Document:

Exhibit 10.9

REDACTED VERSION

 

EXHIBIT 10.9

to

Poniard Pharmaceuticals,
Inc.’s

Quarterly Report on Form
10-Q

Filed

November 14, 2006

File No. 0-16614

“[ 
*  ]”
= omitted, confidential material, which material has been separately filed with
the Securities and Exchange Commission pursuant to a request for confidential
treatment.

 

 

AMENDMENT NO. 1 TO
LICENSE AGREEMENT

dated as of September 18,
2006

between

PONIARD PHARMACEUTICALS,
INC.

and

ANORMED INC.

 

AMENDMENT
NO. 1 TO

LICENSE AGREEMENT

THIS AMENDMENT NO. 1 TO LICENSE AGREEMENT (this “Amendment”), effective as of September 18, 2006 (the “Amendment Date”), is entered into between ANORMED INC. (“AnorMED”), a corporation organized and existing under the
laws of Canada and having an office at #200 – 20353 64th Ave, Langley, BC Canada V2Y 1N5, and PONIARD
PHARMACEUTICALS, INC. (“Poniard”), a
corporation organized and existing under the laws of the State of Washington
and having an office at 300 Elliott Avenue West, Suite 500, Seattle, WA 98119,
with respect to the following facts:

WHEREAS, AnorMED and Poniard (previously NeoRx
Corporation) entered into that License Agreement dated as of April 2, 2004 (the
“License Agreement”).

WHEREAS, AnorMED and Poniard desire to amend the
License Agreement in certain respects, all on the terms and conditions set
forth below.

NOW, THEREFORE, in consideration of the foregoing
premises and the mutual covenants set forth below, the parties hereby amend the
License Agreement and otherwise agree as follows:

1.            Payments.  In consideration of the rights granted
hereunder, Poniard shall pay to AnorMED the following amounts at the times
specified:

1.1   On or before October 16, 2006, Poniard shall
pay to AnorMED the sum of five million U.S. dollars (US$5,000,000).

1.2   On or before March 31, 2007, Poniard shall
pay to AnorMED an additional sum of five million U.S. dollars (US$5,000,000).

2.            Territory.  In connection with the expansion of the
Territory pursuant to Section 3.5 of this Amendment, the parties acknowledge
and agree that the provisions in the License Agreement regarding providing
information or rights to AnorMED’s licensees outside of the Territory, shall
only apply with respect to any countries if and when excluded from the
Territory in accordance with Section 4.2 (Decision Not to Commercialize) of the
License Agreement.

3.            Amendments.

3.1   The License Agreement is hereby amended by
replacing all uses of “NeoRx Corporation” with “Poniard Pharmaceuticals, Inc.”,
and replacing all uses of the defined term “NeoRx” with “Poniard.”

3.2   Section 1.1(v) of the License Agreement is
hereby amended by adding the following new sentence immediately following the
end of Section 1.1(v):

 

As used in this
Agreement, “end user” shall mean, with respect to a Licensed Product,  the first Person, that has not obtained from
Poniard any license rights under Section 3.1 other than the right to use, to
which such Licensed Product is sold or otherwise transferred in an arm’s-length,
good faith transaction.

3.3   Section 1.1(dd) of the License Agreement is
hereby amended and replaced in its entirety with the following:

(dd)                          “Sublicensee” shall mean any Person who has obtained license
rights from Poniard under the license granted to Poniard under Section 3.1,
including, without limitation, sublicensees of Poniard and its Affiliates,
sublicensees of such sublicensees (i.e. subsublicensees), distributors and any
other Person who may sell or otherwise transfer Licensed Product to end users
(as defined in Section 1.1(v)) of the Licensed Product, in each case under such
license rights;

and each occurrence of the term “sublicensee” and “sublicensees”
set out in the License Agreement is hereby replaced with the defined terms “Sublicensee”
and “Sublicensees”, respectively.

3.4   Section 1.1(ee) of the License Agreement is
hereby amended and replaced in its entirety with the following:

(ee)                            [intentionally
omitted];

3.5   Section 1.1(gg) of the License Agreement is
hereby amended and restated in its entirety as follows:

(gg)         “Territory”
shall mean world-wide;

3.6   Section 6.3 of the License Agreement is
hereby amended and restated in its entirety as follows:

6.3          Milestone Payments

In consideration of the
license granted under Article 3, Poniard shall pay to AnorMED the following
milestone payments upon the first occurrence of each of the commercialization
milestones set forth below:

(a)           [intentionally omitted];

(b)           [intentionally omitted];

(c)           [intentionally omitted];

(d)                                 [ 
*  ]
upon [ 
*  ];
and

[  *  ] Confidential Treatment Requested

 

(e)                                  [ 
*  ]
upon [ 
*  ].

For purposes of this
Section 6.3, “control” in the definition of
Affiliate shall mean direct or indirect beneficial ownership of [ 
*  ]
or greater interest in the income of a Person or such other relationship as, in
fact, constitutes actual control.

3.7   Section 6.4, subsection (a) of the License
Agreement is hereby amended and restated in its entirety as follows:

(a)           [intentionally omitted];

3.8   Section 6.4, subsection (b) of the License
Agreement is hereby amended and restated in its entirety as follows:

(b)                                 Each
milestone payment to be made by Poniard under Subsections 6.3(d) and 6.3(e)
shall be made in cash, by certified cheque payable to the order of AnorMED or
by bank transfer to the co-ordinates given by AnorMED to Poniard.

3.9   Section 7.2 of the License Agreement is
hereby amended and restated in its entirety as follows:

7.2          Basic
Royalty.

In consideration of the license granted under Article 3, Poniard shall
pay to AnorMED, without duplication, in respect of each Licensed Product:

(a)                                  for
all Patent Pending Countries where no Competition exists and all Issued Patent
Countries, a royalty on Net Sales of such Licensed Product by Poniard and its
Affiliates and any Sublicensees in each calendar year as follows:

(i)                                     [ 
*  ]
of the first [ 
*  ]
of such Net Sales in the calendar year, calculated cumulatively among all
Patent Pending Countries where no Competition exists and all Issued Patent
Countries, world-wide;

(ii)                                  [ 
*  ]
of such Net Sales in excess of the first [ 
*  ]
but less than   [  *  ] in the calendar year, where such amounts are
calculated cumulatively among all Patent Pending Countries where no Competition
exists and all Issued Patent Countries, world-wide;

(iii)                               [  *  ] of such Net Sales in excess of the first [ 
*  ]
but less than   [  *  ] in the calendar year, where such amounts are
calculated cumulatively among all Patent Pending Countries where no

[ 
*  ]
Confidential Treatment Requested

 

Competition exists and all Issued Patent Countries,
world-wide; and

(iv)                              [ 
*  ]
of such Net Sales in excess of [ 
*  ]
in the calendar year, calculated cumulatively among all Patent Pending
Countries where no Competition exists and all Issued Patent Countries,
world-wide; and

(b)                                 for
all Patent Pending Countries where Competition exists and all Know-How
Countries, a royalty on Net Sales of such Licensed Product by Poniard and its
Affiliates and any Sublicensees in each calendar year as follows:

(i)                                     [ 
*  ]
of the first [ 
*  ]
of such Net Sales in the calendar year, calculated cumulatively among all
Patent Pending Countries where Competition exists and all Know-How Countries,
world-wide;

(ii)                                  [ 
*  ]
of such Net Sales in excess of the first [ 
*  ]
but less than   [  *  ] in the calendar year, where such amounts are
calculated cumulatively among all Patent Pending Countries where Competition
exists and all Know-How Countries, world-wide;

(iii)                               [  *  ] of such Net Sales in excess of the first [ 
*  ]
but less than   [  *  ] in the calendar year, where such amounts are
calculated cumulatively among all Patent Pending Countries where Competition
exists and all Know-How Countries, world-wide; and

(iv)                              [ 
*  ]
of such Net Sales in excess of [ 
*  ]
in the calendar year, calculated cumulatively among all Patent Pending
Countries where Competition exists and all Know-How Countries, world-wide;

in each of Subsections 7.2(a) and 7.2(b), until the
later of either:

(c)                                  the
date of expiration of the last Valid Claim within the AnorMED Patents covering
the Licensed Product in the country of manufacture or sale, as applicable; or

(d)                                 the
expiration of [ 
*  ]
years after First Commercial Sale of such Licensed Product in the country of
sale.

For the purposes of this Section 7.2:

(e)                                  “Issued Patent Countries” shall mean any or all countries in

[ 
*  ]
Confidential Treatment Requested

 

the Territory where the Licensed Product sold is
covered by one or more Valid Claims within the AnorMED Patents described in
Paragraph 1.1(ii)(ii) of the definition of Valid Claim, either in the country
of manufacture or in the country of sale;

(f)                                    “Patent Pending Countries” shall mean any or all countries in
the Territory where the Licensed Product sold is covered by one or more Valid
Claims within the AnorMED Patents described in Paragraph 1.1(ii)(i) of the
definition of Valid Claim, but not a Valid Claim within the AnorMED Patents
described in Paragraph 1.1(ii)(ii) of the definition of Valid Claim, either in
the country of manufacture or in the country of sale; and

(g)                                 “Know-How Countries” shall mean any or all countries in the
Territory where there is no Valid Claim either in the country of manufacture or
in the country of sale, but AnorMED Know-How is necessary to make, have made,
use, sell, offer for sale or import the Licensed Product, either in the country
of manufacture or in the country of sale; and

(h)                                 “control” in the definition of Affiliate shall mean direct
and indirect beneficial ownership of [ 
*  ]
or greater interest in the income of a Person or such other relationship as, in
fact, constitutes actual control.

For purposes of clarification, no multiple royalties
shall be due or payable under this Section 7.2 because the sale or manufacture
of any Licensed Product is or shall be covered by more than one Valid Claim
within the AnorMED Patents in the country of manufacture and/or the country of
sale.

3.10                 Section 7.3 of the License
Agreement is hereby amended and restated in its entirety as follows:

7.3          Sublicensing Royalty

(a)           In this Section 7.3:

(i)                                     “Development Milestone Payments” shall mean all revenues,
receipts, monies, milestone payments and research and development fees (in
respect of research and development fees, only to the extent that same are in
excess of reimbursement for the direct costs and Indirect Costs of research and
development or pursuit of Regulatory Approval undertaken by Poniard or its
Affiliates pursuant to a written research or development plan),

[  *  ] Confidential Treatment Requested

 

payments (including
amounts received from the sale of shares in the capital stock of Poniard in
excess of the Current Market Price for such shares), license fees and the fair
market value of all other consideration, collected or received by Poniard or
its Affiliates whether by way of cash, equity, credit or any barter, benefit,
advantage, or concession, that are contingent upon the achievement of an event
or objective pursuant to a written research or development plan, and not merely
the passage of time, and shall exclude amounts collected or received by Poniard
or its Affiliates on account of Net Sales of Licensed Products;

(ii)                                  “Indirect Costs” shall mean costs incurred for the benefit of
the Development Program or the commercialization of a Licensed Product,
excluding directly identified costs (direct costs), and including facility
rental costs; utilities costs; laboratory and manufacturing equipment
depreciation; and salaries, vacation pay, sick leave pay, health insurance
premiums, FICA taxes (or their equivalent) and pension costs for employees, but
only to the extent that such employees’ work benefits the Development Program
or the commercialization of a Licensed Product; and

(iii)                               “Upfront Cash Payments” shall mean all revenues, receipts,
monies and research and development fees (in respect of research and
development fees, only to the extent that same are in excess of reimbursement
for the direct costs and Indirect Costs of research and development or pursuit
of Regulatory Approval undertaken by Poniard or its Affiliates pursuant to a
written research or development plan), payments (including amounts received from
the sale of shares in the capital stock of Poniard in excess of the Current
Market Price for such shares), license fees and the fair market value of all
other consideration, collected or received by Poniard or its Affiliates whether
by way of cash, equity, credit or any barter, benefit, advantage, or
concession, and shall exclude Development Milestone Payments and amounts
collected or received by Poniard or its Affiliates on account of Net Sales of
Licensed Products.

(b)                                 In
consideration of the license granted under Article 3, Poniard shall pay to
AnorMED:

(i)                                     in
respect of any agreement entered into by Poniard or its Affiliates prior to
March 18, 2007 for the sublicensing to a Third Party of any of its rights
granted under Section 3.1, a

 

royalty of [  *  ] of all Upfront Cash Payments and Development
Milestone Payments received by Poniard under such agreement; and

(ii)                                  in
respect of any agreement entered into by Poniard or its Affiliates during the
period following March 18, 2007 but prior to September 18, 2007 for the
sublicensing to a Third Party of any of its rights granted under Section 3.1, a
royalty of [ 
*  ]
of all Upfront Cash Payments received by Poniard under such agreement.

3.11                 Section 8.7(a)(i) of the
License Agreement is hereby amended and restated in its entirety as follows:

(i)                                     in
the case of Poniard, records of all sales of Licensed Products in the
Territory, which shall show the manufacturing, sales, use and other disposition
of Licensed Products in sufficient detail to determine the royalties payable to
AnorMED pursuant to Section 7.2 and 7.3, if any; and

3.12                 Section 10.1(b) of the License
Agreement is hereby amended by replacing the words “Subsections 7.2(a), 7.2(b)
and 7.2(c)” on the sixth line thereof with the words “Subsections 7.2(a) and
7.2(b)”, and replacing the words “Subsection 7.2(d)” on the tenth line thereof
with the words “Subsection 7.2(b)”, so as to read:

(b)                                 At
any time during the Term, Poniard, in Poniard’s sole discretion, may determine
that any particular Patent within the AnorMED Patents in any particular country
in the Territory should not be prosecuted or maintained for legal or commercial
reasons and, in such event, shall so notify AnorMED.  Upon receipt of such notice, any Patents
identified in such notice shall remain or be deemed to remain within the
AnorMED Patents for the purposes of the grant of rights by AnorMED to Poniard
pursuant to Article 3 of this Agreement and Poniard’s obligations pursuant to
Subsections 7.2(a) and 7.2(b) for the payment of royalties for any such Patents
shall remain unchanged and continue at the royalty rate for such Patent as of
the date of Poniard’s notice to AnorMED, provided that where the discontinuance
of the prosecution or maintenance of the Patent is due to reasons of lack of patentability,
invalidity or unenforceability of the Patent, Poniard’s obligations pursuant to
Subsection 7.2(b) for the payment of royalties for AnorMED Know-How shall
apply.  AnorMED, at AnorMED’s cost and
expense and in AnorMED’s sole discretion, may continue prosecution and/or
maintenance of any particular Patent identified in such notice.

[  *  ] Confidential Treatment Requested

 

4.           Miscellaneous.  All terms used, but not defined, herein shall
have the respective meanings set forth in the License Agreement.  Except as otherwise expressly modified by
this Amendment, the License Agreement shall remain in full force and effect in
accordance with its terms.  This Amendment
shall be governed by the laws of the State of Washington and the United States
of America applicable without regard to conflict of law provisions contained
therein.  This Amendment 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.

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

	
  ANORMED INC.

  	
   

  	
  PONIARD PHARMACEUTICALS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ Paul Brennan

  	
   

  	
  By:

  	
   

  	
  /s/ Gerald McMahon

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Paul Brennan

  	
   

  	
  Name:

  	
   

  	
  Gerald McMahon

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  VP, Business Development

  	
   

  	
  Title:

  	
   

  	
  CEO & ChairmanExhibit 10.1

FIRST
AMENDMENT TO AMENDED AND RESTATED OFFICE LEASE

This FIRST AMENDMENT TO AMENDED AND RESTATED OFFICE LEASE (“First Amendment”) is made and entered into
as of the 22nd day of September, 2006, by and between KILROY
REALTY, L.P., a Delaware limited partnership (“Landlord”),
and FAVRILLE, INC., a Delaware corporation 
(“Tenant”).

R E C I T A L S :

A.            Landlord
and Tenant entered into that certain Amended and Restated Office Lease dated as
of October 31, 2005 (the “Lease”),
whereby Landlord leased to Tenant and Tenant leased from Landlord those certain
premises consisting of 79,871 rentable square feet of space (“Existing Premises”) and comprising the entire building
located at 10421 Pacific Center Court, San Diego, California  92121 (the “10421
Building”).  The Existing
Premises is referred to in the Lease as the “10421 Premises.”

B.            Tenant
desires to expand the Existing Premises to include that certain space
consisting of approximately 48,709 rentable square feet of space (the “Expansion Premises”), and comprising the
entire building located at 10445 Pacific Center Court, San Diego,
California  92121 (the “10445 Building”) as delineated on Exhibit A attached hereto and made a
part hereof.  The Expansion Premises is
referred to in the Lease as the “10445 Premises,” and the 10421 Building and
the 10445 Building are part of the project commonly known as “Pacific Corporate Center.”  In connection therewith, Landlord and Tenant
desire to amend the Lease as hereinafter provided.

A G R E E M E N T :

NOW, THEREFORE, in consideration of the foregoing
recitals and the mutual covenants contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:

1.             Capitalized Terms. 
All capitalized terms when used herein shall have the same meaning as is
given such terms in the Lease unless expressly superseded by the terms of this
First Amendment.

2.             Premises.

2.1.          Modification of Premises.  Effective as of the date (the “Expansion Commencement Date”) which is ninety-one (91) days
following the date that Landlord commences the construction of the “Improvements”
(as that term is defined in Section 2.1 of the First Amendment Work
Letter attached hereto as Exhibit B
(the “First Amendment Work 

  
  
 

Letter”)) in the
Expansion Premises after the termination or expiration of the “Existing Lease”
as provided in Section 11, below, Tenant shall lease from Landlord and
Landlord shall lease to Tenant the Expansion Premises.  Tenant acknowledges and agrees that the
Expansion Commencement Date may occur prior to the “Substantial Completion of
the Improvements” (as that term is defined in Section 5.4 of the
First Amendment Work Letter). 
Consequently, effective upon the Expansion Commencement Date, the
Premises (as that term is defined in the Lease) shall be increased to include
the Expansion Premises.  Landlord and
Tenant hereby acknowledge that such addition of the Expansion Premises to the
Existing Premises shall, effective as of the Expansion Commencement Date,
increase the size of the Premises to approximately 128,580 rentable square
feet.  The Existing Premises and the
Expansion Premises may hereinafter collectively be referred to as the “Premises.”

2.2.          Verification of
Rentable Square Feet of Expansion Premises.  For purposes of the Lease, the “rentable
square feet” of the Expansion Premises shall be calculated pursuant to the
Building Owners and Managers Association Standard Method of Measuring Floor
Area in Industrial Building, and it accompanying guidelines (“BOMA”).  Within thirty (30) days after the Expansion
Commencement Date, Tenant’s space planner/architect shall measure the rentable
square feet of the Expansion Premises in accordance with the provisions of this
Section, and the results thereof shall be presented to Landlord in
writing.  Landlord’s space
planner/architect may review Tenant’s space planner/architect’s determination
of the number of rentable square feet of the Expansion Premises and Landlord
may, within fifteen (15) business days after Landlord’s receipt of Tenant’s
space planner/architect’s written determination, object to such determination
by written notice to Tenant.  Landlord’s
failure to deliver written notice of such objection within said fifteen (15)
business day period shall be deemed to constitute Landlord’s acceptance of
Tenant’s space planner/architect’s determination.  If Landlord objects to such determination,
Landlord’s space planner/architect and Tenant’s space planner/architect shall
promptly meet and attempt to agree upon the rentable square footage of the
Expansion Premises.  If Landlord’s space
planner/architect and Tenant’s space planner/architect cannot agree on the
rentable square footage of the Expansion Premises within thirty (30) days after
Landlord’s objection thereto, Landlord and Tenant shall mutually select an
independent third party space measurement professional to field measure the
Expansion Premises pursuant to BOMA. 
Such independent third party measurement professional’s determination
shall be conclusive and binding on Landlord and Tenant.  Landlord and Tenant shall each pay one-half
(1⁄2) of the fees and expenses of the independent third party space measurement
professional.  To the extent the Lease
Term commences prior to such final determination, Tenant’s determination shall
be utilized until a final determination is made, whereupon an appropriate
adjustment, if necessary, shall be made retroactively, and Landlord, or Tenant,
as applicable, shall make appropriate payment to the other.  In the event that it is determined, pursuant
to the procedure described in this Section above, that the square footage
amounts shall be different from those set forth in this Amendment, all amounts,
percentages and figures appearing or referred to in this Amendment based upon
such incorrect amount shall be modified in accordance with such
determination.  Such final determination
shall be confirmed in writing between Landlord and Tenant.

2.3.          Use of the Premises.  Tenant’s use of the Expansion Premises shall
be subject to all of the TCCs of the Lease; provided, however, with respect to
the Expansion Premises only, and provided any such use is legally permissible,
Tenant shall use the Expansion Premises solely for general office use, research
and development, warehousing, biotechnology 

 2
 

labs, pharmaceutical manufacturing (in
accordance with cGMP), and any other uses related thereto, all pursuant to the
applicable zoning and the Pacific Corporate Center P.I.D.

2.4.          Maintenance and Repair of
the Premises.  Tenant’s
maintenance and repair obligations with respect to the Expansion Premises
shall  subject to all of the TCCs of the
Lease; provided, however Tenant shall keep the Expansion Premises in first
class order, repair, condition and appearance at all times during the Expansion
Term in a manner consistent with the “Comparable Buildings,” as that term is
defined in Section 3.2.2, below.

3.             Lease Term.

3.1.          Expansion Term.  The term of Tenant’s lease of the Expansion
Premises (the “Expansion Term”) shall commence on
the Expansion Commencement Date and expire coterminously with Tenant’s Lease of
the Existing Premises on the Lease Expiration
Date (i.e.,  June 20, 2025),
unless sooner terminated as provided in the Lease, as hereby amended.

3.2.          Expansion Term Option
Right.

3.2.1.       Option Right.  Landlord hereby grants the Original Tenant, its
Affiliates and any Permitted Assignee, two (2) options to extend the
Expansion Term for the entire Expansion Premises each by a period of five (5) years
(each, an “Option Term”) as set
forth in this Section 3.2. 
The TCCs of Section 2.2 of the Lease shall not be applicable
to the Expansion Premises.  Such options
shall be exercisable only by Notice delivered by Tenant to Landlord as provided
below, provided that, as of the date of delivery of such Notice, Tenant is not
in default under the Lease (as amended, beyond any applicable notice and cure
periods).  Upon the proper exercise of an
option to extend, and provided that, as of the end of the then applicable
Expansion Term, Tenant is not in default under the Lease (as amended, beyond
any applicable notice and cure periods), the Expansion Term, as it applies to
the entire Expansion Premises, shall be extended for a period of five (5)
years.

3.2.2.       Option Rent.  The Rent payable by Tenant during the Option
Term (the “Option Rent”) shall be equal to
the Market Rent as set forth below.  For purposes
of this Section 3.2, the term “Market
Rent” shall mean rent (including additional rent and
considering any “base year” or “expense stop” applicable thereto), including
all escalations, at which tenants, as of the commencement of the applicable
term are, pursuant to transactions completed within the twenty-four (24) months
prior to the date Tenant delivers to Landlord the “Exercise Notice,” as that
term is set forth below, leasing non-sublease, non-encumbered, non-synthetic,
non-equity space (unless such space was leased pursuant to a definition of “fair
market” comparable to the definition of Market Rent) comparable in size,
location and quality to the Expansion Premises for a “Comparable Term,” as that
term is defined in this Section 3.2.2 (the “Comparable
Deals”), which comparable space is located in the “Comparable
Buildings,” as that term is defined in this Section 3.2.2, giving
appropriate consideration to the annual rental rates per rentable square foot
(adjusting the base rent component of such rate to reflect a net value after
accounting for whether or not utility expenses are directly paid by the tenant
such as Tenant’s direct utility payments provided for in Section 6.1
of the Lease), the standard of measurement by which the rentable square footage
is measured, parking ratios, general access to such Comparable Buildings, the
general visibility of such Comparable Buildings, and taking into 

 3
 

consideration only,
and granting only, the following concessions (provided that the rent payable in
Comparable Deals in which the terms of such Comparable Deals are determined by
use of a discounted fair market rate formula shall be equitably increased in
order that such Comparable Deals will not reflect a discounted rate)
(collectively, the “Rent Concessions”):  (a) rental abatement concessions or
build-out periods, if any, being granted such tenants in connection with such
comparable spaces; (b) tenant improvements or allowances provided or to be
provided for such comparable space, taking into account the value of the
existing improvements in the Expansion Premises, such value to be based upon
the age, quality and layout of the improvements and the extent to which the
same can be utilized by this particular Tenant, (c) Proposition 13
protection, and (d) all other monetary concessions, if any, being granted
such tenants in connection with such comparable space; provided, however, that
notwithstanding anything to the contrary herein, no consideration shall be
given to the fact that Landlord is or is not required to pay a real estate
brokerage commission in connection with the applicable term or the fact that
the Comparable Deals do or do not involve the payment of real estate brokerage
commissions.  The term “Comparable
Term” shall refer to the length of the lease term, without
consideration of options to extend such term, for the space in question.  In addition, the determination of the Market
Rent shall include a determination as to whether, and if so to what extent,
Tenant must provide Landlord with financial security, such as a letter of
credit or guaranty, for Tenant’s rent obligations during any Option Term.  Such determination shall be made by reviewing
the extent of financial security then generally being imposed in Comparable
Transactions upon tenants of comparable financial condition and credit history
to the then existing financial condition and credit history of Tenant (with
appropriate adjustments to account for differences in the then-existing
financial condition of Tenant and such other tenants).  If in determining the Market Rent, Tenant
would, pursuant to the Comparable Deals and the Rent Concessions set forth
therein, otherwise be entitled to a tenant improvement or comparable allowance
for the improvement of the Expansion Premises (the “Option
Term TI Allowance”), Tenant shall not be entitled,
and shall not be compelled, to receive such Option Term TI Allowance and
Landlord shall reduce the rental rate component of the Market Rent to be an
effective rental rate which takes into consideration that Tenant will not
receive any Option Term TI Allowance. 
The term “Comparable Buildings” shall mean
the Building and other office and research/development buildings which are
comparable to the Building in terms of age (based upon the date of completion
of construction or major renovation as to the building containing the portion
of the Expansion Premises in question), quality of construction, level of
services and amenities, size and appearance, and are located in the Sorrento
Mesa area of San Diego, California (the “Comparable
Area”).

3.2.3.       Exercise of Option.  The option contained in this Section 3.2
shall be exercised by Tenant, if at all, only in the manner set forth in this Section 3.2.3.  Tenant shall deliver notice (the “Exercise Notice”) to Landlord not more than fifteen (15)
months nor less than nine (9) months prior to the expiration of the then
Expansion Term, stating that Tenant is exercising its option.  Concurrently with such Exercise Notice,
Tenant shall deliver to Landlord Tenant’s calculation of the Market Rent (the “Tenant’s Option Rent Calculation”).  Landlord shall deliver notice (the “Landlord Response Notice”) to Tenant on or before the later to
occur of (i) the date which is thirty (30) days after
Landlord’s receipt of the Exercise Notice and Tenant’s Option Rent Calculation,
and
(ii) the date which is nine (9) months prior to the expiration of the then
Expansion Term (the “Landlord Response Date”),
stating that (A) Landlord is accepting Tenant’s Option Rent Calculation as
the Market Rent, or (B) rejecting 

 4
 

Tenant’s Option Rent Calculation and setting forth Landlord’s
calculation of the Market Rent (the “Landlord’s
Option Rent Calculation”). 
Within ten (10) business days of its receipt of the Landlord Response
Notice, Tenant may, at its option, accept the Market Rent contained in the
Landlord’s Option Rent Calculation.  If
Tenant does not affirmatively accept or Tenant rejects the Market Rent
specified in the Landlord’s Option Rent Calculation, the parties shall follow
the procedure, and the Market Rent shall be determined as set forth in Section 3.2.5.

3.2.4.       No
Defaults; Required Financial Condition of Tenant.  The rights contained in this Section 3.2
shall be personal to the Original Tenant, its Affiliates and any Permitted
Assignee and may only be exercised by such Original Tenant, Affiliate or
Permitted Assignee (and not any other assignee, sublessee or other transferee
of the Original Tenant’s interest in the Lease, as amended) if the Original
Tenant, Affiliate and/or Permitted Assignee occupies not less than one hundred
percent (100%) of the then existing Expansion Premises.  The right to extend the Expansion Term as
provided in this Section 3.2 may not be exercised if, as of the
date of the attempted exercise of the extension option by Tenant, or as of the
commencement date of such Option Term, (A) Tenant is in economic or
material default pursuant to the terms of the Lease (as
amended, beyond any applicable notice and cure periods), (B) Tenant
has previously been in economic or material default under the Lease (as
amended, beyond any applicable notice and cure periods) during the previous
twenty-four (24) month period, or (C) Tenant fails to satisfy the “Threshold
Requirements,” as that term is set forth in Section 21.2.2 of the
Lease.

3.2.5.       Determination of Market Rent.  In the event Tenant objects or is deemed to
have objected to the Market Rent, Landlord and Tenant shall attempt to agree
upon the Market Rent using reasonable good-faith efforts.  If Landlord and Tenant fail to reach
agreement within sixty (60) days following Tenant’s objection or deemed
objection to the Landlord’s Option Rent Calculation (the (the “Outside Agreement Date”), then (i) in connection with
the Option Rent, Landlord’s Option Rent Calculation and Tenant’s Option Rent
Calculation, each as previously delivered to the other party, shall be
submitted to the arbitrators pursuant to the TCCs of this Section 3.2.4,
and (ii) in connection with any other contested calculation of market
Rent, the parties shall each make a separate determination of the Market Rent
and shall submit the same to the arbitrators pursuant to the TCCs of this Section 3.2.5.  The submittals shall be made concurrently
with the selection of the arbitrators pursuant to this Section 3.2.5
and shall be submitted to arbitration in accordance with Section 3.2.5.1
through 3.2.5.5 of this First Amendment, but subject to the
conditions, when appropriate, of Section 3.2.3.

3.2.5.1.    Landlord
and Tenant shall mutually and reasonably select and appoint one arbitrator who
shall by profession be a real estate broker, appraiser or attorney (the “Neutral Arbitrator”) who shall have been active over the five
(5) year period ending on the date of such appointment in the leasing (or
appraisal, as the case may be) of first-class office/lab/manufacturing properties
in the Comparable Area.  The
determination of the Neutral Arbitrator shall be limited solely to the issue of
whether Landlord’s or Tenant’s submitted Market Rent, is the closest to the
actual Market Rent as determined by the Neutral Arbitrator, taking into account
the requirements of Section 3.2.2 of this First Amendment.  Such Neutral Arbitrator shall be appointed
within thirty (30) days after the applicable Outside Agreement Date.  Neither the Landlord nor Tenant may, directly
or indirectly, consult with the Neutral 

 5
 

Arbitrator prior to subsequent to his or her appearance.  The Neutral Arbitrator shall be retained via
an engagement letter jointly prepared by Landlord’s counsel and Tenant’s
counsel.

3.2.5.2.    Within
thirty (30) days of the appointment of the Neutral Arbitrator, such Neutral
Arbitrator shall reach a decision as to Market Rent and determine whether the
Landlord’s or Tenant’s determination of Market Rent as submitted pursuant to Section 3.2.5.1
and Section 3.2.3 of this First Amendment is closest to Market Rent
as determined by such Neutral Arbitrator and simultaneously publish a ruling (“Award”) indicating whether Landlord’s or Tenant’s submitted
Market Rent is closest to the Market Rent as determined by the Neutral
Arbitrator.  Following notification of
the Award, the Landlord’s or Tenant’s submitted Market Rent determination,
whichever is selected by the Neutral Arbitrator as being closest to Market rent
shall become the then applicable Market Rent.

3.2.5.3.    The
Award issued by the Neutral Arbitrator shall be binding upon Landlord and
Tenant.

3.2.5.4.    If
Landlord and Tenant fail to agree upon and appoint the Neutral Arbitrator, then
either party may petition Judicial Arbitration & Mediation Services, Inc. (“JAMS”) to designate an independent third party to appoint
the Neutral Arbitrator, subject to criteria in Section 3.2.5.1 of
this First Amendment.

3.2.5.5.    The cost of
arbitration shall be paid by the party (either Landlord or Tenant) whose Market
Rent is not selected by the Neutral Arbitrator.

3.3.          Expansion Premises
Termination Right. 
Notwithstanding anything to the contrary in the Lease (as hereby
amended), Tenant shall have one-time option to terminate and cancel the Lease
with respect to the Expansion Premises only effective as of June 1, 2017 (the “Termination Date”) upon Tenant’s delivery of written notice
to Landlord (the “Termination Notice”),
which notice shall be delivered to Landlord on or before December 31,
2016.  Subject to Landlord’s timely
receipt of the Termination Notice, the Lease (as hereby amended) with respect
to the Expansion Premises only shall automatically terminate and be of no
further force or effect, and Landlord and Tenant shall be relieved of their
respective obligations under the Lease (as hereby amended) with respect to the
Expansion Premises, as of the Termination Date, except with respect to those
obligations set forth in the Lease (as amended) which specifically survive the
expiration or earlier termination of the Lease, including, without limitation,
the payment by Tenant of all amounts owed by Tenant under the Lease (as hereby
amended) with respect to the Expansion Premises arising or accruing prior to
the Termination Date.  The termination
rights granted to Tenant under this Section 3.3 are personal to the
Original Tenant, any Affiliate or a Permitted Assignee and may not be assigned
or transferred to any other person or entity.

4.             Base Rent.

4.1.          Existing Premises.  Notwithstanding anything to the contrary in
the Lease as hereby amended, Tenant shall continue to pay Base Rent for the
Existing Premises in accordance with the terms of Article 3 of the Lease.

 6
 

4.2.          Expansion Premises.  Commencing on the Expansion Commencement Date
and continuing throughout the Expansion Term, Tenant shall pay to Landlord
monthly installments of Base Rent for the Expansion Premises as follows:

	
  Lease Years, Commencing 

  on the Expansion 

  Commencement Date, 

  During Expansion Term

  	
   

  	
  Annualized

  Base Rent

  	
   

  	
  Monthly

  Installment

  of Base Rent

  	
   

  	
  Approximate Monthly

  Rental Rate

  per Rentable

  Square Foot

  	
   

  
	
  1

  	
   

  	
  $

  	
  818,311.20

  	
   

  	
  $

  	
  68,192.60

  	
   

  	
  $

  	
  1.4000

  	
   

  
	
  2

  	
   

  	
  $

  	
  846,952.09

  	
   

  	
  $

  	
  70,579.34

  	
   

  	
  $

  	
  1.4490

  	
   

  
	
  3

  	
   

  	
  $

  	
  876,595.42

  	
   

  	
  $

  	
  73,049.62

  	
   

  	
  $

  	
  1.4997

  	
   

  
	
  4

  	
   

  	
  $

  	
  907,276.25

  	
   

  	
  $

  	
  75,606.35

  	
   

  	
  $

  	
  1.5522

  	
   

  
	
  5

  	
   

  	
  $

  	
  939,030.92

  	
   

  	
  $

  	
  78,252.58

  	
   

  	
  $

  	
  1.6065

  	
   

  
	
  6

  	
   

  	
  $

  	
  971,897.01

  	
   

  	
  $

  	
  80,991.42

  	
   

  	
  $

  	
  1.6628

  	
   

  
	
  7

  	
   

  	
  $

  	
  1,005,913.40

  	
   

  	
  $

  	
  83,826.12

  	
   

  	
  $

  	
  1.7210

  	
   

  
	
  8

  	
   

  	
  $

  	
  1,041,120.37

  	
   

  	
  $

  	
  86,760.03

  	
   

  	
  $

  	
  1.7812

  	
   

  
	
  9

  	
   

  	
  $

  	
  1,077,559.58

  	
   

  	
  $

  	
  89,796.63

  	
   

  	
  $

  	
  1.8435

  	
   

  
	
  10

  	
   

  	
  $

  	
  1,115,274.17

  	
   

  	
  $

  	
  92,939.51

  	
   

  	
  $

  	
  1.9081

  	
   

  
	
  11

  	
   

  	
  $

  	
  1,154,308.76

  	
   

  	
  $

  	
  96,192.40

  	
   

  	
  $

  	
  1.9748

  	
   

  
	
  12

  	
   

  	
  $

  	
  1,194,709.57

  	
   

  	
  $

  	
  99,559.13

  	
   

  	
  $

  	
  2.0440

  	
   

  
	
  13

  	
   

  	
  $

  	
  1,236,524.41

  	
   

  	
  $

  	
  103,043.70

  	
   

  	
  $

  	
  2.1155

  	
   

  
	
  14

  	
   

  	
  $

  	
  1,279,802.76

  	
   

  	
  $

  	
  106,650.23

  	
   

  	
  $

  	
  2.1895

  	
   

  
	
  15

  	
   

  	
  $

  	
  1,324,595.86

  	
   

  	
  $

  	
  110,382.99

  	
   

  	
  $

  	
  2.2662

  	
   

  
	
  16

  	
   

  	
  $

  	
  1,370,956.71

  	
   

  	
  $

  	
  114,246.39

  	
   

  	
  $

  	
  2.3455

  	
   

  
	
  17

  	
   

  	
  $

  	
  1,418,940.20

  	
   

  	
  $

  	
  118,245.02

  	
   

  	
  $

  	
  2.4276

  	
   

  
	
  18

  	
   

  	
  $

  	
  1,468,603.10

  	
   

  	
  $

  	
  122,383.59

  	
   

  	
  $

  	
  2.5125

  	
   

  
	
  19

  	
   

  	
  $

  	
  1,520,004.21

  	
   

  	
  $

  	
  126,667.02

  	
   

  	
  $

  	
  2.6005

  	
   

  
	
  20 though Lease
  Expiration Date

  	
   

  	
  $

  	
  1,573,204.36

  	
   

  	
  $

  	
  131,100.36

  	
   

  	
  $

  	
  2.6915

  	
   

  

 

 7
 

On or before the Expansion Commencement Date, Tenant shall pay to
Landlord the Base Rent payable for the Expansion Premises for the first full
month of the Expansion Term.

5.             Tenant’s Share of Building Direct Expenses.

5.1.          Existing Premises.  Notwithstanding anything in the Lease, as
hereby amended, to the contrary, Tenant shall continue to pay Tenant’s Share of
Direct Expenses in connection with the Existing Premises and attributable to
the 10421 Building in accordance with the terms of the Lease.

5.2.          Expansion Premises.  Except as specifically set forth in this Section
5.2, commencing on the Expansion Commencement Date, Tenant shall pay Tenant’s
Share of Direct Expenses in connection with the Expansion Premises in
accordance with the terms of Article 4 of the Lease, provided that with
respect to the calculation of Tenant’s Share of Direct Expenses in connection
with the Expansion Premises and attributable to the 10445 Building, Tenant’s
Share shall equal 100%.

6.             Abated Rent.  In the event that Tenant is not then in
economic default of the Lease (as hereby amended, and beyond any applicable
notice and cure period), then during the twelve month
period commencing on the Expansion Commencement Date and ending on the day
immediately prior to the first anniversary of the Expansion Commencement Date
(the “Rent Abatement Period”),
Tenant shall only be obligated to pay one-half (1⁄2) of (i) the Base Rent
and (ii) Tenant’s Share of Direct Expenses, which are otherwise attributable
to the Expansion Premises during such Rent Abatement Period (the “Rent Abatement”).  To the extent that Tenant is in such economic
default of the Lease (as hereby amended, and beyond any applicable notice and
cure period) as of the first day of any calendar month that is part of the Rent
Abatement Period, then Tenant shall be obligated to immediately pay the full
amount of the Base Rent and Tenant’s Share of Direct Expenses otherwise (but
for the Rent Abatement) attributable to the Expansion Premises during such
calendar month (each such month, a “Deferred
Abatement Month”); provided, however, that following Tenant’s full
payment of any and all such amounts and Tenant’s cure of any such economic
default, the Rent Abatement Period shall be extended one (1) month for each
Deferred Abatement Month; provided further, however, in no event shall the
total dollar amount of such Rent Abatement exceed the dollar amount of the Rent
Abatement otherwise attributable to the first twelve months immediately
following the Expansion Commencement Date.

7.             Expansion Improvements. 
Except as specifically set forth herein, Landlord shall not be obligated
to provide or pay for any improvement work or services related to the
improvement of the Expansion Premises, and Tenant shall accept the Expansion
Premises in its presently existing, “as-is” condition.  The improvements in the Expansion Premises
shall be constructed pursuant to the terms of the First Amendment Work
Letter.  The terms and conditions of the
First Amendment Work Letter shall not be applicable to the construction of the
Existing Premises.

8.             Parking.  Effective as of the Expansion Commencement
Date and continuing throughout the Expansion Term, Tenant shall be entitled to
utilize, without charge, up to one hundred ninety-four (194) unreserved parking
passes in connection with Tenant’s lease of the 

 8
 

Expansion Premises (the “Expansion Parking Passes”) (i.e., four (4) unreserved
parking spaces for every 1,000 rentable square feet of the Expansion
Premises).  Except as set forth in this Section 8,
Tenant’s use of the Expansion Parking Passes shall be in accordance with the
provisions of Article 28 of the Lease.

9.             Security
Deposit.  Landlord and
Tenant acknowledge that, in accordance with Section 21.1 of the Lease,
Tenant has previously delivered the sum of Three Hundred Fifty-Five Thousand
Seven Hundred Twenty-Seven and 60/100 Dollars ($355,727.60) (the “Existing Security Deposit”) to Landlord as security for the
faithful performance by Tenant of the terms, covenants and conditions of the
Lease with respect to the Existing Premises. 
Landlord shall continue to retain the Existing Security Deposit as
security for the faithful performance by Tenant of the terms, covenants and
conditions of the Lease, as hereby amended, with respect to the Expansion
Premises.  Notwithstanding the foregoing,
to the extent that Tenant timely elects to exercise its termination right with
respect to the Expansion Premises as set forth in Section 3.3,
above, then subject to the terms and conditions of Section 21.1 of
the Lease, the amount of the Security Deposit shall be reduced to Two Hundred
Eight-Seven Thousand Five Hundred Thirty-Five and No/100 Dollars ($287,535.00)
and Landlord shall, within forty-five days following the Termination Date, return
an amount equal to Sixty-Eight Thousand One Hundred Ninety-Two and 60/100
Dollars ($68,192.60) to Tenant.

10.           Broker.  Landlord and Tenant hereby warrant to each
other that they have had no dealings with any real estate broker or agent in
connection with the negotiation of this First Amendment other than Colliers
International (the “Broker”), and
that they know of no other real estate broker or agent who is entitled to a
commission in connection with this First Amendment.  Each party agrees to indemnify and defend the
other party against and hold the other party harmless from any and all claims,
demands, losses, liabilities, lawsuits, judgments, and costs and expenses
(including, without limitation, reasonable attorneys’ fees) with respect to any
leasing commission or equivalent compensation alleged to be owing on account of
the indemnifying party’s dealings with any real estate broker or agent, other
than the Broker, occurring by, through, or under the indemnifying party.  The terms of this Section 10 shall
survive the expiration or earlier termination of this First Amendment.

11.           Landlord’s
Ability to Commence Construction of Improvements.  Landlord and Tenant hereby acknowledge that
the Expansion Premises is currently occupied by a third-party (the “Existing Tenant”) pursuant to an existing
lease between Landlord and the Existing Tenant (the “Existing Lease”).  Consequently, Landlord shall only have the
ability to commence the construction of the Improvements as set forth in the
First Amendment Work Letter following the earlier to occur of (i) the
expiration of the Existing Lease (anticipated to be November 30, 2006), and (ii) any earlier
termination of the Existing Lease following the full execution and
unconditional delivery (i.e., no conditions to the effectiveness of such
termination agreement) of a lease termination agreement with respect to the
Existing Lease (the “Existing Lease
Termination Agreement”), in a manner acceptable to Landlord in its
sole and absolute discretion.  Landlord
shall have no liability whatsoever to Tenant relating to or arising from
Landlord’s inability or failure to obtain
possession of the Expansion Premises in order to commence construction of the Improvements, or
Landlord’s delay in obtaining possession of the Expansion Premises in
order to commence construction of the Improvements.

 9
 

12.           No
Further Modification. 
Except as set forth in this First Amendment, all of the terms and
provisions of the Lease shall apply with respect to the Expansion Premises and
shall remain unmodified and in full force and effect.

IN WITNESS WHEREOF, this First Amendment has been
executed as of the day and year first above written.  

	
  

  	
  “LANDLORD”:

  
	
   

  	
   

  
	
   

  	
  KILROY REALTY, L.P.,

  
	
   

  	
  a Delaware limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Kilroy Realty Corporation,

  a Maryland corporation,

  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Jeffrey C. Hawken

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Its:

  	
  Executive Vice President

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Chief Operating Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ John T. Fucci

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Its:

  	
   Sr. Vice President Asset Management

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  “TENANT”:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FAVRILLE, INC.,

  	
   

  
	
   

  	
  a Delaware
  corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Tamara A.
  Seymour

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
  CFO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John P.
  Longenecker

  	
   

  
	
   

  	
   

  
	
   

  	
  Its:

  	
  CEO

  	
   

  
																	

 

 10

 

EXHIBIT
A

PACIFIC
CORPORATE CENTER 

OUTLINE
OF EXPANSION PREMISES

 1

 

EXHIBIT
B

PACIFIC
CORPORATE CENTER 

FIRST
AMENDMENT WORK LETTER

This First
Amendment Work Letter shall set forth the terms and conditions relating to the
construction of the Expansion Premises which shall be referred to in this First
Amendment Work Letter as the “Premises.”  This First Amendment Work Letter is
essentially organized chronologically and addresses the issues of the
construction of the Premises, in sequence, as such issues will arise during the
actual construction of the Premises.  All
references in this First Amendment Work Letter to Sections of “this Amendment” shall mean the relevant
portion of the First Amendment to which this First Amendment Work Letter is
attached as Exhibit B
and of which this First Amendment Work Letter forms a part, all references in
this First Amendment Work Letter to Articles or Sections of “this Lease” shall
mean the relevant portions of Articles 1 through 29 of the
Amended and Restated Office Lease being amended by this Amendment, and all
references in this First Amendment Work Letter to Sections of “this First
Amendment Work Letter” shall mean the relevant portions of Sections 1
through 5 of this First Amendment Work Letter.

SECTION
1

PREMISES
AND BASE BUILDING

The “Base
Building,” as that term is defined in Section 8.2 of the Lease,
shall be in good condition and working order and shall comply with applicable
building codes and other governmental laws, ordinances and regulations which
were enacted prior to the date of this Amendment to the extent the same would
be required to obtain a certificate of occupancy on an unoccupied basis as of
the date Landlord commences
the construction of the Improvements (collectively, the “Code”). 
In connection with, and to the extent consistent with, the foregoing
obligation, Landlord shall address the issues raised by Tenant in that
certain  memorandum prepared by Tenant
entitled 10445 PCC Code Compliance Summary and dated October 21, 2005, under
the following headings:  “Accessible
Parking,” “Curb Ramps,” and “Toilet and Bathing Facilities (Including Dressing
& Fitting Rooms).  Tenant shall,
except as otherwise set forth in this Lease or in this First Amendment Work
Letter, accept the Premises and Base Building from Landlord in their then existing,
“as-is” condition, subject to the terms of this First Amendment Work Letter,
subject only to punchlist items and Landlord’s obligations set forth in Article
7 of this Lease, including, without limitation, Landlord’s obligation to
maintain in accordance with Section7.1 of the
Lease the Building Structure.

SECTION
2

IMPROVEMENTS

2.1           Improvement
Allowance.  Tenant shall
be entitled to a one-time improvement allowance (the “Improvement Allowance”) in the amount of
One Million Two Hundred

 1
 

 

Thousand and No/100 Dollars ($1,200,000.00) for the costs relating to
the initial design and construction of improvements and certain additional
costs, all of which are set forth in Section 2.2.1, below, as “Improvement
Allowance Items” (the “Improvements”)
and
Landlord and Tenant hereby acknowledges and agree that all such Improvements
shall, upon completion of the same, be and become a part of the Premises and
the property of Landlord. 
In no event shall Landlord be obligated to make disbursements pursuant
to this First Amendment Work Letter in a total amount which exceeds the
Improvement Allowance.

2.2           Disbursement of the Improvement Allowance.

2.2.1        Improvement
Allowance Items.  Except
as otherwise set forth in this First Amendment Work Letter, the Improvement
Allowance shall be disbursed by Landlord (each of which disbursements shall be
made pursuant to Landlord’s disbursement process) for costs related to the
construction of the Improvements and for the following items and costs
(collectively the “Improvement Allowance
Items”):

2.2.1.1       Payment
of the fees of the “Architect” and the “Engineers,” as those terms are defined
in Section 3.1 of this First Amendment Work Letter;

2.2.1.2       The
payment of plan check, permit and license fees relating to construction of the
Improvements, and the cost of installing and purchasing Tenant’s voice and data
cabling (the Improvements Allowance Items set forth in Section 2.2.1.1,
above, and in this Section 2.2.1.2, shall, collectively, be known
as the “Soft Costs”);

2.2.1.3       The
cost of construction of the Improvements, including, without limitation,
testing and inspection costs, freight elevator usage, hoisting and trash
removal costs, and contractors’ fees and general conditions;

2.2.1.4       The
cost of any changes in the Base Building when such changes are required by the
Construction Drawings (including if such changes are due to the fact that such
work is prepared on an unoccupied basis), such cost to include all direct
architectural and/or engineering fees and expenses incurred in connection
therewith;

2.2.1.5       The
cost of any changes to the Construction Drawings or Improvements required by
Code;

2.2.1.6       The
cost of the “Coordination Fee,” as that term is defined in Section 4.2.2
of this First Amendment Work Letter; and

2.2.1.7       All
other costs required or allowed by the terms of this First Amendment Work
Letter to be expended by Landlord in connection with the construction of the
Improvements.

2.2.2        Other
Terms.  Landlord shall
only be obligated to make disbursements from the Improvement Allowance to the
extent costs are incurred by Tenant for Improvement Allowance Items.  All Improvement Allowance Items for which the
Improvement Allowance has been used shall be deemed Landlord’s property under
the terms of this Lease.

 2
 

 

2.3           Standard
Improvements.  The quality
of Improvements shall be equal to or of greater quality than the quality of the
currently existing improvements and alterations in the Premises (“Building Standard Improvements”).

2.4           Removal
of Enhanced Improvements. 
“Enhanced Improvements”
shall mean (a) any part of the Improvements which do not constitute Building
Standard Improvements; and (b) a configuration of the Improvements which
is not usual and customary for either normal occupancy or generic wet/dry lab
space.  Landlord may require that Tenant,
upon the expiration or any earlier termination of this Lease, remove any
Enhanced Improvements in the lab portion of the Premises identified by Landlord
concurrently with Landlord’s review and approval of the Approved Working
Drawings to the extent such Improvements are unique and particular to Tenant
vis-à-vis generic wet/dry lab space (collectively, the “Extraordinary Alterations”), and to repair
any damage to the Premises and Building caused by such removal (reasonable wear
and tear excepted); provided, however, if Landlord, in its approval of any
Enhanced Improvements, fails to address the removal requirement with regard to
particular Enhanced Improvements, Landlord shall be deemed to have agreed to
waive the removal requirement with regard to such particular Enhanced
Improvements; provided further, however, in no event shall identified
Extraordinary Alterations include improvements which are industry standard
improvements in research and development wet labs.

SECTION
3

CONSTRUCTION
DRAWINGS

3.1           Selection of Architect/Construction Drawings.  Tenant shall retain an architect/space
planner selected by Tenant, subject to Landlord’s reasonable approval (the “Architect”) to prepare the “Construction
Drawings,” as that term is defined in this Section 3.1.  Tenant shall retain the engineering
consultants selected by Tenant, subject to Landlord’s reasonable approval (the “Engineers”) to prepare all plans and
engineering working drawings relating to the structural, mechanical,
electrical, plumbing, HVAC, life safety, and sprinkler work in the Premises,
which work is not part of the Base Building. 
Landlord shall approve or disapprove of Tenant’s proposed Architect or
Engineers, as the case may be, within five (5) business days following Tenant’s
submission of the name(s) of Tenant’s proposed Architects or Engineers,
respectively, together with all documentation and other information reasonably
required by Landlord.  The plans and
drawings to be prepared by Architect and the Engineers hereunder shall be known
collectively as the “Construction Drawings.”  All Construction Drawings shall comply with
the drawing format and specifications determined by Landlord, and shall be
subject to Landlord’s approval, which approval shall not be unreasonably
withheld.  Tenant and Architect shall
verify, in the field, the dimensions and conditions as shown on the relevant
portions of the base building plans, and Tenant and Architect shall be solely
responsible for the same, and Landlord shall have no responsibility in
connection therewith.  Landlord’s review
of the Construction Drawings as set forth in this Section 3, shall
be for its sole purpose and shall not imply Landlord’s review of the same, or
obligate Landlord to review the same, for quality, design, Code compliance or
other like matters.  Accordingly,
notwithstanding that any Construction Drawings are reviewed by Landlord or its
space planner, architect, engineers and consultants, and notwithstanding any
advice or assistance which may be rendered to Tenant by Landlord or Landlord’s
space planner, architect, engineers, and consultants, Landlord shall have

 3
 

 

no liability whatsoever in connection therewith and shall not be
responsible for any omissions or errors contained in the Construction Drawings,
and Tenant’s waiver and indemnity set forth in this Lease shall specifically
apply to the Construction Drawings.

3.2           Final
Space Plan.  Tenant shall
supply Landlord with four (4) copies signed by Tenant of its final space plan
for the Premises before any architectural working drawings or engineering
drawings have been commenced.  The final
space plan (the “Final Space Plan”)
shall include a layout and designation of all offices, rooms and other
partitioning, their intended use, and equipment to be contained therein.  Landlord may request clarification or more
specific drawings for special use items not included in the Final Space
Plan.  Landlord shall, within ten (10)
business days after Landlord’s receipt of the Final Space Plan,
(i) approve the Final Space Plan, (ii) approve the Final Space Plan subject
to specified conditions to be complied with when the Final Working Drawings are
submitted by Tenant to Landlord, or (iii) disapprove the Final Space Plan
and return the same to Tenant with detailed requested revisions.  If Landlord disapproves the Final Space Plan,
Tenant shall resubmit the Final Space Plan to Landlord, and Landlord shall
approve or disapprove of the resubmitted Final Space Plan, based upon the
criteria set forth in this Section 3.2 (except that Landlord’s
disapproval of the Final Space Plan, as resubmitted, shall be final), within
five (5) business days after Landlord receives such resubmitted Final Space
Plan.  If Tenant is so advised, Tenant
shall promptly cause the Final Space Plan to be revised to correct any
deficiencies or other matters Landlord may reasonably require.

3.3           Final
Working Drawings.  After
the Final Space Plan has been approved by Landlord, Tenant shall supply the
Engineers with a complete listing of standard and non-standard equipment and
specifications, including, without limitation, B.T.U. calculations, electrical
requirements and special electrical receptacle requirements for the Premises,
to enable the Engineers and the Architect to complete the “Final Working
Drawings” (as that term is defined below) in the manner as set forth
below.  Upon the approval of the Final
Space Plan by Landlord and Tenant, Tenant shall promptly cause the Architect
and the Engineers to complete the architectural and engineering drawings for
the Premises, and Architect shall compile architectural, structural,
mechanical, electrical and plumbing working drawings in a form which is
complete to allow subcontractors to bid on the work and to obtain all
applicable permits (which may be done by subspecialty if such subspecialty will
be separately permitted by the City) (collectively, the “Final Working Drawings”) and shall submit
the same to Landlord for Landlord’s approval. 
Tenant shall supply Landlord with four (4) copies signed by Tenant of
such Final Working Drawings.  Landlord
shall, within ten (10) business days after Landlord’s receipt of the Final
Working Drawings, (i) approve the Final Working Drawings,
(ii) approve the Final Working Drawings subject to specified conditions to
be satisfied by Tenant prior to submitting the Approved Working Drawings for
permits as set forth in Section 3.4, below, or (iii) disapprove the
Final Working Drawings and return the same to Tenant with detailed requested
revisions.  If Landlord disapproves the
Final Working Drawings, Tenant shall resubmit the Final Working Drawings to
Landlord, and Landlord shall approve or disapprove of the resubmitted Final
Working Drawings (except that Landlord’s disapproval of the Final Working
Drawings, as resubmitted, shall be final), within five (5) business days after
Landlord receives such resubmitted Final Working Drawings.  If Tenant is so advised, Tenant shall
immediately revise the Final Working Drawings in accordance with such review
and any disapproval of Landlord in connection therewith.  In addition, if the Final Working Drawings or
any amendment

 4
 

 

thereof or supplement thereto shall require alterations in the Base
Building (as contrasted with the Improvements), and if Landlord in its sole and
exclusive discretion agrees to any such alterations, and notifies Tenant of the
need and cost for such alterations, then Tenant shall pay, at its sole cost and
expense, the cost of such required changes upon receipt of bills therefor.

3.4           Approved
Working Drawings. 
Notwithstanding anything in this First Amendment Work Letter to the
contrary, Landlord shall not commence (or allow the commencement of) the
construction of the Improvements until the Final Working Drawings are approved
in writing by Tenant and Landlord (the “Approved
Working Drawings”).  After
approval by Landlord of the Final Working Drawings, Tenant may submit the same
to the appropriate municipal authorities for all applicable building
permits.  Tenant hereby agrees that
neither Landlord nor Landlord’s consultants shall be responsible for obtaining
any building permit or certificate of occupancy for the Premises and that
obtaining the same shall be Tenant’s responsibility; provided, however, that
Landlord shall cooperate with Tenant in executing permit applications and
performing other ministerial acts reasonably necessary to enable Tenant to
obtain any such permit or certificate of occupancy.  Subject to the terms of Section 4.2.1,
below, no changes, modifications or alterations in the Approved Working
Drawings may be made without the prior written consent of Landlord, which
consent may not be unreasonably withheld.

SECTION 4

CONSTRUCTION OF THE IMPROVEMENTS

4.1           The
Contractor.  Tenant shall
select, subject to Landlord’s reasonable approval, three (3) licensed general
contractors (the “Bidding Contractors”)
to bid on the construction of the Improvements. 
Following such selection, Tenant shall solicit bids from the Bidding
Contractors and, following such bidding process, shall select which Bidding
Contractor shall be the contractor to construct the Improvements (the “Contractor”).  Landlord shall independently retain the
Contractor to construct the Improvements in accordance with the Approved
Working Drawings.  All subcontractors,
materialmen and suppliers are subject to Tenant’s prior approval, which
approval shall not be unreasonably withheld, conditioned or delayed.

4.2           Construction of Improvements by Contractor under the
Supervision of Landlord and Tenant.

4.2.1        Construction
Contract; Over-Allowance Amount. 
Landlord shall negotiate and prepare the form of the construction
contract (the “Contract”) to be
executed by and between Landlord and the Contractor based upon the form of the
construction contract to be used in connection with the Tenant Work Letter
attached to the Lease and applicable to the Existing Premises.  Notwithstanding the foregoing, the Contract
shall expressly state that all “change orders” which (x) involve the expenditure of
more than $25,000.00 in the aggregate; (y) adversely affect the systems
and equipment of the Building or the Building Structure, or (z) adversely
affect the exterior appearance of the Building, must be
approved in advance by Landlord and Tenant in writing.  Prior to the commencement of the construction
of the Improvements, and after Tenant has accepted all bids for the Improvements,
Landlord shall submit to Tenant, for Tenant’s review and approval, a detailed
breakdown, by trade, of the final costs to be incurred or which have been
incurred, as set forth more particularly in 

 5
 

 

Sections 2.2.1.1 through 2.2.1.7,
above, in connection with the design and construction of the Improvements,
which costs form a basis for the amount of the Contract (the “Final Costs”).  Prior to the commencement of construction of
the Improvements, Tenant and Landlord shall identify the amount (the “Over-Allowance Amount”) equal to the
difference between the amount of the Final Costs and the Improvement Allowance
(less any portion thereof already disbursed by Landlord, or in the process of
being disbursed by Landlord, on or before the commencement of construction of
the Improvements).  To the extent there
exists an Over-Allowance Amount, then following Landlord’s disbursement of
ninety percent (90%) of the Improvement Allowance to the Contractor (i.e., all
of such Improvement Allowance minus a ten percent (10%) retention (the “Final Retention”) which Final Retention
shall only be disbursed by Landlord to the Contractor following the completion
of the Improvements and in accordance with the terms of the Contract), Landlord
shall disburse, in accordance with the terms of this First Amendment Work
Letter and in an aggregate amount not to exceed the Over-Allowance Amount,
additional payments (“Over-Allowance Payments”)
to Contractor in an amount equal to the total amount then due and owing to the
Contractor in connection with the construction of the Improvements in the
Premises as set forth in this First Amendment Work Letter (other than any
corresponding Final Retention which shall be paid concurrently with Landlord’s
payment of the Final Retention to the Contractor).  Tenant shall pay to Landlord the full amount
of any and all amounts so disbursed by Landlord as Over-Allowance Payments
within ten (10) days following Tenant’s receipt of a reasonably detailed
invoice therefor.  In the event that,
after the Final Costs have been determined, any revisions, changes, or
substitutions shall be made to the Construction Drawings or the Improvements,
any additional costs which arise in connection with such revisions, changes or
substitutions or any other additional costs shall be deemed to be an addition
to the Over-Allowance Amount.

4.2.2        Supervision
of Contractor.  Landlord
and Tenant shall jointly supervise the construction of the Improvements by
Contractor.  Landlord and Tenant shall
mutually cooperate with each other in all phases of such supervision in order
for the Improvements to be completed in a timely manner in accordance with the
Approved Working Drawings. 
Notwithstanding such joint supervision, Tenant shall pay a construction
supervision and management fee (the “Landlord
Supervision Fee”) to Landlord in an amount equal to the product of
(A) one percent (1%), and (B) the hard costs incurred with the Improvement
Allowance Items identified in Sections 2.2.1.3 – 2.2.1.5 (whether
paid for via the Improvement Allowance or as an Over-Allowance Amount, which
Landlord Supervision Fee shall be for services relating to the coordination of
the construction of the Improvements.

4.2.3        Contractor’s
Warranties and Guaranties. 
Landlord hereby assigns to Tenant all warranties and guaranties by
Contractor relating to the Improvements, and Tenant hereby waives all claims
against Landlord relating to, or arising out of the construction of, the
Improvements and which claims are covered by such warranties.

4.2.4        Indemnity.  Tenant’s indemnity of Landlord as set forth
in this Lease shall also apply with respect to any and all costs, losses,
damages, injuries and liabilities incurred by Landlord Parties and related in
any way to any act or omission of Tenant or Tenant’s Architect at the Project;
provided, however, that the foregoing indemnity shall not apply to the extent
of Landlord’s gross negligence or willful misconduct.

 6
 

 

4.2.5        Requirements
of Contractor.  The
Contractor shall guarantee to Landlord and for the benefit of Tenant that the
portion of the Improvements for which it is responsible shall be free from any
defects in workmanship and materials for a period of not less than one (1) year
from the date of completion thereof, and that the Contractor shall provide a
warranty making Contractor responsible for the replacement or repair, without
additional charge, of all work done or furnished in accordance with its
contract within one (1) year after the substantial completion of the
Improvements.  The correction of such
work shall include, without additional charge, all additional expenses and
damages incurred in connection with such removal or replacement of all or any
part of the Improvements, and/or the Building and/or common areas that may be
damaged or disturbed thereby.  All such
warranties or guarantees as to materials or workmanship of or with respect to
the Improvements shall be contained in the Contract or subcontract and shall be
written such that such guarantees or warranties shall inure to the benefit of
both Landlord and Tenant, as their respective interests may appear, and may be
directly enforced by either.  Landlord
covenants to give to Tenant any assignment or other assurances which may be
necessary to effect such right of direct enforcement.

4.2.6        Insurance Requirements.

4.2.6.1       General Coverages.  Contractor and all subcontractors shall carry
worker’s compensation insurance covering all of their respective employees, and
shall also carry public liability insurance, including property damage, all
with limits, in form and with companies as are required to be carried by Tenant
as set forth in this Lease.

4.2.6.2       Special Coverages.  “Builder’s All Risk” insurance in an amount
approved by Landlord covering the construction of the Improvements, and such
other insurance as Landlord may require, it being understood and agreed that
the Improvements shall be insured by Tenant pursuant to this Lease immediately
upon completion thereof.  Such insurance
shall be in amounts and shall include such extended coverage endorsements as
may be reasonably required by Landlord including, but not limited to, the
requirement that all Contractor and all subcontractors shall carry excess
liability and Products and Completed Operation Coverage insurance, each in
amounts not less than $500,000 per incident, $1,000,000 in aggregate, and in
form and with companies as are required to be carried by Tenant as set forth in
this Lease.

4.2.6.3       General Terms.  Certificates for all insurance carried
pursuant to this Section 4.2.6.3 shall be delivered to Landlord and
Tenant before the commencement of construction of the Improvements and before
the Contractor’s equipment is moved onto the site.  All such policies of insurance must contain a
provision that the company writing said policy will give Landlord and Tenant
thirty (30) days prior written notice of any cancellation or lapse of the
effective date or any reduction in the amounts of such insurance.  In the event that the Improvements are
damaged by any cause during the course of the construction thereof, Landlord
shall immediately repair the same. 
Landlord shall use commercially reasonable efforts to ensure that
Contractor and all subcontractors maintain all of the foregoing insurance
coverage in force until the Improvements are fully completed and accepted by
Tenant, except for any Products and Completed Operation Coverage insurance,
which is to be maintained for ten (10) years following completion of the work
and acceptance by Landlord and Tenant. 
All policies carried under this Section 4.2.6.3 shall insure
Landlord and Tenant, as their interests may appear, as well as Contractor and
Tenant’s Agents.  Landlord shall use
commercially reasonable efforts to ensure

 7
 

 

that all insurance, except Workers’ Compensation, maintained by
Contractor and all subcontractors shall preclude subrogation claims by the
insurer against anyone insured thereunder. 
Such insurance shall provide that it is primary insurance as respects
the owner and that any other insurance maintained by owner is excess and
noncontributing with the insurance required hereunder.  The requirements for the foregoing insurance
shall not derogate from the provisions for indemnification of Landlord by
Tenant under Section 4.2.4 of this First Amendment Work Letter.

4.2.7        Governmental
Compliance.  The Improvements
shall comply in all respects with the following:  (i) the Code and other state, federal, city
or quasi-governmental laws, codes, ordinances and regulations, as each may
apply according to the rulings of the controlling public official, agent or other
person; (ii) applicable standards of the American Insurance Association
(formerly, the National Board of Fire Underwriters) and the National Electrical
Code; and (iii) building material manufacturer’s specifications.

4.2.8        Inspection.  Landlord and Tenant shall each have the right
to inspect the Improvements upon reasonable notice to the other party and the
Contractor, provided however, that Landlord’s or Tenant’s failure to inspect
the Improvements shall in no event constitute a waiver of any of Landlord’s or
Tenant’s, respectively, rights hereunder nor shall any such inspection of the
Improvements constitute either party’s approval of the same.  Should either party disapprove any portion of
the Improvements based on the failure of the Improvements to conform to the
Final Working Drawings, the disapproving party shall notify the other in
writing of such disapproval and shall specify the items disapproved.  Any defects or deviations in, and/or such
disapproval of, the Improvements shall be rectified by Landlord.

4.2.9        Meetings.  Commencing upon Tenant’s selection of the
Contractor and Architect, Landlord and Tenant shall hold regular meetings at a
reasonable time (but in no event to be required more often than weekly), with
the Architect and the Contractor (or their agents) regarding the progress of
the preparation of Construction Drawings and the construction of the
Improvements, which meetings shall be held at a location reasonably designated
by Tenant or, in Landlord’s discretion, at the Premises.  In addition, minutes shall be taken at all
such meetings, a copy of which minutes shall be promptly delivered to
Landlord.  One such meeting each month
shall include the review of Contractor’s current request for payment.

4.3           Notice
of Completion; Copy of Record Set of Plans.  Within ten (10) days after completion of
construction of the Improvements, Landlord shall cause a Notice of Completion
to be recorded in the office of the Recorder of the county in which the
Building is located in accordance with Section 3093 of the Civil Code of the
State of California or any successor statute, and shall furnish a copy thereof
to Tenant upon such recordation.  If
Landlord fails to do so, Tenant may execute and file the same on behalf of
Landlord as Landlord’s agent for such purpose, at Landlord’s sole cost and
expense.  At the conclusion of
construction, (i) Landlord and Tenant shall cause the Architect and
Contractor (A) to update the Approved Working Drawings as necessary to reflect
all changes made to the Approved Working Drawings during the course of
construction, (B) to certify to the best of their knowledge that the “record-set”
of as-built drawings are true and correct, which certification shall survive
the expiration or termination of this Lease, and (C) to deliver to Landlord and
Tenant two (2) sets of copies of such record set of drawings within ninety (90)
days following issuance of a certificate of occupancy for the

 8
 

 

Premises, and (ii) Landlord shall deliver to Tenant a copy, bound in a
binder (with an index), of all warranties, guaranties, and operating manuals
and information relating to the improvements, equipment, and systems in the
Premises.

4.4           Cooperation
and Joint Efforts. 
Landlord and Tenant hereby acknowledge that the design and construction
of the Improvements will require both of Landlord and Tenant to mutually
cooperate in good faith, using diligent and commercially reasonable efforts to
reach agreement or otherwise cooperate in connection with a significant amount
of design and construction milestones and action items, only the most
significant of which milestones and items are specifically addressed in this
First Amendment Work Letter.  Landlord
and Tenant each hereby commit to so cooperate in good faith, and to use such
diligent and commercially reasonable efforts. 
Such cooperative efforts shall include the parties’ prompt sharing of
information with regard to municipal or local planning group meetings which may
affect the construction of the Improvements so as to provide all relevant
parties an opportunity to attend the same.

SECTION 5

DELAYS

5.1           Landlord
Caused Delays.  If there
shall be a delay or there are delays in the “Substantial Completion of the
Improvements” (as that term is defined in Section 5.4, below) due to a “Landlord
Caused Delay,” then Tenant shall be entitled to the “Substantial Completion
Rent Abatement” as more particularly set forth in Section 5.3,
below.  As used in this First Amendment
Work Letter, “Landlord Caused Delay”
shall mean actual delays to the extent resulting from the acts or omissions of
Landlord including, but not limited to (i) failure of Landlord to timely
approve or disapprove any Construction Drawings; (ii) material and unreasonable
interference by Landlord, its agents, employees or contractors with the Substantial
Completion of the Improvements and which objectively preclude or delay the
construction of tenant improvements in the Building by any person, which
interference relates to access by Tenant, or the Contractor to the Building or
any Building facilities (including loading docks and freight elevators) or
service (including temporary power and parking areas as provided herein) during
normal construction hours, or the use thereof during normal construction hours;
(iii) delays due to the acts or failures to act of Landlord, its agents,
employees or contractors including without limitation any such acts or failures
to act with respect to payment of the Improvement Allowance.

5.2           Determination
of a Landlord Caused Delay. 
If Tenant contends that a Landlord Caused Delay has occurred, Tenant
shall immediately notify Landlord in writing (the “Delay Notice”)
of the event that constitutes such Landlord Caused Delay.  If such action, inaction or circumstance
qualifies as a Landlord Caused Delay, then a Landlord Caused Delay shall be
deemed to have occurred commencing on the date such action, inaction or
circumstance first occurred, and ending on the date such delay ends.  Each day during such period shall be referred
to herein as a “Landlord Delay Day;”
provided, however, to the extent Tenant is aware (or using commercially
reasonable due diligence, should be aware) of an event that otherwise
constitutes a Landlord Caused Delay and fails to immediately provide a Delay
Notice to Landlord, then the number of Landlord Delay Days shall be reduced by
the number of calendar

 9
 

 

days occurring during the period commencing on the date when Tenant
became aware (or using commercially reasonable due diligence, should have
become aware) of such event and the date upon which Tenant actually provides a
Delay Notice to Landlord in connection with the same.

5.3           Substantial
Completion Rent Abatement. 
In the event a Landlord Delay shall be determined to have occurred as
set forth in Section 5.2, above, then commencing on the Expansion
Commencement Date, and continuing for each Landlord Delay Day (such period, the
“Substantial Commencement Rent Abatement
Period”), Tenant shall receive a day-for-day abatement of the Base
Rent otherwise attributable to the 10445 Premises (as opposed to the 10421
Premises) (the “Substantial Completion Rent
Abatement”) for each Landlord Delay Day.

5.4           Definition
of Substantial Completion of the Improvements.  For purposes of this Section 5, “Substantial Completion of the Improvements”
shall mean completion of construction of the Improvements in the Premises
pursuant to the Approved Working Drawings as evidenced by a Certificate of
Completion from the Architect, with the exception of any punch list items and
any tenant fixtures, work-stations, built-in furniture, or equipment to be
installed by Tenant or under the supervision of Contractor.

5.5           Tenant
Caused Delays.  If there
shall be an actual delay or there are delays in the Substantial Completion of
the Improvements as a direct, indirect, partial, or total result of:

5.5.1        Tenant’s failure to
approve any matter requiring Tenant’s approval in this First Amendment Work
Letter within the longer of the time period set forth herein or five (5)
business days;

5.5.2        A default by Tenant
of the terms of this First Amendment Work Letter or the Lease which continues
beyond the applicable notice and cure period;

5.5.3        Changes in any of the
Construction Drawings after reasonable disapproval of the same by Landlord or
because the same do not comply with Code or other applicable laws;

5.5.4        Tenant’s request for
changes in the Approved Working Drawings;

5.5.5        Tenant’s requirement
for materials, components, finishes or improvements which are not available in
a commercially reasonable time given the anticipated date of Substantial Completion
of the Improvements, as set forth in this Amendment;

5.5.6        Changes to the Base
Building required by the Approved Working Drawings; or

5.5.7        Any other acts or
omissions of Tenant, or its agents, or employees;

then, notwithstanding anything to the contrary set forth in the Lease,
as hereby amended, or this First Amendment Work Letter and regardless of the
actual date of the Substantial Completion of the Improvements, the Substantial
Completion of the Improvements shall be deemed to be the date the Substantial
Completion of the Improvements would have occurred if no Tenant delay or
delays, as set forth above, had occurred. 
If Landlord contends that a Tenant Delay has occurred

 10
 

 

or may be occurring, Landlord shall immediately notify Tenant in
writing (the “Tenant Delay Notice”)
of the event that constitutes such Tenant Delay.  Landlord and Tenant hereby acknowledge and
agree that as of the date of this Amendment, no event has occurred which may
constitute a Tenant delay.

SECTION 6

MISCELLANEOUS

6.1           Tenant’s
Representative.  Tenant
has designated Richard Murawski and Tamara Seymour as its representatives with
respect to the matters set forth in this First Amendment Work Letter, each of
whom shall have full authority and responsibility to act on behalf of the Tenant
as required in this First Amendment Work Letter.

6.2           Landlord’s
Representative.  Landlord
has designated Randy Jackson as its sole representatives with respect to the
matters set forth in this First Amendment Work Letter, who, until further
notice to Tenant, shall have full authority and responsibility to act on behalf
of the Landlord as required in this First Amendment Work Letter.

6.3           Time
of the Essence in This First Amendment Work Letter.  Unless otherwise indicated, all references
herein to a “number of days” shall mean and refer to calendar days.  If any item requiring approval is timely
disapproved by Landlord, the procedure for preparation of the document and
approval thereof shall be repeated until the document is approved by Landlord.

6.4           Tenant’s
Lease Default. 
Notwithstanding any provision to the contrary contained in this Lease,
if an economic or material default (after applicable notice and cure periods,
if any) as described in the Lease or this First Amendment Work Letter has
occurred at any time on or before the substantial completion of the
Improvements, then (i) in addition to all other rights and remedies granted to
Landlord pursuant to this Lease, Landlord shall have the right to withhold
payment of all or any portion of the Improvement Allowance(in which case,
Tenant shall be responsible for any delay in the substantial completion of the
Premises caused thereby), and (ii) all other obligations of Landlord under the
terms of this First Amendment Work Letter shall be forgiven until such time as
such default is cured pursuant to the terms of this Lease (in which case,
Tenant shall be responsible for any delay in the substantial completion of the
Premises caused by such inaction by Landlord).

 11

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