Document:

Exhibit 10.2

 

CONFIDENTIAL

 

CONFIDENTIAL
TREATMENT REQUESTED

UNDER
17 C.F.R §§ 200.80(b)4, AND 240.24b-2

 

EXCLUSIVE LICENSE
AND

NONEXCLUSIVE OPTION AGREEMENT

 

BETWEEN

 

GLAXO GROUP
LIMITED

 

AND

 

REGULUS
THERAPEUTICS INC.

 

 

This
EXCLUSIVE LICENSE AND NONEXCLUSIVE OPTION AGREEMENT
(this “Agreement”) is entered into
and made effective as of the 24th day of February 2010
(the “Effective Date”) by and
between Regulus Therapeutics Inc., a Delaware corporation having its principal
place of business at 1896 Rutherford Road, Carlsbad, CA 92008 (“Regulus”), and Glaxo Group Limited, a
company existing under the laws of England and Wales, having its registered
office at Glaxo Wellcome House, Berkeley Avenue, Greenford, Middlesex, UB6 0NN,
England (“GSK”).  Regulus and GSK are each referred to herein
by name or as a “Party” or,
collectively, as “Parties.”

 

RECITALS

 

WHEREAS, Regulus is a Delaware
corporation that is jointly owned by Isis Pharmaceuticals, Inc. (“Isis”) and Alnylam Pharmaceuticals, Inc.
(“Alnylam” and together with Isis,
Regulus’ “Founding Companies”, and
each a “Founding Company”);

 

WHEREAS, Regulus and GSK are
parties to the Product Development and Commercialization Agreement dated April 17,
2008, as amended (the “Existing Collaboration”);

 

WHEREAS, Regulus possesses
proprietary technology and know-how related to the research, discovery,
identification, synthesis and development of single-stranded oligonucleotide
miRNA Antagonists in the Field (each as defined below);

 

WHEREAS, GSK possesses expertise in
the pharmaceutical research, development, manufacturing and commercialization
of human pharmaceuticals, and GSK is interested in developing miRNA Antagonists
as drug products in the Field;

 

WHEREAS, GSK may obtain from
Santaris a license to commercialize the miRNA Compound known as SPC-3649;

 

WHEREAS, GSK desires, upon
obtaining certain rights to SPC-3649 from Santaris, to obtain from Regulus an
exclusive license to develop and commercialize SPC-3649 in the Field; and
Regulus desires to grant GSK such rights, all on the terms and conditions set
forth herein; and

 

WHEREAS, GSK may, during the term
of this Agreement, desire to obtain from Regulus a nonexclusive license to
certain other patents in the Field, and in such case, GSK and Regulus agree to
negotiate in good faith, in accordance with the terms and conditions of this
Agreement to the extent possible, and in accordance with the Agreement between
Regulus and Garching Innovation
GmbH, as appropriate.

 

1

 

NOW, THEREFORE, in consideration of the
premises and mutual covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Parties, intending to be hereby bound, do hereby agree as follows:

 

ARTICLE 1

DEFINITIONS

 

1.1          The capitalized terms used and not otherwise defined
in this Agreement shall have the meanings set forth in Exhibit A
attached hereto unless context dictates otherwise.  All references to “Dollars” mean U.S.
Dollars.  The use of the singular form of
a defined term also includes the plural form and vice versa, except where expressly noted. The use of the
word “including” shall mean “including without limitation”.  The use of the words “herein,” “hereof” or “hereunder,”
and words of similar import, refer to this Agreement in its entirety and not to
any particular provision hereof.

 

ARTICLE 2

[***] OPTION

 

2.1          Option
to License the [***] Patents.  If GSK provides Regulus with written notice
of a desire to negotiate in good faith to obtain a nonexclusive license to the
[***] Patents, then Regulus and GSK shall, in good faith, use commercially
reasonable efforts to conclude a written license agreement (the “[***] Sublicense”) within sixty
(60) days of such written notice for the grant by Regulus to GSK of a
worldwide, nonexclusive, royalty-bearing, sublicenseable (in accordance with Section 3.1.2
below) license, under the [***] Patents solely to Develop, Manufacture and
Commercialize SPC-3649 in the Field; provided, that, such license will (a) be
subject to the terms and conditions of those certain agreements between Regulus
and those certain Third Parties in effect as of the Effective Date and as
listed on Exhibit G, and (b) have a maximum royalty rate to be
paid by GSK under such agreement capped at the Third Party License Pass-Through
Costs under the [***].  Upon GSK’s and
Regulus’ execution of the [***]Sublicense, and subject to the terms and
conditions of the [***] Sublicense, (i) the [***] shall be deemed listed on Exhibit G, and (ii) the [***]
Patents shall be deemed included in the definition of Regulus Patents and
therefore subject to ARTICLE 3.

 

ARTICLE 3

GRANT OF LICENSE RIGHTS

 

3.1          License
Grants to GSK.

 

3.1.1       Development and Commercialization License.  Subject to the terms and conditions of this
Agreement (including but not limited to the limitations set forth in this
ARTICLE 3) and those certain agreements between Regulus and those certain Third
Parties in effect as of the Effective Date and as listed on Exhibit G,
Regulus hereby grants to GSK a worldwide, exclusive, royalty-bearing,
sublicenseable (in accordance with Section 3.1.2 below) license, under the
Regulus Patents solely to Develop, Manufacture and Commercialize SPC-3649 in
the Field.

 

2

 

3.1.2       Sublicense Rights.  Subject to the terms and conditions of this
Agreement (including but not limited to the limitations set forth in this
ARTICLE 3) and those certain agreements between Regulus and those certain Third
Parties in effect as of the Effective Date and as listed on Exhibit G,
GSK shall have the right to grant to its Affiliates and/or Third Parties
sublicenses under the license granted under Section 3.1.1 above solely to continue the Development,
Manufacture or Commercialization of SPC-3649; provided, that, (a) each
such sublicense shall be subject and subordinate to, and consistent with, the
applicable terms and conditions of this Agreement; (b) GSK may not grant a
sublicense to Santaris or any of Santaris’ Affiliates; and (c) GSK cannot
sublicense the Stanford Patents.  GSK
shall provide Regulus with a copy of any sublicense granted pursuant to this Section 3.1.2
within thirty (30) days after the execution thereof.  Such copy may be redacted to exclude
confidential scientific information and other sensitive information required by
a Sublicensee or GSK to be kept confidential; provided, that for
agreements that are entered into by GSK or its Affiliates after the Effective
Date that materially relate to the Regulus Patents, GSK will reasonably
endeavor to facilitate the communication of information between the Parties
with respect to any subsequent Development activities by GSK to the extent
required by those certain agreements between Regulus and those certain Third Parties
in effect as of the Effective Date and as listed on Exhibit G.  Regulus may share such copy or information
with its Founding Companies and relevant Third Party licensors who have a
contractual right and material need to know such information under obligations
of confidentiality which are no less strict than the confidentiality
obligations imposed upon Regulus hereunder. 
GSK will remain responsible for the performance of its Affiliates and
Sublicensees, and will ensure that all such Affiliates and Sublicensees comply
with the relevant provisions of this Agreement.

 

3.1.3       Retained Rights; No Implied Licenses.  The exclusive license granted to Regulus by
Alnylam pursuant to Section 2.2(a) of the Regulus License Agreement
is subject to Alnylam’s retained right to use and exploit Alnylam’s Founding
Company Know-How and Founding Company Patents solely to support its own
internal Research in the Alnylam Field (each as defined in the Regulus License
Agreement).  The exclusive license
granted to Regulus by Isis pursuant to Section 2.2(a) of the Regulus
License Agreement is subject to Isis’ retained right to use and exploit Isis’
Founding Company Know-How and Founding Company Patents solely to support its
own internal Research in the Isis Field (each as defined in the Regulus License
Agreement).  All rights in and to Regulus
Patents not expressly licensed to GSK 

 

3

 

hereunder, under the Existing Collaboration
or pursuant to the operation of the relevant applicable express provisions of
this Agreement or the Existing Collaboration, and any other Patent Rights or
Know-How of Regulus or its Founding Companies or Affiliates, are hereby
retained by Regulus or such Founding Company or Affiliate.  Except as expressly provided in this
Agreement, no Party will be deemed by estoppel or implication to have granted
the other Parties any license or other right with respect to any intellectual
property of such Party.

 

3.1.4       Stanford License Considerations.  For purposes of clarification, with respect
to the sublicense granted by Regulus to GSK under the Stanford Patents, GSK
acknowledges and agrees that (a) such sublicense is subject and
subordinate to the terms and conditions of the Stanford License Agreement, (b) Stanford
is a third party beneficiary to this Agreement as it relates to Articles 8, 9
and 10 of the Stanford License Agreement, such that Stanford may directly
enforce Articles 8, 9 and 10 of the Stanford License Agreement against GSK, and
(c) if Stanford terminates the Stanford License Agreement as it relates to
Regulus (but not as it relates to this Agreement), GSK will assume (and be
directly liable to Stanford for) all Third Party License Pass-Through Costs and
all Third Party and Founding Company-Originated Rights and Obligations due
Stanford in connection with this Agreement; provided, that if, by
operation of this Section 3.1.4 GSK actually pays any such costs or fees
to Stanford in satisfaction of any amounts owed under Section 4.5, Article 7
or Section 13.2 of the Stanford License Agreement, then GSK shall have the
right, in addition to all other rights available at law and in equity, to
[***].  If GSK exercises its right of
[***] under this Section 3.1.4, then GSK will provide written notice to
Regulus of such [***] claim.

 

3.2          Santaris
Option to [***] Patents. 
Regulus hereby agrees that it will grant Santaris an exclusive license
under the [***] Patents to develop and commercialize SPC-3649 within the Field
(the “Santaris License”) if (a) GSK
obtains rights to Develop and/or Commercialize SPC-3649 from Santaris or its
Affiliates (“SPC-3649 Rights”), and (b) if
GSK subsequently ceases development of SPC-3649 and returns rights to SPC-3649
to Santaris (the “Santaris Option Trigger Date”); provided,
(a) Santaris gives Regulus a written notice electing to obtain the
Santaris License on or before 5:00 p.m. Pacific time on the sixtieth (60th) day following the Santaris
Option Trigger Date, and (b) Regulus and Santaris execute the Santaris
License within sixty (60) days following Regulus’ receipt of such election
notice.  The Santaris License, if
granted, will include the material terms listed in Exhibit H
attached hereto.  Regulus and GSK agree
that if GSK obtains the SPC-3649 Rights, then Santaris is an intended third party
beneficiary of this Agreement with respect to the rights granted to Santaris
pursuant to this Section 3.2 and that Santaris may exercise its rights
under this Section 3.2 independently. 
For clarity, if Santaris does not give Regulus a written notice electing
to obtain the Santaris License on or before 5:00 p.m. Pacific time on the
60th day following the Santaris Option Trigger
Date, or if Regulus and Santaris have not executed the Santaris License within
sixty (60) days following Regulus’ receipt of such election notice, then in
each case this Section 3.2 will be null and void.

 

4

 

ARTICLE 4

[Intentionally Left Blank]

 

ARTICLE 5

SPC-3649 MILESTONES AND ROYALTIES; SPC-3649 PAYMENTS

 

5.1          Upfront
Payment to Regulus.  In partial
consideration for the license and option granted to GSK under Section 2.1
and ARTICLE 3 of this Agreement, GSK shall pay to Regulus, by wire transfer of
immediately available funds to an account designated by Regulus in writing, a
one-time-only initial non-refundable, non-creditable fee of Three Million U.S.
Dollars ($3,000,000) no later than ten (10) Business Days after receipt by
GSK of an invoice sent from Regulus on or after the Effective Date of this
Agreement (the “Upfront Payment”).

 

5.2          [Intentionally
Left Blank].

 

5.3          SPC-3649
Exclusive License Fees.  If (a) GSK
obtains the SPC-3649 Rights; and (b) [***] GSK obtaining such SPC-3649
Rights, then GSK shall pay to Regulus a non-refundable, non-creditable fee of
[***] within thirty (30) days of receipt by GSK of an invoice sent from Regulus
regarding such fee; provided, however, if [***] GSK obtaining
such SPC-3649 Rights and GSK subsequently [***]], then GSK shall pay to Regulus
a non-refundable, non-creditable fee [***] within thirty (30) days of receipt
by GSK of an invoice sent from Regulus regarding such fee.  Notwithstanding the foregoing, if GSK either:
(i) holds the SPC-3649 Rights as of [***] and GSK has not previously paid
Regulus the [***] fee under this Section 5.3 or (ii) GSK licenses the
SPC-3649 Rights after [***], GSK shall pay to Regulus a non-refundable,
non-creditable fee of [***] within thirty (30) days of receipt of an invoice
from Regulus for such fee.

 

5.4          Milestone
Payments for Achievement of Milestone Events.  GSK shall pay to Regulus the applicable
milestone payments as set forth in the table below in this Section 5.4
within thirty (30) days of receipt by GSK of an invoice sent from Regulus on or
after the date of first achievement of such Milestone Event by SPC-3649 or an
SPC-3649 Product.  GSK shall send Regulus
a written notice thereof promptly following the date of achievement of each
Milestone Event.

 

5

 

	
   

  	
   

  	
  Milestone
  Payment*

  	
   

  
	
  Milestone Event (each a “Milestone Event”)

  	
   

  	
  US$Million
  (“m”)

  	
   

  
	
  [***]

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  TOTAL Potential Milestones

  	
   

  	
  $

  	
  [***]

  	
   

  

 

*Each
milestone will be paid only once upon the first achievement of the Milestone
Event.

 

†Such
milestone will only be payable if, at the time such milestone is achieved there
is a Valid Claim within the Regulus Patents, which covers the [***] of SPC-3649
or an SPC-3649 Product; provided, however, that if there is no Valid
Claim at the time of such Milestone Event, then (a) GSK must pay to
Regulus [***] percent ([***]%) of such milestone payment upon [***] of an
SPC-3649 Product in any country in the [***]; and (b) if a Pending Claim
within the Regulus Patents issues such that it is a Valid Claim in the [***]
prior to the [***] anniversary of the date of the First Commercial Sale
described in clause (a) above, then GSK will pay Regulus the remaining
[***] percent ([***]%) of such milestone within thirty (30) days of receipt by
GSK of an invoice sent from Regulus on or after the date of the issuance of the
applicable Pending Claim.

 

5.5          Royalty
Payments for SPC-3649 to Regulus.

 

5.5.1       GSK Patent Royalty. As partial
consideration for the license granted to GSK hereunder, GSK will pay to Regulus
royalties on Annual worldwide Net Sales of any SPC-3649 Product sold by GSK,
its Affiliates or Sublicensees during a calendar year, on a country-by-country
basis, in the Field in the countries of the Territory in which there is a Valid
Claim in the Field within the Regulus Patents, which covers the [[***] SPC-3649
or such SPC-3649 Product, in the amounts as follow (the “GSK Patent Royalty”).  For purposes of clarity, in no event shall
GSK be obligated to pay royalties more than once with respect to the same unit
of SPC-3649 Product and GSK shall owe no royalties or milestones to Regulus,
its Affiliates, Founding Companies, or anyone on behalf of Regulus, its
Affiliates, or Founding Companies, on SPC-3649 Product under any terms of the
Existing Collaboration.

 

(a)           GSK shall pay
to Regulus the royalties at the percentages as described in the table below:

 

6

 

	
  Annual Worldwide Net Sales (U.S. $ Million)

  of SPC-3649 Product per Calendar Year

  US$Million (“m”)

  	
   

  	
  Applicable
  Royalty Rate

  	
   

  
	
  up to $1000m

  	
   

  	
  [***]

  	
  %

  
	
  $1000m up to $2000m

  	
   

  	
  [***]

  	
  %

  
	
  $2000m up to $3000m

  	
   

  	
  [***]

  	
  %

  
	
  > $3000m

  	
   

  	
  [***]

  	
  %

  

 

(b)           In the event
any Combination Product(s) are sold, royalties on such Combination
Products will be determined pursuant to the definition of “Net Sales”
on Exhibit A.

 

(c)           The royalty
rates in the table above are incremental rates, which apply only for the
respective increment of Annual worldwide Net Sales described in the Annual
worldwide Net Sales column.  Thus, once a
total Annual worldwide Net Sales figure is achieved for the year, the royalties
owed on any lower tier portion of Annual worldwide Net Sales are not adjusted
up to the higher tier rate.

 

5.5.2       Royalty Adjustment. 
If there are no Valid Claims within the Regulus Patents that
[***] an SPC-3649 Product sold in a particular country, the GSK Patent Royalty
set forth in Section 5.5.1 shall be reduced to [***] percent ([***]%) of
the GSK Patent Royalty rates above in such countries where a Pending Claim
within the Regulus Patents claims [***] an SPC-3649 Product has not yet been
issued.  For the avoidance of doubt, for
such Pending Claims, GSK shall pay Regulus [***] percent ([***]%) of the GSK
Patent Royalty set forth in Section 5.5.1 above, and shall pay the
remaining [***] percent ([***]%) of the GSK Patent Royalty into an escrow
account, until such time as a Valid Claim within the Regulus Patents issues
that covers [***] an SPC-3649 Product being sold in the country of sale, provided
that such Valid Claim must issue within [***] years of date of First
Commercial Sale of an SPC-3649 Product (the “Royalty
Tail Period”).  In the event
such Valid Claim issues during the Royalty Tail Period, (i) the escrow
account and any interest thereon shall be paid to Regulus and (ii) GSK
will pay the full GSK Patent Royalty in such countries starting only from the
date of such issuance of the Valid Claim and shall not owe any GSK Patent
Royalty in such countries for any preceding period.  In the event that no such Valid Claim issues
during the Royalty Tail Period, then the escrowed amounts and any interest
thereon shall be returned to GSK and any obligations GSK may have had with
respect to the Pending Claims shall cease. 
If GSK maintains sole control over such escrow account then GSK shall be
solely responsible for the costs and expenses associated with maintaining such
escrow account, otherwise GSK and Regulus  shall be 

 

7

 

mutually responsible for the costs and
expenses associated with maintaining such escrow account; provided, that
the Parties must mutually agree (such agreement not to be unreasonably
withheld) before taking any action that would cause GSK to lose sole control of
such escrow account.  If a Valid Claim
within the Regulus Patents that [***] an SPC-3649 Product issues after the
Royalty Tail Period, then GSK will pay Regulus the full GSK Patent Royalty in
such countries starting only from the date of such issuance of the Valid Claim
and shall not owe any GSK Patent Royalty in such countries for any preceding
period.

 

5.5.3            Patent Royalty Term.

 

(a)           For Pending Claims, GSK’s
obligation to pay the GSK reduced GSK Patent Royalty in Section 5.5.2
above with respect to SPC-3649 Product or Combination Product will continue on
a country-by-country basis from the date of First Commercial Sale of an
SPC-3649 Product or Combination Product in the Field until the end of the
Royalty Tail Period.

 

(b)           For Valid Claims, GSK’s
obligation to pay the GSK Patent Royalty Rate above with respect to SPC-3649
Product or Combination Product will continue on a country-by-country basis from
the date of First Commercial Sale of an SPC-3649 Product or Combination Product
in the Field until the date of expiration of the last Valid Claim in the Field within the Regulus Patents, which
covers [***] of an SPC-3649 Product or Combination Product. 
In no circumstance will GSK pay a GSK Patent Royalty or any other
royalty hereunder beyond the date of expiration of the last Valid Claim in the
Field.

 

5.6          Pass
Through Payments.

 

5.6.1       Regulus Obligations.  Regulus will be solely responsible for paying
[***] Total License Pass-Through Costs (a) [***] (as such term is defined
in the Existing Collaboration) except pursuant to the terms of Section 5.6.2
herein, and (b) due under the [***].

 

5.6.2       Obligations for Future IP.  After the Effective Date, Regulus may wish to
in-license or acquire rights to Patent Rights controlled by a Third Party (such
a Third Party in-license or acquisition agreement being an “Additional Third Party Agreement”) which,
if so licensed or acquired, may be included in the Regulus Patents licensed to
GSK under Section 3.1.  Once Regulus
has executed such Additional Third Party Agreement, Regulus will offer such
Third Party Patent Rights to GSK (including a description of the payments paid
or potentially payable by Regulus thereunder). 
At such time, if GSK wishes to include such Third Party Patents under
the licenses granted under Section 3.1, GSK will notify Regulus of its
desire to do so and the Parties will fairly and in good faith allocate upfront
payments or ongoing payment obligations between SPC-3649 and compounds that are
not SPC-3649.  If GSK does not agree to 

 

8

 

reimburse Regulus for the amount of any
upfront or similar acquisition payments fairly allocated to SPC-3649, and to be
responsible for the payment of GSK’s share of any [***] payments under the
Additional Third Party Agreement, then the Third Party Patents acquired or
in-licensed by Regulus under the Additional Third Party Agreement will not be
considered a Regulus Patent licensed to GSK under this Agreement.  Should the Parties agree, then GSK shall
reimburse Regulus for GSK’s share of such amounts within forty-five (45) days
after GSK’s receipt of an invoice from Regulus therefor.

 

5.6.3       Regulus Obtains Rights to SPC-3649. 
Should Regulus obtain SPC-3649 Rights from Santaris or its Affiliate(s),
then this Agreement shall automatically terminate, and the provisions of [***]
the Product Development and Commercialization Agreement between the Parties of
even date herewith shall apply.

 

5.7          Third Party Licenses.  Subject to Section 5.6.2,
GSK shall be solely responsible for obtaining any licenses from Third Parties
that GSK determines, in its sole discretion, are required in order to lawfully
develop, manufacture, and commercialize SPC-3649 in the Field for patents (i) not
included within the license grants to GSK as set forth in Section 3.1 of
this Agreement and/or (ii) not included within Regulus Patents.

 

5.8          Minimum
Royalty Payment.  Notwithstanding any other provision of this Agreement, at a
minimum, GSK will pay Regulus a minimum royalty on Net Sales of SPC-3649
Product by GSK, its Affiliates or Sublicensees equal to (a) the Total Pass
Through Costs that are royalty obligations Regulus must pay under [***]; and (b) any
royalty payments GSK agrees to pay under Section 2.1 and/or Section 5.6.2.

 

5.9          Payments.

 

5.9.1       Commencement.  Beginning with the Calendar Quarter in which
the First Commercial Sale of an SPC-3649 Product is made and for each Calendar
Quarter thereafter, royalty payments shall be made by GSK to Regulus under this
Agreement within forty-five (45) days following the end of each such Calendar
Quarter.  Each royalty payment shall be
accompanied by a report, summarizing Net Sales for each SPC-3649 Product during
the relevant Calendar Quarter and the calculation of royalties (including the
details of any adjustments or credits permitted under this Agreement), if any,
due thereon.  Notwithstanding the foregoing,
in the event that no royalties are payable in respect of a given Calendar
Quarter, the Payor shall submit a royalty report so indicating.

 

5.9.2       Mode of Payment.  All payments under this Agreement shall be
payable, in full, in U.S. Dollars, regardless of the country(ies) in which
sales are made.  For the purposes of
computing Net Sales of SPC-3649 Product sold in a currency other than U.S.
Dollars, such

 

9

 

currency shall be converted into U.S. Dollars as calculated at the
actual average rates of exchange for the pertinent quarter or year to date, as
the case may be, as reasonably used by the Payor in producing its quarterly and
annual accounts.  Such payments shall be
without deduction of exchange, collection or other charges.

 

5.9.3       Records
Retention.  Commencing
with the First Commercial Sale of SPC-3649 Product, the Payor shall keep
complete and accurate records pertaining to the sale of SPC-3649 Product, for a
period of three (3) calendar years after the year in which such sales
occurred, and in sufficient detail to permit the Payee to confirm the accuracy
of the Net Sales or royalties paid by the Payor hereunder.

 

5.10        Audits.  During the term of this Agreement and for a
period of three (3) years thereafter, at the request and expense of the
Payee, the Payor shall permit an independent, certified public accountant of
nationally recognized standing appointed by the Payee, and reasonably
acceptable to the Payor, at reasonable times and upon reasonable notice, but in
no case more than once per calendar year thereafter, to examine such records as
may be necessary for the sole purpose of verifying the calculation and
reporting of Net Sales and the correctness of any royalty payment and Annual
worldwide Net Sales payments made under this Agreement for any period within
the preceding three (3) years.  The
independent, certified public accountant shall disclose to the Payee only the
royalty amounts which the independent auditor believes to be due and payable
hereunder to the Payee and shall disclose no other information revealed in such
audit.  GSK shall also have the right to
have audited, in accordance with this Section 5.10, the relevant books and
records of Regulus as may be necessary for the sole purpose of verifying the
amount of Third Party License Pass-Through Costs or Total License Pass-Through
Costs actually being paid by Regulus. 
Any and all records of the audited Party examined by such independent
accountant shall be deemed such audited Party’s Confidential Information which
may not be disclosed by said independent, certified public accountant to any
Third Party or (except for the information expressly sought to be confirmed by
the auditing Party as set forth in this Section 5.5) to the auditing
Party.  If, as a result of any inspection
of the books and records of the audited Party, it is shown that (x) the
audited Party’s payments under this Agreement were less than the royalty amount
which should have been paid, then such audited Party shall make all payments
required to be made, or (y) the amount paid to Third Parties by the
audited Party as pass-through costs is less than the amount for which
reimbursement was requested from the auditing Party to cover such pass-through
costs, then the audited Party shall pay the auditing Party the difference
between such amounts, to eliminate any discrepancy revealed by said inspection,
within sixty (60) days and shall be entitled to a credit with respect to any
overpayment made by such audited Party. 
The auditing Party shall pay for such audits, except 

 

10

 

that
in the event that the royalty payments and/or the amount of pass-through costs
made by the audited Party were less than ninety percent (90%) of the undisputed
amounts (or the amount requested to be reimbursed by the auditing Party, with
respect to pass-through costs) that should have been paid during the period in
question, the audited Party shall pay the reasonable costs of the audit.

 

5.11        Taxes.

 

5.11.1     Sales or
Other Transfers.  The
recipient of any transfer under this Agreement of Regulus Patents, GSK
Technology, and/or Confidential Information, as the case may be, shall be
solely responsible for any sales, use, value added, excise or other taxes
applicable to such transfer.

 

5.11.2     Withholding
Tax.  The Parties acknowledge and
agree that, under applicable laws in effect as of the Effective Date, GSK shall
not be required to withhold any taxes from the Withholding-Free Payments
payable to Regulus under this Agreement. 
Consequently, GSK agrees not to withhold any taxes from payment of the
Withholding-Free Payments hereunder.  Any
tax paid or required to be withheld by GSK for the benefit of Regulus on account
of any royalties or other payments (other than the Withholding-Free Payments)
payable to Regulus under this Agreement shall be deducted from the amount of
royalties or other payments otherwise due. 
GSK shall secure and send to Regulus proof of any such taxes withheld
and paid by GSK for the benefit of Regulus, and shall, at Regulus’ request,
provide reasonable assistance to Regulus in recovering such taxes. Regulus
warrants that Regulus is a Delaware corporation as of the Effective Date and,
prior to the payment of royalties by GSK hereunder, shall be a resident for tax
purposes in the US and that, as of such time, Regulus shall be entitled to
relief from United Kingdom income tax under the terms of the double tax
agreement between the UK and the US.  Regulus
shall notify GSK immediately in writing in the event that Regulus ceases to be
entitled to such relief. Pending receipt of formal certification from the UK
Inland Revenue, GSK may pay royalty income and any other payments (other than
the Withholding-Free Payments) under this Agreement to Regulus by deducting tax
at the applicable rate specified in the double tax treaty between the UK and
US.  Regulus agrees to indemnify and hold
harmless GSK against any loss, damage, expense or liability arising in any way
from a breach of the above warranties or any future claim by a UK tax authority
or other similar body alleging that GSK was not entitled to deduct withholding
tax on such payments at source at the treaty rate, except that Regulus’
indemnification obligation under this Section 5.11.2 shall not apply to
GSK’s payment of the Withholding-Free Payments. 
Regulus shall timely complete all US and UK tax forms as reasonably
requested by GSK with respect to taxes withheld pursuant to this Section 5.11.2.  Notwithstanding the foregoing, if UK tax law 

 

11

 

changes
after the Effective Date and GSK has a good faith belief  that such change requires GSK to withhold
taxes from any Withholding-Free Payment, then GSK will first notify Regulus in
writing thereof, and GSK may withhold taxes from the Withholding-Free Payments
that GSK reasonably believes is necessary to comply with the new UK tax law,
consistently applied by GSK to similarly situated licensing arrangements.

 

ARTICLE 6

OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT PROSECUTION

 

6.1          Ownership.  The determination of inventorship shall be
made in accordance with United States patent laws.

 

6.2          Prosecution
and Maintenance of Patents.

 

6.2.1       Regulus
Patents.  At Regulus’ expense, Regulus
shall (but shall not be obligated to) control and be responsible for all
aspects of the Prosecution, Maintenance, enforcement and defense of all Regulus
Patents.

 

6.2.2       Duty to
Notify of Competitive Infringement.  If either Party learns of an infringement,
unauthorized use, misappropriation or threatened infringement by a Third Party
with respect to any Regulus Patent in the Field, by reason of the Development,
Manufacture, use or Commercialization in the Field of a product that contains
or consists of a miRNA Compound as an active ingredient that is substantially
identical in structure, sequence or composition to SPC-3649 (“Competitive Infringement”), such Party
shall promptly notify the other Party and shall provide such other Party with
available evidence of such Competitive Infringement.

 

6.3          [***]

 

ARTICLE 7

CONFIDENTIALITY

 

7.1          Confidentiality;
Exceptions.  Except to
the extent expressly authorized by this Agreement or otherwise agreed in
writing, the Parties agree that, during the Agreement Term and for five (5) years
thereafter, the receiving Party (the “Receiving
Party”), its Affiliates and, with respect to Regulus, its Founding
Companies, shall keep confidential and shall not publish or otherwise disclose
or use for any purpose other than as provided for in this Agreement any
Know-How or other confidential and proprietary information and materials,
patentable or otherwise, in any form (written, oral, photographic, electronic,
magnetic, or otherwise) which is disclosed to it by the other Party (the “Disclosing Party”), its Affiliates or, with
respect to Regulus, its Founding Companies or otherwise received or accessed by
a Receiving Party in the course of performing its obligations or exercising its
rights under this Agreement, including, but not limited to trade secrets,
know-how, inventions or discoveries, proprietary information, 

 

12

 

formulae,
processes, techniques and information relating to the past, present and future
marketing, financial, and research and development activities of any product or
potential product or useful technology of the Disclosing Party, its Affiliates
or Founding Companies and the pricing thereof (collectively, “Confidential Information”), except to the
extent that it can be established by the Receiving Party that such Confidential
Information:

 

7.1.1       was in the lawful knowledge
and possession of the Receiving Party, its Affiliates or Founding Companies
prior to the time it was disclosed to, or learned by, the Receiving Party, its
Affiliates or Founding Companies, or was otherwise developed independently by
the Receiving Party, its Affiliates or Founding Companies, as evidenced by
written records kept in the ordinary course of business, or other documentary proof
of actual use by the Receiving Party, its Affiliates or Founding Companies;

 

7.1.2       was generally available to
the public or otherwise part of the public domain at the time of its disclosure
to the Receiving Party, its Affiliates or Founding Companies;

 

7.1.3       became generally available
to the public or otherwise part of the public domain after its disclosure and
other than through any act or omission of the Receiving Party, its Affiliates
or Founding Companies in breach of this Agreement; or

 

7.1.4       was disclosed to the
Receiving Party, its Affiliates or Founding Companies, other than under an
obligation of confidentiality, by a Third Party who had no obligation to the
Disclosing Party, its Affiliates or Founding Companies not to disclose such
information to others.

 

7.2          Authorized
Disclosure.  Except as
expressly provided otherwise in this Agreement, a Receiving Party or its
Affiliates may use and disclose, to Third Parties or the Founding Companies,
Confidential Information of the Disclosing Party as follows: (i)  with
respect to any such disclosure of Confidential Information, under
confidentiality provisions no less restrictive than those in this Agreement,
and solely in connection with the performance of its obligations or exercise of
rights granted or reserved in this Agreement (including, without limitation,
the rights to Develop and Commercialize SPC-3649, and to grant licenses and
sublicenses hereunder), provided, that Confidential Information may be
disclosed by a Receiving Party to a governmental entity or agency without
requiring such entity or agency to enter into a confidentiality agreement with
such Receiving Party if such Receiving Party has used reasonable efforts to
impose such requirement without success and disclosure to such governmental
entity or agency is necessary for the performance of the Receiving Party’s
obligations hereunder; (ii) to the extent such disclosure is reasonably
necessary in filing or prosecuting patent, copyright and trademark
applications, complying with applicable governmental regulations, obtaining 

 

13

 

Regulatory
Approvals, conducting Pre-Clinical Studies or Clinical Studies, marketing
SPC-3649, or as otherwise required by applicable law, regulation, rule or
legal process (including the rules of the SEC and any stock exchange); provided,
however, that if a Receiving Party or any of its Affiliates or
Founding Companies is required by law or regulation (including the rules of
the SEC and any stock exchange) to make any such disclosure of a Disclosing
Party’s Confidential Information it will, except where impracticable for
necessary disclosures, for example, but without limitation, in the event of
medical emergency, give reasonable advance notice to the Disclosing Party of
such disclosure requirement and will use its reasonable efforts to secure
confidential treatment of such Confidential Information required to be
disclosed; (iii) in communication with actual or potential investors,
merger partners, acquirers, consultants, or professional advisors on a need to
know basis, in each case under confidentiality provisions no less restrictive
than those of this Agreement; (iv) in communication with actual or
potential licensees outside the Field on a need to know basis, in each case
under confidentiality provisions no less restrictive than those of this
Agreement and such Confidential Information may be redacted to exclude
confidential scientific information, the name of the Disclosing Party and other
sensitive information reasonably required by the Disclosing Party to be kept
confidential; (v) to the extent and only to the extent that such
disclosure is required to comply with existing expressly stated contractual
obligations owed to such Party’s, its Affiliate’s or Founding Company’s
licensor with respect to any intellectual property licensed under this
Agreement; or (vi) to the extent mutually agreed to in writing by the
Parties.  If a Founding Company receives GSK’s
Confidential Information as permitted pursuant to this Section 7.2, such
Founding Company may only use and disclose GSK’s Confidential Information
solely in accordance with this Section 7.2 under confidentiality
provisions no less restrictive than those in this Agreement and solely as and
to the extent required (x) by law, court order or an existing expressly
stated contractual requirement of a licensor to Regulus Patents, or (y) for
such Founding Company to perform its rights or obligations in connection with
this Agreement.

 

7.3          Press
Release; Disclosure of Agreement.  On or promptly after the Effective Date, the
Parties shall individually or jointly issue a public announcement of the
execution of this Agreement in form and substance substantially as set forth on
Exhibit D.  Except to the
extent required to comply with applicable law, regulation, rule or legal
process or as otherwise permitted in accordance with this Section 7.3,
neither Party nor such Party’s Affiliates or Founding Companies shall make any
public announcements, press releases or other public disclosures concerning
this Agreement or the terms or the subject matter hereof or thereof, without
the prior written consent of the other, which shall not be unreasonably
withheld.  Notwithstanding the foregoing,
(a) GSK and its Affiliates may make disclosures pertaining 

 

14

 

solely
to SPC-3649, provided, however, that GSK will immediately notify (and
provide as much advance notice as possible to) Regulus of any event materially
related to SPC-3649 (including any Regulatory Approval) so that the Parties may
analyze the need for or desirability of publicly disclosing or reporting such
event; provided any press release or other similar public communication by GSK
related to efficacy or safety data and/or results of SPC-3649 will be submitted
to Regulus for review at least five (5) Business Days (to the extent
permitted by law) in advance of such proposed public disclosure, Regulus shall
have the right to expeditiously review and recommend changes to such
communication and the Party whose communication has been reviewed shall in good
faith consider any changes that are timely recommended by the reviewing Parties
and (b) to the extent information regarding this Agreement has already
been publicly disclosed, either Party (or its Affiliates or the Founding
Companies) may subsequently disclose the same information to the public without
the consent of the other Party.  In
addition, GSK understands that Regulus is a private company, and that Regulus
may disclose the financial terms of this Agreement to potential, investors and
investment bankers, in each case, under confidentiality provisions similar to
and no less restrictive than those of this Agreement.  Each Party shall give the other Party a
reasonable opportunity (to the extent consistent with law) to review all
material filings with the SEC describing the terms of this Agreement prior to
submission of such filings, and shall give due consideration to any reasonable
comments by the non-filing Party relating to such filing, including without
limitation the provisions of this Agreement for which confidential treatment
should be sought.

 

7.4          Remedies.  Notwithstanding Section 11.1, each Party
shall be entitled to seek, in addition to any other right or remedy it may
have, at law or in equity, a temporary injunction, without the posting of any
bond or other security, enjoining or restraining the other Party from any
violation or threatened violation of this ARTICLE 7.

 

ARTICLE 8

REPRESENTATIONS AND WARRANTIES

 

8.1          Representations
and Warranties of Both Parties.  Each Party hereby represents and warrants to
the other Party, as of the Effective Date, that:

 

8.1.1       such Party is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has full corporate power
and authority to enter into this Agreement and to carry out the provisions
hereof;

 

8.1.2       such Party has taken all
necessary action on its part to authorize the execution and delivery of this
Agreement and the performance of its obligations hereunder;

 

15

 

8.1.3       this Agreement has been duly
executed and delivered on behalf of such Party, and constitutes a legal, valid,
binding obligation, enforceable against it in accordance with the terms hereof;

 

8.1.4       the execution, delivery and
performance of this Agreement by such Party will not constitute a default under
nor conflict with any agreement, instrument or understanding, oral or written,
to which it is a party or by which it is bound, nor violate any law or
regulation of any court, governmental body or administrative or other agency
having jurisdiction over such Party; and

 

8.1.5       no government authorization,
consent, approval, license, exemption of or filing or registration with any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, under any applicable laws, rules or
regulations currently in effect, is or will be necessary for, or in connection
with, the transaction contemplated by this Agreement or any other agreement or
instrument executed in connection herewith, or for the performance by it of its
obligations under this Agreement and such other agreements except as may be
required to obtain HSR clearance.

 

8.2          Representations
and Warranties of Regulus. 
Regulus hereby represents and warrants to GSK, as of the Effective Date,
that:

 

8.2.1       Regulus is the owner of, or
otherwise has the right to grant all rights and licenses it purports to grant
to GSK with respect to the Regulus Patents under this Agreement;

 

8.2.2       To the best of its knowledge
and belief, without having conducted any special inquiry, Regulus is not aware
of any other intellectual property rights owned or controlled by Regulus or any
of its Founding Companies that are necessary for GSK to develop, manufacture,
or commercialize SPC-3649 in the Field; and

 

8.2.3       To the best of its knowledge
and belief, without having conducted any special inquiry, no written claims
have been made against Regulus or its Founding Companies alleging that any of
the Regulus Patents are invalid or unenforceable or infringe any intellectual
property rights of a Third Party.

 

8.3          Regulus
Covenants.  Regulus
hereby covenants to GSK, that:

 

8.3.1       [Intentionally Left Blank];
and

 

8.3.2       with respect to the rights
to Regulus Patents existing as of the Effective Date, Regulus will not enter
into any agreement after the Effective Date with a Founding Company or a Third
Party that would restrict or limit (i) the licenses granted by Regulus to
GSK under Section 3.1 above, or (ii) the options granted by Regulus
to GSK under Section 2.1.  For
purposes of clarification, this Section 8.3.2 will not restrict Regulus’
ability to Prosecute and Maintain the Regulus Patent Rights in accordance with Section 6.2.

 

16

 

8.4          GSK
Covenants.  GSK hereby
covenants to Regulus that:

 

8.4.1       GSK shall notify Regulus in
writing within ten (10) Business Days of the date that GSK or its
Affiliate acquires from Santaris or one of Santaris’ Affiliates the SPC-3649
Rights; and

 

8.4.2       If GSK or its Affiliate
acquires from Santaris or one of Santaris’ Affiliates a license to develop
and/or commercialize SPC-3649, Regulus and GSK will jointly prepare a research
plan for SPC-3649; provided, that (i) GSK shall not be required to
share with Regulus or any Founding Company any confidential information if
doing so would result in a breach of an agreement between GSK and Santaris; and
(ii) GSK will have the sole decision making authority with respect to such
research plan.

 

8.5          DISCLAIMER. EXCEPT AS
OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY NOR ITS
AFFILIATES OR PARENT COMPANIES MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTY
OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR ANY
WARRANTY THAT ANY PATENT RIGHTS LICENSED TO THE OTHER PARTY HEREUNDER ARE VALID
OR ENFORCEABLE OR THAT THEIR EXERCISE DOES NOT INFRINGE OR MISAPPROPRIATE ANY
PATENT RIGHTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.  GSK UNDERSTANDS THAT SPC-3649 IS THE SUBJECT
OF ONGOING CLINICAL RESEARCH AND DEVELOPMENT AND THAT REGULUS CANNOT ASSURE THE
SAFETY, USEFULNESS OR COMMERCIAL OR TECHNICAL VIABILITY OF SUCH COMPOUNDS.

 

ARTICLE 9

INDEMNIFICATION; INSURANCE

 

9.1          Indemnification
by GSK.  Subject to this ARTICLE 9, GSK
shall indemnify, defend and hold harmless Regulus, and its Affiliates and
Founding Companies, and its or their respective directors, officers, employees
and agents, from and against any and all liabilities, damages, losses, costs
and expenses including, but not limited to, the reasonable fees of attorneys
and other professionals (collectively “Losses”),
arising out of or resulting from any and all Third Party suits, claims,
actions, proceedings or demands (“Claims”)
based upon:

 

9.1.1       the negligence, recklessness
or wrongful intentional acts or omissions of GSK and/or its Affiliates and its
or their respective directors, officers, employees and agents, in connection
with GSK’s performance of its obligations or exercise of its rights under this
Agreement;

 

17

 

9.1.2       any breach of any
representation or warranty or express covenant made by GSK under ARTICLE 8 or
any other provision under this Agreement;

 

9.1.3       the Development or
Manufacturing activities that are conducted by and/or on behalf of GSK or its
Affiliates or Sublicensees, including handling and storage and manufacture by
and/or on behalf of GSK or its Affiliates or Sublicensees of SPC-3649 or
SPC-3649 Product for the purpose of conducting Development or Commercialization
by or on behalf of GSK or its Affiliates or Sublicensees; or

 

9.1.4       the Commercialization by or
on behalf of GSK, its Affiliates or Sublicensees of SPC-3649 or SPC-3649
Product;

 

except, in each case above, to the extent such Claim arose out of or
resulted from or is attributable to the negligence, recklessness or wrongful
intentional acts or omissions of Regulus and/or its Affiliate, Founding
Company, licensee, Sublicensee or contractor, and its or their respective
directors, officers, employees and agents, or breach of any representation or
warranty or express covenant made by Regulus or any of its Founding Companies
hereunder.

 

9.1.5       For the avoidance of doubt, (i) the
term “Loss” or “Losses”
of Section 9.1 does not include liabilities, damages, losses, costs,
expenses, or fees of attorneys and other professionals arising out of or
resulting from any suit brought by a Founding Company to enforce any patent or
claim thereof owned by or controlled by said Founding Company; and (ii) the
term “Claim” or “Claims”
of Section 9.1 does not include suits, claims, actions, proceedings or
demands brought by a Founding Company to enforce any patent or claim thereof
owned by or controlled by said Founding Company.

 

9.2          Indemnification
by Regulus.  Regulus
shall indemnify, defend and hold harmless GSK, and its Affiliates, and its or
their respective directors, officers, employees and agents, from and against
any and all Losses, arising out of or resulting from any and all Claims based
upon any breach of any representation or warranty or express covenant made by
Regulus under ARTICLE 8 or any other provision under this Agreement; except,
to the extent such Claim arose out of or resulted from or is attributable to
the negligence, recklessness or wrongful intentional acts or omissions of GSK
and/or its Affiliate, licensee, Sublicensee or contractor and its or their
respective directors, officers, employees and agents or breach of any
representation or warranty or express covenant made by GSK hereunder.

 

18

 

9.3          Procedure.  In the event that any Person entitled to
indemnification under Section 9.1 or Section 9.2 (an “Indemnitee”) is seeking such
indemnification, such Indemnitee shall (i) inform, in writing, the
indemnifying Party of a Claim as soon as reasonably practicable after such
Indemnitee receives notice of such Claim, (ii) permit the indemnifying
Party to assume direction and control of the defense of the Claim (including
the sole right to settle it at the sole discretion of the indemnifying Party, provided,
that such settlement or compromise does not admit any fault or negligence
on the part of the Indemnitee, nor impose any obligation on, or otherwise  materially adversely affect, the
Indemnitee or other Party), (iii) cooperate as reasonably requested (at
the expense of the indemnifying Party) in the defense of the Claim, and (iv) undertake
reasonable steps to mitigate any loss, damage or expense with respect to the
Claim(s).  Notwithstanding anything in
this Agreement to the contrary, the indemnifying Party shall have no liability
under Section 9.1 or 9.2, as the case may be, with respect to Claims
settled or compromised by the Indemnitee without the indemnifying Party’s prior
written consent.

 

9.4          Insurance.  GSK hereby represents and warrants to Regulus
that it is self-insured against liability and other risks associated with its
activities and obligations under this Agreement in such amounts and on such
terms as are customary for prudent practices for large companies in the
pharmaceutical industry for the activities to be conducted by GSK under this
Agreement.  GSK shall furnish to Regulus
evidence of such self-insurance, upon request.

 

9.5          LIMITATION
OF CONSEQUENTIAL DAMAGES. 
EXCEPT FOR CLAIMS OF A THIRD PARTY WHICH ARE SUBJECT TO INDEMNIFICATION
UNDER THIS ARTICLE 9 OR AS OTHERWISE EXPRESSLY STATED IN THIS AGREEMENT,
NEITHER REGULUS NOR GSK, NOR ANY OF THEIR AFFILIATES OR SUBLICENSEES NOR THE
PARENT COMPANIES WILL BE LIABLE TO THE OTHER PARTY TO THIS AGREEMENT, ITS
AFFILIATES OR ANY OF THEIR SUBLICENSEES NOR THE PARENT COMPANIES, FOR ANY
INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR OTHER INDIRECT DAMAGES OR LOST
OR IMPUTED PROFITS OR ROYALTIES, LOST DATA OR COST OF PROCUREMENT OF SUBSTITUTE
GOODS OR SERVICES, WHETHER LIABILITY IS ASSERTED IN CONTRACT, TORT (INCLUDING
NEGLIGENCE AND STRICT PRODUCT LIABILITY), INDEMNITY OR CONTRIBUTION, AND
IRRESPECTIVE OF WHETHER THAT PARTY OR ANY REPRESENTATIVE OF THAT PARTY HAS BEEN
ADVISED OF, OR OTHERWISE MIGHT HAVE ANTICIPATED THE POSSIBILITY OF, ANY SUCH
LOSS OR DAMAGE.

 

19

 

ARTICLE 10

TERM AND TERMINATION

 

10.1        Agreement
Term; Expiration.  Unless
earlier terminated pursuant to Section 5.6.3 or the other provisions of
this ARTICLE 10, this Agreement shall be effective as of the Effective Date and
shall continue in full force and effect until the date of the expiration of all
payment obligations by GSK under this Agreement, (the “Agreement  Term”).

 

10.2        Termination
for Cause.

 

10.2.1     Either Party (in such
capacity, the “Non-breaching Party”)
may, without prejudice to any other remedies available to it at law or in
equity, terminate this Agreement in the event the other Party (in such
capacity, the “Breaching Party”)
shall have materially breached or defaulted in the performance of any of its
material obligations hereunder, and such default shall have continued for
ninety (90) days after written notice thereof was provided to the Breaching
Party by the Non-breaching Party, such notice describing with particularity and
in detail the alleged material breach.

 

10.2.2     Disagreement.  Notwithstanding any of the
foregoing, if the Parties reasonably and in good faith disagree as to whether
there has been a material breach under Section 10.2.1 above, the Party
which seeks to dispute that there has been a material breach may contest the
allegation in accordance with Section 11.1.  Notwithstanding the above sentence, the cure
period for any allegation made in good faith as to a material breach under this
Agreement will run from the date that written notice was first provided to the
Breaching Party by the Non-breaching Party. 
Any termination of the Agreement under this Section 10.2 shall
become effective at the end of such ninety (90) day period, unless the
Breaching Party has cured any such breach or default prior to the expiration of
such ninety (90) day period.  The right
of either Party to terminate this Agreement shall not be affected in any way by
such Party’s waiver or failure to take action with respect to any previous
default.

 

10.3        GSK
Unilateral Termination Rights.  GSK shall have the right, at its sole
discretion, exercisable at any time during the Agreement Term, to
terminate  (i) its license under
ARTICLE 3 (including all other provisions of this Agreement related thereto),
or (ii) this Agreement in its entirety, for any reason or for no reason at
all, upon ninety (90) days written notice to Regulus.  Except as set forth in Section 10.5, GSK
shall not have any additional cost, liability, expense, or obligation of any
kind whatsoever on account of any termination under this Section 10.3.  For purposes of clarity, in no event shall
GSK have the right to exercise its right to terminate the Agreement under this Section 10.3
following Regulus’ notice of termination under Section 10.2.

 

20

 

10.4        Termination
for Insolvency.

 

10.4.1     Either Party may terminate
this Agreement, if, at any time, the other Party shall file in any court or
agency pursuant to any statute or regulation of any state or country, a
petition in bankruptcy or insolvency or for reorganization or for an
arrangement or for the appointment of a receiver or trustee of the Party or of
substantially all of its assets, or if the other Party proposes a written
agreement of composition or extension of substantially all of its debts, or if
the other Party shall be served with an involuntary petition against it, filed
in any insolvency proceeding, and such petition shall not be dismissed within
ninety (90) days after the filing thereof, or if the other Party shall propose
or be a party to any dissolution or liquidation, or if the other Party shall
make an assignment of substantially all of its assets for the benefit of
creditors.

 

10.4.2     All rights and licenses
granted under or pursuant to any Section of this Agreement are and shall
otherwise be deemed to be for purposes of Section 365(n) of Title 11,
United States Code (the “Bankruptcy Code”)
licenses of rights to “intellectual property” as defined in Section 101(56)
of the Bankruptcy Code.  The Parties
shall retain and may fully exercise all of their respective rights and
elections under the Bankruptcy Code. 
Upon the bankruptcy of any Party, the non-bankrupt Party shall further
be entitled to a complete duplicate of, or complete access to, any such
intellectual property, and such, if not already in its possession, shall be
promptly delivered to the non-bankrupt Party, unless the bankrupt Party elects
to continue, and continues, to perform all of its obligations under this
Agreement.

 

10.5        Accrued
Rights; Surviving Provisions of the Agreement; Certain Clarifications.

 

(a)           Termination,
relinquishment or expiration of this Agreement for any reason shall be without
prejudice to any rights that shall have accrued to the benefit of any Party
prior to such termination, relinquishment or expiration including, without
limitation, the payment obligations under ARTICLE 5 hereof and any and all
damages arising from any breach hereunder. 
Such termination, relinquishment or expiration shall not relieve any
Party from obligations which are expressly indicated to survive termination of
this Agreement.

 

(b)           The provisions
of Sections 3.1.4 (solely to the extent Articles 8, 9 or 10 of the Stanford
Agreement survive and are applicable to GSK as a current or former sublicensee
under the Stanford Agreement), 5.9.3, 5.10, 5.11, 8.5, 10.5 and ARTICLE 6,
ARTICLE 7, ARTICLE 9, and ARTICLE 11 shall survive the termination or
expiration of this Agreement for any reason, in accordance with their
respective terms and conditions, and for the duration stated, and where no
duration is stated, shall survive indefinitely.

 

21

 

ARTICLE 11

MISCELLANEOUS

 

11.1        Dispute
Resolution by Binding Arbitration.  Any controversy or claim arising out of or
under this Agreement, or the breach thereof, shall be finally resolved by
binding arbitration, held in New York City, New York, and administered by the
American Arbitration Association under its Commercial Arbitration Rules.  Judgment on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction
thereof.  The Parties shall make
reasonable efforts to appoint three (3) arbitrators, who are each mutually
acceptable to GSK and Regulus, within forty-five (45) days of the initiation of
the arbitration; in the event they are unsuccessful and do not agree to extend
the time period, then the arbitrators shall be appointed in accordance with the
rules.  The Parties shall share the
expenses for the arbitrators, but shall otherwise be responsible for their own
fees in relation to such arbitration. 
Until such time as arbitrators are appointed, the Parties may seek
judicial relief for interim measures, such as injunctive relief, in any court
having competent jurisdiction.  For
clarity, the Parties understand and agree that binding arbitration pursuant to
this Section 11.1 shall not apply to alter or modify the indemnity
obligations of the respective Parties under ARTICLE 9, but arbitration may be
sought to interpret such obligations. 
For clarity, the Arbitrators shall not have authority or discretion to
decide any matter other than the matter for decision before them, and any such
decision shall not include any award or determination which would amend the
applicable terms of the Agreement.

 

11.2        Governing
Law.  This Agreement and any dispute
arising from the performance or breach hereof shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware,
U.S.A., without reference to conflicts of laws principles.

 

11.3        Assignment.  This Agreement shall not be assignable by
either Party to any Third Party or Founding Company, in the case of Regulus,
(except as expressly stated below) without the prior written consent of the
other Party hereto, such consent not to be unreasonably withheld.  Notwithstanding the foregoing, (a) either
Party may assign this Agreement, without any consent of the other Party, to an
Affiliate, to a Third Party, or to the Founding Company of such Party, in the
case of Regulus, that acquires all or substantially all of the business or
assets of such Party to which the subject matter of this Agreement pertains
(whether by merger, reorganization, acquisition, sale or otherwise), and (b) Regulus
may assign or transfer its rights to receive royalties and milestones under
this Agreement (but no liabilities), without GSK’s consent, to an Affiliate, to
its Founding Company, or to a Third Party in connection with a payment
factoring transaction.  Notwithstanding
the foregoing, each Party shall have the right to assign this Agreement, in
whole or in part, to its Affiliate or Founding Company, in the case of Regulus,

 

22

 

without
the prior written consent of the other Party; provided, that, such
assignee is able to exercise diligent efforts equivalent to those required to
be exercised by such assigning Party and otherwise perform all of the
obligations of the assigning Party hereunder and assumes in writing all of the
relevant liabilities and obligations of the assigning Party hereunder.  No assignment and transfer shall be valid and
effective unless and until the assignee/transferee shall agree in writing to be
bound by the provisions of this Agreement. 
Notwithstanding anything in this Section 11.3 to the contrary, any
Person to whom Regulus assigns this Agreement or any of its rights under this
Agreement shall be required to complete any paperwork requested by GSK pursuant
to Section 5.11.2;  such obligations
shall continue to any other Person(s) thereafter, if any, to whom this
Agreement and any rights hereunder are assigned. The terms and conditions of
this Agreement shall be binding upon and shall inure to the benefit of the
successors, heirs, administrators and permitted assigns of the Parties.  Any assignment not in accordance with the foregoing
shall be void.

 

11.4        Performance
Warranty.  Each Party
hereby acknowledges and agrees that it shall be responsible for the full and
timely performance as and when due under, and observance of all the covenants,
terms, conditions and agreements set forth in, this Agreement by its Affiliate(s) and
Sublicensees.

 

11.5        Force
Majeure.  No Party shall be held liable
or responsible to the other Party nor be deemed to be in default under, or in
breach of any provision of, this Agreement for failure or delay in fulfilling
or performing any obligation of this Agreement when such failure or delay is
due to force majeure, and without
the fault or negligence of the Party so failing or delaying.  For purposes of this Agreement, force majeure is defined as causes beyond
the reasonable control of a Party, which may include, without limitation, acts
of God; acts, regulations, or laws of any government; war; civil commotion;
destruction of production facilities or materials by fire, flood, earthquake,
explosion or storm; labor disturbances; epidemic and failure of public
utilities or common carriers.  In such
event the Party so failing or delaying shall immediately notify the other Party
of such inability and of the period for which such inability is expected to
continue.  The Party giving such notice
shall thereupon be excused from such of its obligations under this Agreement as
it is thereby disabled from performing for so long as it is so disabled for up
to a maximum of ninety (90) days, after which time the Parties will negotiate
in good faith any modifications of the terms of this Agreement that may be
necessary to arrive at an equitable solution, unless the Party giving such
notice has set out a reasonable timeframe and plan to resolve the effects of
such force majeure and executes
such plan within such timeframe.  To the
extent possible, each Party shall use reasonable efforts to minimize the
duration of any force majeure.

 

23

 

11.6        Notices.  Any notice or request required or permitted
to be given under or in connection with this Agreement shall be deemed to have
been sufficiently given if in writing and personally delivered or sent by
certified mail (return receipt requested), facsimile transmission (receipt
verified), or overnight express courier service (signature required), prepaid,
to the Party for which such notice is intended, at the address set forth for
such Party below:

 

	
  If
  to Regulus, addressed to:

  	
   

  	
  Regulus
  Therapeutics Inc.

  
	
   

  	
   

  	
  1896
  Rutherford Road

  
	
   

  	
   

  	
  Carlsbad,
  California 92008

  
	
   

  	
   

  	
  Attention:
  Chief Executive Officer

  
	
   

  	
   

  	
  Fax:
  760-268-6868

  
	
   

  	
   

  	
   

  
	
  with
  a copy to:

  	
   

  	
  Isis
  Pharmaceuticals, Inc.

  
	
   

  	
   

  	
  1896
  Rutherford Road

  
	
   

  	
   

  	
  Carlsbad,
  California 92008

  
	
   

  	
   

  	
  Attention:
  General Counsel

  
	
   

  	
   

  	
  Fax:
  760-268-4922

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cooley
  Godward Kronish LLP

  
	
   

  	
   

  	
  4401
  Eastgate Mall

  
	
   

  	
   

  	
  San
  Diego, CA  92121-1909

  
	
   

  	
   

  	
  Attention:
  Thomas A. Coll

  
	
   

  	
   

  	
  Fax:
  858-550-6420

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Alnylam
  Pharmaceuticals, Inc.

  
	
   

  	
   

  	
  300
  Third Street, 3rd Floor

  
	
   

  	
   

  	
  Cambridge,
  MA 02142

  
	
   

  	
   

  	
  Attention:
  Vice President, Legal

  
	
   

  	
   

  	
  Fax:
  617-551-8109

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  WilmerHale

  
	
   

  	
   

  	
  60
  State Street

  
	
   

  	
   

  	
  Boston,
  MA 02109

  
	
   

  	
   

  	
  Attention:
  Steven D. Singer, Esq.

  
	
   

  	
   

  	
  Fax:
  617-526-5000

  
	
   

  	
   

  	
   

  
	
  If
  to GSK, addressed to:

  	
   

  	
  Attention:
  Business Development

  
	
   

  	
   

  	
  GlaxoSmithKline

  
	
   

  	
   

  	
  Greenford
  Road

  
	
   

  	
   

  	
  Greenford

  
	
   

  	
   

  	
  Middlesex

  
	
   

  	
   

  	
  UB6
  0HE, United Kingdom

  
	
   

  	
   

  	
  Fax:
  +44 208 966 5371

  

 

24

 

	
  with
  a copy to:

  	
   

  	
  Attention:
  Vice President and

  
	
   

  	
   

  	
  Associate
  General Counsel,

  
	
   

  	
   

  	
  R&D
  Legal Operations

  
	
   

  	
   

  	
  GlaxoSmithKline301

  
	
   

  	
   

  	
  Renaissance
  Boulevard

  
	
   

  	
   

  	
  Mail
  Code RN0220

  
	
   

  	
   

  	
  King
  of Prussia, PA 19406

  
	
   

  	
   

  	
  Telecopy:
  (610) 787-7084

  

 

or to such other address for such Party as it shall have specified by
like notice to the other Party; provided  that notices of a change
of address shall be effective only upon receipt thereof.  If delivered personally or by facsimile
transmission, the date of delivery shall be deemed to be the date on which such
notice or request was given.  If sent by
overnight express courier service, the date of delivery shall be deemed to be
the next Business Day after such notice or request was deposited with such
service.  If sent by certified mail, the
date of delivery shall be deemed to be the third Business Day after such notice
or request was deposited with the U.S. Postal Service.

 

11.7        Export
Clause.  Each Party acknowledges that
the laws and regulations of the United States restrict the export and re-export
of commodities and technical data of United States origin.  Each Party agrees that it will not export or
re-export restricted commodities or the technical data of the other Party in
any form without the appropriate United States and foreign government licenses.

 

11.8        Waiver.  Neither Party may waive or release any of its
rights or interests in this Agreement except in writing.  The failure of either Party to assert a right
hereunder or to insist upon compliance with any term or condition of this
Agreement shall not constitute a waiver of that right or excuse a similar
subsequent failure to perform any such term or condition.  No waiver by either Party of any condition or
term in any one or more instances shall be construed as a continuing waiver or
subsequent waiver of such condition or term or of another condition or term.

 

11.9        Severability.  If any provision hereof should be held
invalid, illegal or unenforceable in any jurisdiction, the Parties shall
negotiate in good faith a valid, legal and enforceable substitute provision
that most nearly reflects the original intent of the Parties and all other
provisions hereof shall remain in full force and effect in such jurisdiction
and shall be liberally construed in order to carry out the intentions of the
Parties hereto as nearly as may be possible. 
Such invalidity, illegality or unenforceability shall not affect the
validity, legality or enforceability of such provision in any other
jurisdiction.

 

11.10      Entire
Agreement; Existing Collaboration.  This Agreement, together with the Schedules
and Exhibits hereto, and the relevant applicable cited provisions of the
Existing 

 

25

 

Collaboration,
set forth all the covenants, promises, agreements, warranties, representations,
conditions and understandings between the Parties and supersede and terminate
all prior agreements and understanding between the Parties.  There are no covenants, promises, agreements,
warranties, representations, conditions or understandings, either oral or
written, between the Parties other than as set forth herein and therein.  No subsequent alteration, amendment, change
or addition to this Agreement shall be binding upon the Parties hereto unless
reduced to writing and signed by the respective authorized officers of the
Parties.  Notwithstanding the first
sentence of this Section 11.10, except as explicitly stated in this
Agreement, all the terms and conditions of the Existing Collaboration and the
existing convertible promissory note by Regulus and its Founding Companies to
GSK, dated April 24, 2008, shall remain unchanged and will continue in
full force and effect.

 

11.11      Independent
Contractors.  Nothing
herein shall be construed to create any relationship of employer and employee,
agent and principal, partnership or joint venture between the Parties.  Each Party is an independent contractor.  Neither Party shall assume, either directly or
indirectly, any liability of or for the other Party.  Neither Party shall have the authority to
bind or obligate the other Party and neither Party shall represent that it has
such authority.

 

11.12      Headings.  Headings used herein are for convenience only
and shall not in any way affect the construction of or be taken into
consideration in interpreting this Agreement.

 

11.13      Books and
Records.  Any books and records to be
maintained under this Agreement by a Party or its Affiliates or Sublicensees
shall be maintained in accordance with U.S. generally accepted accounting
principles (or any successor standard) in the case of Regulus, and shall be
maintained in accordance with International Financial Reporting Standards
(IFRS) in the case of GSK, consistently applied, except that the same need not
be audited.

 

11.14      Further
Actions.  Each Party shall execute,
acknowledge and deliver such further instruments, and do all such other acts,
as may be necessary or appropriate in order to carry out the expressly stated
purposes and the clear intent of this Agreement.

 

11.15      Construction
of Agreement.  The terms
and provisions of this Agreement represent the results of negotiations between
the Parties and their representatives, each of which has been represented by
counsel of its own choosing, and neither of which has acted under duress or
compulsion, whether legal, economic or otherwise.  Accordingly, the terms and provisions of this
Agreement shall be interpreted and construed in accordance with their usual and
customary meanings, and each of the Parties hereto hereby waives the
application in connection with the interpretation and construction of this
Agreement of any rule of law to the effect that ambiguous or conflicting
terms or provisions contained in this Agreement shall be interpreted or
construed against the Party whose attorney prepared the executed draft or any
earlier draft of this Agreement.

 

26

 

11.16      Counterparts.  This Agreement may be signed in counterparts,
each and every one of which shall be deemed an original, notwithstanding
variations in format or file designation which may result from the electronic
transmission, storage and printing of copies of this Agreement from separate
computers or printers.  Facsimile
signatures and signatures transmitted via PDF shall be treated as original
signatures.

 

11.17      Compliance
with Laws: Each Party shall and shall ensure that its
Affiliates, Founding Companies, in the case of Regulus, and Sublicensees will,
comply with all relevant laws and regulations in exercising their rights and
fulfilling their obligations under this Agreement.

 

* - * - * - *

 

27

 

IN WITNESS WHEREOF, the Parties have caused
this Agreement to be executed by their duly authorized representatives as of
the Effective Date.

 

	
  Regulus
  Therapeutics Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/ Kleanthis G.
  Xanthopoulos

  	
   

  	
   

  
	
  Name:

  	
  Kleanthis
  G. Xanthopoulos

  	
   

  	
   

  
	
  Title:

  	
  President
  and CEO

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Glaxo
  Group Limited

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/ Victoria Whyte

  	
   

  	
   

  
	
  Name:

  	
  Victoria
  Whyte

  	
   

  	
   

  
	
  Title:

  	
  For
  and on behalf of the Wellcome Foundation Limited

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
										

 

28

 

LIST OF SCHEDULES AND
EXHIBITS

 

	
  EXHIBIT
  A — Definitions

  
	
   

  
	
  EXHIBIT
  B — Representative List of Regulus Patents

  
	
   

  
	
  EXHIBIT
  C — [***] Patent Rights

  
	
   

  
	
  EXHIBIT
  D — Press Release

  
	
   

  
	
  EXHIBIT
  E — [Intentionally Left Blank]

  
	
   

  
	
  EXHIBIT
  F — Stanford Patents

  
	
   

  
	
  EXHIBIT
  G — Relevant In-Licenses

  

 

29

 

DEFINITIONS

 

1.             “Acceptance” means, with respect to an NDA filed for SPC-3649
or an SPC-3649 Product, (a) in the United States, the receipt by GSK, its
Affiliates or Sublicensees of written notice from the FDA in accordance with 21
CFR 314.101(a)(2) that such NDA is officially “filed”, (b) in the
European Union, receipt by GSK of written notice of acceptance by the EMEA of
such NDA for filing under the centralized European procedure in accordance with
any feedback received from European Regulatory Authorities; provided,
that if the centralized filing procedure is not used, then Acceptance shall be
determined upon the acceptance of such NDA by the applicable Regulatory
Authority in a Major Country in the EU, and (c) in Japan, receipt by GSK
of written notice of acceptance of filing of such NDA from the Japanese
Ministry of Health, Labour and Welfare (“MHLW”).

 

2.             “Additional Third Party Agreement” shall have the meaning
assigned to such term in Section 5.6.2.

 

3.             “Affiliate” shall mean any Person, whether de jure or de facto, which
directly or indirectly through one (1) or more intermediaries controls, is
controlled by or is under common control with another Person.  A Person shall be deemed to “control” another
Person if it (a) owns, directly or indirectly, beneficially or legally, at
least fifty percent (50%) of the outstanding voting securities or capital stock
(or such lesser percentage which is the maximum allowed to be owned by a Person
in a particular jurisdiction) of such other Person, or has other comparable
ownership interest with respect to any Person other than a corporation; or (b) has
the power, whether pursuant to contract, ownership of securities or otherwise,
to direct the management and policies of the Person. Notwithstanding the above,
neither of the Founding Companies of Regulus shall be deemed an Affiliate of
Regulus for the purposes of this Agreement under any circumstances.

 

4.             “Agreement” shall have the meaning assigned to such term in
the Recitals.

 

5.             “Agreement Term” shall have the meaning assigned to such term
in Section 10.1

 

6.             “Alnylam” shall have the meaning assigned to such term in the
Recitals.

 

7.             “Annual” or “Annually” shall
mean Calendar Year.

 

8.             “Bankruptcy  Code” shall
have the meaning assigned to such term in Section 10.4.2.

 

9.             “Breaching Party” shall have the meaning assigned to such
term in Section 10.2.1.

 

10.           “Business Day” shall mean any day other than a Saturday or
Sunday on which banking institutions in both New York, New York and London,
England are open for business.

 

11.           “Calendar Quarter” shall mean a period of three (3) consecutive
months ending on the last day of March, June, September, or December,
respectively and will also include the period beginning on the Effective Date
and ending on the last day of the calendar quarter in which the Effective Date
falls.

 

A-1

 

12.           “Calendar Year” shall mean a year of 365 days (or 366 days in
a leap year) beginning on January 1st (or, with respect to 2010, the
Effective Date) and ending December 31st, and so on year-by-year.

 

13.           “Claims” shall have the meaning assigned to such term in Section 9.1.

 

14.           “Clinical Studies” shall mean human studies designed to
measure the safety, efficacy, tolerability and/or appropriate dosage of
SPC-3649, as the context requires, including without limitation Phase 1
Clinical Trials, Phase 2 Clinical Trials (including any PoC Trial), Phase 3
Clinical Trials and any post-Regulatory Approval studies (such as Phase 4
Clinical Trials).

 

15.           “Collaboration Target” shall have the meaning assigned to
such term in the Existing Collaboration.

 

16.           “Combination Product” shall have the meaning assigned to such
term in the definition of “Net Sales” below.

 

17.           “Commercialize” or “Commercialization”
shall mean any and all activities directed to marketing, promoting, detailing,
distributing, importing, having imported, exporting, having exported, selling
or offering to sell an SPC-3649 Product following receipt of Regulatory
Approval for such SPC-3649 Product.

 

18.           “Competitive Infringement” shall have the meaning assigned to
such term in Section 6.2.2.

 

19.           “Confidential Information” shall have the meaning assigned to
such term in Section 7.1.

 

20.           “Control,” “Controls,” “Controlled” or “Controlling”
shall mean the possession of the right (whether by ownership, license or
otherwise) to assign, or grant a license, sublicense or other right, as
provided for herein without violating the terms of any agreement or other
arrangement with any Third Party or with any Founding Company of Regulus.

 

21.           “Develop” or “Development”
shall mean, with respect to a miRNA Compound or miRNA Therapeutic, any and all
discovery, characterization, preclinical or clinical activity with respect to
such miRNA Compound or miRNA Therapeutic, including human clinical trials
conducted after Regulatory Approval of such miRNA Therapeutic to seek
Regulatory Approval for additional indications for such miRNA Therapeutic.

 

22.           “Disclosing  Party” shall
have the meaning assigned to such term in Section 7.1.

 

23.           “Effective  Date” shall
have the meaning assigned to such term in the Recitals.

 

A-2

 

24.           “EMEA” shall mean the European Medicines Evaluation Agency,
and any successor entity thereto.

 

25.           “European  Union” or “EU” shall include Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal,
Spain, Sweden, United Kingdom, Cyprus, Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, and any such other
country or territory that may officially become part of the European Union
after the Effective Date.

 

26.           “Executive  Officers” shall
mean the Chief Executive Officer of Regulus (or a senior executive officer
designated by such Person) and either the Chief Executive Officer or the
Chairman of R&D at GSK (or another senior executive officer designated by
such Persons).

 

27.           “Existing  Collaboration”
shall have the meaning assigned to such term in the Recitals.

 

28.           “FDA” shall mean the U.S. Food and Drug Administration, and
any successor entity thereto.

 

29.           “Field” shall mean the treatment and/or prophylaxis of
hepatitis C virus.

 

30.           “First  Commercial  Sale” means, with respect to an SPC-3649 Product in a
country in the Territory, the first sale, transfer or disposition for value by GSK, its Affiliates or Sublicensees to
an end user of an SPC-3649 Product in such country; provided, that, the
following shall not constitute a First Commercial Sale: (a) any sale to an
Affiliate, Founding Company or Sublicensee unless the Affiliate, Founding
Company or Sublicensee is the last entity in the distribution chain the
SPC-3649 Product, (b) any use of SPC-3649 or an SPC-3649 Product in
Clinical Studies, pre-clinical studies or other research or development
activities, or disposal or transfer of SPC-3649 or an SPC-3649 Product for a bona fide charitable purpose, (c) compassionate
use, (d) so called “treatment IND sales” and “named patient sales,” and (e) use
under the ATU system in France and/or the International Pharmi system in
Europe.

 

31.           “Founding  Company” shall
have the meaning assigned to such term
in the Recitals.

 

32.           “Founding  Company  Patents” shall mean, with respect to each Founding Company,

 

(a)           all Patent
Rights Controlled by such Founding Company on the Effective Date that claim:

 

(i)            miRNA Compounds
or miRNA Therapeutics in general,

 

(ii)           specific miRNA
Compounds or miRNA Therapeutics,

 

(iii)          [***] of miRNA Compounds or miRNA Therapeutics,

 

A-3

 

(iv)          [***] by which
a miRNA Antagonist directly prevents the production of the specific miRNA, or

 

(v)           [***], by
modulating one or more miRNAs;

 

provided,  however, that
in each case of (a) and (b), (x) for any such Patent Rights that include
[***] (as defined in the Regulus License Agreement), the provisions of Section 2.4 of the Regulus
License Agreement will govern whether, with respect to a Patent Right licensed
under an Optional In-License (as defined in the Regulus License Agreement) or
as an Additional Right (as defined in the Regulus License Agreement), such
Patent Right will be included as a Founding Company Patents, and (y) Founding
Company Patents do not include [***].

 

33.           “Garching
Agreement” means the Amended License Agreement dated October 18,
2004 among Max Plank Innovation GmbH (formerly Garching Innovation GmbH), Isis
and Alnylam

 

34.           “GSK” shall have the meaning assigned to such term in the
Recitals.

 

35.           “IND” shall mean any investigational new drug application
filed with the FDA pursuant to Part 312 of Title 21 of the U.S. Code of
Federal Regulations, including any amendments thereto. References herein to IND
shall include, to the extent applicable, any comparable filing(s) outside
the U.S. (such as a Clinical Trial Application in the European Union).

 

36.           “Indemnitee” shall have the meaning assigned to such term in Section 9.3.

 

37.           “Initiation” shall mean, with respect to any human Clinical
Studies set forth in Section 6.4,
the first dosing of the first patient or subject in such study.

 

38.           “Isis” shall have the meaning assigned to such term in the
Recitals.

 

39.           “Know-How” shall mean any information, inventions, trade
secrets or technology (excluding Patent Rights), whether or not proprietary or
patentable and whether stored or transmitted in oral, documentary, electronic
or other form.  Know-How includes ideas,
concepts, formulas, methods, procedures, designs, compositions, plans,
documents, data, discoveries, developments, techniques, protocols,
specifications, works of authorship, biological materials, and any information
relating to research and development plans, experiments, results, compounds,
therapeutic leads, candidates and products, clinical and preclinical data,
clinical trial results, and Manufacturing information and plans.

 

40.           “Losses” shall have the meaning assigned to such term in Section 9.1.

 

41.           “Major  Country” shall
mean any of the following countries:  the
[***].

 

42.           “Manufacture” or “Manufacturing”
shall mean any activity involved in or relating to the manufacturing, quality
control testing (including in-process, release and stability testing),
releasing or packaging, for pre-clinical, clinical or commercial purposes, of a
miRNA Compound or a miRNA Therapeutic.

 

A-4

 

43.           “Milestone  Event” shall
have the meaning assigned to such term in Section 5.4.

 

44.           “miRNA” shall mean a structurally defined functional RNA
molecule usually between [***] and [***] nucleotides in length, which is
derived from genetically-encoded non-coding RNA which is predicted to be  processed into a hairpin RNA structure that
is a substrate for the double-stranded RNA-specific ribonuclease Drosha and
subsequently is predicted to serve as a substrate for the enzyme Dicer, a
member of the RNase III enzyme family; including, without limitation, those
miRNAs exemplified in miRBase (http://microrna.sanger.ac.uk/).  To the extent [***] for purposes of this
Agreement; provided, however, that nothing contained herein shall require any
Party hereto to expand this definition.

 

45.           “miRNA Antagonist” shall mean a single-stranded
oligonucleotide (or a single stranded analog thereof) that [***] interfere with
or inhibit a particular miRNA.  For
purposes of clarity, the definition of “miRNA Antagonist” is not intended to
include oligonucleotides that function predominantly through [***].

 

46.           “miRNA Compound” shall mean a compound consisting of a miRNA
Antagonist.  For purposes of clarity,
miRNA Compound [***].

 

47.           “miRNA Mimic” shall mean a double-stranded or single-stranded
oligonucleotide or analog thereof with a substantially similar base composition
as a particular miRNA and which [***] mimic the activity of such miRNA.

 

48.           “miRNA Precursor” shall mean a transcript that originates
from a genomic DNA and that contains, but not necessarily exclusively, a
non-coding, structured RNA comprising one or more mature miRNA sequences,
including, without limitation, (a) polycistronic transcripts comprising
more than one miRNA sequence, (b) miRNA clusters comprising more than one
miRNA sequence, (c) pri-miRNAs, and/or (d) pre-miRNAs.

 

49.           “miRNA Precursor Antagonist” shall mean a single-stranded
oligonucleotide (or a single stranded analog thereof) that [***] bind to a
miRNA Precursor to prevent the production of one or more miRNAs. For purposes
of clarity, the definition of “miRNA Precursor Antagonist” is not intended to
include oligonucleotides that function predominantly through the RNAi mechanism
of action or the RNase H mechanism of action.

 

50.           “miRNA Therapeutic” shall mean a therapeutic product having
one or more miRNA Compounds as an active ingredient(s).

 

51.           “NDA” shall mean a New Drug Application (as more fully
defined in 21 C.F.R. 314.5 et seq. or its successor regulation) and all
amendments and supplements thereto filed with the FDA, or the equivalent
application filed with any equivalent agency or governmental authority outside
the U.S. (including any supra-national agency such as the EMEA in the EU).

 

52.           “Net Sales”
shall mean, with respect to any
SPC-3649 Product, the gross invoiced sales of SPC-3649 Product sold by GSK, its Affiliates or Sublicensees (in each
case, the “Selling Party”), in
finished product form, packaged and labeled for sale, under this Agreement in
arm’s length sales to Third Parties, less the following deductions which are
actually incurred, allowed, paid, accrued or specifically allocated to the
Third Party customer by the Selling Party, to the 

 

A-5

 

extent actually taken by such Third Party
customer, on such sales for:  (a) [***]
trade, quantity, and cash discounts; (b) [***] credits, rebates and
chargebacks (including those to [***] including [[***], and allowances or
credits to customers on account of [***] or on account of [***] affecting such SPC-3649
Product; (c) [***] charges relating
to such SPC-3649 Product, including [***] thereto; (d) [***] directly
linked to the sales of such SPC-3649 Product to the extent included in the
gross amount invoiced; (e) the lesser or [***] of Net Sales or [***]; (f) [***]
allowed or paid to [***] employed by the Selling Party; and (g) any other
items actually deducted from gross invoiced sales amounts as reported by such
Party in its financial statements in accordance with, in the case of GSK’s Net
Sales, the International Financial Reporting Standards, applied on a consistent
basis, and, in the case of Regulus’ Net Sales, the U.S. generally accepted
accounting principles applied on a consistent basis.

 

Net
Sales will not include any transfer or sale between or among a Party and any of
its Affiliates or Founding Companies or direct Sublicensees.

 

SPC-3649 Product provided to patients for [***] will not be included in
Net Sales.

 

In
the event SPC-3649 is sold as part of a Combination Product (as defined below),
the Net Sales from the SPC-3649, for the purposes of determining royalty
payments, will be determined by multiplying the Net Sales (as determined
without reference to this paragraph) of the Combination Product, by the
fraction, A/A+B, where A is the [***] price (determined substantially in
accordance with the above) of the SPC-3649 when sold separately in finished
form and B is the [***] price (determined substantially in accordance with the
above) [***] in the Combination Product when sold separately in finished form,
each during the applicable royalty period or, if sales of all compounds did not
occur in such period, then in the most recent royalty reporting period in which
sales of all occurred.  In the event that
such [***] price cannot be determined for both the SPC-3649 and all other
therapeutically active pharmaceutical compounds included in the Combination
Product, Net Sales for the purposes of determining royalty payments will be
calculated as above, but the [***] price in the above equation will be replaced
by a good faith estimate of the [***] for which no such price exists.  As used above, the term “Combination Product”
shall mean any pharmaceutical product which consists of SPC-3649 and other
therapeutically active pharmaceutical compound(s).

 

53.           “Non-breaching Party” shall have the meaning assigned to such
term in Section 10.2.1.

 

54.           “Party” or “Parties” shall
have the meaning assigned to such term in
the Recitals.

 

55.           “Patent Rights” shall mean (a) patent applications (including
provisional applications and for certificates of invention), (b) any
patents issuing from such patent applications (including certificates of
invention), (c) all patents and patent applications
based on, corresponding to, or claiming the priority date(s) of any of the
foregoing, and (c) any substitutions, extensions (including supplemental
protection certificates), registrations, confirmations, reissues, divisionals,
continuations, continuations-in-part, re-examinations, renewals and foreign
counterparts thereof.

 

A-6

 

56.           “Payee” shall mean the Party to whom milestone payments or
royalties are payable hereunder.

 

57.           “Payor” shall mean GSK and, with respect to milestone
payments, GSK.

 

58.           “Pending Claim” means a claim within any patent application
in the Regulus Patents that has not been cancelled, withdrawn, or
abandoned.  For purposes of clarity, if
any Pending Claim of a patent application subsequently issues, such claim shall
be deemed to qualify as a Valid Claim (as defined herein).

 

59.           “Person” shall mean any corporation, limited or general
partnership, limited liability company, joint venture, trust, unincorporated association, governmental body, authority,
bureau or agency, any other entity or body, or an individual.

 

60.           “Phase 1 Clinical Trial” means a Clinical Study in any
country, the principal purpose of which is a preliminary determination of safety in healthy individuals or patients that would
satisfy the requirements of 21 CFR 312.21(a), or an equivalent clinical study
required by a Regulatory Authority in a jurisdiction outside of the United
States.

 

61.           “Phase 2 Clinical Trial” means a Clinical Study conducted in
any country that is intended to explore a variety of doses, dose response and
duration of effect to generate initial evidence of clinical safety and activity
in a target patient population, that would satisfy the requirements of 21 CFR
312.21(b), or an equivalent clinical study required
by a Regulatory Authority in a jurisdiction outside of the United States.

 

62.           “Phase 3 Clinical Trial” means a Clinical Study in any
country performed after preliminary evidence of efficacy has been obtained, which if successful, would provide sufficient evidence of
the safety and efficacy of a product to support a Regulatory Approval, and that
would satisfy the requirements of 21 CFR 312.21(c), or an equivalent clinical
study required by Regulatory Authority in a jurisdiction outside of the United
States.

 

63.           “Phase 4 Clinical Trial” means a Clinical Study in any
country which is conducted after Regulatory Approval of a product has been
obtained from an appropriate Regulatory Authority, consisting of trials
conducted voluntarily for enhancing marketing or scientific knowledge of an
approved indication and trials conducted due to request or requirement of a
Regulatory Authority.

 

64.           “PoC Trial” shall mean the first human in-patient study
designed to provide evidence of efficacy, safety and tolerability of SPC-3649
or an SPC-3649 Product.

 

65.           “PoC Trial Reports” shall mean a reasonably complete data
package containing all material analysis, results and clinical data or any
related material correspondence or information received from or sent to any
Regulatory Authority relating to SPC-3649 or an SPC-3649 Product.

 

66.           “Proceeding” shall mean an action, suit or proceeding.

 

A-7

 

67.           “Prosecution and Maintenance” or “Prosecute
and Maintain” shall mean, with regard to a Patent Right, the
preparing, filing, prosecuting and maintenance of such Patent Right, as well as
handling re-examinations, reissues, and requests for patent term extensions
with respect to such Patent Right, together with the conduct of interferences,
the defense of oppositions and other similar proceedings with respect to the
particular Patent.  For clarification, “Prosecution
and Maintenance” or “Prosecute and Maintain” shall not include any other
enforcement actions taken with respect to a Patent Right.

 

68.           “Receiving Party” shall have the meaning assigned to such
term in Section 7.1.

 

69.           “Regulatory Approval” shall mean any and all approvals
(including price and reimbursement approvals, if required prior to sale in the
applicable jurisdiction), licenses, registrations, or authorizations of any
country, federal, supranational, state or local regulatory agency, department,
bureau or other government entity that are necessary for the manufacture, use,
storage, import, transport and/or sale of SPC-3649 or an SPC-3649 Product in
the applicable jurisdiction.

 

70.           “Regulatory Authority” or “Regulatory
Authorities” shall mean the FDA in the U.S., and any health
regulatory authority(ies) in any country in the Territory that is a counterpart
to the FDA and holds responsibility for granting Regulatory Approval for
SPC-3649 or an SPC-3649 Product in such country, and any successor(s) thereto.

 

71.           “Regulus” shall have the meaning assigned to such term in the
Recitals.

 

72.           “Regulus License Agreement” means the Amended and Restated
License and Collaboration Agreement dated January 1, 2009 among Regulus,
Isis and Alnylam.

 

73.           “Regulus Patents” shall mean:

 

(a)           all Founding
Company Patents Controlled by Regulus or any of its Affiliates as of the
Effective Date and/or after the Effective Date and having an earliest priority
date of no later than the Effective Date, including without limitation those
listed on Exhibit B,

 

(b)           all Patent
Rights, other than Founding Company Patents, Controlled by Regulus or any of
its Affiliates as of the Effective Date and/or after the Effective Date and
having an earliest priority date of no later than the Effective Date, including
without limitation the Patent Rights listed on Exhibit F,

 

in
each case, that are necessary to Development, Manufacture or Commercialize
SPC-3649 in the Field: provided, however, that in each case of (a) through
(b), (y) for any Patent Right that is the subject of an Additional Third
Party Agreement, the provisions of Section 5.6.2
will govern whether such Patent Right will be included as a Regulus Patent
hereunder, and (z) unless the Parties enter into a Tuschl 3 Sublicense
under Section 2.1 of this
Agreement , Regulus Patents will exclude the Tuschl 3 Patents.

 

74.           “Royalty Tail Period” shall have the meaning assigned to such
term in Section 5.5.2.

 

A-8

 

75.           “Santaris” shall mean Santaris Pharma A/S.

 

76.           “Santaris Agreement” shall mean that certain Research and
Development Collaboration and License Agreement between SmithKline Beecham
Corporation d/b/a/ GlaxoSmithKline and Santaris, dated December 18, 2007.

 

77.           “SEC” shall mean the U.S. Securities and Exchange Commission.

 

78.           “Selling Party” shall have the meaning assigned to such term
in Section 52 .

 

79.           “SPC-3649” shall mean (a) the proprietary Santaris
compound known on the Effective Date as SPC-3649, and (b) any and all
salts, crystalline and amorphous forms, and solvates (including hydrates)
thereof.  The sequence and chemistry of
SPC-3649 is described in [***].

 

80.           “SPC-3649 Product” means any product that includes SPC-3649
as an active ingredient, or includes SPC-3649 in any base form, salt form,
prodrug, ester, crystalline polymorph, hydrate or solvate thereof, whether or
not as the sole active ingredient and in any dosage, form or formulation, sold
by GSK, its Affiliates or Sublicensees, in finished product form, packaged and
labeled for sale.  Unless otherwise
indicated by context, “Product” or “SPC-3649 Product” includes Combination
Products.

 

81.           “SPC-3649 Rights” shall have the meaning assigned to such
term in Section 3.2(a).

 

82.           “Stanford” means The Board of Trustees of the Leland Stanford
Junior University.

 

83.           “Stanford License Agreement” means the Co-Exclusive License
Agreement dated August 31, 2005 among Stanford and the Founding Companies
(as assigned by Isis to Regulus on July 13, 2009).

 

84.           “Stanford Patent(s)” means any Patent Right licensed under
the Stanford License Agreement.  A list
of the Stanford Patents as of the Effective Date is attached hereto under Exhibit F.

 

85.           “Sublicensee” shall mean a Third Party or Founding Company to
whom a Party or its Affiliates or Sublicensees has granted a sublicense or
license under any Regulus Patents, licensed to such Party in accordance with
the terms of this Agreement.

 

86.           “Territory” shall mean all of the countries and territories
of the world.

 

87.           “Third Party” shall mean any Person other than Regulus or GSK
or an Affiliate of Regulus or GSK or a Founding Company of Regulus.

 

88.           “Third Party License Pass-Through Costs” shall mean, (a) with
respect to Regulus, the licensing costs and payments that Regulus owes to Third
Parties, but excluding any costs and payments of any kind owed by Regulus to
[***], or (b) with respect to GSK, the 

 

A-9

 

licensing
costs and payments that GSK owes to Third Parties, in each case as a result of
the practice of intellectual property licensed from such Third Parties in the
Development, Manufacture and/or Commercialization of SPC-3649 hereunder,
including, without limitation, all [***] payments.  For clarity, any such costs and payments owed
to Third Parties by a Party (x) shall only include the share of such costs
and payments which is [***], and not by any of its Affiliates or by Regulus,
[***], as applicable (although, for clarity, if such costs and payments are
paid by [***], as applicable, solely in order for such [***] to the relevant
Third Party in those situations in which (i) GSK is a sublicensee of such
Third Party, through its Affiliate, then such costs and payments shall be
[***], or (ii) Regulus is a sublicensee of such Third Party through its
Affiliate or Founding Company, then such costs and payments shall be [***], in
each case subject to the following clause (y)), and (y) shall only include
any such costs and payments to the [***].

 

89.           “Third Party and Founding Company-Originated Rights and Obligations”
shall mean the rights of, and any limitations, restrictions or obligations
imposed by, (a) Founding Companies pursuant to the Regulus License Agreement
and (b) Third Parties pursuant to (i) the contracts assigned to
Regulus pursuant to Section 2.1
of the Regulus License Agreement, including but not limited to the Stanford
License Agreement, [***] (as defined in the Regulus License Agreement), [***]
(as defined in the Regulus License Agreement), [***] (as defined in the Regulus
License Agreement), [***] (each as defined in the Regulus License Agreement)
[***]

 

90.           “Total License Pass-Through Costs” shall mean the licensing
costs and payments that [***] as a result of the practice of intellectual
property licensed from any such [***] in the Development, Manufacture and/or
Commercialization of SPC-3649 or an SPC-3649 Product hereunder, including,
without limitation, all upfront fees, annual payments, milestone payments and
royalty payments.  For clarity, any such
costs and payments (a) shall only include the share of such costs and
payments which is [***], and not by any of [***] (although, for clarity, if
such costs and payments are paid [***] solely in order for [***] to the
relevant Third Party in those situations in which [***], of such Third Party,
then such costs and payments shall be [***], subject to clause (b)), and (b) shall
only include any such costs and payments to the [***].

 

91.           “[***] Patents” means all Patent Rights licensed by Isis and/or
Alnylam under the License Agreement among [***], Isis and Alnylam dated [***],
as amended.  A representative list of the
[***] Patents as of the Effective Date is attached hereto under Exhibit C.

 

92.           “[***] Sublicense” will have the meaning assigned to such term in Section 2.1.

 

93.           “United States” or “U.S.” shall
mean the fifty states of the United States of America and all of its
territories and possessions and the District of Columbia.

 

94.           “Upfront Payment” shall have the meaning assigned to such
term in Section 5.1.

 

A-10

 

95.           “Valid Claim” means a claim within an issued Patent in the
Regulus Patents that has not expired, lapsed, been cancelled or abandoned, and
that has not been dedicated to the public, disclaimed or been revoked,
cancelled or held unenforceable or invalid by a decision of a court or
governmental administrative agency of competent jurisdiction from which no
appeal can be taken, or with respect to which an appeal is not taken within the
time allowed for appeal, and that has not been disclaimed or admitted to be
invalid or unenforceable including through opposition, re-examination, reissue,
disclaimer or otherwise.

 

96.           “Withholding-Free Payments” means the [***] and [***]
payments payable to Regulus under Sections [***] and [***] of this Agreement.

 

A-11

 

EXHIBIT B

 

Representative
List of Regulus Patents as of the Effective Date

 

[***]

 

B-1

 

EXHIBIT C

 

[***] Patents as
of the Effective Date

 

[***]

 

 

C-1

 

EXHIBIT D

 

Press Release

 

Regulus Therapeutics and
GlaxoSmithKline Establish New Collaboration to Develop and Commercialize
microRNA Therapeutics Targeting miR-122

 

- miR-122 Represents a Novel “Host
Factor” Strategy for Treatment of Hepatitis C Infection —

 

- Further Demonstration of
Regulus Leadership in microRNA Science, Technology and Intellectual Property -

 

Carlsbad,
CA., February 24, 2010 — Regulus Therapeutics Inc.
today announced the establishment of a new collaboration with
GlaxoSmithKline (GSK) to develop and commercialize microRNA therapeutics
targeting microRNA-122 in all fields with Hepatitis C Viral infection (HCV) as
the lead indication.  Under the terms of
the new collaboration, Regulus will receive additional upfront and early-stage
milestone payments with the potential to earn more than $150 million in
miR-122-related combined payments, and tiered royalties up to
double digits on worldwide sales of products.

 

“This
new collaboration with GSK demonstrates the clear scientific leadership that Regulus
has established in advancing a whole new frontier of pharmaceutical
research.  microRNA therapeutics target
the pathways of human diseases, not just single disease targets, and hold
considerable promise as novel therapies across a broad range of unmet medical
needs,” said Kleanthis G. Xanthopoulos, Ph.D., President and Chief Executive
Officer of Regulus. “It also further validates Regulus’ microRNA product
platform built on fundamental biology of human diseases and intellectual
property, and also extends the therapeutic scope of our existing collaboration
formed with GSK in 2008.  Furthermore,
the funding from this alliance supports Regulus’ efforts in advancing high
impact, novel medicines based on microRNA biology to patients.”

 

The
collaboration provides GSK with access to Regulus’ comprehensive and robust
intellectual property estate.  Regulus
exclusively controls patent rights covering miR-122 antagonists and their use
as HCV therapeutics in the United States, Europe, and Japan, including but
not limited to the patent families which encompass:  the ‘Sarnow’ patent pertaining to the method
of use of anti-miR-122 to inhibit HCV replication, the ‘Esau’ patent
application claiming the use of anti-miRs targeting miR-122 as inhibitory
agents, the ‘Tuschl III’ patent claiming composition of matter for miR-122 and
complementary oligonucleotides, and the ‘Manoharan’ patent claiming antagomirs,
including antagomirs targeting miR-122.

 

miR-122
is a liver-expressed microRNA that has been shown to be a critical endogenous “host
factor” for the replication of HCV, and anti-miRs targeting miR-122 have been
shown to block HCV infection (Jopling et al. (2005) Science 309, 1577-81). In earlier work, scientists at
Alnylam and Isis demonstrated the ability to antagonize miR-122 in vivo using chemically modified single-stranded anti-miR
oligonucleotides. Further, work by Regulus scientists and collaborators showed
that inhibiting miR-122 results in significant inhibition of HCV replication in
human liver cells, suggesting that antagonism of miR-122 may comprise a novel “host
factor” 

 

D-1

 

therapeutic
strategy. Regulus scientists have shown in multiple preclinical studies a
robust HCV antiviral effect following inhibition of miR-122.  Regulus plans to identify a clinical
development candidate in the second half of 2010 and file an investigational
new drug (IND) application in 2011.

 

About
microRNAs

 

The discovery of microRNA in humans is one of the most
exciting scientific breakthroughs in the last decade. microRNAs are small RNA
molecules, typically 20 to 25 nucleotides in length, that do not encode
proteins but instead regulate gene expression. Nearly 700 microRNAs have been
identified in the human genome, and more than one-third of all human genes are
believed to be regulated by microRNAs. As a single microRNA can regulate entire
networks of genes, these new molecules are considered the master regulators of
the genome. microRNAs have been shown to play an integral role in numerous
biological processes including the immune response, cell-cycle control,
metabolism, viral replication, stem cell differentiation and human development.
Many microRNAs are conserved across multiple species indicating the
evolutionary importance of these molecules as modulators of critical biological
pathways. Indeed, microRNA expression or function has been shown to be
significantly altered in many disease states, including cancer, heart failure
and viral infections. Targeting microRNAs opens the possibility of a novel
class of therapeutics and a unique approach to treating disease by modulating
entire biological pathways.

 

About Hepatitis C Virus (HCV)

 

HCV
infection is a disease with an estimated prevalence of 170 million patients
worldwide, with more than 3 million patients in the United States. HCV shows
significant genetic variation in worldwide populations due to its frequent
rates of mutation and rapid evolution. There are six genotypes of HCV, with
several subtypes within each genotype, which vary in prevalence across the
different regions of the world. The response to treatment varies from
individual to individual underscoring the inadequacy of existing therapies and
highlights the need for combination therapies that not only target the virus
but endogenous “host factors” as well. Strategies that include the Regulus
miR-122 antagonist as part of emerging combination therapies to shorten
duration of treatment and interferon use, improve the safety profile and
sustained virologic response (SVR), increase the barrier to drug resistance,
and address difficult-to-treat genotypes hold significant potential to expand
the limited therapies available to physicians treating HCV patients.

 

About Regulus Therapeutics Inc.

 

Regulus
Therapeutics is a biopharmaceutical company leading the discovery and
development of innovative new medicines based on microRNAs.  Regulus is targeting microRNAs as a new class
of therapeutics by working with a broad network of academic collaborators and
leveraging oligonucleotide drug discovery and development expertise from its
founding companies Alnylam Pharmaceuticals (Nasdaq:ALNY)
and Isis Pharmaceuticals (Nasdaq:ISIS).
Regulus is advancing microRNA therapeutics towards the clinic in several areas
including hepatitis C infection, cardiovascular disease, fibrosis, oncology,
immuno-inflammatory diseases, and metabolic diseases. Regulus’ intellectual property estate contains both the fundamental and
core patents in the field as well as over 600 patents and more than 300 pending
patent applications pertaining primarily to chemical modifications of
oligonucleotides targeting microRNAs for therapeutic 

 

D-2

 

applications.  In 2008, Regulus entered into a major
alliance with GlaxoSmithKline to discover and develop microRNA therapeutics for
immuno-inflammatory diseases. For more information, visit
www.regulusrx.com.

 

Forward-Looking Statements

 

This press release includes
forward-looking statements regarding the future therapeutic and commercial
potential of Regulus’, Alnylam’s, and Isis’ business plans, technologies and
intellectual property related to microRNA therapeutics being discovered and
developed by Regulus, including statements regarding expectations around the
relationship between GSK and Regulus. 
Any statement describing Regulus’, Alnylam’s, and Isis’ goals,
expectations, financial or other projections, intentions or beliefs is a
forward-looking statement and should be considered an at-risk statement,
including those statements that are described as such parties’ goals.  Such statements are subject to certain risks
and uncertainties, particularly those inherent in the process of discovering,
developing and commercializing drugs that are safe and effective for use as
human therapeutics, and in the endeavor of building a business around such
products.  Such parties’ forward-looking
statements also involve assumptions that, if they never materialize or prove
correct, could cause their results to differ materially from those expressed or
implied by such forward-looking statements. 
Although these forward-looking statements reflect the good faith
judgment of the management of each such party, these statements are based only
on facts and factors currently known by Regulus’, Alnylam’s, and Isis’
management as the case may be.  As a
result, you are cautioned not to rely on these forward-looking statements.  These and other risks concerning Regulus’,
Alnylam’s, and Isis’ programs are described in additional detail in Alnylam’s
and Isis’ annual reports on Form 10-K for the year ended December 31,
2008, and their most recent quarterly reports on Form 10-Q which are on
file with the SEC.  Copies of these and
other documents are available from Alnylam or Isis.

 

D-3

 

EXHIBIT E

 

[Intentionally
Left Blank]

 

E-1

 

EXHIBIT F

 

Stanford Patents
as of the Effective Date

 

[***]

 

F-1

 

EXHIBIT G

 

Third Party In-Licenses

 

[***]

 

G-1

 

EXHIBIT H

 

[***] License Terms

 

The
following is a summary of material terms that would apply to a license under
[***] Patents (as set forth in Appendix 1) for SPC-3649, in relation to
SPC-3649 Rights.  Terms used herein and
not otherwise defined shall have the meaning assigned to such term in the
Agreement.

 

	
  Licensor

  	
   

  	
  Regulus Therapeutics
  Inc.

  
	
   

  	
   

  	
   

  
	
  Licensee

  	
   

  	
  Santaris
  A/S

  
	
   

  	
   

  	
   

  
	
  Field

  	
   

  	
  The
  treatment and/or prophylaxis of hepatitis C virus 

  
	
   

  	
   

  	
   

  
	
  Territory

  	
   

  	
  Worldwide

  
	
   

  	
   

  	
   

  
	
  Santaris
  Option

  	
   

  	
  Santaris’
  option (the “Santaris Option”) to take an exclusive license from Regulus
  under the [***] Patents to develop and commercialize only SPC-3649 within the
  Field.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The
  Santaris Option can be exercised by Santaris:

  
	
   

  	
   

  	
  1.     if
  after GSK takes a license to SPC-3649 it subsequently ceases development of
  SPC-3649 and returns rights to SPC-3649 to Santaris.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The
  Santaris Option would expire sixty (60) days following the event above.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [***]

  
	
  Up-front
  Payment

  	
   

  	
  [***]]
  however if GSK has taken license to SPC-3649 and made the corresponding
  $[***] payment to Regulus following completion of the PoC Trial, then this
  payment would be waived.

  
	
   

  	
   

  	
   

  
	
  Milestones
  to Regulus

  	
   

  	
  Santaris
  would pay the following milestones to Regulus, based upon the achievement of
  the milestone event by SPC-3649:

  

 

	
   

  	
   

  	
  Milestone Payment*

  	
   

  
	
  Milestone
  Event

  	
   

  	
  US$Million (“m”)

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  

 

	
   

  	
   

  	
  *Each
  milestone will be paid only once upon the first achievement of the Milestone
  Event by SPC-3649.  For clarity, if GSK
  had paid a milestone, then the milestone would not be payable a second time
  by Santaris.

  

 

H-1

 

	
   

  	
   

  	
  †Such
  milestone will only be payable if, at the time such milestone is achieved
  there is a Valid Claim within the [***] Patents, which covers [***];
  provided, however, that if there is no Valid Claim at the time of such
  Milestone Event, then (a) Santaris must pay to Regulus [***] of such
  milestone payment upon the First Commercial Sale of an SPC-3649 Product in
  any country in the [***]; and (b) if a Pending Claim within the [***]
  Patents issues such that it is a Valid Claim in the [***] prior to the [***]
  anniversary of the date of the First Commercial Sale described in clause (a) above,
  then Santaris will pay Regulus the remaining [***] of such milestone within
  thirty (30) days of receipt by Santaris of an invoice sent from Regulus on or
  after the date of the issuance of the applicable Pending Claim.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Clinical
  Studies” shall mean human studies designed to measure the safety, efficacy,
  tolerability and/or appropriate dosage of SPC-3649, as the context requires,
  including without limitation Phase 1 Clinical Trials, Phase 2 Clinical Trials
  (including any PoC Trial), Phase 3 Clinical Trials and any post-Regulatory
  Approval studies (such as Phase 4 Clinical Trials).

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “First
  Commercial Sale” means, with respect to an SPC-3649 Product in a country in
  the Territory, the first sale, transfer or disposition for value by Santaris, its Affiliates or Sublicensees
  to an end user of an SPC-3649 Product in such country; provided,
  that, the following shall not constitute a First Commercial Sale: (a) any
  sale to an Affiliate, Founding Company or Sublicensee unless the Affiliate,
  Founding Company or Sublicensee is the last entity in the distribution chain
  the SPC-3649 Product, (b) any use of SPC-3649 or an SPC-3649 Product in
  Clinical Studies, pre-clinical studies or other research or development
  activities, or disposal or transfer of SPC-3649 or an SPC-3649 Product for a bona fide charitable purpose, (c) compassionate
  use, (d) so called “treatment IND sales” and “named patient sales,” and (e) use
  under the ATU system in France and/or the International Pharmi system in
  Europe.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Pending
  Claim” means a claim within any patent application in the [***] Patents that
  has not been cancelled, withdrawn, or abandoned.  For purposes of clarity, if any Pending
  Claim of a patent application subsequently issues, such claim shall be deemed
  to qualify as a Valid Claim.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Regulatory
  Approval” shall mean any and all approvals (including price and reimbursement
  approvals, if required prior to sale in the applicable jurisdiction),
  licenses, registrations, or authorizations of any country, federal,
  supranational, state or local regulatory agency,

  

 

H-2

 

	
   

  	
   

  	
  department,
  bureau or other government entity that are necessary for the manufacture,
  use, storage, import, transport and/or sale of SPC-3649 or an SPC-3649
  Product in the applicable jurisdiction.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “SPC-3649
  Product” means any product that includes SPC-3649 as an active ingredient, or
  includes SPC-3649 in any base form, salt form, prodrug, ester, crystalline
  polymorph, hydrate or solvate thereof, whether or not as the sole active
  ingredient and in any dosage, form or formulation, sold by Santaris, its
  Affiliates or Sublicensees, in finished product form, packaged and labeled
  for sale.  Unless otherwise indicated
  by context, “Product” or “SPC-3649 Product” includes Combination Products.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Valid
  Claim” means a claim within an issued Patent in the [***] Patents that has
  not expired, lapsed, been cancelled or abandoned, and that has not been
  dedicated to the public, disclaimed or been revoked, cancelled or held
  unenforceable or invalid by a decision of a court or governmental
  administrative agency of competent jurisdiction from which no appeal can be
  taken, or with respect to which an appeal is not taken within the time
  allowed for appeal, and that has not been disclaimed or admitted to be
  invalid or unenforceable including through opposition, re-examination,
  reissue, disclaimer or otherwise.

  
	
   

  	
   

  	
   

  
	
  Royalties
  to Regulus

  	
   

  	
  Santaris
  will pay to Regulus royalties on Annual worldwide Net Sales of any SPC-3649
  Product sold by Santaris, its Affiliates or Sublicensees (“Santaris Patent
  Royalty”) during a calendar year, on a country-by-country basis, in the Field
  in the countries of the Territory in which there is a Valid Claim in the
  Field within the [***] Patents, which [***], in the amounts as follows:

  

 

	
  Annual Worldwide Net Sales
  (U.S. $

  Million) of SPC-3649 Product per

  Calendar Year US$Million (“m”)

  	
   

  	
  Applicable
  Royalty

  Rate

  	
   

  
	
  up to $1000m

  	
   

  	
  [***]

  	
  %

  
	
  $1000m up to $2000m

  	
   

  	
  [***]

  	
  %

  
	
  $2000m up to $3000m

  	
   

  	
  [***]

  	
  %

  
	
  > $3000m

  	
   

  	
  [***]

  	
  %

  

 

	
   

  	
   

  	
  The royalty rates in
  the table above are incremental rates, which apply only for the respective
  increment of Annual worldwide Net Sales described in the Annual worldwide Net
  Sales column.  Thus, once a total
  Annual worldwide Net Sales figure is achieved for the year, the

  

 

H-3

 

	
   

  	
   

  	
  royalties owed on any
  lower tier portion of Annual worldwide Net Sales are not adjusted up to the
  higher tier rate.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Royalty Adjustment. 
  If there are no Valid Claims within the [***] Patents that claim [***]
  SPC-3649 Product sold in a particular country, the Santaris Patent Royalty
  set forth above shall be reduced to [***] of the Santaris Patent Royalty
  rates above in such countries where a Pending Claim within the [***] Patents
  claims [***] has not yet been issued. 
  For the avoidance of doubt, for such Pending Claims, Santaris shall
  pay Regulus [***] of the Santaris Patent Royalty set forth in the table
  above, and shall pay the remaining [***] of the Santaris Patent Royalty into
  an escrow account, until such time as a Valid Claim within the [***] Patents
  issues that covers the [***] being sold in the country of sale, provided that
  such Valid Claim must issue within [***] years of date of First Commercial
  Sale of an SPC-3649 Product (the “Royalty Tail Period”).  In the event such Valid Claim issues during
  the Royalty Tail Period, (i) the escrow account and any interest thereon
  shall be paid to Regulus and (ii) Santaris will pay the full Santaris
  Patent Royalty in such countries starting only from the date of such issuance
  of the Valid Claim and shall not owe any Santaris Patent Royalty in such
  countries for any preceding period.  In
  the event that no such Valid Claim issues during the Royalty Tail Period,
  then the escrowed amounts and any interest thereon shall be returned to
  Santaris and any obligations Santaris may have had with respect to the
  Pending Claims shall cease.  If
  Santaris maintains sole control over such escrow account then Santaris shall
  be solely responsible for the costs and expenses associated with maintaining
  such escrow account, otherwise Santaris and Regulus shall be mutually
  responsible for the costs and expenses associated with maintaining such
  escrow account; provided, that the Parties must mutually agree (such
  agreement not to be unreasonably withheld) before taking any action that
  would cause Santaris to lose sole control of such escrow account.  If a Valid Claim within the [***] Patents
  that [***] issues after the Royalty Tail Period, then Santaris will pay
  Regulus the full Santaris Patent Royalty in such countries starting only from
  the date of such issuance of the Valid Claim and shall not owe any Santaris
  Patent Royalty in such countries for any preceding period.

  
	
   

  	
   

  	
   

  
	
  Prosecution and
  Maintenance of Sarnow Patents

  	
   

  	
  At Regulus’ expense,
  Regulus shall (but shall not be obligated to) control and be responsible for
  all aspects of the Prosecution, Maintenance, enforcement and defense of all
  Sarnow Patents

  
	
   

  	
   

  	
   

  
	
  No Challenge

  	
   

  	
  Santaris covenants to
  Regulus that pursuant to the Santaris Option to take a license to the [***]
  Patents, that during the term of the Santaris Option and any license
  agreement granted thereunder, solely with respect to claims within the
  Regulus Patent Rights to the [***] Patents that are to be included in the
  license to be granted to Santaris pursuant to the terms set forth in this
  Exhibit H, Santaris, its Affiliates or

  

 

H-4

 

	
   

  	
   

  	
  Sublicensees will not,
  in the U.S. or any other Major Country, (a) commence or otherwise
  voluntarily determine to participate in (other than as may be necessary or
  reasonably required to assert a cross-claim or a counter-claim or to respond
  to a court request or order or administrative law request or order) any
  action or proceeding, challenging or denying the validity of any claim within
  an issued patent or patent application within the [***] Patents, or
  (b) direct, support or actively assist any other Person (other than as
  may be necessary or reasonably required to assert a cross-claim or a
  counter-claim or to respond to a court request or order or administrative law
  request or order) in bringing or prosecuting any action or proceeding
  challenging or denying the validity of any claim within an issued patent or
  patent application within the [***] Patents. 
  For purposes of clarification, any breach of these terms will be a
  material breach of the license granted to Santaris, and will be grounds for
  termination by Regulus of the license.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Patent Rights” shall
  mean (a) patent applications (including provisional applications and for
  certificates of invention), (b) any patents issuing from such patent
  applications (including certificates of invention), (c) all patents and patent applications based on, corresponding
  to, or claiming the priority date(s) of any of the foregoing, and
  (c) any substitutions, extensions (including supplemental protection
  certificates), registrations, confirmations, reissues, divisionals,
  continuations, continuations-in-part, re-examinations, renewals and foreign
  counterparts thereof.

  
	
   

  	
   

  	
   

  
	
  Research Plan 

  	
   

  	
  If Santaris exercises
  the Santaris Option to take a license to the [***] Patents, Regulus and
  Santaris will jointly prepare a research plan for SPC-3649; provided, that
  (i) Santaris shall not be required to share with Regulus or any
  confidential information; and (ii) Santaris will have the sole decision
  making authority with respect to such research plan.

  
	
   

  	
   

  	
   

  
	
  Stanford License
  Considerations

  	
   

  	
  With respect to the
  sublicense granted by Regulus under the [***] Patents, Santaris acknowledges
  and agrees that (a) such sublicense is subject and subordinate to the
  terms and conditions of the Stanford License Agreement, (b) Stanford is
  a third party beneficiary to this Agreement as it relates to Articles 8, 9
  and 10 of the Stanford License Agreement, such that Stanford may directly
  enforce Articles 8, 9 and 10 of the Stanford License Agreement against
  Santaris, and (c) if Stanford terminates the Stanford License Agreement
  as it relates to Regulus (but not as it relates to this Agreement), Santaris
  will assume (and be directly liable to Stanford for) all Third Party License
  Pass-Through Costs and all Third Party and Founding Company-Originated Rights
  and Obligations due Stanford in connection with this Agreement.

  

 

H-5

 

	
  Term

  	
   

  	
  Unless earlier
  terminated pursuant to Santaris’ termination rights below, the license
  agreement would continue in full force and effect until the date of
  expiration of all payment obligations by Santaris under such license
  agreement (the “Santaris Agreement Term”).

  
	
   

  	
   

  	
   

  
	
  Santaris termination
  rights

  	
   

  	
  Santaris would have the
  right, at its sole discretion, exercisable at any time during the Santaris
  Agreement Term, to terminate the license agreement in its entirety, for any
  reason or for no reason at all, upon ninety (90) days written notice to
  Regulus.

  

 

H-6

 

Appendix 1

 

The [***] Patents are all Patent Rights related to
the following:

 

[***]

 

H-7Exhibit 10.3

 

CONFIDENTIAL TREATMENT
REQUESTED

UNDER 17 C.F.R §§ 200.80(b)4, AND 240.24b-2

 

Execution Copy

 

LEASE
AGREEMENT

 

THIS LEASE is entered
into on March 30, 2010 (the “Effective Date”), by and between BMR-GAZELLE COURT LLC, a Delaware limited
liability company (the “Landlord”),
and ISIS PHARMACEUTICALS, INC., a
Delaware corporation (the “Tenant”).  Landlord and Tenant are sometimes hereinafter
referred to collectively as the “parties.”

 

RECITALS

 

WHEREAS, Landlord owns
that certain real property located within the Carlsbad Oaks North Business Park
in Carlsbad, California more particularly described in Exhibit ‘A’
attached hereto (the “Land”);

 

WHEREAS, Landlord intends
to construct an approximately 176,000 square foot office, research and
development facility on the Land substantially consistent with the Approved
Plans (the “Building”)
and pursuant to the terms and conditions of this Lease;

 

WHEREAS, Landlord desires
to lease the Land, as so improved, to Tenant pursuant to the terms and
conditions of this Lease; and

 

WHEREAS, Tenant desires
to lease the Land and such improvements from Landlord.

 

AGREEMENT

 

NOW, THEREFORE, Landlord
and Tenant, in consideration of the mutual promises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, agree as follows:

 

ARTICLE 1

 

Description of Premises; Construction of Improvements

 

1.1           Lease of Premises.  Effective as
of the Term Commencement Date, Landlord hereby leases to Tenant and Tenant
leases from Landlord, pursuant to the terms, conditions and uses herein set
forth, (a) the Land, and (b) any and all improvements owned by
Landlord and now or hereafter located on the Land, including but not limited to
the Building (collectively, the “Improvements”).  The Land and the Improvements are hereinafter
collectively referred to as the “Premises.”

 

1.2           Landlord’s Construction Work.

 

1.2.1                Entitlements.  Landlord
shall diligently pursue the procurement of all permits, approvals, and
entitlements necessary for the construction of Landlord’s Construction Work on
the Land (collectively, the “Entitlements”).

 

 

1.2.2        Landlord’s
Construction Work.  Promptly following the date on which the
Entitlements necessary for the construction of the Shell and Core, or Tenant
Improvements, as applicable, have been received and are no longer subject to
any potential appeal or challenge and the Approved Plans exist, or on such
earlier date as Landlord may elect in its discretion, Landlord shall cause the
General Contractor to commence and diligently prosecute the construction of (i) the
shell and core of the Building to completion pursuant to the Approved Shell and
Core Plans (the “Shell
and Core”), and (ii) the tenant improvements in the Building
pursuant to the Approved TI Plans (the “Tenant Improvements”), in each case in
accordance with the terms and conditions set forth in the Work Letter attached
hereto as Exhibit ‘B’ (the “Work Letter”), subject only to Shell and Core
Permitted Changes, TI Permitted Changes and any other changes authorized
pursuant to the Work Letter (all such construction, the “Landlord’s Construction Work”); provided, Landlord will not be
required to start the fine grading before the necessary Entitlements for the Shell
and Core have been received and are no longer subject to any potential appeal
or challenge.  The Shell and Core,
together with the Tenant Improvements shall collectively be referred to herein
as the “Building
Improvements”.  Landlord’s
Construction Work shall be constructed in a good and workmanlike manner, and in
accordance with Applicable Laws (subject only to (a) such incomplete or
defective work as will not materially adversely impact Tenant’s continuous and
uninterrupted use of the Premises for Tenant’s Permitted Use (collectively, the
“Punchlist Items”)
and (b) any failure to comply with Applicable Laws as will not materially
adversely impact Tenant’s continuous and uninterrupted use of the Premises for
Tenant’s Permitted Use).

 

1.2.3        Substantial
Completion of Landlord’s Construction Work.  Landlord’s
Construction Work shall be deemed “Substantially Complete” or there shall be “Substantial Completion”
at such time as (a) Landlord and Tenant have received an AIA form
certificate from the Architect confirming that the Building Improvements are
substantially complete in accordance with the Approved Plans, (b) all
certifications and approvals with respect to the Building Improvements that may
be required from any Governmental Authority to commence the occupancy of the
Premises consistent with the Permitted Use have been obtained, and (c) Landlord
has provided Tenant with continuous and uninterrupted access to the Premises
for Tenant’s Permitted Use (including Tenant’s parking), except to the extent
reasonably necessary for Landlord’s General Contractor to complete the
Punchlist Items.  The date on which
Landlord’ Construction Work is deemed Substantially Complete pursuant to the
foregoing shall be referred to herein as the “Substantial Completion Date.”

 

1.2.4        Schedule
and Budget.  Landlord estimates that the Substantial
Completion Date shall occur on or before November 15, 2011 (the “Estimated Substantial Completion
Date”); provided, however, except as expressly
provided under Section 19.2 and Section 19.3.4, Tenant
agrees that in the event the Substantial Completion Date does not occur on or
before the Estimated Substantial Completion Date for any reason, then this
Lease shall not be void or voidable and Landlord shall not be liable to Tenant
for any loss or damage resulting therefrom. 
Based solely on information provided by the Project Manager, Landlord
currently intends to complete construction of the Building Improvements in
accordance with the Budget (as defined in the Work Letter); provided,
the parties acknowledge and agree the actual cost and expense to complete
construction of the Building Improvements may exceed the Budget.  If Landlord reasonably believes the costs and
expenses of achieving Substantial Completion of Landlord’s Construction Work will
exceed the contemplated costs and expenses thereof as set forth in the Budget,
then Landlord will promptly notify Tenant’s Authorized Representative (by
telephone, fax, email, or letter) thereof.

 

2

 

1.3           Construction Allowance.  Subject to the terms and provisions of this Lease,
Landlord hereby commits to expend the funds necessary to acquire the Land and
develop and construct the Building Improvements (the “Construction Allowance”).  The Construction Allowance shall be applied
only to the costs and expenses of (a) Tenant’s acquisition of the Land
from Techbilt Construction Corp (“Techbilt”) and the acquisition of the Land
by Landlord from Tenant, including all closing costs and expenses thereof, (b) reimbursements
to Tenant for the costs specified on Exhibit I attached hereto (such
reimbursement to be made on or before the Effective Date), (c) construction,
(d) space planning, architectural services, project management,
engineering and other related services, (e) building permits and other
taxes, fees, charges and levies by any Governmental Authority for the
Entitlements or for inspections of the Building Improvements, (f) labor,
material, buildings, building systems, equipment, fixtures, machinery, additions
and decorations (g) all Real Estate Taxes assessed or imposed for the
period prior to the Term Commencement Date, (h) all Association Fees
assessed or imposed for the period prior to the Term Commencement Date, (i) all
utilities and other out-of-pocket operating costs necessary for development and
construction, or for operation of the Premises prior to the Term Commencement
Date, (j) Landlord’s builder’s risk insurance policy and any deductibles
thereunder or deficiencies necessary to be paid in order to reconstruct the
Building Improvements following any damage or destruction that occurs prior to
the Term Commencement Date, (k) any other insurance obtained by Landlord
pursuant to the terms of this Lease prior to the Term Commencement Date, (l) all
other out-of-pocket costs of operating, maintaining and repairing the Premises
before the Term Commencement Date; (m) proposing, responding to proposals
for or effecting changes or modifications to any plans or designs for the
Building Improvements; (n) the costs of performing the Baseline Study
under Section 7.1.3; (o) amounts paid to the architects,
engineers or contractors to compensate them for the actual cost to obtain
access to or use of intellectual property (such as software), if any, that is
necessary or desirable for the design or construction of the Building
Improvements; and (p) any other costs and expenses necessary for the
acquisition, development and construction of the Premises as determined by
Landlord in its reasonable discretion (collectively, the “Construction Allowance Costs”).
By way of example and for clarity purposes only, Landlord may disburse the
Construction Allowance to pay for the expenses set forth in the line items
specified in the Budget.  In no event
shall the Construction Allowance be used for (v) the costs set forth on Exhibit E
attached hereto (except for the out-of-pocket legal expenses reasonably
incurred in connection with Landlord’s acquisition of the Land, the negotiation
of the Lease or Landlord’s Construction Work), (w) the cost of work not
authorized by the Work Letter unless otherwise approved in writing by Landlord,
(x) the purchase of non-building system equipment (other than any
non-building system equipment specifically included in the Budget or installed
by Landlord as part of the Landlord’s Construction Work), (y) costs
resulting from any default by Tenant of its obligations under this Lease, to
the extent that Landlord has been reimbursed for such costs by Tenant, or (z) costs
that are recoverable from a third party (e.g., insurers, warrantors, or
tortfeasors).  For purposes of this
Lease, any Construction Allowance funds delivered by Landlord to pay any
Construction Allowance Costs shall be deemed to constitute “Disbursements”, and “Aggregate Disbursements”
will mean (i) the aggregate amount of Construction Allowance funds
disbursed by Landlord for the Construction Allowance Costs, plus (ii) capitalized
interest calculated on each such Disbursement based on the aggregate amount of
Construction Allowance funds disbursed (including, without limitation, any
previously incurred capitalized interest) at the rate of LIBOR plus [***]% per
annum, such interest to compound 

 

3

 

monthly and to accrue
starting on the last day of the month in which Landlord made such Disbursement
and ending on the Substantial Completion Date. 
 “LIBOR”
means the London InterBank Offered Rate of interest per annum which appears on
the Reuters Page LIBOR01 (or any successor page) at approximately 11:00 a.m.
(London time) on the last day of the month in which Landlord made the
applicable disbursement; provided, if, for any reason, such rate does not
appear on Reuters Page LIBOR01 (or any successor page) then the parties
will mutually agree in good faith to a comparable measure for setting the base
interest rate.  The procedures,
conditions and requirements concerning the disbursement of Construction
Allowance funds are set forth in the Work Letter.

 

ARTICLE 2

 

Term

 

2.1           Binding Agreement.  This Lease
shall take effect as of the Effective Date and, except as specifically provided
herein, this Lease and each of the provisions hereof shall be binding upon, and
shall inure to the benefit of, Landlord and Tenant from the Effective Date.

 

2.2           Lease Term.  The term of
this Lease will be for two hundred forty (240) months commencing on the
Substantial Completion Date (the “Term Commencement Date”) and ending on the
date (the “Term
Expiration Date”) that is two hundred forty (240) months after
the Term Commencement Date (the “Lease Term”), subject to earlier termination
of this Lease as provided herein; provided, however, that Tenant
shall have four (4) options to extend the Lease Term, as further described
in Article 36.  Tenant shall
execute and deliver to Landlord written acknowledgment of the actual Term
Commencement Date and the Term Expiration Date within ten (10) days after
Tenant takes occupancy of the Premises, in the form attached as Exhibit ‘H’
hereto.  Failure to execute and deliver
such acknowledgment, however, shall not affect the Term Commencement Date or
Landlord’s or Tenant’s liability hereunder.

 

ARTICLE 3

 

Rent

 

3.1           Base Monthly Rental.

 

3.1.1        Calculation
of Base Monthly Rental.  Beginning on January 1,
2012 (the “Base Monthly
Rent Commencement Date”), Tenant shall pay to Landlord at the
address set forth in Section 35.10, or such other address as
Landlord may advise Tenant in writing, without deduction, offset or prior
notice or demand, and Landlord shall accept, as rent for the Premises an amount
equal to the Base Monthly Rental, subject to adjustments pursuant to Section 3.3  below, in lawful money of the United
States payable in advance on the Base Monthly Rent Commencement Date and on the
first day of each month thereafter until of the end of the Lease Term.  The term “Base Monthly Rental” shall mean an
amount equal to (i) the product of (a) [***] percent ([***]%) and (b) the
sum of the Aggregate Disbursements disbursed as of the date of such calculation
of Base Monthly Rental plus an amount equal to the Construction Allowance funds
that will be allocable pursuant to the provisions of this Lease to the payment
of all invoices or requests for payment relating to the Construction Allowance
Costs which have 

 

4

 

been received by Landlord or Tenant but which are not
yet paid as of the date of such calculation of Base Monthly Rental (the “Pending Disbursements”);
(ii) divided by twelve (12), subject to adjustments pursuant to Sections
3.2,  3.3 and 36.2 below. 
Except for as explicitly provided in Section 3.2.2, when
calculating Base Monthly Rental, all Disbursements made by Landlord during a
given month, including Disbursements made following the Base Monthly Rent
Commencement Date, are treated to have occurred on the last calendar day of the
month.  From and after the Base Monthly
Rent Commencement Date through the date the Building Improvements will be
deemed Complete pursuant to Section 8 of the Work Letter (the “Punchlist Sign-off Date”),
Tenant shall pay Base Monthly Rental as calculated pursuant to this Section 3.1.1,
with true-ups as provided in Section 3.2.2.

 

3.1.2        Limit
on Tenant’s Maximum Payments During Construction. 
Notwithstanding any provision of this Lease (or any other agreement
between Tenant and Landlord entered into in connection with this Lease) to the
contrary, at any time prior to the Substantial Completion Date, the aggregate
amount of all payments made or expenses incurred by Tenant under this Lease (or
any other agreement between Tenant and Landlord entered into in connection with
this Lease), including but not limited to (a) Base Monthly Rental paid by
Tenant, and (b) Tenant’s indemnification obligations pursuant to Section 4.3.3
hereof, shall not (and will not) exceed eighty-nine percent (89%) of the sum of
the Aggregate Disbursements made by Landlord that are properly capitalizable
under US GAAP at such point in time (the “89% Cap”); provided, however,
that (i) if and to the extent that Tenant’s payment obligations under this
Lease or any agreement between Tenant and Landlord entered into in connection
with this Lease are limited by the 89% Cap, so that Tenant does not make any
payment to Landlord to which Landlord would have been entitled if not for the
89% Cap, then Tenant shall pay such amount (plus interest at the Default Rate)
to Landlord within three (3) business days after the Term Commencement
Date, and (ii) the 89% Cap shall not apply to (A) any obligations of
Tenant pursuant to any representations, warranties or indemnities by Tenant
contained in that certain Agreement of Purchase and Sale between Landlord and
Tenant dated as of the date hereof, or (B) any obligations of Tenant
pursuant to any representations, warranties or indemnities by, or monetary
obligations of, Tenant arising under any Purchase and Sale Agreement entered
into pursuant to Sections 19.1.4 or 24.2.

 

3.2           Determination of Base Monthly Rental.

 

3.2.1        Initial
Rent.  Promptly following December 15, 2011,
the parties shall cooperate to agree upon the calculation of the Base Monthly
Rental payment due on the Base Monthly Rent Commencement Date, with such
calculation to be agreed upon in writing by the parties no later than December 23,
2011.

 

3.2.2        True-Up
at Substantial Completion Date and Punchlist Sign-off Date.  The
parties contemplate that the Punchlist Sign-off Date will occur on or before December 15,
2011.  If the Punchlist Sign-off Date has
not occurred by December 15, 2011, then (a) the parties will
initially calculate the Base Monthly Rental in accordance with Section 3.1.1
and 3.2.1, and (b) Tenant will initially pay Base Monthly Rental
under this Lease based on such calculation (subject to further adjustment in
accordance with (i) the 89% Cap, if the Base Monthly Rent Commencement
Date occurs prior to the Substantial 

 

5

 

Completion Date, and (ii) this Section 3.2.2).  Promptly (but no later than 10 business days)
following each of (x) the Substantial Completion Date, (y) the
Punchlist Sign-off Date, and (z) the end of each calendar month between
the Substantial Completion Date and the Punchlist Sign-off Date (if any), the
parties will recalculate and adjust the Base Monthly Rental effective as of the
date of such recalculation based on the Aggregate Disbursements through the
date of recalculation and the then current Pending Disbursements as of such
date, using the formula and methodology set forth in Section 3.1.1,
and Tenant shall pay Base Monthly Rental based on the recalculated amount from
and after the date of recalculation.

 

3.2.3        Unused
Construction Allowance.  Following the Punchlist
Sign-off Date, Landlord shall have no commitment to disburse any additional
Construction Allowance funds and Tenant shall have no right to receive any
additional Construction Allowance funds for any purpose.

 

3.3           Biennial Adjustments.  The Base
Monthly Rental will be increased biennially throughout the Lease Term
commencing on the first day of the calendar month immediately following the
second anniversary of the Base Monthly Rent Commencement Date, and biennially
on each two-year anniversary thereafter, by an amount equal to six percent (6%)
of the Base Monthly Rental for the preceding year.

 

3.4           Additional Rent, Expenses and Costs. 
Commencing on the Term Commencement Date and continuing throughout the
Lease Term, Tenant shall pay as additional rent (in addition to Base Monthly
Rental), before delinquency, each and every item of cost and expense related to
or arising from the Premises, or by reason of or in any manner connected with
or arising from the Tenant’s operation, management, maintenance, repair, use or
occupancy of the Premises (including, without limitation, the cost of:  insurance pursuant to Section 10,
taxes pursuant to Section 12, maintenance, roof and structural
repairs pursuant to Sections 11.1 and 11.2, and other charges,
expenses and costs provided for in this Lease), in each case regardless of
whether such costs and expenses are incurred by Landlord or Tenant
(collectively, the “Additional
Rent”).  Notwithstanding
anything to the contrary in this Lease, in no event will Additional Rent or any
other expense to be paid by Tenant include the costs and expenses listed on Exhibit ‘E’
attached hereto. For purposes of this Lease, “Rent” will mean the Base Monthly Rental
plus the Additional Rent plus any other charges or amounts now or hereafter due
Landlord from Tenant pursuant to this Lease.

 

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

 

6

 

thereto if such installment of Base Monthly
Rental or Additional Rent is received by Landlord within five (5) days
after Tenant’s receipt of such notice from Landlord.  Late charges shall constitute Additional
Rent.  The parties agree that the late
charge represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of late payment by Tenant. 
Acceptance of any late charge shall not constitute a waiver of Tenant’s
default with respect to the overdue amount, or prevent Landlord from exercising
any of the other rights and remedies available to Landlord hereunder.

 

3.6           Tenant’s Audit Right.

 

3.6.1        Following
the Punchlist Sign-off Date, but no later than one-hundred twenty (120) days
after such Punchlist Sign-off Date, Tenant may request that Landlord provide
documentation relating to the amount of Aggregate Disbursements made prior to
such date.  In addition, at the end of
each calendar year during the Lease Term, but no later than one-hundred twenty
(120) days after the end of such calendar year, Tenant may request that
Landlord provide documentation relating to the costs and expenses that
comprised the Additional Rent for such year. 
Landlord shall use commercially reasonable efforts to provide Tenant
with the requested documentation; provided,
however, that Landlord shall only be required to provide such
documentation to the extent that the requested documentation (a) is reasonably
necessary for Tenant to confirm that the Aggregate Disbursements tie back to
the Construction Allowance Costs, or confirm the calculation of Additional
Rent, (b) is in Landlord’s possession, and (c) has not been
previously provided to Tenant by Landlord or any other party (the “Landlord Documentation”).
Tenant shall have the right, exercisable only by written notice to Landlord
within sixty (60) days after receiving the applicable Landlord Documentation,
to request an audit of such Landlord Documentation for the sole purpose of
confirming that the Aggregate Disbursements tie back to the Construction
Allowance Costs, or the calculation of Additional Rent, as applicable (the “Audit”). The Audit
shall be conducted by a member of a reputable, independent, nationally
recognized certified public accounting firm, who (a) has experience
reviewing records of construction and development costs for similar projects
(in the case of an Audit of the Aggregate Disbursements) or (b) who has
experience reviewing operating costs and expenses for similar projects (in the
case of an Audit of Additional Rent), and, in either case, such accountant
shall not be retained by Tenant on a contingency fee basis.  The Audit must be completed no later than
ninety (90) days after Tenant receives the applicable Landlord Documentation,
and any audit report prepared by Tenant’s auditors shall be delivered
concurrently to Landlord and Tenant within the ninety (90) day period, or
Tenant shall be deemed to have waived its Audit right.  Tenant shall pay all costs of the Audit.  In addition, if as part of such Audit, Tenant
requests Landlord prepare copies of the Landlord Documentation for review by
Tenant or its auditors outside of Landlord’s principal place of business
(rather than or in addition to Landlord making the Landlord Documentation
available for review at Landlord’s principal place of business), then Tenant
shall reimburse Landlord for the reasonable costs of assembling and/or shipping
such copies of the Landlord Documentation.

 

3.6.2        If,
after inspection of the Landlord Documentation, Tenant disputes that the
Aggregate Disbursements tie back to the Construction Allowance Costs, or the
calculation of Additional Rent, then Landlord and Tenant shall meet and attempt
in good faith to resolve the dispute. If the parties are unable to resolve the
dispute within sixty (60) days after Landlord receives such audit report, then
Tenant shall have the right to submit the dispute to 

 

7

 

arbitration; this right shall be exercised,
if at all, by delivering a written notice of election to arbitrate to Landlord
not later than the last day of the 60-day period. Landlord and Tenant shall
agree, within fifteen (15) days after Tenant’s delivery of the arbitration
election, to retain an arbitrator who shall be an unaffiliated real estate
attorney with at least ten (10) years of experience representing
developers of similar projects in Southern California. If Landlord and Tenant
are unable to agree upon the selection of an arbitrator, then either Landlord
or Tenant shall be entitled to apply to the presiding judge of the Superior
Court of the County of San Diego, California for the selection of an arbitrator
who shall be selected from a list of names of experienced arbitrators submitted
by Landlord or from a list of names submitted by Tenant, as the case may be,
unless both Landlord and Tenant submit lists of names, in which case the Court,
in its sole discretion, shall select the arbitrator from the lists.  This arbitrator shall have the right to
retain, as an expert to consult regarding the dispute, an unaffiliated,
reputable certified public accountant who is a member of a reputable
independent nationally recognized certified public accounting firm and (a) who
has experience reviewing records of construction and development costs for
similar projects (in the case of an Audit of the Aggregate Disbursements) or (b) who
has experience reviewing operating costs and expenses for similar projects (in
the case of an Audit of Additional Rent). The arbitration shall be limited to
determining whether the Aggregate Disbursements tie back to the Construction
Allowance Costs, or the calculation of Additional Rent, as applicable. The
arbitrator’s decision shall be delivered simultaneously to Landlord and Tenant
and shall be final and binding on Landlord and Tenant.

 

3.6.3        If
the arbitrator determines that the amount of Aggregate Disbursements or
Additional Rent, as applicable, was incorrect, the appropriate party shall pay
to the other party the deficiency or overpayment in Rent, as applicable, within
thirty (30) days following delivery of the arbitrator’s decision, without
interest. All costs and expenses of the arbitration shall be paid by Tenant
unless the final determination in the arbitration is that Landlord overstated
Aggregate Disbursements or Additional Rent, as applicable, by more than five
percent (5%) of the originally reported Aggregate Disbursements or Additional
Rent, as applicable, in which case Landlord shall pay all costs and expenses of
the arbitration (and the costs and expenses of Tenant’s audit giving rise to
such arbitration).

 

3.6.4        Tenant
shall keep any information gained from the inspection of the Landlord
Documentation confidential and shall not disclose it to any other party, except
as required by law. Tenant shall require its employees or agents inspecting the
Landlord Documentation to sign a confidentiality agreement, in form and
substance reasonably acceptable to Landlord as a condition to Landlord making
the Landlord Documentation available to them.

 

3.6.5        Tenant’s
exercise of Audit rights shall not relieve Tenant of the obligation to pay
disputed amounts, and Tenant’s rights under this section may be exercised by
Tenant only if Tenant is not in uncured breach under this Lease. The payment by
Tenant of Rent, or any amount of it on account, shall not preclude Tenant from
exercising its rights under this section, but if Tenant fails to timely
exercise its Audit rights in accordance with this section, the failure shall be
conclusively deemed to constitute Tenant’s approval of Landlord’s Aggregate
Disbursements or Additional Rent, as applicable.  Landlord shall maintain the Landlord
Documentation pertaining to Aggregate Disbursements and Additional Rent, as applicable,
during the review period and during any Audit. In no event shall this section
be deemed to allow any review of any of Landlord’s records by any subtenant or
assignee of Tenant (other than assignees under Exempt Assignment as permitted
by Section 16.3).

 

8

 

3.7           Security Deposit.

 

3.7.1        Tenant
shall not be required to post any security deposit with the Landlord prior to
the Term Commencement Date.  In addition,
during the Lease Term Tenant shall not initially be required to post any
security deposit with the Landlord; provided, however, that in
the event that, at any time during the Lease Term, Tenant’s balance sheet
reflects a value of cash, cash equivalents and short term investments equal to
less than One Hundred Million Dollars ($100,000,000) (each such occurrence, a “Security Deposit Trigger Event”),
then Tenant shall be required to provide Landlord with a security deposit (the “Security Deposit”) in
the form of an unconditional, irrevocable, standby letter of credit in the
amount of Five Million Dollars ($5,000,000), which letter of credit shall (i) be
in a form reasonably acceptable to Landlord, (ii) be issued by a financial
institution selected by Tenant and reasonably acceptable to Landlord, (iii) be
for the benefit of Landlord, but shall be transferable at Tenant’s sole cost
and expense by Landlord to any subsequent purchaser or encumbrancer of the
Premises or any portion thereof, (iv) be automatically renewable from year
to year throughout the Lease Term, (v) be payable by draft sight in a
location reasonably acceptable to Landlord upon presentation of a certification
signed by an officer of Landlord which states that Tenant has failed to perform
any of its monetary or non-monetary obligations, and (vi) be payable in
the event such letter of credit is not renewed on or before the date which is
thirty (30) days prior to its expiration. 
Such Security Deposit shall remain in place until Tenant provides
Landlord with evidence satisfactory to Landlord that Tenant’s balance sheet
reflects a value of cash, cash equivalents and short term investments equal to
or greater than Three Hundred Million Dollars ($300,000,000); provided, however,
that any such return of the Security Deposit shall not relieve Tenant of its
obligation to thereafter again provide a Security Deposit following any
subsequent Security Deposit Triggering Event(s).  For purposes of clarity, if a Security
Deposit Trigger Event occurs prior to the Term Commencement Date, Tenant will
provide the Security Deposit to Landlord on (but not before) the Term
Commencement Date.

 

3.7.2        If
Tenant fails to pay Rent when required or fails to perform any other covenant
contained herein, Landlord may draw, use or retain all or any part of the
Security Deposit for the payment of any sum not so paid, or for the payment of
any amount which Landlord may spend or become obligated to spend by reason of
Tenant’s default.  If any portion of said
Security Deposit is so applied or used, then Tenant shall, within five (5) days
after written notice thereof, deposit an additional amount with Landlord
sufficient to restore said Security Deposit to the amount set forth above, and
Tenant’s failure to do so shall constitute a breach under this Lease.  The provisions of this Section 3.6.2
shall survive the expiration or earlier termination of this Lease.

 

3.7.3        To
the extent permitted by Applicable Law, in the event of bankruptcy or other
debtor-creditor proceedings against Tenant, the Security Deposit shall be
deemed to be applied first to the payment of Rent and other charges due
Landlord for all periods prior to the filing of such proceedings.

 

9

 

3.7.4        If
Tenant has performed all of its monetary and other obligations hereunder at the
termination of this Lease, Landlord shall return said Security Deposit to
Tenant within 30 days after termination of this Lease, less the sum of any
amounts that Tenant may owe Landlord in connection with this Lease (including
any amount of damages (whether liquidated or not liquidated) or interest) and
any amounts required to restore the Premises to good condition and repair,
reasonable wear and tear excepted, including repairing any damage resulting
from the removal by Tenant of any property which Tenant is permitted to remove
pursuant to the provisions of this Lease.

 

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

 

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

 

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

 

ARTICLE 4

 

Possession

 

4.1           Possession.  As of the
Substantial Completion Date, Landlord shall tender possession of the Premises
to Tenant.  Tenant hereby acknowledges
and agrees that (a) it is familiar with the condition of the Premises, (b) it,
subject to Punchlist Items, accepts the Premises as of the Substantial
Completion Date in its “as is” and “where is” condition with all faults, (c) Landlord
makes no representation or warranty of any kind with respect to the Premises,
and (d) other than constructing the Building Improvements and the
Punchlist Items in accordance with this Lease and as explicitly required under Article 20
and 21, Landlord will have no obligation whatsoever to improve, alter or repair
the Premises in any way, or to install any equipment of any kind in or on the
Premises.

 

4.2           NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, IT IS
EXPRESSLY UNDERSTOOD AND AGREED THAT LANDLORD IS LEASING THE PREMISES TO TENANT
“AS IS” AND “WHERE IS,” AND WITH ALL FAULTS (EXCEPT FOR LANDLORD’S OBLIGATION
TO COMPLETE THE PUNCHLIST ITEMS), AND THAT LANDLORD IS MAKING NO
REPRESENTATIONS OR WARRANTIES WHETHER 

 

10

 

EXPRESS OR IMPLIED, BY
OPERATION OF LAW OR OTHERWISE, WITH RESPECT TO THE QUALITY OR PHYSICAL
CONDITION OF THE PREMISES, THE INCOME OR EXPENSES FROM OR OF THE PREMISES, OR
THE COMPLIANCE OF THE PREMISES WITH APPLICABLE BUILDING OR FIRE CODES,
ENVIRONMENTAL LAWS OR OTHER LAWS, RULES, ORDERS OR REGULATIONS.  WITHOUT LIMITING THE FOREGOING, IT IS
UNDERSTOOD AND AGREED THAT LANDLORD MAKES NO REPRESENTATION OR WARRANTY
REGARDING THE HABITABILITY, SUITABILITY, MERCHANTABILITY OR FITNESS OF THE
PREMISES FOR A PARTICULAR PURPOSE, OR REGARDING THE ABILITY OF THE TENANT TO
USE THE BUILDING IMPROVEMENTS OR OTHERWISE USE THE PREMISES FOR ANY PARTICULAR
PURPOSE.  TENANT AGREES THAT IT ASSUMES
FULL RESPONSIBILITY FOR, AND THAT IT HAS PERFORMED EXAMINATIONS AND
INVESTIGATIONS OF, THE PREMISES, INCLUDING SPECIFICALLY, WITHOUT LIMITATION,
EXAMINATIONS AND INVESTIGATIONS FOR THE PRESENCE OF ASBESTOS, PCBS AND OTHER
HAZARDOUS SUBSTANCES, MATERIALS AND WASTES (AS THOSE TERMS MAY BE DEFINED
HEREIN OR BY APPLICABLE FEDERAL OR STATE LAWS, RULES OR REGULATIONS) ON OR IN
THE PREMISES.

 

4.2.1        WITHOUT
LIMITING SECTION 4.2, TENANT IRREVOCABLY WAIVES ANY AND ALL CLAIMS AGAINST
LANDLORD, WHETHER KNOWN OR UNKNOWN, AND WHETHER NOW EXISTING OR HEREAFTER
ARISING, WITH RESPECT TO (a) THE MATTERS EXPLICITLY SET FORTH IN SECTION 4.2,
AND (b) THE CURRENT OR FUTURE CONDITION OF THE PREMISES, INCLUDING,
WITHOUT LIMITATION, ANY ENVIRONMENTAL CONDITION, IN EACH CASE INCLUDING
CONTRIBUTION AND INDEMNITY CLAIMS, WHETHER STATUTORY OR OTHERWISE; PROVIDED,
HOWEVER, THAT THE WAIVER OF CLAIMS SET FORTH IN THIS SECTION 4.2.1 SHALL
NOT APPLY TO THE EXTENT THAT THE APPLICABLE CLAIM ARISES OUT OF (i) THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD OR LANDLORD’S AGENTS; OR (ii) LANDLORD’S
BREACH OF THIS LEASE.

 

THE UNDERSIGNED
ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY LEGAL COUNSEL AND IS FAMILIAR WITH THE
PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS
FOLLOWS:

 

“A GENERAL RELEASE DOES
NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR
HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

 

THE UNDERSIGNED, BEING
AWARE OF THIS CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS IT MAY HAVE
THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPALS OF
SIMILAR EFFECT.

 

Tenant’s Initials

 

11

 

4.3           Tenant’s Access and Obligations Prior to the
Substantial Completion Date.

 

4.3.1        Upon
reasonable prior written notice to Landlord, and so long as Tenant and Tenant’s
Agents do not (in Landlord’s reasonable judgment) unreasonably or unnecessarily
interfere with Landlord’s Construction Work, Tenant may enter upon the Premises
prior to the Term Commencement Date (any such entry to be deemed an “Early Entry Event”)
solely for the purpose of observing the progress of construction of the
Building Improvements. Tenant shall not cause, and shall prevent Tenant’s
Agents from causing, any violation of Applicable Law through any act or
omission in connection with an Early Entry Event.

 

4.3.2        Prior
to the first Early Entry Event, Tenant shall furnish to Landlord evidence
satisfactory to Landlord that Tenant has comprehensive general liability
insurance in the amounts set forth in this Section 4.3.2, and that
such insurance is in effect.  Tenant
hereby agrees that it shall comply and cause Tenant’s Agents to comply with all
Applicable Laws in effect at the time of any Early Entry Event.

 

4.3.2.1     From
and after the first Early Entry Event, Tenant shall maintain in force, at its
sole cost and expense, comprehensive general liability insurance with respect
to the Premises insuring against bodily injury or death and property damage in
amounts (i) not less than $2,000,000 in the aggregate, (ii) not less
than $1,000,000 per occurrence and (iii) not less than $4,000,000 of
excess umbrella liability insurance. 
Landlord shall be included as an additional insured.  The amount of such public liability insurance
shall be increased from time to time as Landlord may reasonably determine. All
such bodily injury and property damage insurance shall insure the performance
by Tenant of the indemnity agreement as to personal injury or property damage
contained in Section 4.3.3

 

4.3.2.2     The
policy or policies of insurance to be provided by Tenant pursuant to this Section 4.3.2
shall be issued by insurance companies, with general policy holder’s rating of
not less than A- and a financial rating of not less than Class VII as
rated in the most current available “Best’s” Insurance Reports, and admitted to
do business in the State of California. 
Such policies shall be issued in the name of Tenant, with Landlord
included as an additional insured.  The
policies provided by Tenant shall be for the mutual and joint benefit and
protection of Landlord and Tenant, and executed copies of such policies of
insurance or certificates thereof shall be delivered to the Landlord at least
ten (10) days prior to the first Early Entry Event and, thereafter, within
thirty (30) days prior to the expiration of the term of each such policy.  All policies shall contain a provision that
the Landlord, although an additional insured, shall nevertheless be entitled to
recover under said policies for any loss occasioned to it or Landlord’s Agents
by reason of the negligence of the Tenant. 
Upon the expiration or termination of any such policy, renewal or
additional policies shall be procured and maintained by the Tenant to provide
the required coverage.  All policies of
insurance delivered to Landlord must contain a provision that the company writing
said policy will provide Landlord with thirty (30) days notice in writing in
advance of any cancellation or lapse or the effective date of any reduction in
the amounts of insurance (except in the event of non-payment of premium, in
which case ten (10) days written notice shall be given).  All public liability, property damage and
other casualty policies shall be written as primary policies, not contributing
with and not in excess of coverage which Landlord may carry.  Tenant agrees that if Tenant does not take
out and maintain the insurance required under this Section 4.3.2,
then Tenant shall lose any right to access the Premises pursuant to this Lease
prior to the Term Commencement Date.

 

12

 

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

 

4.3.3        Tenant
hereby agrees to indemnify, defend (with attorneys approved by Landlord),
protect, and hold Landlord and Landlord’s employees, directors and officers
harmless from, any and all demands, claims, liabilities, costs, expenses,
suits, investigations, proceedings, losses, actions, causes of action, damages
and judgments (and all reasonable expenses including, without limitation,
reasonable attorneys’ fees, charges and disbursements incurred in investigating
or resisting the same) (collectively, “Claims”) to the extent (a) relating to
acts, omissions or circumstances arising from an Early Entry Event, and (b) caused
by or arising out of (i) the acts or omissions of Tenant, its employees,
agents, directors, officers, managers, members, partners, affiliates,
independent contractors, consultants, property managers or invitees
(collectively, “Tenant’s
Agents”), including without limitation, any liability for injury
to the person or property of Tenant or Tenant’s Agents, or (ii) a breach
or default by Tenant in the performance of any of its obligations under this
Lease; but in each case excepting any such Claims to the extent resulting from
the willful breach of the Lease by Landlord or the gross negligence or willful
misconduct of Landlord.  Notwithstanding
the foregoing, Tenant’s obligations under this Section 4.3.3 shall
be governed by the provisions set forth in Sections 9.4 and 9.5 hereof
and are subject to the 89% Cap under Section 3.1.2 hereof.   Tenant’s obligations under this Section 4.3.3
shall survive the expiration or earlier termination of this Lease with respect
to any such Claims or liability arising in connection with any event, condition
or circumstance occurring, arising or existing prior to such expiration or
earlier termination.

 

ARTICLE 5

 

Use

 

5.1           Permitted Use of Premises. 
The Premises shall be used and occupied by Tenant solely for office,
research and development purposes in conformity with Applicable Laws and the
provisions of this Lease (the “Permitted Use”). 
The Premises are to be used for no other purposes without first
obtaining the consent of Landlord, which consent shall not be unreasonably
withheld.

 

5.2           Compliance with Laws.  Following the
Term Commencement Date, Tenant, at Tenant’s sole expense, shall promptly
comply, or cause compliance, with all federal, state, municipal and local laws,
codes, ordinances, zoning restrictions, rules, regulations, orders and 

 

13

 

requirements of any
federal, state, regional, local or municipal governmental authority, agency or
subdivision (each, a “Governmental
Authority”), committees, associations or other regulatory
committees, agencies or governing bodies having jurisdiction over the Premises,
Landlord or Tenant, in each case to the extent now or hereafter affecting the
Premises (collectively, the “Applicable Laws”), including both statutory and common
law and hazardous waste rules and regulations.  Tenant shall not use or occupy the Premises
in violation of Applicable Laws, or the certificate of occupancy issued for the
Building Improvements, and shall, upon five (5) days’ written notice from
Landlord, discontinue any use of the Premises that is declared or claimed by
any Governmental Authority having jurisdiction to be a violation of any of the
above, or that in Landlord’s reasonable opinion (based upon advice from
Landlord’s counsel) violates any of the above. 
Tenant shall comply with any direction of any Governmental Authority
having jurisdiction that shall, by reason of the nature of Tenant’s use or
occupancy of the Premises, impose any duty upon Tenant or Landlord with respect
to the Premises or with respect to the use or occupation thereof.  Tenant’s obligation to discontinue a use of
the Premises or comply with any direction of any Governmental Authority will be
stayed during the pendency of any dispute or request for a waiver or variance
made in good faith by Tenant and submitted to such Governmental Authority, but
in each case only so long as (a) any such non-compliance (alleged or
actual), dispute or request for waiver could not reasonably be construed to
constitute a criminal act by Landlord or Tenant or subject Landlord to a risk
of any fine or penalty, (b) any such non-compliance (alleged or actual),
dispute or request for waiver creates no risk of a lien, charge, or other
liability of any kind against the Premises (unless Tenant shall have provided
Landlord with reasonable security therefor), and (c) any such
non-compliance (alleged or actual), dispute or request for waiver will not
place the Premises or any portion thereof in any danger of being materially
damaged, forfeited or lost and does not pose any danger to human health or
safety.  Notwithstanding anything to the
contrary in this Lease, should Landlord’s Construction Work fail to comply with
Applicable Laws under clause (b) of Section 1.2.2, such
failure to comply with Applicable Laws will not be considered a violation by
Tenant of its obligations under this Section 5.2.

 

5.3           Prohibited Uses.  Without
limiting the use restrictions specified in Article 5 or elsewhere
in this Lease, Tenant shall not do, bring or keep anything in or about the
Premises that will cause a cancellation of any insurance covering the Premises
or any portion thereof.  Tenant shall not
use the Premises in any manner that will constitute waste, nuisance or
unreasonable annoyance to owners or occupants of nearby properties.  Tenant shall not do anything on the Premises
that will cause material damage to the Premises or any portion thereof.  Tenant shall place no loads upon the floors,
walls or ceiling of any Building Improvements (a) in excess of the maximum
designed load specified in the design plans for the Premises as approved and
permitted by the City of Carlsbad (and which design plans must also comply with
the provisions of this Lease), or (b) which may materially damage the
Improvements.  No machinery, apparatus,
or other appliance shall be used or operated in or on the Premises that will
vibrate or shake the Premises.

 

5.4           Rules and Regulations. 
Tenant shall comply with all reasonable nondiscriminatory rules and
regulations (the “Rules and
Regulations”) from time to time adopted by Landlord with respect
to the Premises.  Notwithstanding
anything to the contrary contained in this Lease, if any rule or
regulation is in conflict with any term, covenant or condition of this Lease,
this Lease shall prevail.  In addition,
no such rule or regulation, or any 

 

14

 

subsequent amendment
thereto adopted by Landlord, shall materially alter, reduce or adversely affect
any of Tenant’s rights or materially enlarge Tenant’s obligations under this
Lease.  This Lease is subject to any
recorded covenants, conditions or restrictions on the Premises or any portion
thereof (the “CC&Rs”),
including (without limitation) the Declaration of Covenants, Conditions and
Restrictions for the Carlsbad Oaks North Business Park, recorded February 5,
2007 as Instrument No. 2007-0081082 in the Official Records of San Diego
County, as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time; provided that any such amendments,
restatements, supplements or modifications do not materially modify Tenant’s
rights or obligations hereunder.  During
the Lease Term, Tenant shall comply with the CC&Rs and shall pay any and
all costs associated with such compliance (including, without limitation, any
assessments or association dues) either directly or as Additional Rent.

 

ARTICLE 6

 

Alterations and Additions

 

6.1           Prohibited Alterations.  Prior to the
Term Commencement Date, Tenant shall not make any alterations, improvements or
additions to the Premises. Following the Term Commencement Date, Tenant shall
not make any alterations, improvements or additions to the Premises, except for
non-structural alterations which do not impair the value of the Premises, and
which do not exceed $1,000,000 per occurrence or an aggregate amount of
$2,500,000 in any 12-month period, without obtaining Landlord’s prior written
consent, which consent shall not unreasonably be withheld, conditioned or delayed.  Notwithstanding the foregoing, Tenant shall
not make any alterations that affect the structural elements of the Premises or
require a construction or building permit without Landlord’s prior written
consent, which consent may be granted or withheld in Landlord’s sole and
absolute discretion.  Any such
improvements shall become part of the realty constituting the Premises and
shall belong to Landlord, except to the extent specifically provided otherwise
in Article 13.  Tenant shall
cause all alterations and improvements to be properly permitted and installed
at Tenant’s sole cost, by a licensed contractor, in a good and workmanlike
manner, and in conformity with Applicable Laws. 
Each such licensed contractor and any subcontractor that performs work
with a cost greater than $500,000, shall be subject to Landlord’s approval,
which approval shall not be unreasonably withheld, conditioned or delayed.  Any such alterations that Tenant shall desire
to make and which require the consent of Landlord shall be presented to
Landlord in written form with detailed plans. 
Tenant shall:  (i) acquire
all applicable governmental permits, (ii) furnish Landlord with copies of
both the permits and the plans and specifications before the commencement of
the work, and (iii) comply with all conditions of said permits in a prompt
and expeditious manner.  Any alterations
shall be performed in a workmanlike manner with good and sufficient materials,
and in accordance with Landlord approved plans and specifications.  Tenant shall, promptly upon completion of
such alterations, furnish Landlord with as-built plans and specifications.  During the course of construction of, and
following completion of, any such alterations, improvements or additions to the
Premises, Tenant shall provide to Landlord conditional and unconditional lien
waivers (as appropriate, but in any event, including at least monthly during
the course of construction unconditional waivers upon progress payments dated
no sooner than the first day of the immediately preceding month from each
contractor, and each subcontractor of any tier that (a) has performed any
work, provided any supplies, materials or 

 

15

 

equipment or provided a
preliminary notice and (b) has not provided an unconditional waiver upon
final payment) in California statutory form from all parties providing work,
services or materials with regard to the same. 
For purposes of clarification, this Section 6.1 does not apply to
the original construction of the Building Improvements.

 

6.2           Notice of Commencement.  At least
twenty (20) days prior to commencing any work relating to any alterations,
improvements or additions to the Premises (the “Tenant Alterations”), Tenant shall
notify Landlord in writing of the nature of such Tenant Alterations and the
expected date of commencement of such work. 
Landlord shall have the right (but not the obligation) at any time
thereafter to post and maintain on the Premises such notices as Landlord
reasonably deems necessary to protect Landlord and the Premises from mechanics’
liens, materialmen’s liens or any other liens, including the posting of any
notice of non-responsibility in accordance with California law.  Tenant shall not commence any such work prior
to the date which is twenty (20) days following Landlord’s receipt of such
notice from Tenant, unless otherwise agreed by Landlord.  Tenant shall pay, when due, all claims for
labor or materials furnished to or for Tenant for use in improving the
Premises.  Tenant shall not permit any
mechanics’ or materialmen’s liens to be levied against the Premises arising out
of work performed, materials furnished, or obligations to have been performed
on the Premises by or at the request of Tenant. 
Tenant hereby indemnifies and holds Landlord harmless against loss,
damage, attorneys’ fees and all other expenses on account of claims of lien of
laborers or materialmen or others for work performed or materials or supplies
furnished for Tenant or its contractors, agents or employees.  Tenant will remove or bond any lien(s) filed
against the Premises in connection with any work performed or materials or
supplies furnished, or any work, materials or supplies claimed to have been
performed or furnished by or at the direction of (or for the benefit of) Tenant
within ten (10) days from the date of the filing of the lien(s).  In addition to any other remedies available
to Landlord under this Lease, Landlord may remove such lien(s) at Tenant’s
expense and Tenant shall reimburse Landlord for all costs incurred by Landlord
in connection with the removal of the lien(s), which amount shall be deemed
Additional Rent, and shall include, without limitation, all sums disbursed,
incurred or deposited by Landlord, including Landlord’s costs, expenses and
actual attorneys’ fees, with interest thereon, at the Default Rate from the
date of expenditure.

 

ARTICLE 7

 

Surrender of Premises

 

7.1           Conditions upon Surrender Upon the expiration or earlier
termination of this Lease, Tenant shall surrender the Premises to Landlord in
as good a condition as the Premises was in as of the Substantial Completion
Date, normal wear and tear, casualty, condemnation and acts of God excepted,
with all interior walls in good repair and repainted if marked, all carpets
shampooed and cleaned, the HVAC equipment, plumbing, electrical and other
mechanical installations in good operating order, and all floors cleaned and
waxed, all to the reasonable satisfaction of Landlord.  Tenant shall remove from the Premises all
Tenant Alterations which Landlord requires Tenant to remove and all Tenant’s
personal property which Tenant is authorized to remove pursuant to this Lease,
and shall repair any damage and perform any restoration work caused by such
removal.  If Tenant fails to remove such
Tenant Alterations and Tenant’s personal property which Tenant is authorized
and obligated to remove pursuant to the 

 

16

 

above, and such failure
continues after the termination of the Lease, Landlord may, at its option, (a) retain
such property and all rights of Tenant with respect to it shall cease, (b) place
all or any portion of such property in public storage for Tenant’s account
without liability to Tenant for loss thereof or damage thereto, or (c) upon
at least thirty (30) days written notice to Tenant, sell such property or any
portion thereof at private sale and without legal process for such price as
Landlord may obtain, and first apply the proceeds of such sale against
any amounts due or to become due from Tenant to Landlord under this Lease
and any actual and documented expenses incident to the removal, storage and
sale of said personal property, and within thirty (30) days thereafter Landlord
will remit any remaining proceeds to Tenant. 
Tenant shall pay to Landlord upon demand costs of removal of such Tenant
Alterations and Tenant’s personal property and storage and transportation costs
of same, and the cost of repairing and restoring the Premises, together with
attorneys’ fees and interest at the Default Rate on said amounts, from the date
of expenditure by Landlord.  If the
Premises are not so surrendered at the termination of this Lease, Landlord may,
in its sole discretion, either (i) upon written notice to Tenant, treat
Tenant as a month-to-month tenant at will, subject to all the terms, covenants
and conditions of this Lease, or (ii) proceed with an unlawful detainer
action and pursue all other rights and remedies available to Landlord.

 

7.1.1        No
surrender of possession of any part of the Premises shall release Tenant from
any of its obligations hereunder.

 

7.1.2        The
voluntary or other surrender of this Lease by Tenant shall not effect a merger
with Landlord’s fee title or leasehold interest in the Premises or any portion
thereof, unless Landlord consents in writing, and shall, at Landlord’s option,
operate as an assignment to Landlord of any or all subleases which may exist at
such time.

 

7.1.3        At
least ten (10) days prior to Tenant’s surrender of possession of any part
of the Premises, Tenant shall provide Landlord with (a) a facility
decommissioning and hazardous materials closure plan for the Premises (“Exit Survey”), and (b) written
evidence of all appropriate governmental releases obtained by Tenant in
accordance with Applicable Laws, including, without limitation, laws pertaining
to the surrender of the Premises and (c) a Phase I Environmental
Assessment.  In addition, Tenant agrees
to remain responsible after the surrender of the Premises for the remediation
of any recognized environmental conditions set forth in the Exit Survey or
Phase I Environmental Assessment and compliance with any recommendations set
forth in the Exit Survey and Phase I Environmental Assessment, to the extent
such conditions or recommendations did not exist in the Baseline Study (as
defined below).  Tenant’s obligations
under this Section 7.1.3 shall survive the expiration or earlier
termination of the Lease.  Prior to the
Term Commencement Date, Landlord will obtain an Exit Survey and a Phase I
Environmental Assessment (collectively, the “Baseline Study”), and will provide
Tenant a copy of such Baseline Study.

 

17

 

ARTICLE 8

 

Utilities

 

8.1           Utilities.  Following the
Term Commencement Date, Tenant shall make all arrangements for and pay for all
water, sewer, gas, heat, light, power, telephone service and any other service
or utility required at the Premises. 
Landlord shall not be liable for, nor shall any eviction of Tenant
result from, any failure or interruption of any utility service being furnished
to the Premises, and no such failure or interruption shall entitle Tenant to
terminate this Lease, or receive any abatement or reduction of Rent, or relief
from the operation of any covenant, obligation or agreement set forth in this
Lease; provided, however,
that Tenant will be entitled to Rent abatement in connection with any such
failure or interruption to the extent Landlord receives lost rental income
insurance proceeds with respect hereto.

 

 

ARTICLE 9

 

Indemnification

 

9.1           Indemnity of Landlord.

 

9.1.1        From
and after the Term Commencement Date, Tenant hereby agrees to indemnify, defend
(with attorneys approved by Landlord), protect, and hold Landlord and Landlord’s
agents, employees, directors, officers, managers, members, partners and
affiliates (collectively, “Landlord’s
Agents”) harmless from, any and all Claims arising after the
Term Commencement Date to the extent caused by, arising out of, or related to, (a) the
condition of the Premises or the use or occupancy of the Premises by Tenant
and/or Tenant’s Agents, or any other person or entity, including without
limitation, any liability for injury to the person or property of Tenant or
Tenant’s Agents, (b) a breach or default by Tenant in the performance of
any of its obligations under this Lease; but in each case excepting any such Claims (i) to the
extent resulting from the willful breach of the Lease by Landlord or the gross
negligence or willful misconduct of Landlord or Landlord’s Agents or (ii) arising
solely out of the condition of the Premises that Tenant demonstrates existed
prior to the Term Commencement Date, except to the extent that such condition
was caused by Tenant or Tenant’s Agents. 
Tenant’s obligations under this Section 9.1.2 shall survive
the expiration or earlier termination of this Lease with respect to any such
Claims or liability arising in connection with any event, condition or
circumstance occurring, arising or existing prior to such expiration or earlier
termination.

 

9.2           Waiver of Claims.

 

9.2.1        Tenant,
as a material part of the consideration rendered to Landlord in entering into
this Lease, hereby waives all existing and future Claims against Landlord and
Landlord’s Agents, whether known or unknown, for damages to goods, wares,
machinery, trade fixtures, personal property, scientific research, records or
other property of Tenant, Tenant’s Agents or any other person, in each case
located in or about the Premises, whether such damage or injury is caused by or
results from the negligence of Landlord or Landlord’s Agents, fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or
lighting fixtures, or from any other cause, whether the said injury or damage
results from conditions arising upon the Premises or any portion thereof, or
from other sources or places, including any claims resulting from the actual or
passive negligence of Landlord or Landlord’s Agents, but excepting any claims
resulting from the gross negligence or willful misconduct of Landlord or
Landlord’s Agents or breach of this Lease by Landlord.  Notwithstanding the negligence of Landlord or
Landlord’s Agents, or breach of this Lease by Landlord, Landlord shall under no
circumstances be liable for loss of profits or special, incidental or
consequential damages arising therefrom.

 

18

 

THE UNDERSIGNED
ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY LEGAL COUNSEL AND IS FAMILIAR WITH THE
PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS
FOLLOWS:

 

“A GENERAL RELEASE DOES
NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR
HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

 

THE UNDERSIGNED, BEING
AWARE OF THIS CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS IT MAY HAVE
THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPALS OF
SIMILAR EFFECT.

 

Tenant’s Initials

 

9.2.2        Tenant
acknowledges that security devices and services, if any, while intended to
deter crime, may not in given instances prevent theft or other criminal
acts.  Landlord shall not be liable for
injuries or losses caused by criminal acts of third parties, and Tenant assumes
the risk that any security device or service may malfunction or otherwise be
circumvented by a criminal.  If Tenant
desires protection against such criminal acts, then Tenant shall, at Tenant’s
sole cost and expense, obtain appropriate insurance coverage.

 

9.3           Landlord Indemnification. 
Landlord agrees, subject to the limitations set forth in Section 9.2
and elsewhere in this Lease, to indemnify Tenant and hold it harmless from any
and all Claims caused by the gross negligence or willful misconduct of Landlord
and/or any of Landlord’s Agents or caused by the willful breach of this Lease
by Landlord.  The obligations of Landlord
under this Section 9.3 shall survive the termination of this Lease
with respect to any Claims or liability arising in connection with any event,
condition or circumstance occurring, arising or existing prior to such
termination.  Notwithstanding Landlord’s
indemnification obligations under this Section 9.3, Landlord shall
under no circumstances be liable for loss of profits or special, incidental or
consequential damages arising therefrom.

 

9.4           Claims for Indemnification. 
If any indemnitee under Sections 9.1 or 9.3 above (an “Indemnitee”) shall
believe that such Indemnitee is entitled to indemnification pursuant to this Article 9
in respect of any Claims, such Indemnitee shall give the appropriate
indemnifying party (each, as applicable, an “Indemnifying Party”) prompt written
notice thereof.  Any such notice shall
set forth in reasonable detail and to the extent then known the basis for such
claim for indemnification.  The failure
of such Indemnitee to give notice of any claim for indemnification promptly
shall not adversely affect such Indemnitee’s right to indemnity hereunder,
except to the extent that such failure adversely affects the right of the
Indemnifying Party to assert any reasonable defense to such claim.

 

19

 

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

 

ARTICLE 10

 

Insurance

 

10.1         Landlord’s Insurance Landlord shall maintain (subject to Tenant’s
obligation to pay for such insurance to the extent required under Section 10.2)
a policy or policies of insurance protecting Landlord against the following:

 

10.1.1      Fire
and other perils normally included within the classification of fire and
extended coverage, together with insurance against vandalism and malicious
mischief, to the extent of the full replacement cost of the Premises
(including, without limitation, any real property and/or fixture improvements
located within the Premises existing as of the Punchlist Sign-off Date), but
exclusive of equipment and improvements insured by Tenant, with agreed value,
full replacement and such other endorsements Landlord elects to maintain.  Landlord may also maintain earthquake and
flood coverage if available at commercially reasonable rates.

 

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

 

10.1.3      Comprehensive
general liability insurance with a single limit of not less than $1,000,000  for bodily injury or death and property
damage with respect to the Premises, a general aggregate not less than
$2,000,000 for bodily injury or death and property damage with respect to the
Premises, and not less than $2,000,000 of excess umbrella liability insurance.

 

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

 

20

 

10.1.5      Such
additional insurance as is required under Section 4 of the Work
Letter, payment of which shall be considered a Disbursement.

 

10.2         Payment.  Within sixty
(60) days after the Term Commencement Date, and within sixty (60) days after
the beginning of each calendar year during the period from and after the Term
Commencement Date until the termination or expiration of the Lease Term,
Landlord shall provide Tenant with a written estimate for such calendar year of
the cost of insurance obtained by Landlord with regard to the Premises (“Insurance Costs”),
which cost may be determined as a percentage of Landlord’s portfolio wide
insurance policies or other reasonable allocation (for example, based on square
footage, insured values or invoiced amounts from insurance carriers or
brokers).  Tenant shall pay such
estimated amount to Landlord in advance in equal monthly installments.  Within ninety (90) days after the end of each
calendar year, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual costs incurred by Landlord for Insurance Costs for
the Premises during such year (the “Annual Statement”), and Tenant shall pay to
Landlord the costs incurred in excess of the payments previously made by Tenant
within thirty (30) days of Tenant’s receipt of the Annual Statement.  To the extent that any such insurance is
maintained pursuant to a blanket or similar policy of insurance, then the cost
thereof shall be equitably allocated to the Premises by Landlord.

 

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

 

10.3.1      During
the Lease Term, comprehensive general liability insurance with respect to the
Premises insuring against bodily injury or death and property damage in amounts
(i) not less than $2,000,000 in the aggregate, (ii) not less than
$1,000,000 per occurrence and (iii) not less than $4,000,000 of excess
umbrella liability insurance.  Landlord,
BioMed Realty, L.P., BioMed Realty Trust, Inc. and any third party now or
hereafter providing financing to Landlord where such third party has a security
interest in the Premises under such financing shall be included as additional
insureds.  The amount of such public
liability insurance shall be increased from time to time as Landlord may
reasonably determine. All such bodily injury and property damage insurance
shall insure the performance by Tenant of the indemnity agreement as to
personal injury or property damage contained in Section 9.1.

 

10.3.2      During
the Lease Term, insurance covering construction, alterations, additions or
improvements permitted under Section 6, trade fixtures and personal
property and for those items listed on Exhibit ‘C’ attached hereto (as the
same may be updated by Tenant in accordance with Section 13.1), in
an amount not less than 100% of their full replacement cost from time to time
during the term of this Lease, providing protection against any peril included
within the classification “fire
and extended coverage,” for the repair or replacement of the
property damaged or destroyed unless this Lease shall terminate pursuant to Section 20
hereof.

 

10.3.3      All
policies of insurance to be provided by Tenant shall be issued by insurance
companies, with general policy holder’s rating of not less than A- and a
financial rating of not less than Class VII as rated in the most current
available “Best’s” Insurance Reports, and admitted to do business in the State
of California.  Such policies shall be
issued in the name of Tenant, with Landlord included as an additional
insured.  The policies provided by Tenant
shall be for the mutual and joint benefit and protection of Landlord and
Tenant, and 

 

21

 

executed copies of such policies of insurance or
certificates thereof shall be delivered to the Landlord within ten (10) days
after the Term Commencement Date and, thereafter, within thirty (30) days prior
to the expiration of the term of each such policy.  All public liability and property damage
policies shall contain a provision that the Landlord, although an additional
insured, shall nevertheless be entitled to recover under said policies for any
loss occasioned to it or Landlord’s Agents by reason of the negligence of the
Tenant.  Upon the expiration or
termination of any such policy, renewal or additional policies shall be
procured and maintained by the Tenant to provide the required coverage.  All policies of insurance delivered to
Landlord must contain a provision that the company writing said policy will
provide Landlord with thirty (30) days notice in writing in advance of any
cancellation or lapse or the effective date of any reduction in the amounts of
insurance (except in the event of non-payment of premium, in which case ten (10) days
written notice shall be given).  All
public liability, property damage and other casualty policies shall be written
as primary policies, not contributing with and not in excess of coverage which
Landlord may carry.  Tenant agrees that
if, after the Term Commencement Date, Tenant does not take out and maintain the
insurance required under this Section 10.3, Landlord may (but shall
not be required to) procure said insurance on Tenant’s behalf, and any costs or
expenses incurred by Landlord in connection therewith shall promptly be paid by
Tenant to Landlord as Additional Rent.

 

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

 

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

 

ARTICLE 11

 

Repairs and Maintenance

 

11.1         Maintenance of Premises and Equipment. 
During the Lease Term, Tenant, at its sole cost and expense, shall
maintain and keep the Premises, all improvements thereon, and all appurtenances
thereto, including, without limitation, sidewalks, parking areas, curbs, roads,
driveways, lighting standards, landscaping, sewers, water, gas and electrical
distribution systems and facilities, drainage facilities, and all signs, both
illuminated and non-illuminated, in each case whether now or hereafter on the
Premises, in good condition and in a manner consistent 

 

22

 

with the Permitted
Use.  During the Lease Term, Tenant shall
make all repairs, replacements and improvements required to so maintain in good
condition the Premises, including, without limitation, all roof or other
structural repairs, HVAC, plumbing, mechanical systems and electrical repairs,
replacements and improvements required, and shall keep the same free and clear
from all rubbish and debris.  All repairs
made by Tenant shall be at least equal in quality to the original work, and
shall be made only by a licensed, bonded contractor approved in advance by
Landlord (which approval shall not be unreasonably withheld, conditioned or
delayed); provided, however, that such contractor need not be
bonded or approved by Landlord if the alterations, repairs, additions or
improvements to be performed are non-structural and the cost of same will not
exceed Fifty Thousand Dollars ($50,000) per occurrence or an aggregate amount
of One Hundred Thousand Dollars ($100,000) in any twelve (12) month
period.  Tenant shall not take or omit to
take any action, the taking or omission of which could cause waste, damage or
injury to the Premises.  Tenant shall
indemnify Landlord as further specified in Sections 9.1, 9.4 and 9.5.

 

11.2         Maintenance of Exteriors. 
Without limiting the effect of Section 11.1, during the
Lease Term, Tenant shall maintain the lines designating the parking spaces in
good condition and paint the same as often as may be necessary, so that they
are easily discernable at all times; resurface the parking areas as necessary
to maintain them in good condition; paint any exterior portions of the Building
Improvements as necessary to maintain them in good condition; maintain the roof
and landscaping in good condition; maintain sightly screens, barricades or
enclosures around any waste or storage areas; and take all reasonable
precautions to ensure that the drainage facilities of the roof are not clogged
and are in good and operable condition at all times.

 

11.3         No Abatement.  There shall
be no abatement of Rent and no liability of Landlord by reason of any injury to
or interference with Tenant’s business arising from the Tenant’s (or Landlord’s
if Landlord elects to make repairs, maintenance, alterations or improvements as
explicitly permitted by this Lease) making of any repairs, alterations or
improvements in or to any portion of the Premises, or in or to improvements,
fixtures, equipment and personal property therein.

 

11.4         Right of Entry.  Landlord,
Landlord’s Agents and any contractor or consultant of Landlord shall have the
right to enter upon the Premises or any portion thereof in accordance with the
terms and conditions of Article 15 for the purposes of performing
any repairs or maintenance Landlord is permitted to make pursuant to this
Lease, and of ascertaining the condition of the Premises or whether Tenant is
observing and performing Tenant’s obligations hereunder, all without
interference from Tenant or Tenant’s Agents.

 

11.5         Compliance with Governmental Regulations. 
From and after the Term Commencement Date, Tenant shall, at its sole
cost and expense, promptly and properly observe and comply with, including the
making by Tenant of any Tenant Alterations to the Premises, all present and
future orders, regulations, directions, rules, laws ordinances, and
requirements of any Governmental Authority, arising from the use or occupancy
of, or otherwise applicable to, the Premises.

 

23

 

11.6         Service Contracts.  Except to the
extent self-performed by Tenant’s qualified and experienced personnel, as
reasonably determined by Landlord, from and after the Term Commencement Date,
Tenant shall, at Tenant’s sole cost and expense, procure and maintain
contracts, with copies to Landlord, in customary form and substance for, and
with contractors specializing and experienced in the maintenance of the
following equipment and improvements, if any, if and when installed on the
Premises:  (i) HVAC equipment, (ii) boiler,
and pressure vessels, (iii) fire extinguishing systems, including fire
alarm and/or smoke detection, (iv)  landscaping and irrigation system, (v) roof
covering and drains, (vi) clarifiers, (vii) basic utility feed to the
perimeter of the Building Improvements, and (vii) any other equipment (if
reasonably required by Landlord). 
However, Landlord reserves the right, upon notice to Tenant, to procure
and maintain any or all of such service contracts, and if Landlord so elects,
Tenant shall reimburse Landlord, upon demand, for the cost thereof.

 

11.7         Action by Landlord if Tenant Fails to Maintain. 
From and after the Term Commencement Date, Landlord shall not be required
to maintain or make any repairs or replacements of any nature or description
whatsoever to the Premises, except for completion of Punchlist Items. Tenant
hereby expressly waives the right to make repairs at the expense of Landlord as
provided for in any Applicable Laws in effect as of the Effective Date, or in
any other Applicable Laws that may hereafter be enacted, and Tenant further
waives its rights under Applicable Laws relating to a landlord’s duty to
maintain the Premises in a tenantable condition; provided, however,
that this Section 11.7 shall not limit Tenant’s express rights
under Section 19.3.1 of this Lease (solely with respect to Landlord’s
obligations under Articles 20 and 21, and Landlord’s obligation
to complete the Punchlist Items). 
Notwithstanding the foregoing, if Tenant refuses or neglects to repair,
maintain, alter or improve the Premises, in each case as required by the
provisions of this Lease to the reasonable satisfaction of Landlord, Landlord,
at any time following ten (10) days from the date on which Landlord shall
make written demand on Tenant to effect such repair, maintenance, alteration or
improvement (except in the event of an emergency, in which case no prior
written demand is required), may (in addition to any other remedies available
to Landlord under this Lease), but shall not have the obligation to, make such
repair and/or maintenance and/or alteration and/or improvement with qualified
and experienced contractors (without liability to Tenant for any loss or damage
which may occur to Tenant’s merchandise, fixtures or other personal property,
or to Tenant’s business by reason thereof) and Tenant shall pay to Landlord as
Additional Rent, within five (5) days following Tenant’s receipt of
Landlord’s invoice therefor, Landlord’s costs for making such repairs,
maintenance, alteration or improvement plus interest at the Default Rate from
the date such costs were incurred by Landlord. 
Moreover, Tenant’s failure to pay any of the charges in connection with
the performance of its maintenance and repair obligations under this Lease will
constitute a material default under the Lease.

 

ARTICLE 12

 

Taxes

 

12.1         Tenant shall pay the following taxes:

 

24

 

12.1.1      Personal
Property Taxes.
Tenant shall pay prior to delinquency all taxes, assessments, license fees, and
other public charges levied, assessed or imposed or which become payable upon
Tenant’s personal property, including, but not limited to Tenant’s furnishings,
movable equipment and all other personal property installed or located in the
Premises.  Whenever possible, Tenant
shall cause said furnishings, movable equipment and personal property to be
separately assessed.  If, however, any or
all of said items shall be assessed and taxed with the real property, Tenant
shall pay to Landlord such taxes as are attributable to Tenant’s furnishings,
movable equipment and personal property within fifteen (15) days after receipt
of an invoice from Landlord advising Tenant of the taxes applicable to Tenant’s
property.

 

12.1.2      Real
Property Taxes.
During the Lease Term, Tenant shall also pay at least twenty (20) days before
delinquent any and all Real Estate Taxes, assessed or imposed, or which become
a lien upon or become chargeable against or payable in connection with the
Building Improvements and the Premises. 
Within three business days of such payment, Tenant shall provide
Landlord evidence of such payment in a form reasonably acceptable to Landlord.  In the event that the Premises are not
separately assessed, Tenant shall pay an equitable proportion of the Real
Estate Taxes and assessments for all the land and improvements included within
the tax parcel(s) assessed, with such proportion to be determined by
Landlord from the respective valuations assigned in the Assessor’s worksheets
and such other information as is reasonably available to Landlord, including
the Building Improvements and any special improvements constructed for the
benefit of Tenant.  Real Estate Taxes for
the last year of the term of this Lease shall be prorated between Landlord and
Tenant as of the expiration date of the term. 
With respect to any assessments which may be levied against or upon the
Building Improvements or the Premises, or which under the laws then in force
may be evidenced by improvement or other bonds and may be paid in annual
installments, only the amount of such annual installment, with appropriate
proration for any partial year, and interest thereon, shall be included within
a computation of taxes and assessments levied against the Building Improvements
or the Premises.  To the extent tax bills
are not otherwise delivered to Tenant and such tax bills are delivered to
Landlord, at least sixty (60) days prior to the applicable delinquency date,
Landlord will provide Tenant with written notice detailing the amount and due
date of each real estate tax Tenant is required to pay pursuant to this Section 12.1.2.  In the event that Tenant incurs a late charge
on the payment of the Base Monthly Rental or fails to pay the real property
taxes within twenty (20) days before delinquent, Landlord may estimate the
current real property taxes, and require that such taxes be paid in advance to
Landlord by Tenant monthly in advance with the payment of the Base Monthly Rental.  Such monthly payment shall be equal to the
amount of the estimated installment of taxes divided by the number of months
remaining before the month in which such installment becomes delinquent.  When the actual amount of the applicable tax
bill is known, the amount of such equal monthly advance payments shall be
adjusted as required to provide the funds needed to pay the applicable
taxes.  If the amount collected by
Landlord is insufficient to pay such Real Estate Taxes when due, Tenant shall
pay Landlord, upon demand, such additional sum as is necessary.  Upon receipt of the full amount of the Real
Estate Taxes for such period, Landlord shall, if practicable, pay such Real
Estate Taxes before they are delinquent. 
Advance payments may be intermingled with other moneys of Landlord and
shall not bear interest.  In the event of
a breach by Tenant in the performance of its obligations under this Lease, then
any such advance payments may be treated by Landlord as an additional security
deposit; provided, however, to the extent that Landlord applies
such payments to anything other than real estate taxes, then Landlord shall
promptly give Tenant notice of such application.

 

25

 

12.2         Definition of Taxes.  For purposes
of this Lease, “Real
Estate Taxes” shall include, without limitation, each of the
following (subject to the provisions of Section 12.3.7):

 

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

 

12.2.2      Any
tax on Landlord’s right to rent or other income from the Premises or as against
Landlord’s business of leasing the Premises, or taxes on or measured by gross
rentals received from the rental of space on the Premises;

 

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

 

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

 

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

 

12.2.6      Any
tax, fee, levy, assessment or charge, or any increase therein imposed by reason
of events occurring during the Lease Term (including but not limited to, any
tax, fee, assessment or charge under California Proposition 13 resulting from a
change in the ownership of the Premises or any entity owning a direct or
indirect interest in the Premises).

 

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

 

12.3         Tax Credits.  If Landlord
receives any tax credits resulting from the Premises, including but not limited
to any tax credits resulting from the construction of the Building
Improvements, then such tax credits will, as determined by Landlord, be applied
either (a) to reduce the amount of Real Estate Taxes payable by Tenant
hereunder, or (b) in the PO Model as a cash inflow for consideration in the
calculation.

 

26

 

ARTICLE 13

 

Property Ownership

 

13.1         Property Ownership.  Except for
those items listed on Exhibit ‘C’ (which Exhibit may be updated by
Tenant from and after the Term Commencement Date, but in each case only upon
receipt of Landlord’s prior written approval of such updates in accordance with
the procedures set forth at the end of this Section 13.1), and
subject to Tenant’s Purchase Options under Section 24.2, all of the
Building Improvements, and any other improvements, buildings, building systems,
equipment, fixtures, machinery, additions and decorations in each case that are
paid for (in whole or in part) by Landlord, or that are built into or attached
to the Premises, including, without limitation, all installed flooring and
installed wall coverings, built-in cabinet work and paneling, sinks and related
plumbing fixtures, laboratory benches, exterior venting fume hoods, walk-in
freezers, walk-in refrigerators, ductwork, conduits, electrical panels and
circuits shall (unless Landlord elects otherwise in writing prior to such
construction or installation) automatically become the property of Landlord
upon their acquisition or installation at the Premises (regardless of whether
the same are installed or paid for by Tenant). 
All of the foregoing improvements (except
for those items listed on Exhibit ‘C’) shall remain upon and be
surrendered with the Premises as a part thereof upon the expiration or
termination of this Lease.  In addition
to the foregoing, all materials ordered in connection with the Building
Improvements, or under contracts relating to the construction or maintenance of
the Building Improvements, shall automatically become the property of Landlord,
regardless of whether such materials have been installed at the Premises.  Unless this Lease terminates under Section 24.2.9,
the Premises shall at all times remain the property of Landlord, and shall be
surrendered to Landlord upon the expiration or earlier termination of this
Lease in accordance with its terms. 
Following the Term Commencement Date, and prior to the commencement of
any work relating to any Tenant Alterations occurring thereafter, Tenant shall
have the ability to update Exhibit ‘C’ (subject to Landlord’s prior
written approval in accordance with this Section 13.1) by submitting such
updated Exhibit ‘C’ to Landlord at least twenty (20) days prior to the
installation at the Premises of any items requested to be included on Exhibit ‘C’
by Tenant.  Within twenty (20) days of
Landlord’s receipt of Tenant’s updated Exhibit ‘C’, Landlord shall notify
Tenant whether or not Landlord approves the updated Exhibit ‘C.’  If Landlord fails to respond within such
twenty (20) day period, Tenant shall provide a written reminder notice to
Landlord.  Landlord’s failure to respond
to such reminder notice within ten (10) days after delivery of such
reminder notice shall be deemed approval by Landlord of the updated Exhibit ‘C’
as submitted to Landlord.  Landlord shall
be permitted to disapprove additions to Exhibit ‘C’ only if such items
fall into one of the following categories: 
(i) the item was paid for (in whole or in part) by Landlord; (ii) the
item is replacing an item previously paid for (in whole or in part) by
Landlord; (iii) the item comprises a part of the building systems or is
otherwise necessary for the operation of the Building; or (iv) the item
cannot be removed without materially damaging the Building.

 

13.2         Trade Fixtures.  Following the
Term Commencement Date, Tenant may install trade fixtures, machinery or other
trade equipment in conformance with Article 6 and Section 13.1
of this Lease and Applicable Laws; provided that such trade fixtures, machinery
or other trade equipment shall be deemed Landlord’s property upon installation
and shall not be removed from the Premises at any time unless such items are
listed on Exhibit ‘C’ in accordance with Section 13.1.

 

27

 

ARTICLE 14

 

[Intentionally Deleted]

 

ARTICLE 15

 

Entry by Landlord

 

15.1         Entry by Landlord.  Following the
Substantial Completion Date, Tenant shall permit Landlord and Landlord’s
Agents, and, if accompanied by a representative of Tenant, prospective
purchasers, lenders, investors and contractors, to enter the Premises at all
reasonable times, upon giving Tenant a forty-eight (48) hour notice, except in
the event of an emergency or following an Event of Default, in which case
neither notice nor the presence of a representative of Tenant is required, for
the purpose of:  (i) inspecting the
Premises, (ii) performing any of Tenant’s obligations under this Lease, (iii) posting
notices of non-responsibility with regard to any work, materials, construction,
alterations, additions, or repairs, (iv) completing any remaining Punchlist
Items, or (v) as permitted under Section 11.4.  At all times Landlord or Landlord’s Agents
are on the Premises, representative(s) of Tenant will have the right to
accompany Landlord or Landlord’s Agents. 
Tenant shall timely make a representative of Tenant available to
accompany Landlord during any such entry.

 

15.2         Entry to Relet Premises.  Landlord may,
during reasonable business hours within eighteen (18) months prior to the
expiration of the Lease Term, enter the Premises for the purpose of allowing
prospective tenants to view the Premises; provided, however, that
Landlord may not exercise such right if Tenant has validly exercised its
Purchase Option under this Lease and so long as no breach or condition exists
under this Lease or under the Purchase and Sale Agreement which could
reasonably be expected to preclude Tenant from consummating its acquisition of
the Premises pursuant to such Purchase Option.

 

15.3         No Liability.  Landlord
shall be permitted to enter the Premises for any of the purposes stated in and
in accordance with Sections 15.1 and 15.2 above without any
liability to Tenant for any loss of occupation or quiet enjoyment of the
Premises resulting therefrom.  In no
event shall Tenant’s Rent abate as a result of Landlord’s activities pursuant
to this Article 15.

 

ARTICLE 16

 

Assignment and Subletting

 

16.1         Assignment and Subletting.

 

16.1.1      Assignment. 
Except as hereinafter expressly permitted, Tenant shall not voluntarily
nor by operation of law, assign, sell, encumber, pledge or otherwise transfer
all or any part of Tenant’s leasehold estate hereunder, without Landlord’s
prior written consent in each instance, which consent shall not be unreasonably
withheld.  Any purported assignment
contrary to these provisions shall be void. 
Landlord’s consent shall be based upon a determination that the same (or
better) type, class, nature and quality of business, service, management, and 

 

28

 

financial soundness of ownership shall exist after
such assignment and, provided further, that each and every covenant,
condition or obligation imposed upon Tenant by this Lease is assumed by such
assignee and each and every right, remedy or benefit afforded Landlord by this
Lease is not thereby impaired or diminished. 
Consent by Landlord to one or more assignments of this Lease shall not
operate to exhaust Landlord’s rights under this Section.

 

16.1.2      Subletting. 
Except as hereinafter expressly permitted (including as permitted under Section 16.3),
Tenant shall not sublet any portion of the Premises, and shall not enter into
any arrangement that is the functional (if not legal) equivalent of a sublease,
without Landlord’s prior written consent in each instance, which consent shall
not be unreasonably withheld, conditioned or delayed; provided, (a) Tenant
may sublet up to an aggregate amount of 25,000 square feet of space at the
Premises to or by any person(s) or entity(ies) (each, a “Permitted Sublease”)
and (b) Tenant may sublet the Premises, or any portion thereof, to any (i) corporation
or other entity which controls, is controlled by, or is under common control
with Tenant; or (ii) a “satellite company” of Tenant (as described in
Tenant’s Annual Report on Form 10-K for the year ended December 31,
2009) (a “Tenant
Affiliate”) (any such sublease, an “Exempt Sublease”).  Upon the effectuation of a Permitted Sublease
or an Exempt Sublease, Tenant will promptly notify Landlord regarding such
sublet or other occupancy right granted by Tenant with regard to the Premises,
and the size and location of the space relating thereto.  No Permitted Sublease or Exempt Sublease
shall specify a term which extends beyond the Lease Term, and all Permitted
Subleases and Exempt Subleases shall explicitly state that they are subject and
subordinate to this Lease.  Any purported
subletting of the Premises or other occupancy agreement that is contrary to the
provisions of this Section 16.1.2 shall be void.  Landlord’s consent shall be based upon a
determination that the same (or better) type, class, nature and quality of
business, service, management, and financial soundness of ownership shall exist
after such subletting or other occupancy agreement (taking into account that
Tenant shall remain liable for all obligations of Tenant under the Lease as set
forth in Section 16.4) and, provided further, that each and
every covenant, condition or obligation imposed upon Tenant by this Lease is
assumed by such subtenant and each and every right, remedy or benefit afforded
Landlord by this Lease is not thereby impaired or diminished.  Consent by Landlord to one or more
sublettings of the Premises shall not operate to exhaust Landlord’s rights
under this Section.

 

16.2         Notice to Landlord.  If Tenant
desires at any time to assign this Lease pursuant to Section 16.1.1
or to sublet the Premises pursuant to Section 16.1.2, it shall
first notify Landlord of its desire to do so and shall submit in writing to
Landlord (the “Transfer
Notice”):  (i) with
respect to a proposed sublease, the size and location of the space Tenant
proposes to sublet, (ii) the name of the proposed subtenant or assignee; (iii) the
date on which the Tenant proposes that the assignment or sublease be effective,
which shall not be earlier than the date which is thirty (30) days after the
Transfer Notice (iv) the nature of the proposed subtenant’s or assignee’s
business to be carried on in the Premises; (v) the terms and provisions of
the proposed sublease or assignment; (vi) such reasonable financial
information as Landlord may request concerning the proposed subtenant or
assignee, and (vii) such other information as Landlord may reasonably
require.  Tenant agrees to reimburse
Landlord for Landlord’s actual costs and attorneys’ fees (not to exceed Five
Thousand Dollars ($5000)) incurred in conjunction with the processing and
documentation of any requested assignment, subletting, transfer, or change of
ownership of this Lease.

 

29

 

16.3         Exempt Assignment. 
Notwithstanding any provisions of Sections 16.1 to the contrary,
Landlord agrees that Tenant may assign its interest in this Lease, without
Landlord’s prior written consent but with written notice, to any (i) successor
by merger or sale of substantially all of Tenant’s assets (including, without
limitation, this Lease) in a manner such that the assignee will become liable
and responsible for the performance and observance of all Tenant’s duties and
obligations hereunder; or (ii) corporation or other entity which controls,
is controlled by, or is under common control with Tenant, provided that (a) Tenant
shall notify Landlord in writing at least ten (10) days prior to the
effectiveness of such assignment, and (b) the creditworthiness of the
assignee measured immediately following such assignment is at least equal to
the creditworthiness of Tenant measured immediately prior to such assignment,
in each case as reasonably determined by Landlord (any such assignment, an “Exempt Assignment”).  For purposes of this Section 16.3
and Section 16.1.2 above, a corporation or other entity will be
regarded as in control of another corporation or entity if it both (i) owns
or controls in excess of fifty percent (50%) of the voting stock or other ownership
interest of the other corporation or entity, and (ii) possesses, directly
or indirectly, the power to direct or cause the direction of the management and
policies of such other corporation or entity.

 

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

 

16.5         Landlord’s Option. 
Except for Exempt Assignments, Exempt Subleases and Permitted Subleases,
if Tenant desires at any time to assign or sublet the Premises, Landlord,
within fifteen (15) days after Landlord’s receipt of all of the information
required in the Transfer Notice, may by written notice to Tenant elect to
terminate this Lease as to the entire Premises, except for those provisions
that, by their express terms, survive the expiration or earlier termination
hereof.  If Landlord exercises such
option, then Tenant shall have the right to withdraw such Transfer Notice by delivering
to Landlord written notice of such election within five (5) days after
Landlord’s delivery of notice electing to exercise Landlord’s option to
terminate this Lease.  In the event
Tenant withdraws the Transfer Notice as provided in this Section, this Lease
shall continue in full force and effect. 
No failure of Landlord to exercise its option to terminate this Lease
shall be deemed to be Landlord’s consent to a proposed assignment or
sublease.  In the event the Landlord
elects to terminate the Lease and Tenant does not withdraw such Transfer
Notice, the Lease shall terminate on the proposed date the transfer or sublease
would be effective as specified in the Transfer Notice and Tenant shall have no
further obligations with respect to the Premises other than (a) to
surrender and vacate the Premises on or before the effective date of
termination, and (b) all obligations of Tenant which survive the
expiration or termination of this Lease pursuant to the terms hereof
(including, without limitation, all indemnity obligations of Tenant under this
Lease).  After any such election by
Landlord, Landlord shall be entitled to re-lease the Premises in Landlord’s
sole and absolute discretion.

 

30

 

ARTICLE 17

 

Dispossession

 

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

 

ARTICLE 18

 

Events of Default

 

18.1         Events of Default. 
The occurrence of any of the following shall constitute a breach and
material default of this Lease by Tenant (each, an “Event of Default”):

 

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

 

18.1.2      The failure of Tenant to perform any
term, covenant, condition or obligation, other than payment of Rent, taxes,
monies or charges, required by this Lease, and Tenant shall have failed to cure
such failure within thirty (30) days after written notice from Landlord; provided, however, that where such failure
cannot reasonably be cured within the thirty (30) day period, an Event of
Default shall not occur so long as Tenant has commenced such cure within the
same thirty (30) day period and diligently thereafter prosecutes the same to
completion;

 

18.1.3      Subject to the notice and cure provisions
of Section 18.1.2 above, Tenant causing, permitting, or suffering,
without the prior written consent of Landlord, any act when this Lease requires
Landlord’s prior written consent or prohibits such act;

 

18.1.4      Failure by Tenant to deliver an estoppel
certificate in accordance with the provisions of Section 26.1;

 

18.1.5      Tenant is in default under any obligation
that accrues prior to the Effective Date and is retained by Tenant under a
Construction Agreement assigned by Tenant to Landlord, where as a result of
such default the applicable contractor has stopped performing (or threatened to
stop performing) Landlord’s Construction Work under this Lease; and such
default is not cured (i) within the cure periods set forth in such Construction
Agreement, or (ii) if such Construction Agreement does not specify a cure
period, within five (5) days after notice of such default is provided to
Tenant by Landlord or the applicable contractor

 

31

 

18.1.6      Any representation or warranty by Tenant
contained in Section 36.7 of this Lease or Section 9.10 of the
Work Letter, is incorrect as of the Effective Date; or any representation or
warranty made by Tenant under Section 26.3 is incorrect as of the
date Tenant made such representation or warranty.

 

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

 

18.1.7.1   Any general assignment or general
arrangement for the benefit of creditors;

 

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

 

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

 

18.1.7.4   The dissolution or liquidation of Tenant;
or,

 

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

 

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

 

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

 

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

 

ARTICLE 19

 

Remedies Upon Event of Default; Special Termination Rights

 

19.1         Landlord’s Remedies. 
Upon the occurrence of an Event of Default, Landlord may, at its sole
discretion, pursue one or more of the following remedies:

 

32

 

19.1.1      Landlord may, at its option, perform any
of Tenant’s unfulfilled duties or obligations on Tenant’s behalf, including,
without limitation, the obtaining of required bonds, insurance policies,
governmental licenses, permits or approvals, with Tenant to pay Landlord an
amount equal to the costs and expenses incurred by Landlord for such
performance, upon receipt of an invoice from Landlord (together with interest
thereon at the Default Rate from the date of Landlord’s expenditure).

 

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

 

19.1.3      Landlord,
either as an alternative to, or subsequent to, exercising any of its other
remedies available to Landlord pursuant to this Lease, may terminate Tenant’s
right to possession of the Premises by and upon delivery to Tenant of written
notice of termination.  Landlord may then
immediately reenter the Premises and take possession thereof pursuant to legal
proceedings and remove all persons and property from the Premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant. 
No notice of termination shall be necessary in the event that Tenant has
abandoned the Premises.  In the event
that Landlord elects to terminate Tenant’s right of possession under this Section 19.1.3,
Landlord may recover the following:

 

19.1.3.1   The worth at the time of the award of the
unpaid Rent which had been earned at the time of termination.  “Worth at the time of award” shall be computed
by allowing interest at the Default Rate from the first day the applicable
breach giving rise to such Event of Default occurs;

 

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

 

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

 

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

 

33

 

19.1.4      Notwithstanding Section 19.1.3,
or anything to the contrary in Section 24.2, if Landlord exercises
its right to terminate Tenant’s rights to possession of the Premises pursuant
to an Event of Default by Tenant (other than for an Event of Default under Sections
18.1.1 or 18.1.7, in which case Tenant shall not have the option to
exercise the next available unexpired Purchase Option), then, within five (5) business
days following Tenant’s receipt of such notice, Tenant may exercise the next
available unexpired Purchase Option under Section 24.2 by
delivering a Purchase Option Exercise Notice to Landlord within such five (5) business
day period. Upon Landlord’s receipt of the Purchase Option Exercise Notice,
such termination by Landlord shall be ineffective (without limiting any other
termination right of Landlord pursuant to this Lease) and, except as set forth
below, the procedures set forth in Section 24.2 shall govern such
acquisition of the Premises by Tenant. 
For purposes of clarification, so long as Tenant and Landlord complete
the purchase of the Premises by Tenant under this Section 19.1.4,
Landlord shall not be entitled to any damages or recoveries under Section 19.1.3
(other than Section 19.1.3.1).

 

19.1.4.1   If Tenant delivers a Purchase Option
Exercise Notice pursuant to this Section 19.1.4 during Lease Years
one (1) through ten (10), then (a) the Purchase Option closing date
for such accelerated closing shall be the date that is fifteen (15) days after
Landlord’s receipt of such Purchase Option Exercise Notice (the “Accelerated Purchase Option Closing
Date”), (b) within five (5) business days of such
exercise, Tenant shall provide Landlord with an executed Purchase and Sale
Agreement in the form attached as Exhibit ‘G’ and (c) the purchase
price payable by Tenant to Landlord for such Purchase Option shall be
calculated as specified in Section 24.2.5, as of the applicable
Purchase Option Closing Date, without regard to the fact that such Purchase
Option is being exercised earlier than as contemplated by Section 24.2,
except that such purchase price specified in Section 24.2.5 is
calculated, and PO Model applied, without including any Base Monthly Rental not
actually paid by Tenant under this Lease through the Purchase Option Closing
Date.

 

19.1.4.2   If Tenant delivers such Purchase Option
Exercise Notice pursuant to this Section 19.1.4 at any time
following the tenth (10th) Lease Year, then (a) the Purchase
Option closing date for such accelerated closing shall be the Accelerated
Purchase Option Closing Date (provided that such Accelerated Purchase Option
Closing Date shall be extended to account for any appraisal period required to
determine “fair market value” in accordance with clause (c) below), (b) within
five (5) business days of such exercise, Tenant shall provide Landlord
with an executed Purchase and Sale Agreement in the form attached as Exhibit ‘G’
and (c) the purchase price payable by Tenant to Landlord for such Purchase
Option shall equal the “fair
market value” (as such value is determined in accordance with Section 24.2.5(b))
for the Premises determined as of the date that is thirty (30) days prior to
the Purchase Option Closing Date.

 

19.1.5      Landlord may pursue any and all other
rights or remedies available to Landlord at law or in equity.

 

19.2         Landlord’s Special Termination Rights

 

34

 

19.2.1      Landlord’s Termination Right For
Entitlements.  If (i) as of October 21, 2010, all
approvals needed for the Planned Industrial Permit for the Building have not
been received or remain subject to any potential appeal or challenge (ii) as
of December 2, 2010, the precise grading permit has not been received or
remains subject to any potential appeal or challenge, (iii) as of December 25,
2010, the building permit for the construction of the shell and core of the
Building has not been received or remains subject to any potential appeal or
challenge or (iv) as of April 19, 2011, the building permit for the
construction of the Tenant Improvements has not been received or remains
subject to any potential appeal or challenge, in each case for any reason other
than Landlord’s gross negligence or willful misconduct, then Landlord shall
have the option (in Landlord’s sole discretion) to terminate this Lease upon
ten (10) days written notice to Tenant (“Landlord’s Entitlement Termination Right”).  Following the exercise of Landlord’s
Entitlement Termination Right, (a) the Lease shall be fully and finally
surrendered and terminated and shall no longer be of any force or effect,
except for those provisions that, by their express terms, survive the
expiration or earlier termination of the Lease; and (b) Landlord will
immediately return to Tenant any Base Monthly Rental previously paid by Tenant
to Landlord under this Lease, plus interest thereon at LIBOR if Landlord has
held such Base Monthly Rental payments for longer than twelve (12) months prior
to such termination.

 

19.2.2      Landlord’s Termination Right For Techbilt
Purchase Option.  Under that certain Real Estate Sale and
Purchase Agreement and Joint Escrow Instructions (the “Techbilt PSA”) dated
February 19, 2010 between Tenant and Techbilt, Techbilt has the right to
repurchase the Land under certain circumstances, as more fully described in Section 18.2
of the Techbilt PSA (the “Techbilt
Repurchase Option”).   If
Techbilt exercises its Techbilt Repurchase Option, and Landlord sells the Land
to Techbilt under the Techbilt Repurchase Option, then effective immediately
prior to the closing of such sale of the Land to Techbilt, this Lease shall
automatically be fully and finally surrendered and terminated and shall no
longer be of any force or effect, except for those provisions that, by their
express terms, survive the expiration or earlier termination of the Lease (a “Techbilt Termination Event”).  If a Techbilt Termination Event occurs and
the circumstances giving rise to Techbilt’s right to exercise the Techbilt
Purchase Option were caused by Tenant’s negligent acts or omissions (and not
caused by Landlord’s negligent acts or omissions), then within ten (10) business
days of Tenant’s receipt of an invoice therefor, Tenant will pay Landlord an
amount equal to 50% of the difference
between (a) the Aggregate Disbursements made by Landlord plus any other
costs out-of-pocket incurred by Landlord with respect to this Lease which have
accrued as of the Techbilt Termination Event and (b) the aggregate
proceeds received by Landlord from such sale pursuant to the Techbilt Repurchase
Option; provided, in all other
circumstances, if a Techbilt Termination Event occurs Landlord will immediately
return to Tenant any Base Monthly Rental previously paid by Tenant to Landlord
under this Lease, plus interest thereon at LIBOR if Landlord has held such Base
Monthly Rental payments for longer than twelve (12) months prior to such
termination.

 

19.3         Landlord Default; Firm Completion Date

 

19.3.1      Landlord shall not be in default under
this Lease unless Landlord fails to perform any of its obligations under this
Lease, such failure materially interferes with the Tenant’s use and operations
within the Premises and Landlord fails to cure such default within twenty (20)
days after written notice from Tenant specifying the nature of such default where

 

35

 

such default could reasonably be cured within said twenty (20) day
period, or fails to commence such cure within said twenty (20) day period and
thereafter fails to continue with due diligence to prosecute such cure to
completion where such default could not reasonably be cured with said twenty
(20) day period.  If a Landlord default
occurs, then (1) Tenant may proceed in equity or at law to compel Landlord
to perform its obligation and/or to recover damages proximately caused by such
failure to perform; and/or (2) Tenant may perform such obligations and
have the right to be reimbursed for the sum it actually and reasonably expends
in the performance thereof.

 

19.3.2      If the Substantial Completion Date has
not occurred by January 1, 2013 (the “Firm Completion Date”), then Tenant’s
obligation to pay Base Monthly Rental will be abated down to zero dollars ($0)
until such time as the Substantial Completion Date occurs (at which time Tenant
will resume paying full Rent in accordance with Article 3); provided, however that the Firm Completion
Date shall be subject to reasonable extension on account of a Tenant Delay or
Force Majeure.  As used herein, “Tenant Delay” shall
mean: (1) delays or failure of Tenant to deliver items in accordance with
the Work Letter; (2) Tenant’s failure to timely fulfill its obligations as
set forth in the Lease related to Landlord’s Construction Work within the time
periods set forth herein; (3) delays caused by Shell and Core Tenant
Change Order Requests or TI Tenant Change Order Requests; or (4) a willful
or negligent act or omission of Tenant or Tenant’s Agents that materially
interferes with the progress of the work; provided, however, that
if Landlord becomes aware of any event or circumstance constituting a Tenant
Delay and does not provide Tenant with notice thereof within five (5) business
days after the date on which Landlord becomes aware of such event or
circumstance, then any period of time between the date on which such five (5) business
day period expires and the date upon which Landlord does provide such notice to
Tenant shall not be considered part of such Tenant Delay; provided, further,
however, that no such notice and cure period shall be required if such
delay is with respect to interference with the Landlord’s construction
activities and Landlord has previously notified Tenant of similar Tenant
Delays.

 

19.3.3      Notwithstanding the foregoing, Tenant
shall have no right to terminate this Lease for any such default by Landlord,
and in no event shall Landlord be liable for loss of profits or special,
incidental or consequential damages arising from any such default.

 

19.3.4      Notwithstanding any provision of this
Lease to the contrary, if (A) the Substantial Completion Date is delayed
as a result of Force Majeure for a period of five (5) years or more after
the date upon which Landlord provided notice to Tenant of such Force Majeure; (B) a
temporary taking of the Premises, as described in Section 21.4,
shall have occurred prior to the Substantial Completion Date and shall have
lasted for a period of five (5) years or more and such five (5) year
period expires prior to the Substantial Completion Date; or (C) Tenant’s
obligation to pay Base Monthly Rental has abated down to zero dollars ($) under
Section 19.3.2 for a period of five (5) years or more, then,
in each case (a) either party may terminate this Lease upon the expiration
of such five (5) year period by delivery of written notice of such
termination to the other party, and (b) provided that the event giving
rise to such Force Majeure, temporary taking or abatement (as the case may be)
was not caused by any act or omission of Tenant, upon such termination Landlord
will immediately return to Tenant any Base Monthly Rental previously paid by
Tenant to Landlord under this Lease, plus interest thereon at LIBOR if Landlord
has held such Base Monthly Rental payments for longer than twelve (12) months
prior to such termination.  Upon any termination
under this Section 19.3.4, the Lease shall be fully and finally
surrendered and terminated and shall no longer be of any force or effect,
except for those provisions that, by their express terms, survive the
expiration or earlier termination of the Lease.

 

36

 

ARTICLE 20

 

Damage or Destruction

 

20.1         Landlord’s Obligation to Rebuild. 
If the Premises are partially or completely damaged or destroyed by fire
or other perils (as opposed to ordinary wear and tear in which case Tenant’s
obligations under Article 11 shall apply), Landlord shall promptly
and diligently rebuild and restore the Premises unless it has the right to
terminate this Lease as provided in Section 20.2 below and it
elects to so terminate.  For purposes of
this Section 20.1, “Premises” shall include any real property and/or fixture
improvements located within the Premises as of the date upon which such damage
or destruction occurs, except for those items set forth on Exhibit ‘C’.  If required pursuant to this Section 20.1,
Landlord shall promptly rebuild or restore the Premises to as nearly as
possible its condition immediately prior to such destruction or damage, such
work (including, without limitation, the hiring of an architect) to be
commenced within ninety (90) days from the time of disaster and thereafter to
be prosecuted with due diligence until such rebuilding or restoration is
completed.  Landlord shall have the right
to receive the proceeds of all insurance policies maintained by Landlord and
Tenant with regard to the Premises and relating to such damage or destruction
(except for those proceeds which are (a) payable under policies obtained
by Tenant which specifically insure Tenant’s personal property and machinery,
and (b) are payable with regard to property which Tenant is permitted to
remove from the Premises upon the expiration or termination of this Lease
pursuant to the provisions of this Lease), and such proceeds shall be deemed
the property of Landlord.  If Landlord is
required to restore the Premises following any damage or destruction pursuant
to this Section 20.1, then Landlord shall deposit any insurance
proceeds received by Landlord in connection with such damage or destruction
(other than proceeds from business interruption or rental abatement insurance
paid to cover the interruption of Landlord’s business) in a separate account at
a bank to be determined by Tenant (provided that such bank shall have a rating
of at least “AAA” under the Standard & Poors ratings for financial
institutions)  and shall grant Tenant
a security interest in such account via a deposit account control agreement and
a security agreement in form and substance reasonably satisfactory to Landlord
to secure the performance by Landlord of its restoration obligations under this
Section 20.1.

 

20.2         Landlord’s Right to Terminate. 
Landlord shall have the right to terminate this Lease following damage
to or destruction of the Premises if any of the following occurs:  (i) the amount of insurance proceeds
(other than proceeds from business interruption or rental abatement insurance
paid to cover the interruption of Landlord’s business) that have been
irrevocably committed (in writing within ninety (90) days following the date of
damage) without material condition (except for the right to make progress
payments) to be paid to Landlord by Landlord’s insurer is insufficient to pay
one hundred percent (100%) of the cost to fully repair the damaged Premises
(including any real property or fixture improvement thereon, except for those
items set forth on Exhibit ‘C’), excluding the deductible for which Tenant
shall also be responsible (provided, however, in the event of damage or
destruction prior to the Substantial 

 

37

 

Completion Date Tenant
shall not be responsible for any deductible); (ii) the Premises cannot,
with reasonable diligence, be fully repaired by Landlord within twenty-four
(24) months after the date of the damage or destruction; (iii) the
Premises cannot be safely repaired because of the presence of hazardous
factors, including, but not limited to, earthquake faults, radiation, chemical
waste and other similar dangers; (iv) the Premises are destroyed or
damaged during the last twenty-four (24) months of the Lease Term (exclusive of
any option periods); or (v) an uncured Event of Default exists at the time
of such damage or destruction.  Any
Damage Determination Notice delivered pursuant to Section 20.6
shall specify which (if any) of the items described in Sections 20.2(i)-(v) are
applicable to such Damage Determination Notice. Notwithstanding the foregoing,
if, prior to the Term Commencement Date, Landlord exercises its right to
terminate this Lease pursuant to this Section 20.2, and provided
that the damage or destruction giving rise to such termination was not caused
by Tenant’s acts or omissions, then upon such termination Landlord will
immediately return to Tenant any Base Monthly Rental previously paid by Tenant
to Landlord under this Lease, plus interest thereon at LIBOR if Landlord has
held such Base Monthly Rental payments for longer than twelve (12) months prior
to such termination.

 

20.3         Tenant’s Right to Terminate. 
Tenant shall have the right to terminate this Lease following damage to
or destruction of the Premises if any of the following occurs:  (i) the Premises cannot reasonably be
expected to, with reasonable diligence, be fully repaired by Landlord within
twenty-four (24) months after the date of the damage or destruction; or (ii) the
Premises are destroyed or damaged during the last twenty-four (24) months of
the Lease Term.

 

If a party elects to
terminate this Lease pursuant to Section 20 and has the right to so
terminate, such party will give the other party written notice of its election
to terminate within thirty (30) days after (a) with respect to the
Landlord, Landlord’s delivery of the Damage Determination Notice under Section 20.6
indicating the satisfaction of the conditions set forth in Section 20.2,
and (b) with respect to Tenant, Tenant’s receipt of the applicable Damage
Determination Notice under Section 20.6 and the satisfaction of the
conditions set forth in Section 20.3; and in such case this Lease
will terminate fifteen (15) days after receipt of such notice.  If this Lease is terminated pursuant to Sections
20.2 or 20.3, Landlord shall, subject to the rights of its
lender(s), be entitled to receive and retain all the insurance proceeds
resulting from the applicable damage or destruction, except for those proceeds
which are (i) payable under policies obtained by Tenant which specifically
insure Tenant’s personal property and machinery, and (ii) applicable to
property that Tenant would be permitted to remove from the Premises upon the
expiration or termination of this Lease pursuant to this Lease.  If neither party elects to terminate the
Lease, Landlord shall, promptly following the date of such damage or
destruction and receipt of commitments for the amounts required of Tenant
pursuant to Section 20.2(i) above, commence the process of
obtaining necessary permits and approvals, and shall diligently commence repair
of the Premises as soon as practicable and thereafter prosecute the same
diligently to completion, in which event this Lease will continue in full force
and effect.

 

20.4         Limited Obligation to Repair. 
Landlord’s obligation to repair or rebuild in accordance with this Section 20
shall include an obligation to repair or rebuild the Premises (including any
real property and/or fixture improvements existing on the Premises as of the
time of such damage or destruction, except for those items set forth on Exhibit ‘C’).
In addition, Tenant shall, at its expense, replace or fully repair all of
Tenant’s personal property and any 

 

38

 

alterations installed by
Tenant existing at the time of such damage or destruction that Tenant would
otherwise be permitted to remove from the Premises upon the expiration or
termination of this Lease pursuant to this Lease; provided, so long as
there is no uncured Event of Default caused by Tenant, Landlord will make
available to Tenant any portion of insurance proceeds Landlord receives which
are allocable to the alterations and property Tenant is obligated to repair
under this Section 20.4, with such proceeds to be disbursed
according to such procedures and requirements as Landlord shall reasonably
specify.  Notwithstanding the foregoing,
Landlord may, in Landlord’s sole discretion, elect to repair or rebuild those
items set forth on Exhibit ‘C’ provided that Tenant assigns, and Tenant
shall assign, any insurance proceeds Tenant receives in connection therewith to
Landlord, and in any event only to the extent that the cost of such repair or
rebuild is covered by such proceeds.

 

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

 

20.6         Replacement Cost & Timing. 
The determination in good faith by Landlord of (a) the estimated
cost of repair of any damage, (b) the time period required for repair and (c) the
information set forth in Sections 20.2(i)-(v) of this Lease shall
be communicated to Tenant in writing within ninety (90) days of an event of
damage or destruction (such notice, a “Damage Determination Notice”) and be
conclusive for purposes of this Section.

 

20.7         Standing for Claims. 
If Landlord has the right to make a Claim against a third party related
to the damage or destruction to the Premises caused by such third party, and
Landlord has legal standing to file and prosecute such a Claim (but Tenant does
not have such standing), then, if requested by Tenant, Landlord shall either (i) file
and diligently prosecute such a Claim itself, or (ii) allow Tenant to file
in the name of Landlord and diligently prosecute such a Claim on Landlord’s
behalf provided, in each case, any recoveries arising from such a Claim will (a) first
be applied to each parties’ costs and expenses incurred in connection with such
Claim (which amounts will be allocated pro rata if insufficient to cover the
totality of such expenses); (b) to the extent such proceeds are
compensation for the damage or destruction to the Premises, such proceeds will
be applied to the repair of the Premises in accordance with the procedures set
forth in this Section 20; and (c) at the election of Tenant,
any remaining proceeds will either be split [***]% to Landlord and [***]% to
Tenant (with no application of such proceeds to the PO Model as a cash inflow),
or Landlord shall retain [***]% of such proceeds and such [***]% shall be
applied in the PO Model as a cash inflow for consideration in the
calculation.  Each party will execute
such other instruments, give such further assurances and perform such acts
which are or 

 

39

 

may become necessary or
appropriate to effectuate and carry out the provisions and intent of this Section 20.7.  Notwithstanding the foregoing, Tenant
acknowledges that any right that it may have to file such a Claim shall be
subordinate to, and may be eliminated by the rights that any insurer may have
to file or prosecute such a Claim, including any rights that arise as a matter
of law (by subrogation or otherwise) or that may be assigned by Landlord to
such insurer.  Landlord and Tenant fully
expect that Tenant shall have no rights under this Section 20.7
with respect to insurable Claims because under most circumstances any right to
file or prosecute such a Claim shall be held by Landlord’s insurer or Tenant’s
insurer.  Notwithstanding anything in
this Section 20.7, if the provisions of this Section 20.7
would in any way limit or adversely affect the rights of Landlord or Tenant
under or with respect to any policy or contract of insurance, then the first
section of this Section 20.7 shall not be given effect.  Additionally, should Landlord file a Claim at
the request of Tenant, Tenant shall reimburse Landlord for all its costs and
expenses in connection with such Claim (including internal overhead costs and
in-house legal department costs) in the event Landlord does not recover any
award as a result of such Claim or in the event that any recoveries are
insufficient to cover Landlord’s costs and expenses.

 

ARTICLE 21

 

Condemnation

 

21.1         Total Taking — Termination. 
If title to all of the Premises or so much thereof is taken for any
public or quasi-public use under any statute or by right of eminent domain so
that reconstruction of the Premises will not result in the Premises being
reasonably suitable (as reasonably determined by Landlord and Tenant) for
Tenant’s continued occupancy for the Permitted Use pursuant to this Lease, this
Lease shall terminate as of the earlier to occur of:  (a) the date on which the condemnor
takes possession of the portion of the Premises that is subject to the
condemnation, or (b) the date on which title to the portion of the
Premises that is subject to the condemnation is vested in the condemnor.  If a termination occurs under this Section 21.1
before the Term Commencement Date, Landlord will immediately return to Tenant
any Base Monthly Rental paid by Tenant to Landlord under this Lease, plus
interest at LIBOR if Landlord has held such Base Monthly Rental payments for
longer than 12 months prior to such termination.

 

21.2         Partial Taking.  If any part
of the Premises is taken and the remaining part after Landlord makes repairs
and alterations is reasonably suitable, as reasonably determined by Landlord
and Tenant, for Tenant’s continued occupancy for the Permitted Use pursuant to
this Lease, this Lease shall, as to the part so taken, terminate as of the date
that possession of such part of the Premises is taken and the Base Monthly
Rental shall be reduced in the same proportion that the floor area of the
portion of the Building Improvements so taken (less any addition thereto by reason
of any reconstruction) bears to the floor area of the Building Improvements
measured immediately prior to such taking. 
Landlord shall, at its sole cost and expense, make all necessary repairs
or alterations to the Building Improvements so as to make the portion of the
Building Improvements not taken a complete architectural unit; provided,
however, that if such partial taking occurs during the Lease Term, Landlord
shall only be required to make such repairs or alterations to the extent of any
condemnation proceeds received by Landlord with regard to any such taking
(exclusive of any condemnation proceeds relating to any loss or reduction of
income  to
be derived by Landlord with regard to the Premises).  Such 

 

40

 

work shall not, however,
exceed the scope of the work done by Landlord in originally constructing the
Building Improvements.  Base Monthly
Rental due and payable hereunder shall be temporarily abated during such restoration
period in proportion to the degree to which Tenant’s Permitted Use of Premises
is impaired.  Each party hereby waives
the provisions of Section 1265.130 of the California Code of Civil
Procedure allowing either party to petition the Superior Court to terminate in
the event of a partial taking of the Building Improvements or the
Premises.  Notwithstanding the foregoing,
if more than twenty-five percent (25%) of the square footage of the Building
Improvements which have been completed immediately prior to such taking is
taken or sold under such threat, Landlord or Tenant may terminate this Lease as
of the earlier to occur of:  (a) the
date on which the condemning authority takes possession of the portion of the
Premises that is subject to the condemnation, or (b) the date on which
title to the portion of the Premises that is subject to the condemnation is
vested in the condemning authority, in each case provided that Landlord or
Tenant, as applicable, delivers written notice of such election to terminate to
the other party within twenty (20) days after such party receives notification
of the taking or, in the absence thereof, within twenty (20) days after the
condemning authority shall have taken possession of such portion of the
Premises.  If a termination occurs under
this Section 21.2 before the Term Commencement Date, Landlord will
immediately return to Tenant any Base Monthly Rental paid by Tenant to Landlord
under this Lease, plus interest at LIBOR if Landlord has held such Base Monthly
Rental payments for longer than 12 months prior to such termination.

 

21.3         No Apportionment of Award. 
No award for any partial or entire taking shall be apportioned, it being
agreed and understood that Landlord shall be entitled to the entire award for
any partial or entire taking.  Tenant
assigns to Landlord its interest in any award which may be made in such taking
or condemnation, together with any and all rights of Tenant arising in or to
the same or any part thereof.  Any award
received by Landlord pursuant to this Article 21 shall be applied
in the PO Model as a cash inflow for consideration in the calculation. Nothing
contained herein shall be deemed to give Landlord any interest in or require
Tenant to assign to Landlord any separate award made to Tenant for the (a) unamortized
or undepreciated value of any property that Tenant has the right to remove from
the Premises upon the expiration or sooner termination of the Lease Term
pursuant to this Lease, (b) interruption of Tenant’s business, (c) any
relocation and/or business re-establishment benefits, or (d) loss of
goodwill.  Notwithstanding the foregoing,
Tenant shall be entitled to receive an award to the extent of that portion of
the award received by Landlord which is directly attributable to unamortized or
undepreciated value of any property that Tenant has the right to remove from
the Premises upon the expiration or sooner termination of the Lease Term
pursuant to this Lease.

 

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

 

41

 

21.5         Sale Under Threat of Condemnation. 
A sale made in good faith by Landlord to any authority having the power
of eminent domain, either under threat of condemnation or while condemnation
proceedings are pending, shall be deemed a taking under the power of eminent
domain for all purposes of this Article 21.  Landlord will provide Tenant with as much
advance notice as is reasonably practicable regarding any actual or
contemplated sale under this Section 21.5.

 

ARTICLE 22

 

Surrender of Lease

 

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

 

ARTICLE 23

 

Attorneys’ Fees

 

23.1         Attorneys’ Fees.  If either
party institutes or is made a party to any action or proceeding to enforce or
interpret this Lease, the prevailing party in such action or proceeding shall
be entitled to recover all costs and attorneys’ fees incurred in connection
with such action or proceeding, or any appeal or enforcement of such action or
proceeding in proportion to [***], up to a maximum of 100%; provided, however, that in the case where
the prevailing party is awarded any equitable relief, then the prevailing party
may recover the full amount of such costs and attorney’s fees.  For example, if the prevailing party [***]
and no equitable relief, but [***], and the prevailing party had two hundred
thousand dollars ($200,000) in costs and attorneys’ fees, then such prevailing
party would be entitled to recover [***] of such costs and attorneys’ fees.

 

ARTICLE 24

 

Sale of the Premises by Landlord; Purchase Option; ROFN

 

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

 

24.2         Purchase Option.

 

24.2.1              Tenant is hereby granted seven separate options  to purchase the Premises from Landlord at
the end of the following respective Lease Years:  the fifth (5th),
sixth 

 

42

 

(6th), seventh
(7th), eighth (8th),
ninth (9th), fifteenth (15th) and twentieth (20th)
Lease Year, subject to and in accordance with the terms of this Section 24.2
(each a “Purchase Option”).  The term “Lease Year” as referred to herein shall
mean each twelve-month period within the Lease Term commencing upon the Term
Commencement Date.  Each subsequent Lease
Year ends twelve months after the preceding one.  The last day of each of the fifth (5th), sixth (6th),
seventh (7th), eighth (8th),
ninth (9th), fifteenth (15th) and twentieth (20th)
Lease Year shall be referred to herein as the “Purchase Option Closing Date” for each
applicable Purchase Option.

 

24.2.2      Tenant
shall have no right to exercise any Purchase Option, or consummate any
acquisition pursuant thereto, (a) during any period when a Tenant default
exists and is continuing under this Lease (except as provided in Section 19.1.4),
or (b) if this Lease has expired or otherwise been terminated.  The rights contained in this Section 24.2
shall be personal to Tenant or to any assignee pursuant to an Exempt
Assignment, and shall automatically become null and void upon any transfer or
assignment by the Tenant (other than an Exempt Assignment).

 

24.2.3      If
Tenant chooses to exercise any Purchase Option, then (a) the closing date
for the purchase of the Premises shall be the respective Purchase Option
Closing Date, and (b) Tenant shall deliver written notice to Landlord of
Tenant’s decision to exercise the Purchase Option (the “Purchase Option Exercise Notice”)
at least ninety (90) days prior to such Purchase Option Closing Date.  If Tenant exercises any Purchase Option, but
the closing of Tenant’s purchase of the Premises does not occur by the Purchase
Option Closing Date (for any reason other than due to the material default of
Landlord hereunder or under the applicable Purchase and Sale Agreement or a
failure of closing conditions for the benefit of Tenant set forth in Section 4
of the Purchase and Sale Agreement), then the Purchase Option exercised by
Tenant (and all other Purchase Options under this Lease) shall automatically
lapse and be of no further force or effect, and Tenant shall have no further
rights under this Section 24.2. 
Notwithstanding the foregoing, if Landlord has encumbered the title to
the Premises in a manner which constitutes a violation of the terms of this
Lease, then (unless Tenant previously consented to such encumbrance) the
applicable Purchase Option Closing Date shall be automatically extended until
such encumbrance is either (i) removed as an encumbrance on title to the
Premises, or (ii) insured over by the applicable title company.

 

24.2.4      Upon
Landlord’s receipt of the Purchase Option Exercise Notice from Tenant, Landlord
and Tenant shall execute a purchase and sale agreement for the Premises
substantially in the form attached hereto as Exhibit ‘G’ (the “Purchase and Sale Agreement”).  In connection with such purchase and sale,
Tenant shall reimburse Landlord for all reasonable and customary costs actually
incurred by Landlord in connection with the purchase and sale transaction
including, but not limited to, attorneys’ fees for outside counsel (provided,
however, that Tenant will not be required to reimburse Landlord’s
attorneys’ fees in excess of $25,000 (as such amount shall be adjusted by
multiplying $25,000 by the CPI Adjustment Factor described below)).  As used herein, the “CPI Adjustment Factor”
means, as of any date, the greater of (a) the CPI for such date divided by
the CPI for the Effective Date; and (b) 1.00. As used herein, “CPI” means the United
States Department of Labor, Bureau of Labor Statistics “Consumer Price Index”
for All Urban Consumers (CPI-U) published for the Los Angeles-Riverside-Orange
County, CA, Metropolitan Statistical Area, with a base of 1982-1984 = 100.  If the CPI ceases to be published, with no
successor index, then the parties shall reasonably agree upon a reasonable
substitute index.  The CPI for any date
means the CPI last published before the calendar month that includes such date.

 

43

 

24.2.5      The
purchase price payable by Tenant for the acquisition of the Premises pursuant
to the Purchase Option shall be as follows:

 

(a)           With regard to any acquisition of the
Premises pursuant to the Purchase Option at the end of Lease Year five (5), six
(6), seven (7), eight (8) or nine (9), the purchase price shall be
calculated as of the applicable Purchase Option Closing Date as further
described on Exhibit ‘D’ (referred to herein as the “PO Model”).  For illustrative purposes, a sample
calculation of the purchase price pursuant to this Section 24.2.5(a) is
also attached hereto as Exhibit ‘D’. 
Furthermore, contemporaneously with the execution of this Lease, the
parties will exchange a mutually agreed upon software model in executable
Microsoft Excel format. Each party shall receive the software model in compact
disc format, and shall hold such compact disc in escrow until a Purchase Option
Exercise Notice is delivered, at which point such model shall be utilized to
calculate the purchase price at the time of the relevant Purchase Option
Closing Date.  Promptly following the
[***], the parties will discuss and endeavor to agree upon the applicable
purchase price (in accordance with Exhibit ‘D’) for the Purchase Options
at the end of Lease Year five (5), six (6), seven (7), eight (8) and nine
(9), and the parties will by written amendment append such purchase prices to
this Lease as a new Exhibit.  If the
parties are unable to agree upon the applicable purchase price, then this Lease
shall continue in full force and effect until such purchase price is agreed
upon.  If the date on which such purchase
price is agreed upon is after the applicable Purchase Option Closing Date has
passed then the closing shall occur on the date that is thirty days after such
purchase price is agreed upon.

 

(b)           With regard to any acquisition of the
Premises pursuant to the Purchase Option at the end of Lease Year fifteen (15)
or twenty (20), the purchase price shall equal the “fair market value”
for the Premises determined as of the date that is sixty (60) days prior to the
Purchase Option Closing Date.  For
purposes of this Section 24.2, the “fair market value” of the Premises shall
be determined by the mutual agreement of Landlord and Tenant.  However, if Landlord and Tenant are unable to
agree upon such fair market value by the sixtieth (60th) day prior to the Purchase
Option Closing Date, then “fair
market value” shall be determined by a process whereby (i) each
party shall select an independent and licensed appraiser (who must be a
qualified MAI appraiser) for the Premises (with at least ten (10) years
experience appraising properties of similar type, use and location as the
Premises) within fifteen (15) days of the sixtieth (60th) day prior to the
Purchase Option Closing Date, (ii) each such appraiser shall prepare an
appraisal of the Premises within fifteen (15) business days after their
selection, (iii) if the appraisals of both appraisers with respect to the
Premises differ by an amount equal to or less than five percent (5%) of the
higher of the two appraisals, then the average of such appraisals shall be
deemed to be the fair market value for the Premises for purposes of this Section 24.2,
and (iv) if the appraisals of both appraisers with respect to the Premises
differ by an amount that exceeds five percent (5%) of the higher of the two
appraisals, then the two (2) selected appraisers shall agree upon the
selection of a third appraiser who must be a qualified MAI appraiser (also with
at least ten (10) years experience appraising properties of similar type,
use and location as the Premises that is unaffiliated with either party hereto
and that has not been retained or engaged by either party within the five (5) years
preceding such appointment) within fifteen (15) days of the date the second
determination is sent in, who shall 

 

44

 

prepare an appraisal of the Premises within fifteen (15) business days
after his or her selection, and such appraisal shall constitute the binding
determination of fair market value for purposes of this Section 24.2;
provided, however, that such appraisal may not be greater than
the higher of the other appraisals or less than the lower of the other
appraisals.  If the two appraisers are
unable to agree upon the selection of a third appraiser, then either Landlord
or Tenant shall be entitled to apply to the presiding judge of the Superior
Court of the County of San Diego, California for the selection of a third
appraiser who shall be selected from a list of names of experienced appraisers
submitted by Landlord or from a list of names submitted by Tenant, as the case
may be, unless both Landlord and Tenant submit lists of names, in which case
the Court, in its sole discretion, shall select the third appraiser from the
lists.  The cost of all appraisals performed
in accordance with this Section 24.2 shall be paid by Tenant.  Such determination of “fair market value”
determined in accordance with this Section 24.2.5 shall be binding
upon the parties.

 

(c)           In addition to the purchase price payable
by Tenant pursuant to this Section 24.2.5, as a condition to
closing, Tenant shall pay all Rent owing to Landlord as of the applicable
Purchase Option Closing Date.

 

24.2.6      It is
the intent of the parties that the “fair market value” of the Premises be
determined by using the appraisal valuation standards then commonly used by
professional appraisers in determining fair market value of biomedical use
properties in the state in which the Premises is located.  Any appraiser appointed pursuant to this Article 24
shall be instructed to determine independently the fair market value of the
Premises in accordance with the definition of the term set forth in this Section 24.2.6.

 

24.2.7      Time
is of the essence in the performance of the parties’ respective obligations
contained in this Section 24.2.

 

24.2.8      Landlord
and Tenant agree to execute such additional documents, including, without
limitation, escrow instructions, and take such further actions, as may be
reasonable and necessary to carry out the provisions of this Section 24.2.

 

24.2.9      Upon
the consummation of the Tenant’s acquisition of the Premises pursuant to the
Purchase Option, this Lease shall terminate, and shall be of no further force
or effect, except for those rights, obligations, and liabilities which
expressly survive such termination or which have accrued prior to such
termination.

 

24.3         Right of First Negotiation. 
If at any time during the Lease Term, Landlord decides to sell the Land
or the Premises, Landlord shall deliver to Tenant written notice thereof (the “Sale Notice”).  Tenant may, within ten (10) business
days after its receipt of the Sale Notice, elect by written notice to Landlord
to negotiate with Landlord to purchase the Premises by delivering written
notice to Landlord (“Tenant’s
Acceptance Notice”). 
Promptly thereafter, the parties shall negotiate in good faith the terms
and conditions of such purchase and sale of the Premises.  If the parties are unable to agree on
mutually acceptable terms and conditions and execute a binding commitment for
the purchase and sale of the Premises within sixty (60) days after the date of
the Sale Notice (“Offer
Period”), Landlord shall be deemed to have satisfied its
obligation to provide Tenant with the right of first negotiation provided for
herein and may offer 

 

45

 

to sell the Premises in
the open market.  If Landlord fails to
close on the sale of the Premises with a third party within six (6) months
from the expiration of the Offer Period (provided such period shall be
extended as necessary to close the transaction if Landlord and such third party
are in escrow within the six (6) month period), the right of first
negotiation provided for herein shall again apply.  Tenant’s failure to exercise its right of
first negotiation under this Section 24.3 shall not affect any of Tenant’s
other rights under this Lease.

 

ARTICLE 25

 

Quiet Enjoyment

 

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

 

ARTICLE 26

 

Estoppel Certificates and Financial Statements

 

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

 

26.2         Landlord Estoppel Certificates. 
Landlord shall at any time during the term of this Lease, within fifteen
(15) days of written notice from Tenant, execute and deliver to Tenant a
statement in writing certifying that this Lease is unmodified and in full force
and effect or, if modified, stating the nature of such modification.  Landlord’s statement shall also include the
dates to which Rent and other charges are paid in advance, if any, an
acknowledgment that there are not, to Landlord’s knowledge, any uncured
defaults on the part of Tenant hereunder, or specifying such defaults if any
are claimed, and such further information with respect to this Lease or the
Premises as may be reasonably requested thereon.  Any such statement may be relied upon by any
encumbrancer of Tenant’s interest in the Premises.

 

46

 

26.3         Tenant Financial Statements. 
Within 120 days after the end of each fiscal year, Tenant shall provide
Landlord, upon Landlord’s written request, a copy of the audited financial
statements that have been provided to the US Securities and Exchange Commission  (“SEC”) or, in the event Tenant is no longer
required to deliver such financial statements to the SEC, year-end financial
statements, including balance sheets and income statements, reflecting Tenant’s
current financial condition for such fiscal year that have been prepared in
accordance with U.S. GAAP and audited by a nationally or regionally recognized
firm of certified public accountants.  In
the event Tenant is no longer required to deliver such financial statements to
the SEC, Tenant will represent and warrant at the time it provides any financial
statements, records or information pursuant hereto that all financial
statements, records and information furnished by Tenant to Landlord in
connection with this Lease were prepared in accordance with U.S. GAAP and
comply with the requirements of Rule 10(b)-5 under the Securities Exchange
Act of 1934, as amended.  Furthermore, in
the event that Tenant is no longer required to deliver such financial
statements to the SEC, Tenant agrees that it shall promptly furnish to
Landlord, from time to time upon Landlord’s written request, the most recent
audited year-end financial statements reflecting Tenant’s current financial
condition.  For purposes of
clarification, so long as Tenant has filed such financial statements with the
SEC within the time periods set forth above via the publicly available EDGAR
filing system (or any successor publicly available filing system), Tenant shall
not be required to separately deliver such financial statements to Landlord
pursuant to this Section 26.3.

 

ARTICLE 27

 

Subordination and Attornment; Tenant’s Right to Record

 

27.1         Subordination of Lease.  This Lease
and Tenant’s rights under this Lease, other than Tenant’s security interest in
any insurance proceeds as described in Section 20.1, are and shall
be subject and subordinate to any current or future mortgage or ground lease to
which Landlord is a party, and to all renewals, modifications, consolidations,
replacements, or extensions thereof, now or hereafter affecting the
Premises.  The provisions of this Section shall
be self operative, and no further instrument of subordination shall be
required.  In confirmation of such
subordination, however, Tenant shall within ten (10) days execute and
deliver any instruments that Landlord, the holder of any mortgage, or the
landlord of any ground lease may request to evidence such subordination.  If Tenant fails to execute and deliver any
such instruments, Tenant irrevocably constitutes and appoints Landlord as
Tenant’s special attorney-in-fact to execute and deliver such instruments.

 

27.2         Attornment to Lender.  If the holder
of any mortgage, or the landlord of any ground lease affecting the Premises,
shall hereafter succeed, by foreclosure or otherwise, to the rights of Landlord
under this Lease, Tenant shall attorn to and recognize such successor as Tenant’s
Landlord under this Lease, and shall promptly execute and deliver any
instruments that may be necessary to evidence such attornment, and Tenant
hereby irrevocably appoints Landlord as Tenant’s special attorney in fact to
execute and deliver such instruments on behalf of Tenant should Tenant refuse
or fail to do so.  Upon such attornment,
this Lease shall continue in effect as a direct lease between such successor
landlord and Tenant upon and subject to all of the provisions of this
Lease.  Notwithstanding the foregoing,
Tenant’s agreement both to subordinate and to attorn, as set forth in this
Article, is contingent upon Tenant’s receipt of a nondisturbance 

 

47

 

agreement from the holder
of any encumbrance placed against the Premises, in a recordable, commercially
reasonable form, providing that in the event of any foreclosure, sale under a
power of sale, ground or master lease termination, or transfer in lieu of any
of the foregoing, or the exercise of any other remedy under any such
encumbrance, but subject to reasonable exceptions:  (i) Tenant’s use, possession, and
enjoyment of the Premises and its rights under the Purchase Options will not be
disturbed and this Lease will continue in full force and effect so long as
Tenant is not in default; and (ii) this Lease will automatically become a
lease directly between any successor to Landlord’s interest, as landlord, and
Tenant, as if that successor were the landlord originally named in the lease.

 

27.3         Memorandum of Lease.  Concurrently
herewith, the parties shall promptly execute, acknowledge, and deliver
duplicate originals of a Memorandum of Lease in form attached hereto as Exhibit ‘F’
(the “Memorandum of
Lease”).  Either party may
record such Memorandum of Lease.  Any
taxes imposed upon such recording shall be paid by Landlord and treated as a
Disbursement under this Lease.  If the
parties amend this Lease, then the parties shall have the same rights and
obligations regarding a memorandum of such amendment as they do for the
Memorandum of Lease.  Except as provided
in this Section 27.3, Tenant shall not file or record any other
documents with respect to the Premises.

 

ARTICLE 28

 

Holding Over

 

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

 

ARTICLE 29

 

Mortgagee Protection

 

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

 

48

 

ARTICLE 30

 

Liability of Successors

 

30.1         Successor’s Liability.  The covenants
and conditions herein contained shall, subject to the provisions as to
assignment, apply to and bind the respective heirs, successors, executors,
administrators, and permitted assigns of each party hereto.

 

ARTICLE 31

 

Easements

 

31.1         Easements.  Landlord
reserves the right, from time to time, to grant such easements, rights, liens,
encumbrances and dedications that Landlord deems necessary or desirable, and to
cause the recordation of parcel maps and restrictions, so long as such
easements, rights, dedications, liens, encumbrances, maps and restrictions do
not unreasonably interfere with the Permitted Use of the Premises by
Tenant.  Should Landlord grant any such
easements, rights and dedications, Landlord shall notify Tenant promptly
thereafter.  Tenant shall sign any documents
or instruments to accomplish the foregoing upon request of Landlord, and
failure to do so shall constitute a material breach of this Lease.  Tenant irrevocably appoints Landlord as
Tenant’s special attorney in fact to execute and deliver such documents or
instructions on behalf of Tenant should Tenant refuse or fail to do so.  If Landlord receives any consideration for
granting any such easements, rights, dedications, liens, encumbrances, maps and
restrictions, such consideration shall be applied in the PO Model as a cash
inflow for consideration in the calculation; provided, however, that the
parties agree that any funds or other consideration received by Landlord or any
of Landlord’s Agents in connection with any encumbrances securing or relating
to money borrowed by Landlord or Landlord’s Agents shall not be applied in the
PO Model.

 

ARTICLE 32

 

Covenants, Conditions and Restrictions

 

32.1         Compliance with Covenants, Conditions and Restrictions. 
In addition to requirements imposed by law, the care of the Premises and
conduct of business thereupon, among other things, are restricted or subject to
heightened requirements pursuant to the CC&Rs.  Tenant has received a copy of all applicable
CC&R’s prior to its execution of this Lease, and such receipt is
acknowledged hereby.

 

32.2         Associations.  During the
Lease Term, Tenant shall faithfully observe and comply with the provisions of
all applicable CC&R’s, and all modifications and additions which may from
time to time be enacted pursuant to their terms.  Tenant shall similarly observe and comply
with all requests, demands and orders otherwise made by any governing
associations created under the authority of the CC&R’s (the “Associations”).  Any violation by Tenant of the CC&R’s or
rightful orders of the Associations created thereby after written notice to
Tenant shall be a default under this Lease (subject to the cure provisions of Section 18.1.2,
but only to the extent such CC&Rs or orders of the Associations afford such
cure period with regard to the applicable matter).  However, Landlord will not be responsible to
Tenant for the nonperformance of any provisions of such CC&R’s by its
tenants occupying neighboring properties, if any.

 

49

 

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

 

32.4         Carlsbad Oaks North Business Park Owners Association. 
If Landlord is granted a seat on the Carlsbad Oaks North Business Park
Owners Association (the “Association”),
then, to the extent permitted by the bylaws and rules of the Association,
Landlord shall designate Tenant to occupy and vote Landlord’s seat; provided,
however, that Landlord may replace Tenant as the party occupying such seat
following the occurrence of an Event of Default.  If Tenant is granted a seat on the
Association in lieu of Landlord, the provisions of this Section 32.4
shall apply to such circumstance as well. 
Landlord and Tenant will each promptly copy the other on communications
from the Association that relate to the Premises and any common areas.  With respect to any matter to be voted upon
by the Association, if within ten (10) business days of Landlord’s receipt
of a notice describing such matter to be voted upon by the Association, (i) Landlord
notifies Tenant regarding Landlord’s preferred vote on such matter, Tenant will
cast its vote as directed by Landlord; or (ii) in all other cases, Tenant
may cast its vote on such matter in Tenant’s sole discretion; provided,
that in any event, Landlord shall not vote (or direct Tenant to vote) in favor
of any matter to be voted upon by the Association that if adopted would
materially alter, reduce or adversely affect any of Tenant’s rights or
materially enlarge Tenant’s obligations under this Lease.  Notwithstanding any provision of this Section 32.4
to the contrary, if Landlord has not received ten (10) business days prior
notice (or such shorter amount of notice necessary for Landlord, in its sole
discretion, to review the matter and provide Tenant with its direction) of a
matter to be voted upon by the Association, then Tenant shall, to the extent
Tenant has the power to do so under the bylaws and rules of the
Association, cause the postponement of such vote until such time as Landlord
has been provided with reasonable prior notice of such matter to be voted upon;
provided, however, that Tenant shall be permitted to vote on a matter in
its discretion even if Landlord has not received ten (10) business days
prior notice and has not given direction to Tenant with respect to the vote, if
such matter shall not have an adverse effect on Landlord’s rights and remedies
under this Lease or Landlord’s interest in the Premises.

 

ARTICLE 33

 

Quitclaim Deed

 

33.1         Quitclaim Deed.  Tenant shall
execute and deliver to Landlord on the expiration date or earlier termination
of this Lease, promptly on Landlord’s request, a quitclaim deed conveying to
Landlord any and all interest of Tenant in and to the Premises, in recordable
form, unless this Lease terminated under Section 24.2.9.

 

50

 

ARTICLE 34

 

Hazardous Materials

 

34.1         Definitions:

 

34.1.1      Hazardous
Materials Laws.  “Hazardous Materials Laws” means any and all
federal, state or local laws, ordinances, rules, decrees, orders, regulations
or court decisions relating to hazardous substances, hazardous materials,
hazardous waste, toxic substances, environmental conditions on, under or about
the Premises, or soil and ground water conditions, including, but not limited
to, California Labor Code Section 6382, California Health and Safety Code Section 25249.5,
et seq., any amendments to and any regulations promulgated pursuant to the
foregoing, and any similar federal, state or local laws, ordinances, rules,
decrees, orders or regulations.

 

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

 

34.2         Tenant’s Obligations.

 

34.2.1      Compliance
with Laws.  During the Lease Term, Tenant shall strictly
comply with, and shall maintain the Premises in compliance with, all Hazardous
Materials Laws.  Tenant shall obtain and
maintain in full force and effect all permits, licenses and other governmental
approvals required for Tenant’s operations on the Premises under any Hazardous
Materials Laws and shall comply with all terms and conditions thereof.  At Landlord’s request, Tenant shall deliver
copies of, or allow Landlord to inspect, all such permits, licenses and
approvals.  Tenant shall perform any
monitoring, investigation, clean-up, removal, detoxification, preparation of
closure or other required plans and any other remedial work (collectively, “Remedial Work”)
required as a result of (a) any release or discharge of Hazardous
Materials from the Premises, (b) any other contamination of the Premises
caused by Hazardous Materials or (c) any violation of Hazardous Materials
Laws caused by Tenant or any permitted assignee or subtenant of Tenant or their
respective agents, contractors, employees, licensees or invitees, except in each case to the extent that any
such release, discharge, contamination or violation was caused by Landlord or
Landlord’s Agents.  Landlord shall have
the right to intervene in any governmental action or proceeding involving any
Remedial Work, and to approve performance of the work, in order to protect
Landlord interests.  Tenant shall be
solely responsible for paying all fines, damages and penalties imposed by any
Governmental Authority in connection with any Remedial Work pursuant to this Section 34.2.1.

 

51

 

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

 

34.2.3      Notice;
Reporting.  Tenant shall notify Landlord in writing
immediately after any of the following:  (a) Tenant
has knowledge, or has reasonable cause to believe, that any Hazardous Material
has been released or discharged under or about the Premises, whether or not the
Hazardous Material is in quantities that would require reporting to a public
agency; (b) Tenant receives any order of a Governmental Authority
requiring any Remedial Work pursuant to any Hazardous Materials Laws; (c) Tenant
receives any warning, notice of inspection, notice of violation or alleged
violation, or Tenant receives notice or knowledge of any proceeding,
investigation of enforcement action, pursuant to any Hazardous Materials Laws;
or (d) Tenant receives written notice of any claims made by any third
party against Tenant or the Premises relating to any loss or injury resulting
from Hazardous Materials.  Tenant shall
deliver to Landlord copies of all test results, reports and business management
plans required to be filed with any government agency pursuant to any Hazardous
Materials Laws.

 

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

 

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

 

34.2.6      Indemnification. 
After the Term Commencement Date, Tenant shall indemnify, protect,
defend and hold Landlord and Landlord’s Agents harmless from and against any
and all Claims arising after the Term Commencement Date and out of or in
connection with (a) any breach of any provision of this Lease relating to
the use, generation, storage, release, 

 

52

 

disposal or transportation of Hazardous Materials by Tenant or any
permitted assignee or subtenant, or their respective agents, contractors or
employees upon the Premises (but not by Landlord or Landlord’s Agents), on,
under or about the Premises during the Term, or (b) contamination of the
Premises by Hazardous Materials, in each case including, but not limited to,
all foreseeable and unforeseeable consequential damages and the cost of any
Remedial Work (even if resulting from Landlord’s actual or passive negligence),
but excepting any loss or injury to the extent resulting from the breach of the
Lease by Landlord or the gross negligence or willful misconduct of Landlord,
Landlord’s Agents or Landlord’s contractors or consultants.  Neither the consent by Landlord to the use,
generation, storage, release, disposal or transportation of Hazardous
Materials, nor strict compliance with all Hazardous Materials Laws, shall
excuse Tenant from Tenant’s indemnification obligations pursuant to this Section 34.2.6.  The foregoing indemnity shall be in addition
to and not a limitation of the indemnification provisions of Section 9
of this Lease.  Tenant’s obligations
pursuant to this Section 34.2.6 shall survive the termination or
expiration of the Lease.  The procedures
set forth in Article 9 also will apply to this Section.

 

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

 

ARTICLE 35

 

Miscellaneous

 

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

 

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

 

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

 

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

 

53

 

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

 

35.6         Amendment for Financing.  Upon written
request of Landlord, Tenant agrees to execute any lease amendments not
materially altering the terms of this Lease, if required by the first mortgagee
or beneficiary of a deed of trust encumbering real property of which the
Premises constitute a part (“Mortgagee”) incident to the financing of the real
property of which the Premises constitute a part.  Any change affecting the amount or timing of
the consideration to be paid by Tenant or modifying the term of this Lease
shall be deemed as materially alter the terms hereof.

 

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

 

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

 

35.9         Force Majeure.  For purposes
of this Lease, “Force
Majeure” shall mean any prevention, delay or stoppage due
to strikes; lockouts; acts of God; acts of terrorism; adverse weather
conditions; war; invasion; insurrection; acts of a public enemy; terrorism; riot;
mob violence; civil commotion; sabotage; labor disputes; general shortage of
labor, materials, facilities, equipment or supplies on the open market; delay
in transportation; delays caused by new, or changes to existing, laws, rules,
regulations or orders of any Governmental Authority; moratorium or other
governmental action; inability to obtain permits or approvals, including,
without limitation, city and public utility approvals beyond the time periods
that generally prevail for obtaining such permits and approvals; or any other
cause beyond the reasonable control of Landlord and Landlord’s Agents,
financial ability excepted, whether similar or dissimilar to the
foregoing.  Any Force Majeure event shall
excuse the performance by a party obligated to perform an obligation pursuant
to this Lease (except for those obligations of Tenant to pay Rent pursuant to
the terms of this Lease) for a period equal to the delay resulting from such
Force Majeure event.

 

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

 

	
  Rent to Landlord:

  	
   

  	
  BMR-GAZELLE COURT LLC

  Attn: Accounting

  17190 Bernardo Center Drive

  San Diego, California 96128

  

 

54

 

	
   

  	
   

  	
   

  
	
  Notices to Landlord:

  	
   

  	
  BMR-GAZELLE COURT LLC

  Attn: Vice President, Real Estate Counsel

  17190 Bernardo Center Drive

  San Diego, California 92128

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

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  BMR-GAZELLE COURT LLC

  Attn: Regional Director, West Coast Property
  Management

  17190 Bernardo Center Drive

  San Diego, California 92128

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

  
	
   

  	
   

  	
   

  
	
  Notices to Tenant:

  	
   

  	
  Isis
  Pharmaceuticals, Inc.

  Attn: Chief Operating
  Officer

  1896 Rutherford Road

  Carlsbad, California 92008

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

  

  with a copy to:

  General Counsel

  Fax: 760-268-4922

  

 

Notices may be delivered
by Federal Express, United Parcel Service, or other nationally recognized
overnight (one-night) mail courier service, or sent by facsimile (provided
a copy of such notice is deposited with an overnight courier for next business
day delivery).  Any such notice shall be
considered given on the date of such hand or couriered delivery, confirmed
facsimile transmission if received on a business day, deposit with such
overnight courier for next business day delivery.

 

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

 

35.11       Brokers.

 

35.11.1    Landlord
and Tenant each represents to the other that it has had no dealings with any
real estate broker or agent in connection with the negotiation and/or execution
of this Lease other than CresaPartners (“Broker”), and that they know of no other real
estate broker or agent that is or might be entitled to a commission in
connection with this Lease.  Tenant shall
compensate Broker in relation to this Lease pursuant to a separate agreement
between Tenant and Broker.

 

35.11.2    Tenant
and Landlord represent and warrant that no broker or agent has made any
representation or warranty relied upon by Tenant or Landlord in Tenant’s or
Landlord’s decision to enter into this Lease, other than as contained in this
Lease.

 

35.11.3    Tenant
acknowledges and agrees that the employment of brokers by Landlord is for the
purpose of solicitation of offers of leases from prospective tenants and that
no authority is granted to any broker to furnish any representation (written or
oral) or warranty from Landlord unless expressly contained within this
Lease.  Landlord and Tenant are executing
this Lease in reliance upon each other’s representations, warranties and
agreements contained within Section 35.11.

 

55

 

35.11.4    Each of
Landlord and Tenant agrees to indemnify, save, defend and hold the other
harmless from any and all costs or liability for compensation claimed by any
other broker or agent, other than Broker, employed or engaged by the indemnifying
party or claiming to have been employed or engaged by the indemnifying party.

 

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

 

35.13       Lease References.  All exhibits
and attachments to this Lease are incorporated by reference into this Lease,
and all references in this Lease to the “Lease” shall mean the Lease inclusive of all
exhibits and attachments thereto (including the Work Letter).

 

ARTICLE 36

 

OPTION TO EXTEND

 

36.1         Options To Extend.  Tenant shall
have the option to extend the term of this Lease for four (4) successive
renewal periods of five (5) years each, subject to the following
provisions:

 

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

 

56

 

36.1.2      The
period of time within which an option may be exercised shall not be extended or
enlarged by reason of Tenant’s inability to exercise an option because of the
occurrence of one or more of the matters described in Section 36.1.1.

 

36.1.3      An
option shall terminate and be of no further force or effect, notwithstanding
Tenant’s due and timely exercise of the option, if, after such exercise and
prior to the commencement of the extended term, (i) Tenant fails to pay
Rent for a period of thirty (30) days after such Rent becomes due, or (ii) an
Event of Default occurs.

 

36.1.4      Tenant
shall exercise an option by delivery of written notice to Landlord not less
than twelve (12) months prior to the expiration of the Lease Term (as the same
may have theretofor been extended by the exercise of a previous option pursuant
to this Section 36).  If said
notice is not delivered within said time period, such option and all remaining
options granted pursuant to this Section 36 shall automatically
terminate and be of no further force or effect.

 

36.2         Rent During Option Periods.

 

36.2.1      Rent. 
The Base Monthly Rental payable by Tenant during any option period shall
be the greater of:  (a) 95% of the “fair market rent” for
the Premises at the commencement date of such option period, and (b) the
Base Monthly Rental payable for the year immediately preceding the commencement
date of such option period; provided, however, that the Base
Monthly Rental payable during such option period shall be subject to the
escalation provisions of Section 3.3 with the first such escalation
occurring either (i) at the end of the second year of the extended term if
the Base Monthly Rental is determined in accordance with Section 36.2.1(a) or
(ii) upon the first day of the first Lease Year of the extended term if
the Base Monthly Rental is determined in accordance with Section 36.2.1(b).

 

36.2.2      Fair
Market Rent.  For purposes if this Section 36.2.2,
the “fair market rent”
for the Premises shall be determined as of the date that is sixty (60) days
prior to the first day of the first Lease Year of the extended term.  If Landlord and Tenant cannot agree on the
fair market rent of the Premises for any extension period by the sixtieth (60th) day prior to the first day of the first Lease Year
of the extended term, then, Landlord and Tenant shall each select, within
fifteen (15) days of such sixtieth (60th)
day prior to the first day of the first Lease Year of the extended term, an
appraiser who must be a qualified MAI appraiser with at least five (5) years
experience appraising properties of similar type, use and location as the
Premises to determine said “fair market rent.” 
If one party fails to so designate an appraiser within the time
required, the determination of “fair market rent” of the one appraiser who has been
designated by the other party within the time required shall be binding on both
parties.  The appraisers shall submit
their determinations of fair market rental value to both parties within fifteen
(15) business days after their selection. 
If the difference between the two determinations is ten percent (10%) or
less of the higher appraisal, then the average between the determinations shall
be the fair market rental value of the Premises.  If said difference is greater than ten
percent (10%), then the two appraisers shall within fifteen (15) days of the
date the second determination is submitted to 

 

57

 

the parties designate a third appraiser who must also be a qualified
MAI appraiser with at least five (5) years experience appraising
properties of similar type, use and location as the Premises that is
unaffiliated with either party hereto and that has not been retained or engaged
by either party within the five (5) years preceding such appointment.  If the two appraisers are unable to agree
upon the selection of a third appraiser, then either Landlord or Tenant shall
be entitled to apply to the presiding judge of the Superior Court of the County
of San Diego, California for the selection of a third appraiser who shall be
selected from a list of names of experienced appraisers submitted by Landlord
or from a list of names submitted by Tenant, as the case may be, unless both
Landlord and Tenant submit lists of names, in which case the Court, in its sole
discretion, shall select the third appraiser from the lists.  The sole responsibility of the third
appraiser will be to determine which of the determinations made by the first
two appraisers is most accurate.  The
third appraiser shall have no right to propose a middle ground or any
modification of either of the determinations made by the first two
appraisers.  The third appraiser’s choice
shall be submitted to the parties within fifteen (15) business days after his
or her selection.  Such determination
shall bind both of the parties and shall establish the fair market rental value
of the Premises.  Each party shall pay
equal shares of the fees and expenses of the third appraiser.  Fair market rent for the purposes of this
Lease shall mean the then prevailing rent for buildings in the Carlsbad,
California life science market, of comparable size, quality and location to the
demised Premises, and leased on terms comparable to the terms contained in this
Lease.

 

36.3         Intentionally Deleted.

 

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

 

36.5         Waiver of Jury Trial.  To the extent
permitted by Applicable Law, the parties hereby waive their respective rights
to trial by jury in any action or proceeding brought by the other party and
involving the Premises or arising out of this Lease.  This Section is not intended to be, and
shall not be interpreted to act as, a waiver to a trial by jury in any action
by a party hereto against a third party.

 

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

 

58

 

36.7         Tenant’s Authority.  Tenant hereby
represents, warrants and covenants that (a) Tenant is duly incorporated or
otherwise established or formed and validly existing under the laws of its
state of incorporation, establishment or formation, (b) Tenant has and is
duly qualified to do business in the state in which the Premises is located, (c) Tenant
has full corporate, partnership, trust, association or other appropriate power
and authority to enter into this Lease and to perform all Tenant’s obligations
hereunder and (d) each person (and all of the persons if more than one
signs) signing this Lease on behalf of Tenant is duly and validly authorized to
do so.

 

36.8         Landlord’s Authority.  Landlord
hereby represents, warrants and covenants that (a) Landlord is duly
incorporated or otherwise established or formed and validly existing under the
laws of its state of incorporation, establishment or formation, (b) Landlord
has and is duly qualified to do business in the state in which the Property is
located, (c) Landlord has full corporate, partnership, trust, association
or other appropriate power and authority to enter into this Lease and to
perform all Landlord’s obligations hereunder and (d) each person (and all
of the persons if more than one signs) signing this Lease on behalf of Landlord
is duly and validly authorized to do so.

 

[Signature
Page Follows]

 

59

 

IN WITNESS WHEREOF,
Landlord and Tenant have executed this Lease as of the Effective Date.

 

	
  LANDLORD:

  	
   

  	
  TENANT:

  
	
   

  	
   

  	
   

  
	
  BMR-GAZELLE
  COURT LLC, 

  	
   

  	
  ISIS
  PHARMACEUTICALS, INC., 

  
	
  a Delaware limited
  liability company

  	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  /s/ John Bonanno 

  	
   

  	
  By: 

  	
  /s/ B. Lynne
  Parshall  

  
	
  Name: John Bonanno 

  	
   

  	
  Name: B. Lynne Parshall

  
	
  Title: Vice President,
  Development

  	
   

  	
  Title: Chief Operating
  Officer & Chief 

  Financial Officer

  
					

 

[ISIS GAZELLE COURT LEASE SIGNATURE PAGE]

 

 

APPENDIX
A

 

DEFINED
TERMS

 

	
  DEFINED TERM

  	
   

  	
  SECTION REFERENCE

  
	
  89% Cap

  	
   

  	
  Section 3.1.2

  
	
  Accelerated Purchase
  Option Closing Date

  	
   

  	
  Section 19.1.4

  
	
  Act of Bankruptcy

  	
   

  	
  Section 18.1.7

  
	
  Additional Rent

  	
   

  	
  Section 3.4

  
	
  Aggregate Disbursements

  	
   

  	
  Section 1.4

  
	
  Annual Statement

  	
   

  	
  Section 10.2

  
	
  Applicable Laws

  	
   

  	
  Section 5.2

  
	
  Approved Design
  Development Plans

  	
   

  	
  Work Letter
  Section 2.1

  
	
  Approved Plans

  	
   

  	
  Section 3.3

  
	
  Approved Shell and Core
  Plans

  	
   

  	
  Section 2.2

  
	
  Work Letter Approved TI
  Plans

  	
   

  	
  Section 3.3

  
	
  Architect

  	
   

  	
  Work Letter Section 1.2

  
	
  Architect’s Agreement

  	
   

  	
  Work Letter
  Section 7

  
	
  Association

  	
   

  	
  Section 32.4

  
	
  Associations

  	
   

  	
  Section 32.2

  
	
  Base Monthly Rental

  	
   

  	
  Section 3.1.1

  
	
  Base Monthly Rent
  Commencement Date

  	
   

  	
  Section 3.1.1

  
	
  Broker

  	
   

  	
  Section 35.11.1

  
	
  Budget

  	
   

  	
  Work Letter
  Section 6.1

  
	
  Building

  	
   

  	
  Recitals

  
	
  Building Improvements

  	
   

  	
  Section 1.2.3

  
	
  CC&Rs

  	
   

  	
  Section 5.4

  
	
  Claims

  	
   

  	
  Section 4.3.3

  
	
  CPI

  	
   

  	
  Section 24.2.4

  
	
  CPI Adjustment Factor

  	
   

  	
  Section 24.2.4

  
	
  Complete

  	
   

  	
  Work Letter
  Section 8

  
	
  Confidential

  	
   

  	
  Section 35.12

  
	
  Confidential
  Information

  	
   

  	
  Section 35.12

  
	
  Construction Agreements

  	
   

  	
  Work Letter
  Section 7

  
	
  Construction Allowance

  	
   

  	
  Section 1.4

  
	
  Construction Allowance
  Costs

  	
   

  	
  Section 1.4

  
	
  Damage Determination
  Notice

  	
   

  	
  Section 20.6

  
	
  Default Rate

  	
   

  	
  Section 3.5

  
	
  Design Development TI
  Plans

  	
   

  	
  Work Letter
  Section 3.1

  
	
  Design Problem

  	
   

  	
  Section 2.4(a)(ii)

  
	
  Disbursement

  	
   

  	
  Work Letter
  Section 6.2

  
	
  Disbursement Request

  	
   

  	
  Work Letter
  Section 6.2

  
	
  Early Entry Event

  	
   

  	
  Section 4.3.1

  
	
  Effective Date

  	
   

  	
  Preamble

  
	
  Entitlements

  	
   

  	
  Section 1.2.1

  

 

 

	
  Estimated Substantial
  Completion Date

  	
   

  	
  Section 1.3.2

  
	
  Event of Default

  	
   

  	
  Section 18.1

  
	
  Exempt Assignment

  	
   

  	
  Section 16.3

  
	
  Exempt Sublease

  	
   

  	
  Section 16.1.2

  
	
  Exit Survey

  	
   

  	
  Section 7.1.3

  
	
  Fair Market Rent

  	
   

  	
  Section 36.2.1

  
	
  Fair Market Value

  	
   

  	
  Section 24.2.5(b)

  
	
  Fire and Extended
  Coverage

  	
   

  	
  Section 10.3.2

  
	
  Firm Completion Date

  	
   

  	
  Section 19.3.2

  
	
  Force Majeure

  	
   

  	
  Section 35.9

  
	
  General Contractor

  	
   

  	
  Work Letter
  Section 1.2

  
	
  GMP Contract

  	
   

  	
  Work Letter
  Section 1.3

  
	
  Governmental Authority

  	
   

  	
  Section 5.2

  
	
  Hazardous Materials

  	
   

  	
  Section 34.1.2

  
	
  Hazardous Materials
  Laws

  	
   

  	
  Section 34.1.1

  
	
  Improvements

  	
   

  	
  Section 1.1

  
	
  Indemnifying Party

  	
   

  	
  Section 9.4

  
	
  Indemnitee

  	
   

  	
  Section 9.4

  
	
  Insurance Costs

  	
   

  	
  Section 10.2

  
	
  Land

  	
   

  	
  Recitals

  
	
  Landlord

  	
   

  	
  Preamble

  
	
  Landlord’s Agents

  	
   

  	
  Section 9.1.1

  
	
  Landlord’s Authorized
  Representative

  	
   

  	
  Work Letter Section 1.1(a)

  
	
  Landlord’s Construction
  Work

  	
   

  	
  Section 1.2.3

  
	
  Landlord’s Construction
  Work Plans

  	
   

  	
  Work Letter
  Section 2.2

  
	
  Landlord’s Entitlement
  Termination Right

  	
   

  	
  Section 19.2.1

  
	
  Lease

  	
   

  	
  Section 35.13

  
	
  Lease Term

  	
   

  	
  Section 2.2

  
	
  Lease Year

  	
   

  	
  Section 24.2

  
	
  LIBOR

  	
   

  	
  Section 1.4

  
	
  Material Contractor

  	
   

  	
  Work Letter
  Section 1.2

  
	
  Memorandum of Lease

  	
   

  	
  Section 27.3

  
	
  Mortgagee

  	
   

  	
  Section 35.6

  
	
  Offer Period

  	
   

  	
  Section 24.3

  
	
  Parties

  	
   

  	
  Preamble

  
	
  Pending Disbursements

  	
   

  	
  Section 3.1.1

  
	
  Permitted Sublease

  	
   

  	
  Section 16.1.2

  
	
  Permitted Use

  	
   

  	
  Section 5.1

  
	
  Person

  	
   

  	
  Section 35.1

  
	
  PO Model

  	
   

  	
  Section 24.2.5(a)

  
	
  Premises

  	
   

  	
  Section 20.1

  
	
  Punchlist Items

  	
   

  	
  Section 1.2.3

  
	
  Punchlist Sign-off Date

  	
   

  	
  Section 3.1.1

  
	
  Purchase and Sale
  Agreement

  	
   

  	
  Section 24.2.4

  
	
  Purchase Option

  	
   

  	
  Section 24.2.1

  

 

 

	
  Purchase Option Closing
  Date

  	
   

  	
  Section 24.2.1

  
	
  Purchase Option
  Exercise Notice

  	
   

  	
  Section 24.2.3

  
	
  Real Estate Taxes

  	
   

  	
  Section 12.3

  
	
  Remedial Work

  	
   

  	
  Section 34.2.1

  
	
  Rent

  	
   

  	
  Section 3.4

  
	
  Base Monthly Rent
  Commencement Date

  	
   

  	
  Section 3.1.1

  
	
  Rules and
  Regulations

  	
   

  	
  Section 5.4

  
	
  Sale Notice

  	
   

  	
  Section 24.3

  
	
  SEC

  	
   

  	
  Section 26.3

  
	
  Security Deposit

  	
   

  	
  Section 3.6.1

  
	
  Security Deposit
  Trigger Event

  	
   

  	
  Section 3.6.1

  
	
  Shell and Core Change

  	
   

  	
  Work Letter
  Section 2.4

  
	
  Shell and Core Landlord
  Change Order Request

  	
   

  	
  Work Letter
  Section 2.4(b)(i)

  
	
  Shell and Core
  Permitted Change

  	
   

  	
  Work Letter
  Section 2.4(c)

  
	
  Shell and Core Tenant
  Change Order Request

  	
   

  	
  Work Letter
  Section 2.4(a)(i)

  
	
  Significant
  Subcontractors and Material Suppliers

  	
   

  	
  Work Letter
  Section 1.2

  
	
  Substantial Completion

  	
   

  	
  Section 1.2.4

  
	
  Substantially Complete

  	
   

  	
  Section 1.3.2

  
	
  Techbilt

  	
   

  	
  Section 1.3

  
	
  Techbilt PSA

  	
   

  	
  Section 19.2.2

  
	
  Techbilt Repurchase
  Option

  	
   

  	
  Section 19.2.2

  
	
  Techbilt Termination
  Event

  	
   

  	
  Section 19.2.2

  
	
  Tenant

  	
   

  	
  Preamble

  
	
  Tenant Affiliate

  	
   

  	
  Section 16.1.2

  
	
  Tenant Alterations

  	
   

  	
  Section 6.2

  
	
  Tenant Alterations
  Allowance

  	
   

  	
  Section 6.2

  
	
  Tenant Delay

  	
   

  	
  Section 19.3.2

  
	
  Tenant Improvements

  	
   

  	
  Section 1.3.1

  
	
  Tenant Requested
  Disbursement

  	
   

  	
  Work Letter
  Section 6.2

  
	
  Tenant’s Acceptance
  Notice

  	
   

  	
  Section 24.3

  
	
  Tenant’s Agents

  	
   

  	
  Section 4.3.3

  
	
  Tenant’s Authorized
  Representative

  	
   

  	
  Work Letter
  Section 1.1(b)

  
	
  Term Commencement Date

  	
   

  	
  Section 2.2

  
	
  Term Expiration Date

  	
   

  	
  Section 2.2

  
	
  Third Party Beneficiary
  Warranty

  	
   

  	
  Work Letter
  Section 1.2

  
	
  TI Change

  	
   

  	
  Work Letter
  Section 3.3

  
	
  TI Landlord Change
  Order Request

  	
   

  	
  Work Letter Section 3.3(b)(i)

  
	
  TI Permitted Change

  	
   

  	
  Work Letter
  Section 3.3(c)

  
	
  TI Plans

  	
   

  	
  Work Letter
  Section 3.2

  
	
  TI Tenant Change Order
  Request

  	
   

  	
  Work Letter
  Section 3.3(a)(i)

  
	
  Transfer Notice

  	
   

  	
  Section 16.2

  
	
  Warranty Issue

  	
   

  	
  Work Letter
  Section 1.2

  
	
  Work Letter

  	
   

  	
  Section 1.2.3

  
	
  Worth at the Time of
  Award

  	
   

  	
  Section 19.1.3.1

  

 

 

EXHIBIT
A

 

DESCRIPTION
OF THE LAND

 

PARCEL 1:

 

PARCEL “A” OF CERTIFICATE
OF COMPLIANCE NO. ADJ 09-05 RECORDED JANUARY 19, 2010 AS INSTRUMENT NO.
2010-0024854 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:

 

LOT 14 OF CARLSBAD TRACT
NO. 97-13-02, ACCORDING TO MAP THEREOF NO. 15505, IN THE CITY OF CARLSBAD,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, RECORDED IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY ON JANUARY 23, 2007 AS FILE NO. 2007-0047588, TOGETHER
WITH A PORTION OF LOT ‘B’ OF RANCHO AGUA HEDIONDA, IN THE CITY OF CARLSBAD,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 823,
FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, NOVEMBER 16,
1896, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

 

BEGINNING AT THE
NORTHWEST CORNER OF SAID LOT 14; THENCE, ALONG THE NORTH LINE OF SAID LOT 14,
NORTH 89°09’41” EAST 629.31 FEET; THENCE SOUTH 00°31’59” WEST 8.11 FEET; THENCE
NORTH 89°53’58” EAST 392.46 FEET; THENCE NORTH 53°13’30” EAST 15.15 FEET;
THENCE SOUTH 56°49’30” EAST 85.95 FEET TO THE NORTHEAST CORNER OF SAID LOT 14,
SAID CORNER BEING ON A NON-TANGENT 264.00 FOOT RADIUS CURVE CONCAVE
NORTHWESTERLY, THE RADIAL LINE TO SAID POINT BEARS SOUTH 56°49’30” EAST;
THENCE, ALONG THE EAST LINE OF SAID LOT 14, SOUTHWESTERLY ALONG SAID CURVE
THROUGH A CENTRAL ANGLE OF 5°50’08” AN ARC DISTANCE OF DISTANCE OF 26.89;
THENCE, TANGENT TO SAID CURVE, SOUTH 39°00’38” WEST 329.54 FEET TO THE
BEGINNING OF A TANGENT 736.00 FOOT RADIUS CURVE CONCAVE SOUTHEASTERLY; THENCE
SOUTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 25°07’33” A DISTANCE
OF 322.76 TO THE SOUTHEAST CORNER OF SAID LOT 14, SAID CORNER ALSO BEING A
POINT ON THE SUBDIVISION BOUNDARY OF MAP NO. 14926; THENCE, ALONG THE SOUTH
LINE OF SAID LOT 14 AND THE BOUNDARY OF SAID MAP NO. 14926, NON-TANGENT TO SAID
CURVE NORTH 52°33’23” WEST 148.70 FEET; THENCE SOUTH 48°06’30” WEST, 21.89 FEET
TO THE BEGINNING OF A 100.00 FOOT RADIUS CURVE CONCAVE NORTHWESTERLY; THENCE
SOUTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 34°22’48” AN ARC
DISTANCE OF 60.00 FEET; THENCE 82°29’18” WEST 147.20 FEET; THENCE NORTH 89°14’55”
WEST 410.06 FEET TO THE SOUTHWEST CORNER OF SAID LOT 14; THENCE, LEAVING SAID
LOT 14 AND CONTINUING ALONG THE BOUNDARY OF SAID MAP NO. 14926, SOUTH 29°36’38”
WEST 51.14 FEET; THENCE NORTH 77°38’20” WEST 216.59 FEET; THENCE, LEAVING THE
BOUNDARY OF SAID MAP NO. 14926, NORTH 43°05’58” EAST 78.45 FEET; THENCE NORTH
01°47’45” EAST 442.55 FEET TO A POINT ON THE SOUTHERLY BOUNDARY OF THAT PUBLIC
STREET AND UTILITY EASEMENT RECORDED JANUARY 23, 2007 AS FILE NO. 2007-0047586,
SAID POINT BEING ON A NON-TANGENT 836.00 FOOT RADIUS CURVE CONCAVE NORTHERLY, A
RADIAL LINE TO SAID POINT BEARS SOUTH 23°00’29” WEST; THENCE, EASTERLY ALONG
SAID EASEMENT AND SAID CURVE, THROUGH A CENTRAL ANGLE OF 10°54’11” AN ARC
DISTANCE OF 159.09 TO THE BEGINNING OF A COMPOUND 56.00 FOOT RADIUS CURVE
CONCAVE WESTERLY; THENCE NORTHERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF
181°26’49” AN ARC DISTANCE OF 177.34 TO THE POINT OF BEGINNING.

 

PARCEL 2:

 

AN EASEMENT FOR A PRIVATE
DRAINAGE OVER AND ACROSS LOT 4 OF CARLSBAD TRACT NO. 97-13-01, CARLSBAD OAKS
NORTH PHASE 1, IN THE CITY OF CARLSBAD, COUNTY OF SAN DIEGO, STATE OF
CALIFORNIA, ACCORDING TO MAP THEREOF NO. 14926, RECORDED IN THE OFFICE OF THE
COUNTY RECORDER OF SAN DIEGO COUNTY ON DECEMBER 15, 2004, AS CREATED BY
EASEMENT AGREEMENT EXECUTED BY KILROY REALTY FINANCE PARTNERSHIP, L.P., A
DELAWARE LIMITED PARTNERSHIP, TECHBILT CONSTRUCTION CORP., A CALIFORNIA
CORPORATION AND CARLSBAD OAKS NORTH PARTNERS, L.P., A CALIFORNIA LIMITED
PARTNERSHIP, DATED JANUARY 20, 2010 AND RECORDED JANUARY 29, 2010 AS INSTRUMENT
NO. 2010-0047608 OF OFFICIAL RECORDS.

 

APN: 209-120-11 and a
portion of 209-120-17

 

 

EXHIBIT
B

 

WORK LETTER

 

This Work Letter (this “Work Letter”) is made
and entered into as of the Effective Date, by and between Landlord and Tenant,
and is attached to and made a part of that certain Lease dated as of the
Effective Date (as the same may be amended, restated, supplemented or otherwise
modified from time to time, the “Lease”), by and between Landlord and Tenant
for the Premises.  All capitalized terms
used but not otherwise defined herein shall have the meanings ascribed thereto
in the Lease.

 

1.             General Requirements.

 

1.1.          Authorized Representatives.

 

(a)           Landlord designates, as Landlord’s authorized
representative (“Landlord’s
Authorized Representative”), (i) Federico Mina as the
person authorized to initial plans, drawings, and approvals pursuant to this
Work Letter and (ii) John Bonanno as the person authorized to initial
plans, drawings, and approvals and to sign change orders pursuant to this Work
Letter and any amendments to this Work Letter or the Lease.  Tenant shall not be obligated to respond to
or act upon any such item until such item has been initialed or signed (as
applicable) by the appropriate Landlord’s Authorized Representative.  Landlord may change Landlord’s Authorized
Representative upon one (1) business day’s prior written notice to Tenant.

 

(b)           Tenant designates B. Lynne Parshall (“Tenant’s Authorized Representative”)
as the person authorized to initial all plans, drawings, change orders and
approvals pursuant to this Work Letter. 
Landlord shall not be obligated to respond to or act upon any such item
until such item has been initialed or signed (as applicable) by Tenant’s
Authorized Representative.  Tenant may
change Tenant’s Authorized Representative upon one (1) business day’s
prior written notice to Landlord.

 

1.2.          Landlord’s Architects, Contractors and Consultants. 
The architect, engineering consultants, design team, general contractor
and major subcontractors responsible for the construction of the Building
Improvements shall be selected by Landlord and approved by Tenant, which
approval Tenant shall not unreasonably withhold, condition or delay.  Tenant may refuse to use any architects,
consultants, contractors, subcontractors or material suppliers that Tenant
reasonably believes could cause labor disharmony.  The “Architect” shall be DG Architects, Inc.
dba DGA (or such other architect as may be proposed by Landlord and approved by
Tenant in writing, such approval not to be unreasonably withheld, conditioned
or delayed).  The “Project Manager”
shall be Project Management Advisors, Inc. dba PMA (or such other project
manager as may be proposed by Landlord and approved by Tenant in writing, such
approval not to be unreasonably withheld, conditioned or delayed).  The “General Contractor” shall be DPR, Inc.
(or such other general contractor as may be proposed by Landlord and approved
by Tenant in writing, such approval not to be unreasonably withheld,
conditioned or delayed).  As used in this
Work Letter, “significant
subcontractors and material suppliers” means those subcontractors
and suppliers which have been, or will be, paid at least One Million 

 

 

Dollars ($1,000,000) in
connection with the work and materials provided by such party in connection
with the Building Improvements.  Landlord
shall endeavor to cause Tenant to be designated as a third party beneficiary
with respect to each warranty and/or indemnity with respect to the Landlord’s
Construction Work that is made by any “significant subcontractors and material
suppliers” against which Landlord is able to exercise remedies pursuant to a
contractual right (each, a “Material
Contractor”, and each such warranty/indemnity, a “Third Party Beneficiary Warranty”);  provided,
however, that Tenant shall not exercise its rights with respect to
any Third Party Beneficiary Warranty unless (a) Tenant identifies any part
of the Landlord’s Construction Work that violates such Third Party Beneficiary
Warranty (a “Warranty
Issue”), (b) Tenant provides Landlord with written notice
of any Warranty Issue, (c) the GMP Contract does not prohibit Landlord as
the owner or Tenant as the third party beneficiary from exercising its rights
with respect to such warranty/indemnity, and (d) either (i) within
fifteen (15) business days after receiving such notice from Tenant, Landlord
has not requested that the respective Material Contractor address such Warranty
Issue, or (ii) Landlord fails to diligently endeavor to cause the Material
Contractor to address such Warranty Issue.

 

1.3.          GMP Contract.  Landlord
covenants that it will use commercially reasonable efforts to, within
one-hundred fifty (150) days following the Effective Date, enter into a
guaranteed maximum price contract between Landlord and General Contractor which
shall provide for the one hundred percent (100%) lien-free completion of the Building
Improvements, in accordance with the Budget (the “GMP Contract”).  The GMP Contract shall be in form and
substance reasonably acceptable to Tenant and contain a complete line item
budget to complete the Building Improvements. Tenant shall be a named
indemnified party with respect to any indemnities provided by the General
Contractor under the GMP Contract, and shall be a third party beneficiary with
respect to each warranty and indemnity made by the General Contractor under the
GMP Contract.

 

1.4.          Schedule.  The schedule
for the design, development, and completion of the Building Improvements is
attached hereto as Schedule 1 to the Work Letter (the “Schedule”).  The Schedule is for informational purposes
only and is not binding on Landlord in any respect, provided that the
provisions of this Section 1.4 shall not limit Tenant’s rights
under Section 19.3.2 or Section 19.3.4 of the
Lease.  Landlord will use commercially
reasonable efforts to provide Tenant with updates to the Schedule; provided at a minimum, within ten (10) days
of Landlord’s receipt of a written request from Tenant, Landlord shall provide
Tenant with an updated Schedule and a reconciliation of the actual progress of
Landlord’s Construction Work against the Schedule.

 

2.             Shell and Core.  Landlord’s
Construction Work related to the Shell and Core shall be performed by Landlord
at Landlord’s sole cost and expense substantially in accordance with the
Approved Shell and Core Plans, subject only to changes made in accordance with Section 2.4.

 

2.1.          Approved Design Development Plans. 
Landlord has approved those certain design development plans submitted
by Tenant and more particularly described on Schedule 2 to the Work
Letter (the “Approved
Design Development Plans”).

 

 

2.2.          Approved Shell and Core Plans. 
Landlord shall cause the Architect to prepare final plans and
specifications for the Shell and Core that (a) are consistent with and are
logical evolutions of the Approved Design Development Plans and (b) incorporate
any Shell and Core Permitted Changes, and (c) incorporate any other
Landlord-requested (and Tenant approved) Shell and Core Changes.  As soon as such final plans and
specifications (“Landlord’s
Shell and Core Plans”) are completed, Landlord shall deliver the
same to Tenant for Tenant’s approval, which approval may be reasonably withheld
only if:  (i) the Landlord’s Shell
and Core Work Plans are neither consistent with nor logical evolutions of the
Approved Design Development Plans, (ii) Tenant requests changes to the
Landlord’s Shell and Core Plans in accordance with Section 2.4(a),
or (iii) Tenant objects to any Landlord requested Shell and Core Change
(other than Shell and Core Permitted Changes). 
Such Landlord’s Shell and Core Plans shall be approved or disapproved by
Tenant within ten (10) business days after delivery to Tenant.  If Tenant fails to respond within such ten (10) business
day period, Landlord shall provide a written reminder notice to Tenant.  Tenant’s failure to respond to such reminder
notice within five (5) business days after delivery of such notice shall
be deemed approval by Tenant of the Landlord’s Shell and Core Plans.  If the Landlord’s Shell and Core Plans are
disapproved by Tenant, then Tenant shall notify Landlord in writing of its
detailed objections to such Landlord’s Shell and Core Plans and shall submit
any Shell and Core Changes through a Shell and Core Tenant Change Order
Request, and the parties shall confer and then negotiate in good faith to reach
agreement on the Landlord’s Shell and Core Plans.  After the Landlord’s Shell and Core Plans are
approved by Landlord and Tenant, two (2) copies of such Landlord’s Shell
and Core Plans shall be initialed and dated by Landlord and Tenant, and
Landlord shall promptly submit such Landlord’s Shell and Core Plans to each
appropriate Governmental Authority for approval.  The Landlord’s Shell and Core Plans so
approved, and all change orders and other changes thereto specifically
permitted by this Work Letter, are referred to herein as the “Approved Shell and Core Plans.”

 

2.3.          [***] Fee. 
Tenant shall [***] Landlord a [***] fee.

 

2.4.          Changes to Shell and Core Plans. 
Any changes to the Landlord’s Shell and Core Plans or the Approved Shell
and Core Plans (each, a “Shell
and Core Change”) requested by Landlord or Tenant (other than
Shell and Core Permitted Changes by Landlord which do not require any approval)
shall be requested and instituted in accordance with the provisions of this Section 2.4
and shall be subject to the written approval of the other party in accordance
with this Work Letter.

 

(a)           Shell and Core Changes Requested by Tenant.

 

(i)            Shell and Core Tenant Change Order Request. 
Tenant may request Shell and Core Changes to the Landlord’s Construction
Work Plans or the Approved Shell and Core Plans by notifying Landlord thereof
in writing in substantially the same form as the AIA standard change order form
(a “Shell and Core
Tenant Change Order Request”), which Shell and Core Tenant
Change Order Request shall detail the nature and extent of any requested Shell
and Core Changes, including, without limitation, (A) the Shell and Core
Change and (B) any modification of the Landlord’s Construction Work Plans
or the Approved Shell and Core Plans, as applicable. In the event Landlord
approves any Shell and Core Change, Landlord shall:  (1) notify Tenant if it reasonably
believes such Shell and Core Change could cause a delay in the Estimated
Substantial Completion Date; and (2) provide Landlord’s reasonable
estimate of any additional costs and expenses associated with such Shell and
Core Change.  Shell and Core Tenant
Change Order Requests shall be signed by Tenant’s Authorized Representative.

 

 

(ii)           Landlord’s Approval of Shell and Core Changes. 
All Tenant-requested Shell and Core Changes shall be subject to Landlord’s
prior written approval, which shall not be unreasonably withheld, conditioned
or delayed so long as such Shell and Core Change, as reasonably determined by
Landlord, (A) could not reasonably be expected to (1) adversely
impact (a) the exterior appearance of the Building, (b) the
structural aspects of the Building, (c) Landlord’s ability to construct
Landlord’s Construction Work or Tenant’s ability to operate its business in the
Building (d) any building system, including, without limitation, the HVAC,
mechanical, electrical, plumbing or life safety systems installed in connection
with the Landlord’s Construction Work; (2) create a foreseeable risk of
violating any Applicable Law or permit requirement or materially increasing
insurance premiums; (3) violate any recorded document affecting the
Property; (4) cause the Building to be inconsistent with the quality and
scope of a class “A” office buildings in the vicinity of the Building; (5) involve
a use of the Premises that is inconsistent with the Permitted Use; (6) extend
the Estimated Substantial Completion Date beyond fifteen (15) days (such 15-day
extension to apply separately to each Shell and Core Tenant Chang Order
Request), nor (7) in Landlord’s reasonable judgment, reduce the quality or
value of the Building or the Property (each, a “Design Problem”), and (B) will not
cause the Aggregate Disbursements to exceed the total amount set forth in the
Budget.  Landlord shall have ten (10) days
after receipt of a Shell and Core Tenant Change Order Request to notify Tenant
in writing of Landlord’s decision either to proceed with or abandon
Tenant-requested Shell and Core Change. 
If Landlord does not approve in writing a Tenant requested Shell and
Core Change within ten (10) days after receipt of a Shell and Core Tenant
Change Order Request, then such Shell and Core Tenant Change Order Request
shall be deemed rejected by Landlord, and Landlord’s Construction Work shall
not be altered as contemplated by such Shell and Core Tenant Change Order
Request.  If Landlord disapproves the
Shell and Core Tenant Change Order Request, then the parties shall confer and
negotiate in good faith to reach agreement on the Shell and Core Tenant Change
Order Request.

 

(b)           Shell and Core Changes Requested by Landlord.

 

(i)            Shell and Core Landlord Change Order Request. 
Landlord may request Shell and Core Changes to Landlord’s Construction
Work by notifying Tenant thereof in writing in substantially the same form as
the AIA standard change order form (a “Shell and Core Landlord Change Order Request”),
which Shell and Core Landlord Change Order Request shall detail the nature and
extent of any requested Shell and Core Changes, including, without limitation, (A) the
Shell and Core Change, (B) any modification of the Landlord’s Construction
Work Plans or the Approved Shell and Core Plans, as applicable, and (C) any
changes to the Estimated Substantial Completion Date resulting from the Shell
and Core Change.

 

(ii)           Tenant’s Approval of Shell and Core Change. 
Tenant shall have ten (10) days after receipt of a Shell and Core
Landlord Change Order Request to notify Landlord in writing of Tenant’s
approval or rejection of the Landlord-requested Shell and Core Change, which
approval shall not be unreasonably withheld, conditioned or delayed.  If Tenant fails to respond within such ten (10) day
period, then Landlord shall provide Tenant with a second written notice stating
that “Tenant’s failure to respond within three (3) days after Landlord’s
second notice shall be deemed Tenant’s approval to such Shell and Core Landlord
Change Order Request,” and if Tenant does not respond within such three (3) day
period, then Tenant shall be deemed to have approved such Shell and Core
Landlord Change Order Request.

 

 

(c)           Shell and Core Permitted Changes. 
For purposes of this Work Letter, a “Shell and Core Permitted Change” shall
mean:  (i) minor field changes; (ii) changes
required by Governmental Authority; (iii) any other changes that:  (A) do not cause a Design Problem, and (B) do
not materially change the size, cost, configuration, or overall appearance of
the Building or Landlord’s ability to construct Landlord’s Construction Work or
Tenant’s ability to operate its business in the Building, and (iv) changes
required for the ordinary development of the Approved Shell and Core Plans in a
manner not inconsistent with the Approved Shell and Core Plans.  Shell and Core Permitted Changes may be made
by Landlord in its sole discretion without Tenant’s consent.

 

3.             Tenant Improvements.  The Tenant
Improvements shall be performed by Landlord at Landlord’s sole cost and expense
substantially in accordance with the Approved TI Plans, subject only to changes
made in accordance with Section 3.3.

 

3.1           Design Development TI Plans. 
Landlord has approved those certain design development plans submitted
by Tenant and more particularly described on Schedule 3 to the Work
Letter (the “Design
Development TI Plans”).

 

3.2.          Approved TI Plans.  Landlord
shall prepare final plans and specifications for the Tenant Improvements
that:  (a) are consistent with and
are logical evolutions of the Design Development TI Plans, (b) incorporate
any TI Permitted Changes, and (c) incorporate any other Landlord-requested
(and Tenant approved) TI Changes.  As
soon as such final plans and specifications (“TI Plans”) are completed, Landlord shall
deliver the same to Tenant for Tenant’s approval, which approval may be
reasonably withheld only if:  (i) the
TI Plans are neither consistent with nor logical evolutions of the Design
Development TI Plans, (ii) Tenant intends to request changes to the TI
Plans in accordance with Section 3.3(a)(i), or (iii) Tenant objects
to any Landlord requested TI Change (other than TI Permitted Changes).  Such TI Plans shall be approved or
disapproved by Tenant within ten (10) business days after delivery to
Tenant.  If Tenant fails to notify
Landlord of disapproval within such ten (10) day period, then Landlord
shall provide Tenant with a second written notice stating that “Tenant’s
failure to respond within five (5) days after Landlord’s second notice
shall be deemed Tenant’s approval to such TI Plans,” and if Tenant does not
respond within such five (5) day period, then Tenant shall be deemed to
have approved such TI Plans.  If the TI
Plans are disapproved by Tenant, Tenant shall notify Landlord in writing of its
objections to such TI Plans and shall submit any requested TI Changes through a
TI Tenant Change Order Request, and then the parties shall confer and negotiate
in good faith to reach agreement on the TI Plans.  After the TI Plans are approved by Landlord
and Tenant, two (2) copies of such TI Plans shall be initialed and dated
by Landlord and Tenant as soon as approved by Landlord and Tenant, and Landlord
shall promptly submit such TI Plans to each appropriate Governmental Agency for
approval.  The TI Plans so approved, and
all change orders and other changes thereto specifically permitted by this Work
Letter, are referred to herein as the “Approved TI Plans” and shall become part of
the Lease as though set forth in full. 
The Approved Shell and Core Plans together with the Approved TI Plans
shall be referred to herein and in the Lease as the “Approved Plans.”

 

 

3.3.          Changes to Tenant Improvements. 
Any changes to the TI Plans or the Approved TI Plans (each, a “TI Change”) requested
by Landlord or Tenant (other than TI Permitted Changes by Landlord which do not
require any approval) shall be requested and instituted in accordance with the
provisions of this Section 3.3 and shall be subject to the written
approval of the other party in accordance with this Work Letter.

 

(a)           TI Changes Requested by Tenant.

 

(i)            TI Tenant Change Order Request. 
Tenant may request TI Changes after Tenant approves the Design
Development TI Plans or the Approved TI Plans, as applicable, by notifying
Landlord thereof in writing in substantially the same form as the AIA standard
change order form (a “TI
Tenant Change Order Request”), which TI Tenant Change Order
Request shall detail the nature and extent of any requested TI Changes,
including, without limitation, (A) the TI Change and (B) any
modification of the TI Plans or the Approved TI Plans, as applicable.  In the event Landlord approves such TI
Change, Landlord shall:  (1) notify
Tenant if it reasonably believes such TI Change could cause a delay in the
Estimated Substantial Completion Date; and (2) provide Landlord’s
reasonable estimate of any additional costs and expenses associated with such
TI Change.

 

(ii)           Landlord’s Approval of TI Changes. 
All Tenant-requested TI Changes shall be subject to Landlord’s prior
written approval, which shall not be unreasonably withheld, conditioned or
delayed so long as such TI Change (A) would not create a Design Problem, (B) will
not cause the Aggregate Disbursements to exceed the total amount set forth in
the Budget.  Landlord shall have ten (10) days
after receipt of a TI Tenant Change Order Request to notify Tenant in writing
of Landlord’s decision either to proceed with or abandon Tenant-requested TI
Change.  If Landlord does not approve in
writing a Tenant requested TI Change within ten (10) days after receipt of
a TI Tenant Change Order Request, then such TI Tenant Change Order Request
shall be deemed rejected by Landlord, and the Tenant Improvements shall not be
altered as contemplated by such TI Tenant Change Order Request.  If Landlord disapproves the TI Tenant Change
Order Request, then the parties shall confer and negotiate in good faith to
reach agreement on the TI Tenant Change Order Request.

 

(b)           TI Changes Requested by Landlord.

 

(i)            TI Landlord Change Order Request. 
Landlord may request TI Changes by notifying Tenant thereof in writing
in substantially the same form as the AIA standard change order form (a “TI Landlord Change Order Request”),
which TI Landlord Change Order Request shall detail the nature and extent of
any requested TI Changes, including, without limitation, (A) the TI
Change, (B) any modification of the TI Plans or the Approved TI Plans, as
applicable, and (C) any changes to the Estimated Substantial Completion Date
resulting from the TI Change.

 

(ii)           Tenant’s Approval of TI Change. 
Tenant shall have ten (10) days after receipt of a TI Landlord
Change Order Request to notify Landlord in writing of Tenant’s approval or
rejection of the Landlord-requested TI Change, which approval shall not be
unreasonably withheld, conditioned or delayed. 
If Tenant fails to respond within such ten (10) days period, then
Landlord shall provide Tenant with a second written notice stating “that Tenant’s
failure to respond within three (3) days after Landlord’s second notice
shall be deemed Tenant’s approval to such Landlord-requested TI Change,” and if
Tenant does not respond within such three (3) day period, then Tenant
shall be deemed to have approved such Landlord-requested TI Change.

 

 

(c)           TI Permitted Changes.  For purposes
of this Work Letter, a “TI
Permitted Change” shall mean: 
(i) minor field changes; (ii) changes required by Governmental
Authority; (iii) any other changes that: 
(A) do not cause a Design Problem, and (B) do not materially
change the size, cost, configuration, or overall appearance of the Tenant
Improvements or Tenant’s ability to operate its business in the Building; and (iv) ordinary
development of the Approved TI Plans in a manner not inconsistent with the
Approved TI Plans.  TI Permitted Changes
may be made by Landlord in its sole discretion without Tenant’s consent.

 

4.             Insurance.

 

4.1.          Property Insurance.  At all times
during the period beginning with commencement of construction of the Building
Improvements and ending when the Building Improvements are deemed Complete
pursuant to Section 8 of this Work Letter, Landlord shall maintain
or cause to be maintained (in addition to the insurance required pursuant to
the Lease) property insurance insuring Landlord and its affiliates, agents and
employees, as their interests may appear. 
Such policy shall, on a completed values basis for the full insurable
value at all times, insure against loss or damage by fire, vandalism and malicious
mischief and other such risks as are customarily covered by the so-called “broad
form extended coverage endorsement” upon all Building Improvements and the
General Contractor’s and any subcontractors’ machinery, tools and equipment,
all while each forms a part of, or is contained in, the Tenant Improvements or
any temporary structures on the Premises, or is adjacent thereto; provided
that, for the avoidance of doubt, insurance coverage with respect to the
General Contractor’s and any subcontractors’ machinery, tools and equipment
shall be carried on a primary basis by such General Contractor or
subcontractor.  Landlord agrees to pay
any deductible, which deductible amount shall be considered a Disbursement
pursuant to the terms of the Lease.  Said
property insurance shall contain an express waiver of any right of subrogation
by the insurer against Tenant and its affiliates, agents and employees, and
shall name Tenant and its affiliates as loss payees as their interests may
appear.

 

4.2           Workers’ Compensation Insurance. 
At all times during the period of construction of the Building
Improvements, Landlord shall, and shall cause its contractors or subcontractors
to, maintain statutory workers’ compensation insurance as required by
Applicable Laws.

 

5.             Requests for Consent.  Except as
otherwise provided in this Work Letter, Tenant shall respond to all requests
for consents, approvals or directions made by Landlord pursuant to this Work
Letter within ten (10) days following Tenant’s receipt of such
request.  If Tenant fails to respond
within such ten (10) days period, then Landlord shall provide Tenant with
a second written notice stating that “Tenant’s failure to respond within three (3) days
after Landlord’s second notice shall be deemed approval by Tenant,” and if
Tenant does not respond within such three (3) day period, then Tenant
shall be deemed to have approved such item.

 

 

6.             Construction Allowance.

 

6.1.          Budget; Disbursements.  A budget for
all hard and soft costs pertaining to the Building Improvements is attached
hereto as Schedule 4 to the Work Letter (as the same may be modified in
accordance with this Work Letter, the “Budget”). 
Landlord may reallocate line items within the Budget in its sole
discretion at any time.  Landlord will
use commercially reasonable efforts to provide Tenant with updates to the
Budget; provided at a minimum,
within ten (10) days of Landlord’s receipt of a written request from
Tenant, Landlord shall provide Tenant with an updated Budget and a
reconciliation of actual costs incurred through the date that is sixty days
prior to the date of Tenant’s written request to the Budget.  In addition, Landlord will (or will request
that the Project Manager) copy Isis’ Chief Accounting Officer on all draw
packages submitted to Landlord by the Project Manager related to the Building
Improvements.  The Budget is for
informational purposes only and is not binding on Landlord in any respect, and
shall not create any limit on Aggregate Disbursements.  Each disbursement of Construction Allowance
funds by Landlord shall be deemed to be a “Disbursement” for purposes of this Lease.
Other than the Disbursement being made to Tenant on the Effective Date, Tenant
shall not be entitled to receive any other Disbursement from Landlord. Landlord
shall make Disbursements directly to contractors in accordance with the terms
of the Construction Agreements to which Landlord is a party.

 

6.2.          Application of Construction Allowance. 
Landlord shall contribute the Construction Allowance funds toward the
costs and expenses incurred in connection with the performance of the Building
Improvements, in accordance with the Lease (including, but not limited to,
reimbursement to Tenant for the costs and expenses set forth on Exhibit I
attached hereto).  Following the
Punchlist Sign-off Date, Landlord shall have no commitment to disburse any
additional Construction Allowance funds and Tenant shall have no right to
receive any additional Construction Allowance funds for any purpose.

 

7.             Assignment of Construction Agreements. 
Concurrently with the execution of the Lease, Tenant shall deliver to
Landlord an assignment of Tenant’s rights and obligations under that certain
Architectural Services Agreement between Tenant and Architect, dated as of November     ,
2009 (the “Architect’s
Agreement”), executed by Tenant and acknowledged by
Architect.  Tenant shall also deliver to
Landlord an estoppels certificate from the Architect certifying that there are
no defaults, or events, that following notice and cure could become defaults,
outstanding under the Architect’s Agreement. 
Tenant shall use commercially reasonable efforts to assign to Landlord
Tenant’s rights and obligations under (a) all agreements with contractors,
subcontractors,, material suppliers, architects, engineers or consultants (the “Construction Agreements”) in existence as
of the Effective Date that have been executed by Tenant, and (b) Tenant’s
interest in, to and under any Entitlements (to the extent that such assignment
thereof would not cause a breach thereunder).

 

8.             Completion of Building Improvements. 
The Building Improvements shall be deemed “Complete” at such time as (a) the
Substantial Completion Date (as defined in the Lease) has occurred, (b) Landlord
and Tenant shall have received evidence reasonably satisfactory to Landlord
that (i) all Building Improvements have been completed and paid for in
full (which shall be evidenced by the Architect’s certificate of completion), (ii) all
certifications and approvals with respect to the Building Improvements that may
be required from any Governmental Authority for the use and occupancy of the
Premises have been obtained, (iii) a certificate from the Architect
certifying that all work performed in, on or about the Premises is 

 

 

substantially in
accordance with the Approved Plans, and (iv) the Punchlist Items have been
completed and paid for in full, and (c) Landlord and Tenant shall have
received complete drawing print sets and electronic CADD files on disc of all
contract documents for work performed by their Architect and engineers in
relation to the Building Improvements.

 

9.             Miscellaneous.

 

9.1.          Number; Headings.  Where
applicable in this Work Letter, the singular includes the plural and the
masculine or neuter includes the masculine, feminine and neuter.  The section headings of this Work Letter are
not a part of this Work Letter and shall have no effect upon the construction
or interpretation of any part hereof.

 

9.2.          Attorneys’ Fees.  If either
party commences an action against the other party arising out of or in
connection with this Work Letter, then the prevailing party shall be entitled
to have and recover from the other party reasonable attorneys’ fees, charges
and disbursements and costs of suit, in proportion [***] up to a maximum of
100%; provided, however, that in
the case where the prevailing party is awarded any equitable relief, then the
prevailing party may recover the full amount of such costs and attorney’s
fees.  For example, if the prevailing
party [***] and no equitable relief, but [***], and the prevailing party had
two hundred thousand dollars ($200,000) in costs and attorneys’ fees, then such
prevailing party would be entitled to recover [***] of such costs and attorneys’
fees.  For purposes of clarity, prior to
the Term Commencement Date, this provision is subject to the 89% Cap.

 

9.3.          Time of Essence.  Time is of
the essence with respect to the performance of every provision of this Work
Letter in which time of performance is a factor.

 

9.4.          Covenant and Condition.  Each
provision of this Work Letter performable by Tenant shall be deemed both a
covenant and a condition.

 

9.5.          Withholding of Consent.  Whenever
consent or approval of either party is required, that party shall not
unreasonably withhold, condition or delay such consent or approval, except as
may be expressly set forth to the contrary.

 

9.6.          Invalidity.  Any provision
of this Work Letter that shall prove to be invalid, void or illegal shall in no
way affect, impair or invalidate any other provision hereof, and all other
provisions of this Work Letter shall remain in full force and effect and shall
be interpreted as if the invalid, void or illegal provision did not exist.

 

9.7.          Interpretation.  The language
in all parts of this Work Letter shall be in all cases construed as a whole
according to its fair meaning and not strictly for or against either Landlord
or Tenant.

 

9.8.          Successors.  Each of the
covenants, conditions and agreements herein contained shall inure to the
benefit of and shall apply to and be binding upon the parties hereto and their
respective heirs; legatees; devisees; executors; administrators; and permitted
successors, assigns, sublessees.  Nothing
in this Section shall in any way alter the provisions of the Lease
restricting assignment or subletting.

 

 

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

 

9.10.        Power and Authority.  Tenant
guarantees, warrants and represents that the individual or individuals signing
this Work Letter have the power, authority and legal capacity to sign this Work
Letter on behalf of and to bind all entities, corporations, partnerships,
limited liability companies, joint venturers or other organizations and
entities on whose behalf said individual or individuals have signed.

 

9.11.        Counterparts.  This Work
Letter may be executed in one or more counterparts, each of which, when taken
together, shall constitute one and the same document.

 

9.12.        Amendments; Waiver.  No provision
of this Work Letter may be modified, amended or supplemented except by an
agreement in writing signed by Landlord and Tenant.  The waiver by Landlord of any breach by
Tenant of any term, covenant or condition herein contained shall not be deemed
to be a waiver of any subsequent breach of the same or any other term, covenant
or condition herein contained.

 

9.13.        Waiver of Jury Trial.  To the extent
permitted by Applicable Laws, the parties waive trial by jury in any action,
proceeding or counterclaim brought by the other party hereto related to matters
arising out of or in any way connected with this Work Letter, the relationship
between Landlord and Tenant, Tenant’s use or occupancy of the Premises, or any
claim of injury or damage related to this Work Letter or the Premises.  This Section is not intended to and
shall not be interpreted to act as a waiver to a trial by jury in any action by
a party hereto against a third party.

 

[REMAINDER OF THIS
PAGE INTENTIONALLY LEFT BLANK]

 

 

IN WITNESS WHEREOF,
Landlord and Tenant have executed this Work Letter to be effective on the
Effective Date.

 

	
  LANDLORD:

  	
   

  
	
   

  	
   

  
	
  BMR-GAZELLE COURT LLC

  	
   

  
	
  a Delaware limited
  liability company

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  	
   

  
	
  Name: John Bonanno

  	
   

  
	
  Title: Vice President,
  Development

  	
   

  
	
   

  	
   

  
	
  TENANT:

  	
   

  
	
   

  	
   

  
	
  ISIS PHARMACEUTICALS,
  INC.,

  	
   

  
	
  a Delaware corporation

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name: B. Lynne Parshall

  	
   

  
	
  Title: Chief Operating
  Officer & Chief Financial Officer

  	
   

  
				

 

 

 

SCHEDULE 1

 

SCHEDULE

 

[See Attached]

 

 

SCHEDULE 2

 

APPROVED DESIGN
DEVELOPMENT PLANS

 

Isis Shell Design
Development Set dated as of February 12, 2010

 

 

SCHEDULE 3

 

DRAFT DESIGN
DEVELOPMENT TI PLANS

 

Isis Tenant
Improvement Design Development Set dated as of March 23, 2010

 

 

SCHEDULE 4

 

BUDGET

 

[See Attached]

 

 

EXHIBIT
C

 

TENANT’S
PERSONAL PROPERTY

 

None as of the
Effective Date.

 

 

EXHIBIT
D

 

PURCHASE
PRICE CALCULATION

 

 

The Purchase Option
purchase price shall (i) equate to a [***] to Landlord as calculated over
the period of time beginning when Landlord makes the initial Disbursement
through the Purchase Option Closing Date and Tenant shall receive credit (as
further described below) for all [***] and any [***] received under [***]
received by Landlord pursuant to [***] of the Lease, [***] received by Landlord
pursuant to Section [***] of the Lease, or [***] received by Landlord pursuant
to Section [***] of the Lease, in each case paid through the Purchase
Option Closing Date and (ii) include [***] Landlord [***] related to
Landlord’s sale of the Premises to Tenant pursuant to Tenant’s exercise of the
Purchase Option, subject to the attorney’s fees cap set forth in Section 24.2.4
of the Lease.

 

The calculation will be
made on a monthly basis using the [***] function, or an equivalent
functionality, into which the PO Model shall be input, in which case the
transcription of such PO Model shall be approved in writing by Landlord and
Tenant, where all [***] paid by Tenant, and all [***] by Landlord during a
given month, are treated to have occurred on the last calendar day of the
month.  Based on this monthly
information, the model will calculate the terminal proceeds.

 

For the purposes of the
Purchase Option purchase price calculation, the monthly cash flow calculations
will include all [***] actually paid by Tenant through the Purchase Option
Closing Date, including the portion of [***] pertaining to [***], and any [***]
received under [***] proceeds received by Landlord pursuant to [***] of the
Lease, [***] received by Landlord pursuant to [***] of the Lease, or [***]
received by Landlord pursuant to Section [***] of the Lease, while the
[***] made by Landlord will exclude the amounts related to [***].

 

Given that the
transaction represents [***], any [***] related to the Premises are [***] and
therefore are [***] for the calculation of the Purchase Option purchase price.

 

* * * * *

 

 

EXHIBIT
E

 

OPERATING
EXPENSE EXCLUSIONS

 

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

 

(i) costs incurred
because Landlord actually violated the terms and conditions of this Lease or
any other lease (to which Landlord is a party) for premises within the
Premises, if any;

 

(ii) legal and
auditing fees (other than (a) those fees expressly contemplated in the
Lease to be paid as Additional Rent and (b) those fees reasonably incurred
in connection with the maintenance and operation of all or any portion of the
Premises), leasing commissions, advertising expenses, and other costs incurred
in connection with the original leasing of the Premises (other than those fees
expressly set forth in the Budget to be paid as part of the Construction
Allowance) or future re-leasing of any portion of the Premises;

 

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

 

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

 

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

 

(vi) other than any
interest charges for capital improvements referred to in the Lease, any
interest or payments on any financing obtained by Landlord with regard to the
Premises, interest and penalties incurred as a result of Landlord’s late
payment of any property taxes or insurance procured by Landlord for the
Premises unless such late payment is caused by a default by Tenant under the
Lease or a failure to pay Additional Rent as required pursuant to the Lease;

 

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

 

 

EXHIBIT
F

 

MEMORANDUM OF
LEASE

 

 

	
  Recording Requested By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  When Recorded Return
  To:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  LATHAM &
  WATKINS LLP

  	
   

  	
   

  	
   

  
	
  Attn: Robert
  Frances, Esq.

  	
   

  	
   

  	
   

  
	
  600 West Broadway, 18th Floor

  	
   

  	
   

  	
   

  
	
  San Diego, California
  92101-3375

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  THE AREA ABOVE IS
  RESERVED FOR RECORDER’S USE

  

 

MEMORANDUM
OF LEASE

 

This Memorandum of Lease
(“Memorandum”) is made and entered into as of March     ,
2010, by and between BMR-GAZELLE COURT LLC, a Delaware limited liability
company (“Landlord”), and ISIS PHARMACEUTICALS, INC., a Delaware
corporation (“Tenant”), in connection with that certain real property
located in Carlsbad, California, and more particularly described on Exhibit “A” attached hereto and
incorporated herein by reference (together with any improvements now or
hereafter constructed thereon, the “Premises”).

 

1.             Lease.  Pursuant to
the terms and provisions of that certain unrecorded Lease by and between
Landlord and Tenant, dated March 30, 2010 (the “Lease”), Tenant
leased the Premises from Landlord. Capitalized terms used herein but not
otherwise defined shall have the meanings ascribed thereto in the Lease.

 

2.             Lease Term.  The Lease
shall take effect on March 30, 2010. The term of the Lease shall be for
two hundred forty (240) months commencing on the Substantial Completion Date
(as defined in the Lease) (the “Term Commencement Date”) and ending on
the date that is two hundred forty (240) months after the Term Commencement
Date (the “Lease Term”), subject to earlier termination of the Lease as
provided therein; provided, however, that the Lease provides Tenant with four (4) options
to extend the Lease Term, as further described in the Article 36 of the
Lease.

 

3.             Purchase Option. The Lease grants Tenant the option to
purchase the Premises from Landlord at the end of the following respective
Lease Years: the fifth (5th), sixth (6th), seventh (7th),
eighth (8th), ninth (9th),
fifteenth (15th) and twentieth (20th) Lease Year, subject to and in accordance with Section 24.2
of the Lease.

 

 

4.             Right of First Negotiation. 
The Lease grants Tenant the right of first negotiation with respect to
any sale of the Premises by Landlord to a third party, subject to and in
accordance with Section 24.3 of the Lease.

 

5.             No Effect on Lease. The parties have prepared, signed, and
acknowledged this Memorandum solely for recording purposes. This Memorandum
does not modify, increase, decrease, or in any other way affect any party’s
rights, duties, or obligations under the Lease. Landlord and Tenant each has
rights, duties, and obligations (and conditions to its rights) under the Lease
but not stated in this Memorandum. If the provisions of the Lease and the
provisions of this Memorandum conflict, then the provisions of the Lease shall
govern. Nothing in this Memorandum constitutes any representation or warranty
by either party. To the extent, if any, that the Lease limits the liability of
either Landlord or Tenant, such limitation also applies to any such liability
under this Memorandum.

 

6.             Successors and Assigns. The Lease and this Memorandum shall bind
and benefit the parties hereto and their successors and assigns.

 

7.             Termination. This Memorandum shall automatically
terminate and be of no force or effect upon any termination of the Lease.
Within fifteen (15) days following such termination, Tenant will provide to
Landlord an executed and acknowledged Quitclaim Deed, releasing and
quitclaiming all right, title and interest in and to the Property, specifically
including any interest pursuant to the Lease.

 

8.             Counterparts.  This
Memorandum may be executed in any number of counterparts, each of which shall
be deemed to be an original, and all of such counterparts shall constitute one
agreement.  To facilitate the execution
of this Memorandum, the parties may execute and exchange by telephone facsimile
or by other electronic methods (including email) counterparts of this Memorandum
or the signature pages hereto. 
Signatures to this Memorandum transmitted electronically or by telecopy
shall be valid and effective to bind the party so signing.  Each party hereto agrees to promptly deliver
to the other party an executed original to this Memorandum with its actual
signature, but a failure to do so shall not affect the enforceability of this
Memorandum, it being expressly agreed that each party to this Memorandum shall
be bound by its own telecopied or electronically delivered signature and shall
accept the telecopied or electronically delivered signature of the other
parties to this Memorandum.

 

[Remainder of Page Left
Intentionally Blank]

 

 

IN WITNESS WHEREOF,
Landlord and Tenant have executed this Memorandum of Ground Lease as of the
date first above written.

 

	
   

  	
   

  	
  LANDLORD:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  BMR-GAZELLE COURT LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: John Bonanno

  
	
   

  	
   

  	
  Title:  Vice President, Development

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TENANT:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ISIS PHARMACEUTICALS,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: B. Lynne Parshall

  
	
   

  	
   

  	
  Title: Chief Operating
  Officer & Chief Financial

  
	
   

  	
   

  	
  Officer

  
					

 

[MEMORANDUM
OF LEASE SIGNATURE PAGE]

 

 

STATE OF CALIFORNIA                      }

COUNTY OF                                           }
S.S.

 

On                                             ,
                  
before me,                                                                 
                                                                          ,
a Notary Public in and for said County and 
State, personally appeared,                                                                                                                         
                                                                                                                                                            
                                                                                                                ,
who proved to me on the basis of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed the
instrument.

 

I certify under PENALTY
OF PERJURY under the laws of the State of California that the foregoing
paragraph is true and correct.

 

WITNESS my hand and
official seal.

 

	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Notary Seal)

  

 

[MEMORANDUM
OF LEASE ACKNOWLEDGMENT PAGE]

 

 

STATE OF CALIFORNIA                      }

COUNTY OF                                           }
S.S.

 

On                                             ,
                  
before me,                                                                 
                                                                          ,
a Notary Public in and for said County and 
State, personally appeared,                                                                                                                         
                                                                                                                                                            
                                                                                                                ,
who proved to me on the basis of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed the
instrument.

 

I certify under PENALTY
OF PERJURY under the laws of the State of California that the foregoing
paragraph is true and correct.

 

WITNESS my hand and
official seal.

 

	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Notary Seal)

  

 

 

EXHIBIT “A”

 

Description of the
Property

 

PARCEL 1:

PARCEL “A” OF CERTIFICATE
OF COMPLIANCE NO. ADJ 09-05 RECORDED JANUARY 19, 2010 AS INSTRUMENT NO.
2010-0024854 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:

LOT 14 OF CARLSBAD TRACT
NO. 97-13-02, ACCORDING TO MAP THEREOF NO. 15505, IN THE CITY OF CARLSBAD,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, RECORDED IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY ON JANUARY 23, 2007 AS FILE NO. 2007-0047588,
TOGETHER WITH A PORTION OF LOT ‘B’ OF RANCHO AGUA HEDIONDA, IN THE CITY OF
CARLSBAD, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF
NO. 823, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY,
NOVEMBER 16, 1896, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

 

BEGINNING AT THE
NORTHWEST CORNER OF SAID LOT 14; THENCE, ALONG THE NORTH LINE OF SAID LOT 14,
NORTH 89°09’41” EAST 629.31 FEET; THENCE SOUTH 00°31’59” WEST 8.11 FEET; THENCE
NORTH 89°53’58” EAST 392.46 FEET; THENCE NORTH 53°13’30” EAST 15.15 FEET;
THENCE SOUTH 56°49’30” EAST 85.95 FEET TO THE NORTHEAST CORNER OF SAID LOT 14,
SAID CORNER BEING ON A NON-TANGENT 264.00 FOOT RADIUS CURVE CONCAVE
NORTHWESTERLY, THE RADIAL LINE TO SAID POINT BEARS SOUTH 56°49’30” EAST;
THENCE, ALONG THE EAST LINE OF SAID LOT 14, SOUTHWESTERLY ALONG SAID CURVE
THROUGH A CENTRAL ANGLE OF 5°50’08” AN ARC DISTANCE OF DISTANCE OF 26.89;
THENCE, TANGENT TO SAID CURVE, SOUTH 39°00’38” WEST 329.54 FEET TO THE
BEGINNING OF A TANGENT 736.00 FOOT RADIUS CURVE CONCAVE SOUTHEASTERLY; THENCE
SOUTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 25°07’33” A DISTANCE
OF 322.76 TO THE SOUTHEAST CORNER OF SAID LOT 14, SAID CORNER ALSO BEING A
POINT ON THE SUBDIVISION BOUNDARY OF MAP NO. 14926; THENCE, ALONG THE SOUTH
LINE OF SAID LOT 14 AND THE BOUNDARY OF SAID MAP NO. 14926, NON-TANGENT TO SAID
CURVE NORTH 52°33’23” WEST 148.70 FEET; THENCE SOUTH 48°06’30” WEST, 21.89 FEET
TO THE BEGINNING OF A 100.00 FOOT RADIUS CURVE CONCAVE NORTHWESTERLY; THENCE
SOUTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 34°22’48” AN ARC
DISTANCE OF 60.00 FEET; THENCE 82°29’18” WEST 147.20 FEET; THENCE NORTH 89°14’55”
WEST 410.06 FEET TO THE SOUTHWEST CORNER OF SAID LOT 14; THENCE, LEAVING SAID
LOT 14 AND CONTINUING ALONG THE BOUNDARY OF SAID MAP NO. 14926, SOUTH 29°36’38”
WEST 51.14 FEET; THENCE NORTH 77°38’20” WEST 216.59 FEET; THENCE, LEAVING THE
BOUNDARY OF SAID MAP NO. 14926, NORTH 43°05’58” EAST 78.45 FEET; THENCE NORTH
01°47’45” EAST 442.55 FEET TO A POINT ON THE SOUTHERLY BOUNDARY OF THAT PUBLIC
STREET AND UTILITY EASEMENT RECORDED JANUARY 23, 2007 AS FILE NO. 2007-0047586,
SAID POINT BEING ON A NON-TANGENT 836.00 FOOT RADIUS CURVE CONCAVE NORTHERLY, A
RADIAL LINE TO SAID POINT BEARS SOUTH 23°00’29” WEST; THENCE, EASTERLY ALONG
SAID EASEMENT AND SAID CURVE, THROUGH A CENTRAL ANGLE OF 10°54’11” AN ARC
DISTANCE OF 159.09 TO THE BEGINNING OF A COMPOUND 56.00 FOOT RADIUS CURVE
CONCAVE WESTERLY; THENCE NORTHERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF
181°26’49” AN ARC DISTANCE OF 177.34 TO THE POINT OF BEGINNING.

 

PARCEL 2:

AN EASEMENT FOR A PRIVATE
DRAINAGE OVER AND ACROSS LOT 4 OF CARLSBAD TRACT NO. 97-13-01, CARLSBAD OAKS
NORTH PHASE 1, IN THE CITY OF CARLSBAD, COUNTY OF SAN DIEGO, STATE OF
CALIFORNIA, ACCORDING TO MAP THEREOF NO. 14926, RECORDED IN THE OFFICE OF THE
COUNTY RECORDER OF SAN DIEGO COUNTY ON DECEMBER 15, 2004, AS CREATED BY
EASEMENT AGREEMENT EXECUTED BY KILROY REALTY FINANCE PARTNERSHIP, L.P., A
DELAWARE LIMITED PARTNERSHIP, TECHBILT CONSTRUCTION CORP., A CALIFORNIA
CORPORATION AND CARLSBAD OAKS NORTH PARTNERS, L.P., A CALIFORNIA LIMITED
PARTNERSHIP, DATED JANUARY 20, 2010 AND RECORDED JANUARY 29, 2010 AS INSTRUMENT
NO. 2010-0047608 OF OFFICIAL RECORDS.

 

APN: 209-120-11 and a
portion of 209-120-17

 

[MEMORANDUM
OF LEASE ACKNOWLEDGMENT PAGE]

 

 

EXHIBIT
G

 

FORM PURCHASE
AND SALE AGREEMENT

 

[See
Attached]

 

 

AGREEMENT OF SALE]

 

THIS
AGREEMENT OF SALE
(this “Agreement”)
is made the                    
day of                            ,
20    (the “Effective
Date”), by and between BMR-GAZELLE
COURT LLC, a Delaware limited liability company  (“Seller”), and ISIS PHARMACEUTICALS, INC., a Delaware corporation (“Buyer”). Seller and
Buyer are sometimes hereinafter referred to collectively as the “parties”.

 

W I T N E S S E T H

 

1.             Sale of Premises.

 

A.            Purchase and Sale. Subject to all of the terms and conditions of this
Agreement, Seller agrees to sell and convey to Buyer, and Buyer agrees to
purchase from Seller, any and all of Seller’s right, title and interest in and
to the following:

 

(i)            the land located at                   
Gazelle Court, Carlsbad, California, as more fully described in Exhibit “A”
attached hereto and made a part hereof, together with all strips and gores and
any land lying in the bed of any street, road or alley, open or proposed,
adjoining such real property (collectively, the “Land”);

 

(ii) all and
singular the rights, benefits, privileges, easements, tenements, hereditaments,
and appurtenances thereon or in anyway appertaining to the Land (collectively,
the “Appurtenant Rights”);

 

(iii) buildings,
structures, fixtures, systems, improvements, topsoil, trees, shrubbery and
landscaping situated on, in or under or used in connection with the land
(collectively, the “Improvements”);

 

(iv) all right,
title and interest of Seller, if any, in and to all tangible personal property
now or hereafter located on, or used exclusively in connection with, the
operation, ownership, maintenance, occupancy or improvement of the Land
(collectively, the “Tangible
Personal Property”; and

 

(v) all right, title
and interest of Seller, if any, in and to all intangible personal property now
or hereafter used exclusively in connection with the operation, ownership,
maintenance, management, or occupancy of the Land or Improvements (to the
extent assignable); the plans and specifications for the Improvements (to the
extent assignable); warranties, indemnities, guaranties (express or implied),
applications, permits, authorizations, approvals and licenses (to the extent
applicable in any way to the above referenced Land, Improvements or the
Tangible Personal Property and assignable); insurance proceeds received by (or
owed to) Seller which relate to damage to the Land or Improvements caused by a
casualty that has occurred prior to the Closing Date and for which restoration
has not previously occurred, but only to the extent that such proceeds have not
been applied by Seller prior to the Closing Date towards the cost of (a) pursuit
or settlement of the applicable insurance claim, (b) the clearing of
debris or other expenses associated with securing the Land or Improvements, or (c) restoration
of the Land or Improvements; and condemnation awards or claims thereto
(collectively, the “Intangible
Property”).

 

4

 

B.            Premises Defined. The Land, the Appurtenant Rights, the Improvements,
the Tangible Personal Property and the Intangible Property are hereinafter
referred to as the “Premises”.

 

2.             Purchase Price.  The purchase
price for the Premises (the “Purchase Price”) shall be                         
Dollars ($                  ),
payable as follows:

 

A.            Deposit. Concurrently with the execution and delivery of this
Agreement, (i) the parties shall establish an escrow (the “Escrow”) with
[Chicago Title Insurance Company, 2365 Northside Drive, 6th Floor, San
Diego, CA 92108, Attn: Renee Marshall] (the “Title Company”), (ii) the parties
shall deposit with the Title Company a fully executed original of this
Agreement, and (iii) Buyer shall deposit with the Title Company a sum
equal to [                
Dollars ($              )]
[INSERT AMOUNT THAT IS [***] OF THE PURCHASE
PRICE] in good funds either by certified bank or cashier’s check or
by federal wire transfer (such funds, together with all interest accrued
thereon while held in Escrow, the “Deposit”). 
The Deposit shall be held in escrow by the Title Company in a federally
insured, interest bearing account in accordance with the laws of the State of
California and the provisions of this Agreement.  If this Agreement is terminated pursuant to Section 7
hereof, the Deposit shall be paid to either Buyer or Seller in accordance with
the provisions of Section 7. 
If the sale of the Premises is consummated, the Deposit shall be
released to Seller and shall be credited against the Purchase Price.

 

B.            Payment of Purchase Price. At Closing, the Deposit shall be
released to Seller, and Buyer shall pay to Seller through Escrow in the manner
described herein the balance of the Purchase Price, as adjusted for prorations
and other adjustments provided herein.

 

3.             Condition of Title.

 

A.            Title Review. Buyer acknowledges that it has been provided with
the right and opportunity to review and investigate any and all conditions and
aspect of title to the Premises deemed necessary or desirable by Buyer for
purposes of evaluating the transactions contemplated hereby.

 

B.            Title Examination. Buyer hereby acknowledges that it approves all the
encumbrances and exceptions to title embodied in the Permitted Exceptions (as
defined below), and Buyer shall take title to the Premises subject to all such
Permitted Exceptions (as defined below); provided, however, that
Seller shall cause any liens granted by Seller and encumbering the Premises to
secure the repayment of borrowed money to be removed from title or otherwise
insured over by the Title Company. Without limiting the effect of the
foregoing, the parties acknowledge and agree that the term “Permitted Exceptions”
shall include the following:

 

5

 

(i)            the title encumbrances described on Exhibit F
attached hereto;

 

(ii)           all covenants, conditions, restrictions, reservations,
rights, rights of way, dedications, offers of dedication, encumbrances, liens
and easements, in each case whether filed in the applicable public records or
as would be apparent from an inspection or accurate survey of the Premises,
except in each case to the extent that the same are granted or caused by Seller
in a manner that would constitute a breach under the Lease;

 

(iii)          the rights of tenants or other occupants under any
leases, licenses, and occupancy agreements granted by any person or entity
other than Seller, including all amendments or modifications thereto or
supplements thereof, covering all or any portion of the Premises;

 

(iv)          the lien of all ad valorem real estate taxes and
assessments;

 

(v)           all liens and encumbrances with respect to the
Premises which were granted by, or which arise in connection with the acts or
omissions of, Buyer or any of Buyer’s agents, contractors, affiliates,
invitees, or any other party that Buyer has permitted to use or occupy the Land
or Improvements from and after the Effective Date of the Lease (as such term is
defined in the Lease);

 

(vi)          local, state and federal laws, ordinances or
governmental regulations, including but not limited to building and zoning laws,
ordinances and regulations, now or hereafter in effect relating to the
Premises; and

(vii)         those matters which would be disclosed by an accurate
survey or inspection of the Premises.

 

C.            Conveyance of Title. At Closing, Seller shall convey and transfer, or
cause to be conveyed or transferred, to Buyer all of Seller’s right, title and
interest in and to the Premises, subject to the Permitted Exceptions.

 

D.            Covenants of Seller. Seller, as Landlord, and Buyer, as tenant, are
parties to that certain Lease Agreement, dated March 30, 2010 (the “Lease”) pursuant to
which Buyer leases the Premises and is responsible for, among other things, its
repair, upkeep and maintenance. Accordingly, Seller has not undertaken to
either manage or operate the Premises in any particular way prior to Closing,
or deliver the Premises at Closing in any particular condition. During the
period from and after the Effective Date until the date that Closing occurs,
Seller (i) shall fully and timely perform its obligations under the Lease,
and (ii) shall not, without Buyer’s consent (which will not be
unreasonably withheld, conditioned or delayed), grant any new liens or
encumbrances against the Premises or take any action which would have a
material adverse effect on (a) the use of the Premises in the manner in
which it is being used as of the Effective Date, or (b) the value of the
Premises.

 

4.             Closing. 
The consummation of the purchase and sale of the Premises contemplated
by this Agreement (the “Closing”)
shall take place on [                                    ,
20   ] (the “Closing Date”) at [1:00 PM local time] through the
Escrow administered by the Title Company, or such other time and place as
Seller and Buyer agree to in writing.  [NOTE: TO BE 

 

6

 

DETERMINED
IN ACCORDANCE WITH SECTIONS 19.1.4 OR 24.2 OF THE LEASE, AS APPLICABLE].

 

A.            Conditions to Seller’s Obligation to Close. 
The obligation of Seller to consummate the transactions contemplated
hereunder shall be contingent upon the following:

 

(i)            Representations. 
Buyer’s representations and warranties contained herein shall be
materially true and correct as of the date of this Agreement;

 

(ii)           Performance. 
All deliveries to be made by Buyer at Closing have been tendered, and Buyer
shall have performed all of the other obligations to be performed by Buyer
under this Agreement; and

 

(iii)          Moratorium.  No
moratorium, statute or regulation of any governmental agency or order or ruling
of any court has been enacted, adopted, or issued which would adversely affect
Buyer’s ability to purchase the Property from Seller.

 

B.            Conditions to Buyer’s Obligation to Close. 
The obligation of Buyer to consummate the transactions contemplated
hereunder shall be contingent upon the following:

 

(i)            Representations. 
Seller’s representations and warranties contained herein shall be
materially true and correct as of the date of this Agreement;

 

(ii)           Performance. 
All deliveries to be made by Seller at Closing have been tendered, and
Seller shall have performed all of the other obligations to be performed by
Seller under this Agreement;

 

(iii)          Title.  Upon the
sole condition of payment of the premium, at Closing, the Title Company shall
have irrevocably and unconditionally committed to issue to Buyer an ALTA Owner’s
Policy of title insurance, with extended coverage (i.e., with ALTA General
Exceptions deleted), dated as of the date and time of the recording of the Deed
(as defined below), in the amount of the Purchase Price, insuring Buyer as
owner of good, marketable and indefeasible fee simple title to the Property,
subject only to the Permitted Exceptions; provided, however, that
notwithstanding the foregoing or any other provision of this Agreement to the
contrary, the parties agree that Seller shall not be required to provide any
indemnities, representations, warranties or affidavits to the Title Company;
and

 

(iv)          Moratorium.  No
moratorium, statute or regulation of any governmental agency or order or ruling
of any court has been enacted, adopted, or issued which would adversely affect
Seller’s ability to sell the Property to Buyer.

 

C.            Failure of Condition Precedent. 
If any condition to such party’s obligation to proceed with the Closing
hereunder has not been satisfied as of the Closoing Date; each non-defaulting
party may, in its sole discretion, either (i) terminate this Agreement by
delivering written notice to the other party, or (ii) elect to close,
notwithstanding the non-satisfaction of such condition, in which event such
party shall be deemed to have waived any such condition.

 

7

 

5.             Provisions With Respect to Closing.

 

A.            Deliveries by Seller. At least one (1) business day prior to the
Closing Date, Seller shall deliver, or cause to be delivered, to the Title
Company, to be held in Escrow pending Closing, each of the following:

 

(i)            Deed.  One (1) original
Grant Deed, duly executed and acknowledged by Seller, substantially in the form
of Exhibit “B”  attached
hereto (the “Deed”);

 

(ii)           Bill of Sale and Assignment of Warranties.  Two (2) original counterparts of a Bill
of Sale and Assignment and Assumption of Warranties, duly executed by Seller,
substantially in the form of Exhibit “C” attached hereto (“Bill of Sale and Assignment of
Warranties”);

 

(iii)          Termination of Lease. 
Two (2) original counterparts of a Termination of Lease Agreement,
duly executed by Seller substantially in the form of Exhibit “D” attached
hereto (“Lease
Termination”);

 

 

(iv)          FIRPTA Affidavit. 
One (1) original Certificate Regarding Foreign Investment in Real
Property Tax Act, duly executed and acknowledged by Seller, substantially in
the form of Exhibit “E” attached hereto.; and

 

(v)           Closing Statement. An executed closing statement
consistent with this Agreement and in a form requested by the Title Company.

 

B.            Deliveries by Buyer. At least one (1) business day prior to the
Closing Date, Buyer shall deliver, or cause to be delivered, to the Title
Company, to be held in Escrow pending Closing, each of the following:

 

(i)            Funds.    The
balance of the Purchase Price, as adjusted for prorations and other adjustments
provided herein;

 

(ii)           Bill of Sale and Assignment of Warranties.  Two (2) original counterparts of the
Bill of Sale and Assignment of Warranties, duly executed by Buyer;

 

(iii)          Termination of Lease. 
Two (2) original counterparts of the Lease Termination, duly
executed by Buyer;

 

(iv)          Release.  A
release of claims, duly executed and acknowledged by Buyer that contains the
same disclaimers and release as set forth in Section 11, except such
release will be dated as of the Closing Date (the “Release”); and

 

(v)           Closing Statement. An executed closing statement
consistent with this Agreement and in a form requested by the Title Company.

 

8

 

6.             Closing Costs; Taxes; Apportionments.

 

A.            Buyer shall pay: (i) the fees of any counsel
representing Buyer in connection with the transaction contemplated by this
Agreement (the “Transaction”);
(ii) the fees of any counsel representing Seller in connection with the
Transaction (provided, however, that Buyer shall not be required to pay such
fees in excess of $25,000 (as such amount shall be adjusted by multiplying
$25,000 by the CPI Adjustment Factor described below)); (iii) the escrow
fee, if any, which may be charged by the Title Company; (iv) the costs of
any title reports, commitments or policies that Buyer may elect to obtain; (v) the
cost of any survey that Buyer may elect to obtain; (v) all of the
recording fees in connection with the sale transaction, and (vi) any
transfer and sales taxes (but excluding Seller’s federal or state income,
franchise, inheritance or estate taxes) that may arise in connection with the
Transaction. As used herein, the “CPI Adjustment Factor” means, as of Closing
Date, the greater of (a) the CPI for such date divided by the CPI for the
Effective Date of the Lease; and (b) 1.00. As used herein, “CPI” means the United
States Department of Labor, Bureau of Labor Statistics “Consumer Price Index”
for All Urban Consumers (CPI-U) published for the Los Angeles-Riverside-Orange
County, CA, Metropolitan Statistical Area, with a base of 1982-1984 = 100.  If the CPI ceases to be published, with no
successor index, then the parties shall reasonably agree upon a reasonable
substitute index.  The CPI for any date
means the CPI last published before the calendar month that includes such date.

 

B.            Seller shall pay the fees of any counsel representing
Seller to the extent that such fees exceed the amount of Seller’s legal fees
for which Buyer is responsible pursuant to Section 6(A)(ii) above.

 

C.            Prorations.  If the
Purchase Price is received by Seller’s depository bank in time to credit to
Seller’s account on the Closing Date, the day of Closing shall belong to Buyer
and all prorations hereinafter provided to be made as of the Closing shall each
be made as of the end of the day before the Closing Date.  If the cash portion of the Purchase Price is
not so received by Seller’s depository bank on the Closing Date, then the day
of Closing shall belong to Seller and such proration shall be made as of the
end of the day that is the Closing Date. 
In each such proration set forth below, the portion thereof applicable
to periods beginning as of Closing shall be credited to Buyer or charged to
Buyer as applicable and the portion thereof applicable to periods ending as of
Closing shall be credited to Seller or charged to Seller as applicable.  The parties acknowledge and agree that the
Lease is a fully triple net lease such that Buyer, as tenant, is responsible to
pay directly, or reimburse Seller for, any and all expenses incident to the
ownership, operation and maintenance of the Premises, in each case as required
under the Lease.  As a result, the
parties shall not engage in normal and customary prorations.  However, at Closing, Buyer shall pay or
credit to Seller any and all of the following: 
(i) all Rent (as defined in the Lease) owing from Buyer, as tenant,
to Seller (such amounts, “Rental
Amounts”) under the Lease for the portion of the month in which
closing occurs occurring prior to Closing and any period prior to Closing to
the extent not previously paid by Buyer to Seller, including, but not limited
to, any rental delinquencies; and (ii) all sums advanced or paid by Seller
for real estate taxes, operating expenses, general assessments or special
assessments related to the Premises for any period prior to or subsequent to
the Closing to the extent not previously paid or reimbursed by Buyer,
including, but not limited to, real estate taxes paid by Seller with respect to
any period

 

9

 

prior to or subsequent to
the Closing and not yet reimbursed.  At
Closing, Seller shall credit to Buyer any Rental Amounts paid by Buyer that are
allocable to the period from and after Closing; provided, however,
that Seller shall retain all amounts of additional rent previously paid by
Buyer to Seller on account of common area maintenance expenses, real estate
taxes, insurance expenses or other expenses to the extent incurred by Seller on
account of expenses allocable to the Premises prior to or after Closing and
previously paid by Seller.

 

D.            Final Adjustment After Closing. 
In the event that final bills are not available or cannot be issued
prior to Closing for any item being prorated under this Article 6,
then Buyer and Seller agree to allocate such items on a fair and equitable
basis as estimated based on the previous year’s amounts, with a true-up and
final adjustment to be made as soon as reasonably possible after the Closing
but no later than [six (6)] months after Closing.  Payments in connection with the final
adjustment shall be due within thirty (30) days after receipt of written
notice.  Each party shall have reasonable
access to, and the right to inspect and audit, the other party’s books to
confirm the final prorations.

 

7.             Failure to Close;  Defaults.

 

A.            Buyer’s Default.  Provided that
Seller has materially complied with its obligations hereunder and the
conditions set forth in Section 4B have been satisfied, if Buyer fails to
complete the Closing in accordance with the terms of this Agreement, then in
addition to (i) any rights or remedies that Seller may have in connection
therewith under the Lease, and (ii) any loss of rights that Buyer may
incur in connection therewith and under the Lease (collectively, the “Lease Implications”),
the Deposit shall be retained by Seller as liquidated and agreed damages for
such breach, which shall be Seller’s sole and exclusive right and remedy under
this Agreement for such breach, whereupon this Agreement shall become null and
void and neither party hereto shall have any further rights, liabilities or
obligations hereunder except those obligations which expressly survive
termination

 

THE PARTIES ACKNOWLEDGE THAT
SELLER’S ACTUAL DAMAGES IN THE EVENT THE SALE IS NOT CONSUMMATED ARE EXTREMELY
DIFFICULT OR IMPRACTICABLE TO DETERMINE AT THE EFFECTIVE DATE.  THEREFORE, BY SEPARATELY EXECUTING THIS SECTION 7(A) BELOW,
THE PARTIES ACKNOWLEDGE THAT THE AMOUNT OF THE DEPOSIT HAS BEEN AGREED UPON,
AFTER NEGOTIATION, AS THE PARTIES’ REASONABLE ESTIMATE OF SELLER’S DAMAGES AND
NOT A PENALTY, AND SHALL (ASIDE FROM THE LEASE IMPLICATIONS, WHICH SHALL NOT BE
LIMITED IN ANY WAY BY THIS SECTION BE SELLER’S SOLE AND EXCLUSIVE REMEDY
AGAINST BUYER ARISING FROM A FAILURE OF THE SALE TO CLOSE.  IN ADDITION, BUYER SHALL PAY ALL COSTS AND
EXPENSES ALLOCABLE TO BUYER PURSUANT TO SECTION 6(A), AS WELL AS ALL TITLE
AND ESCROW CANCELLATION CHARGES. 
NOTWITHSTANDING THE FOREGOING, IN NO EVENT SHALL THIS SECTION 7(A) LIMIT
THE DAMAGES RECOVERABLE BY EITHER PARTY AGAINST THE OTHER PARTY DUE TO THE
OTHER PARTY’S OBLIGATION TO INDEMNIFY SUCH PARTY IN ACCORDANCE WITH SECTION 14
OF THIS AGREEMENT.  BY SEPARATELY
EXECUTING THIS SECTION 7(A). BELOW, BUYER AND SELLER ACKNOWLEDGE
THAT THEY HAVE

 

10

 

READ AND UNDERSTOOD THE
ABOVE PROVISION COVERING LIQUIDATED DAMAGES, AND THAT EACH PARTY WAS
REPRESENTED BY COUNSEL WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED
DAMAGES PROVISION AT THE TIME THIS AGREEMENT WAS EXECUTED.

 

 

	
  BMR-GAZELLE
  COURT LLC

  	
  ISIS
  PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
										

 

 

B.            Seller’s Default.  In the event
that Seller shall fail to perform the acts required by this Agreement to be
performed by it prior to or as of the Closing for any reason, or the conditions
set forth in Section 4B were not satisfied for any reason, Buyer shall be
entitled, as its sole and exclusive remedy, to (i) receive the return of
the Deposit, which return shall operate to terminate this Agreement and release
Seller from any and all liability hereunder, or (ii) to enforce specific
performance of Seller’s obligation to convey the Premises to Buyer as
contemplated by this Agreement, it being understood that the remedy of specific
performance shall not be available to enforce any other obligation of Seller
hereunder. Buyer shall be deemed to have elected to terminate this Agreement
and receive the return of the Deposit as its sole and exclusive remedy if Buyer
fails to file suit for specific performance against Seller in a court having
jurisdiction in the county and state in which the Premises is located within
sixty (60) days following the scheduled Closing Date.

 

8.             Seller’s Representations, Warranties and Covenants. 
Seller hereby represents, warrants and covenants to Buyer, as of the
Effective Date, as follows:

 

A.            Seller has full capacity, power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.

 

B.            This Agreement, and all other instruments and
documents to be executed and delivered by Seller to Buyer hereunder or pursuant
hereto, have been or will be duly executed and delivered by Seller and
constitute (or will constitute, as to those instruments and documents to be
executed and delivered) the legal, valid and binding obligations of Seller
enforceable against Seller in accordance with their respective terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors’ rights and remedies generally
and general principals of equity.

 

11

 

C.            There is no suit, action or proceeding pending or to
the knowledge of Seller threatened against Seller before or by any court,
administrative agency or other governmental or quasi-governmental authority, (i) affecting
the Premises or (ii) which brings into question the validity of this
Agreement or the Transaction.

 

9.             Buyer’s Representations, Warranties and Covenants. 
Buyer hereby represents, warrants and covenants to Seller, as of the
Effective Date, as follows:

 

A.            Buyer has full capacity, power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder.

 

B.            This Agreement and all other instruments and documents
to be executed and delivered by Buyer to Seller hereunder or pursuant hereto
have been or will be duly executed and delivered by Buyer and constitute (or
will constitute, as to those instruments and documents to be executed and
delivered) the legal, valid and binding obligations of Buyer enforceable
against Buyer in accordance with their respective terms.

 

C.            There is no suit, action or proceeding pending or to
the knowledge of Buyer threatened against Buyer or affecting the Premises
before or by any court, administrative agency or other governmental or
quasi-governmental authority, or which brings into question the validity of
this Agreement or the Transaction.

 

10.           Investigations.

 

A.            Buyer acknowledges that it (i) is familiar with
the Premises, (ii) has been given an opportunity to inspect the Premises
and (iii) has completed all of its inspections with respect to the
condition of the Premises as of the Effective Date.

 

11.           Disclaimers and Warranties.

 

A.            AS IS SALE; DISCLAIMERS. WITH RESPECT TO CLAUSES (i) THROUGH (iv) BELOW,
EXCEPT IN THE CASE OF A BREACH BY SELLER OF THE REPRESENTATIONS AND WARRANTIES
CONTAINED IN SECTION 8, AND EXCEPT FOR SELLER’S BREACH OF ITS COVENANT SET
FORTH IN SECTION 3D:

 

i.              SELLER IS NOT MAKING, AND HAS NOT AT ANY TIME MADE,
ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED,
WITH RESPECT TO THE PREMISES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OR
REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.

 

ii.             UPON CLOSING SELLER SHALL SELL AND CONVEY TO BUYER,
AND BUYER SHALL ACCEPT, THE PREMISES “AS IS, WHERE IS, WITH ALL FAULTS”.  BUYER HAS NOT RELIED AND WILL NOT RELY ON,
AND SELLER IS NOT LIABLE FOR OR BOUND BY, ANY EXPRESS OR IMPLIED WARRANTIES,
GUARANTIES, STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING

 

12

 

TO THE PREMISES OR
RELATING THERETO MADE OR FURNISHED BY SELLER OR ANY REAL ESTATE BROKER OR AGENT
REPRESENTING OR PURPORTING TO REPRESENT SELLER, TO WHOMEVER MADE OR GIVEN,
DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING. 
ALL MATERIALS, DATA AND INFORMATION DELIVERED BY SELLER TO BUYER, OR
OTHERWISE MADE AVAILABLE TO BUYER, IN CONNECTION WITH THE TRANSACTION
CONTEMPLATED HEREBY ARE PROVIDED TO BUYER AS A CONVENIENCE ONLY AND ANY
RELIANCE ON OR USE OF SUCH MATERIALS, DATA OR INFORMATION BY BUYER SHALL BE AT
THE SOLE RISK OF BUYER.  NEITHER SELLER,
NOR ANY AFFILIATE OF SELLER, NOR THE PERSON OR ENTITY WHICH PREPARED ANY REPORT
OR REPORTS MADE AVAILABLE BY SELLER TO BUYER SHALL HAVE ANY LIABILITY TO BUYER
FOR ANY INACCURACY IN OR OMISSION FROM ANY SUCH REPORTS.  BUYER ACKNOWLEDGES THAT THE PURCHASE PRICE
REFLECTS AND TAKES INTO ACCOUNT THAT THE PREMISES IS BEING SOLD “AS IS.”

 

iii.            BUYER REPRESENTS AND COVENANTS TO SELLER THAT BUYER
HAS CONDUCTED SUCH INVESTIGATIONS OF THE PREMISES, INCLUDING BUT NOT LIMITED
TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS BUYER DEEMS NECESSARY
OR DESIRABLE TO SATISFY ITSELF AS TO THE CONDITION OF THE PREMISES AND THE
EXISTENCE OR NONEXISTENCE OF, OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO,
ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PREMISES, AND WILL
RELY SOLELY UPON SAME AND NOT UPON ANY INFORMATION PROVIDED BY OR ON BEHALF OF
SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO.

 

iv.            UPON CLOSING, BUYER SHALL AUTOMATICALLY ASSUME THE
RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS
AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN
REVEALED BY BUYER’S INVESTIGATIONS, AND BUYER, UPON CLOSING, SHALL BE DEEMED TO
HAVE WAIVED, RELINQUISHED AND RELEASED SELLER (AND SELLER’S AFFILIATES,
PREDECESSORS, SUCCESSORS, PARTNERS, MEMBERS, OFFICERS, DIRECTORS, SHAREHOLDERS,
TRUSTEES, EMPLOYEES, AGENTS, REPRESENTATIVES, LENDERS, CONSULTANTS AND
ATTORNEYS) FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION IN
LAW OR IN EQUITY (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES,
LIABILITIES, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS’ FEES) OF ANY
AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, FIXED OR CONTINGENT, WHICH BUYER
MIGHT HAVE ASSERTED OR ALLEGED AGAINST SELLER (AND SELLER’S AFFILIATES,
PREDECESSORS, SUCCESSORS, PARTNERS, MEMBERS, OFFICERS, DIRECTORS, SHAREHOLDERS,
TRUSTEES, EMPLOYEES, AGENTS, REPRESENTATIVES, LENDERS, CONSULTANTS AND
ATTORNEYS) AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT
CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF ANY APPLICABLE LAWS
AND ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS
REGARDING THE PREMISES.

 

13

 

THE UNDERSIGNED
ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY LEGAL COUNSEL AND IS FAMILIAR WITH THE
PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS
FOLLOWS:

 

“A GENERAL RELEASE DOES
NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR
HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

 

THE UNDERSIGNED, BEING
AWARE OF THIS CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS IT MAY HAVE
THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPALS OF
SIMILAR EFFECT.

 

______________________

Buyer’s Initials

 

B.            Survival of Disclaimers. The provisions of this Section 11 shall
survive Closing or any termination of this Agreement.

 

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

 

If intended for Seller:

 

BMR-GAZELLE COURT
LLC

 

Attn: Vice
President, Real Estate Counsel

17190 Bernardo
Center Drive

San Diego,
California 92128

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

 

If
intended for Buyer:

 

Isis
Pharmaceuticals, Inc.

Attn:  Chief Operating Officer

1896 Rutherford
Road

Carlsbad,
California 92008

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

 

with a copy to: General
Counsel

Fax:  760-268-4922

 

14

 

Notices may be
delivered by Federal Express, United Parcel Service, or other nationally
recognized overnight (one-night) mail courier service, or sent by facsimile (provided
a copy of such notice is deposited with an overnight courier for next business
day delivery). Any such notice shall be considered given on the date of such
hand or couriered delivery, confirmed facsimile transmission if received on a
business day, deposit with such overnight courier for next business day
delivery.

 

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

 

13.           Assignment.  Buyer may not
assign its rights under this Agreement without first obtaining Seller’s written
approval, which approval may be given or withheld in Seller’s sole discretion, except that Buyer may assign this
agreement without Seller’s approval but with written notice, to any (i) successor
by merger or sale of substantially all of Buyer’s assets (including, without
limitation, this Agreement) in a manner such that the assignee will become
liable and responsible for the performance and observance of all Buyer’s duties
and obligations hereunder; or (ii) corporation or other entity which
controls, is controlled by, or is under common control with Buyer.  In no event shall any assignment of this
Agreement release or discharge Buyer from any liability or obligation hereunder
unless expressly agreed otherwise by Seller in writing.  Any transfer, directly or indirectly,
(whether by merger, consolidation or otherwise) of any stock, partnership
interest or other ownership interest in Buyer or any other transaction, in each
case which results (whether directly or indirectly) in a change in control of
Buyer shall constitute an assignment of this Agreement.

 

14.           Brokerage.  Each of Seller
and Buyer represents and warrants to the other of them that it has not dealt
with any broker, agent, finder or other intermediary in connection with the
conveyance of the Premises or this Agreement. Each of Seller and Buyer agrees
to indemnify, defend and hold the other harmless of, from and against any damages,
costs, claims, losses or liabilities whatsoever (including attorney’s fees,
expenses and court costs) arising from any breach by the indemnifying party of
the foregoing warranties, representations and agreements.  This Section shall survive Closing under
this Agreement.

 

15.           Time of the Essence. 
Time, wherever mentioned herein, shall be of the essence of this
Agreement.

 

16.           Binding Effect.  This Agreement
shall be binding upon and inure to the benefit of Seller and Buyer and their
respective successors, heirs and assigns.

 

17.           Entire Agreement.  This Agreement
constitutes the entire agreement between the parties hereto regarding the
transaction contemplated hereby and there are no other terms, covenants,
conditions, warranties, representations or statements, oral or otherwise, of
any kind whatsoever.  Any agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of this Agreement in whole or in part unless such agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.

 

15

 

18.           Headings.  The headings
incorporated in this Agreement are for convenience and reference only and are
not a part of this Agreement and do not in any way control, define, limit, or
add to the terms and conditions hereof.

 

19.           Governing Law.  This Agreement
shall be construed, interpreted and governed by the laws of the State of
California.

 

20.           Counterparts.  This Agreement
may be executed in any number of counterparts, each of which shall be an
original, and such counterparts together shall constitute one and the same
instrument.

 

21.           Attorneys’ Fees. 
If either party commences an action against the other party arising out
of or in connection with this Agreement, then the prevailing party shall be
entitled to have and recover from the other party reasonable attorneys’ fees,
charges and disbursements and costs of suit in proportion to [***] up to a
maximum of 100%; provided, however, that in the case where the prevailing party
is awarded any equitable relief, then the prevailing party may recover the full
amount of such costs and attorney’s fees. 
For example, if the prevailing party [***] and no equitable relief, but
[***], and the prevailing party had two hundred thousand dollars ($200,000) in
costs and attorneys’ fees, then such prevailing party would be entitled to
recover [***] of such costs and attorneys’ fees.

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]

 

16

 

IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, under seal, as of the day and year first-above written.

 

 

	
   

  	
  SELLER:

  
	
   

  	
  BMR-GAZELLE COURT LLC,

  
	
   

  	
  a
  Delaware limited liability company,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BUYER:

  
	
   

  	
  ISIS PHARMACEUTICALS, INC.,

  
	
   

  	
  a
  Delaware corporation,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

S-1

 

ACKNOWLEDGMENT
AND CONSENT OF TITLE COMPANY

 

 

On this           day
of                   ,
20   , the undersigned, the Title Company named in the foregoing
Agreement, intending to be legally bound hereby, agrees to keep, observe and
perform the terms and conditions of said Agreement relating to the holding and
disbursement of the Deposit (as defined in the Agreement), together with any
interest earned thereon, and all additional monies paid to it in escrow
pursuant to the terms and conditions thereof. 
Title Company shall not incur any liability to anyone for damages,
losses, or expenses except for fraud, negligence or willful conversation in
respect to any action taken or omitted in good faith.  Title Company may tender into the registry of
any court of competent jurisdiction any escrow funds if it deems that there is
a dispute with respect to the disbursement of such funds.  Thereafter, Title Company will be discharged
from all further duties and liabilities hereunder.

 

	
   

  	
  TITLE
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  [                                                                        ]

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
				

 

S-2

 

EXHIBIT
“A”

(Legal
Description of Premises)

 

 

PARCEL 1:

 

PARCEL “A” OF CERTIFICATE
OF COMPLIANCE NO. ADJ 09-05 RECORDED JANUARY 19, 2010 AS INSTRUMENT NO.
2010-0024854 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:

 

LOT 14 OF CARLSBAD TRACT
NO. 97-13-02, ACCORDING TO MAP THEREOF NO. 15505, IN THE CITY OF CARLSBAD,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, RECORDED IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY ON JANUARY 23, 2007 AS FILE NO. 2007-0047588,
TOGETHER WITH A PORTION OF LOT ‘B’ OF RANCHO AGUA HEDIONDA, IN THE CITY OF CARLSBAD,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 823,
FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, NOVEMBER 16,
1896, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

 

BEGINNING AT THE
NORTHWEST CORNER OF SAID LOT 14; THENCE, ALONG THE NORTH LINE OF SAID LOT 14,
NORTH 89°09'41" EAST 629.31 FEET; THENCE SOUTH 00°31'59" WEST 8.11
FEET; THENCE NORTH 89°53'58" EAST 392.46 FEET; THENCE NORTH 53°13'30"
EAST 15.15 FEET; THENCE SOUTH 56°49'30" EAST 85.95 FEET TO THE NORTHEAST
CORNER OF SAID LOT 14, SAID CORNER BEING ON A NON-TANGENT 264.00 FOOT RADIUS
CURVE CONCAVE NORTHWESTERLY, THE RADIAL LINE TO SAID POINT BEARS SOUTH 56°49'30"
EAST; THENCE, ALONG THE EAST LINE OF SAID LOT 14, SOUTHWESTERLY ALONG SAID
CURVE THROUGH A CENTRAL ANGLE OF 5°50'08" AN ARC DISTANCE OF DISTANCE OF
26.89; THENCE, TANGENT TO SAID CURVE, SOUTH 39°00'38" WEST 329.54 FEET TO
THE BEGINNING OF A TANGENT 736.00 FOOT RADIUS CURVE CONCAVE SOUTHEASTERLY;
THENCE SOUTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 25°07'33"
A DISTANCE OF 322.76 TO THE SOUTHEAST CORNER OF SAID LOT 14, SAID CORNER ALSO
BEING A POINT ON THE SUBDIVISION BOUNDARY OF MAP NO. 14926; THENCE, ALONG THE
SOUTH LINE OF SAID LOT 14 AND THE BOUNDARY OF SAID MAP NO. 14926, NON-TANGENT
TO SAID CURVE NORTH 52°33'23" WEST 148.70 FEET; THENCE SOUTH 48°06'30"
WEST, 21.89 FEET TO THE BEGINNING OF A 100.00 FOOT RADIUS CURVE CONCAVE
NORTHWESTERLY; THENCE SOUTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF
34°22'48" AN ARC DISTANCE OF 60.00 FEET; THENCE 82°29'18" WEST 147.20
FEET; THENCE NORTH 89°14'55" WEST 410.06 FEET TO THE SOUTHWEST CORNER OF
SAID LOT 14; THENCE, LEAVING SAID LOT 14 AND CONTINUING ALONG THE BOUNDARY OF
SAID MAP NO. 14926, SOUTH 29°36'38" WEST 51.14 FEET; THENCE NORTH 77°38'20"
WEST 216.59 FEET; THENCE, LEAVING THE BOUNDARY OF SAID MAP NO. 14926, NORTH
43°05'58" EAST 78.45 FEET; THENCE NORTH 01°47'45" EAST 442.55 FEET TO
A POINT ON THE SOUTHERLY BOUNDARY OF THAT PUBLIC

 

 

STREET AND UTILITY
EASEMENT RECORDED JANUARY 23, 2007 AS FILE NO. 2007-0047586, SAID POINT BEING
ON A NON-TANGENT 836.00 FOOT RADIUS CURVE CONCAVE NORTHERLY, A RADIAL LINE TO
SAID POINT BEARS SOUTH 23°00'29" WEST; THENCE, EASTERLY ALONG SAID
EASEMENT AND SAID CURVE, THROUGH A CENTRAL ANGLE OF 10°54'11" AN ARC
DISTANCE OF 159.09 TO THE BEGINNING OF A COMPOUND 56.00 FOOT RADIUS CURVE
CONCAVE WESTERLY; THENCE NORTHERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF
181°26'49" AN ARC DISTANCE OF 177.34 TO THE POINT OF BEGINNING.

 

PARCEL 2:

 

AN EASEMENT FOR A PRIVATE
DRAINAGE OVER AND ACROSS LOT 4 OF CARLSBAD TRACT NO. 97-13-01, CARLSBAD OAKS
NORTH PHASE 1, IN THE CITY OF CARLSBAD, COUNTY OF SAN DIEGO, STATE OF
CALIFORNIA, ACCORDING TO MAP THEREOF NO. 14926, RECORDED IN THE OFFICE OF THE
COUNTY RECORDER OF SAN DIEGO COUNTY ON DECEMBER 15, 2004, AS CREATED BY
EASEMENT AGREEMENT EXECUTED BY KILROY REALTY FINANCE PARTNERSHIP, L.P., A
DELAWARE LIMITED PARTNERSHIP, TECHBILT CONSTRUCTION CORP., A CALIFORNIA
CORPORATION AND CARLSBAD OAKS NORTH PARTNERS, L.P., A CALIFORNIA LIMITED
PARTNERSHIP, DATED JANUARY 20, 2010 AND RECORDED JANUARY 29, 2010 AS INSTRUMENT
NO. 2010-0047608 OF OFFICIAL RECORDS.

 

APN: 209-120-11 and a portion
of 209-120-17

 

S-2

 

EXHIBIT
“B”

 

FORM OF
DEED

 

RECORDING
REQUESTED BY

AND WHEN RECORDED
MAIL TO:

 

 

 

The undersigned Grantor
declares:  documentary transfer tax not
shown pursuant to Section 11932 of the Revenue and Taxation Code, as
amended

 

GRANT DEED

 

FOR VALUE RECEIVED,
BMR-GAZELLE COURT LLC, a Delaware limited partnership (“Grantor”), grants to ISIS PHARMACEUTICALS,
INC., a Delaware corporation (“Grantee”), all that certain real property (the “Property”) situated in the City of
Carlsbad, County of San Diego, State of California, described on Exhibit A
attached hereto and by this reference incorporated herein, subject to all
covenants, conditions, easements, encumbrances and all other matters affecting
the Property.

 

IN WITNESS WHEREOF, the
undersigned has executed this Grant Deed dated as of                  ,
20    .

 

 

BMR-GAZELLE
COURT LLC,

a Delaware limited
liability company

 

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
					

 

 

	
  STATE OF CALIFORNIA

  	
  }

  	
   

  
	
  COUNTY OF

  	
   

  	
  }

  	
  S.S.

  
				

 

On                                      ,
                    
before me,                                                                   
                                                                  ,
a Notary Public in and for said County and 
State, personally appeared,                                                                                                                                                                                                                                                                                                                                     ,
who proved to me on the basis of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.

 

I certify under PENALTY OF
PERJURY under the laws of the State of California that the foregoing paragraph
is true and correct.

 

WITNESS my hand and
official seal.

 

 

	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Notary Seal)

  

 

 

EXHIBIT A TO FORM OF
DEED

 

DESCRIPTION OF
PROPERTY

 

 

PARCEL 1:

 

PARCEL “A” OF CERTIFICATE
OF COMPLIANCE NO. ADJ 09-05 RECORDED JANUARY 19, 2010 AS INSTRUMENT NO.
2010-0024854 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:

 

LOT 14 OF CARLSBAD TRACT
NO. 97-13-02, ACCORDING TO MAP THEREOF NO. 15505, IN THE CITY OF CARLSBAD,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, RECORDED IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY ON JANUARY 23, 2007 AS FILE NO. 2007-0047588,
TOGETHER WITH A PORTION OF LOT ‘B’ OF RANCHO AGUA HEDIONDA, IN THE CITY OF
CARLSBAD, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF
NO. 823, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY,
NOVEMBER 16, 1896, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

 

BEGINNING AT THE
NORTHWEST CORNER OF SAID LOT 14; THENCE, ALONG THE NORTH LINE OF SAID LOT 14,
NORTH 89°09'41" EAST 629.31 FEET; THENCE SOUTH 00°31'59" WEST 8.11
FEET; THENCE NORTH 89°53'58" EAST 392.46 FEET; THENCE NORTH 53°13'30"
EAST 15.15 FEET; THENCE SOUTH 56°49'30" EAST 85.95 FEET TO THE NORTHEAST
CORNER OF SAID LOT 14, SAID CORNER BEING ON A NON-TANGENT 264.00 FOOT RADIUS
CURVE CONCAVE NORTHWESTERLY, THE RADIAL LINE TO SAID POINT BEARS SOUTH 56°49'30"
EAST; THENCE, ALONG THE EAST LINE OF SAID LOT 14, SOUTHWESTERLY ALONG SAID
CURVE THROUGH A CENTRAL ANGLE OF 5°50'08" AN ARC DISTANCE OF DISTANCE OF
26.89; THENCE, TANGENT TO SAID CURVE, SOUTH 39°00'38" WEST 329.54 FEET TO
THE BEGINNING OF A TANGENT 736.00 FOOT RADIUS CURVE CONCAVE SOUTHEASTERLY;
THENCE SOUTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 25°07'33"
A DISTANCE OF 322.76 TO THE SOUTHEAST CORNER OF SAID LOT 14, SAID CORNER ALSO
BEING A POINT ON THE SUBDIVISION BOUNDARY OF MAP NO. 14926; THENCE, ALONG THE
SOUTH LINE OF SAID LOT 14 AND THE BOUNDARY OF SAID MAP NO. 14926, NON-TANGENT
TO SAID CURVE NORTH 52°33'23" WEST 148.70 FEET; THENCE SOUTH 48°06'30"
WEST, 21.89 FEET TO THE BEGINNING OF A 100.00 FOOT RADIUS CURVE CONCAVE
NORTHWESTERLY; THENCE SOUTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF
34°22'48" AN ARC DISTANCE OF 60.00 FEET; THENCE 82°29'18" WEST 147.20
FEET; THENCE NORTH 89°14'55" WEST 410.06 FEET TO THE SOUTHWEST CORNER OF
SAID LOT 14; THENCE, LEAVING SAID LOT 14 AND CONTINUING ALONG THE BOUNDARY OF
SAID MAP NO. 14926, SOUTH 29°36'38" WEST 51.14 FEET; THENCE NORTH 77°38'20"
WEST 216.59 FEET; THENCE, LEAVING THE BOUNDARY OF SAID MAP NO. 14926, NORTH
43°05'58" EAST 78.45 FEET; THENCE NORTH 01°47'45" EAST

 

 

442.55 FEET TO A POINT ON
THE SOUTHERLY BOUNDARY OF THAT PUBLIC STREET AND UTILITY EASEMENT RECORDED
JANUARY 23, 2007 AS FILE NO. 2007-0047586, SAID POINT BEING ON A NON-TANGENT
836.00 FOOT RADIUS CURVE CONCAVE NORTHERLY, A RADIAL LINE TO SAID POINT BEARS
SOUTH 23°00'29" WEST; THENCE, EASTERLY ALONG SAID EASEMENT AND SAID CURVE,
THROUGH A CENTRAL ANGLE OF 10°54'11" AN ARC DISTANCE OF 159.09 TO THE
BEGINNING OF A COMPOUND 56.00 FOOT RADIUS CURVE CONCAVE WESTERLY; THENCE
NORTHERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 181°26'49" AN ARC
DISTANCE OF 177.34 TO THE POINT OF BEGINNING.

 

PARCEL 2:

 

AN EASEMENT FOR A PRIVATE
DRAINAGE OVER AND ACROSS LOT 4 OF CARLSBAD TRACT NO. 97-13-01, CARLSBAD OAKS
NORTH PHASE 1, IN THE CITY OF CARLSBAD, COUNTY OF SAN DIEGO, STATE OF
CALIFORNIA, ACCORDING TO MAP THEREOF NO. 14926, RECORDED IN THE OFFICE OF THE
COUNTY RECORDER OF SAN DIEGO COUNTY ON DECEMBER 15, 2004, AS CREATED BY
EASEMENT AGREEMENT EXECUTED BY KILROY REALTY FINANCE PARTNERSHIP, L.P., A
DELAWARE LIMITED PARTNERSHIP, TECHBILT CONSTRUCTION CORP., A CALIFORNIA
CORPORATION AND CARLSBAD OAKS NORTH PARTNERS, L.P., A CALIFORNIA LIMITED
PARTNERSHIP, DATED JANUARY 20, 2010 AND RECORDED JANUARY 29, 2010 AS INSTRUMENT
NO. 2010-0047608 OF OFFICIAL RECORDS.

 

APN: 209-120-11 and a
portion of 209-120-17

 

 

EXHIBIT
“C”

(Bill of Sale and Assignment and
Assumption of Warranties)

 

 

THIS BILL OF SALE AND
ASSIGNMENT AND ASSUMPTION OF WARRANTIES (the “Assignment”) made as of
this [         ] day of                 ,
20     between BMR-GAZELLE COURT LLC, a Delaware limited
liability company (the “Assignor”), and ISIS PHARMACEUTICALS, INC., a
Delaware corporation (“Assignee”). Assignor and Assignee are parties to
the Agreement of Purchase and Sale dated             ,
             between
Assignor and Assignee (the “Agreement”). 
Capitalized terms used herein but not otherwise defined shall have the
meanings ascribed thereto in the Agreement.

 

1.             Assignor is the owner of that certain real property
located in Carlsbad, California, more particularly described in Exhibit A
attached hereto (the “Real Property”). 
Assignor hereby assigns, transfers, sets over and conveys to Assignee all
of Assignor’s right, title and interest, in, to, and under the following, in
each case to the extent assignable without payment or fee: all warranties,
indemnities, guaranties (express or implied), applications, permits,
authorizations, approvals and licenses (to the extent applicable in any way to
the above referenced Real Property and any improvements thereon (collectively,
the “Warranties”).

 

2.             Assignee does hereby assume and agree to perform all
of Assignor’s obligations under the Warranties accruing from and after the date
hereof.  Assignee agrees to indemnify,
protect, defend and hold Assignor harmless from and against any and all
liabilities, losses, costs, damages and expenses (including reasonable attorneys’
fees) directly or indirectly arising out of or related to any breach or default
in Assignee’s obligations hereunder.

 

3.             Sale of Personalty. 
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Assignor hereby sells, transfers, sets over and
conveys to Assignee the following:

 

(a)           Tangible Personal Property. 
All right, title and interest of Assignor in and to all all tangible
personal property now or hereafter located on, or used exclusively in
connection with, the operation, ownership, maintenance, occupancy or
improvement of the Land (collectively, the “Tangible Personal Property”; and

 

(b)           Intangible Property.  The following
property to the extent assignable: All, right, title and interest of Assignor,
if any, in and to all intangible personal property now or hereafter used
exclusively in connection with the operation, ownership, maintenance,
management, or occupancy of the Real Property (to the extent assignable); the
plans and specifications for the Improvements (to the extent assignable); insurance
proceeds received by (or owed to) Seller which relate to damage to the Land or
Improvements caused by a casualty that has occurred prior to the Closing Date
and for which restoration has not previously occurred, but only to the extent
that such proceeds have not been applied by Seller prior to the Closing Date
towards the cost of (a) pursuit or settlement of the applicable insurance
claim, (b) the clearing of debris or other expenses associated with
securing the Land or Improvements, or (c) restoration of the Land or
Improvements; and condemnation awards or claims thereto.

 

 

4.             This Assignment shall be binding upon and inure to the
benefit of Assignor and Assignee and their respective heirs, executors,
administrators, successors and assigns.

 

5.             This Assignment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]

 

 

IN
WITNESS WHEREOF, Assignor and Assignee have each executed this Assignment as of
the date first written above.

 

	
   

  	
  ASSIGNOR:

  
	
   

  	
   

  
	
   

  	
  BMR-2600 GAZELLE COURT
  LLC,

  
	
   

  	
  a Delaware limited
  liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ASSIGNEE:

  
	
   

  	
   

  
	
   

  	
  ISIS PHARMACEUTICALS,
  INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
							

 

 

EXHIBIT A TO FORM OF
ASSIGNMENT AND ASSUMPTION OF WARRANTIES

 

DESCRIPTION OF
PREMISES

 

 

PARCEL 1:

 

PARCEL “A” OF CERTIFICATE
OF COMPLIANCE NO. ADJ 09-05 RECORDED JANUARY 19, 2010 AS INSTRUMENT NO.
2010-0024854 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:

 

LOT 14 OF CARLSBAD TRACT
NO. 97-13-02, ACCORDING TO MAP THEREOF NO. 15505, IN THE CITY OF CARLSBAD,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, RECORDED IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY ON JANUARY 23, 2007 AS FILE NO. 2007-0047588, TOGETHER
WITH A PORTION OF LOT ‘B’ OF RANCHO AGUA HEDIONDA, IN THE CITY OF CARLSBAD,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 823,
FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, NOVEMBER 16,
1896, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

 

BEGINNING AT THE
NORTHWEST CORNER OF SAID LOT 14; THENCE, ALONG THE NORTH LINE OF SAID LOT 14,
NORTH 89°09'41" EAST 629.31 FEET; THENCE SOUTH 00°31'59" WEST 8.11
FEET; THENCE NORTH 89°53'58" EAST 392.46 FEET; THENCE NORTH 53°13'30"
EAST 15.15 FEET; THENCE SOUTH 56°49'30" EAST 85.95 FEET TO THE NORTHEAST
CORNER OF SAID LOT 14, SAID CORNER BEING ON A NON-TANGENT 264.00 FOOT RADIUS
CURVE CONCAVE NORTHWESTERLY, THE RADIAL LINE TO SAID POINT BEARS SOUTH 56°49'30"
EAST; THENCE, ALONG THE EAST LINE OF SAID LOT 14, SOUTHWESTERLY ALONG SAID
CURVE THROUGH A CENTRAL ANGLE OF 5°50'08" AN ARC DISTANCE OF DISTANCE OF
26.89; THENCE, TANGENT TO SAID CURVE, SOUTH 39°00'38" WEST 329.54 FEET TO
THE BEGINNING OF A TANGENT 736.00 FOOT RADIUS CURVE CONCAVE SOUTHEASTERLY;
THENCE SOUTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 25°07'33"
A DISTANCE OF 322.76 TO THE SOUTHEAST CORNER OF SAID LOT 14, SAID CORNER ALSO
BEING A POINT ON THE SUBDIVISION BOUNDARY OF MAP NO. 14926; THENCE, ALONG THE SOUTH
LINE OF SAID LOT 14 AND THE BOUNDARY OF SAID MAP NO. 14926, NON-TANGENT TO SAID
CURVE NORTH 52°33'23" WEST 148.70 FEET; THENCE SOUTH 48°06'30" WEST,
21.89 FEET TO THE BEGINNING OF A 100.00 FOOT RADIUS CURVE CONCAVE
NORTHWESTERLY; THENCE SOUTHWESTERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF
34°22'48" AN ARC DISTANCE OF 60.00 FEET; THENCE 82°29'18" WEST 147.20
FEET; THENCE NORTH 89°14'55" WEST 410.06 FEET TO THE SOUTHWEST CORNER OF
SAID LOT 14; THENCE, LEAVING SAID LOT 14 AND CONTINUING ALONG THE BOUNDARY OF
SAID MAP NO. 14926, SOUTH 29°36'38" WEST

 

 

51.14 FEET; THENCE NORTH
77°38'20" WEST 216.59 FEET; THENCE, LEAVING THE BOUNDARY OF SAID MAP NO.
14926, NORTH 43°05'58" EAST 78.45 FEET; THENCE NORTH 01°47'45" EAST
442.55 FEET TO A POINT ON THE SOUTHERLY BOUNDARY OF THAT PUBLIC STREET AND
UTILITY EASEMENT RECORDED JANUARY 23, 2007 AS FILE NO. 2007-0047586, SAID POINT
BEING ON A NON-TANGENT 836.00 FOOT RADIUS CURVE CONCAVE NORTHERLY, A RADIAL
LINE TO SAID POINT BEARS SOUTH 23°00'29" WEST; THENCE, EASTERLY ALONG SAID
EASEMENT AND SAID CURVE, THROUGH A CENTRAL ANGLE OF 10°54'11" AN ARC
DISTANCE OF 159.09 TO THE BEGINNING OF A COMPOUND 56.00 FOOT RADIUS CURVE
CONCAVE WESTERLY; THENCE NORTHERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF
181°26'49" AN ARC DISTANCE OF 177.34 TO THE POINT OF BEGINNING.

 

PARCEL 2:

 

AN EASEMENT FOR A PRIVATE
DRAINAGE OVER AND ACROSS LOT 4 OF CARLSBAD TRACT NO. 97-13-01, CARLSBAD OAKS
NORTH PHASE 1, IN THE CITY OF CARLSBAD, COUNTY OF SAN DIEGO, STATE OF
CALIFORNIA, ACCORDING TO MAP THEREOF NO. 14926, RECORDED IN THE OFFICE OF THE
COUNTY RECORDER OF SAN DIEGO COUNTY ON DECEMBER 15, 2004, AS CREATED BY
EASEMENT AGREEMENT EXECUTED BY KILROY REALTY FINANCE PARTNERSHIP, L.P., A
DELAWARE LIMITED PARTNERSHIP, TECHBILT CONSTRUCTION CORP., A CALIFORNIA
CORPORATION AND CARLSBAD OAKS NORTH PARTNERS, L.P., A CALIFORNIA LIMITED
PARTNERSHIP, DATED JANUARY 20, 2010 AND RECORDED JANUARY 29, 2010 AS INSTRUMENT
NO. 2010-0047608 OF OFFICIAL RECORDS.

 

APN: 209-120-11 and a
portion of 209-120-17

 

5

 

EXHIBIT
“D”

LEASE TERMINATION AGREEMENT

 

THIS TERMINATION
AGREEMENT (this “Agreement”) is entered into as of                     ,
20[     ], by and between BMR-GAZELLE COURT LLC, a
Delaware limited liability company (“Landlord”), and ISIS
PHARMACEUTICALS, INC., a Delaware corporation (“Tenant” and, together
with Landlord, the “Parties”).

 

RECITALS:

A.            The Parties entered into that certain Lease Agreement,
dated as of March 30, 2010 (the “Lease”). All capitalized terms
used and not otherwise defined herein shall have the meanings ascribed thereto
in the Lease.

 

B.            The Parties now wish to terminate the Lease on the
terms and conditions set forth herein.

NOW, THEREFORE, the
Parties to this Agreement hereby agree as follows:

 

1.             Termination of the
Lease.  Effective as of             
     , 20     (the “Effective
Date”), the Lease is terminated by consent of the Parties; provided,
however, that such termination shall not terminate or limit the effect
of those provisions of the Lease which by their terms survive expiration or
termination of the Lease.

 

2.             Entire Agreement.  This Agreement shall constitute the final,
complete and exclusive expression of the intentions of the Parties hereto with
respect to the subject matter hereof and shall supersede all previous
communications, representations, agreements, promises or statements, either
oral or written, by or between any Party with regard to the subject matter
hereof.

3.             Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be read together and be construed as one
instrument.  A facsimile or other
electronic copy of a signature shall be as binding as an original signature.

 

 

[THE REMAINDER OF
THE PAGE INTENTIONALLY LEFT BLANK]

 

 

IN
WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the Effective Date.

 

	
   

  	
  LANDLORD:

  
	
   

  	
   

  
	
   

  	
  BMR-2600 GAZELLE COURT LLC,

  
	
   

  	
  a Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TENANT:

  
	
   

  	
   

  
	
   

  	
  ISIS PHARMACEUTICALS,
  INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
									

 

7

 

EXHIBIT
“E”

(FIRPTA Affidavit)

 

CERTIFICATE
REGARDING FOREIGN

INVESTMENT
IN REAL PROPERTY TAX ACT

(ENTITY
TRANSFEROR)

 

Section 1445 of the
Internal Revenue Code provides that a transferee (purchaser) of a U.S. real
property interest must withhold tax if the transferor (seller) is a foreign
person.  To inform the transferee
(purchaser) that withholding tax is not required upon the disposition of a U.S.
real property interest by BMR-GAZELLE COURT LLC, a Delaware limited liability
company (“Transferor”). 
Transferor hereby certifies:

 

1.             Transferor is not a foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms are defined in
the Internal Revenue Code and Income Tax Regulations).

 

2.             Transferor’s Federal Employer Identification Number is
                   .

 

3.             Transferor’s office address is:

 

17190
Bernardo Center Drive

San
Diego, CA  92128

 

4.             The address or description of the property which is
the subject matter of the disposition is                   ,
Carlsbad, California.

 

Transferor understands
that this certification must be disclosed to the Internal Revenue Service by
transferee and that any false statement contained herein could be punished by
fine, imprisonment, or both.

 

Transferor declares that
it has examined this certification and to the best of its knowledge and belief,
it is true, correct and complete, and further declares that the individual
executing this certification on behalf of Transferor has full authority to do
so.

 

 

	
   

  	
  BMR-2600
  GAZELLE COURT LLC,

  
	
   

  	
  a
  Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

EXHIBIT
“F”

(Permitted Exceptions)

 

 

1.                                       General and special taxes and assessments
for the fiscal year 2010-2011, a lien not yet due or payable.

 

2.                                       The lien of special tax assessed pursuant
to Chapter 2.5 commencing with Section 53311 of the California Government
Code for Community Facilities District No. 1, as disclosed by Notice of
Special Tax Lien recorded June 29, 2004 as Instrument No. 2004-0606773
of Official Records.

 

3.                                       The lien of special tax assessed pursuant
to Chapter 2.5 commencing with Section 53311 of the California Government
Code for Community Facilities District No. 3, as disclosed by that certain
Amendment to the Notice of Special Tax Lien recorded November 17, 2005 as
Instrument No. 2005-0998004 of Official Records.

 

4.                                       The lien of supplemental taxes, if any,
assessed pursuant to Chapter 3.5 commencing with Section 75 of the
California Revenue and Taxation Code, none currently due or payable.

 

5.                                       The terms and provisions contained in the
document entitled “Notice of Restriction on Real Property” recorded November 9,
2004 as Instrument No. 2004-1066056 of Official Records.

 

6.                                       The terms and provisions contained in the
document entitled “Notice of Waiver Concerning Proximity of the Planned or
Existing Palomar Airport Road and Melrose Drive Transportation Corridors Case
No: CT 97-13” recorded November 9, 2004 as Instrument No. 2004-1066058
of Official Records.

 

7.                                       The terms and provisions contained in the
document entitled “Hold Harmless Agreement Drainage” recorded December 15,
2004 as Instrument No. 2004-1180067 of Official Records.

 

8.                                       The terms and provisions contained in the
document entitled “Waiver and Consent to Creation of a Community Facilities
District and Agreement to Pay Fair Share Cost of CT 97-13 (“Agreement”)”
recorded December 15, 2004 as Instrument No. 2004-1180069 of Official
Records; as modified by the terms and provisions contained in the document
entitled “Amendment No. 1 to Waiver and Consent to Creation of the
Community Facilities District (CT 97-13), Carlsbad Oaks North Partners, L.P.”
recorded November 4, 2005 as Instrument No. 2005-0964619 of Official
Records.

 

9.                                       The terms and provisions contained in the
document entitled “Agreement between Developer/Owner and the City of Carlsbad
for the Payment of a Local Drainage Area Fee” recorded December 21, 2004
as Instrument No. 2004-1201221 of Official Records.

 

10.                                 The terms and provisions contained in the
document entitled “Hold Harmless Agreement Drainage” recorded December 1,
2006 as Instrument No. 2006-0854466 of Official Records.

 

11.                                 The terms and provisions contained in the
document entitled “Hold Harmless Agreement Geological Failure” recorded December 1,
2006 as Instrument No. 2006-0854467 of Official Records.

 

 

12.                                 Abutter’s rights of ingress and egress to
or from Whiptail Loop, except access opening, have been dedicated or
relinquished on Map No. 15505 as referred to in the legal description.

 

13.                                 An easement shown or dedicated on Map No. 15505
as referred to in the legal description

 

For:         Sight distance corridor and incidental purposes.

 

14.           A Recital as shown on Map No. 15505 as follows:

 

1.             No structure, fence, wall, tree, shrub, sign or other
object over 30 inches above the street level may be placed or permitted to
encroach within the area identified as a sight distance corridor in accordance
with City standard public street-design criteria, Section 8.B.3. The
underlying property owner shall maintain this condition.

 

2.             Geotechnical Caution:

 

The owner of the property
on behalf of itself and all of its successors in interest has agreed to hold
harmless and indemnify the City of Carlsbad from any action that may arise
through any geotechnical failure, ground water separate or land subsidence and
subsequent damage that may occur, or adjacent to, this subdivision due to its
construction, operation or maintenance.

 

15.                                 Covenants, conditions, restrictions,
easements, assessments, liens, charges, terms and provisions in the document
recorded February 5, 2007 as Instrument No. 2007-0081082 of Official
Records, which provide that a violation thereof shall not defeat or render invalid
the lien of any first mortgage or deed of trust made in good faith and for
value, but deleting any covenant, condition, or restriction indicating a
preference, limitation or discrimination based on race, color, religion, sex,
sexual orientation, marital status, ancestry, disability, handicap, familial
status, national origin or source of income (as defined in California
Government Code §12955(p)), to the extent such covenants, conditions or
restrictions violate 42 U.S.C. §3604(c) or California Government Code
§12955. Lawful restrictions under state and federal law on the age of occupants
in senior housing or housing for older persons shall not be construed as
restrictions based on familial status.

 

16.                                 An easement for public utilities and
incidental purposes, recorded March 7, 2008 as Instrument No. 2008-0122770
of Official Records.

In Favor of:           San Diego Gas & Electric Company, a
Corporation

Affects:                  The land

 

17.                                 An easement for public utilities and
incidental purposes, recorded March 7, 2008 as Instrument No. 2008-0122771
of Official Records.

In Favor of:           San Diego Gas & Electric Company, a
Corporation

Affects:                  The land

 

18.                                 The terms and provisions contained in the
document entitled Memorandum of Repurchase Rights in favor of Techbilt
Construction Corp., a California corporation recorded March 03, 2010 as
Instrument no. 2010-0104273 of Official Records.

 

19.                                 The following matters disclosed by an
ALTA/ACSM survey made by O’Day Consultants on February 2010, designated
Job No. 091278-01:

 

2

 

Storm Drain, HDPE Storm
Drain, Catch Basin & Spillway, Desiltation Basin, CMP Riser, Concrete
Anchors, Subdrains, Irrigation Control Pedestral, Irrigation Control
Valves/Boxes, PVC Riser, Brow Ditc, Cleanout and Water Meters.

 

3

 

EXHIBIT
H

ACKNOWLEDGEMENT
OF TERM COMMENCEMENT DATE

AND TERM EXPIRATION DATE

 

THIS ACKNOWLEDGEMENT OF
TERM COMMENCEMENT DATE AND TERM EXPIRATION DATE is entered into as of [                  ],
20[       ], with reference to that certain
Lease (the “Lease”) dated as of March [        ],
2010, by ISIS PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”),
in favor of BMR-GAZELLE COURT LLC, a Delaware limited liability company (“Landlord”).  All capitalized terms used herein without
definition shall have the meanings ascribed to them in the Lease.

Tenant hereby confirms
the following:

 

1.             Tenant accepted possession of the Premises on [             ],
20[      ].

 

2.             The Premises are in good order, condition and repair.

 

3.             The Building Improvements required to be constructed
by Landlord under the Lease have been Substantially Completed, subject to the
Punchlist Items.

 

4.             Subject to Landlord’s completion of the Punchlist
Items, all conditions of the Lease to be performed by Landlord as a condition
to the full effectiveness of the Lease have been satisfied, and Landlord has
fulfilled all of its duties in the nature of inducements offered to Tenant
where the fulfillment of such duties was a condition to the full effectiveness
of the Lease.

 

5.             In accordance with the provisions of Section 2.2
of the Lease, the Term Commencement Date is [             ],
20[     ], and, unless the Lease is terminated prior
to the Term Expiration Date pursuant to its terms, the Term Expiration Date
shall be [             ],
20[      ].

 

6.             Tenant commenced occupancy of the Premises for the
Permitted Use on [             ],
20[      ].

 

7.             The Lease is in full force and effect, and the same
represents the entire agreement between Landlord and Tenant concerning the
Premises[, except [             ]].

 

8.             Tenant has no existing defenses against the
enforcement of the Lease by Landlord, and there exist no offsets or credits
against Rent owed or to be owed by Tenant.

 

9.             The undersigned Tenant has not made any prior
assignment, transfer, hypothecation or pledge of the Lease or of the rents
thereunder or sublease of the Premises or any portion thereof.

 

[REMAINDER OF THIS
PAGE INTENTIONALLY LEFT BLANK]

 

 

IN
WITNESS WHEREOF, Tenant has executed this Acknowledgment of Term Commencement
Date and Term Expiration Date as of the date first written above.

 

TENANT:

 

ISIS
PHARMACEUTICALS, INC.,

a Delaware
corporation

 

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00173-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00173-of-00352.parquet"}]]