as the beneficiarythereunder.

 

The Letter of Credit shall be renewed (and increasedto an amount equal to the next six (6) months installments of Rent as of thedate of required renewal) and delivered to Landlord at least thirty (30) daysprior to its expiration.  If the Letterof Credit is not so renewed and delivered to Landlord at least thirty (30) daysprior to expiration, Landlord shall have the right to draw the entire amount ofthe Letter of Credit and to thereafter hold the proceeds therefrom as aSecurity Deposit under Section 5.4 of the Lease.  If for any reason the Letter of Creditexpires or Landlord is required to draw upon the proceeds thereof in order toavoid such expiration, Tenant

 

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mayprovide a new Letter of Credit pursuant to the terms hereof, and shall, as aresult thereof, pay to Landlord its costs and expenses reasonably incurred inconnection therewith, including reasonable attorneys’ fees.  Such replacement shall be accomplishedthrough an escrow or other method reasonably satisfactory to the partiespursuant to which any cash sums then held by Landlord are concurrentlyexchanged for the new Letter of Credit.

 

Any other provision of the Lease to the contrarynotwithstanding, the failure by Tenant to timely and fully observe the termsand conditions of this Section 6 shall be a Default under the Lease.  Without limiting the foregoing, the noticeand cure provisions of Section 22.4(b) of the Lease shall not beapplicable to a Default arising under this Section.

 

The second sentence of Section 5.4 of the Leaseis hereby deleted.  The third sentence ofSection 5.4 of the Lease is hereby amended to provide as follows:  “At any time that the quarterly and annualfinancial statements of Tenant and any guarantor of Tenant’s obligations underthis Lease are not filed with the SEC and publicly available on each suchcompany’s or the SEC’s website (it being understood that such financialstatements shall be deemed to be publicly-available if the consolidatedfinancial statements of Tenant and such guarantor are available to the generalpublic on the SEC’s or either such company’s website), Tenant shall deliver toLandlord a copy of Tenant’s and such guarantor’s annual audited financialstatements and Tenant’s and such guarantor’s quarterly unaudited financialstatements within ten (10) days after said financial statements are prepared.”

 

# 7.             No Defaults.

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## a.             BI acknowledges and agrees that, to the bestof its knowledge after due and diligent inquiry, as of the date hereof  (i) there exists no breach, default, or eventor condition which, with the giving of notice or the passage of time or both,would constitute a default by Landlord under the Lease, and (ii) there are noexisting claims, defenses or offsets against Rent due or to become due underthe Lease.

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## b.             Landlord acknowledges and agrees that, toLandlord’s current knowledge, as of the date hereof there exists no breach,default, or event or condition which, with the giving of notice or the passageof time or both, would constitute a Default under the Lease other than:  (i) certain items of repair and maintenanceto be completed by Tenant listed in the attached **Exhibit “C”** (the “Deferred Maintenance Items”)**;** (ii) BI’s failure to timely providenotice to Landlord (the “Required Environmental Notices”) under Section 37of the Lease of certain actual or potential violations of said Section 37,as set forth in those certain letters from BI to Landlord dated November 17,2004, and November 29, 2004, and the attachments referred to therein(collectively, the “November 2004 Notices”) and (iii) any continuingviolations of Section 37 of the Lease associated with the mattersenumerated in the November 2004 Notices (collectively, the “SpecificEnvironmental Matters”).  Landlord herebyagrees (A)  to forebear from declaring aDefault with respect to the Deferred Maintenance Items until March 31,2005, and (B) to waive any Default under the Lease arising from the failure totimely provide the Required Environmental Notices with respect to the SpecificEnvironmental Matters.  Such forbearanceand waiver shall not extend to (a) any requirements under the Lease regardingTenant’s obligation to cure any violation of Section 37 of the Leaserelating to the Specific Environmental Matters, or (b) Tenant’s obligation tocomply with all other provisions of Article 37 of the Lease; provided,however, Landlord and BI agree that BI shall be personally responsible for theadministrative resolution of those certain Specific Environmental Matters asfollows: (X) BI’s

 

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## failureto satisfy and discharge that certain Administrative Notice and Order receivedby BI from the City of San Diego on or about March 4, 2004, relating todischarges of chloroform and ammonia during the calendar year 2002, and (Y) BI’sopen issues with the California Department of Toxic Substance Control withrespect to the onsite release of five gallons of Sentol on June 2, 1999,and the onsite release of one and a half gallons of hydraulic fluid on October 26,1999 (collectively, the “BI Section 37 Matters”).  Tanox West shall have no responsibility withrespect to curing the BI Section 37 Matters.  Such waiver shall not extend to any otheractual or potential violations under Section 37 of the Lease, includingbut not limited to any Specific Environmental Matters other than the BI Section 37Matters.  BI represents, warrants andagrees that (x) there are no currently existing violations, and there are nouncured violations, of Section 37 of the Lease other than with respect tothe BI Section 37 Matters, and (y) BI will diligently prosecute curing,and shall cure as soon as reasonably possible, the BI Section 37 Matters,including obtaining the closure of the governmental records with respectthereto.  BI will provide evidence ofsuch cures to Landlord and Tanox West, to their satisfaction in accordance withthe requirements of Section 37 of the Lease.  BI shall indemnify, defend and hold harmlessLandlord and Tanox West from any failure to cure the BI Section 37Matters.  Except for the foregoing, and withoutexpanding the definition of Landlord’s current knowledge, such acknowledgementand agreement shall not be deemed to include any reference to any Defaultarising with respect to Section 37 of the Lease or otherwise in connectionwith Hazardous Materials.  As usedherein, Landlord’s “current knowledge” shall mean the current, actual knowledgeof Ivan Gayler and David Winkler as of the date of this Agreement, without dutyof inquiry or investigation, and without constructive or imputed knowledge.

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# 8.             Insurance.  Section 19.2 of theLease, specifies the maximum insurance deductible for the insurance to bemaintained by tenant is at $5,000.  Theparties hereby agree that said deductible amount may be increased to anaggregate of $150,000.

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# 9.             Vivarium Modifications. Landlord hereby consents to the alteration of the existing vivariumportion of the Premises into a fully improved cGMP storage facility and/orgeneral warehouse; provided, however, that such alterations shall be completedin accordance with the Lease, including but not limited to the requirement thatTenant obtain Landlord’s consent to the plans therefor.  Tenant shall use reasonable efforts to retainthe existing utilities, drains and other infrastructure to support thereinstallation of a vivarium. Notwithstanding any other provision of the Lease to the contrary, Tenantshall not be required to remove or restore such alterations at the end of theterm of the Lease.  Landlord’s consentherein is not a consent to any other improvement or alteration work to beperformed in the Premises.

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# 10.           Documents,Modifications, and Closure.

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## a.             Documents

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Upon Landlord’s request, if Tenant has less than 12months of Cash and Liquid Investments based on the then current burn rate(negative cash flow); if there then exists a Default or a condition which withthe giving of notice or the passing of time or both would constitute a Default;or at any time during the last two (2) years of the term of the Lease and, inthe case of clause (ii) below, during the two (2) years after the terminationof the Lease (provided that Landlord agrees to pay storage/handling costs asset forth below); Tenant shall provide Landlord:

 

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### (i)            reasonable access to and delivery to Landlordof all as-built drawings, manuals (provided that, as to manuals, delivery shallbe at the end of the Lease term), SOP’s, change control documents, and otherdocuments and materials required under the Lease, with updates through thetermination date of the Lease, required to operate and maintain: the utilitysystems in the Demised Premises, and equipment which is to remain in theDemised Premises under the terms of the Lease after the termination date of theLease; and

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### (ii)           upon payment by Landlord to Tenant of a cash purchase price of OneMillion Five Hundred Thousand Dollars ($1,500,000), plus four percent (4%) perannum from January 1, 2005, copies or, at Tenant’s election, originals ofthe Validation Documents (as defined below). Landlord may elect to acquire the Validation Documents and pay the purchaseprice at any time during the last two years of the term of the Lease and for upto two years thereafter, provided that, Landlord agrees to pay all storage andhandling costs associated with the Validation Documents for any period afterthe end of the Lease term, and provided further that, in no event shall Tenantbe required to deliver any such Validation Documents prior to the end of theLease term (but if Landlord has elected to purchase the Validation Documentsand has paid for the same, Landlord shall be provided reasonable access to, andthe unlimited right to copy, the same). Prior to the payment referred to above, in connection with any effortsby Landlord to relet the Demised Premises, and subject to the execution ofappropriate confidentiality agreements, Tenant agrees to provide Landlord andpotential tenants with a then current list of the Validation Documents (similarto that set forth in **Exhibit “D”**hereto) and limited access to a sampling of such documents to the extentreasonably necessary for the Landlord or potential tenant to evaluate thebenefit of acquiring such documents in connection with such tenant’s leasing ofthe Demised Premises.  The “ValidationDocuments” shall include all of those documents and materials which Tanox Westacquired from BI pursuant to that certain definitive agreement between TanoxWest, Guarantor and BI dated December 9, 2004 (“Definitive Agreement”),with updates and additions through the termination date of the Lease, andexcludes the documents required under 10.a.i. above.  BI and Tanox West represent that the list ofdocuments in the attached **Exhibit “D”**is the list of all documents transferred by BI to Tanox West pursuant to theDefinitive Agreement, and which include certain of the documents and other materials******required under10.a.i. above.  Landlord and Tenantacknowledge and agree that the Validation Documents accessible by ordeliverable to Landlord will not include information related to Tenant’sproducts, processes and quality systems to the same extent similar informationwas redacted by BI in connection with the Definitive Agreement.

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To the extent available in CAD or electronic format,all such documents and other materials******shall, upon delivery to Landlord, bedelivered in such format.  Upon deliveryof such documents and materials, Landlord shall be the owner of the same andall of the information contained therein, free and clear of any rights orclaims of any other parties, with all rights thereto; provided, however, Tenantshall retain and reserve, and Landlord agrees to recognize, a perpetualroyalty-free non-exclusive license to use copies and originals of any suchdocumentation retained by Tenant in compliance with the terms of thisAgreement.  Tenant shall be permittedaccess to, and the opportunity to copy at its cost, any of the documents andother materials (subject to coordination with Landlord or any subsequentoccupant so as not to interfere with Landlord’s or its occupants’ use thereof)for a period of six (6) months following the later to occur of (i) terminationof the Lease or (ii) Landlord’s acquisition of the Validation Documents.Landlord further acknowledges that, pursuant to the terms of the DefinitiveAgreement, BI has retained and reserved, and Landlord agrees to recognize, a perpetualroyalty-free non-exclusive license to use, copies and originals of any suchdocumentation retained by BI.

 

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## b.             Modifications.

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No alterations, additions, or improvements to thecGMP portion of the Demised Premises or equipment which is to remain in theDemised Premises under the terms of the Lease after the termination date of theLease may be made by Tenant which are not consistent with then applicable FDAcurrent good manufacturing practices (cGMP) or results in the inability torestore the above to a Readily Validatable State (as defined below).

 

## c.             Closure.

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### (i)            On the termination date of the Lease the cGMPportion of the Demised Premises and equipment which must remain in the DemisedPremises after the termination date of the Lease shall be returned by Tenant toLandlord in a “Readily Validatable State,” defined as a validation conditionequivalent to, or better than, the validation condition in which BI transferredthe Demised Premises to Tanox West, which would enable a knowledgeable successoroccupant to requalify the cGMP facility, systems and remaining equipment(collectively, the “cGMP Facility”) within 6 to 12 months of occupancy of theDemised Premises as a facility for the manufacture of biological orpharmaceutical products.  The foregoingcondition in which the cGMP Facility is left, including any decommissioning,shall be in conformance with then current industry standards and governmentalrequirements.  Evidence of all permit andlicense closures related to the cGMP Facility and the Demised Premises shall bedelivered by Tenant to Landlord at or before the end of the Lease term.

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### (ii)           Tenant and Landlord agree, and Landlord agrees to use commerciallyreasonable efforts to cause any successor occupant, to cooperate and providereasonable assistance to each other in the transfer of the Demised Premiseswithout incurring substantial financial or time burdens, unless reimbursed bythe party requiring such assistance.

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# 11.           Option Right to Purchase Equipment.

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## a.             Subject to clause 11.b below, Tenant grantsto Landlord an option to purchase (“Option”) some of the equipment which TanoxWest is purchasing from BI pursuant to the Definitive Agreement with allmodifications, replacements and substitutions thereto (“Option Equipment”).  The purchase price for each category ofequipment purchased shall be determined by Clark, Richardson and Biskup (“CRB”)or another appraisal firm mutually acceptable to the Landlord and Tenant as ofthe date of delivery of such items purchased by Landlord and shall equal thirtynine and six tenths percent (39.6%) of the replacement cost of items in anysuch category as determined in a manner consistent with that used by CRB in thevaluation relied on in connection with the acquisition of such items by TanoxWest from BI (the “Equipment Option Price”). Landlord shall pay all sales taxes attributable to any itemspurchased.  The parties may discuss thesale of other equipment and spare parts inventory in the Demised Premises.

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Landlordmay exercise such Option as to the items in each of the following categories ofOption Equipment with all modifications, replacements and substitutionstherefor: MSM Equipment (**Exhibit “E-1”**)and Additional FF&E (**Exhibit “E-2”**).  The Option may be exercised in whole but notin part as to each such category.  TheOption may be exercised by Landlord delivering to Tenant written notice ofLandlord’s election to purchase, setting forth the categories so elected (i)not more than twenty-four (24) months and not later than fifteen (15) months priorto the end

 

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ofthe term of the Lease, as the same may be extended from time to time, or (ii)upon the earlier termination of the Lease in the event of an early terminationof the Lease.

 

Titleto the items of equipment purchased shall be delivered by bill of sale upon thetermination of the Lease or, in the case of an early termination, upon suchlater determination of the Equipment Option Price by CRB or such otherappraisal firm, free and clear of any liens or encumbrances or any other rightsof third parties with respect thereto; whereupon, Landlord shall deliver toTenant the Equipment Option Price in cash.

 

## b.             Notwithstanding clause 11.a. above, TanoxWest may remove one or more large items from the Option Equipment list,provided each such item: (i) cost in excess of Two Hundred Thousand Dollars($200,000) (“Large Equipment”); (ii) is easily moved; and (iii) was replaced byTanox West during the last two (2) years of the Lease Term.  In addition, Tanox West may remove anyprocess equipment added by Tanox West that constitutes all or a portion of anew technological system (i.e., new to the Demised Premises), provided thatsuch equipment removal does not compromise the ability to restore the DemisedPremises to a Readily Validatable State. Tanox West shall notify Landlord ofits intent to remove any such Large Equipment item with as much notice as isreasonably possible to enable Landlord sufficient time to replace it, but notless than (i) three (3) months prior to the termination date of the Lease or(ii) by the date of an earlier termination of the Lease in the event of anearly termination of the Lease.

##  

## c.             If, during the last fifteen (15) months ofthe term of the Lease, Tanox West receives a bona fide offer from an unrelatedthird party (“Third Party Offer”) to purchase all or any portion of the OptionEquipment, Landlord shall have ten (10) days from receipt of written noticefrom Tanox West of such Third Party Offer (setting forth the identity of theproposed purchaser and the material terms of the offer) in which to exercise aright of first refusal to purchase upon substantially similar terms suchparticular items of equipment so specified (“Specified Items”), at a priceequal to the Third Party Offer price (“Right of First Refusal”).  If the offeror is a biotech or pharmaceuticalcompany with a market cap (i) over $500 million, Landlord must pay Tanox West apremium of 15% over the Third Party Offer price, or (ii) between $150 millionand $500 million, Landlord must pay Tanox West a premium of 7% over the ThirdParty Offer price .

##  

In the event that Landlord does not timely exercisesuch Right of First Refusal, Tenant may, with respect to the Specified Itemsenter into a contract to sell the Specified Items to the proposed purchaser atthe same price contained in the notice to Landlord.  If an agreement to sell such Specified Itemswith said third party offeror has not been entered into within one hundredtwenty (120) days of Landlord’s response or failure to respond as set forthabove, Tenant shall provide notice of the offer then under negotiation with thethird party offeror to Landlord, whereupon Landlord shall have the right toexercise its Right of First Refusal as set forth above.

 

If for any reason, the negotiations with the thirdparty offeror are terminated, Landlord’s Right of First Refusal to purchase theSpecified Items shall be reinstated.

 

## d.             All dollar amounts in paragraphs 11.b, c.iand c.ii shall be subject to a 4% per annum increase from January 1, 2005.

 

----

 

## e.             Except to the extent Landlord exercises itsright to purchase the Option Equipment as set forth above, Tanox West shall befree to remove any such Option Equipment in accordance with Section 12below.

##  

# 12.           Revised List of Removable Equipment. Exhibit “B” to **Exhibit “A-3”**attachedhereto and Exhibit “A” to **Exhibit “A-7”**attached hereto (collectively, the List of Removable Equipment referenced in Section 15.8of the Lease) are deleted and replaced by the attached **Exhibit “F.”**  Notwithstanding any other provision of theLease, except to the extent of Landlord’s rights under Section 11 above,Tenant may remove the Removable Equipment at any time during the finalforty-five (45) days of the term of the Lease provided that such removal doesnot adversely affect the Readily Validatible State of the cGMP portion of theDemised Premises.

#  

# 13.           Assignment.  BI hereby assigns, transfersand delivers to Tanox West, as of the Effective Date, all of BI’s rights andinterests as Tenant under the Lease and the Security Deposit.

#  

# 14.           Assumption.  From and after the EffectiveDate, Tanox West hereby accepts the assignment as set forth in Section 13above and Tanox West hereby assumes all of Tenant’s obligations under theLease.

#  

# 15.           Landlord’s Consent. Landlord hereby consents to the assignment and assumption of the Leaserights and obligations as set forth in Sections 13 and 14 above (the “Assignment”),all subject to the other terms as set forth in this Agreement, includingwithout limitation Section 7 hereof.

#  

# 16.           No Release.  Except as otherwise expresslyset forth herein, nothing contained herein shall relieve BI of any of itsobligations as Tenant under the Lease or alter the primary liability of BI topay Rent and to perform all other obligations to be performed by Tenant underthe Lease.  Except as set forth in Section 7(b)above regarding the BI Section 37 Matters, from and after the EffectiveDate, BI and Tanox West shall be jointly and severally liable, as primaryobligors, for all duties, obligations and liabilities of Tenant under theLease.  BI shall be released from anyliabilities accruing from and after October 1, 2008, including, but notlimited to the obligation to pay Rent accruing from and after October 1,2008; provided, however, such release shall not be deemed to relieve BI fromany ongoing liability for obligations under the Lease accruing prior to October 1,2008, or for obligations surviving the termination of the Lease pursuant to theterms thereof or as a matter of law, including but not limited to (i) theobligation to remove from the Demised Premises all Hazardous Materials existingthereon prior to October 1, 2008, which are required to be removed underthe Lease and to indemnify Landlord with respect thereto in accordance withapplicable provisions of the Lease, and (ii) the indemnification provisions of Section 18of the Initial Lease (to the extent any claim for indemnification relates tomatters arising prior to October 1, 2008). Any of the foregoing notwithstanding, BI shall not be liable for anydamages in excess of lost Rent directly arising from a breach by Tanox West ofthe provisions of Sections 10 or 11 of this Agreement.  As between BI and Tanox West, nothing in thisSection 16 shall limit or modify the provisions of the DefinitiveAgreement.

#  

# 17.           Incorporation.  Eachof the terms and conditions set forth in this Agreement are hereby incorporatedinto the Lease as though initially set forth therein.

 

----

 

# 18.           Effect.  The amendments to the Leaseand the Assignment provided for under this Agreement shall only becomeeffective upon, and is subject to delivery to Landlord of, writtenconfirmation, executed by BI and Tanox West (the “Assignment Confirmation”),that the Assignment has, or will, become effective as of the date specified inthe Assignment Confirmation (the “Effective Date”).  In the event the Assignment Confirmation hasnot been delivered to Landlord on or prior to February 1, 2005, thisAgreement shall automatically terminate and be of no further force or effect,unless extended by the written agreement of all parties hereto.  In the event of such termination, Tenantshall pay all of Landlord’s out of pocket costs and expenses (includingattorneys’ and other consultants’ fees) incurred in connection with thepreparation of this Agreement, not to exceed $50,000.  Subject to the foregoing, except as otherwiseexpressly set forth in this Agreement, all of the other terms and provisions ofthe Lease shall remain in full force and effect.  In the event of any conflict between theprovisions of this Agreement and the provisions of the other documentsconstituting the Lease, this Agreement shall control.  This Agreement, together with the Lease,constitutes the entire agreement between Landlord, BI and Tanox West pertainingto the subject matters hereof, and supersede all prior negotiations,understandings or agreements concerning the subject matters hereof.  Notwithstanding the foregoing, as between BIand Tanox West, nothing in this Agreement shall be construed as limiting ormodifying the provisions of the Definitive Agreement.

#  

# 19.           Addresses for Notice. Notices and other written communications under the Lease shall bedelivered to the parties at the following addresses:

#  

| To Landlord:   | Ivan Gayler and David Winkler |
|----------------|-------------------------------|
|           | c/o Del Mar Partnership, Inc. |
|           | 1400 Maiden Lane              |
|           | Del Mar, CA 92014             |
|           |                          |
|           | Rob Tomlinson and Alton White |
|           | c/o Del Mar Partnership, Inc. |
|           | 1400 Maiden Lane              |
|           | Del Mar, CA 92014             |
|           |                          |
| To BI:         | Biogen Idec Inc.              |
|           | P.O. Box 229008               |
|           | 5200 Research Place           |
|           | San Diego, CA 92129-9008      |
|           |                          |
| To Tanox West: | Tanox West, Inc.              |
|           | Attn: President               |
|           | 10555 Stella Link             |
|           | Houston, TX 77025             |
|           |                          |
|           | Tanox, Inc.                   |
|           | Attn: Chief Legal Officer     |
|           | 10555 Stella Link             |
|           | Houston, TX 77025             |

 

 

----

 

# 20.           Future Assurances.  Eachof the parties hereto will cause to be promptly and duly taken, executed,acknowledged and delivered all such further acts, documents and assurances asany of the others reasonably may request from time to time in order to carryout more effectively the intent and purposes of this Agreement, including butnot limited to such further estoppel and/or subordination agreements reasonablyrequested by Landlord’s lender holding an encumbrance on the Demised Premises.

#  

# 21.           Counterparts.  ThisAgreement may be signed in one or more counterparts, all of which shall betreated as the same combined document.  Aparty may evidence its execution and delivery of this Agreement by a telecopyfacsimile transmission of the signed Agreement to another party hereto.

#  

# 22.           Guaranty.  Concurrently herewith, and asa condition precedent to Landlord’s obligations under this Agreement, Tanox asGuarantor is executing and delivering to Landlord a Guaranty of Leaseguarantying, on the terms set forth therein, all of the obligations of TanoxWest under the Lease.

#  

# 23.           SNDA.  Prior hereto, Landlord, BI andWashington Capital Joint Master Trust Mortgage Income Fund (“Lender”) enteredinto that certain Subordination, Non-disturbance and Attornment Agreement datedas of December 18, 2002 (the “SNDA”), which was recorded in the office ofthe County Recorder of San Diego County, California, on December 18, 2002,as Document Number 2002-1155747. Landlord and Tanox West agree, as of the Effective Date, to be bound byall of the terms and conditions of the SNDA to the same extent as if Tanox Westexecuted the same as the “Tenant” thereunder.

#  

IN WITNESS WHEREOF, the parties have executed anddelivered this Agreement as of the Effective Date first written above.

 
| TSI, L.P., a California limited partnership |                    |
|---------------------------------------------|-------------------------|
|                                        |                    |
|                                        |                    |
| By:                                         | /s/ Ivan Gaylor         |   |   |
| Print Name:                                 | Ivan Gaylor             |   |   |
| Title:                                      | President               |   |   |
|                                        |                    |
|                                        |                    |
| Biogen Idec Inc., a Delaware corporation    |                    |
|                                        |                    |
| By:                                         | /s/ Edward M. Rodriquez |   |   |
| Print Name:                                 | Edward M. Rodriquez     |   |   |
| Title:                                      | Vice President, Finance |   |   |
|                                        |                    |
| Tanox West, Inc., a Delaware corporation    |                    |
|                                        |                    |
| By:                                         | /s/ Nancy T. Chang      |   |   |
| Print Name:                                 | Nancy T. Chang          |   |   |
| Title:                                      | President & CEO     |   |   |
|                                        |                    |
|                                             |                         |  |  |  |  |  |  |

 

----

 

**CONSENT OFLENDER**

 

WashingtonCapital Joint Master Trust Mortgage Income Fund (“Lender”), the holder of adeed of trust encumbering the Demised Premises, hereby consents to theforegoing Fourth Lease Amendment and Assignment Agreement.  Lender agrees that Tanox West shall beentitled to all rights of the “Tenant” under that certain Subordination,Non-disturbance and Attornment Agreement dated as of December 18, 2002(the “SNDA”), which was recorded in the office of the County Recorder of SanDiego County, California, on December 18, 2002, as Document Number2002-1155747, to the same extent as if Tanox West executed the same as the “Tenant”thereunder.

 

 

WASHINGTONCAPITAL JOINT MASTER TRUST

MORTGAGEINCOME FUND

 

By:  Washington Capital Management, Inc., itsManager

 
| By:         | /s/ Donald R. Maesher          |   |
|-------------|--------------------------------|--------|
| Print Name: | Donald R. Maesher              |   |
| Title:      | President California  Division |   |
|             |                                |        |  |  |

 

----

 

Exhibit “A-1”

 

 

LEASE

 

 

July 9, 1992

 

 

Between

 

 

TORREY SORRENTO, INC.

a California corporation,

 

as Landlord

 

and

 

IDEC PHARMACEUTICALS CORPORATION,

a California corporation,

 

as Tenant

 

----

 

TABLE OF CONTENTS

 
| Article              |                              |
|----------------------|-----------------------------------|
|                 |                              |
| DEFINITION OF TERMS. |                              |
|                 |                              |   |
| 1.                   | Lease Premises                    |   |
|                 |                              |   |
| 2.                   | Basic Lease Provisions            |   |
|                 |                              |   |
| 3.                   | Term.                             |   |
|                 |                              |   |
| 4.                   | Possession and  Commencement Date |   |
|                 |                              |   |
| 5.                   | Rent                              |   |
|                 |                              |   |
| 6.                   | Rental Adjustments                |   |
|                 |                              |   |
| 7.                   | Operating Expenses                |   |
|                 |                              |   |
| 8.                   | Rentable Area                     |   |
|                 |                              |   |
| 9.                   | Use                               |   |
|                 |                              |   |
| 10.                  | Brokers                           |   |
|                 |                              |   |
| 11.                  | Holding Over.                     |   |
|                 |                              |   |
| 12.                  | Taxes on Tenant’s  Property  |   |
|                 |                              |   |
| 13.                  | Condition of Demised  Premises.   |   |
|                 |                              |   |
| 14.                  | Utilities and Services            |   |
|                 |                              |   |
| 15.                  | Alterations                       |   |
|                 |                              |   |
| 16.                  | Repairs and Maintenance           |   |
|                 |                              |   |
| 17.                  | Liens                             |   |
|                 |                              |   |
| 18.                  | Indemnification  and Exculpation  |   |
|                 |                              |   |
| 19.                  | Insurance  Waiver of Subrogation  |   |
|                 |                              |   |
| 20.                  | Damage or Destruction             |   |
|                 |                              |   |
| 21.                  | Eminent Domain                    |   |
|                 |                              |   |
| 22.                  | Defaults and Remedies.            |   |

 

----

 
| 23.    | Assignment or  Subletting..               |   |
|--------|-------------------------------------------|--------|
|   |                                      |   |
| 24.    | Attorney’s Fees                      |   |
|   |                                      |   |
| 25.    | Bankruptcy.                               |   |
|   |                                      |   |
| 26.    | Definition of Landlord                    |   |
|   |                                      |   |
| 27.    | Estoppel Certificate                      |   |
|   |                                      |   |
| 28.    | Joint and Several  Obligations.           |   |
|   |                                      |   |
| 29.    | Limitation of  Landlord’s Liability  |   |
|   |                                      |   |
| 30.    | Intentionally Omitted                     |   |
|   |                                      |   |
| 31.    | Quiet Enjoyment.                          |   |
|   |                                      |   |
| 32.    | Quitclaim Deed                            |   |
|   |                                      |   |
| 33.    | Subordination and  Attornment.            |   |
|   |                                      |   |
| 34.    | Surrender.                                |   |
|   |                                      |   |
| 35.    | Waiver and Modification                   |   |
|   |                                      |   |
| 36.    | Waiver of  Jury Trial and Counterclaims.. |   |
|   |                                      |   |
| 37.    | Hazardous Materials.                      |   |
|   |                                      |   |
| 38.    | Miscellaneous                             |   |
|   |                                      |   |
| 39.    | Contingencies                             |   |

 
| EXHIBITS: |                                          |
|-----------|-----------------------------------------------|
|      |                                          |   |
| A         | Legal Description of Land                     |   |
|      |                                          |   |
| A-2       | Site Plan for Land and Building               |   |
|      |                                          |   |
| B         | Work Letter                                   |   |
|      |                                          |   |
| C         | Additional Building Agreement                 |   |
|      |                                          |   |
| D         | Early Termination Agreement                   |   |
|      |                                          |   |
| E         | Estoppel Certificate Form                     |   |
|      |                                          |   |
| F         | Acknow1edgment of Term Commencement Date Form |   |

 

----

 

TORREY SORRENTO/IDEC LEASE

 

DEFINITION OF TERMS

 
| **Term**                                     | ** ** | **Section  Location** |
|----------------------------------------------|------------|-----------------------|
|                                         |       |                  |
| Additional Rent                              |       | L 5.2                 |
|                                         |       |                  |
| Additional Building                          |       | L 1.3                 |
|                                         |       |                  |
| Additional Building Agreement                |       | L 1.3                 |
|                                         |       |                  |
| Affiliates                                   |       | L 23.2                |
|                                         |       |                  |
| Allocated Cost Estimate                      |       | W 4.2.4               |
|                                         |       |                  |
| Architect’s Contract                    |       | W .1.1                |
|                                         |       |                  |
| Assignment Date                              |       | L 23.4                |
|                                         |       |                  |
| Assignment Notice                            |       | L 23.4                |
|                                         |       |                  |
| Basic Annual Rent                            |       | L 5.1                 |
|                                         |       |                  |
| Basic Improvements to Building Shell         |       | W 1.2.2               |
|                                         |       |                  |
| Building Improvements for Generic Facilities |       | W 1.2.3               |
|                                         |       |                  |
| Building                                     |       | L 1.1                 |
|                                         |       |                  |
| City                                         |       | W 1.6                 |
|                                         |       |                  |
| City Required Change                         |       | W 1.6                 |
|                                         |       |                  |
| Construction Documents                       |       | W 1.2.8,  W 1.4.4     |
|                                         |       |                  |
| Construction Contract                        |       | W 1.1                 |
|                                         |       |                  |
| Corrective Work                              |       | W 1.2.1               |
|                                         |       |                  |
| Cost Estimate                                |       | W 4.2.3               |
|                                         |       |                  |
| Default                                      |       | L* *22.4         |
|                                         |       |                  |
| Demised Premises                             |       | L 1.1                 |

 

----

 
| **Term**                                            | ** ** | **Section  Location** |
|-----------------------------------------------------|------------|-----------------------|
| Design Development Drawings                         |       | W 1.4.3               |
|                                                |       |                  |
| Development Schedule                                |       | W 1.3                 |
|                                                |       |                  |
| Effective Date                                      |       | L Intro.              |
|                                                |       |                  |
| Estimated Tent Commencement Date                    |       | L 2.1.6(a)            |
|                                                |       |                  |
| Exhibits (in Lease)                                 |       | L 2.1.10              |
|                                                |       |                  |
| Fair Rental Value                                   |       | L 6.2.1  L 3.3        |
|                                                |       |                  |
| Force Majeure Delays                                |       | W 6.1                 |
|                                                |       |                  |
| Generic Office Facility                             |       | W 1.2.3               |
|                                                |       |                  |
| Generic Pilot Plant Production Facility             |       | W 1.2.3               |
|                                                |       |                  |
| Generic Wet Laboratory Facility                     |       | W 1.2.3               |
|                                                |       |                  |
| Hazardous Materials                                 |       | L 37.7                |
|                                                |       |                  |
| Hazardous Materials List                            |       | L 37.1.2              |
|                                                |       |                  |
| Improvement Plans                                   |       | W 1.2.7,  W 1.4.1     |
|                                                |       |                  |
| Improvements Cost Fund                              |       | L 2.1.5               |
|                                                |       |                  |
| Initial Monthly Rental Installments                 |       | L 2.1.4               |
|                                                |       |                  |
| Initial Rentable Area                               |       | L 2.1.2               |
|                                                |       |                  |
| Initial. Basic Annual Rent                          |       | L 2.1.3               |
|                                                |       |                  |
| Invitees                                            |       | L 3.7.1               |
|                                                |       |                  |
| Land                                                |       | L 1.1                 |
|                                                |       |                  |
| Landlord                                            |       | L Intro.              |
|                                                |       |                  |
| Landlord’s Agents                              |       | L 18.1                |
|                                                |       |                  |
| Landlord-Caused Delays                              |       | W 6.1                 |
|                                                |       |                  |
| Landlord’s Construction Coordinator’s Fee |       | W 4.4                 |

 

----

 
| **Term**                                   | ** ** | **Section  Location** |
|--------------------------------------------|------------|-----------------------|
| Landlord’s Contractor                 |       | W 4.1                 |
|                                       |       |                  |
| Landlord’s Default                    |       | L 22.10               |
|                                       |       |                  |
| Landlord’s Invitees                   |       | W 37.1                |
|                                       |       |                  |
| Landlord’s Work                       |       | W 1.2.6,  W 2.1       |
|                                       |       |                  |
| List of Removable Equipment                |       | L 15.8                |
|                                       |       |                  |
| New Loan                                   |       | L 39.2                |
|                                       |       |                  |
| Operating Expenses                         |       | L 7                   |
|                                       |       |                  |
| Permitted Uses                             |       | L 2.1.7               |
|                                       |       |                  |
| Project Architect                          |       | W 1.1                 |
|                                       |       |                  |
| Punch List                                 |       | W 1.7.13              |
|                                       |       |                  |
| Rent                                       |       | L 5.3                 |
|                                       |       |                  |
| Rentable Area                              |       | L 8.1                 |
|                                       |       |                  |
| Rental Adjustment Date                     |       | L 6.2.1               |
|                                       |       |                  |
| Requested Change                           |       | W 1.5.2               |
|                                       |       |                  |
| Revised Allocated Cost Estimate            |       | W 4.2.3               |
|                                       |       |                  |
| Security Deposit                           |       | L 5.4                 |
|                                       |       |                  |
| Schematic Design Drawings                  |       | W 1.4.2               |
|                                       |       |                  |
| Special Tenant Improvements                |       | W 1.2.4               |
|                                       |       |                  |
| Substantial Completion                     |       | L 4.2                 |
|                                       |       |                  |
| Tenant                                     |       | L Intro.              |
|                                       |       |                  |
| Tenant-Caused Delays                       |       | W 6.1                 |
|                                       |       |                  |
| Tenant Changes                             |       | W 1.8.1               |
|                                       |       |                  |
| Tenant’s Agents                       |       | L 18                  |
|                                       |       |                  |
| Tenant’s Construction Representatives |       | W 7.2                 |

 

----

 
| **Term**                | ** ** | **Section  Location** |
|-------------------------|------------|-----------------------|
| Tenant’s Invitees  |       | W 37.1                |
|                    |       |                  |
| Tenant’s Work      |       | W 1.2.5; 3.2          |
|                    |       |                  |
| Term Expiration Date    |       | L 2.1.6(b)            |
|                    |       |                  |
| Term Commencement Date  |       | L 4.2,  W 6.3.3       |
|                    |       |                  |
| Title 24                |       | W 1.4.1               |
|                    |       |                  |
| Work Letter (Exhibit B) |       | L 1.1                 |

 

----

 

LEASE

 

THIS LEASE is made as of July 9, 1992 (the “EffectiveDate”), by and between Torrey Sorrento, Inc., a California corporation(hereinafter called “Landlord”) and IDEC Pharmaceuticais Corporation, aCalifornia corporation (“Tenants.).

 

1.             Lease Premises.

 

1.1           Landlord hereby leases to Tenant and Tenanthereby leases from Landlord the building premises and related land, parkingareas, and adjacent areas located at 11011 Torreyana Road, San Diego,California. The building (the “Building”) is a two-story steel frame structurecontaining approximately 70,000 square feet of Rental Area. The land upon whichthe Building is located (the “Land”) is legally described in Exhibit “A”attached hereto. The site plan for the Land and Building is attached hereto asExhibit A-2. Landlord shall make certain improvements to the Building, asdescribed in the Work Letter Agreement for Improvements which is attachedhereto as Exhibit “B” (“Work Letter”). The Land, the Building and improvementsthereto, and all landscaped areas, parking facilities, open parking areas, openspace, slope embankment areas, and other improvements and hardscape, driveways,sidewalks, drainage, irrigation, lighting, and appurtenances related theretoare hereinafter collectively referred to as the “Demised Premises”. Provided,however, notwithstanding the foregoing, Landlord hereby reserves and retainsthe right to sever and remove from the Demised Premises such areas as arereasonably necessary, or appropriate for the one Additional Building asreferenced in Section 1.3 below, all in accordance with the provisions ofthe Additional Building Agreement.

 

1.2           The Demised Premises constitute a singleproject, all of which IS leased by this Lease to Tenant. Accordingly, the useof the Demised Premises are provided exclusively to Tenant and there are no “commonarea” facilities within the Demised Premises which are to be shared by multipletenants.

 

1.3           Notwithstanding the foregoing, pursuant tothe provisions of the Additional Building Agreement attached hereto as Exhibit “C”,Landlord may Construct one additional building (the “Additional Building”) on aportion of the Demised Premises. If said Additional Building is ever built andis ever leased to a tenant other than Tenant, then the definition of theDemised Premises covered by this Lease shall be modified, so as to eliminatethe Additional Building and that portion of the Land upon which the AdditionalBuilding is located from the Demised Premises, all in accordance with theprovisions of the Additional Building Agreement. Further, some of the parkingareas,

 

1

----

 

driveways,sidewalks, landscaped areas, open space and adjacent areas will be removed fromthe definition of the Demised Premises, and instead said areas will become “commonareas” to be shared by Tenant and the tenant(s) of the Additional Building, allin accordance with the provisions of the Additional Building Agreement;provided however, Tenant shall retain the use of at least 210 parking spaces.If and when the Additional Building is so constructed and the definition of theDemised Premises is so modified, then all references in this Lease to theDemised Premises shall thereafter mean said modified definition of the DemisedPremises.

 

2.             Basic Lease Provisions.

 

2.1           For convenience of the parties, certain basicprovisions of this Lease are set forth herein. The provisions set forth hereinare subject to the remaining terms and Conditions of this Lease and are to beinterpreted in light of such remaining terms and conditions.

 

2.1.1                        Address of the Building:

11011 Torreyana Road

San Diego, California 92121

 

2.1.2                        Initial Rentable Area: Approximately

70,000 square feet

 

2.1.3                        Initial Basic Annual Rent: Two Million

Three Hundred Ten Thousand Dollars

($2,310,000) ($2.75 per square foot of

Rentable Area per month) (see

Section 6.3.3 of the Work Letter for

reduced Rent for early occupancy)

 

2.1.4                        Initial Monthly Rental Installments: OneHundred Ninety-

two Thousand Five Hundred

Dollars ($192,500)

 

2.1.5                        Improvements Cost Fund: 9,900,960 (Thisamount consists of $240,960 for the Basic Improvements to Building Shell, and$9,660,000 for the Building Improvements for Generic Facilities.) (See Section 1.7.14of the Work Letter concerning a $100,000 credit.)

 

2.1.6                        (a)    Estimated TermCommencement Date:

June 26, 1993 (See Section 6.3.8 of theWork Letter for determining the actual term Commencement Date.)

 

2

----

 

(b)         Term Expiration Date:

Fifteen (15) years and no (0) months from the actualTerm Commencement Date, plus any partial month following the Term CommencementDate, if the Term Commencement Date is other than the first day of a calendarmonth. (See Section 6.3.8 of the Work Letter for determining the actualTerm Commencement Date.)

 

(c)          The term is subject to early termination byTenant, as specified in Section 3.2 herein. (See Exhibit D, the EarlyTermination Agreement)

 

2.1.7                        Permitted Uses: All uses which are inaccordance with both (1) the City of San Diego Scientific Research zoningordinance in effect from time to time as applicable to the Demised Premises,and (ii) other applicable governmental regulations and recorded covenants,conditions and restrictions, Subject to the terms of this Lease.

 

2.1.8                        Address for Rent Payment and Notices to

Landlord:

 

Torrey Sorrento, Inc.

c/o Harman Realtors, Inc.

7835 Ivanhoe

La Jolla, CA 92037

 

With copy to (which copy shall not

constitute notice):

 

Earl Feldman, Esq.

1200 Third Ave., Ste. 1324

San Diego, CA 92101

 

Address for Notices to Tenant:

Prior to Tenant moving into Demised

Premises:

 

IDEC Pharmaceuticals Corporation

11099 N. Torrey Pines Rd., Ste. 160

La Jolla, CA 92037

Attention:  General Counsel and V.P. Finance

 

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After Tenant moves into Demised Premises:

 

IDEC Pharmaceuticals Corporation

11011 Torreyana Road

San Diego, CA 92121

Attention:      General Counsel and V.P. Finance

 

With Copy to (which copy shall not

constitute notice):

 

Todd J. Anson, Esq.

Brobeck, Phleger & Harrison

550 West C Street, Suite 1300

San Diego, CA 92101

 

2.1.9                        The following Exhibits are attached heretoand incorporated herein by this reference, and Landlord and Tenant hereby agree**to the terms of these Exhibits:

 
| **Exhibit**     | ** ** | **Title**                                     |
|-----------------|------------|-----------------------------------------------|
| “A”   |       | Legal Description of Land                     |
| “A-2” |       | Site Plan                                     |
| “B”   |       | Work Letter                                   |
| “C”   |       | Additional Building Agreement                 |
| “D”   |       | Early Termination Agreement                   |
| “E”   |       | Estoppel Certificate Form                     |
| “F”   |       | Acknowledgment of Term Commencement Date Form |

 

3.               Term.

 

3.1           This Lease shall take effect upon the date ofexecution hereof by both parties hereto and, except as specifically providedotherwise herein, each of the provisions hereof shall be binding upon and inureto the benefit of Landlord and Tenant from the date of execution hereof by bothparties hereto.

 

3.2           The term of this Lease will be that periodfrom the Term Commencement Date, as defined in Section 4.2 below, throughthe Term Expiration Date as set forth in Section 2.1.6(b), subject to theearlier termination of this Lease in accordance with the tens of the EarlyTermination Agreement attached hereto as Exhibit “D.”

 

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3.3           Tenant shall have two options to extend theterm of this Lease for two additional periods of five (5) years each, inaccordance with the following terms:

 

3.3.1        Basic Annual Rent for the first year of thefirst option shall be equal to the fair rental value (the “Fair Rental Value”)of the then existing Demised Premises, as determined pursuant to Section 6.2.1below and this Section 3.3, plus the fair rental value of the $2,800,000allowance described in Section 3.3.4 below, Said Basic Annual Rent shallbe subject to annual upward adjustments equal to four percent (4%) of theprevious year’s Basic Annual Rent, for the duration of the first five (5) yearadditional period, and also for the duration of the second five (5) year optionperiod, if this second option is exercised. Tenant shall also pay all OperatingExpenses and Additional Rent as set forth in this Lease.

 

3.3.2        Tenant may exercise each of these optionsonly by delivering a binding written notice of exercise to Landlord, so thatLandlord receives said notice of exercise at least two years prior to thecommencement of the extended term.

 

3.3.3        Tenant may exercise each of these optionsonly so long as no Default remains outstanding and uncured at the time that thenotice of exercise is received by Landlord. it is acknowledged that the FairRental Value will not be determined pursuant to Section 6.2.1 below untilapproximately 12 - 18 months after Tenant has exercised the option to extend.

 

3.3.4        As part of the first extension of the leaseterm (but not the second extension), Landlord shall furnish to Tenant anallowance of $2,800,000 for Tenant to construct additional generic tenantimprovements, or to refurbish previously existing generic tenant improvements,in the Demised Premises (as “generic improvements” are defined in the WorkLetter). Regularly scheduled Rent shall be paid by Tenant during the course ofconstruction of the additional generic tenant improvements, whether saidconstruction occurs during the last portion of the original 15-year term orduring the first portion of the new 5-year extension term.

 

3.3.5        Tenant shall be responsible for hiring thearchitect and the contractor for designing and constructing these additionalgeneric tenant improvements. Tenant’s selection of an architect and contractorshall be subject to Landlord’s approval, which**approval shall not be Withheld Unreasonably. The plans andspecifications and the construction contract, for these additional generictenant improvements shall be subject to Landlord’s approval, which approvalshall not be withheld unreasonably.

 

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3.3.6        The $2,800,000 allowance shall be spent onlyfor**the construction contractcosts to construct or refurbish generic tenant improvements. This allowanceshall be furnished by landlord during the 16th year of this Lease, as theconstruction work progresses. Provided however, that Landlord shall reimburseTenant within the first ten (10) days of the sixteenth (16th) year for anyportion of this allowance previously expended by Tenant. Excepting only as isotherwise specified in this Section 3.3, the $2,800,000 allowance shall beadministered, and the design and construction of the additional generic tenantimprovements shall proceed, in accordance with the procedures set forth in theWork Letter.

 

3.3.7        If Tenant makes a permitted assignment orsublease, the assignee or subtenant shall be entitled to the benefits of the$2,800,000 allowance as specified above.

 

3.3.8        As of the first day of the first five (5)year extension term (i.e., the 16th year of the Lease), Landlord shall pay toTenant, as a leasing commission, a cash sum equal to five percent (5%) of theaggregate Basic Annual Rent (including the 4% per annum escalation) payable byTenant over said five year term. Similarly, as of the first day of the secondfive (5) year term (i.e., the 21st year of the Lease), Landlord shall pay toTenant, as a leasing commission, a cash sum equal to five percent (5%) of theaggregate Basic Annual Rent (including the 4% per annum escalation) payable by Tenantover said five year term. These leasing commissions payable to Tenant shall notbe considered by the appraisal to increase the Fair Rental Value.

 

4.               Possession and Commencement Date.

 

4.1           Landlord and Tenant acknowledge that it isvery important to both parties to complete the Landlord’s Work as soon asreasonably feasible and both parties agree to use diligent and good faithefforts to cause the Landlord’s Work to be completed as soon as reasonablyfeasible. Landlord shall use diligent efforts to tender possession of theDemised Premises to Tenant on the Estimated Term Commencement Date as set forthin Section 2.l.6(a) above (“Estimated Term Commencement Date”), with theWork required of Landlord (Landlord’s Work”) as such is more Particularly describedin Exhibit “B” attached hereto (the “Work Letter”) substantially completed. Thedesign and construction of the Landlord’s Work is partially bifurcated, asdescribed in Section 6.3 of the Work Letter; and special provisions andagreements are set forth in Section 6.3 of the Work Letter which areintended to control and prevail over any conflicting or inconsistent provisionsof this Lease, including this Section 4. Accordingly, all provisions of Section 4of this Lease are subject to and controlled by any conflicting or inconsistentprovisions in Section 6.3 of the Work Letter. Tenant agrees that, in theevent

 

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Landlordfails to tender possession of the Demised Premises with Landlord’s Worksubstantially complete on or before the Estimated Term Commencement Date, thisLease shall not be void or voidable and Landlord shall not be liable to Tenantfor any loss or damage resulting therefrom. In such event, however, Tenantshall not be liable for any Basic Annual Rent or Additional Rent until the TermCommencement Date (as defined in Section 4.2 below). In the event Landlordreasonably determines that it will be unable to tender possession of theDemised Premises on or before the Estimated Term Commencement Date, promptlyafter making such determination Landlord shall give written notice to Tenant ofthe date Landlord estimates being able to tender possession of the DemisedPremises to Tenant. If said estimated date for substantial Completion ofLandlord’s Work is later than one hundred eighty (180) days after the EstimatedTerm Commencement Date plus the number of days of Tenant—caused Delays andForce Majeure Delays (as Tenant—caused Delays and Force Majeure Delays aredefined in Section 6.1 of the Work Letter), then Tenant may, at Tenant’soption, exercisable by written notice delivered to Landlord by Tenant Withinten (10) days after the date of Landlord’s notice to Tenant specifying theestimated new substantial completion date, terminate this Lease; and Landlord-and Tenant shall not by reason thereof, be subject to any further liabilityunder this Lease.

 

4.2           The Term Commencement Date shall be theearlier of (i) the date Landlord tenders possession of the Demised Premises toTenant With Landlord’s Work substantially complete; (ii) the date Tenantactually accepts possession of the entire Demised Premises (including the PilotPlant) and commences to conduct business therefrom (subject to the specialprovisions for partial possession as specified in Section 4.5 below); or(iii) the date that Landlord’s Work Would have been substantially completed butfor Tenant-caused Delays. The terms “substantially complete(d)” and “substantialcompletion” shall mean the date the Project Architect (as defined in Section 1.1of the Work Letter) has certified that Landlord’s Work is substantialitycomplete and that tenant can physically occupy the space, subject to thepunch-list items as described in Section 7.2 of the Work Letter, and theDemised Premises are in clean and operating condition, subject to minorpunch-list items that may still need to be Corrected and subject to items whichconstitute Tenant’s Work. The Project Architect Shall determine said “substantialcompletion” based upon the generally accepted professional standards of theAmerican Institute of Architects, and not as an advocate, consultant, or agentfor either Tenant or Landlord. With respect to the Pilot Plant ProductionFacility, it shall be deemed “substantially complete” when it is substantiallyready for pacification testing (subject to normal and reasonable punch-listitems), prior to validation testing. See Section 6.3.3 of the Work Letterfor determining the actual Term Commencement Date.

 

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4.2.1        Commencingapproximately six months prior to the estimated Completion date, and continuingat least monthly thereafter, Landlord shall give to Tenant written estimatesand revised estimates of the expected completion date. Notwithstanding anythingto the contrary in this Lease, Landlord shall provide Tenant with no less thanten (10) days’ prior notice in writing that the Demised Premises are, orshortly shall be, available for occupancy.

 

4.2.2        Landlordand Tenant shall each execute and deliver to the other written acknowledgementof the actual Term Commencement Date and the Term Expiration Date when such isestablished and shall attach it to this Lease as Exhibit “F”; however, failureto execute and deliver such acknowledgement shall not affect Tenant’s liabilityhereunder.

 

4.2.3        ifat any time it is reasonably estimated that Landlord will be unable tosubstantially complete the Demised Premises within one hundred eighty (180)days after the Estimated Fern Commencement Date plus the number of days ofTenant—caused Delays and Force Majeure Delays, either Landlord or Tenant may,at its option, exercisable by written notice delivered to the other, terminatethis Lease; provided however, said election to terminate shall not be made morethan twenty (20) days after Landlord gives written notice to Tenant that theestimated completion date will be beyond the foregoing specified permissibletime schedule (which written notice Landlord shall deliver promptly afterdetermining that the Demised Premises will probably not be substantiallycomplete within said time frame); but this option to terminate will againbecome applicable on the same basis if the estimated completion date is againdelayed further beyond the previously specified revised estimated completiondate. Provided, however, if the laboratory and office portions of the DemisedPremises**are occupied by Tenant,then a delay in the completion of the pilot plant shall not entitleLandlord or Tenant to terminate this Lease pursuant to this Section. In the eventof a termination of this Lease pursuant to this Section 4.2.3., then Landlordand Tenant shall not, by reason thereof, be subject to any further liabilityunder this Lease; but such a termination shall not relieve either Landlord orTenant for any liabilities they may have for prior breaches of theirobligations under this Lease.

 

4.3           Landlordshall allow Tenant to enter upon the Demised Premises prior to the TermCommencement Date for the purpose of performing Tenant’s Work, provided suchentry shall be coordinated in advance with Landlord and Landlord’s Contractorso as to not interfere with the performance by Landlord or Landlord’sContractor of Landlord’s Work. Such entry shall be subject to all the terms andconditions of this Lease, and the Work Letter Agreement, other than the paymentof Basic Annual Rent or Additional Rent.

 

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4.4           Prior toTenant’s initial entry onto the Demised Premises for the purpose of (i)installing improvements that are a part of Tenant’s Work, (ii) placing Tenant’spersonal property within the Demised Premises, or (iii) taking any other actionwhich is a part of Tenant’s Work, or (iv) early possession for partialoccupancy pursuant to Section 4.5, Tenant and Landlord shall furnish each otherevidence satisfactory to the other that insurance coverages required under theprovisions of Article 19 herein are in effect.

 

4.5           In theevent that the office and laboratory facilities portion of the Demised Premisesis substantially complete prior to the Term Commencement Date, said Tenantshall take early possession of said portion, pursuant to the terms of Section6.3 of the Work Letter, Such early possession shall not constitute TermCommencement for any purpose, notwithstanding the fact that Tenant flaycommence to conduct business from the Demised Premises as of the date of suchearly possession. Any such early possession shall be implemented in accordancewith reasonable advance written notice from Tenant to Landlord and reasonablecooperation between Tenant and Landlord. Upon any such early possession, Tenantshall comply with all applicable provisions of this Lease relative to theportion of the Demised Premises which Tenant occupies, excepting only thatTenant shall pay only $2.00 (rather than $2.75) per square foot of RentableArea per month for said space, plus all Operating Expenses related to saidspace, until the Penn Commencement Date.

 

5.             Rentand Security Deposit.

 

5.1           Tenantagrees to pay Landlord as Basic Annual Rent for the Demised Premises the sumset forth in Section 2.1.3, subject to the rental adjustments provided inArticle 6 hereof. Basic Annual Rent shall be paid in the equal monthlyinstallments set forth in Section 2.1.4, subject to the rental adjustments providedin Article 6 hereof, each in advance on the first day of each and everycalendar month during the term of this Lease, except.. that the first fullmonth’s installment of Basic Annual Rent (plus the monthly installment of BasicAnnual Rent pro rated for any partial month at the beginning of the termhereof) shall be paid by Tenant to Landlord upon on the Term Commencement Date.

 

5.2           Inaddition to Basic Annual Rent, Tenant agrees to pay to Landlord as additionalrent (‘Additiorial Rent”) at times hereinafter specified in this Lease (i) allOperating Expenses as provided in Article 7 herein), which are paid byLandlord, and (ii) any other amounts that Tenant assumes or agrees to pay underthe provisions of this Lease that are owed to Landlord, including, withoutlimitation, any and all other sums that may become due by reason of any defaultof Tenant or Tenant’s failure to comply with

 

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theagreements, terms, covenants and conditions of this Lease to be performed byTenant.

 

5.3           BasicAnnual Rent and Additional Rent shall together be denominated “Rent”. Rentshall be paid to Landlord, without abatement, deduction or offset, (exceptingonly for the limited circumstances as specified in Section 16.1 for Landlord’smaintenance, in Section 20.6 for destruction of a portion of the DemisedPremises and/or in connection with the terms upon which Tenant provides aportion of the financing for the $13.1M construction loan sought by Landlord),in lawful money of the United States of Anerica at the office of Landlord asset forth in Section 2.1.8 herein or to such other person or at such otherplace as Landlord may from time to time designate in writing. In the event theterm of this Lease commences or ends on a day other than the first day of acalendar month, then the Rent for such fraction of a month shall be proratedfor such period on the basis of a thirty (30) day month and shall be paid atthe then current rate for such fractional month.

 

5.4           Upon theEffective Date of this Lease, Tenant shall deposit with Landlord a cash amountequal to one Initial Monthly Rental Installment (as defined in Section 2.1.4)as a deposit (“Security Deposit”) to secure Tenant’s faithful performance ofits obligations hereunder. If Tenant’s net worth falls below $10,000,000 at anytime during the term hereof, as shown on the financial statements referenced inthe next sentence, then Tenant shall pay to Landlord the amount necessary toincrease the Security Deposit to equal three (3) monthly installments of thethen current Basic Annual Rent. Tenant shall deliver to Landlord a copy ofTenant’s annual audited financial statements and Tenant’s quarterly unauditedfinancial statements within ten (10) days after said financial statements arecompleted. The Security Deposit may be commingled with other funds of Landlord’s,but Landlord shall pay Tenant annually in arrears interest on the SecurityDeposit equal to the then current rate for one year Certificates of Depositpaid by Landlord’s regular business bank. If Tenant fails to pay Rent, or anyother charges due hereunder, or otherwise defaults with respect to anyprovisions of this Lease, Landlord may use, apply or retain all or any portionof the Security Deposit, and any accrued earnings thereon, for the payment ofsuch sums due Landlord, or for prepayment of any other sum to which Landlordmay become entitled by reason of Tenant’s default, or to compensate Landlordfor any loss or damage which Landlord may suffer thereby. If Landlord so usesor applies all or any portion of the Security Deposit, Tenant shall withintwenty (20) days after written demand therefor, deposit with Landlord, in cash,an amount sufficient to restore the Security Deposit to the full amount, andTenant’s failure to do so shall be a material breach of this Lease. ThisSecurity Deposit shall be in cash; excepting however, Tenant shall have theoption after the Term

 

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CommencementDate to substitute a bank letter of credit*,*ina form and from a bank pre-approved in Writing by Landlord. Promptly after theexpiration or termination of this Lease and after Tenant has satisfied all itsobligations under this Lease, Landlord shall refund to Tenant the unusedportion of the Security Deposit, plus accrued but unpaid interest.

 

6.             RentalAdjustments.

 

6.1           Commencingon the first anniversary of the Term Commencement Date, the Basic Annual Rentshall be subject to annual upward adjustments equal to four percent (4%) of theprevious year’s Basic Annual Rent. The first such adjustment shall becomeeffective commencing with that monthly rental installment which is first due onor after the first anniversary of the Term Commencement Date and subsequentadjustments shall become effective on the same day of each calendar yearthereafter for so long as this Lease continues in effect. Commencing with theeleventh (11th) anniversary of the Term Commencement Date, this four percent(4%) annual adjustment shall apply to the adjusted Basic Annual Rent which wasdetermined pursuant to Section 6.2 below.

 

6.2           Beginningon the tenth (10th) anniversary of the Term Commencement Date, the Basic AnnualRent shall be adjusted up or down to equal the fair rental value (the “FairRental Value”) of the Demised Premises as determined pursuant to Section 6.2.1below, except in no event shall the adjusted Basic Annual Rent for the eleventh(11th) year be less than one hundred twenty-two percent (122%) of the InitialBasic Annual Rent, nor more than one hundred seventy-two percent (172%) of theInitial Basic Annual Rent.

 

6.2.1        RentAdjustments. The Basic Annual Rent shall be increased on the first day ofthe first month of the eleventh year of the term of this Lease (the “RentalAdjustment Date”) to the “Fair Rental Value” of the Demised Premises determinedin the following manner:

 

(i)            Approximatelytwelve months prior to the Rental Adjustment Date, Landlord and Tenant shallmeet in an effort to negotiate, in good faith, the fair rental value of theDemised Premises as of such Rental Adjustment Date. If Landlord and Tenant havenot agreed upon the fair rental value of the Demised Premises at least ten (10)months prior to the Rental Adjustment Date, the fair rental value shall bedetermined by appraisal.

 

(ii)           Landlordand Tenant shall attempt to agree in good faith upon a single appraiser notlater than nine (9) months prior to the Rental Adjustment Date. If Landlord and

 

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Tenant areunable to agree**upon a single appraiserwithin such time period, then Landlord and Tenant shall each appoint oneappraiser not later than eight (8) months prior to the applicable RentalAdjustment Date. Landlord and Tenant shall each give written notice to eachother as to the name of the appraiser it has selected, as soon as the selectionis made. Within ten (10) days thereafter, the two appointed appraisers shallappoint a third appraiser. All appraisers shall be independent from, anddisinterested in, both Landlord and Tenant.

 

(iii)          Ifeither Landlord or Tenant fails to appoint its appraiser within the prescribedtime period, the single appraiser appointed shall determine the fair rentalvalue of the Demised Premises. If both parties fail to appoint appraiserswithin the prescribed time periods, then the first appraiser thereafterselected by a party shall determine the fair rental value of the DemisedPremises.

 

(iv)          Eachparty shall bear the cost of its own appraiser and the parties shall shareequally the cost of any single or third appraiser, if applicable. Allappraisers so designated herein shall have at least five (5) years’ experiencein the appraisal of biotechnology premises in the San Diego area and shall bemembers of professional organization suchas MAI or its equivalent.

 

(v)           Forthe purpose of such appraisal, the term “Fair Rental Value” shall mean theprice that a ready and willing single tenant would pay, as of the RentalAdjustment Date, as annual rent to a ready and willing landlord of propertycomparable to the Demised Premises on the terms of this Lease (including thefixed annual 4% increase(s) in Basic Annual Rent), if such property wereexposed for lease on the open market for a reasonable period of time, andtaking into account all of the purposes for which such property may be usedlegally. A comparable property shall mean a biotechnology laboratory and pilotplant facility located in the Torrey Pines Mesa area of San Diego, withimprovements similar in age and character to the improvements to the DemisedPremises, which has been improved with all of the generic and special tenantimprovements (as those terms are defined in the Work Letter) comparable tothose constructed in the Demised Premises; provided, however, the appraisalshall disregard (i) the value of the equipment which Tenant is entitled toremove at the expiration or termination of the term of this Lease, as specifiedin Section 15.8 below; and (ii) any extra value for the validation of theTenant’s own manufacturing processes and systems, although value, if any, shallbe given for the fact that the Demised Premises has been validated formanufacturing biotechnology and/or pharmaceutical products in general. Theappraiser shall Consider all relevant factors, including without limitation,the age of the Building and

 

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improvements,the Condition of the Demised Premises on the assumption that Tenant hascomplied with its obligations to maintain and repair the Demised Premises, thecurrent rental market conditions and the alternative uses and users for theDemised Premises.

 

(vi)          Ifa single appraiser is chosen, then such appraiser shall determine the FairRental Value of the Demised Premises. Otherwise, the Fair Rental Value of theDemised Premises shall be the arithmetic average of the two (2) appraisalswhich are closest in amount, and the third appraisal shall be disregarded.Notwithstanding anything to the contrary contained herein, the Fair RentalValue as so determined shall be no less than one hundred twenty-two percent(122%) of the Initial Basic Annual Rent payable hereunder, and no more than onehundred seventy-two percent (172%) of the Initial Basic Annual Rent.

 

(vii)         Landlordand Tenant shall instruct in writing the appraiser(s) to complete their writtendetermination of the Fair Rental Value not later than six (6) months prior tothe Rental Adjustment Date. If the Fair Rental Value is not determined prior tothe Rental Adjustment Date, then Tenant shall continue to pay Landlord monthlyinstallments of Basic Annual Rent in the amount applicable to the DemisedPremises immediately prior to the Rental Adjustment Date until the Fair RentalValue is determined. When the Fair Rental Value of the Demised Premises isdetermined, Landlord shall deliver notice thereof to Tenant, and Tenant shallpay to Landlord, or Landlord shall pay to Tenant, as the case may be, withinten (10) days after receipt of such notice, the difference between the monthlyinstallments of Basic Annual Rent actually paid by Tenant to Landlordsubsequent to the Rental Adjustment Date and the new monthly installments ofBasic Annual Rent deter-mined hereunder.

 

7.             OperatingExpenses.

 

7.1           As usedherein, the term “Operating Expenses” shall include, but not be limited to:

 

(a)           Governmentimpositions including, without limitation, property tax costs consisting ofreal and personal property taxes (except as specified in Section 7.2 below),assessments, including amounts due under any improvement bond upon the Buildingand/or Demised Premises or assessments levied in lieu thereof imposed by anygovernmental authority or agency, any tax on or measured by gross rentalsreceived from the rental of space in the Building, or tax based on the squarefootage of the Demised Premises or Building (if such tax is enacted in lieu ofpresently existing real property taxes),

 

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(b)           Anyparking charges, utilities, surcharges or any other costs levied, assessed orimposed by, or at the direction of, or resulting from statutes or regulations,or interpretations thereof, promulgated by any federal, state, regional,municipal or local government authority in connection with the use or occupancyof the Building or the parking facilities serving the Building,

 

(c)           Anytax on any document to which Tenant is a party creating or transferring aninterest in the Demised Premises (excluding any transfer tax upon a sale byLandlord of the Demised Premises),

 

(d)           Anyfee for a business license to operate the Demised Premises,

 

(e)           Anyexpenses, including the cost of attorneys or experts, reasonably incurred inseeking reduction by the taxing authority of the applicable taxes, less taxrefunds obtained as a result of an application for review thereof, and

 

(f)            Allother costs of any kind paid or incurred directly related to the operation,maintenance and management of the Building and the Demised Premises including,by way of examples and not as a limitation upon the generality of theforegoing, costs of repairs and replacements to improvements within the DemisedPremises as appropriate to maintain the Demised Premises in first-classcondition (excepting only for maintenance costs to be paid by Landlord pursuantto Section 16.1 below), costs to comply with applicable governmentalrequirements for the Demised Premises, special utility assessments, includingsewer fees, trash collection, cleaning, maintenance of heating, ventilation andair conditioning systems (except as otherwise provided herein), maintenance oflandscape and grounds, maintenance of drives and parking areas, propertymanagement fees payable to Landlord’s agents in the sum of one percent (1%) ofthe Rent, insurance premiums, portions of insured losses paid as part ofdeductible portion of loss by reason of insurance policy terms, servicecontracts, and costs of services of independent contractors retained to do workof the nature referenced above. It is contemplated that Tenant will take theinitiative to perform and pay for most all of the items to operate, maintainand manage the Demised Premises, thereby eliminating the need for Tenant toadvance or reimburse these costs to Landlord. If Tenant fails to perform andpay for any item which is an Operating Expense, and Landlord reasonablydetermines that Landlord needs to do so, then Landlord shall give to Tenant awritten notice thereof and a 30-day opportunity to so perform and pay, beforeLandlord undertakes the initiative to perform and pay any such item. (Providedhowever, Landlord shall take the initiative to perform

 

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and pay forthe items which Landlord so designates pursuant to the first sentence ofSection 7.3**below)

 

7.2           Operating Expensesshall not include any net income, franchis0, capital stock, estate or inheritancetaxes. Additionally, all reassessment increases in real Property taxesbased Solely on reassessment of the Demised Premises pursuant to CaliforniaRevenue and Taxation Code Section 60 et. seq. due to a change in ownership ortransfer of Landlord’s interest in the Demised Premises during the first five(5) years of the term of this Lease shall not be considered an OperatingExpense. Additionally if no such change of ownership occurs during the firstfive years, then the first one reassessment increase in realproperty taxes resulting from a change of Ownership occurring after said firstfive years shall not be considered an Operating Expense. In addition, roofmaintenance expenses for non-structural components of the roof, up to a maximumof $30,000 over the life of this Lease, also shall be excluded from OperatingExpenses and paid for by Landlord; and any unexpended portion of said $30,000as of each anniversary date of the Term Commencement Date shall be increased bya sum equal to 4% of said unexpended portion.

 

7.3           Tenantshall pay all of the Operating Expenses directly to the third party to whom theexpense is payable, excepting only for those specific Operating Expenses whichLandlord elects to pay directly and Landlord gives to Tenant at least a thirty(30) day prior written notice of Landlord’s commitment to pay said expense(s).Upon the written request to Tenant, Tenant shall furnish to Landlordappropriate evidence of those Operating Expenses which have been paid by Tenantdirectly to a third party. Similarly, upon the written request to Landlord,Landlord shall furnish to Tenant appropriate evidence of those OperatingExpenses which have been paid by Landlord. As to those Operating Expenses whichTenant does not pay directly, Tenant shall pay those Operating Expenses toLandlord, at least twenty (20) days prior to the scheduled due date, pursuantto written notice from Landlord to Tenant. Provided however, if Tenant fails tomake such timely payments, Landlord may require Tenant to make payments monthlyin advance, based upon Landlord’s estimate of said Operating Expenses. If sucha monthly payment arrangement is so instituted by Landlord, then Landlord shallprovide Tenant, in writing, a statement estimating the amount of monthlyOperating Expenses which will be paid by Landlord for the current year; andTenant shall pay to Landlord on the first day of each calendar month of theterm of this Lease, as Additional Rent, Landlord’s estimate of said OperatingExpenses which will be paid by Landlord with respect to the Demised Premisesfor such month. Additionally, if any extraordinary Operating Expense which willbe paid by Landlord occurs which was not included in Landlord’s estimate ofsaid Operating Costs, then Landlord shall give written

 

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notice thereofto Tenant promptly after Landlord learns of the same; and Tenant shall pay saidextraordinary Operating Expense on or before its due date.

 

a.             Withinninety (90) days after the conclusion of each calendar year, Landlord shallfurnish to Tenant a statement showing in reasonable detail the actual OperatingExpenses which have been paid by Landlord for the previous calendar year. Ifthe amounts paid by Tenant for said Operating Expenses are less than the actualamount of said Operating Expenses for the previous year, any additional sum duefrom Tenant to Landlord shall be due and payable within ten (10) days afterreceipt by Tenant of said statement. If the amounts paid by Tenant to Landlordexceed the actual Operating Expenses paid by Landlord for the previous calendaryear, the difference shall be credited by Landlord against the Rent next dueand owing from Tenant; provided that, if the Lease term has expired, Landlordshall accompany said statement with payment for the amount of such difference.

 

b.             Anyamount due for Operating Expenses attributable to any period which is less thana full month shall be prorated (based on a 30-day month) for such fractionalmonth.

 

7.4           Tenantshall have the right, at Tenant’s expense, upon reasonable notice duringreasonable business hours, to have a Certified Public Accountant or otherauthorized representative of Tenant inspect the portion of Landlord’s records,invoices, and other data relating to the Demised Premises and used in thepreparation of the statement, provided any request for such review shall befurnished within ninety (90) days of Tenant’s receipt of such statement as tothe prior year’s Operating Expenses. If the amount of Operating Expenses paid byLandlord relating to the Demised Premises identified on such annual statementare found to exceed the actual Operating Expenses paid by Landlord for theDemised Premises, Landlor4 shall, within ten (10) days after Tenant’s requesttherefor, refund to Tenant the amount of over Payment by Tenant.

 

7.5           Tenantshall not be responsible for Operating Expenses attributable to the time periodprior to the Term Commencement Date (other than as specified in the WorkLetter); provided, however, if Tenant takes possession for occupancy of some orall of the Demised Premises prior to the Term Commencement Date for the purposeof occupying the same, Tenant shall be responsible for Operating Expenses forthe Demised Premises so occupied from such earlier date of possession. Theresponsibility of Tenant for Operating Expenses attributable to the DemisedPremises shall continue to the latest of (i) the date of termination of thisLease, or (ii) the date Tenant has fully vacated the Demised Premises; but iftermination of the Lease is

 

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due to thedefault of Tenant, Tenant shall be responsible for Operating Expenses evenafter Tenant has vacated, as part of the damages to which Landlord is entitled,to the extent of Tenant’s liabilities for a default.

 

7.6           OperatingExpenses for the calendar year in which Tenant’s obligation to reimburseLandlord commences, and for the calendar year in which such obligation ceasesshall be prorated. Expenses such as taxes, assessments and insurance premiumswhich are incurred for an extended time period shall be prorated based upontime periods to which such items are applicable, so that the amounts attributedto the Demised Premises relate in a reasonable manner to the time period inwhich Tenant has an obligation to pay for Operating Expenses.

 

7.7           OperatingExpenses shall be only the actual and reasonable expenses incurred, subject toproration as specified in Section 7.6.

 

8.             RentableArea.

 

8.1           The term “RentableArea” as referenced within the Work Letter, and as may otherwise be referencedherein, refers to the area of the Building, which the parties agree consists ofapproximately 70,000 square feet. Such area has been calculated by measuringthe floor areas to the outside finished surface of permanent outer Buildingwalls, where such walls intersect each floor, without deduction for columns,projections or vertical penetrations such as stairs, elevator shafts, flues,pipe shafts, vertical ducts and the like and their enclosing walls.

 

8.2           Prior tothe Effective Date, the square feet of Rentable Area in the Building was fieldmeasured and confirmed by the Project Architect and has been approved by Tenantand Landlord; and the parties have agreed upon the 70,000 square feet figurefor all calculations pursuant to this Lease.

 

9.             Use.

 

9.1           Tenantshall use the Demised Premises for the purpose set forth in Section 2.1.7 andshall not use the Demised Premises, or permit or suffer the Demised Premises tobe used, for any other purpose without the prior written consent of Landlord.

 

9.2           Tenantshall conduct its business operations and use the Demised Premises incompliance with all current or future federal, state and local laws andregulations. Tenant shall not use or occupy the Demised Premises in violationof any law or regulation or of the certificate of occupancy issued for theBuilding and shall, upon five (5) days’ written notice from Landlord,**discontinue any use of the DemisedPremises which is

 

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declared byany governmental authority having jurisdiction to be a violation of law or ofsaid certificate of occupancy. Landlord shall deliver to Tenant a copy of thecertificate of occupancy for the Demised Premises. Throughout the term of thisLease and/or Tenant’s occupancy of the Demised Premises, Tenant shall, at itsexpense, comply with any direction of any governmental authority havingjurisdiction which shall, by reason of the nature of Tenant’s use or occupancyof the Demised Premises, impose any duty upon Tenant or Landlord with respectto the Demised Premises or with respect to the use or occupation thereof.

 

9.3           Theinsurance to be initially carried by Landlord and Tenant pursuant to theprovisions of Article 19 shall be consistent with the actual use of the DemisedPremises. Thereafter, if the use of the Demised Premises changes to another usepermitted under Section 2.1.7, such insurance shall, to the extent available,be consistent with such changed use. Tenant shall not do or permit to be doneanything which will invalidate any fire, extended coverage or any otherinsurance policy covering the Building and Demised Premises. Tenant shallcomply with all reasonable rules, orders, regulations and requirements of theinsurers of the Demised Premises. Tenant shall pay for any additional premiumcharged for any policy by reason of Tenant’s failure to comply with theprovisions of this Section, or by reason of Tenant’s particular use of theDemised Premises.

 

9.4           Tenantshall make available to Landlord, upon at least a forty-eight (48) hour advancenotice, the opportunity to inspect the Demised Premises. Additionally, Tenantagrees to maintain keys for all locked doors in the Demised Premises in a firedepartment controlled lock box located on the Demised Premises. Landlord’saccess shall be subject to such reasonable controls as are necessary forpreserving Tenant’s trade secrets and to maintain Landlord’s safety.

 

9.5           Tenantshall keep the exterior appearance of the Demised Premises in a neat andattractive condition, comparable to the appearance as of the Term CommencementDate. In this regard, Tenant shall not place any unsightly items on the DemisedPremises which are visible from the surrounding areas.

 

9.6           Noequipment weighing in excess of the load per square foot which such floor wasdesigned to carry, or which is allowed by law, shall be placed upon the DemisedPremises. As part of the Corrective Work, the second floor is being retrofittedto support 80 pounds of live load, plus 20 pounds of partition load, per squarefoot.

 

9.7           Tenantshall not allow the Demised Premises to be used for unlawful purposes, norshall Tenant cause, maintain or permit any nuisance or waste in or on theDemised Premises.

 

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10.           Brokers.

 

10.1         By separateagreement, Landlord has agreed to pay a fixed fee to Tenant’s real estatebroker, John Burnham and Company, which broker has also acted in a dualcapacity representing Landlord in some regards. Landlord and Tenant eachrepresents and warrants that it has had no dealings with any other real estatebroker or agent in connection with the negotiation of this Lease. Landlord andTenant each represent that it knows of no other real estate broker or agent whois or might be entitled to a commission in connection with this lease.

 

10.2         Tenant andLandlord each represents and warrants that no broker or agent has made anyrepresentation or warranty relied upon by them to enter into this Lease otherthan as contained in this Lease.

 

10.3         Theemployment of any brokers by Landlord is for the purpose of solicitation ofoffers of lease from prospective tenants and no authority is or has beengranted to any broker to furnish any representation (written or oral) orwarranty from Landlord unless specifically contained in this Lease. Landlord,in executing this Lease, does so in reliance upon Tenant’s representations andwarranties contained within this Article.

 

11.           HoldingOver.

 

11.1         If Tenantremains in possession of all or any part of the Demised Premises after theexpiration or earlier termination of this Lease, with Landlord’s prior writtenconsent, Tenant shall be deemed a month-to-month tenant upon the date of suchexpiration or earlier termination and, in such case, Tenant shall continue topay the Basic Annual Rent (as adjusted from the Term Commencement Date inaccordance with Article 6), Operating Expenses in accordance with Article 7,and any other amount of Rent due Landlord pursuant to the terms of this Lease,and such month-to-month tenancy shall be subject to every other term, covenantand agreement contained herein.

 

11.2         If Tenantremains in possession of the Demised Premises after the expiration or earliertermination of the term hereof without the express written consent of Landlord,Tenant shall become a tenant at sufferance upon all the terms of this Leaseapplicable to a tenant at sufferance, except that the monthly installments ofBasic Annual Rent shall be equal to one hundred thirty-five percent (135%) ofthe monthly installment of the Basic Annual Rent in effect during theimmediately preceding thirty (30) days of the scheduled term of the Lease.

 

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11.3         Acceptanceby Landlord of Rent after such expiration or earlier termination of this Leaseshall not result in a renewal or reinstatement of this Lease.

 

11.4         Theforegoing provisions of this Article are in addition to and do not affectLandlord’s right to re-entry or any other rights of Landlord hereunder or asotherwise provided by law.

 

12.           Taxeson Tenant’s Property.

 

12.1         Tenant shallpay not less than ten (10) days before delinquency, all taxes levied againstany personal property or trade fixtures in or about the Demised Premises.

 

12.2         If any suchtaxes on Tenant’s personal property or trade fixtures are levied againstLandlord or Landlord’s property or, if the assessed valuation of the Buildingis increased by the inclusion therein of a value attributable to Tenant’spersonal property or trade fixtures, and if Landlord, after written notice toTenant, elects to pay the taxes based upon such increase in assessed value,then Tenant shall, upon****demand,repay to Landlord the taxes so levied against Landlord.

 

13.           Conditionof Demised Premises.

 

13.1         In additionto the acknowledgements set forth in Section 1.1 of Exhibit B, Tenantacknowledges that neither Landlord nor any agent of Landlord has made anyrepresentations or warranties (i) with respect to the condition of the DemisedPremises or the Building except as set forth herein or in Exhibit B, or (ii)with respect to the suitability of the Demised Premises for the conduct ofTenant’s business. As specified in Section 1.7.13 of Exhibit B, on or beforethe Term Commencement Date, Landlord and Tenant shall conduct a walk throughinspection of the Demised Premises and prepare a punch list of thoseconstruction items for Landlord’s Work which require remedial action.Additionally, not later than twenty-five (25) days after the Term CommencementDate, Landlord and Tenant shall conduct an additional walk through inspectionand shall prepare a punch list of those construction items for Landlord’s Workwhich still require corrective action. Landlord shall cause Landlord’sContractor to complete the corrective action for the punch list items as soonas feasible within 30 days, or such longer time as is reasonably necessary tocorrect the item. Tenant shall be entitled to pursue any available remedies**and claims against the constructioncontractors, equipment suppliers, manufacturers and other responsible thirdparties for any defects that may be discovered in the Demised Premises; andLandlord will assign, on a non-exclusive basis, to Tenant any such claims ifsuch an assignment is appropriate to enable Tenant to pursue said claims

 

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and remedies.Landlord shall also be entitled to pursue available remedies against said thirdparties. Additionally, Tenant may pursue any available remedies and claimsagainst Landlord for damages caused by Landlord’s Default, as Specified inSection 22.10 below.

 

14.           Utilitiesand Services.

 

14.1         Tenant shallpay for all water, gas, electricity, telephone, trash removal and all otherUtilities and services supplied to the Demised Premises, together with anytaxes thereon.

 

14.2         Landlordshall not be liable for, nor shall any eviction of Tenant result from, thefailure of any such utility or service to be furnished to the Demised Premiseswhen such failure is caused by accident, breakage, repairs, strikes, lockoutsor other labor disturbances or labor disputes of any character, governmentalregulation, moratorium or other governmental action, the inability to furnishsuch utility or service despite the exercise of reasonable diligence byLandlord or by any other cause beyond Landlord’s reasonable control, excludingonly interruptions of service caused by Landlord’s Default. In the event ofsuch failure, tenant shall not be entitled to any abatement or reduction ofRent, nor shall Tenant be relieved from the operation of any covenant oragreement of this Lease.

 

14.3         If Tenantshall require any utilities or services in excess of that initially provided inthe approved Improvement Plans, such as by reason of equipment to be operated,then Tenant shall make all necessary arrangements, at Tenant’s expense, forsuch excess services and utilities.

 

14.4       Utilitiesand services provided by Landlord to the Demised Premises shall be paid byTenant directly to the supplier of such utility or service.

 

15.           Alterations.

 

15.1         WithoutLandlord’s prior written consent, which consent shall not be unreasonablywithheld, Tenant shall make no alterations, additions or improvements in or tothe Demised Premises, after the initial build-out, other than alterations,additions or improvements which satisfy each of the following three criteria:(i) no structural component of the Demised Premises is affected; and (ii) thereis no diminution in the value of the Demised Premises as a genericbiotechnology facility; and (iii) the total costs do not exceed Two HundredThousand Dollars ($200,000) during any twelve (12) month period (such dollaramount being increased by four percent (4%) per annum for inflation). Saidcosts shall not include costs of moveable equipment or fixtures which are to beincluded in the first sentence of

 

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Section 15.8below or on the List of Removable Equipment referenced in Section 15.8 below.All such alterations, additions or improvements, whether or not requiringLandlord’s consent, shall be made only by licensed and qualified contractors ormechanics. Tenant’s contractor for performing any alterations, additions orimprovements shall be subject to Landlord’s reasonable approval and shallmaintain appropriate insurance as reasonably approved by Landlord.

 

15.2         Allalterations, additions or improvements made to the Demised Premises after theinitial build-out, by Tenant shall, at the option of Landlord, be removed atthe expense of Tenant at the end of the term of this Lease, if Landlorddetermines that the****alteration,addition or improvement is likely to adversely affect the sale or rentalvaluation of the Demised Premises or Landlord’s ability to promptly sell orlease the Demised Premises. Provided however, when Tenant requests Landlord’sconsent for making a specific alteration, addition or improvement, Tenant mayalso request in writing that Landlord waive Landlord’s option to require Tenanteventually to remove said specific alteration, addition or improvement; andLandlord may deny said request for a waiver in Landlord’s good faithdiscretion, only if Landlord determines that such alteration, addition orimprovement would likely result in a diminution of the sale or lease value ofthe Demised Premises as a generic biotechnology facility, Said denial shall beby written notice to Tenant stating Landlord’s reasons and delivered within 15days after Landlord’s receipt of Tenant’s Written request.

 

15.3         Tenantagrees that any work by tenant shall be accomplished in such a manner as topermit any fire sprinkler system and fire water supply lines to remain fullyoperable at all times,

 

15.4         Tenantcovenants and agrees that all work done by Tenant shall be performed in fullcompliance with all laws, rules, orders, ordinances, directions, regulationsand requirements of all governmental agencies, offices, departments, bureausand boards having jurisdiction and in full compliance with the rules, orders,directions, regulations and requirements of any applicable fire rating bureau.Tenant shall provide Landlord with “as-built” plans showing any materialchanges in the Demised Premises.

 

15.5         Beforecommencing any material work, except as permitted in Section 15.1 above, Tenantshall give Landlord at least fifteen (15) days’ prior written notice of theproposed commencement of such work.

 

15.6         Except asprovided in Sections 15.2 and 15.8, all alterations, decorations, fixtures,equipment, additions and improvements attached to or built into the DemisedPremises, made

 

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by eitherparty, shall, unless Landlord elects otherwise, become the property of Landlordupon the expiration or earlier termination of the term of this Lease and shallremain upon and be surrendered with the Demised Premises as a part thereof.

 

15.7         Tenant shallrepair any damage to the Demised Premises caused by Tenant’s removal of anyproperty from the Demised Premises; and Tenant shall be entitled to removeproperty from the Demised Premises as specified in Section 15.8 below. Duringany such restoration period, Tenant shall pay Rent to Landlord as providedherein as if said space were otherwise occupied by Tenant.

 

15.8         All articlesof Tenant’s personal property, moveable trade fixtures, moveable machinery,moveable equipment furniture and movable partitions which are owned by Tenantand installed by Tenant at its expense in the Demised Premises, and notinstalled as part of Landlord’s Work, shall be and remain the property ofTenant and may be removed by Tenant at any time during the term of this Lease.Additionally, Landlord and Tenant, with the consultation of Project Architectshall prepare a list of equipment, machinery, and fixtures which were paid forby Tenant and which are attached to the Building, but which Landlordnevertheless agrees may be removed by Tenant at the expiration or terminationof the ten of this Lease (the “List of Removable Equipment”). The items to beplaced on the List of Removable Equipment shall be items which are paid for byTenant and which are not needed for the Demised Premises to continue to befunctional as a biotechnology laboratory and pilot plant facility. Landlord andTenant shall each act reasonably and in good faith in proposing and approvingthe****items to be placed on the Listof Removable Equipment. The placement of items such as (by way of example only)large reaction vessels on this List of Removable Equipment shall not be deemedto render the facility non-functional. Furthermore, the List of RemovableEquipment (as added to from time to time) shall be the best evidence of thetype of items to be placed on the List of Removable Equipment and shall bepersuasive as to the types of items to be included on the list in anysubsequent arbitration Proceeding. Said list shall be prepared and mutuallyapproved as soon as feasible, prior to the Term Commencement Date; and itemsmay be added to (or removed from) said list by mutual agreement during the termof this Lease, if Tenant installs new equipment or fixtures. Under nocircumstances shall Tenant be entitled to remove any equipment, machinery,fixture, item or improvement which was****paidfor from the Improvements Cost Fund. Tenant shall leave in good condition,reasonable wear and tear excepted, all improvements and items other than thosepermitted to be removed as specified in the first sentence of this Section andas identified on the****List ofRemovable Equipment. If Tenant shall fail to remove all of its effects from theDemised Premises upon the termination of this Lease, then Landlord may, at itsoption, remove the same in any

 

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manner thatLandlord shall choose and store said effects without liability to Tenant forloss thereof or damage thereto; and Tenant agrees to pay Landlord upon demandany expenses incurred in such removal and storage. Landlord may, at its optionsell said property or any of the same, at private sale, for such price asLandlord may obtain; and Landlord may apply the proceeds of such sale against anyamounts due under this Lease from Tenant to Landlord and against any expensesincident to the removal, storage and sale of said personal property, with anybalance of the sales proceeds to be delivered to Tenant.

 

16.           Repairsand Maintenance.

 

16.1         Landlordshall repair and maintain the Building foundation and the structural componentsof the exterior walls and the structural components of the roof of theBuilding. Additionally, over the life of the Lease, Landlord shall pay for upto $30,000 of the maintenance expenses for non-structural components of theroof; and any unexpended portion of said $30,000 as of each anniversary date ofthe Term Commencement Date shall be increased by a sum equal to 4% of saidunexpended portion. Landlord’s costs for said repair and maintenance shall beborne solely by Landlord, and said costs shall not constitute an OperatingExpense to be paid by Tenant. If Landlord fails to promptly make such repairsafter written notice from Tenant requesting the same, then Tenant may make suchrepairs on Landlord’s behalf, and (i) Landlord shall promptly reimburse Tenantfor the reasonable costs of such repairs, or (ii) Tenant may take a credit forsaid costs against the Rent which is to become due thirty (30) days followingTenant’s written notice to Landlord stating that Tenant expects to take suchcredit, unless the matter is subject to dispute and arbitration.

 

16.2         Except forLandlord’s obligations pursuant to Section 16.1 above, and Landlord’sperformance of the Corrective Work as described in the Work Letter, Tenantshall, at Tenant’s sole cost and expense, keep the Demised Premises and everypart thereof in a good quality condition, ordinary wear and tear excepted, anddamage which is to be repaired by Landlord pursuant to Articles 20 and 21 alsoexcepted. Tenant shall, upon the expiration or sooner termination of the termhereof, surrender the Demised Premises to Landlord in the same good, qualitycondition as when received, ordinary wear and tear excepted, and damage whichis to be repaired by Landlord pursuant to Articles 20 and 21 also excepted.

 

16.3         Landlordshall not be liable for any failure to make any repairs or to perform anymaintenance which is an obligation of Landlord, unless Landlord fails to makethe repair or perform the maintenance within a reasonable period of time afterwritten notice of the need of such repairs or maintenance is

 

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given toLandlord by Tenant. Except as provided in Articles 20 and 21 entitled “Damageor Destruction” and “Eminent Domain,” respectively, there shall be no abatementof Rent and no liability of Landlord by reason of any injury to or interferencewith Tenant’s business arising from the making of any repairs, alterations orimprovements in or to any portion of the Building or the Demised Premises or inor to fixtures, appurtenances and equipment therein. Tenant waives any rightsunder Sections 1941 and 1942 of the California Civil Code or under any law,statute or ordinance now or hereafter in effect to make repairs at Landlord’sexpense.

 

16.4         This Articlerelates to repairs and maintenance arising in the ordinary course of operationof the Building and any related facilities. In the event of material damage dueto fire, earthquake, flood, vandalism, war or similar cause of damage ordestruction, this Article shall not be applicable and the provisions of Article20 entitled “Damage or Destruction” shall apply and control.

 

16.5         Inperforming all of their respective maintenance and repair work and duties, bothTenant and Landlord shall adhere to a standard of maintaining the building andgrounds in a good, quality condition, comparable in quality, functionality andaesthetics to what existed in the first year of the term of this Lease, ordinarywear and tear excepted.

 

17.         Liens.

 

17.1         Tenant shallkeep the Demised Premises free from any liens arising out of work performed,materials furnished and obligations incurred by Tenant. Tenant covenants andagrees that any mechanic’s lien filed against the Demised Premises for workclaimed to have been done for, or materials claimed to have been furnished toTenant, will be discharged by Tenant, by bond or otherwise, within thirty (30)days after the filing thereof, at the cost and expense of Tenant.

 

17.2         shouldTenant fail to discharge any such lien, Landlord may, at Landlord’s election,pay such claim or post a bond or otherwise provide security to eliminate thelien as a claim against title, and the cost thereof shall be immediately duefrom Tenant as Additional Rent.

 

17.3         In the eventTenant shall lease or finance the acquisition of equipment, furnishings orother personal property of a removable nature utilized by Tenant in theoperation of Tenant’s business, Tenant warrants that any Uniform CommercialCode Financing Statement executed by Tenant will, upon its face or by exhibitthereto, indicate that such Financing Statement is applicable only to suchremovable personal property of Tenant

 

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located withinthe Demised Premises, the acquisition of which was financed by Tenant pursuantto said Financing Statement. In no event shall the address of the Building befurnished on the statement without qualifying language as to applicability ofthe lien only to removable personal property therein. Should any holder of aFinancing Statement executed by Tenant record or place of record a FinancingStatement which appears to constitute a lien against any interest of Landlordor against equipment which may be located other than within the DemisedPremises, Tenant shall, within ten (10) days after filing such FinancingStatement, cause (i) copies of the Security Agreement or other documents towhich the Financing Statement pertains to be furnished to Landlord to show thatsuch lien is not applicable to Landlord’s interest, and (ii) its lender toamend documents of record so as to clarify that such lien is not applicable toany interest of Landlord in the Demised Premises.

 

18.           Indemnificationand Exculpation.

 

18.1         Tenantagrees to indemnify Landlord and its partners, directors, officers, agents andemployees (collectively “Landlord’s Agents”) against, and to defend and savethem harmless from, all demands, claims, causes of action or judgments, and allreasonable expenses incurred in investigating or resisting the same (includingreasonable professional fees, including without limitation, fees for attorneys,architects, engineers, and environmental consultants), for death of, or injuryto, any person or damage to property (i) occurring in, upon or about theDemised Premises, (ii) arising from or out of Tenant’s use and occupancy of theDemised Premises, or (iii) arising from or out of any act or Omission ofTenant, its agents, contractors, employees, servants, tenants and invitees (“Tenant’sAgents”), except if such death or injury, or damage to property is caused byLandlord’s Default.

 

18.2         Except asotherwise provided in this Article, Landlord agrees to indemnify Tenant and itsdirectors, officers, agents and employees against, and to defend and save thenharmless from all demands, claims, causes of action or judgments, and allreasonable expenses incurred in investigating or resisting the same (includingreasonable attorneys’ fees), for death of, or injury to, any person or damageto property occurring in, upon, or about the Demised Premises during the termof this Lease arising from or out of Landlord’s Default.

 

18.3         Notwithstandingany provision of Sections 18.1 and 18.2 to the contrary, Landlord shall not beliable to Tenant or any other party, and Tenant assumes all risk of damage topersonal property, including loss of records kept within the Demised Premises,if the cause of such damage is of a nature which, if Tenant had elected tomaintain fire and theft insurance with

 

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extendedcoverage and business records endorsement would be a loss subject to settlementby the insurance carrier including but not limited to damage or losses causedby fire, electrical malfunctions gas explosion and water damage of any type,including but not limited to broken water lines, malfunction of sprinklersystems, roof leakage or Stoppages of lines, unless and except if such loss isdue to Landlord’s Default. Tenant further waives any claim for injury toTenants business or loss of income relating to any such damage or destructionof personal property, including any loss of records. The foregoing waivers arelimited to the extent of the insurance coverage described above that could havebeen obtained.

 

18.4         Additionally,Landlord shall not be liable to Tenant or Tenant’s Agents, and Tenant assumesall risk of damage and liability (other than as may be covered by insurance orby a third party), resulting from any defect or malfunction of (a) any Buildingsystem or component of a Building system (such as HVAC, mechanical plumbing,electrical, waste disposal, or sewer), or (b) the Pilot Plant Productionfacility, or any of its systems or components, excepting only as may be Causedby Landlord’s Default. Tenant shall be entitled to pursue any available claimsagainst the construction contractors and equipment suppliers and manufacturersfor any defects that may be discovered in the Demised Premises; and Landlordwill assign to Tenant any such claims if such an assignment is appropriate toenable Tenant to pursue said claims.

 

18.5         Securitydevices provided for the Building, while intended to deter crime, may not ingiven instances prevent theft or other criminal acts, and it is agreed that Landlordshall not be liable for injuries or losses caused by criminal acts of thirdparties. The risk that any security device may malfunction or otherwise becircumvented by a criminal is assumed by Tenant. Tenant shall, at Tenant’scost, obtain applicable insurance coverages to the extent Tenant desiresprotection against such criminal acts.

 

19.           Insurance— Waiver of Subrogation.

 

19.1         Landlord shall carry insurance upon theBuilding and its Improvements to the extent such is insurable as part of the Building,in an amount equal to (i) full replacement cost (exclusive of the costs ofexcavation, foundations and footings, and without reference to depreciationtaken by Landlord upon its books or tax returns), or (ii) such lesser coverageAS Landlord may elect provided such coverage is not less than ninety percent(90%) of such full replacement cost or the amount of such insurance Landlord’smortgage lender requires Landlord to maintain. Such insurance shall provideprotection against any peril generally included within the “All-Risk, BroadForm 1020”

 

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form ofproperty insurance policy, which includes insurance against sprinkler damage,vandalism and malicious mischief. Subject to availability thereof, Landlord mayfurther insure, as Landlord or its lender deems appropriate, against floodand/or earthquake (but Tenant is not obligated to pay for earthquake coverage),loss or failure of building equipment, hazardous materials risks, rental lossduring the period to repair or rebuild, and worker’s compensation insurance.Additionally, at Tenant’s request and cost, such additional riders,endorsements and coverage shall be added as Tenant may desire, if available.The deductible limits of the insurance policy shall not exceed Five ThousandDollars ($5,000). The cost of all said insurance (except for the cost ofearthquake coverage) shall be an Operating Expense which shall be paid orreimbursed by Tenant as Additional Rent. Landlord shall furnish to Tenant a copyof said property insurance policy. To the extent available and applicable,Tenant shall be named as an additional insured on Landlord’s property insurancepolicy; and all of the specifications and provisions in Sections 19.3 and 19.5applicable to Tenant’s liability insurance policy shall also be applicable toLandlord’s property insurance policy, on a reciprocal basis for the benefit ofTenant.

 

19.2         Tenant, atits own cost, shall procure and continue in effect, from the Term CommencementDate or the date of occupancy, whichever first occurs, and continuingthroughout the term of this Lease and thereafter until Tenant has fully andfinally surrendered the Demised Premises to Landlord, commercial generalliability insurance with limits of not less than Five Million Dollars($5,000,000) per occurrence for death, bodily injury or property damage withrespect to the Demised Premises. The deductible amounts of such policy ofinsurance shall not exceed Five Thousand Dollars ($5,000). In the event anadditional building is constructed and occupied by a tenant other than Tenant,then Landlord shall maintain a similar policy for the common areas.

 

19.3         Theaforesaid Tenant’s liability insurance policy shall name as additional insuredsLandlord and Landlord’s property manager, construction manager, agents andrepresentatives for the Demised Premises. Said insurance shall be withcompanies having a Policyholder rating of not less than A and financialcategory rating of Class VII in “Best’s Insurance Guide,” unless otherwisematerially approved in writing by both Landlord and Tenant. Tenant shall causeany insurance companies issuing Policies to Tenant to furnish certificatesevidencing such coverage to Landlord. No such policies shall be cancelable orsubject to reduction of coverage or other modification or cancellation exceptafter thirty (30) days’ prior written notice to Landlord from the insurer. Allsuch policies shall be written as primary policies, not contributing with andnot in excess of the coverage which Landlord may carry. Any of Tenant’spolicies may be in the nature

 

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of a “blanketpolicy” which specifically provides that the amount of insurance shall not beprejudiced by other losses covered by the policy. Tenant shall, at least twenty(20) days prior to the expiration of any such policies, furnish Landlord withrenewals or binders. Tenant agrees that if Tenant fails to procure and maintainsuch insurance, Landlord may (but shall not be required to) procure saidinsurance on Tenant’s behalf and charge Tenant the premiums for any suchpolicies, together with a reasonable handling charge, payable upon demand.

 

19.4         Tenantassumes the risk of damage to any fixtures, goods, inventory, merchandise,equipment, personal property of any kind, and Tenant’s Work. Landlord shall notbe liable for injury to Tenant’s business or any loss of income thereforerelative to damage to such items, all as more particularly set forth herein.Tenant, at Tenant’s cost, shall carry such insurance as Tenant desires forTenant’s protection with respect to such items, business interruption or lossof income.

 

19.5         If anypolicy of****insurance is to nameLandlord as additional insured, Tenant shall, upon written request of Landlord,also designate and furnish certificates evidencing Landlord as an additionalinsured to (i) any lender to Landlord holding a security interest in theBuilding or, and/or (ii) the landlord under any lease wherein Landlord is orshall become a tenant under a ground lease for the Land rather than that of feeowner, and/or (iii) Landlord’s property manager, construction manager, agentsand representatives.

 

19.6         Landlord andTenant each hereby waive any and all rights of recovery against the other, oragainst the officers, employees, agents and representatives of the other, onaccount of loss or damage occasioned to such waiving party or its property orthe property of others under its Control to the extent that such loss or damageis insured against under any all risk or fire and extended coverage insurancepolicy which either party may have in force at the time of such loss or damage,such waivers to continue as long as their respective insurers so permit. Anytermination of such a waiver shall be by written notice of circumstances ashereinafter set forth. Landlord and Tenant, upon obtaining the policies ofinsurance required or permitted under this Lease, shall give notice to theinsurance carrier or carriers that the foregoing mutual waiver of subrogationis contained in this Lease. If such policies are unobtainable with such waiveror obtainable only at premium over that chargeable without such waiver, theparty seeking such policy shall notify the other thereof, and the latter shallhave ten (10) days thereafter to either (i) procure such insurance in companiesreasonably satisfactory to the other party or (ii) agree to pay such additionalpremium. If neither (i) nor (ii) are done, this Section 19.6 shall have noeffect during such time as such policies are unobtainable or the party in

 

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whose factor awaiver of subrogation is desired shall refuse to pay the additional premium. Ifsuch policies shall at any time be unobtainable, but subsequently shall beobtainable, neither party shall be subsequently liable for a failure to obtainsuch insurance until a reasonable time after notification thereof by the otherparty. If the release of either Landlord or Tenant, as set forth in the firstsentence of this Section shall contravene any law with respect to exculpatoryagreements, the liability of the party in question shall be deemed not releasedbut shall be secondary to the other’s insurer.

 

19.7         Notmore frequently than once each three (3) years, Landlord may require insurancepolicy limits to be raised to conform with reasonable requirements of Landlord’slender or to bring coverage limits to the level then being required of similartenants of similar properties.

 

20.           Damageor Destruction.

 

20.1         Inthe event of a partial destruction of the Building by fire or other perilscovered by the property insurance, not exceeding fifty percent (50%) of thefull insurable value thereof, and if the damage thereto is such that theBuilding may reasonably be expected to be repaired, reconstructed or restoredwithin a period of one year from the date of the happening of such casualty (orup to 18 months with Force Majeure Delays as specified in section 20.7 below),then Landlord shall commence and proceed diligently with the work of repair,reconstruction or restoration and this Lease shall continue in full force andeffect.

 

20.2         Inthe event of any insured damage to, or destruction of, the Building, other thanas provided in Section 20.1 above, such that the cost to repair such damage ordestruction is greater than fifty percent (50%) of the insurable value of theBuilding, or restoration will require more than one year (or up to 18 monthswith**Force Majeure Delays asspecified in Section 20.7 below), then either Tenant or Landlord may, at itsoption, elect to terminate this Lease by giving a written notice of terminationto the other party within thirty (30) days after the date of said damage ordestruction. If neither party so terminates, then Landlord shall be obligatedto repair the damages as soon as reasonably feasible.

 

20.3          Inthe event of any uninsured damage to or destruction of the Building and thecost to repair such damage or destruction is less than twenty-five percent(25%) of the value of the Building (excluding the value of the Land) and therepair can reasonably be expected to be completed within one year from the dateof damage (or up to 18 months with Force Majeure Delays as specified in Section20.7 below), then Landlord shall repair,

 

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reconstructand restore the Building, and this Lease shall continue in full force andeffect; provided however, that at least two (2) years will remain in the ten ofthis Lease from the date the repair, reconstruction or restoration of theBuilding will be completed. If any of the conditions are not satisfied, thenLandlord may elect to repair, reconstruct and restore the Building, in whichcase this Lease shall Continue in full force and effect. If Landlord elects notto so repair, reconstruct or restore the Building, then this Lease shallterminate as of the date of destruction, unless Tenant elects (within 20 daysafter receipt of Landlord’s election) to continue the Lease in full force andeffect, without Landlord being obligated to do any repairs, reconstruction orrestoration.

 

20.4         If Landlordelects not to repair, reconstruct or restore the Buildings as permitted inSections 20.2 and 20.3 above, Landlord promptly shall give written notice toTenant of such election, but in no event shall such notice be given later thanforty-five (45) days after the date of damage or destruction. Even if Landlordwants to make the repairs, reconstruction or restoration, if it is reasonablylikely that Landlord will not be able to complete the repairs, reconstructionor restoration within eighteen months after the partial destruction (which timeperiod shall be extended for any delays caused by Tenant), then Tenant shallhave the option to terminate this Lease, so long as Tenant exercises thisoption by delivering written notice of termination to landlord withinforty-five (45) days after Tenant receives written notice stating thatcompletion of the repair work likely will require more than said eighteenmonths. Landlord shall keep Tenant informed as to the estimated completion datefor any repair work.

 

20.5         Upon anytermination of this Lease under any of the provisions of this Article, theparties each shall be released thereby without further obligation to the otherfrom the date of damage or destruction, except for any liabilities orobligations theretofore incurred or arising from matters which have theretoforeoccurred (including any liability related to the damage or destruction).

 

20.6         In the eventof repair, reconstruction or restoration as herein provided, Basic Annual Rentto be paid under this Lease shall be reduced equitably as of the date of damageor destruction until the completion of the repairs and the restoration, butonly to the extent to which Tenant’s use of the Demised Premises is impairedduring the period of such repair, reconstruction or restoration. Tenant shallnot be entitled to any compensation or damages from Landlord occasioned by anysuch damage, repair, reconstruction or restoration, excepting only as otherwiseexpressly provided herein.

 

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20.7         Notwithstandinganything to the contrary contained in this Article, if Landlord is delayed orprevented from completing the repair, reconstruction or restoration of theDemised Premises by reason of acts of God, war, governmental restrictions,inability to procure the necessary labor or materials, strikes or other causesbeyond the control of landlord (“Force Majeure Delays”), the time for Landlordto commence or Complete repairs shall be extended for the length of such ForceMajeure Delays; provided, however, at the election of Landlord or Tenant,Landlord shall be relieved of its obligation to make such repairs orrestoration (and Tenant shall be released thereby from its obligations underthis Lease) as of the end of eighteen (18) months from date of destruction ifthe Demised Premises are not then substantially complete. Any such electionshall be by written notice delivered to the other party. In the event of anyForce Majeure Delay, Landlord shall give written notice to Tenant of Landlord’sestimate of the length of time the delay is expected to continue. If the ForceMajeure Delay is expected to continue for more than nine (9) months, thenLandlord may, by written notice, elect to terminate this Lease. Tenant shallhave the right to independently verify Landlord’s estimate of the length oftime such delay is expected to continue.

 

20.8         If Landlordis obligated to or elects to repair or restore as herein provided, Landlordshall be obligated to repair or restore only those portions of the Building andthe Demised Premises which were originally provided at Landlord’s expense, plussuch other portions for which insurance proceeds are available to pay the coststo repair or restore. The repair and restoration of Tenant’s Work and SpecialTenant Improvements for which no insurance proceeds are available shall be theobligation of Tenant. Landlord’s repairs shall be limited to those repairswhich are payable from the available insurance proceeds; and if any additionalrepairs or improvements are desired by Tenant, Tenant shall pay for the same.Landlord shall cooperate with Tenant so as to enable Tenant to begin Tenant’sWork as Landlord’s Work progresses.

 

20.9         Notwithstandinganything to the contrary contained in this Article, Landlord shall have noobligation whatsoever to repair, reconstruct or restore the Demised Premiseswhen (i) the damage resulting from any casualty covered under this Articleoccurs during the last twenty-four (24) months of the term of this Lease (orthe term of any option period which Tenant exercises), and (ii) the aggregatecosts for repairs as expected reasonably to exceed the aggregate amount of theBasic Rent**payable for theremainder of the term of this Lease (or any exercised option period). In theevent Landlord elects not to repair, reconstruct or restore the DemisedPremises pursuant to this Section, Tenant may, by written notice delivered toLandlord within ten (10) days after receipt by Tenant of Landlord’s notice ofits election not

 

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to repair,reconstruct or restore the Demised Premises, elect to terminate this Lease.

 

21.           EminentDomain.

 

21.1         In the eventthe whole of the Demised Premises, or such critical and essential parts thereofas shall deprive Tenant of the usefulness to Tenant of the Demised Premises, betaken for any public or quasi-public purpose by any lawful power or authorityby exercise of the right of appropriation, condemnation or eminent domain, orsold to prevent such taking, Tenant or Landlord may terminate this Leaseeffective as of the date possession is required to be surrendered to saidauthority.

 

21.2         Upon anytaking, if this Lease is not terminated pursuant to Section 21.1 above, thenLandlord promptly shall proceed to restore the Demised Premises tosubstantially their same condition, to the extent reasonably possible, prior tosuch partial taking. Until such restoration has been completed, thereafterBasic Annual Rent shall be abated proportionately based on the percentage ofthe rental value of the Demised Premises after such taking as compared to therental value of the Demised Premises prior to such taking.

 

21.3         Tenant shallbe entitled to any award which is specifically awarded as compensation (i) forthe taking of Tenant’s personal property and fixtures, including excess tenantimprovements which were installed at Tenant’s expense, and (ii) for costs ofTenant moving to a new location, and (iii) for Tenant’s loss of business. Allother compensation awarded for such taking shall belong to Landlord.

 

22.           Defaultsand Remedies.

 

22.1       Latepayment by Tenant to Landlord of Rent or other sums due will cause Landlord toincur costs not contemplated by this Lease, the exact amount of which isextremely difficult to ascertain. Such costs include, but are not limited to,processing and accounting charges, attorneys’ charges, late payment charges ona mortgage, and so forth. In the event that Landlord does not receive a monthlyinstallment of Rent by the first day of the month and said delinquency is notcured within two (2) business days after Tenant receives a written notice ofthe delinquency, then Tenant shall pay to Landlord a service charge in anamount of One Thousand Dollars ($1,000); and a similar late payment servicecharge shall be paid on the second day of each subsequent month that the samemonthly installment of Rent remains unpaid. Provided, however, if more than onesuch delinquency occurs during any twelve month period, then no notice ofdelinquency shall be required for the following twelve months, and tenant shallpay said $1,000 service charge for each installment which is not

 

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received byLandlord by the fifth day of the month (which installment nevertheless is dueon the first day of the month) and a similar late payment service charge shallbe paid on the second day of each subsequent month that the same monthlyinstallment of Rent remains unpaid. In addition to the foregoing late paymentservice charge, the unpaid monthly installment of Rent amount owing and pastdue, shall bear interest at a per annum rate equal to the Bank of America primerate, plus three percentage points. Such interest shall be calculated from thedate such amount was first due and payable until the same shall have been fullypaid. Additionally, if Landlord uses its own fund reserves to pay aninstallment owing on any mortgage or deed of trust covering the DemisedProperty, or if Landlord defaults on any said mortgage or deed of trust,because of a default by Tenant in paying Rent when due, then Tenant shall alsopay to Landlord such late payment charge as is specified by the terms of saidmortgage or trust deed covering the Demised Premises. Further, if Landlordincurs any reasonable attorney’s fees in excess of $500 with respect to alldefaults by Tenant in any calendar year, then Tenant shall pay as an additionallate payment charge the sum of all such attorney’s fees in excess of $500. Theforegoing late payment charges and interest shall accrue without the need forLandlord to give Tenant any reminder notice or default notice as to the unpaidamount owing.

 

22.2         No paymentby Tenant or receipt by Landlord of a lesser amount than that due shall bedeemed to be other than on account of the amount due, nor shall any endorsementor statement on any check or any letter accompanying any check or payment bedeemed an accord and satisfaction, and Landlord may accept such check orpayment without prejudice to Landlord’s right to recover the balance or pursueany other remedy provided. If at any time a dispute shall arise as to anyamount or sum of money to be paid by Tenant to Landlord, Tenant shall have theright to make payment “under protest” and such payment shall not be regarded asa voluntary payment, and Tenant shall have the right to institute suit forrecovery of the payment paid under protest. Tenant shall have the right tospecify what obligation its payment is to be applied against.

 

22.3         If Tenantfails to perform any other act on its part to be performed hereunder, Landlordmay, without waiving or releasing Tenant from any obligations of Tenant,perform such act on behalf of Tenant if Tenant has not cured its failure withinthe time period specified in Section 22.4(b) below.

 

22.4         Theoccurrence of any one or more of the following events shall constitute a “Default”hereunder by Tenant:

 

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(a)**            **The failure by Tenant to make anypayment of Rent, as and when due, which failure is not cured within five daysafter Tenant receives written notice of the delinquent Rent;

 

(b}            Thematerial failure by Tenant to observe or perform any material obligation otherthan described in Section 22.4(a) above, to be performed by Tenant where suchfailure shall continue for a period of thirty (30) days after written noticethereof from Landlord to Tenant. Such notice shall be in lieu of, and not inaddition to, any notice required under California code of Civil ProcedureSection 1161; provided that, if the nature of Tenant’s default is such that itreasonably requires more than thirty (30) days to cure, then Tenant shall notbe deemed to be in default if Tenant shall commence such cure within saidthirty (30) day period and thereafter diligently prosecute the same tocompletion;

 

(c)           Tenantmakes an assignment for the benefit of creditors;

 

(d)           Areceiver, trustee or custodian is appointed to, or does, take title, possessionor control of all, or substantially all, of Tenant’s assets and is not removedwithin sixty (60) days;

 

(e)           Anorder for relief is entered against Tenant pursuant to a voluntary orinvoluntary proceeding commenced under any chapter of the Bankruptcy Code andis not removed within sixty (60) days;

 

(f)            Anyinvoluntary petition if filed against the Tenant under any chapter of theBankruptcy Code and is not dismissed within ninety (90) days;

 

(g)           Tenant’sinterest in this Lease is attached, executed upon or otherwise judiciallyseized and such action is not released within ninety (90) days of the action;or

 

(h)           Tenantfails to comply fully with all provisions in Article 37 concerning HazardousMaterials, subject to Tenant’s right to cure as specified in Section 22.4(b)above.

 

Notices givenunder this Section shall specify the alleged default and shall demand thatTenant perform the provisions of this Lease within the applicable period oftime, or quit the Demised Premises. No such notice shall be deemed a forfeitureor a termination of this Lease unless Landlord elects otherwise in such notice.

 

22.5          Inthe event of a Default by Tenant, and at any time thereafter while the Defaultremains uncured, with or without

 

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notice ordemand and without limiting Landlord in the exercise of any right or remedywhich Landlord may have, Landlord shall be entitled to terminate Tenant’s rightto possession of the Demised Premises by any lawful means, in which case****this Lease shall terminate and Tenantshall immediately surrender possession of the Premises to Landlord. In suchevent, Landlord shall have the immediate right to re-enter and remove allpersons and property, and such property may be removed and stored in a publicwarehouse or elsewhere at the cost of and for the account of Tenant, inaccordance with California law, and without being deemed guilty of trespass orbecoming liable for any loss or damage which may be occasioned thereby,excepting only for damages caused by Landlord’s gross negligence or willfulmisconduct. In the event that Landlord shall elect to so terminate this Lease,then Landlord shall be entitled to recover from Tenant all damages incurred byLandlord by reason of Tenant’s default, including:

 

(a)           The worth at the timeof award of any unpaid rent which had been earned at the time of suchtermination; plus

 

(b)           The worth at the timeof award of the amount by which the unpaid rent which would have been earnedafter termination until the time of award exceeds that portion of such rentalloss which Tenant proves could have been reasonably avoided; plus

 

(c)           The worth at the timeof award of the amount by which the unpaid rent for the balance of the termafter the time of award exceeds the amount of such rental loss which Tenantproves could have been reasonably avoided; plus

 

(d)           Any other amountnecessary to compensate Landlord for all the detriment proximately caused byTenant’s failure to perform its obligations under this Lease or which in theordinary course of things would be likely to result therefrom, including butnot limited to the cost of restoring the Premises to the condition requiredunder the terms of this Lease; plus

 

(e)           AtLandlord’s election, such other amounts in addition to or in lieu of theforegoing as may be permitted from time to time by applicable law.

 

As used inSubsections (a) and (b) above, “worth at the time of award” shall be computedby allowing interest at the rate specified in Section 22.1 above. As used inSubsection (c) above, the “worth at the tine of award” shall be computed bydetermining the present value of such amount using the discount rate of theFederal Reserve Bank of San Francisco at the time of award plus one percentagepoint.

 

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The amount ofdamages recoverable by Landlord shall be calculated and determined inaccordance with the applicable California legal principle requiring Landlord touse reasonable efforts to mitigate damages.

 

22.6         If Landlord does not elect to terminatethis Lease on account of Tenant’s Default as provided in this Section, thenLandlord may, from time to time, recover all Rent as it becomes due under thisLease pursuant to California Civil Code section 1951.4. At any time thereafterwhile the Default remains uncured, Landlord may elect to terminate this Leaseand to recover damages to which Landlord is entitled.

 

22.7         In the event Landlord elects toterminate this Lease and relet the Premises, it may execute any new lease inits own name. Tenant hereunder shall have no right or authority whatsoever tocollect any rent or other sums from such tenant. The proceeds of any suchreletting shall be applied as follows:

 

(a)           First, to the payment of anyindebtedness other than Rent due hereunder from Tenant to Landlord, includingbut not limited to storage charges or brokerage commissions owing from Tenantto Landlord as the result of such reletting;

 

(b)           Second, to the payment of the costsand expenses of reletting the Premises, including alterations and repairs whichLandlord deems reasonably necessary and advisable, and reasonable attorneys’fees incurred by Landlord in connection with the retaking of the Premises andsuch reletting;

 

(c)           Third, to the payment of Rent andother charges due and unpaid hereunder; and

 

(d)           Fourth, to the payment of future Rentand other damages payable by tenant under this Lease.

 

22.8         All rights, options and remedies ofLandlord contained in this Lease shall be construed and held to benon-exclusive and cumulative. Landlord shall have the right to pursue any orall of such remedies or any other remedy or relief which may be provided bylaw, whether or not stated in this Lease. No waiver of any default of Tenanthereunder shall be implied from the acceptance by Landlord of any Rent or otherpayments due hereunder or any omission by Landlord to take any action onaccount of such default if such default persists or is repeated, and no expresswaiver shall affect defaults other than as specified in said waiver.

 

22.9         Termination of this Lease or Tenant’sright to possession by Landlord shall not relieve Tenant from any liability toLandlord which has theretofore accrued or shall arise based

 

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upon eventswhich occurred prior to the later of (1) the date of Lease termination, or (ii)the date possession of Demised Premises is surrendered to Landlord.

 

22.10       Landlord shall not be in default underthis tease unless Landlord fails to perform an obligation required of Landlordunder this Lease within a reasonable time, but in no event later than thirty(30) days after written notice by Tenant specifically identifying theobligation Landlord has failed to perform; provided, however, that if thenature of Landlord’s obligation is such that more than thirty (30) days arerequired for performance, then Landlord shall not be in default if Landlordcommences performance within such thirty (30) day period and thereafterdiligently prosecutes the same to completion. A “Landlord’s Default” shallexist if and only if (i) said written notice of default is given to Landlordand Landlord fails to promptly cure the same; or (ii) Landlord commits anintentionally wrongful act or (iii) Landlord acts negligently at the DemisedPremises relative to Landlord’s general law duties, as distinguished fromLandlord’s contractual duties under this Lease. Landlord’s liability for aLandlord’s Default shall be only for damages arising from and after Landlord’sreceipt of Tenant’s written notice claiming a default by landlord. Any claimsfor a Landlord’s Default concerning the Landlord’s Work shall be asserted inwriting, if at all, not later than 360 days following the substantialcompletion of the Landlord’s Work. In the event that there is any insurancecoverage for the damages claimed to be caused by a Landlord’s Default, saidinsurance proceeds shall be exhausted and Landlord shall be obligated to payonly the remainder of said damages.

 

22.11       In the event of any default on the partof Landlord, Tenant shall give notice, by registered or certified mail, at anyaddress provided to Tenant, to any beneficiary of a deed of trust or mortgageeof a mortgage covering the Building or Demised Premises whose address shallhave been furnished to Tenant and Tenant shall offer such beneficiary ormortgagee a reasonable opportunity to cure the default, not to exceed thirty(30) days from the date of receipt of notice from Tenant.

 

23.                                 Assignment orSubletting.

 

23.1         Tenant shall have the right to sell,hypothecate or transfer this Lease, or sublet the Demised Premises or any parthereof, only after first obtaining the prior written consent ofLandlord, which consent shall not be unreasonably withheld. A transfer of morethan fifty percent (50%) of the equity ownership of Tenant during any two-yearperiod to a party (or to an affiliated group of parties) shall constitute aprohibited assignment; provided, however, this provision shall not beapplicable if such transfers occurred on a public stock exchange.

 

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23.2         If Tenant desires to assign this Leaseto any entity (i) into which Tenant is merged, (ii) with which Tenant isconsolidated, (iii) which acquires all or substantially all of the assets ofTenant, (iv) which owns a Controlling interest in Tenant, (v) in which Tenantowns a controlling interest, or (vi) which is owned or****controlled by an entity owning acontrolling interest in Tenant (collectively, “Affiliates”), Landlord willconsent to the assignment so long as each of the following conditions aresatisfied: (x) the assignee Affiliate first executes, acknowledges and deliversto Landlord an agreement whereby the assignee agrees to be bound by all of thecovenants and agreements in this Lease, (y) the assignee Affiliate shall have anet worth (determined in accordance with generally accepted accountingprinciples consistently applied) immediately after such assignment, which is atleast as high a net worth as Tenant’s is immediately preceding the assignment,and (z) the assignee Affiliate’s use of the Demised Premises will notmaterially adversely affect the value of the Demised Premises or the risks ofHazardous Materials problems.

 

23.3         If Tenant desires to sublet the DemisedPremises to any Affiliate, provided that the sublessee first executes,acknowledges and delivers to Landlord an agreement whereby the sublessee agreesto be bound by all of the covenants and agreements in this Lease, other thanthe payment of Basic Annual Rent and Operating Expenses, then Landlord, uponreceipt of the foregoing, will consent to the subletting.

 

23.4         In the event Tenant desires to assign,sublease, hypothecate or otherwise transfer this Lease or sublet the DemisedPremises, or part thereof, and the proposed transaction is not within thecriteria specified in Section 23.2, then at least fifteen (15) days prior tothe date when Tenant desires the assignment or sublease to be effective (the “AssignmentDate”), Tenant shall give Landlord written notice (“the Assignment Notice”)which shall set forth the name, address and business of the proposed assigneeor sublessee, information (including references) concerning the character ofthe proposed assignee or sublessee, the Assignment Date, any ownership orcommercial relationship between Tenant and the proposed assignee or sublessee,and the consideration and all other material terms and conditions of theproposed assignment or sublease, all in such detail as Landlord shallreasonably require. Additionally, Tenant shall furnish to Landlord a copy ofthe financial statements for the most recently past fiscal year, as well as themost recent quarterly financial statements for both Tenant and the proposedassignee or sublessee.

 

23.5         Except as otherwise provided inSections 23.2 and 23.3above, Landlord, in making its determination as towhether consent should be given to a proposed assignment or sublease, may

 

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giveconsideration to the reputation in the community of a proposed successor, thefinancial strength of such successor (notwithstanding the assignor or sublessorremaining liable for Tenant’s Performance), and any change in use which suchsuccessor proposes to make in use of Demised Premises (provided, however,Landlord will not withhold its consent if the changed use is permitted byapplicable Zoning and does not involve a material risk to the Demised Premisesdue to the use of a prohibited Hazardous Material as defined in Section 37.7hereof). In no event shall Landlord be deemed to be unreasonable for decliningto consent to a transfer to a successor of poor reputation, lacking a net worthequal to at least two times the Basic Annual Rents, or seeking change in use.Landlord may also withhold consent reasonably, pursuant to the terms of Section37.3 concerning Hazardous Materials. It shall be unreasonable and bad faith forLandlord to ask for any additional consideration as a condition for Landlord toconsent to a proposed assignment or subletting. In the event Landlord’sWithholding of consent to a proposed assignment or subletting is found to beunreasonable pursuant to the arbitration proceeding, Tenant’s sole remedy shallbe to have the proposed assignment or subletting declared valid as if Landlord’sconsent had been given, and to recover attorneys fees and arbitration cost forthe arbitration, unless the arbitration proceeding also finds that Landlordwithheld its consent in bad faith, it Landlord withholds its consent to aproposed assignment or subletting, and Tenant requests an arbitration to determineif Landlord’s withholding is reasonable, said arbitration shall be held,conducted and Completed on an expedited basis, within fourteen (14) days afterLandlord receives Tenant’s written demand for arbitration. In lieu of thearbitration procedures set forth in Section 38.19 below, (i) the arbitrationshall be by a single neutral arbitrator, who shall be the person who is thehead of the Commercial Real Estate Department of John Burnham & Company (ifhe is willing to serve and is independent and neutral of both Tenant andLandlord),or otherwise a similar person at CB Commercial Real Estate, San Diegooffice; and (ii) the arbitration proceedings shall be expedited by the partiesand the arbitrator so as to complete the proceedings within fourteen days.

 

23.6         Any sale, assignment, hypothecation ortransfer of this Lease or subletting of Demised Premises, or part thereof, thatis not in compliance with the provisions of this Article shall be void. Anysuch transaction shall constitute a Default if Landlord would have beenentitled to withhold its consent to such proposed transaction and if notremedied within thirty (30) days after Tenant receives a written notice thereoffrom Landlord.

 

23.7         The consent by Landlord to anassignment or subletting shall not relieve Tenant or any assignee of this Leaseor sublessee of the Demised Premises from obtaining the consent of

 

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Landlord toany further assignment or as releasing Tenant or any assignee or sublessee ofTenant from full and primary liability.

 

23.8         If Tenant shall sublet the DemisedPremises, or any part thereof, Tenant hereby immediately and irrevocablyassigns to Landlord, as security for Tenant’s obligations under this Lease, allrent from any such subletting, and Landlord, as assignee and asattorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord’sapplication, may collect such rent and apply it toward Tenant’s obligationsunder this Lease; except that Tenant shall have the right to collect such rentfrom the sublessee at all tines while there is no Default by Tenantoutstanding.

 

23.9         Notwithstanding any subletting orassignment, Tenant shall remain fully and primarily liable for the payment ofall Rent and other sums due, or to become due, hereunder, and for the fullperformance of all other terms, conditions and covenants to be kept andperformed by Tenant hereunder. The acceptance of Rent or any other sum duehereunder, or the acceptance of performance of any other term, covenant or conditionhereof, from any other person or entity shall not be deemed to be a waiver ofany of the provisions of this Lease or a consent to any subletting orassignment of the Demised Premises.

 

23.10       Upon the termination of any sublease, thesubtenant or Tenant shall comply with the provisions of Sections 37.5.1 and37.5.2 for the sublet premises.

 

24.                                 Attorney’s Fees.

 

24.1         If either party hereto becomes a partyto any litigation concerning this Lease, the Demised Premises, or the Building,by reason of any act or omission of the other party or its authorizedrepresentatives, and not by any act or omission of the party that becomes aparty to that litigation or any act or omission of itsauthorized-representatives the party that causes the other party to becomeinvolved in the litigation shall be liable to that party for reasonableattorneys’ fees and court costs incurred by it in the litigation.

 

24.2         If either party hereto commences anaction or arbitration against the other party arising out of or in connectionwith this Lease, the prevailing party shall be entitled to have and recoverfrom the losing party reasonable attorneys’ fees and costs incurred in anylegal action or arbitration proceeding.

 

25.                                 Bankruptcy.

 

25.1         In the event a debtor, trustee or debtor-in-possessionunder the Bankruptcy Code, or other person with similar

 

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rights, dutiesand powers under any other law, proposes to cure any default of Tenant underthis Lease or to assume or assign this Lease and is obliged to provide adequateassurance to Landlord that (i) a default will be cured, (ii) Landlord will becompensated for its damages arising from any breach of this Lease, or (iii)future performance under this Lease will occur, then adequate assurance shallinclude any or all of the following:

 

(a)           Those acts specified in theBankruptcy Code or other laws as included within the meaning of adequateassurance, even if this Lease does not concern a shopping center or otherfacility described in such laws:

 

(b)           A prompt cash payment to compensateLandlord for any monetary defaults or damages arising from a breach of thisLease;

 

(c)           A cash deposit in an amount at leastequal to the Security Deposit originally required at time of execution of thisLease;

 

(d)           The creditworthiness anddesirability, as a tenant, of the person assuming this Lease or receiving anassignment of this Lease, at least equal to Landlord’s customary and usualcreditworthiness requirements and desirability standards in effect at the timeof the assumption or assignment; and

 

(e)           The assumption or assignment of allof Tenant’s interest and obligations under this Lease.

 

26.                                 Definition ofLandlord.

 

26.1         The term “Landlord” as used in thisLease, so far as covenants or obligations on the part of Landlord areconcerned, shall be limited to mean and include only Landlord or thesuccessor-in-interest of Landlord under this Lease at the time in question.From and after the Term Commencement Date, in the event of any transfer, assignmentor the conveyance of Landlord’s title or leasehold, the Landlord herein named(and in case of any subsequent transfers or conveyances, the then grantor)shall be automatically freed and relieved from and after the date of suchtransfer, assignment or conveyance of all liability for the performance of anycovenants or obligations contained in this Lease thereafter to be performed byLandlord. Said transfer shall not affect any liabilities for failures inLandlord’s performance which occurred prior to the transfer. Without furtheragreement, the transferee of such title or leasehold shall be deemed to haveassumed and agreed to observe and perform any and all obligations of Landlordhereunder during its ownership or ground lease of the Demised Premises. Landlordmay transfer its interest in the Demised Premises or this Lease without theconsent of Tenant, and

 

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such transfer,or a subsequent transfer shall not be deemed a violation on the part ofLandlord or the then grantor of any of the terms or conditions of this Lease.

 

27.                                Estoppel Certificate.

 

27.1         From time to time as reasonablyrequested by Landlord, Tenant shall, for the benefit of Landlord’s lender(s) orpurchasers, within fifteen (15) days of written notice from Landlord, execute,acknowledge and deliver to Landlord a statement in writing substantially in theform attached to this Lease as Exhibit “E” with the blanks filled in, or on anyother form reasonably requested by a proposed lender or purchaser (i)certifying that this Lease is unmodified and in full force and effect (or, ifmodified, stating the nature of such modification and certifying that thisLease as so modified is in full force and effect) and the dates to which theRent and other charges are paid in advance, if any, (ii) acknowledging thatthere are not, to Tenant’s knowledge, any uncured defaults on the part ofLandlord hereunder or specifying such defaults if any are claimed, and (iii)setting forth such further reasonable information with respect to this Lease orthe Demised Premises as may be requested thereon. Any such statement may berelied upon by any prospective purchaser or encumbrancer of all or any portionof the Demised Premises. Nothing in any estoppel certificate shall change therights or obligations of the Landlord and Tenant as between themselves.

 

27.2         From time to time as reasonablyrequested by Tenant, Landlord shall, within fifteen (15) days of written noticefrom Tenant, execute, acknowledge and deliver to Tenant an estoppel certificatesimilar in form to the estoppel certificate specified in Section 27.1, for thebenefit of a specified third party with whom Tenant is dealing, such as aninvestor, lender, potential Affiliate, subtenant or assignee.

 

28.                                 Jointand Several Obligations.

 

28.1         If more than one entity executes thisLease as Tenant:

 

(a)           Each of them is jointly and severallyliable for the keeping, observing and performing all of the terms, covenants,conditions, provisions and agreements of this Lease to be kept, observed andperformed by Tenant; and

 

(b)           The term “Tenant” shall mean andinclude each of them jointly and severally. The act of, notice from, notice to,refund to or the signature of any one or more of them, with respect to thisLease, including but not limited to any renewal, extension, expiration,termination or modification of this Lease,

 

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shall bebinding upon each and all of the persons executing this Lease as Tenant withthe same force and effect as if each and all of them had so acted, so given orreceived such notice or refund or so signed.

 

29.                          Limitationof Landlord’s Liability.

 

29.1         If Landlord is a limited partnership orjoint venture, the limited partners of such partnership shall not be personallyliable and no limited partner of Landlord shall be sued individually or namedindividually as a party in any suit or action or service of process be madeagainst any limited partner of Landlord. If Landlord is a corporation, the shareholders,directors, officers, employees and/or agents of such corporation shall not bepersonally liable and no shareholder, director, officer, employee or agent ofLandlord shall be sued or named as a party in any suit or action or service ofprocess be made against any shareholder, director, officer, employee or agentof Landlord (excluding however the corporation’s statutory agent for service ofprocess). No limited partner, shareholder, director, employee or agent ofLandlord shall be required to answer or otherwise plead to any service ofprocess and no judgment will be taken or writ of execution levied against anylimited partner, shareholder, director, employee or agent of Landlord.

 

29.2         Each of the covenants and agreements ofthis Article shall be applicable to any covenant or agreement either expresslycontained in this Lease or imposed by statute or by common law.

 

29.3         See also, Section 22.10 for adefinition of Landlord’s Default.

 

30.                                 IntentionallyOmitted.

 

31.                                 Quiet Enjoyment.

 

31.1         Landlord covenants that Landlord oranyone acting through or under Landlord will not disturb Tenant’s occupancy ofthe Demised Premises, except as permitted by the provisions of this Lease.

 

32.                                 Quitclaim Deed.

 

32.1         Tenant shall execute and deliver toLandlord on the expiration or termination of this Lease, immediately uponLandlord’s request, a quitclaim deed to the Demised Premises or other documentin recordable form suitable to evidence of record termination of this Lease.Landlord may withhold the refund of any security deposit until said quit claimdeed has been delivered by Tenant.

 

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33.                                 Subordinationand Attornment.

 

33.1         This Lease shall be subject andsubordinate to the lien of any mortgage, deed of trust or lease in whichLandlord is tenant, now or hereafter in force against the Demised Premises, andto all advances made or hereafter to be made upon the security thereof withoutthe necessity of the execution and delivery of any further instruments on the partof Tenant to effectuate such subordination; provided the holder of any suchmortgage, deed of trust or lease executes, acknowledges and delivers to Tenanta non-disturbance agreement (in a torn reasonably satisfactory to Tenant)providing that so long as Tenant performs all of its obligations under theLease, Tenant’s quiet enjoyment and use of the Demised Premises shall not bedisturbed.

 

33.2         Notwithstanding the foregoing, Tenantshall execute and deliver upon demand such further instrument or instrumentsevidencing such subordination of this Lease to the lien of any such mortgages,deeds of trust or leases in which Landlord is tenant as may be requiredreasonably by Landlord’s lender. However, if any such mortgagee, beneficiary orlandlord under a lease wherein Landlord is tenant so elects, this Lease shallbe deemed prior in lien to any such lease, mortgage or deed of trust upon orincluding the Demised Premises, regardless of date, and Tenant shall execute astatement in writing to such effect at Landlord’s request.

 

33.3         In the event any proceedings arebrought for foreclosure, or in the event of the exercise of the power of saleunder any mortgage or deed of trust covering the Demised Premises, Tenantshall, at the election of purchaser at such foreclosure or sale, attorn to suchpurchaser and recognize such purchaser as the Landlord under this Lease.

 

33.4         If Landlord obtains a loan commitmentfrom a lender for the financing or refinancing of the Demised Premises, andsaid loan commitment requires same amendment(s) to this Lease, then Tenant,shall cooperate with Landlord in executing said amendment(s), so long as theamendment(s) do not materially adversely affect any of the material rights orobligations of Tenant under this Lease.

 

34.                                 Surrender.

 

34.1         No surrender of possession of any partof the Demised Premises shall release Tenant from any of its obligationshereunder unless accepted by Landlord.

 

34.2         The voluntary or other surrender ofthis Lease by Tenant shall not work a merger, unless Landlord consents, and

 

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shall, at theoption of Landlord, operate as an assignment to it of any or all subleases orsubtenancies.

 

34.3         The voluntary or other surrender of anyground or underlying lease that may hereafter be executed affecting theBuilding or Demised Premises, or a mutual cancellation thereof or of Landlord’sinterest therein, shall not work a merger and shall, at the option of thesuccessor of Landlord’s interest in the Building or Demised Premises, operateas an assignment of this Lease.

 

35.                                 Waiver andModification.

 

35.1         No provision of this Lease may bemodified, amended or added to except by an agreement in writing executed byLandlord and Tenant. The waiver by Landlord or Tenant of any breach of anyterm, covenant or condition herein contained shall not be deemed to be a waiverof any subsequent breach of the same or any other term, covenant or conditionherein contained.

 

36.                                 Waiverof Jury Trial and Counterclaims.

 

36.1         The parties hereto shall and do herebywaive trial by jury in any action, proceeding or counterclaim brought by eitherof the parties hereto against the other on any flatters whatsoever arising outof or in any way connected with this Lease, the relationship of Landlord andTenant, Tenant’s use or occupancy of the Demised Premises and/or any claim ofinjury or damage.

 

37.                                 Hazardous Materials.

 

37.1         Prohibition/Compliance. Tenant,at its sole cost, shall comply with all federal, state and local laws,statutes, ordinances, codes, regulations and orders relating to the receiving,handling, use, storage, accumulation, transportation, generation, spillage,migration, discharge, release and disposal of any Hazardous Material (asdefined in this Article) in or about the Demised Premises or the Building.Provided, however, Tenant shall not be responsible for Hazardous Materialswhich were on the Demised Premises prior to the Term Commencement Date (and theparties are not aware of any), and Tenant shall not be responsible for HazardousMaterials which might spill or seep onto the Land from a neighboring property(none of which are known or anticipated), and Tenant shall not be responsiblefor Hazardous Materials which were placed on the Demised Premises by personswho are not subject to Tenant’s control, it being agreed that the followingtypes of persons are subject to Tenant’s control: Tenant’s employees, officers,directors, consultants, agents, contractors, subcontractors, invitees,customers, vendors, suppliers, etc. (hereinafter collectively called “Tenant’sInvitees”) Tenant shall not cause or permit any Hazardous

 

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Material to bebrought upon, kept or used in or about the Demised Premises by Tenant, orTenant’s Invitees in a manner or for a purpose prohibited by any federal, stateor local law, rule or regulation. The disposal of Hazardous Material shall bein approved containers and removed from the Demised Premises by duly licensedcarriers. Tenant shall immediately provide Landlord with telephonic notice,which shall promptly be confirmed by written notice, of any and all spillage,discharge, release and disposal (outside the ordinary course of business) ofHazardous Materials onto or within the Demised Premises or the Building, whichby law must be reported to any federal, state or local agency, and any injuriesor damages resulting directly or indirectly therefrom. A failure of Tenant togive to Landlord the notices required in this Section 37.1 shall constitute adefault under this Lease, subject to the cure provisions specified in Section22.4(b). Further, Tenant shall deliver to Landlord each and every notice ororder received from any federal, state or local agency concerning HazardousMaterials and the possession use and/or disposal thereof promptly upon receiptof each such notice or order. Similarly, if Landlord receives any suchgovernment notices or orders, then Landlord shall promptly deliver a copy toTenant. Tenant shall be responsible for and shall indemnify, protect, defendand hold harmless Landlord and its agents, employees, representatives,directors and officers from any and all claims, costs, penalties, fines,losses, including without limitation, (i) temporary or permanent diminution invalue of the Demised Premises or the Building for the time period after thetermination of this Lease, (ii) damages for the temporary or permanent loss orrestriction on Use of rentable or usable space or of any amenity of the DemisedPremises or the Building for the time period after the termination of thisLease, and (iii) sums paid in settlement of claims, consultant fees and expertfees, liabilities, attorneys’ fees, damages, injuries, causes of action,judgments and expenses, which arise during or after the term of this Lease andwhich**result from Tenant’sreceiving, handling, use, storage, accumulation, transportation, generation,spillage, migration, discharge, release or disposal of Hazardous Materials in,upon or about the Demised Premises or the Building. Similarly, Landlord shallbe responsible for and shall indemnify, protect, defend and hold harmlessTenant and its agents, employees, representatives, directors and officers fromany and all claims, costs, penalties, fines, losses, including withoutlimitation sums paid in settlement of claims, consultant fees and expert fees,liabilities, attorneys! fees, damages, injuries, causes of action, judgmentsand expenses which arise from Landlord’s or Landlord’s Invitees’ placement,discharge, release, disposal, transportation or spillage of Hazardous Materialsupon the Demised Premises (excluding, however, any Hazardous Materials placedon the Demised Premises by Landlord’s Invitees in connection with Landlord’sWork pursuant to the Improvement Plans). The term “Landlord’s Invitees” shallmean persons who are subject to Landlord’s

 

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control,consisting of Landlord’s employees, officers, directors, consultants, agents,contractors, subcontractors, invitees, customers, vendors, suppliers, etc., whogo onto the Demised Premises on behalf of Landlord.

 

37.1.1      Clean-up. The indemnifications ofLandlord and indemnities by Tenant pursuant to Section 37.1 above include, tothe extent Tenant is responsible for such costs and expenses under theprovisions of Section 37.1 above, but without limiting the generalitiesthereof, reasonable costs incurred in connection with any investigation of siteconditions or any cleanup, remedial, removal or restoration work lawfullyrequired by any federal, state or local governmental agency or politicalsubdivision because of any Hazardous Materials present in the soil, subsoil,ground water, or elsewhere at, on or under the Demised Premises or theBuilding. Without limiting the foregoing, if the presence of any HazardousMaterials at, on or under the Demised Premises or the Building caused orpermitted by Tenant results in the Demised Premises or the Building becoming inviolation of law, Tenant promptly shall take all actions at its expense as arenecessary to return the Demised Premises or the Building to the conditionrequired by law; provided that Landlord’s approval of such action shall firstbe obtained, which approval shall not be unreasonably withheld or delayed solong as such action would not potentially have any material adverse long-termor short-term effect on the Building or the Demised Premises; and providedfurther that Tenant shall not be required to obtain Landlord’s prior approvalto any action of an emergency nature reasonably required or any actionmandated, by a governmental authority, but Tenant shall give Landlord promptnotice thereof. Provided further, the foregoing provisions of this Section37.1.1 shall not be applicable if such Hazardous Materials (i) were placed onthe Demised Premises prior to the Term Commencement Date, or (ii) were placedon the Demised Premises by means of spillage or seepage from a neighboringproperty, or (iii) were placed on the Demised Property by persons who are notTenant’s Invitees. Additionally, Landlord shall cooperate in good faith withTenant to approve a clean-up or remediation plan which mitigates the overalldamages and costs; but if such remediation plan involves a delay in completingthe remediation, then Tenant shall agree to toll the statute of limitations forthe duration of said delay applicable to any claim against Tenant related toTenant’s obligation to clean up Hazardous Materials.

 

37.1.2      Business. Landlord acknowledgesthat it is not the intent of this Article to prohibit Tenant from operating itsbusiness as described in Section 2.1.7 above or to unreasonably interfere withthe operation of Tenant’s business. Tenant may operate its business accordingto the custom of the industry so long as the use, presence and disposal ofHazardous

 

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Materials isstrictly and properly monitored according to all applicable governmentalrequirements. As a material inducement to Landlord to allow Tenant to useHazardous Materials in connection with its business, Tenant agrees to deliverto Landlord prior to the Tern Commencement Date a confidential list (i)identifying each type of Hazardous Material to be present in or upon theDemised Premises and (ii) setting forth any and all governmental approvals orpermits required in connection with the presence of such Hazardous Materials onthe Demised Premises (“Hazardous Materials List”), and a confidential copy ofthe Hazardous Materials business plan prepared pursuant to Health and SafetyCode Section 25500, et seq. Tenant shall deliver to Landlord an updatedHazardous Materials List at least once every twelve (12) months. Tenant shalldeliver to Landlord true and correct copies of the following documents(hereinafter referred to as the “Documents”), relating to the handling,storage, disposal and emission of Hazardous Materials prior to the TermCommencement Date or, if unavailable at that time, concurrent with the receiptfrom or submission to a governmental agency: (i) permits; (ii) approvals; (iii)reports and correspondence relating to the release of Hazardous Materials; (iv)storage and management plans; (v) notice of violations of any laws; (vi) plansrelating to the installation of any storage tanks to be installed in or underthe Demised Premises (provided, said installation of tanks only shall bepermitted after Landlord has given Tenant its written consent to do so, whichconsent nay be withheld in Landlord’s sole discretion); and (vii) all closureplans or any other documents required by any and all federal, state and localgovernmental agencies and authorities for any storage tanks installed in, on orunder the Demised Premises. Landlord shall treat all such proprietaryinformation furnished by Tenant to Landlord as strictly confidential andLandlord shall not disclose such information to any person or entity withoutTenant’s prior written consent (which consent Tenant shall not unreasonablywithhold), except as required by law, by insurance carriers, by the local firedepartment, or by applicable governmental agencies. Landlord’s confidentialitycovenant in this section 37.1.2 is a material covenant for the benefit ofTenant.

 

37.2         Termination of Lease.Notwithstanding the provisions of this Article, Landlord shall have the rightto terminate the Lease in this event that (i) Tenant uses the Demised Premisesfor the generation, storage, use, treatment or disposal of Hazardous Materialin a manner prohibited by applicable law (unless Tenant is diligently pursuingcompliance therewith) and such use has a material adverse effect on Landlord,the Demised Premises or the Building, (ii) Tenant has been required by anygovernmental authority to take remedial action in connection with HazardousMaterial contaminating the Demised Premises or the Building if the contaminationresulted from Tenant’s action or use of the Demised Premises and such remedialaction has a material

 

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adverse effecton Landlord, the Demised Premises or the Building, or (iii) Tenant is subjectto an enforcement order issued by any governmental authority in connection withthe use, disposal or storage of****aHazardous Material on the Demised Premises and such enforcement order has amaterial adverse effect on Landlord, the Demised Premises or the Building. Eachof the foregoing events shall, be deemed to be a material default by Tenantunder this Lease, if the default is not cured within the provisions of Section 22.4(b).

 

37.3         Assignment and Subletting.Notwithstanding the provisions of Article 23 above, if (i) any anticipated useof the Demised Premises by any proposed assignee or sublessee involves thegeneration or storage, use, treatment or disposal of Hazardous Material in anymanner prohibited hereunder or by any applicable law, (ii) the proposedassignee or sublessee has been required by any governmental authority to takeremedial action in connection with a Hazardous Material if the contaminationresulted from such party’s action or use of the property in question and suchparty has failed to take such action, or (iii) the proposed assignee orsublessee is subject to an enforcement order issued by any governmental,authority in connection with the use, disposal or storage of a HazardousMaterial of a type such proposed assignee or sublessee intends to use in, on orat the Demised Premises and the proposed assignee or sublessee has failed tofully comply with such enforcement order, it shall not be unreasonable forLandlord to withhold its consent to an assignment or subletting to such proposedassignee or sublessee.

 

37.4         Condition. Landlord representsthat, to the best of its knowledge, as of the date of this Lease, there are noHazardous Materials on the Demised Premises, except as previously disclosed toTenant in writing. If Landlord discovers that any Hazardous Material exists in,on or about the Demised Premises, then Landlord promptly shall give Tenantwritten notice of such condition and shall, except to the extent Tenant isresponsible therefor, use its best efforts to have such Hazardous Materialcleaned up and the Demised Premises brought into compliance with applicablelaws. At Landlord’s sole cost, Landlord shall furnish to Tenant, as soon as isreasonably feasible, an update to the existing November 16, 1989 Phase tenvironmental audit for**theDemised Premises and the results of any additional tests reasonably recommendedby said Phase I audit and update. If said audit update and tests revealHazardous Materials which will materially and adversely impair the ability ofTenant to satisfactorily occupy and use the Demised Premises, then Tenant mayterminate this Lease within ten (10) days after receipt of said audit updateand tests if Landlord does not commit in writing within said ten (10) days toremedy the same at Landlord’s sole expense in a timely manner which will notimpair Tenant’s use of the Demised Premises.

 

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37.5         Perform Tests.

 

37.5.1      At any time prior to the expiration of theterm of this Lease, Landlord shall have the tight to enter upon the DemisedPremises at all reasonable times, and at reasonable intervals, upon forty-eight(48) hours’ prior written notice, and accompanied by an authorizedrepresentative of Tenant, if Tenant so elects, in order to conduct appropriatetests to determine whether contamination in excess of permissible levels hasoccurred as a result of Tenant’s use of the Demised Premises. Landlord shalldeliver to Tenant written notice of the results of such tests. Tenant shall paythe reasonable costs of any test conducted pursuant to this Section whichdemonstrates that contamination in excess of legally permissible levels hasoccurred and such contamination was caused by Tenant’s use of the DemisedPremises.

 

37.5.2      Upon the expiration or upon any earlytermination of this Lease, Tenant shall furnish to Landlord, at Tenant’s solecost, a then customary Phase I environmental audit for the Demised Premises,plus such additional tests and studies as may be customary, reasonable orrecommended by said audit, so as to obtain a then customary and reasonableverification, if any, that the Demised Premises are free from any HazardousMaterials or contamination in excess of legally permissible levels. If saidreport and studies indicates that there are any impermissible levels ofHazardous Materials on the Demised Premises, then Tenant shall pay for allcosts necessary to clean up and remedy said impermissible levels of HazardousMaterials to the extent such levels of Hazardous Materials are not permitted byapplicable governmental laws or regulations, but only to the extent suchimpermissible Hazardous Materials are reasonably likely to impair Landlord’seffort to sell, lease, use or finance the Demised Premises at full value.Provided, however, Tenant shall have no duty with respect to any such HazardousMaterials which (i) were on the Demised Premises prior to the Term CommencementDate, or (ii) were placed on the Demised Premises by means of spillage orseepage from a neighboring property, or (iii) were placed on the DemisedProperty by persons other than Tenant or Tenant’s Invitees. Additionally, ifsuch Hazardous Materials prevent Landlord from leasing the Demised Premises,then Tenant shall also continue to be liable to Landlord for all damagessuffered by Landlord until such time as the impermissible levels of HazardousMaterials are cleaned up and remedied, to the extent such levels of HazardousMaterials are not permitted by applicable governmental laws or regulations, butonly to the extent such impermissible Hazardous Materials impair Landlord’sefforts to sell, lease, use or finance the Demised Premises at full value;provided however, that Landlord shall use reasonable good faith efforts tomitigate its damages, and to the extent that some or all of the DemisedPremises continue to be used and to generate

 

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rental incometo Landlord while the remediation work is being conducted, then said rentalincome shall be credited against the damages otherwise payable by Tenant forthe same premises and time period. Additionally, Landlord shall cooperate ingood faith with Tenant to approve a remediation plan which mitigates theoverall damages and costs; but if such remediation plan involves a delay incompleting the remediation, then Tenant shall agree to toll the statute oflimitations for the duration of said delay applicable to any claim againstTenant related to Tenant’s obligation to clean up Hazardous Materials.

 

37.6       Tenant’s Obligations. Tenant’sobligations under this Article shall survive the termination of this Lease.During any period of time employed by Tenant after the termination of thisLease to complete the removal from the Demised Premises or the Building of anysuch Hazardous Materials, Tenant shall continue to pay the full Rent inaccordance with this Lease. (Provided however, to the extent that some or allof the Demised Premises continue to be used and to generate rental income toLandlord while the remediation work is being conducted, then said rental incomeshall be credited against the Rent otherwise payable by Tenant for the samepremises and time period. Additionally, Landlord shall cooperate in good faithwith Tenant to approve a remediation plan which mitigates the overall damagesand costs.)

 

37.7         Definition of “Hazardous Material”.As used herein, the term “Hazardous Material” means any hazardous or toxicsubstance, material or waste which is or becomes regulated by any localgovernmental authority, the State of California or the United StatesGovernment. The term “Hazardous Material” includes, without imitation, anymaterial or substance which is (i) defined as a “hazardous waste”, “extremelyhazardous waste” or “restricted hazardous waste” under Sections 25115, 25117 or25122.7 or listed pursuant to Section 25140 of the California Health and SafetyCode, Division 20, chapter 6.5 (Hazardous Waste Control Law); (ii) defined as a“hazardous substance” under Section 25316 of the California Health and SafetyCode, Division 2, chapter 6.8 (Carpenter-Presly-Tanner Hazardous SubstanceAccount Act); (iii) defined as a “hazardous material”, “hazardous substance” or“hazardous waste” under Section 25501 of the California Health and Safety Code,Division 2O, Chapter 6.95 (Hazardous Substances); (v) petroleum; (vi) asbestos;(vii) listed under Article 9 and defined as hazardous or extremely hazardouspursuant to Article 11 of Title 22 of the California Administrative Code,Division 4, Chapter 20; (viii) designated as a “hazardous substance” pursuantto Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section1317); (ix) defined as a “hazardous waste” pursuant to Section 1004 of theFederal Resource Conservation and Recovery Act, 42 U.S.C. section 6901, et seq.(42 U.S.C. Section 6903); or (x) defined as a “hazardous substance” pursuant toSection 101 of

 

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theComprehensive Environmental Response Compensation Liability Act, 42 U.S.C.Section 9601, et seq. (42 U.S.C. Section 9601).

 

38.                                 Miscellaneous.

 

38.1         Terms and Headings. Whereapplicable in this Lease, the singular includes the plural and the masculine orneuter includes the masculine, feminine and neuter. The headings used in thisLease are not a part hereof and shall have no effect upon the construction orinterpretation of any part hereof.

 

38.2         Examination of Lease. Submissionof this Lease for examination or signature by Tenant does not constitute areservation of, or option for, lease, nor is it effective as a lease orotherwise until execution by, and delivery to, both Landlord and Tenant.

 

38.3         Time. Time is of the essencewith respect to the performance of every provision of this Lease in which timeof performance is a factor.

 

38.4         Covenants and Conditions. Eachprovision of this Lease performable by Landlord or Tenant shall be deemed botha covenant and a condition.

 

38.5         Consents. Whenever consent orapproval-of either party is required, that party shall not unreasonablywithhold such consent or approval, except as may be expressly set forth hereinto the contrary.

 

38.6         Entire Agreement. This Lease(together with its Exhibits) is intended by the parties as a final expressionof their agreement with respect to the terms as are included herein, and allprior agreements, understandings, representations and statements, oral orwritten, are merged herein, excepting only for written agreements signedcontemporaneously with or after the signing of this Lease.

 

 38.7        Severability.Any provision of this Lease which shall be deemed or prove to be invalid, voidor illegal shall in no way affect, impair or invalidate any other provisionhereof, and all such other provisions shall remain in full force and effect.

 

38.8         Recording. Landlord and Tenantshall execute, acknowledge and record a short form memorandum of this Lease.

 

38.9         Impartial Construction. Thelanguage in all parts of this Lease shall be in all cases construed as a wholeaccording to its fair meaning and not strictly for or against either Landlordor Tenant. As both parties participated in the drafting

 

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and review ofthis Lease, any ambiguity in the language will not be constructed againsteither Party as the drafter of that language.

 

38.10       Inurement. Each of the covenants,conditions and agreements herein contained shall inure to the benefit of andshall apply to and be binding upon the parties hereto and their respectiveheirs, legatees, devisees, executors, administrators, successors, assigns,sublessees or any person who may come into possession of said Demised Premisesor any part thereof in any manner whatsoever. Nothing contained in this Sectionshall in any way alter the provisions against assignment or subletting providedin this Lease.

 

38.11       Force Majeure. If either partycannot perform any of its obligations hereunder, excluding however obligationsto pay money, due to events beyond the party’s control, the time provided forperforming such obligations shall be extended by a period of time equal to theduration of such events. Events beyond a party’s control include, but are notlimited to, acts of God, war, civil commotion, labor disputes, strikes, fire,flood or other casualty, shortages of labor or material, government regulationor restriction and weather conditions.

 

38.12       Notices. Any notice, consent,demand, bill, statement or other communication required or permitted to begiven hereunder shall be in writing and shall be deemed duly delivered uponpersonal delivery, or as of the second business day after mailing by UnitedStates mail, postage prepaid, return receipt requested, or upon the nextbusiness day if delivered by overnight courier or similar overnight deliverysystem, addressed to Tenant at the Demised Premises or to Tenant or Landlord atthe addresses shown in Section 2.1.8 herein. Either party may, by notice to theother given pursuant to this Section, specify additional or different addressesfor notice purposes.

 

38.13       Exhibits.All exhibits and schedules referred to herein and attached hereto are a parthereof, and incorporated herein by this reference.

 

38.14       Modification. No modification,waiver, amendment, discharge or change of this Lease shall be valid unless thesame is in writing and signed by the party against which the enforcement ofsuch modification, waiver, amendment, discharge or change is or may be sought.

 

38.15       Periods of Time. All periods oftime referred to in this Lease shall include all Saturdays, Sundays and stateor United States holidays, unless the period of time specifies business days,provided that if the date or last date to perform any act or give any noticewith respect to this Lease shall fall

 

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on a Saturday,Sunday or state or national holiday, such act or notice may be timely performedor given on the next succeeding day which is not a Saturday, Sunday or state ornational holiday.

 

38.16       Choice of Law. This Lease shall beconstrued and enforced in accordance with the laws of the State of California,and venue for any legal action under this Lease shall be San Diego County,California.

 

38.17       Interpretation. En the event anyconflict exists between the provisions of this Lease, the order of priority inthe interpretation hereof shall be as follows; (a) any supplemental agreement,memorandum of understanding or addendum signed simultaneously with, or after,the signing of this Lease, (b) Work Letter Exhibit B, (c) Exhibits (except WorkLetter Exhibit B), (d) basic Lease provisions, and (e) general provisions.

 

38.18       Sale by Landlord. In the eventLandlord decides to market the Demised Premises for sale, Landlord shall usegood faith efforts to notify Tenant and to give Tenant up to five (5) days tomake an offer to be the purchaser. If Landlord receives an offer from a third partyto buy the Demised Premises before Landlord has notified Tenant of Landlord’sdecision to market the Demised Premises, Landlord shall use good faith effortsto reach Tenant and to allow Tenant to make an offer, if the timing of thethird party’s offer allows Landlord to do so. Nevertheless, if timing orcircumstances do not reasonably enable Landlord to so notify Tenant, or if theunique nature or facts of the third party’s offer can not readily be matched byTenant, then Landlord shall be free to sell the Demised Premises even if nonotice of potential sale is given to Tenant. If any holder of a deed of truston the Demised Property acquires title by “deed-in-lieu of foreclosure” or byforeclosure, the procedures of this Section 38.18 shall not be applicable tosuch a sale or any subsequent sale. The foregoing commitments by Landlord shallnot constitute a right of first refusal or a right of first offer which Tenantcan enforce against Landlord to the detriment of any sale to a third partywhich Landlord may elect to make.

 

38.19       Arbitration. In the event of anydispute arising with respect to this Lease, which dispute is not resolved bynegotiations between Landlord and Tenant, said dispute shall be resolved bybinding arbitration, in accordance with the arbitration procedures set forthbelow, excepting only as set forth below. Provided, however, any dispute inconnection with Exhibit B Work Letter Agreement shall be resolved by theDispute Resolution procedures set forth in Article VIII of Exhibit B, and anydisputes relating to Landlord’s consent to an assignment or Sublease shall beresolved by the procedures set forth in Article 23 of this Lease, in lieu ofthis arbitration procedure; and provided further, in the event of any Defaultby Tenant in

 

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paying anyRent or other sums owing under this Lease, Landlord may also pursue,at-Landlord’s option, court remedies for unlawful detainer and collection ofRent and sums owing under this Lease.

 

38.19.1 Jurisdictionand Choice of Law. Except as otherwise provided herein, any matterssubmitted to binding arbitration under this Lease shall be decided inaccordance with the procedures set forth in Title 9 of Part lit of theCalifornia Code of Civil Procedure (Sections 1280 et seq.). The locationof the arbitration shall be the County of San Diego and the arbitrationproceedings shall be governed by the laws of California.

 

38.19.2 Commencement.If a party determines that a dispute is not likely to be resolved bynegotiations, said party (the “Initiating Party”) may commence bindingarbitration pursuant to this section 38.19 by delivering a written notice ofarbitration to the other party (the “Responding Party”). Said notice shallspecify the nature and details of the dispute, and the resolution thereofdesired by the Initiating Party. Within ten (10) days following receipt of thenotice of arbitration, the Responding Party shall deliver to the InitiatingParty a written response which specifies the resolution of the dispute desiredby the Responding Party. If the Responding Party has other disputes it wants tobe submitted to the arbitration, the Responding Party shall also specify in theresponse the nature and details of the dispute, and the resolution thereofdesired by the Responding Party; and the Initiating Party shall respond theretoin the same manner as set forth above.

 

38.19.3 Selectionof Arbitrator(s). The arbitrator(s) shall be individuals skilled in thelegal and business aspects of the subject matter of this Lease; thearbitrator(s) shall be neutral, independent and disinterested with respect tothe parties and the outcome of the arbitration. A single arbitrator may beappointed and used so long as both parties agree on the selection of the singlearbitrator. However, upon the request of either party before the singlearbitrator is mutually selected and appointed, three arbitrators shall be used,with each party appointing one arbitrator, and the two arbitrators so selectedthen mutually selecting the third arbitrator. If a party fails to appoint itsdesignated arbitrator within ten (10) days after receiving a written demand todo so, the one arbitrator who has already been designated shall appoint theother two (2) arbitrators. If a single arbitrator is used, the decision of thesingle arbitrator shall be binding upon the parties. If three arbitrators areused, the decision of any two of the three arbitrators shall be binding uponthe parties.

 

38.19.4 Pre-HearingProcedure. Within fifteen (l5) days following the appointment of thearbitrator(s), each party

 

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shall deliverto each arbitrator and to the other party a written position paper settingforth its view of the facts and law, and its position on the dispute, and itsrequested decision to be made by the arbitrator(s), Said position paper shallalso identify generally the written evidence and the witnesses which the partyexpects to present at the arbitration hearing. Said position paper shall specifythe specific discovery which the party desires to pursue, such as thedescription of documents the party wants to be produced for inspection and thenames or titles of witnesses it wants to depose, and the nature of writteninterrogatories it wants answered. The arbitrator(s) shall control andreasonably limit the scope and nature of the discovery by each party, butotherwise the discovery shall be conducted in accordance with California CCPSection 1283.05. No depositions may be taken or discovery obtained later thanfifteen (15) days prior to the scheduled arbitration hearing date. Thearbitration hearing shall commence as soon as feasible, but generally withintwo months following the appointment of the arbitrator(s).

 

38.19.5 Hearing.At the hearing, each party may present testimony and documentary evidencerelevant to the issues to enable the arbitrator(s) to render a decision. Allevidence and testimony presented to the arbitrator(s) shall be given in thepresence of both parties or their respective counsel. Neither party may contactany arbitrator concerning the subject of the arbitration unless the other partyor its counsel is present, in person or by phone. The decision of thearbitrator(s) shall be based solely on the evidence presented at the hearingand on the written position paper submitted by each party. The arbitrator(s)shall establish such procedures and timing schedule as the arbitrator(s)determine to be fair and reasonable, including without limitation, proceduresand rules for admission of evidence and relevancy of evidence. Any decision bythe arbitrator(s) may be entered in any court having jurisdiction, orapplication may be made to such court for a judicial acceptance of the decisionand an order of enforcement.

 

38.19.6 Decision.The arbitrator(s) shall make such decisions as the arbitrator(s) determine tobe supported by the evidence and law, including remedies such as (i) an awardof damages (compensatory, consequential, and/or punitive), (ii) equitableremedies (such as an injunction or specific performance) and (iii) declaratoryrelief.

 

38.19.7 Costsof Arbitration. The costs of the arbitration, including the arbitrator(s)fees, expert witness fees and the parties’ attorneys’ fees, shall be awarded tothe prevailing party, as determined by the arbitrator(s). Unless and until thearbitrator(s) decide that one party is to pay all (or a disproportionate share)of the arbitrator(s) ‘ fees, both parties

 

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shall shareequally in the payment of the arbitrator(s)’****feeas and when billed by the arbitrator(s).

 

38.19.8 ConfidentialityThe parties shall keep confidential (except from persons who have a need toknow, such as management employees of the parties, the parties’ attorneys, andlenders, insurers and others who may be affected by the decision in thearbitration) the fact of the arbitration, the dispute being arbitrated and thedecision of the arbitrator(s) Provided, however, if the arbitration decision isnot promptly satisfied the arbitration decision may be filed in any courthaving jurisdiction

 

38.19.9 Notices.Notices shall be given by and to the parties for this arbitration Proceeding asspecified in Section 2.1.8 of this Lease.

 

38.20       Counterparts. This Lease may besigned in counterparts, each of which shall he deemed an original, and all ofwhich together shall be deemed one and the same Lease when both parties havesigned a counterpart.

 

39.           Contingencies

 

39.1         Board of Directors. Landlord andTenant each hereby warrants and represents that its respective Board ofDirectors has approved this Lease transaction and has authorized the officerwho is signing this Lease to sign and deliver this Lease.

 

39.2         Lender.

 

39.2.1      The existing lender (Mission Land) whichhas a first deed of trust encumbering the Demised Premises is expected tosubordinate its deed of trust to a new first deed of trust which will secure anew loan (or loans) of approximately $13,100,000, which new loan proceeds areto cover the Landlord’s Improvements Cost Funds and Landlord’s other direct andindirect costs for improving the Demised Premises and for implementing thisLease (the “New Loan”). As a precondition to the existing lender so giving itssubordination Landlord must first arrange for the New Loan, which Landlordplans to do within the next thirty to sixty days after the signing and theEffective Date of this tease. Landlord’s obligations under this Lease arecontingent upon the existing lender approving the New Loan and the relatedsubordination The New Loan shall contain reasonable control arrangements fordisbursing the funds in the Improvements Cost Fund to the Landlord’s Contractorand to other parties entitled thereto. Tenant shall be made a third-partybeneficiary of the Landlord’s rights under the New Loan, to the extentpermitted by the new lender, in order to enable Tenant to use the remaining

 

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loan proceedsto complete the Landlord’s Work in the event of a material default by Landlordunder the Work Letter. Additionally, if the new lender requires a completionguarantee, Tenant shall be an additional beneficiary of the completionguarantee, if the new lender so permits.

 

39.2.2      Accordingly, the rights and obligations ofboth Landlord and Tenant under this Lease are contingent upon Landlordarranging said New Loan within sixty days after the Effective Date of thisLease, or such longer period as the parties may mutually approve in writing. IfLandlord has not arranged for the New Loan within said sixty days and Landlordhas not given to Tenant written evidence that said New Loan has been soarranged, then either Landlord or Tenant may terminate this Lease by giving awritten notice of termination to the other party any time after said sixty daysand prior to Tenant receiving a written notice that Landlord has subsequentlyarranged the New Loan. En the event that Tenant participates in the New Loan asa lender, or otherwise provides related financing, an appropriate amendment tothis Lease will be entered into concerning said Tenant financing.

 

 39.2.3 If this Lease is terminated because Landlord does not arrange the NewLoan within said sixty days, then Landlord shall reimburse Tenant for the feespaid or payable to the Project Architect for the work performed by the ProjectArchitect up to the date of the termination of this Lease, but, subject,however, to Landlord’s prior review and written approval of the Tenant’scontract with the Project Architect, including the fee schedule and terminationfee provisions in said contract, which approval shall be obtained before Tenantsigns the contract with the Project Architect. Except as specified in thisSection 39.2.3, neither party shall have any further rights, obligations orliabilities under this Lease after this Lease is terminated pursuant to Section39.2.2 above.

 

IN WITNESSWHEREOF, the parties hereto have executed this Lease as of the date first abovewritten.

 
| Landlord:                 | Tenant:                    |
|---------------------------|----------------------------|
| TORREY  SOPRENTO, INC., a | IDEC  PHARMACEUTICALS      |
| California  corporation   | CORPORATION,  a California |
|                      | Corporation                |
|                      |                       |
| By:                       | signature present          |   | By: | signature present |   |
|                      | Its:                       | Vice  President |   |   | Its: | Vice  President |   |
|                      |                       |   |   |   |   |
| By:                       |                       |   | By: |   |   |
|                      | Its:                       |   |   |   | Its: |   |   |
|                           |                            |  |  |  |  |  |  |  |  |  |

 

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EXHIBIT“A”

 

Legal Description

 

 

Lot 7 TorreyPines Science Park Unit E, Map

No. 8434, inthe City of San Diego, County of

San Diego,State of California

 

Address:                                            11011Torreyana Road

San Diego,California, 92121

 

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Exhibit B

 

WORK LETTER AGREEMENT FOR IMPROVEMENTS

 

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TABLE OF CONTENTS

 

 
| I      | GENERAL REQUIREMENTS                                                          |                                                       |
|--------|-------------------------------------------------------------------------------|------------------------------------------------------------|
|   | 1.1                                                                           | Project Architect; Condition of Demised  Premises General; |   |
|   | 1.2                                                                           | Categories of Work                                         |   |
|   | 1.3                                                                           | Development Schedule                                       |   |
|   | 1.4                                                                           | Improvement Plans                                          |   |
|   | 1.5                                                                           | Approval of Improvement Plans                              |   |
|   | 1.6                                                                           | Building Permit for Improvement Work                       |   |
|   | 1.7                                                                           | Construction of Landlord’s Work                       |   |
|   | 1.8                                                                           | Tenant Changes                                             |   |
|   |                                                                          |                                                       |   |
| II     | LANDLORD’S WORK                                                          |                                                       |
|   | 2.1                                                                           | General                                                    |   |
|   |                                                                          |                                                       |   |
| III    | TENANT’S WORK                                                            |                                                       |
|   | 3.1                                                                           | General                                                    |   |
|   | 3.2                                                                           | Equipment and Furnishings                                  |   |
|   | 3.3                                                                           | Early Possession                                           |   |
|   | 3.4                                                                           | Permit and Completion                                      |   |
|   |                                                                          |                                                       |   |
| IV     | LANDLORD’S USE OF A CONTRACTOR, COST  ESTIMATE, CONSTRUCTION COORDINATOR |                                                       |
|   | 4.1                                                                           | Contractor Selection; Construction Contract                |   |
|   | 4.2                                                                           | Estimate of Costs for Landlord’s Work                 |   |
|   | 4.3                                                                           | Tenant Approval of Cost Estimate                           |   |
|   | 4.4                                                                           | Construction Coordination                                  |   |
|   |                                                                          |                                                       |   |
| V      | TENANT’S USE OF A CONTRACTOR                                             |                                                       |
|   | 5.1                                                                           | Contractor Selection                                       |   |
|   |                                                                          |                                                       |   |
| VI     | COMPLETION, RENT COMMENCENENT AND DELAYS                                      |                                                       |
|   | 6.1                                                                           | Definitions                                                |   |
|   | 6.2                                                                           | Completion of the Work and Rent  Commencement              |   |
|   | 6.3                                                                           | Delays and Bifurcation                                     |   |
|   |                                                                          |                                                       |   |
| VII    | DEVELOPMENT                                                                   |                                                       |
|   | 7.1                                                                           | Tenant's Construction Representatives                      |   |
|   | 7.2                                                                           | Delivery of the Premises                                   |   |
|   | 7.3                                                                           | As-Built Drawings                                          |   |
|   |                                                                          |                                                       |   |
| VIII   | CONSTRUCTION DISPUTE RESOLUTION                                               |                                                       |
|   | 8.1                                                                           | Dispute Resolution                                         |   |
|   | 8.2                                                                           | Notice                                                     |   |
|   | 8.3                                                                           | Selection of Fifth Party/Costs                             |   |
|   | 8.4                                                                           | Interpretation and Resolution                              |   |
|   | 8.3                                                                           |  Continued Performance                                |   |
|   | 8.6                                                                           | Binding Resolution                                         |   |

 

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| **Schedules** | ** ** | **Description**                               |
|---------------|------------|-----------------------------------------------|
|          |       |                                          |
| 1             |       | Improvements  to Basic Building Shell         |
|          |       |                                          |
| 2             |       | Building  Improvements for Generic Facilities |
|          |       |                                          |
| 3             |       | Special  Tenant Improvements                  |
|          |       |                                          |
| 4             |       | Tenant’s  Work                           |
|          |       |                                          |
| 5             |       | Development  Schedule                         |

 

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Exhibit B

 

WORK LETTER AGREEMENT FOR IMPROVEMENTS

 

 

ARTICLE I

 

GENERALREQUIREMENTS

 

1.1           ProjectArchitect; Condition of Demised Premises; General.

 

1.1.1        McGrawBaldwin Architects shall serve as the “Project Architect”, representing Tenant.If the Project Architect does not perform satisfactorily, Tenant reserves theright to replace McGraw Baldwin Architects with another qualified architecturalfirm mutually approved by both Tenant and Landlord, which approval shall not bewithheld unreasonably. Tenant and the Project Architect have entered into an “Architect’sContract,” dated as of the same date as the Lease, using the AIA form documentB-141-1987 edition.

 

1.1.2        Tenantacknowledges that (a) Landlord purchased the Demised Premises recently, andthat Landlord has limited knowledge and information about the Demised Premises.Tenant acknowledges that Tenant has engaged the Project Architect toinvestigate the Demised Premises, and (b) Tenant and Tenant’s representativeshave investigated the Demised Premises and studied available informationconcerning the Demised Premises, and (c) tenant has obtained information aboutthe Demised Premises from an architect (McGraw Baldwin Architects) and aconstruction consultant (Coronado Assets, Inc.) who have investigated theDemised Premises, and (d) Tenant now possesses all information about theDemised Premises which Tenant needs in order to accept the Lease, and (e) theProject Architect will familiarize itself with all information about theDemised Premises which the Project Architect needs to prepare appropriate plansand specifications for the Landlord’s Work, and (f) neither Landlord nor anyagent of Landlord has made any representations or warranties with respect tothe condition of the Demised Premises or the Building or with respect to thesuitability of the Demised Premises for the conduct of Tenant’s business,except as set forth herein or in the Lease. Tenant and Landlord eachacknowledge that each has had prior business or consulting relationships withthe Project Architect, and that each has recommended and approved Tenant’sselection of the Project Architect. Landlord and Tenant acknowledge and agreethat Project Architect may serve as a neutral party to help Landlord and Tenantevaluate and decide upon disputed items, rather than Project Architect serving asan agent or advocate for Tenant.

 

1.1.3          Asmore fully set forth throughout this Exhibit B, (i) the Project Architect ispreparing the Improvement

 

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Plans for allimprovement work to be performed at the Building, which includes both theLandlord’s Work and the Tenant’s work, (ii) Landlord and Landlord’s Contractorshall be responsible for constructing the Landlord’s Work, (iii) Landlord shallpay for all of the Corrective Work, and $240,690 for the Basic Improvements toBuilding Shell Work, and $9,660,000 for the Building Improvements for GenericFacilities Work, for an aggregate $9,900,960 as the Improvements Cost Fund,(iv) Tenant shall pay for all additional costs, and for the costs of SpecialTenant Improvements Work, and for Tenant’s Work, and (v) Tenant and Tenant’scontractor shall be responsible for constructing the Tenant’s Work, which isall improvement work that is not defined as Landlord’s Work.

 

1.1.4        Theparties acknowledge and agree, (i) that the improvements to be constructed inthe Building involve highly specialized, complex and difficult design,construction and installation, and (ii) that the parties mutually will usediligent and good faith efforts to cooperate with and assist each other inorder to promptly and efficiently perform the necessary design, constructionand installation.

 

1.1.5        Subjectto Landlord’s completion of the corrective Work (as defined in Section 1.2.1(c)below), Tenant is accepting the current condition of the Demised Premises intheir “as is” condition as ready for Landlord to construct the Landlord’s Workand for Tenant to perform the Tenant’s work. In consideration for Landlord agreeing to fund the Improvements CostFund, and as specified in Section 1.7.11, Tenant agrees that Landlord shallhave no financial responsibility beyond the Improvements Cost Fund for anyimprovements or repairs to the Demised Premises, excepting only for theCorrective Work, and as specified in the Lease. Tenant shall be entitled to pursueany available remedies and claims, (i) against the construction contractors,equipment suppliers and manufacturers, and other responsible third parties forany defects in the Landlord’s Work, and (ii) against Landlord for damagescaused by Landlord’s gross negligence or willful misconduct, or Landlord’sDefault (as defined in the Lease). Landlord shall cooperate fully with Tenantto enable tenant to pursue any available remedies and claims against such thirdparties, including without limitation assigning to Tenant any warranties orclaims relating to defects in Landlord’s Work. Landlord represents thatLandlord is not aware of any material problems with the condition of theDemised Premises, including, without limitation, soils, geological condition,structural condition (other than for the Corrective Matters), zoning,compliance with laws, Hazardous Materials (other than for the CorrectiveMatters, and items identified in the Phase I report dated November 16, 1989 byApplied Geosciences, Inc.), and permits and approvals that would materially andadversely affect the Demised Premises or use thereof. Tenant shall have noclaims against Landlord for any unknown or latent defects or problems with theDemised Premises, excepting only if there is a misrepresentation by Landlord inthe

 

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precedingsentence, or if Landlord fails to comply with its obligations in Section1.2.1(c) below.

 

1.1.6        Wheneverconsent or approval of either party is required, that party shall notunreasonably withhold or delay such consent or approval, except as may beexpressly set forth herein to the contrary. If a party does not deliver itswritten approval or disapproval for an item within the time deadline specifiedin this Exhibit B, the party shall be deemed to have disapproved the item. Anydelays caused by such a “deemed disapproval” shall be charged to the party whoso disapproved the item.

 

1.1.7        whenevera party fails to respond to a request for an approval of an item, such that thereis a “deemed disapproval” as specified in Section 1.1.6 above, the partyseeking the approval may give a written notice again requesting the approval,and if a specific written disapproval is not received by the requesting partywithin five (5) days after said written request is received by the other party,then the other party shall be deemed to have approved item. Any delayscaused by the foregoing deemed disapproval or deemed approval shall be chargedto the party who so fails to act.

 

1.2           Categoriesof Work. The work to be performed at the Demised Premises is categorized asfollows:

 

1.2.1        “CorrectiveWork”, consisting of:

 

a. removal ofany asbestos-related materials and products from the interior of the Building;and

 

b. providingstructural retrofit to the existing second floor of the Building to support 80pounds of live load, plus 20 pounds of partition load, per square foot;  and

 

c. obtainingand furnishing to Tenant an update to the existing November 16, 1989 phase Ienvironmental audit for the Demised Premises, plus such additional studies asmay be reasonably recommended by said audit and update. If said audit updateand studies reveal Hazardous Materials which will materially and adverselyimpair the ability of Tenant to satisfactorily occupy and use the DemisedPremises, then Tenant may terminate this Lease within ten (10) days afterreceipt of said update and studies if Landlord does not commit in writingwithin said ten (10) days to remedy the same at Landlord’s sole expense, in atimely manner which will not impair Tenant’s use of the Demised Premises. ThisCorrective Work shall be performed by Landlord at Landlord’s sole cost,promptly after the execution of this Lease and prior to commencement of-construction of the Building Improvements for Generic Facilities (as defined inSection 1.2.3 below), or as soon thereafter as is feasible, so long as thedelay does not impair or delay Tenant’s use of the Demised Premises.

 

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1.2.2         “BasicImprovements to Building Shell” as described on Schedule 1 to this Exhibit B.This work is to be performed by Landlord at Landlord’s cost up to the aggregatelump sum cost limit as specified in Schedule 1, and thereafter any additionalcosts are to be paid by Tenant. These costs paid by Landlord shall be payablefrom the Improvements Cost Fund.

 

1.2.3         “BuildingImprovements for Generic Facilities,” as described on Schedule 2 to thisExhibit B for Generic Office Facility, Generic Wet Laboratory Facility andGeneric Pilot Plant Production Facility. This work is to be performed byLandlord, with payment to come from the “Improvements Cost Fund” to the extentof said Fund, and with Tenant to pay for any excess costs.

 

1.2.4         “SpecialTenant Improvements,” as described on schedule 3 to this Exhibit B. This workis to be performed by Landlord at Tenant’s sole cost.

 

1.2.5         “Tenant’sWork,” as described on Schedule 4 to this Exhibit B. This work is to beperformed by Tenant at Tenant’s sole cost. -

 

1.2.6         “Landlord’sWork” shall mean all of the combined work referenced above as Corrective Work,Basic Improvements to Building Shell, Building Improvements for GenericFacilities, and special Tenant Improvements. The “Landlord’s Work” includes thecorrective Work, plus the work to be performed pursuant to the ConstructionContract.

 

1.2.7         “ImprovementPlans” shall mean collectively the “Schematic Design Drawings,” the “DesignDevelopment Drawings,” the “Construction Documents” and all related plans,drawings, specifications and notes prepared (and to be prepared) by the ProjectArchitect for all of the Landlord’s Work and the Tenant’s Work.

 

1.2.8         “ConstructionDocuments” shall mean the construction drawings as defined in Section 1.4.4.

 

1.3           DevelopmentSchedule. The time schedule for design and development of the Landlord’sWork to be performed, including without limitation the tine periods forpreparation and review of the Improvement Plans, approvals and performance,whether by Landlord or by Tenant, shall be in accordance with that certain Timeand Responsibility Schedule attached as Schedule 5 to this Exhibit B, subjectto adjustment as mutually agreed to by the parties and as provided in thisExhibit B (the “Development Schedule”). As is set forth on schedule 5, thereare two separate time schedules for (i) the Office and Laboratory Facilities,and (ii) the Pilot Plant Facility. The parties acknowledge and agree that it isvery important to both parties to complete the Landlord’s Work as soon asreasonably feasible; and both parties agree to Use diligent efforts to causethe Landlord’s Work to be completed as soon as reasonably feasible.

 

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Landlord andTenant will cooperate to comply with the Development Schedule and Landlord andTenant will schedule and participate in weekly meetings with the ProjectArchitect and the Landlord’s Contractor to keep all interested persons informedand to keep the progress of Landlord’s Work on schedule.

 

1.4           ImprovementPlans.

 

1.4.1         Priorto Tenant and the Project Architect preparing calculations, designs, drawingsand specifications for the Landlord’s Work as required in Section 1.4.4 below,Tenant and the Project Architect shall endeavor to thoroughly familiarizethemselves with all applicable information concerning the Demised Premises,plus all applicable building codes and governmental regulations. TheImprovement Plans shall be prepared by Tenant and the Project Architect in fullknowledge of and in compliance with this Exhibit B, and all cities. County andState ordinances, rules and regulations relating to the Landlord’s Work,including, without limitation, the energy conservation and handicap accessrequirements of Title 24 of the California Administrative Code (“Title 24”),and the federal regulations to assist handicapped persons, to comply fully withlocal, state or federal regulations and authorities.

 

1.4.2         Onor before the date set forth in the Development Schedule, Tenant agrees tosubmit to Landlord fully detailed and dimensioned 1/8” scale preliminaryschematic design drawings (“Schematic Design Drawings”) prepared by the ProjectArchitect for the Demised Premises. This preliminary submittal shall includethe following: three (3) sets of prints and one (1) sepia which show fullydeveloped floor plans. Tenant’s Schematic design Drawings are subject toLandlord’s approval, within three (3) business days after Tenant delivers toLandlord the Schematic Design Drawings, Landlord shall deliver to Tenantwritten notice of its approval or disapproval of the Schematic Design Drawings.If Landlord disapproves, then Landlord’s notice shall specify the reasons forsuch disapproval and the changes which Landlord requests. If Landlord sodisapproves the Schematic Design Drawings, Landlord and Tenant shall meet andconfer within three (3) business days after delivery of Landlord’s noticedisapproving the Schematic Design Drawings and shall attempt in good faith topromptly reach agreement on the Schematic Design Drawings. If necessary, Tenantshall resubmit Schematic Design Drawings and repeat the foregoing process untilapproval is obtained. In the event an agreement is not reached, then thedispute shall be resolved pursuant to Article VIII. Any delays resulting fromsuch dispute shall not be charged to either party, unless the ConstructionPanel (defined in Section 8.1) finds that a party created the dispute in badfaith and contrary to the parties’ reasonable understandings and expectationsas set forth in the Lease and this Exhibit B.

 

1.4.3         Onor before the date set forth in the Development Schedule (but subject to priordelays as specified

 

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herein),Tenant agrees to submit to Landlord three (3) sets of the preliminaryconstruction drawings for the Landlord’s Work for the Demised Premises, asprepared by the Project Architect (“Design Development Drawings”) ascontemplated by the Architect’s Contract. Within three (3) business days afterLandlord receives the Design Development Drawings, Landlord shall deliver toTenant written notice of Landlord’s approval or disapproval of the DesignDevelopment Drawings. If Landlord disapproves, then Landlord’s notice shallspecify the reasons for such disapproval and the changes which Landlordrequests. If necessary, Tenant shall resubmit the Design Development Drawingsand repeat the foregoing process until approval is obtained. In the eventagreement is not reached, the dispute shall be resolved pursuant to ArticleVIII. Any delays resulting from such dispute shall not be charged to eitherparty, unless the construction Panel (defined in Section 8.1) finds that aparty created the dispute in bad faith and contrary to the parties’ reasonableunderstandings and expectations as set forth in the Lease and this Exhibit B.

 

1.4.4         Onor before the date set forth in the Development Schedule (but subject to priordelays as specified herein), Tenant agrees to-submit to Landlord thirty-five(35) sets of prints and one (1) sepia of fully detailed and dimensioned 1/4” or1/8” scale construction drawings for the Demised Premises prepared by theProject Architect pursuant to the Architect’s Contract (the “ConstructionDocuments”). These Construction Documents shall include the following: (a) planviews of the entry and partitions, and along the longitudinal axis; door,finish and color schedules; and final design drawings for Building and entrysigns; (b) electrical drawings prepared by an electrical engineer includingcircuitry plans, panel schedules, riser diagrams, load calculations and allTitle 24 calculations and completed forms; (c) mechanical drawings prepared bya mechanical engineer, including heating, ventilating and air conditioningdesign calculations, equipment schedule and specifications, air distributionductwork system, plumbing fixtures and piping, and all, required Title 24calculations and completed forms. As part of the Construction Documents, Tenantshall submit a schedule of specifications completed by mechanical andelectrical engineers including heating, ventilating and air conditioningrequirements.

 

1.4.5         Feesof the Project Architect for preparing the Improvement Plans shall be subjectto Landlord’s prior written approval and shall be paid from the ImprovementsCost Fund; provided, however, if Tenant does not obtain a building permit forthe Landlord’s Work, then Tenant shall pay such fees or, if such fees havealready been paid by Landlord, Tenant shall, upon Landlord’s written request,forthwith reimburse Landlord for such fees previously paid by Landlord. Thefees for process engineering and the Tenant’s construction consultant shall bepaid separately by Tenant, rather than being paid from the Improvements CostFund. The architectural and consulting fees

 

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for Tenant toobtain any unique or special approvals or permits for the Pilot PlantProduction Facility from the local health department, the State Department ofHealth, the Federal rood and Drug Administration, and other agencies (such asfor validating the Pilot Plan Production Facility or satisfying qualityassurance requirements or safety inspections) shall be borne solely by Tenant.

 

1.4.6         Ator before the time as specified on the Development schedule, Tenant shall causethe Project Architect to submit to Landlord a pre-purchase packages with allnecessary information to purchase all long-lead items necessary to constructLandlord’s Work and to meet Landlord’s construction schedule. Any delay inreceiving these packages which necessitates an extension in the Landlord’sconstruction schedule shall be a Tenant-Caused Delay.

 

1.5           Approvalof Improvement Plans.

 

1.5.1         Thedesign of, the quality of materials used in, and the installation methodsundertaken in the Demised Premises and the Improvement Plans, shall be subjectto the approval of Landlord after consultation with the Project Architect,within section 1.5.2 of this Exhibit B, and particularly Section 1.5.2 of thisExhibit B.  Tenant shall instruct theProject Architect to furnish to Landlord, simultaneously with furnishing toTenant, copies of all Improvement Plans and related progress prints, to enableLandlord to timely review and approve the same. Any failure of the ProjectArchitect to do so, which thereby causes Landlord to be delayed, shall be deemeda delay caused by the Project Architect (and therefore a Tenant-Caused Delay),rather than a delay caused by Landlord. So long as the building Improvementsfor Generic Facilities to be paid for from the Improvements Cost Fund are “generic”improvements as described in schedule 2 of this Exhibit B, then Landlord willnot unreasonably withhold its approval. All work shall be in accordance withall City, County and State ordinances, rules and regulations relating thereto.Any approval given by Landlord shall not constitute a representation orwarranty by Landlord that the approved item complies with applicable buildingcodes or governmental regulations, or that the item is suitable for theintended use, or that the item is in compliance with the Improvement Plans.Rather, Tenant shall retain full responsibility for said matters,notwithstanding any approval given by Landlord, but subject to Tenant’s rightsas set forth in Section 1.1.5. Landlord shall act reasonably at all times inreviewing and approving Tenant’s submittals and in determining whether animprovement is “generic.”  It isanticipated that Tenant will have the entire Improvements Cost Fund availableto pay for the Basic Improvements to Building Shell and the BuildingImprovements for Generic Facilities, as set forth in this Exhibit B. In theevent that Landlord and Tenant cannot agree on the Improvement Plans or anyportion thereof, the dispute shall be resolved as specified in Article VIIIbelow.

 

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1.5.2         Anyreasonable out-of-pocket costs and expenses incurred by Landlord for outsideconsultants as a result of Landlord’s review of the Improvement Plans,including fees of the Project Architect and its consultants, shall be paid fromthe Improvements Cost Fund, Provided however, Landlord shall not incur any suchcosts without first conferring with the Project Architect and Tenant in aneffort to avoid the need for such costs. Landlord shall approve or disapprovethe Construction Documents in writing within three (3) business days afterLandlord’s receipt of such documents. If Landlord disapproves any portion ofthe Construction   Documents, thenLandlord shall specifically (a) approve those portions which are acceptable toLandlord and (b) disapprove those portions which are not acceptable toLandlord, specifying the reasons for such disapproval and describing in detailthe change Landlord requests for each item disapproved (“Requested Change”) .Tenant shall cause Requested Changes acceptable to Tenant to be made to theConstruction Documents. If Tenant does not approve of a Requested Change,Landlord and Tenant shall meet and confer within three (3) business days afterdelivery of Landlord’s notice of Requested Changes and shall attempt in goodfaith to reach an agreement on any Requested Changes. In the event agreement isnot reached, the dispute shall be resolved pursuant to Article VIII. Any delaysresulting from such dispute shall not be charged to either party, unless theConstruction Panel (defined in Section 8.1) finds that a party created thedispute in-bad faith and contrary to the parties’ reasonable understandings andexpectations as set forth in the Lease and this Exhibit B.

 

l.5.3         Asa part of Landlord’s review and approval of the Improvement Plans described inSections 1.5.1 and 1.5.2 above, Landlord shall review the Improvement Plans fortheir conformance with provisions contained within this Exhibit B and theapproved Schematic Design Drawings and Design Development Drawings. Without limitingthe generality of the foregoing, the Improvement Plans shall show the Buildingspace allocated approximately 25,000 square feet for Generic Office Facility,approximately 35,000 square feet for Generic Wet Laboratory Facility andapproximately 10,000 square feet for Generic Pilot Plant Product Facility. Theexact square footage for each type of facility shall be determined by Tenant,subject to Landlord’s approval which shall not be withheld unreasonably; but itis agreed that there will not be a material reduction in the Generic WetLaboratory Facility. Where the Improvement Plans, as approved by Landlord,conflict with this Exhibit B, the provisions of this Exhibit B shall prevail,unless the particular conflict is expressly noted as a change from this ExhibitB and Landlord expressly approves said particular change (as opposed to ageneral approval for an entire submittal) Landlord and Tenant shall use goodfaith efforts to mutually designate on a periodic basis what portions of theimprovements are or are not “generic,” and Landlord and Tenant shallperiodically prepare and sign a memorandum to memorialize their designation.Landlord shall act

 

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reasonably atall times in reviewing and approving Tenant’s submittals and in determiningwhether an improvement is “generic.” It is anticipated that Tenant will havethe entire Improvements Cost Fund available to pay for the Basic Improvementsto building Shell and the Building Improvements for Generic Facilities, as setforth in this Exhibit B In the event that Landlord and Tenant cannot agree onthe Improvement Plans or any portion thereof, the dispute shall be resolved asspecified in Article VIII below.

 

1.5.4        Anysubsequent material changes, modifications or alterations to the ConstructionDocuments requested by Tenant after Landlord’s approval thereof and beforecompletion of the Landlord’s Work shall be processed in the manner provided inSection 1.8 of this Exhibit B, and any additional reasonable costs and expensesincurred by Landlord and paid to third parties in connection with saidprocessing, including but not limited to additional fees of Project Architectand its consultants, shall be paid from the Improvements Cost Fund. No suchmaterial changes, modifications or alterations in said approved drawings shallbe made without the written consent of Landlord after written request thereforeby Tenant. To the extent that the requested change is approved and results inan improvement which is not a “generic” improvement or is not for completingthe design intent of the Construction Documents, then Tenant shall pay for thesame as an addition to Special Tenant Improvements; and the Improvements CostFund shall not be charged for any expenses actually saved as a result of saidchange- If the Tenant and Landlord cannot agree as to whether or not therequested change is a “generic improvement” or for completing the design intentof the Construction Documents, then said disagreement shall be resolved byarbitration pursuant to Article VIII of this Exhibit B. The construction workmay proceed while the arbitration is pending, as the arbitration is solely todecide who pays for the change in the construction work. If the approvedrequested change is a generic improvement, it shall be paid from theImprovement Cost Fund, if funds remain available. If the approved requestedchange results in a cost savings, such savings shall remain in the ImprovementsCost Fund for use for other generic improvements pursuant to this Exhibit B.

 

1.6           BuildingPermit for Improvement Work.

 

1.6.1        Withinthe timing specified in the Development Schedule (but subject to prior delaysas specified herein) Tenant and the Project Architect shall be responsible forprocessing from the City of San Diego (“City”) a building permit for theconstruction of the Landlord’s Work and the Tenant’s Work. If the City rejectsthe Construction Documents and thereby prevents the issuance of a buildingpermit, Tenant and the Project Architect shall immediately make all necessarycorrections to the Construction Documents required by the City (a “City-RequiredChange”), so long as Tenant reasonably determines

 

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that theCity-Required Change does not materially adversely impact tenant’s ability toeffectively use the Demised Premises. Any dispute between Tenant and Landlordas to the reasonableness of the Tenant’s determination as to the adverse effecton Tenant by the City-Required Change shall be resolved pursuant to ArticleVIII below. Any delay days incurred as a result of such City-required Changeresulting from flew requirements of the City shall not be a Tenant-Caused Delayor a Landlord-Caused Delay.  Anyadditional reasonable costs and expenses incurred in connection with aCity-Required Change shall be paid from the Improvements Cost Fund.

 

1.6.2        Uponthe City’s approval of the construction Documents and permit application,Tenant shall cause the Project Architect to pick up and deliver to Landlord thebuilding permit and the approved set of the Construction Documents marked “ForConstruction.” Landlord will pay for the plan check fees, general buildingpermit fees, and the water and sewer capacity and connection fees from theImprovements Cost Fund, provided that the building permit is issued. Anyexisting credits available to the Demised Premises for water and sewer capacityshall accrue to the benefit of the tenant for the Demised Premises. Tenantshall apply and pay for and obtain all other unique or special approvals andpermits for the Pilot Plant Production Facility from the local healthdepartment, the State Department of Health, the Federal Food and DrugAdministration, and the utility companies, as required, which costs shall notbe payable from the Improvements Cost Fund. A delay which is caused by Tenantor the Project Architect in obtaining the building permit beyond the datespecified in the Development Schedule shall be a Tenant-Caused Delay.

 

1.6.3        Atthe option of Tenant, Tenant may authorize Landlord’s Contractor to commenceconstruction of portions of Landlord’s Work up to thirty (30) days prior toreceipt of the building permit. If Landlord’s Contractor determines that suchearly commencement is appropriate, Landlord’s Contractor shall so commence thework. If the building permit is not obtained ultimately, then Tenant shall payall costs related to the early commencement of work and Tenant shall indemnifyand hold harmless Landlord and Landlord’s Contractor from all costs andliabilities related thereto.

 

1.7           Constructionof Landlord’s Work.

 

1.7.1        Subjectto the terms and limitations specified in the Lease and this Exhibit B,Landlord agrees to construct, as per Section 6.2.1, within the time period setforth in the Development Schedule, those improvements described as “Landlord’sWork” in Section 1.2.6 and Article II of this Exhibit B, in accordance with theConstruction Documents. Through the Landlord’s Contractor, said Landlord’s Workshall be constructed diligently and continuously to completion.

 

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1.7.2        Theaggregate costs for the Basic Improvements to Building Shell, as described inSchedule 1 hereto and as shown on the Construction Documents, shall be paid forby Landlord, as part of the Improvements Cost Fund, subject to the limitationin Schedule 1 and Section 1.2.2 above. Any such costs in excess of saidlimitation shall be paid by Tenant.

 

1.7.3        Allof the costs for the Building Improvements for Generic Facilities, as describedin Schedule 2 hereto and as shown on the Construction Documents, shall be paidby Landlord, up to the aggregate limit of the Improvements Cost Fund for saidGeneric Facilities, as specified in Section 2.1.5 of the Lease. Any costs inexcess of said limit shall be paid by Tenant.

 

1.7.4        Allof the costs for the special Tenant Improvements and for the tenant’s Work asdescribed on Schedules 3 and 4 hereto, and as shown on the ConstructionDocuments, shall be paid for by Tenant separate from and in addition to theImprovements Cost Fund.

 

1.7.5        Thecosts to be paid from the Improvements Cost Fund shall be those direct andindirect costs incurred by landlord (or by Tenant as to the Architect’sContract, and the contracts for civil engineers, traffic engineers, and soils engineersservices) to design and construct the Basic Improvements to Building Shell andthe Building Improvements for Generic. Facilities, including without limitationcosts for:

 

a.   Architecturaland engineering services for Improvement Plans, pursuant to Tenant’s ArchitectContract with the Project Architect, subject to Landlords approval of saidcontract, and subject to the exclusion of process engineering fees; and thecontracts for civil engineers, traffic engineers, and soils engineers services.

 

b. Governmentalpermits, plan checks, inspections, approvals, occupancy permits, trafficpermits, and others which are paid for by Landlord, subject to exclusions asspecified in Section 1.4.5 above.

 

c.   Utilitycompany hook-ups, installation charges, sewer and water capacity fees, meter(s)and associated piping and other related charges.

 

d.   Propertydamage and liability insurance during course of construction.

 

e.  Sales Taxes for materials used in saidconstruction.

 

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f.    Laborand material costs for constructing the Basic      Improvementsto building Shell ands the building Improvements for Generic Activities.

 

g. Allpayments and charges owed under the construction contract and subcontractorsfor Generic facilities..

 

h. Landlord’sConstruction Coordinator Fee as specified in Section 4.4 below.

 

i.  Allother costs and services directly related to the construction or installationof the Basic Improvements to Building Shell and the Building Improvements forGeneric Facilities, which costs are paid by Landlord to third parties.

 

To the extentthat a particular cost can be readily attributable to a particular improvement(e.g., Basic Improvements to Building Shell, Building Improvements for Genericfacilities or Special Tenant Improvements) then the cost shall be so allocatedto that improvement, as described in Section 4.2.4 below. However, to theextent that a particular cost cannot be readily attributable to a particularimprovement, but rather the cost is applicable generally to all improvements,then said cost shall be allocated among the improvements on a fair andequitable basis (e.g., pro rata square footage basis, or pro rata cost basis,etc.). Said allocation of costs shall be used to determine whether the costshall be paid by Tenant or from the Improvements Cost Fund, as specified inSections 1.7.2, 1.7.3 and 1.7.4 of this Exhibit B.

 

Landlord andTenant acknowledge that it is highly probable that all of theImprovements Cost Fund will be spent and that Tenant will be contributing$2,000,000 or more for the costs of Landlord’s Work. If for some unexpectedreason all of the monies in the Improvement Cost Fund are not needed andexpended for the Basic Improvements to Building Shell and the BuildingImprovements for Generic Facilities, then the remainder can be used to pay forsome of the extra and additional costs incurred and paid by Tenant forconstructing said improvements in the Demised Premises, including processengineering fees. If all monies in the Improvements Cost Fund are notultimately expended for constructing said improvements, then the Basic AnnualRent shall be reduced in accordance with the following formula:

 

For each onedollar of unexpended funds remaining in the Improvements Cost Fund (which unexpendedfunds are returned to Landlord), there shall be an eleven cents ($0.11)reduction in the Basic Annual Rents.

 

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1.7.6        Withrespect to the costs to be paid by Tenant for (a) the excess costs for BasicImprovements to Building Shell and Building Improvements for Generic Facilitiesover the Improvements Cost Fund, and (b) the costs for Special TenantImprovements, Tenant shall deposit a cash amount equal to said costs in aninterest bearing construction fund control account reasonably satisfactory toTenant, at such time as may be required by the first trust deed constructionlender fur the Landlord’s Work. Interest earning on said deposit shall beretained in the account and shall inure to the benefit of the fund andTenant.  Withdrawals from said accountshall require the signature of a representative from Tenant plus the signatureof a representative from Landlord. Funds in said deposit account shall be usedto pay Tenant’s share of the costs as required, with any unused funds to berefunded to Tenant. Tenant shall fund separately the costs for Tenant’s Work.

 

1.7.7        Withrespect to the costs to be paid by Landlord from the Improvements Cost Fund,Landlord shall furnish the funds to pay said costs on a timely basis. Landlordshall furnish to Tenant a copy of the lender’s loan commitment for saidImprovements Cost Fund, as soon as the loan commitment becomes available.Withdrawals and payments from the Improvements Cost Fund shall be in accordancewith procedures established by the construction 1ender. All withdrawals andpayments shall be used only for paying the costs as described in Section 1.7.5above,Tenant shall be given an opportunity to review andcomment on the proposed payment schedules from the Improvements Cost Fund, butLandlord retains the final decision to make payments in accordance with therequirements of the construction lender and the construction contract.

 

1.7.8        UponSubstantial Completion of the landlord’s Work, except for (1) punch list itemsto be corrected by Landlord pursuant to Section 13.1 of the Lease, (ii) unknownlatent defects, and (iii) Tenant’s rights pursuant to Section 1.1.5, Tenantshall occupy and accept the Demised Premises in the condition in which theythen exist. As specified in Section 6.3, Tenant is expected to occupy differentportions of the Demised Premises at different times. At such time or times asis it appropriate to file a Notice of Completion under applicable Californiamechanic’s lien laws, Landlord shall promptly do so.

 

 1.7.9       Fromthe commencement of Landlord’s Work until the completion of Landlord’s Work,Landlord (or Landlord’s Contractor) shall obtain and maintain public liabilityand worker’s compensation insurance subject to Tenant’s reasonable review andapproval, in amounts sufficient to protect fully Tenant and Landlord from andagainst liability for death or injury to persons and for damage to propertycaused by or arising from the performance of Landlord’s Work. The costs of saidinsurance are payable from the Improvements Cost Fund. From the commencementuntil the completion of Tenant’s Work, Tenant shall obtain and maintain, atTenant’s expense, public liability and

 

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worker’scompensation insurance in amounts sufficient to protect fully Landlord andTenant from and against liability for death of or injury to persons and fordamage to property caused by or arising from the performance of Tenant’s Work.

 

1.7.10      Asspecified in Section 13.1. of the Lease, on or before the Term CommencementDate, Landlord and Tenant shall conduct a walk-through inspection of theDemised Premises and shall jointly prepare a list of initial constructiondetects (commonly called “punch list”) items that need to be corrected.Landlord, shall cause Landlord’s Contractor to correct such initialconstruction defect items as soon as is reasonably feasible within thirty (30)days thereafter, provided, however, if by the nature of such correction morethan thirty (30) days is required to effect such correction, Landlord shall notbe in default hereunder if such correction is commenced as soon as isreasonably feasible within such thirty (30) day period and is diligentlypursued to completion. On or before twenty-five (25) days following the TermCommencement Date, Landlord and Tenant shall again conduct a walk-throughinspection to determine if any remaining punch list items require correction,and Landlord shall cause all such corrective work to be commenced as soon as isreasonably feasible within fifteen (15) days thereafter and diligently pursuedto completion.

 

1.7.11      Theparties acknowledge that the Building already contains various tenantimprovements which are in excess of what a customary “building shell” wouldcontain. Examples of said excess tenant improvements include HVAC equipment andinstallments, other equipment, perimeter insulation, roof insulation,elevators, telephone room, telephone conduct, exterior perimeter drywall,roughed-in plumbing and fire panels. Eased upon the parties’ good faithevaluation of said existing improvements, the parties have agreed to give toLandlord a $100,000 credit against the Improvements Cost Fund, as thoughLandlord had already spent said $100,000 from the Improvements Cost Fund,thereby reducing by $100,000 the aggregate amounts to be contributed byLandlord for the Improvements Cost Fund. As part of this evaluation, theparties have also agreed that Tenant is accepting all existing tenantimprovements in their “as is” condition and that Tenant shall have the full andsole responsibility for all future maintenance and repair for said existingtenant improvements, excepting only as is otherwise specified in Section 16.1of the Lease.

 

1.7.12      Theparties acknowledge that it is in both parties best interests to expedite theconstruction of the Landlord’s Work, and that some overtime work and expeditedmaterial delivery might be needed to expedite the construction work.Accordingly, Tenant hereby agrees to establish a $250,000 contingency fund fromTenants own monies under Tenant’s control, to be used by Tenant to pay forovertime and expedited material delivery work which is helpful to expedite theConstruction for a

 

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prompt completion.Expenditure of this $250,000 contingency fund shall be used at Tenant’sdiscretion.

 

1.8           TenantChanges. Any changes requested by Tenant to the Construction Documentsafter approval of the Construction Documents by Landlord shall be requested andinstituted in accordance with the provisions of this Section 1.8 and shall besubject to the written approval of Landlord after consultation with the ProjectArchitect. The parties recognize that any such change may delay completion ofthe Landlord’s Work, which will be Tenant-Caused Delays. The parties agree touse reasonable and good faith efforts to initially do proper planning anddesigning for the Landlord’sWork, within the time schedule specified in the Development Schedule, in orderto minimize the need for later change. However, the parties also recognize thatit is important to have the completed Demised Premises suitable for Tenant’sbusiness operations, and that if changes are in fact necessary to make theDemised Premises suitable, then said changes will need to be made.

 

1.8.1        Fromtime to time after the Construction Documents have been approved by Landlord,Tenant may request changes to the Construction Documents or request changes tothe Landlord’s Work already completed (“Tenant Changes”) by notifying Landlordin writing of the nature and extent of any such Tenant Change as per section1.5.4 above; and if the nature of such Tenant Change requires revisions to theConstruction Documents then the Project Architect shall revise the ConstructionDocuments. Such notice must be signed by at least one of Tenant’s ConstructionRepresentatives (as that term is defined in Section 7.1 of this Exhibit B) orLandlord shall not be required to process such Tenant Change request. Landlordshall, before proceeding with a Tenant Change, use its best efforts to respondto Tenant as soon as is reasonably possible with an estimate of (i) the time itwill take Landlord to analyze the requested Tenant Change, and (ii) thearchitectural and engineering fees and costs which will be incurred in order toanalyze the requested Tenant Change, and thereafter submit to Tenant inwriting, within ten (10) business days after Tenant notifies Landlord of therequested Tenant Change (or such longer period of time as is reasonably requireddepending on the extent of Tenant’s Change request), an analysis of theadditional cost or savings involved, including without limitation architecturaland engineering costs, and the period of time, if any, that the Tenant Changewill extend the time for completion of Landlord’s Work. If Tenant fails toexpressly approve or disapprove in writing Landlord’s submission within two (2)business days of receipt thereof, then each day of delay in the Tenant’sapproval or disapproval of Landlord’s submission beyond such two (2) businessday period shall be a Tenant-Caused Delay. In addition, so long as Landlordproceeds diligently, each day of delay in Landlord’s subsequent repricing orreanalysis of the same, or substantially same, Tenant Change, shall be Tenant-CausedDelay.

 

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1.8.2        IfTenant approves in writing the cost or savings and the extension in the timefor completion of the Work, if any, Landlord shall cause the approved Tenantchange to be instituted. The time for completion of the Landlord’s Work shallbe extended one day for each day of delay caused by instituting the TenantChange requested by Tenant and such delay shall be a Tenant-Caused Delay.

 

1.8.3.       Duringthe construction of the Landlord’s work, Landlord or Landlord’s Contractor mayrequest information or clarification from the Project Architect as to theConstruction Documents if they are not complete and adequate. If the responseto such request for information or clarification(s) requires revisions to theConstruction Document, then the Project Architect shall revise the ConstructionDocuments as soon as possible. Such revisions to the Construction Documentsshall then be analyzed for cost or savings, and the period of time, if any,that it will extend the time for completion of the Landlord’s Work. If theImprovement Plans as originally prepared by the Project Architect were notadequate, then any delays incurred because of these revisions shall be aTenant-Caused Delay. Any cost associated with this revision shall be subject tosection 1.7.3 of this Exhibit B.

 

1.8.4        Allarchitectural and engineering fees and costs incurred in connection withmodifications and revisions to the construction Documents, which result from aTenant Change request and/or instituting the Tenant change shall be paid fromthe Improvements Cost Fund, subject to the availability of said funds.

 

1.8.5        Landlordand Tenant agree that time and strict punctual performance are of the essencewith respect to this Article 1 and that each shall use due diligence inperforming their respective obligations pursuant to this Article 1.

 

1.8.6        IfLandlord’s Contractor is requested by Tenant or Tenant’s ConstructionRepresentative to stop work in an area of the Building while a Tenant Change isbeing contemplated, then such stoppage of work shall be a Tenant-Caused Delay.

 

1.8.7        Ifany dispute should arise between Landlord and Tenant as to whether a delay is aLandlord-Caused Delay or Tenant-Caused Delay, then such dispute shall be resolvedin accordance with Article VIII of this Exhibit B.

 

ARTICLE II

LANDLORD’S WORK

 

2.1           General.“Landlord’s Work” shall include and be limited to the construction; purchaseand/or installation of (a) the Basic Improvements to the Building Shell (as per

 

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Schedule 1hereto), and (b) Building Improvements For Generic Facilities (as per Schedule2 hereto), (c) Special Tenant Improvements (as per Schedule 3 hereto), (d) theCorrective Work (as per section 1.2.1 above), and (e) any other work to becompleted by Landlord’s Contractor pursuant to the Construction Contract, allin accordance with the Construction Documents and Section 1.7 hereof and theConstruction Contract. Subject to the extensions permitted pursuant to theterms of the Lease and this Exhibit B, Landlord shall cause to be constructed,within the time period set forth in the Development Schedule, the Landlord’sWork.

 

ARTICLE III

TENANTS WORK

 

3.1         General.“Tenant’s Work” shall include any extra construction of improvements, orpurchase and/or installation of equipment for the Demised Premises which arenot defined as Landlord’s Work. Tenant agrees, at its own expense, to constructdiligently and continuously to completion those improvements described as “Tenant’sWork.” Tenant’s Work shall comply with all City, County and State ordinances,rules and regulations relating thereto and shall be constructed in a mannerconsistent with the approved Improvement Plans. Tenant shall maintain, or causeits contractor to maintain, customary liability insurance, property damageinsurance and worker’s compensation insurance covering Tenant’s Work in theDemised Premises.

 

3.2           Equipmentand Furnishings. Without limiting the generality of Section 3.1, Tenantshall construct, purchase and/or install, at Tenant’s expense, all portableequipment and furnishings and other improvements in the Demised- Premisesrequired by Tenant in the operation of its business, other than theimprovements and equipment described as Landlord’s Work in Article 2 of thisExhibit B. Costs of interior decorating services which are not included in theConstruction Contract shall be part of Tenant’s Work. Any costs, expenses ordamages incurred by Landlord arising out of or related to the performance ofTenant’s Work by Tenant, its contractor, subcontractor or other agents shall bepaid by Tenant to Landlord.

 

3.3           EarlyPossession. The parties shall strive to achieve the earliest completion andoccupancy date as is reasonably feasible. In this regard, Landlord shallcooperate with Tenant to allow Tenant’s contractors early possession ofportions of the Demised Premises for performing Tenant’s Work, so long as suchearly possession does not interfere with or delay the prompt completion ofLandlord’s Work. Such early possession shall not constitute early occupancy asdescribed in Section 6.3 and shall not trigger a Rent obligation on the part ofTenant. In the event Tenant or Tenant’s contractors enter possession of theDemised Premises prior to Substantial Completion of the Demised Premises forthe purpose of performing Tenant’s Work, Tenant agrees to indemnify, defend andhold Landlord harmless from any loss or

 

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damage toTenant’s or Tenant’s contractor’s property, the Building, Landlord’s Work,fixtures, equipment, materials or merchandise, or from liability for death ofor injury to any person, if the same is caused by Tenant, its contractors orits agents.

 

3.4           Permitand Completion. If a permit is required to construct Tenant’s work, Tenantshall deliver a completed, signed-off inspection card to Landlord as soon aspossible after completion of Tenant’s Work or Tenant’s opening for business,whichever occurs first. If Tenant contracts with any person or entity toperform any part of Tenant’s Work, Tenant shall obtain and record a Notice ofCompletion promptly following completion of Tenant’s Work and shall promptlyforward a certified copy thereof to Landlord. Tenant shall deliver an originalCertificate of Occupancy to Landlord as soon as possible after its issuance.

 

ARTICLE IV

 

LANDLORD’S USE OF A CONTRACTOR, COST ESTIMATE,

CONSTRUCTION COORDINATOR

 

4.1           ContractorSelection; Construction Contract.

 

4.1.1        Subjectto the conditions set forth in this Article 4, Landlord and Tenant shallmutually select the general contractor (“Landlord’s Contractor”) for theconstruction of Landlord’s Work, provided such contractor meets all licensingand insurance requirements established by the state of California and the Cityof San Diego. Tenant shall be entitled to participate in negotiations betweenLandlord and Landlord’s Contractor relating to the terms and conditions of thecontract for the construction of Landlord’s Work (the “Construction Contract”)but Landlord shall have the final approval authority for the ConstructionContract, so long as the requirements of section 4.1.2 below are satisfied.

 

4.1.2        TheConstruction Contract shall specify that Tenant has “third party beneficiaryrights” under the Construction Contract relative to enforcing the obligationsof Landlord’s Contractor for completing the construction, construction defects,delay damages, warranties and indemnities. The Construction Contract shallspecifically provide that, in the event of a default by Landlord or foreclosureon the Demised Premises by Landlord’s lender or Tenant, Tenant shall have theoption of stepping into Landlord’s position to complete construction. Further,if Landlord defaults and Landlord is replaced by the construction lender,second trust deed holder, or Tenant, then the Construction Contract shallremain in effect for the benefit of Tenant, at Tenant’s option. In the eventthat. Landlord is in material default under the Lease or the ConstructionContract, which default is not cured promptly after notice of the default, thenTenant shall have the right to complete construction. Landlord shall usediligent efforts to negotiate into the construction Contract a reasonably highper diem delay damage amount. The Construction

 

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Contract shallinclude at least a one year warranty for construction defects. If any disputearises between Landlord and Tenant in connection with giving instructions toLandlord’s Contractor, then Tenant shall make the final decision and give theresulting instruction concerning the disputed matter, so long as the same doesnot result in a change or deviation from the approved Improvement Plans. Priorto signing the Construction Contract, Landlord shall review with Tenant thenegotiations for these provisions, and Landlord shall give due consideration toTenant’s recommendations for these provisions. All of these provisions in theConstruction Contract shall be subject to Tenant’s review and approval, whichapproval shall not be withheld unreasonably. All of Landlord’s Work shall beperformed by Landlord’s Contractor pursuant to the Construction Contract,except as may be agreed to otherwise by Tenant, and except that Landlord mayuse a different contractor for the Corrective Work.

 

4.2           Estimateof Costs for Landlord’s Work.

 

4.2.1        Onor before the date tenant submits the Construction Documents to the City forplan check, Landlord and Tenant shall submit to Landlord’s Contractors list ofacceptable subcontractors from whom Landlord and Tenant desire to receive bidsfor the Landlord’s Work required by the Construction Documents, within the timeperiod set forth in the Development Schedule for submittal of suchsubcontractor list. Unless otherwise mutually agreed to by Landlord and Tenant,a minimum of three subcontractors per major trade shall be designated, one (1)designated by Tenant and two (2) designated by Landlord.

 

4.2.2        Landlord’scontractor shall promptly provide to Landlord and Tenant all subcontractor bidswhen received, which bids shall be in a form pre-approved by Landlord andTenant. All bids shall be pursuant to the approved Construction Documents.Landlord and Tenant shall meet and confer; and acting reasonably, Landlord andTenant shall select one subcontractor bid from each trade bid from thesubcontractors, and deliver a list of selected subcontractors to Landlord’sContractor, within the time period for such selection set forth in theDevelopment Schedule.

 

4.2.3        Landlord’scontractor shall prepare a cost estimate of the Landlord’s Work (“Cost Estimate”)based upon the bids of the selected subcontractors. Said Cost Estimate isintended to be a good faith and reasonable best efforts estimate of theapplicable costs, but neither Landlord nor Landlord’s Contractor shall have anyliability if said Cost Estimate ultimately proves to be inaccurate. Such CostEstimate shall include the entire cost of the construction and all materialsrequired for completing the Landlord’s Work, including without limitationdirect construction costs, costs of design build components of the Landlord’sWork, costs of materials supplied by materialmen, project management, allapplicable taxes, and Landlord’s contractor’s fees, but excluding costs forchange

 

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orders whichhave not yet been approved at the time the Cost Estimate is prepared..

 

4.2.4        Landlord’sContractor and the Project Architect shall evaluate the components of the CostEstimate, and they shall reasonably and fairly attribute and allocate said CostEstimate among the following categories:

 

a.             Basic Improvements toBuilding Shell (Schedule 1), and Building Improvements for Generic Facilities(Schedule 2).

 

b.             Special TenantImprovements (Schedule 3)

 

c.             Tenant’s Work (ifany) (Schedule 4)

 

Saidallocation shall hereinafter be referred to as the “Allocated Cost Estimate”.

 

4.2.5        Landlordshall submit to tenant, within the time period set forth in the DevelopmentSchedule, the Allocated Cost Estimate for Tenant’s approval.

 

4.3           TenantApproval of Cost Estimate.

 

4.3.1        Tenantshall, within five (5) business days after receipt of the Allocated CostEstimate, notify Landlord in writing of either (i) Tenant’s approval of theAllocated Cost Estimate or (ii) Tenant’s disapproval of the Allocated CostEstimate, with Tenant giving specific instructions as to what scope of theLandlord’s Work is to be reduced or eliminated. Alternatively, if Tenant andLandlord’s Contractor mutually determine that it is appropriate to re-bid someportions of the Landlord’s Work, in lieu of reducing the scope of the Landlord’sWork, such re-bidding shall proceed promptly.

 

4.3.2          IfTenant disapproves the Allocated Cost Estimate and instructs Landlord to reducethe scope of Landlord’s Work, and the scope reduction complies with therequirements of Section 1.8 hereof, and Tenant delivers to Landlord revisionsto the Construction Documents prepared by the Project Architect, if required,then Landlord shall cause a revised Cost Estimate to be prepared as soon asfeasible by Landlord’s Contractor (including re-bidding in accordance withSection 4.2 hereof, if necessary), and delivered to Tenant (“Revised AllocatedCost Estimate”) for approval by the procedure set forth in Sections 4.3.1 and4.3.2. This procedure shall be followed and/or repeated until Tenant approves aRevised Cost Estimate.

 

4.3.3        IfTenant fails to expressly approve the original Allocated Cost Estimate withinthe time specified in Section 4.3.1, then each day of delay until Tenant doesapprove an Allocated Cost Estimate shall be a Tenant-Caused Delay.

 

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4.3.4        Assoon as reasonably feasible within fourteen (14) days after Tenant approves theoriginal Allocated Cost Estimate or any Revised Allocated Cost Estimate,Landlord shall enter into a construction contract with Landlord’s Contractorfor construction of Landlord’s Work. Tenant shall be made a third-partybeneficiary of the construction contract for purposes of being able to pursueavailable remedies against Landlord’s Contractor as specified in Section 4.1above.

 

4.3.5        Landlordshall provide to Tenant a copy of the fully executed construction contract forLandlord’s Work between Landlord and Landlord’s Contractor. As one of the termsof such contract, Landlord and Tenant shall have the right, at all reasonabletimes, to audit Landlord’s Contractor’s financial and accounting records inconnection with the construction of Landlord’s Work.

 

4.4           ConstructionCoordination. Landlord shall enter into a contract with Del MarPartnership, Inc. to act as construction coordinator for the construction ofLandlords Work, for a fee of five percent (5%) of the cost of the Landlord’sWork (“Landlord’s Construction Coordinator’s Fee”), payable from theImprovements Cost Fund. Said construction coordination services shall include(i) participating in weekly construction meetings with representatives from theLandlord’s Contractor, the Project Architect, and the Tenant, and (ii) helpingto coordinate all participants’ performance of their obligations, in an effortto substantially complete Landlord’s Work as soon as reasonably feasible. DelMar Partnership, Inc. is providing these construction coordination services forthe benefit of Landlord; and Tenant is not a third party beneficiary ofthe obligations of Del Mar Partnership, Inc. to Landlord; and neither Del Marpartnership Inc., nor any of its shareholders or employees shall have anyliability to Tenant.

 

ARTICLE V

TENANT’S USE OF A CONTRACTOR

 

5.1           ContractorSelection. Tenant shall contract with Landlord’s Contractor (or with suchother contractor as Tenant may select, subject to Landlord’s approval, whichapproval wilt not be withheld unreasonably for the construction of Tenant’sWork, to be performed at a fair, reasonable and competitive price. Tenant shallprovide Landlord with a copy of the contract with said contractor prior to thecommencement of Tenant’s Work.

 

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ARTICLE VI

 

COMPLETION, RENT COMMENCEMENT AND DELAYS

 

6.1           Definitions.Any capitalized terms used in this Exhibit B shall have the same meaning as setforth in the Lease to which this Exhibit B is attached. The followingcapitalized terms shall have the following meaning:

 

a.             “SubstantialCompletion” and “Substantially Complete” shall have the same meaning as definedin the Lease;

 

b.             “Tenant-CausedDelays” shall mean (i) those delays caused by the failure of Tenant, theProject Architect or other representatives of Tenant to act within the timelimits set forth in the Development schedule and this Exhibit B, excepting onlyfor a delay by the Project Architect which is caused by Landlord’s failure tocomply with Landlord’s obligations under this Work Letter; (ii) delays definedas Tenant-Caused Delays pursuant to this Exhibit B; and (iii) delays resultingfrom Tenant’s request for materials, finishes or installations which are notreadily available, as specified in section 1.4.6 above. Provided, however, a “Tenant-CausedDelay” shall not commence more than two (2) business days before Landlord giveswritten notice to Tenant thereof.

 

c.             “Landlord-CausedDelays” shall mean (i) those delays caused by the failure of Landlord to actwithin the time limits set forth in the Development Schedule and this ExhibitB; and (ii) delays defined as Landlord-Caused Delays pursuant to this ExhibitB. Provided however, a “Landlord-Caused Delay” shall not commence more than two(2) business days before Tenant gives written notice to Landlord thereof.

 

d.             “Force-MajeureDelays” shall mean delays beyond Landlord’s or Tenant’s control, including, butnot limited to, acts of God, war, civil commotion, labor disputes, strikes,fire, flood or other casualty, shortages of labor or material (other than-materials referenced in section 6.1(b) (iii) above), governmental regulation orrestriction and weather conditions, but excluding inability of Landlord toobtain financing.

 

6.2           Completionof the Work and Rent Commencement.

 

6.2.1        Landlordshall use its best efforts to Substantially Complete Landlord’s Work on orbefore the Estimated Term Commencement Date, as the Estimated Term CommencementDate is extended pursuant to the terms of this Exhibit B or the Lease. TheEstimated Term Commencement Date (but not the date when Rent commences, nor theactual Term Commencement Date) shall be extended one day for each day of delayin substantial Completion of Landlord’s Work resulting from Tenant-CausedDelays. As specified in Section 6.3, the actual construction time schedule

 

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will bebifurcated, with there being two separate dates for the actual date ofSubstantial Completion.

 

6.2.2        Tenant’sobligation to commence paying Basic Annual Rent and Additional Rent shall be onthe date when Landlord’s Work is substantially Complete, with respect to theapplicable Laboratory and Office facilities and the Pilot Plant facility, asspecified in Section 6.3, excepting however, said date shall be advanced oneday for each day of delay in substantial Completion of Landlord’s Work whichresult from more than twenty (20) days of Tenant-Caused Delays. In other words,said Rent commencement date shall be the date that Substantial completion wouldhave occurred had there been no more than twenty (20) days of Tenant-CausedDelays.

 

6.2.3        Anydelay in the Substantial completion of Landlord’s Work for reasons other thanTenant-Caused Delays shall result in a delay in when Tenant commences to payRent, but, as specified in Section 4.2.3 of the Lease, said delays shall notentitle Tenant to recover any damages or losses from Landlord. However, Tenantshall be entitled to share in the delay damages paid by the Landlord’sContractor, as specified in section 6.3.7 below.

 

6.3           Delaysand Bifurcation.

 

6.3.1        Itis contemplated that the Landlord’s Work for the Generic Pilot Plant ProductionFacility will require approximately sixty (60) days more to design andconstruct than the Office and Laboratory Facilities. Accordingly, the partieshave agreed to proceed on a partially bifurcated schedule for said Pilot Plant,as set forth in this Section 6.3.

 

6.3.2        TheOffice and Laboratory Facilities portions of the Demised Premises shall beoccupied as soon as both portions are Substantially Complete.

 

6.3.3 The BasicRent payable for each portion so occupied shall be at the rate of $2.00 persquare foot of Rentable Area (instead of $2.75) until the SubstantialCompletion of all of the Landlord’s work, at which time the Basic Rent shall beat the rate of $2.75 per square foot. Provided, however, if SubstantialCompletion is delayed by more than twenty (20) days of Tenant-Caused Delays,then the $2.75 per square foot Basic Rent shall commence before SubstantialCompletion, as of the date which is twenty-one (21) days after SubstantialCompletion would have occurred if there had not been any Tenant-Caused Delays.

 

6.3.4        Atsuch time as Basic Rent commences to accrue at $2.00 per square foot, Tenantshall also be responsible to pay all Additional Rent and Operating Expensesapplicable to the portion of the premises for which the Basic Rent is payable.

 

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6.3.5        Atsuch time as the Pilot Plant is Substantially Complete, the Basic Rent,Additional Rent, and Operating Expenses applicable to the Pilot Plant shallcommence to accrue and be payable by Tenant. Provided, however, ifTenant-Caused Delays cause a delay in the Substantial Completion of the PilotPlant by more than twenty (20) days, then said Rent and Operating Expensesshall confluence to accrue and be payable twenty-one (21) days after the datewhen said Substantial Completion would have occurred if there had not been anyTenant-Caused Delays.

 

6.3.6        Notwithstandinganything to the contrary contained in this Exhibit B or the Lease, if aTenant-Caused Delay does not ultimately cause an actual delay in when Landlordwould otherwise be able to achieve Substantial Completion and the commencementof Rent, then there shall be no adverse consequences to Tenant as a result thereof.

 

6.3.7        IfLandlord’s Contractor fails to Substantially Complete the Landlord’s Workwithin twenty (20) days after Landlord’s Contractor is obligated to do so, andTenant does not terminate the Lease pursuant to sections 4.1 and 4.2 of theLease, then Landlord and Tenant shall share equally the per diem delay damagespaid by Landlord’s Contractor to Landlord for said delay days beyond twenty(20) days, with the amount of said delay damages to be as specified in theconstruction contract between Landlord and Landlord’s Contractor. Landlordshall pay Tenant’s share to Tenant promptly upon receipt by Landlord of thedelay damages paid by Landlord’s Contractor.

 

6.3.8        Thedate when Rent becomes $2.75 per square foot pursuant to Section 6.3.3 shall bethe Ten Commencement Date for purposes of calculating the fifteen (15) yearTerm Expiration Date pursuant to Section 2.1.6(b) of the Lease.

 

ARTICLE VII

 

DEVELOPMENT

 

7.1.          Tenant’sConstruction Representatives. Tenant designates Robert Dilworth, TimothyHughes and Phillip Schneider as Tenant’s construction representatives (“Tenant’sConstruction Representatives”) in connection with the Landlord’s Work. Tenant’sConstruction Representatives shall use their best efforts to participate in allmeetings with Landlord’s Contractor and subcontractors involved in theconstruction of the Landlord’s Work. Tenant’s Construction Representatives arethe only individuals authorized to approve Changes requested by Tenant pursuantto section 1.7 of this Exhibit B.  Anyquestions arising during construction shall be directed to one of Tenant’sConstruction Representatives. Notwithstanding anything to the contrary in thisExhibit B, any and all changes requested by Landlord to be made to theConstruction Documents, after Landlord

 

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has previouslyapproved the Construction Documents, shall be subject to approval by Tenantprior to implementing such change, which approval shall not be unreasonablywithheld or delayed. Such change (i) must be consistent with the approvedConstruction Documents, as modified by any Changes, and (ii) shall bedocumented in writing and Tenant shall give approval by having one of Tenant’sConstruction Representatives sign an appropriate change order. Any delayscaused by such Landlord changes shall be Landlord-Caused Delays.

 

7.2           Deliveryof the Premises. Pursuant to Section 1.7.8 above, Landlord shall deliverthe Demised Premises to Tenant upon Substantial Completion of Landlord’s Work.

 

7.3           As-BuiltDrawings. Within sixty (60) days after substantial Completion, Landlordshall furnish to Tenant a set of “as-built” drawings or “record drawings” ofthe Demised Premises.  Landlord shallalso retain a set of the “as-built” drawings or “record drawings.”

 

ARTICLE VIII

 

CONSTRUCTION DISPUTE RESOLUTION

 

8.1           DisputeResolution. If any dispute arises in connection with this Exhibit B, suchdispute shall be resolved in accordance with this Article.  Such dispute shall be determined by a panelconsisting of two representatives of Landlord, and two representatives of theTenant, and a fifth party with extensive development and constructionexperience in the construction of biotechnology or pharmaceutical research anddevelopment laboratories in the San Diego County area (or having such otherqualifications as the parties mutually approve), selected in accordance withSection 8.3 of this Article (the “Construction Panel”). The fifth member shallbe independent from and disinterested in both Landlord and Tenant.  No member of the Construction Panel shall bean attorney, unless Landlord and Tenant both consent thereto in writing.

 

8.2           Notice.All disputes to be determined in accordance with this Article shall be raisedby notice to the other party, which notice shall state with particularity thenature of the dispute and the demand for relief, making specific reference bySection number to the provision of this Exhibit 5 alleged to give rise to thedispute. Such notice shall also refer to this Article and shall designate thetwo representatives who are representing the party on the “Construction Panel.”

 

8.3           Selectionof Fifth Party/Costs. Landlord’s representatives and Tenant’srepresentatives shall mutually and promptly select a fifth party who meets thequalifications set forth in Section 8.1 of this Article. In the event aselection is not made within two days after demand for resolution is made,

 

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the fifthparty shall, upon the request of either party, be appointed by the then-presidentof the Associated General Contractors of San Diego County. All proceedingscontemplated by this Section shall take place at the location for all job-sitemeetings, unless the Construction Panel mutually agrees to another location.The cost for the fifth party’s services shall be paid by the non-prevailingparty in the dispute being determined by the Construction Panel.

 

8.4           Interpretationand Resolution. In determining any dispute, the Construction Panel shallapply the pertinent provisions of this Exhibit B without departure there fromin any respect. The Construction Panel shall not have the power to add to,modify or change any of the provisions of this Exhibit B; but this provisionshall not prevent in any appropriate case the interpretation: construction anddetermination by the Construction Panel of the applicable provisions of thisExhibit B to the extent necessary in applying the same to the matters to bedetermined by the Construction Panel. As part of resolving a dispute, theConstruction panel shall determine the days of delay in completing the Landlord’sWork and Tenant’s Work which directly result from the dispute being consideredby the Construction Panel, if any. The days of delay shall be designated aseither Tenant-Caused Delays, Landlord-Caused Delays or Force-Majeure or anycombination of the three types of delay, as determined by the ConstructionPanel.

 

8.5           ContinuedPerformance. During any proceedings pursuant to this Article,Landlord and Tenant shall, to the extent possible, continue to perform anddischarge all of their respective obligations under this Exhibit B and theLease.

 

8.6           FindingResolution. The Construction Panel shall meet within two days of the fifthparty being selected as a member of the construction Panel and the ConstructionPanel shall thereafter resolve the issue in dispute within two business days,unless it is mutually agreed among the Construction panel members thatadditional time is necessary to resolve the dispute, but in no event shall suchadditional time exceed five business days. Landlord and Tenant agree that timeand strict punctual performance are of the essence with respect to eachprovision of this Exhibit B and that any and all decisions of the ConstructionPanel as to the matter in dispute shall be binding upon both Landlord andTenant.

 

Approved by:

 

TENANT:   signature present, vice president   

 

LANDLORD:   signature present, vice president   

 

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EXHIBIT C

 

ADDITIONAL BUILDING AGREEMENT

 

This Agreementis an exhibit to that certain Lease between Torrey Sorrento. Inc. (“Landlord”)and IDEC Pharmaceuticals Corporation (“Tenant”) dated July 9, 1992. Pursuant tothe Lease, Landlord is leasing to Tenant all of the land and improvementsdescribed in Exhibit A to the Lease, all of which constitutes the “DemisedPremises”, as defined in the Lease.

 

Therecurrently exists an approximately 70,000 square foot building located on theleased land; and the applicable zoning regulations may permit the constructionof an additional building (the “Additional Building”) on the land. Pursuant toSection 1.3 of the Lease, Landlord has reserved the right to construct oneadditional building on the Demised Premises, in accordance with the terms andprovisions of this Agreement.

 

1.             Description ofAdditional Building.

 

a.  The Additional Building may be attached tothe existing building on the land, or located within the atrium area of saidexisting building only with Tenant’s approval, which approval Tenant maywithhold in its sole discretion. If Tenant does not so approve, then theAdditional Building shall be a detached building, generally located on thesoutheast portion of the land where open surface parking is now located. SaidAdditional Building may also include a parking structure or an addition to theexisting parking structure on the Demised Premises.

 

b. If Tenanthas committed to lease the Additional Building on terms mutually approved byTenant and Landlord, then the Additional Building shall be constructed inaccordance with plans and specifications to be mutually approved by Landlordand Tenant, all in accordance with applicable governmental requirements.

 

c. If Tenanthas not committed to lease the Additional Building on terms mutually approvedby Tenant and Landlord, then the Additional Building shall be constructed inaccordance with plans and specifications prepared by Landlord’s architect, inaccordance with all applicable governmental requirements, which plans andspecifications shall be subject to Tenants reasonable review, comment andapproval, none of which shall be unreasonably delayed or withheld. TheAdditional Building shall be located and constructed in a manner to notunreasonably interfere with Tenant’s use and enjoyment of the remainder of theDemised Premises. Tenant shall continue to have the use of 210 parking spaces,and Tenant and the occupants of the Additional Building shall have common,shared rights to the ingress and egress driveways and sidewalks. Utilityservices shall be separately metered; property taxes and insurance shall befairly allocated; and the costs to maintain and repair any common usefacilities shall be shared fairly. Unless otherwise mutually agreed forprorating and allocating the common area expenses and the common operatingexpenses, said expenses shall be prorated and allocated in proportion to therelative square footage of the Additional Building leased to Tenant as comparedto the square footage of the Additional Building.

 

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d.Landlord hereby reserves and retains the right to sever and remove from theDemised Premises leased to Tenant such areas as are reasonably necessary orappropriate for the Additional Building, consistent with the provisions ofSection 1.3 of the Lease and this Exhibit C. Without limiting the generality ofthe foregoing, Landlord shall have rights of reasonable ingress and egress toconstruct and maintain the Additional Building; and the tenant(s) of theAdditional Building shall have reasonable ingress and egress to occupy andenjoy the use of the Additional Building. Additionally, during the course ofconstruction for the Additional Building, some of the non-Building areas of theDemised Premises may be used temporarily for storage, ingress and egress, solong as Tenant’s use of the remaining Demised Premises is not materiallyadversely affected.

 

e. All of the arrangementsfor severance, common areas, use and sharing of expenses as specified insubsections c and d above, shall be subject to Tenant’s reasonable review,comment and approval, none of which shall be unreasonably delayed or withheld.Landlord shall reimburse Tenant for Tenant’s reasonable attorney’s feesincurred to review the implementing documents, up to a maximum of $10,000.

 

2.             DuringFirst Four Years. During the first four years of the term of the Lease(i.e., ending an the fourth anniversary in 1997), Landlord shall not commenceconstruction of the Additional Building unless (a) Landlord and Tenant mutuallyagree to do so, and (b) Tenant has committed to lease the Additional Buildingon terms and conditions mutually approved by both Landlord and Tenant. Duringsuch period, Landlord shall not build the Additional Building foroccupancy by any tenant other than Tenant.

 

3.             AfterFirst Four Years. From and after the fourth anniversary of the TermCommencement Date (i.e., in 1997), Landlord may proceed with the constructionof the Additional Building without having obtained a commitment from Tenant tolease the Additional Building, subject to Tenant’s approval as set forth in theprovisions of Section 1 above. Provided, however, Tenant shall have the “firstright to offer” to become the tenant of the Additional Building, as specifiedin Section 4 below. Once any Additional Building is built by Landlord on theDemised Premises, whether for Tenant’s use or the use of a third party, andregardless of the size of the Additional Building, Landlord shall have nofurther rights under this Agreement to build a second additional building on theDemised Premises.

 

4.             FirstRight to Offer. If Landlord commences construction of the AdditionalBuilding after January 1, 1997, Landlord shall deliver to Tenant a writtennotice as to the general size plans, specifications, and description for theAdditional Building, and the notice shall also specify the financial and otherterms for Tenant to ease the Additional Building on a long-term basis (theLandlord’s Notice). Tenant shall have a period of 45 days after receipt of theLandlord’s Notice in which to deliver a written commitment to Landlord forTenant to lease the Additional Building in accordance with Landlord’s Notice,or to lease the Additional Building on such other terms as may have been agreedto by that time in writing between Landlord and Tenant (“Tenant’s Commitment”).If Landlord has not received Tenant’s Commitment within said 45-day period,then Landlord shall be tree to pursue the construction and leasing of the

 

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Additional Building any timeduring the following two years, without Tenant having any rights with respectthereto (other than Tenant’s approval rights as set forth in Section 1 above),so long as the lease terms offered by Landlord to a third party tenant are notmaterially more favorable to the third party tenant than Landlord had offeredto Tenant in the Landlord’s Notice. The lease terms offered to the third partytenant shall be deemed 10 be “materially more favorable” only if the presentvalue of all of the economic terms offered to the third party tenant are lessthan 90% of the present value of the economic terms offered to Tenant lot thesame period of time. If construction has not commenced within said two-yearperiod, then Tenant shall again have the first right to offer, in accordancewith this Section 4, for any Additional Building to be constructed thereafter.

 

5.             TerminationAgreement. In the event that Tenant commits to lease the AdditionalBuilding, then Tenant’s rights to an early termination of the Lease (as setforth in Exhibit E to the Lease) shall automatically terminate and be of nofurther force or effect.

 

a. Arbitration.In the event of any disputes arising with respect to this Additional BuildingAgreement, said dispute shall be resolved by binding arbitration in accordancewith the procedures set forth in Section 38.19 of the Lease.

 
|   | Approved by: |
|--------|--------------|
|   |         | TENANT: |
|   |         |   |
|   |         |   | signature  present, vice president |   |
|   |         |   |
|   |         |   |
|   |         | LANDLORD |
|   |         |   |
|   |         |   |      signature  present, vice president |   |
|        |              |  |  |  |  |  |

 

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EXHIBIT D

EARLY TERMINATION AGREEMENT

 

This EarlyTermination Agreement is an exhibit to the Lease between Torrey Sorrento, Inc.(“Landlord”) and IDEC Pharmaceuticals Corporation (“Tenant”), dated July 9,1992. The scheduled term of the Lease is for 15 years, ending in the year 2008.Pursuant to the terms of this Agreement, Tenant shall have the right to anearly termination of the Lease prior to the scheduled expiration of the term ofthe Lease, in accordance with the provisions as hereinafter set forth.

 

1.             Noticeof Termination.

 

1.1.          LeaseYear. As used in this Agreement, the term “Lease Year” means each twelvefull calendar months following the Term Commencement Date. For referencepurposes, the first Lease Year commencing in 1993 shall be referred to also asthe 1993 Lease Year, and so forth, as follows:

 
| **Lease Year** | ** ** | **Lease Year  (commences in)** | ** ** |
|----------------|------------|--------------------------------|------------|
|   1  |       | 1993                           |       |
|   6  |       | 1998                           |       |
|   7  |       | 1999                           |       |
|   8  |       | 2000                           |       |
|   9  |       | 2001                           |       |
| 10             |       | 2002                           |       |
| 11             |       | 2003                           |       |

 

1.2.          Notice.If Tenant decides to elect to exercise its right for an early termination ofthe term of the Lease, Tenant shall deliver a written notice of termination toLandlord, which written notice shall expressly state that Tenant is exercisingits right of termination pursuant to this Agreement. Said notice shall be for atermination to occur twelve months later.

 

1.3.          Timefor Delivering Notice. Tenant may give written notice of early terminationonly during the sixth through the tenth year of the Lease (for an actualtermination to occur during the seventh through the eleventh year of theLease). Provided, however, if the new rent for the eleventh year of the Leasehas not been determined pursuant to Section 6.2 of the Lease by the end of theninth month of the tenth year of the Lease, through no fault of Tenant, thenTenant’s right to terminate in the tenth year shall be extended until threemonths

 

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after said newrent is determined. Said termination shall become effective 12 months followingthe date when Landlord receives said written notice; provided, however, thatsaid notice shall be effective if, and only if, it is accompanied at the timeof delivery with a payment to Landlord of the termination fee, as specified inSection 2 below.

 

2.             Termination Fee.

 

Upon Tenantelecting an early termination of the term of the Lease in accordance with theprovisions of Section 1 above, Tenant shall pay to Landlord, (i) by cashier’sor certified check, or by wire transfer, or (ii) by an irrevocable andunconditional bank letter of credit, in a form and from a bank approved byLandlord, which approval shall not be unreasonably withheld,which payment or letter of credit shall accompany the notice of terminationdelivered to Landlord, the following termination fee:

 
| **Lease Year in which  Tenant’s Notice is given** | ** ** | **Termination fee equal to  the following number  of months of  Basic Annual Rent** | ** ** |
|--------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
|                                                   |       |                                                                                |       |
|   6th year (1998)                            |       | 20 months                                                                           |       |
|   7th year (1999)                            |       | 18 months                                                                           |       |
|   8th year (2000)                            |       | 16 months                                                                           |       |
|   9th year (2001)                            |       | 14 months                                                                           |       |
| 10th year (2002)                                       |       | 12 months                                                                           |       |

 

Saidtermination fee shall be calculated using the regular monthly installments ofthe Basic Annual Rent applicable for the specified number of months followingthe effective date of the early termination of the Lease.

 

3.             Tenantto Perform Accrued Obligations. Tenant shall fully perform all obligationsrequired of Tenant up to and including the date of said termination, includingwithout limitation, payment of all accrued rent (both Basic Annual Rent andAdditional Rent), and completion of all required maintenance and repair work,and removal of Tenant’s personal property, and Tenant leaving the DemisedPremises in a good and clean condition and in good repair, as specified inSection 16.2 of the Lease. In the event of any failure of Tenant to so fullyperform all of its obligations, the Lease shall nevertheless terminate inaccordance with Tenant’s previous termination notice, and Tenant shall beliable to Landlord for all costs and damages related to Tenant’s failure to fullyperform said accrued obligations.

 

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4.             Effect.Upon the early termination of the term of the Lease, the provisions of theLease which would be applicable upon the normal expiration of the term of theLease shall be applicable to the early termination.

 

5.             Subleaseor Assignment. In the event that Tenant ceases to occupy the DemisedPremises by reason of a sublease or an assignment made in accordance with theterms of the Lease, then such situation shall not be deemed an earlytermination of the Lease, and the above reference termination fee shall not bepayable. If Tenant assigns its rights in the Lease (other than as collateralsecurity, or by merger or sale of substantially all of the assets of Tenant), orif Tenant subleases 50% or more of the space in the Building, then all rightsto an early termination of this Lease pursuant to this Exhibit D shallautomatically terminate or be of no further force or effect.

 

6.             FutureAgreement. In the event that Landlord and Tenant enter into some futureagreement for Landlord to construct a new facility for Tenant, said futureagreement may include provisions to reduce or eliminate the above statedtermination fee, on such terms and provisions as may be negotiated and mutuallyagreed to between the parties.

 

7.             AdditionalBuilding. Landlord and Tenant also have certain rights and obligationsconcerning the Additional Building, as described in Exhibit C attached to theLease. In the event that Tenant commits to lease the Additional Building, onterms and conditions mutually agreed to by Landlord and Tenant as specified inExhibit C, then Tenant’s right to an early termination of the term of the Leasepursuant to this Exhibit D shall automatically terminate and be of no furtherforce or effect.

 

 
|   | Approved by: |
|--------|--------------|
|   |         |
|   | TENANT:      |       signature  present, vice president |   |
|   |         |
|   | LANDLORD:    |             signature  present, vice president |   |
|        |              |  |  |  |  |

 

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EXHIBIT E

 

FORM OF ESTOPPEL LETTER FROM TENANTS

 

[subject to such modifications as nay reasonably be required byLandlord’s lender or purchaser]

 

                          ,19        

 

TO: 

 

RE:          Lease (“Lease”) dated                         ,1992, by and between Torrey Sorrento, Inc., a California corporation (“Landlord”),and IDEC Pharmaceuticals Corporation, a California corporation (“Tenant”), ofapproximately 70,000 square feet of rentable area in the Building located at11011 Torreyana Road, in the City and County of SanDiego, California.

 

Gentlemen:

 

The undersigned, as Tenant, has been advised that the Lease has been orwill be assigned to you as a result of your purchase of the above-referencedProperty or that you are a lender who intends to perfect a security interest inthe property and, as an inducement therefor hereby confirms the following:

 

1.              Thatit has accepted possession and is in full occupancy of the Demised Premises,that the Lease is in full force and effect and that Tenant has received nonotice of any default of any of its obligations under the Lease and is not indefault of any such obligations, except as follows: (If none, so state.)

 

2.             Thatthe improvements and space required to be furnished according to the Lease,including any construction required to be made by the landlord under the Lease,have been satisfactorily completed by the Landlord in all respects and that

 

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the Landlordhas fulfilled all of its duties under the terms, covenants and obligations ofthe Lease and is not currently in default thereunder, except as follows: (Ifnone, so state.)

 

3.             Thatthe Lease has not been modified, altered or amended and represents the entireagreement of the parties, except as follows: (If none, so stats.)

 

4.             ThatTenant has accepted the Demised Premises and there are no offsets concessions,counterclaims or credits against rentals, nor have rentals been prepaid orforgiven, except as follows: (If none, so state.)

 

5.             ThatTenant has no claim, cause of action or right of setoff against the Landlord,or any defense to payment of any sum or performance of any obligation due underthe Lease, except as follows: (It none, so state.)

 

6.             Thatthe rent payable under the Lease is $                  per month plus additional rent comprised of operating Expenses as provided inthe Lease with respect to the Project and said rents commenced to accrue on the             day of                   .. The Lease term commenced on                                                       .. The Lease term expires on                                                       .

 

7.             ThatTenant has no notice of a prior assignment, hypothecation or pledge of rentsunder the Lease, except as follows: (If non., so state.)

 

8.             ThatTenant agrees to attorn to you and recognize you as Landlord under the Leaseupon your purchase of or foreclosure upon the Demised Premises and assumptionof the Lease

 

9

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pursuant to its terms, and hereby consents to the assignment of the Leaseto you.

 

9.             Thatthis letter shall inure to your benefit and to the benefit of your successorsand assigns and shall be binding upon Tenant and Tenant’s heirs, personalrepresentatives, successors and assigns. This letter shall not be deemed toalter or modify any of the terms, covenants or obligations of the Lease.

 

10.           ThatTenant has not executed or otherwise agreed to any sublease or other rental oroccupancy agreements with respect to the Demised Premises, except as follows:(If none, so state.)

 

11.           ThatTenant does not claim, and knows of no person or entity claiming, any right toor interest in all, or any part of the Demised Premises.

 

12.           ThatTenant does not have a purchase option or renewal option other than asdescribed above with regard to the Demised Premises, except as follows: (Ifnone, so state.)

 

13.           ThatTenant has accepted parking On the Demised Premises without requiring Landlordto provide other parking elsewhere.

 

 14.          ThatTenant has no right to cancel or terminate the Lease under the terms thereof orotherwise, except in the case of condemnation or destruction of the DemisedPremises in accordance with the applicable provisions of the Lease and exceptto the extent that applicable California law may permit the termination of a leaseby a tenant in the case of certain breaches thereof by the Landlord thereunder(but nothing herein shall be deemed to imply that the tenant has any greaterright to terminate the Lease beyond any rights of termination, if any,generally permitted under applicable California Law), except as follows: (Ifnone, so state.)

 

The abovestatements are made with the understanding that you will rely on them inconnection with the purchase of or securing financing upon the DemisedPremises.

 
|   | Very truly  yours,                                           |
|--------|--------------------------------------------------------------|
|   |                                                         |
|   | Tenant:                                                      |
|   | IDEC  Pharmaceuticals Corporation,  a California corporation |
|   | By:                                                          |   |   |
|   | Its:                                                         |   |   |

 

10

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EXHIBIT F

 

ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE

 

Pursuant toSection 4.2 of that certain Lease dated July 3, 1992, by and between TorreySorrento. Inc., a California corporation (“Landlord”), and IDEC PharmaceuticalsCorporation, a California corporation (“Tenant”), for approximately 70,000square feet of rentable area in the Building at the address of 11011 TorreyanaRoad, in the city of San Diego, California:

 

We herebyacknowledge that the Term Commencement Date of the Lease is                           , 1993.

 

 
| LANDLORD:                 | TENANT:                                |
|---------------------------|----------------------------------------|
| TORREY  SORRENTO, INC.,   | I DEC  PHARMACEUTICALS                 |
| a California  corporation | CORPORATION,  a California corporation |
|                      |                                   |
|                      |                                   |
| By:                       |                                   |   | By: |   |   |
|                      |                                   |   |   |   |   |
| Its:                      |                                   |   | Its: |   |   |
|                      |                                   |   |   |   |   |
|                      |                                   |   |   |   |   |
| By:                       |                                   |   | By: |   |   |
|                      |                                   |   |   |   |   |
| Its:                      |                                   |   | Its: |   |   |

 

11

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FIRST AMENDMENT TO LEASE

 

This Agreementis entered into as of November 9, 1992, by and between TORREY SORRENTO INC., aCalifornia corporation (hereinafter called “Landlord”), and IDECPHARMACEUTICALS CORPORATION, a California corporation (hereinafter called “Tenant”),with reference to the following facts:

 

A.            Prior hereto Landlordand Tenant entered into that certain Lease dated July 9, 1992, for thepremiseslocated at 11011 Torreyana Road, San Diego, California (the “Lease”).

 

B.            Landlord and Tenantnow desire to amend the Lease on the terms set forth herein.

 

C.            All capitalized termsnot defined herein shall have the same meaning as set forth in the Lease.

 

NOW,THEREFORE, the parties hereto agree as follows:

 

1.     A new Section 2.1.10 ishereby added to the Lease as follows:

 

“2.1.10Landlord’s Mortgagee: The term “Landlord’s Mortgagee” shall mean thebeneficiaries from time to time of the first deed of trust encumbering theDemised Premises dated November 25, 1992, in favor of four constructionindustry labor-management pension trust funds. The agent for said beneficiariesis Seidler Realty Advisors, who shall act as the agent for the Landlord’sMortgagee. The term “Landlord’s Mortgagee” also includes said agent. By writtennotice from all of said beneficiaries to Landlord and Tenant, said agent may bechanged to another party, in which event said new agent shall thereafter actfor the Landlord’s Mortgagee. The address for notice to Landlord’s Mortgageeis:

 
|   | Seidler  Realty Advisors          |
|--------|-----------------------------------|
|   | 4275  Executive Square, Suite 325 |
|   | La Jolla, CA  92037               |
|   | Attn:                             | Daniel J.  Ryan |

 

2.     The Lease is hereby amendedby adding thereto the following new Section 2.1.11:

 

“2.1.11Landlord’s Lender: The term “Landlord’s Lender” shall include Landlord’sMortgagee and any other lender at any time which is the beneficiary of a firstdeed of trust encumbering the Demised Premises.”

 

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3.     The Lease is hereby amendedby adding thereto the following new Paragraph 3.4:

 

“3.4 Landlordand Tenant acknowledge that Landlord’s Mortgagee is a group of fourconstruction industry labor-management pension trust funds, and that, pursuantto the terms of the loan from Landlord’s Mortgagee, union labor is to be usedfor constructing or rebuilding the improvements to be constructed on theDemised Premises pursuant to the terms of Exhibit “B” attached hereto. Suchconstruction shall be subject to the terms of the Commitment Letter fromLandlord’s Mortgagee to Landlord dated October 8, 1992. Such obligation to useunion labor shall expire upon the Extension of the Maturity Date of the loanfrom Landlord’s Mortgagee as set forth in paragraph 1 of the promissory noteevidencing the same which the parties anticipate will occur no later thanDecember 31, 1993. Landlord and Tenant acknowledge that neither Landlord norLandlord’s Mortgagee shall be responsible for any additional costs arisingfrom such use of union labor.”

 

4.     The second sentence ofSection 4.2 of the Lease is hereby amended and restated as follows:

 

“The terms “substantiallycomplete(d)” and “substantial completion” shall mean the earlier of (i)issuance of a temporary certificate of occupancy by the City of San Diego or(ii) the date the Project Architect (as defined in Section 1.1 of the WorkLetter) has certified that Landlord’s Work is substantially complete and thatTenant can physically occupy the space, subject to the punch-list items asdescribed in Section 7.2 of the Work Letter, and the Demised Premises are inclean and operating condition, subject to punch-list items that may still needto be corrected and subject to items which constitute Tenant’s Work.”

 

5.     Section 4.2.3 of the Lease ishereby amended by adding at the end of the first line of such section the words“by Landlord’s contractor.”

 

6.     Sections 4.1 and 4.2.3 of theLease are hereby amended by eliminating Landlord’s and Tenant’s terminationrights and by adding thereto the following Section 4.2.4:

 

 “Any other provision of thisLease to the contrary notwithstanding, but without limiting Landlord’sliabilities or responsibilities under the Lease in any way whatsoever, Tenantsha11, subject to events of force majeure and delays caused by the like, fullyoccupy the entire Demised Premises, conduct business therefrom and commencepaying the entire Initial Base Rent on or before December 31, 1993. Tenantshall cooperate with Landlord in taking all good faith steps necessary to allowLandlord to timely complete Landlord’s Work as required by Landlord’sMortgagee. Without limiting the

 

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foregoing,Tenant shall provide to Landlord, Tenant’s Plans for the Landlord’s work in atimely manner to allow Landlord to complete the pilot plant by December 31,1993. Tenant shall not take any action which shall cause Landlord to be indefault under the loan from Landlord’s Mortgagee.”

 

7.     Paragraph 5.2 of the Lease ishereby amended by adding thereto at the end thereof the following provision:

 

“In additionto any other obligation of Tenant hereunder, in the event that Tenant shall bethe proximate cause of a default by Landlord under the loan from Landlord’sMortgagee and Landlord’s Mortgagee shall require Landlord to thereafter depositmonthly installments of real property taxes and insurance premiums, Tenantshall timely make such deposits with Lender.”

 

8.     Section 4 of the Lease ishereby amended by adding thereto the following new Section 4.6:

 

“Any provisionof this Lease to the contrary notwithstanding, Tenant shall commence payingBasic Annual Rent in the amount of $120,000 per month commencing May 25, 1993.Tenant shall further commence paying the full payment of Basic Annual Rent onthe earlier of (a) the Term Commencement Date, (b) sixty three (63) days fromMay 25, 1993, plus the period of any Landlord-Caused Delays or Force MajeureDelays, or (c) December 31, l993.”

 

9.     The second sentence ofSection 5.3 is hereby amended and restated in its entirety as follows:

 

“Basic AnnualRent and Additional Rent shall together be denominated “Rent.” Rent shall bepaid to Landlord, without abatement, deduction or offset, (excepting only forthe limited circumstances as specified in Section 16.1 for Landlord’smaintenance, in Section 20.6 for destruction of a portion of the DemisedPremises and/or in connection with the terms upon which Tenant provides a$3,200,000.00 loan for a portion of the financing for the project costs) inlawful money of the United States of America at the office of Landlord as setforth in Section 2.1.8 herein or to such other person or at such other place asLandlord may from time to time designate in writing. In the event the term ofthis Lease commences or ends on a day other than the first day of a calendarmonth, then the Rent for such fraction of a month shall be prorated for suchperiod on the basis of a thirty (30) day month and shall be paid at the thencurrent rate for such fractional month.”

 

14

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10.   Section 5.3 of the Lease ishereby amended by adding at the end thereof the following provision:

 

“Tenant shallalso be entitled to a credit against Basic Annual Rent for the differencebetween (i) any Basic Annual Rent or Additional Rent payable by Tenant withrespect to the Demised Premises for any period between the date Tenant isrequired to pay the same pursuant to the terms of Section 4.6 of this Lease andthe date Tenant would have been required to pay the same pursuant to the otherterms of this Lease(exclusive of section 4.6), and (ii) any proceeds receivedby Tenant for reimbursement therefor from the loan from Landlord’s Mortgageethat would otherwise be payable to Landlord from the balance of any contingencyor interest reserve line items and Landlord’s share of any penalties payable bythe general contractor to Borrower pursuant to the terms of the generalcontract for the construction to be performed pursuant to the terms of thisLease, which such sums shall be payable to Tenant to the extent necessary tosatisfy such obligations. Tenant shall be entitled to interest on any Rent soincurred at the rate payable under the promissory note given by Borrower toTenant in the same manner as pertains to Tenant’s credit against Basic AnnualRent pursuant to Section 5.4 of this Lease. Tenant shall also be entitled tothe rent credit set forth in Paragraph 40.5 of this Lease, to the extentapplicable. Provided, however, any such monthly rent credit shall be limited tothe greater of (i) Forty-Seven Thousand Five Hundred Dollars ($47,500.00), or(ii) the difference between (a) the monthly installment of Basic Annual Rentpayable by Tenant and (b) the monthly debt service payment which Landlord isobligated to pay on the loan from Landlord’s Mortgagee, notwithstanding theforegoing, during any period during which Landlord’s Mortgagee continues tohave a first deed of trust or is the owner through a foreclosure or deed inlieu thereof, then in no event shall the amount of any rent credit cause themonthly installment of Basic Annual Rent to be less than $145,500.00 with anyuncredited portions continuing to accrue with interest as otherwise provided inthis Lease.”

 

11.   The third sentence of Section5.4 of the Lease is hereby amended by adding at the end thereof the phrase “butno later than ninety (90) days after Tenant’s quarterly and fiscal year end.”

 

12.   The next to last sentence ofSection 5.4 is hereby amended and restated in its entirety as follows:

 

“This SecurityDeposit shall be in cash; excepting, however, Tenant shall have the optionafter the Term Commencement Date to substitute an irrevocable bank letter ofcredit, in a form and content and from a bank

 

15

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pre-approvedin writing by Landlord and Landlord’s Mortgagee.”

 

13.   Section 5.4 of the Lease ishereby amended by adding at the end thereof the following provision:

 

“To the extentthat Landlord’s Lender forecloses under its loan to Landlord or otherwiseobtains title to the Demised Premises and Tenant is not given credit for theSecurity Deposit as a result thereof, Tenant shall be entitled to creditagainst the Rent due for the last month of this Lease the amount of suchSecurity Deposit.”

 

14.   Section 7.3 of the Lease ishereby amended by adding a new sentence thereto after the first two sentencesthereof, as follows:

 

“Upon thewritten request of Landlord, Tenant shall furnish to Landlord written evidencethat all such property taxes and insurance premiums required in the firstinstance to be paid by Tenant have been paid.”

 

15.   Section 11.1 of the Lease ishereby amended by revising the first line thereof to state as follows:

 

“If Tenantfails to fully vacate all or any part ....”

 

16.   Section 12.2 of the Lease ishereby amended by adding at the beginning thereof the clause “Notwithstandingany provision of Section 7.2 to the contrary,...”

 

17.   Section 15.5 of the Lease ishereby amended by providing that a copy of the notice to be provided to theLandlord therein shall also be provided to Landlord’s Mortgagee.

 

18.   The last sentence of Section16.2 of the Lease is hereby amended and restated in its entirety as follows:

 

“Tenant shall, upon the expiration or sooner termination of the termhereof, surrender the Demised Premises to Landlord in the same good, qualitycondition as when received, ordinary wear and tear excepted, and damage byfire, other peril or condemnation which is to be repaired by Landlord pursuantto Articles 20 and 21 also excepted.”

 

19.   The third to last line ofSection 17.3 on Page 26 of the Lease is hereby amended by adding after the word“clarify” the phrase “to the reasonable satisfaction of such lender.”

 

16

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20.   Section 18.4 of the Lease ishereby amended by adding in the first line thereof after the word “Landlord”the words “and Landlord’s Mortgagee.”

 

21.   Section 19.1 of the Lease ishereby amended by adding “,automobile liability,” in the seventh line on Page28 of the Lease after the words “materials risks.”

 

22.   Section 19.3 of the Lease ishereby amended by adding at the end of the first sentence thereof the phrase “andLandlord’s Lender to the extent that such lender has notified Tenant in writingof such request.”

 

23.   Section 19.3 of the Lease isfurther amended by providing that the policyholder rating set forth in thesecond sentence of such section shall be “A-” and the financial category setforth in the second sentence shall be “Class X.”

 

24.   Section 19.5 of the Lease ishereby amended and restated in its entirety as follows:

 

“19.5 If anypolicy of insurance is to name Landlord or Landlord’s Lender as additionalinsured, Tenant shall, upon written request of Landlord or such lender, alsodesignate and furnish certificates evidencing Landlord and such lender as anadditional insured to (i) any lender to Landlord holding a security interest inthe Building or, and/or (ii) the Landlord under any lease wherein Landlord isor shall become a tenant under a ground lease for the Land rather than that offee owner, and/or (iii) Landlord’s property manager, construction manager,agents and representatives.”

 

25.   Section 32.1 of the Lease ishereby amended by adding thereto at the end thereof the phrase “or sue tocompel specific performance hereunder.”

 

26.   Section 33.2 of the Lease ishereby amended and restated in its entirety as follows:

 

“33.2Notwithstanding the foregoing, Tenant shall execute and deliver within thirty(30) says or such shorter period as is reasonable under the circumstances afterwritten demand such further instrument or instruments evidencing suchsubordination of this Lease to any such mortgages, deeds of trust or leases inwhich Landlord is tenant as may be required reasonably by Landlord’s Lender.However, if any such mortgagee, beneficiary or landlord under a lease whereinLandlord is tenant so elects, this Lease shall be deemed prior to any suchlease, mortgage or deed of trust upon or including the Demised Premises,regardless of date, and

 

Tenant shallexecute a statement in writing to such effect at Landlord’s request.”

 

17

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27.   Section 33.3 of the Lease ishereby amended by adding at the end thereof the following sentence:

 

“Additionally,at the request of said purchaser or transferee, Tenant and the purchaser ortransferee shall sign a new lease on the same terms and conditions set forth inthis Lease (except for as modified by any subordination agreement hereafterexecuted if such subordination agreement so requires) but showing the purchaseras the landlord.”

 

28.   Section 34.2 of the Lease ishereby amended and restated in its entirety as follows:

 

“34.2 Thevoluntary or other surrender of this Lease by Tenant shall not work a merger,unless Landlord and Landlord’s Lender consent, and shall, at the option ofLandlord and Landlord’s Lender, operate as an assignment to it of any or allsubleases or subtenancies.”

 

29.   The Lease is hereby amended byadding thereto the following new Section 34.4:

 

“34.4 In theevent Tenant acquires fee ownership of the Demised Premises, that acquisitionwill not result in a merger of the leasehold interest and the fee interest, butrather, at the option of Landlord’s Lender, the Lease and the Landlord’s Lender’sinterests in the Lease shall remain in effect. Landlord and Tenant shallexecute such additional documents as may be necessary to effectuate thiswaiver.”

 

30.   Section 35.1 of the Lease ishereby amended by adding thereto at the end of the first sentence thereof thewords “and approved by Landlord’s Mortgagee.”

 

31.   Section 37.1 of the Lease ishereby amended by adding thereto in the tenth line thereof after the close ofthe parenthetical phrase the following phrase:

 

“. . .excluding, however, any Hazardous Materials which were placed on the DemisedPremises by Tenant or Tenant’s Invitees. . .”

 

32.   Section 37.1.2 of the Lease ishereby amended by adding the following provision at the end thereof:

 

“Landlord maydisclose such materials on a confidential basis to Landlord’s Mortgagee.”

 

33.   Section 37.5.1 of the Lease ishereby amended by adding after the word “Landlord” in the second line thereofthe phrase “and Landlord’s Lender.”

 

18

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34.   Section 39.2.1 of the Lease ishereby amended by revising the fifth line thereof on Page 58 to state asfollows:

 

“...$10,000,000.00,which new loan proceeds are to cover a portion of the Landlord’s ....”

 

35.   The last two sentences in Section39.2.1 of the Lease are amended and restated as follows:

 

“The new loanshall enable Tenant to use the remaining loan proceeds to complete the Landlord’sWork in the event of a material default by Landlord under the Work Letter ifTenant is entitled to complete the same under the terms of this Lease.Additionally if the new lender requires a completion bond, Tenant shall be anadditional beneficiary of the completion bond.”

 

36.   The Lease is hereby amended byadding thereto the following Section 40:

 

“40.         Completionby Tenant.

 

40.1.        LenderRequirement. Landlord’s Mortgagee under the construction/permanentfinancing for the New Loan referenced in Section 39.2 above is allowing Tenantto complete construction of the Landlord’s Work to the Demised Premises aspermitted by Section 4.1.2 of Exhibit “B” to this Lease in the event of thefailure by Landlord to do so. In recognition thereof, Landlord and Tenant haveagreed to the provisions set forth in this Section 40. The provisions set forthbelow shall be applicable if, and only if, (i) Landlord defaults on itsobligations to complete construction of the Landlord’s Work, and (ii) Tenantexercises its right to complete the Landlord’s Work, and (iii) Tenant has notmaterially defaulted on its obligations to provide the funds to pay for thecosts of the Landlord’s Work, and (iv) there is no other default by Tenantwhich is a proximate cause for Landlord’s failure to complete construction ofthe Landlord’s Work, in which event the provisions set forth below in thisSection 40 shall become applicable. Once these provisions become applicable,these provisions shall prevail over any inconsistent provisions containedelsewhere in this Lease (including Exhibit B to this Lease).

 

40.2.        Costsand Damages. Subject to the provisions set forth below, notwithstandinganything to

 

the contraryin the Lease (including, without limitation, Sections 22.10, 18.3 and 18.4thereof), Landlord shall indemnify Tenant and its partners, directors,officers, agents and employees against and save them harmless from all demands,claims, damages, causes of action or judgments and all reasonable expensesincurred in 

 

19

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investigatingor resisting the same (including reasonable professional fees, includingwithout limitation, fees for attorneys, architects, engineers, andenvironmental consultants and any costs or damages incurred relative to atransition from Landlord to Tenant for performing the Landlord’s Work) arisingfrom or out of Tenant’s performing the Landlord’s Work. Tenant shall beentitled to interest at the rate of Bank of America’s “reference rate” plus 3%on any amounts expended by Tenant as provided herein.

 

40.3.        Contractor’sDelay Damages. Pursuant to Section 6.3.7 of Exhibit B to this Lease (theWork Letter), the delay damages payable by Landlord’s Contractor are to beshared between Landlord and Tenant. Landlord hereby agrees that its share ofsaid delay damages payable by Landlord’s Contractor shall initially be paid toTenant, in addition to Tenant’s share to compensate Tenant for Tenant’s costsand damages under Section 40.2 above; provided, however, to the extent thatLandlord’s share of said delay damages exceeds Tenant’s costs and damages asspecified in Section 40.2 above, then Tenant shall pay over to Landlord theexcess portion of Landlord’s share of said delay damages which exceed Tenant’scosts and damages pursuant to Section 40.2 above.

 

40.4.        DelayDays. Any delays in completing the Landlord’s Work which result from Tenanttaking over from Landlord the responsibilities to perform Landlord’s Work shallbe treated as Landlord-Caused Delays, pursuant to Section 6.1 of Exhibit B(Work Letter), notwithstanding any other contrary provisions. Notwithstandingthe foregoing, the time period within which Landlord must deliver the DemisedPremises to Tenant as set forth in Section 4.2.3 of the Lease shall be extendedby any such delay.

 

40.5.        RentalCredit. To the extent that Tenant’s costs and damages pursuant to Section40.2 above exceed Landlord’s share of the delay damages from Landlord’sContractor (as specified in Section 40.3 above and after crediting Tenant asprovided in Section 5.3), then Tenant shall be entitled to pursue all availableremedies against Landlord to collect such excess costs and damages (togetherwith interest on

 

such sums at the rate of Bank of America’s “reference rate” plus 3% perannum), including, without limitation, the right to make a credit offsetagainst the next rent payment(s) owing on this Lease to the extent of such sumsowing to Tenant. Prior to exercising such offset right, Tenant shall firstattempt to satisfy Landlord’s obligation to compensate Tenant under thisSection 40 through the sums to be received pursuant to Section 40.3 and anyremaining loan proceeds available from the New Loan.

 

37.   The second sentence of Section1.1.1 of Exhibit “B” to the Lease is hereby amended and restated as follows:

 

“If theProject Architect does not perform satisfactorily, Tenant reserves the right 

 

20

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to replaceMcGraw Baldwin Architects with another qualified architectural firm mutuallyapproved by both Tenant and Landlord and Landlord’s Mortgagee, which approvalshall not be withheld unreasonably.”

 

38.   The fourth and fifth sentencesof Section 1.5.1 of Exhibit “B” to the Lease are hereby amended and restated intheir entirety as follows:

 

“All workshall be in accordance with all City, County, State and Federal ordinances,rules and regulations relating thereto. Any approval given by Landlord orLandlord’s Mortgagee shall not constitute a representation or warranty byLandlord or Landlord’s Mortgagee that the approved item complies withapplicable building codes or governmental regulations, or that the item issuitable for the intended use, or that the item is in compliance with theImprovement Plans.”

 

39.   The second sentence of Section1.6.3 of Exhibit “B” to the Lease is hereby amended by adding thereto at theend thereof the phrase “in accordance with applicable law.”

 

40.   The last sentence of Section1.7.9 of Exhibit “B” to the Lease is hereby amended by adding thereto at theend thereof the following:

 

“provided,however, the insurance limit, the deductible amounts, and the insurance carriersize shall not be less than as specified in Section 19 of the Lease.”

 

41.   The third line of Section 1.8of Exhibit “B” to the Lease is hereby amended by adding after the word “Landlord”the phrase “and Landlord’s Mortgagee.”

 

42.   The second line of Section1.8.1 of Exhibit “B” to the Lease is hereby amended by adding after the word “Landlord”the phrase “and Landlord’s Mortgagee.”

 

43.   The seventh line of Section 3.1of Exhibit “B” to the Lease is hereby amended and restated as follows:

 

“... City,County, State and Federal ordinances, rules and regulations relating .. .”

 

44.   Section 3.1 of Exhibit “B” tothe Lease is further amended by adding at the end thereof the phrase “comparableto the insurance as specified in Section 1.7.9 above.”

 

45.   Section 4.1.2 of Exhibit “B” tothe Lease is hereby amended by adding thereto at the end thereof the followingsentence:

 

“Pursuant tothe terms of the Loan from Landlord’s Mortgagee, and as specified in Section3.4 of the Lease, Landlord and Tenant acknowledge that union labor is to 

 

21

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be used forconstructing the improvements within the criteria set forth in Section 3.4 ofthe Lease.”

 

46.   Paragraph 2 to Schedule 4 toExhibit “B” to the Lease is hereby amended by adding thereto at the end thereofthe following provision:

 

“Tenant shall keep construction va1idation current throughout the termof the Lease, and provide to Landlord all supporting documentation for theongoing construction validation. Tenant shall not allow the constructionvalidation of the pilot plant to lapse at any time during the Lease Term.”

 

47.   Paragraph 2 of Exhibit “D” tothe Lease is hereby amended by adding thereto at the end thereof the followingsentence:

 

“Tenant shallbe entitled to a credit against the termination fee payable pursuant to thisParagraph for all unreimbursed amounts due Tenant pursuant to the provisions ofParagraphs 5.3 and 40 of the Lease as well as for all amounts then outstandingunder the promissory note from Landlord to Tenant dated

 

November 25,1992, in the amount of $3,200,000.00, but only to the extent of any excess ofsuch termination fee over the then unpaid balance of the loan from Landlord’sMortgagee.”

 

IN WITNESSWHEREOF, the parties hereto have executed this Agreement as of the date firstset forth above.

 
|   |                                                        | TORREY  SORRENTO INC.,  a California corporation |
|--------|-------------------------------------------------------------|--------------------------------------------------|
|   |                                                        |
|   | By:                                                         |    signature  present             |   |
|   |                                                        |
|   | IDEC PHARMACEUTICALS CORPORATION,  a California corporation |
|   |                                                        |
|   |                                                        |
|   |                                                        | By:                                              |    signature  present |   |
|        |                                                             |                                                  |  |  |  |  |

 

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Lease Amendment

 

This agreementis entered into as of December 30, 1994, by and between TORREY SORRENTO, INC.,a California Corporation (hereinafter called “Landlord”), and IDECPHARMACEUTICALS CORPORATION, a California corporation (hereinafter called “Tenant”),with reference to the following facts:

 

A.            Priorhereto the Landlord and Tenant entered into that certain Lease dated July 9,1992, for the premises located at 11011 Torreyana Road, San Diego, California(the “Lease”), as amended by that certain First Amendment to Lease datedNovember 9, 1992.

 

B.            Landlordand Tenant now desire to amend the Lease on the terms set forth herein.

 

C.            Allcapitalized terms not defined herein shall have the same meaning as set forthin the Lease.

 

NOW, THEREFORE,the parties hereto agree as follows:

 

1.             ExhibitD to the Lease, the Early Termination Agreement, shall be deleted in itsentirety and all rights of the Tenant and/or any successors and assigns, forearly termination under the Lease pursuant to Section 3.2 of the Lease, ExhibitD (Early Termination Agreement) to the Lease, and/or any and all otherreference thereto, shall be waived.

 

2.             Thethird sentence of Section 6.2.1. (vi) is hereby amended by adding the words “forthe eleventh year of the term of the Lease” after the words “herein, the FairRental Value”.

 

IN WITNESSWHEREOF, the parties hereto have executed this Agreement as if the date firstset forth above.

 
|   | TORREY  SORRENTO, INC.,  a California corporation            |
|--------|--------------------------------------------------------------|
|   |                                                         |
|   |                                                         |
|   | By:                                                          |            signature  present |   |
|   |                                                         |
|   | IDEC  PHARMACEUTICALS CORPORATION,  a California corporation |
|   |                                                         |
|   |                                                         |
|   | By:                                                          |            signature  present |   |

 

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Third Lease Amendment Agreement

 

This ThirdLease Amendment (this “Amendment”) is entered into as of April 22, 2004, by andbetween Biogen Idec Inc., a Delaware corporation, formerly known as DECPharmaceuticals Corporation, a Delaware corporation (“Tenant”), and TSI, L.P., a California limitedpartnership, the successor-in-interest to Torrey Sorrento, Inc., a CaliforniaCorporation (“Landlord”), with reference to that certain Lease dated July 9, 1992 (the “Initial Lease”), asamended by that certain FirstAmendment to Lease dated November 9, 1992 (the “First Amendment”), that certainLease Exhibit executed by Landlord and Tenanton December 22, 1994 (the “Lease Exhibit”) and that certain LeaseAmendment dated December 30, 1994 (the “Second Amendment” and collectively with the InitialLease, the First Amendment and theLease Exhibit, the “Lease”), for the premises located at 11011 Torreyana Road, San Diego, California (the “DemisedPremises”).

 

Recitals

 

A.           Termswhich are defined in the Lease shall have the same meaning in this Amendment, unless otherwisespecified in this Amendment.

 

B.            Pursuant to Section 6.2 of the Lease,beginning on the 10th anniversary ofthe Term Commencement Date, the Basic Annual Rent is to be adjusted to the FairRental Value of the Demised Premises, subject to specific provisions set forthin Section 6.2.

 

Wherefore, theparties heretomutually agree asfollows:

 

1.             Rent.For all purposes under the Lease, including without limitation Section 6.2 ofLease, Basic Annual Rent shall be adjusted to equal $3,696,000 per year, for the year commencing October1, 2003 and ending September 30,2004. This is equivalent to $308,000 per month. Accrued unpaid Basic AnnualRent in the amount of TwoHundred Thirty Eight Thousand Ninety One and00/100 Dollars ($238,091.00), representing amounts not paid for accrualsup through April 30, 2004 shall be paid by Tenant on or before April 30, 2004.

 

2.             AnnualRent Adjustment. Pursuant toSection 6.1 of the Lease, theBasic Annual Rent shall be increased annually at a rate of four percent (4%) ofthe prior year’s Basic AnnualRent, with the next adjustment to occur on October 1, 2004 for an adjustedBasic Annual Rent equal to $3,843,840, or $320,320 per month.

 

3.             TermExpiration Date. The parties hereby acknowledge, agree and confirm that the Term of the Leasecurrently extends until September 30, 2008 (the “Term Expiration Date”), and that neither party has any right for an early terminationof the Term, other than in accordance with 

 

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the terms of the Lease;provided, however, for avoidance of doubt, the parties confirm that Tenant’searly termination rightunder Exhibit D of the Initial Lease was extinguished by the SecondAmendment.

 

4.             ExcessSubtenant Rentals. The parties hereby agree that any excess Basic AnnualRent which may be realized through the Term Expiration Date from Tenantsubletting the Demised Premises shall inure solely for the benefit of Tenant.

 

5.             AgreementsRegarding Certain Removed Equipment. Tenant is removing from the DemisedPremises those certain items of equipment which are listed on Exhibit Aattached hereto (the “Removed Equipment”). In connection with the RemovedEquipment, Landlord and Tenant hereby agree that: (a) Landlord retains nointerest in the Removed Equipment; and (b) the provisions of this Paragraph 5are not intended as, and shall not constitute, an amendment to Section 15.8 ofthe Lease.

 

6.             Miscellaneous.

 

a.              Effect ofAmendment; Recitals. Except as expressly amended under this Amendment, allprovisions of the Lease shall remain in full force and effect. In the event ofany conflict between this Amendment and the Lease, this Amendment shall controlto the extent of such conflict. The Recitals constitute a part of thisAmendment and are hereby incorporated by reference.

 

b.             Entire Agreement.This Amendment constitutes the entire agreement between the parties pertainingto the subject matter hereof, and the final, complete and exclusive expressionof the terms and conditions thereof. All prior agreements, representations,negotiations and understandings of the parties hereto, oral or written, expressor implied, are hereby superseded and merged herein. This Amendment may beexecuted in one or more counterparts, each of which shall be deemed anoriginal, and all of which shall constitute one and the same binding agreement.

 

c.              CertainConfirmations. Tenant confirms that, notwithstanding its name change, itcontinues to be bound by all of the covenants and agreements of the Lease, asamended by this Amendment. TSI, L.P., as the successor-in-interest to the originalLandlord via an assignment and transfer of assets, hereby agrees to be bound byall of the covenants and agreement of the Lease, as amended by this Amendment.

 

d.             FurtherAssurances; Lender Acknowledgment. Each of the parties hereto agrees toexecute all documents and instruments and to take all other actions as mayspecifically be provided for herein or in the Lease as may be required in orderto consummate the purposes of this Amendment. Landlord shall provide Tenantwith a written acknowledgement of the consent of any lender on the DemisedPremises to this Amendment, and agreement of such lender that the Landlord andTenant’s entry into and performance of this Amendment is not in violation ofany previously existing non-disturbance agreement given by such lender in favorof Tenant.

 

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IN WITNESSWHEREOF, the undersigned have executed this Third Lease Amendment as of thedate first written above.

 
|   | TENANT: | Biogen Idec  Inc., a Delaware corporation                    |
|--------|---------|--------------------------------------------------------------|
|   |    |
|   | By:     |        signature  present |   |

 

 
| Its:       |                                                   |                                                         |
|------------|--------------------------------------------------------|--------------------------------------------------------------|
|       |                                                   |
| ** ** | LANDLORD: TSI,  L.P., a California limited partnership |
|       |                                                   |
|       | By:                                                    | Science  Park, Inc., a California corporation                |
|       |                                                   |
| Its:       | General  Partner                                       |
|       |                                                   |
|       | By:                                                    |        signature  present |   |
|       |                                                   |
|       | Its:                                                   |                                                         |   |
|            |                                                        |                                                              |  |  |  |  |  |

 

 
| ** ** | ACKNOWLEDGMENT  AND CONSENT TO THE ABOVE:                    |
|------------|--------------------------------------------------------------|
| ** ** |                                                         |
| ** ** | By  landlord’s lender:                                  |
| ** ** |                                                         |
| ** ** | WASHINGTON  CAPITAL JOINT MASTER  TRUST MORTGAGE INCOME FUND |
| ** ** |                                                         |
| ** ** | By:                                                          | Washington  Capital Management, Inc.  a Washington corporation  its Manager |
|       |
|       | By:                                                          |             /s/  Don Maescher |   |
|       |                                                         | Don Maescher |
|       |                                                         | President, California  Division |

 

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