Document:

Exhibit
10.1

 

SECURITIES
PURCHASE AGREEMENT

 

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as
of August 19, 2004, is by and between NeoMagic Corporation, a Delaware
corporation (the “Company”), and each of the entities whose names appear
on the signature pages hereof. Such entities are each referred to herein as an
“Investor” and, collectively, as the “Investors”.

 

A.                                   The Company wishes to sell to each Investor,
and each Investor wishes to purchase, on the terms and subject to the
conditions set forth in this Agreement, (A) shares (the “Series B Preferred
Shares” or “Preferred Shares”) of the Company’s Series B Convertible
Preferred Stock (the “Series B Preferred Stock” or “Preferred Stock”)
having the rights and privileges set forth in the form of Certificate of
Designations, Preferences and Rights attached hereto as Exhibit A (the “Certificate
of Designation” or “Certificate”), (B) a Warrant in the form
attached hereto as Exhibit B (each, a “Series A Warrant” and,
collectively, the “Series A Warrants”) and (C) a Warrant in the form
attached hereto as Exhibit C (each, a “Series B Warrant” and,
collectively, the “Series B Warrants”). 
The Series A Warrants and the Series B Warrants are collectively
referred to herein as the “Warrants”.

 

B.                                     The Series A Warrants issued to an Investor
will entitle such Investor to purchase a number of shares of Common Stock equal
to such Investor’s Pro Rata Share (as defined below) of 1,608,696 shares. The
Series A Warrants will be exercisable commencing on the Closing Date, have an
exercise price per share equal to $1.64 (subject to adjustment as provided therein), and expire on the date
that is the fifth (5th) anniversary of the Closing Date (as defined
below). The Series B Warrants issued to an Investor will entitle such Investor
to purchase a number of shares of Common Stock equal to such Investor’s Pro
Rata Share of 1,000,000 shares.  The
Series B Warrants will have an exercise price per share equal to $1.60 (subject
to adjustment as provided therein) and will expire on the ninetieth (90th)
day following the Effective Date (as defined below).

 

C.                                     The shares of Common Stock into which the
shares of Preferred Stock are convertible are referred to herein as the “Conversion
Shares” and the shares of Common Stock into which the Warrants are
exercisable are referred to herein as the “Warrant Shares”. The
Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares
are collectively referred to herein as the “Securities”.

 

D.                                    The Company has agreed to effect the
registration of the Conversion Shares and the Warrant Shares under the
Securities Act of 1933, as amended (the “Securities Act”), pursuant to a
Registration Rights Agreement in the form attached hereto as Exhibit D
(the “Registration Rights Agreement”). 
The sale of the Preferred Shares and the Warrants by the Company to the
Investors will be effected in reliance upon the exemption from securities
registration afforded by the provisions of Regulation D (“Regulation D”),
as promulgated by the Securities and Exchange Commission (the “Commission”)
under the Securities Act.

 

In consideration of the mutual promises made herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and each Investor hereby agree as follows:

 

 

1.                                       PURCHASE AND SALE OF  PREFERRED SHARES AND WARRANTS.

 

1.1                                 Closing.  Upon the terms and subject to
the satisfaction or waiver of the conditions set forth herein, the Company
agrees to sell and each Investor agrees to purchase for the Purchase Price (as
defined below) (i) the number of Series B Preferred Shares set forth below such
Investor’s name on the signature pages hereof, (ii) a Series A Warrant, and
(iii) a Series B Warrant. The closing of the purchase and sale of the Series B
Preferred Shares and the Warrants (the “Closing”) will be deemed to
occur at the offices of Duval & Stachenfeld, LLP, 300 East 42nd
Street, New York, New York 10017, when (A) this Agreement and the other
Transaction Documents (as defined below) have been executed and delivered by
the Company and, to the extent applicable, by each Investor, (B) each of the
conditions to the Closing described in Sections 5.1 and 5.2 hereof has been
satisfied or waived by the Company or each Investor, as appropriate, and (C)
each Investor shall have delivered the Purchase Price payable by it to the
Company by wire transfer of immediately available funds against physical
delivery of duly executed certificates representing the Series B Preferred
Shares and Warrants being purchased by such Investor. The date on which the
Closing occurs is referred to herein as the “Closing Date”.

 

1.2                                 Certain Definitions. 
When used herein, the following terms shall have the respective meanings
indicated:

 

“Affiliate” means, as to any Person (the “subject Person”),
any other Person (a) that directly or indirectly through one or more
intermediaries controls or is controlled by, or is under direct or indirect
common control with, the subject Person, (b) that directly or indirectly
beneficially owns or holds ten percent (10%) or more of any class of voting
equity of the subject Person, or (c) ten percent (10%) or more of the
voting equity of which is directly or indirectly beneficially owned or held by
the subject Person. For the purposes of this definition, “control” when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, through representation on such Person’s board of
directors or other management committee or group, by contract or otherwise.

 

“Board of Directors” means the Company’s board of directors.

 

“Business Day” means any day other than a Saturday, a Sunday or
a day on which the New York Stock Exchange or commercial banks located in New
York City are authorized or permitted by law to close.

 

“Certificate of Designation” has the meaning specified in the
preamble to this Agreement.

 

“Closing Bid Price” shall mean, for the Common Stock as of any
date, the closing bid price on such date for the Common Stock on the Principal
Market as reported by Bloomberg Financial Markets (“Bloomberg”), or if
the Principal Market begins to operate on an extended hours basis, and does not
designate the closing bid price, then the last bid price at 4:00 p.m. (eastern
time), as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid

 

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price of the Common Stock in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
closing bid price is reported for such security by Bloomberg, the last closing
trade price for such security as reported by Bloomberg, or, if no last closing
trade price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the “pink sheets”
by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the
Closing Bid Price cannot be calculated for the Common Stock on such date on any
of the foregoing bases, then the Company shall submit such calculation to an
independent investment banking firm of national reputation reasonably
acceptable to the Holder, and shall cause such investment banking firm to
perform such determination and notify the Company and the Holder of the results
of determination no later than two (2) Business Days from the time such
calculation was submitted to it by the Company.  All such determinations shall be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such period.

 

“Closing Date” has the meaning specified in Section 1.1 hereof.

 

“Common Stock” means the common stock, par value $0.001 per
share, of the Company.

 

“Conversion Price” has the meaning specified in the Certificate
of Designation.

 

“Current Violation” has the meaning specified in Section 3.7
hereof.

 

“Debt” means, as to any Person at any time: (a) all
indebtedness, liabilities and obligations of such Person for borrowed money;
(b) all indebtedness, liabilities and obligations of such Person to pay the
deferred purchase price of Property or services, except trade accounts payable
of such Person arising in the ordinary course of business that are not past due
by more than 90 days; (c) all capital lease obligations of such Person; (d) all
indebtedness, liabilities and obligations of others guaranteed by such Person;
(e) all indebtedness, liabilities and obligations secured by a Lien existing on
Property owned by such Person, whether or not the indebtedness, liabilities or
obligations secured thereby have been assumed by such Person or are
non-recourse to such Person; (f) all reimbursement obligations of such Person
(whether contingent or otherwise) in respect of letters of credit, bankers’
acceptances, surety or other bonds and similar instruments; and (g) all
indebtedness, liabilities and obligations of such Person to redeem or retire
shares of capital stock of such Person.

 

“Disclosure Documents” means all SEC Documents filed by the Company
at least two (2) Business Days prior to the date of this Agreement via the
Commission’s Electronic Data Gathering, Analysis and Retrieval system (EDGAR)
in accordance with the requirements of Regulation S-T under the Exchange Act.

 

“Effective Date” has the meaning set forth in the Registration
Rights Agreement.

 

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“Environmental Law” means any applicable federal, state,
provincial, local or foreign law, statute, code or ordinance, principle of
common law, rule or regulation, as well as any Permit, order, decree, judgment
or injunction issued, promulgated, approved or entered thereunder, relating to
pollution or the protection, cleanup or restoration of the environment or
natural resources, or to the public health or safety, or otherwise governing
the generation, use, handling, collection, treatment, storage, transportation,
recovery, recycling, discharge or disposal of hazardous materials.

 

“ERISA” means the Employee Retirement Income Security Act of
1974, as amended, and the regulations and published interpretations thereunder.

 

“Exchange Act” means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.

 

“Execution Date” means August 19, 2004.

 

“GAAP” means generally accepted accounting principles, applied
on a consistent basis, as set forth in (i) opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants,
(ii) statements of the Financial Accounting Standards Board and (iii) interpretations
of the Commission and the Staff of the Commission. Accounting principles are
applied on a “consistent basis” when the accounting principles applied in a
current period are comparable in all material respects to those accounting
principles applied in a preceding period.

 

“Governmental Authority” means any nation or government, any
state, provincial or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including without limitation any stock exchange,
securities market or self-regulatory organization.

 

“Governmental Requirement” means any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, franchise,
license or other directive or requirement of any federal, state, county,
municipal, parish, provincial or other Governmental Authority or any
department, commission, board, court, agency or any other instrumentality of
any of them.

 

“Intellectual Property” means any U.S. or foreign patents,
patent rights, patent applications, trademarks, trade names, service marks,
brand names, logos and other trade designations (including unregistered names
and marks), trademark and service mark registrations and applications, copyrights
and copyright registrations and applications, inventions, invention
disclosures, protected formulae, formulations, processes, methods, trade
secrets, computer software, computer programs and source codes, manufacturing
research and similar technical information, engineering know-how, customer and
supplier information, assembly and test data drawings or royalty rights.

 

“Key Employees” means (i) Prakash C. Agarwal, Sanjay Adkar,
Scott Sullinger, Ernest Lin and Mark Singer, and (ii) each other person from
time to time serving as an executive officer (as defined in Rule 501(f) of the
Securities Act) of the Company.

 

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“Lien” means, with respect to any Property, any mortgage or
mortgages, pledge, hypothecation, assignment, deposit arrangement, security
interest, tax lien, financing statement, pledge, charge, or other lien, charge,
easement, encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such Property (including, without limitation, any conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).

 

“Market Price” means, as of a particular date, the average
Closing Bid Price for the Common Stock during the period of five (5)
consecutive Trading Days occurring immediately prior to (but not including)
such date.

 

“Material Adverse Effect” means an effect that is material and
adverse to (i) the consolidated business, operations, properties, financial
condition, prospects or results of operations of the Company and the
Subsidiaries taken as a whole or (ii) the transactions contemplated by the
Certificate, this Agreement or the other Transaction Documents.

 

“Material Contracts” means, as to the Company, any agreement
required pursuant to Item 601 of Regulation S-B or Item 601, as applicable, of
Regulation S-K under the Securities Act to be filed as an exhibit to any
report, schedule, registration statement or definitive proxy statement filed or
required to be filed by the Company with the Commission under the Exchange Act
or any rule or regulation promulgated thereunder, and any and all amendments,
modifications, supplements, renewals or restatements thereof.

 

“NASD” means the National Association of Securities Dealers,
Inc.

 

“Outstanding Registrable Securities” means, at any time, all
Registrable Securities that at such time are either issued and outstanding or
issuable upon conversion of the Preferred Stock or exercise of the Warrants
(without regard to any limitation on such conversion or exercise).

 

“Pension Plan” means an employee benefit plan (as defined in
ERISA) maintained by the Company for employees of the Company or any of its
Affiliates.

 

“Permitted Liens” means the following:

 

(a)                                  encumbrances consisting of easements,
rights-of-way, zoning restrictions or other restrictions on the use of real
Property or imperfections to title that do not (individually or in the
aggregate) materially impair the ability of the Company or any of the
Subsidiaries to use such Property in its businesses, and none of which is
violated in any material respect by existing or proposed structures or land
use;

 

(b)                                 Liens for taxes, assessments or other
governmental charges that are not delinquent or which are being contested in
good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the Property subject to such Liens, and
for which adequate reserves (as determined in accordance with GAAP) have been
established; and

 

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(c)                                  Liens of mechanics, materialmen,
warehousemen, carriers, landlords or other similar statutory Liens securing
obligations that are not yet due and are incurred in the ordinary course of
business or which are being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing the forfeiture or sale of the
Property subject to such Liens, for which adequate reserves (as determined in
accordance with GAAP) have been established.

 

“Person” means any individual, corporation, trust, association,
company, partnership, joint venture, limited liability company, joint stock
company, Governmental Authority or other entity.

 

“Principal Market” means the principal exchange or market on
which the Common Stock is listed or traded.

 

“Property” means property and/or assets of all kinds, whether
real, personal or mixed, tangible or intangible (including, without limitation,
all rights relating thereto).

 

“Pro Rata Share” means, with respect to an Investor, the ratio
determined by dividing (i) the number of Preferred Shares purchased hereunder
by such Investor by (ii) the aggregate number of Preferred Shares purchased
hereunder by all of the Investors.

 

“Purchase Price” means the Stated Value of the Preferred Shares
being purchased by an Investor.

 

“Registrable Securities” means the Conversion Shares and the
Warrant Shares, any other shares of Common Stock issuable pursuant to the terms
of the Certificate of Designation or the Warrants, and any shares of capital
stock issued or issuable from time to time (with any adjustments) in
replacement of, in exchange for or otherwise in respect of the Conversion
Shares or the Warrant Shares; provided, however, that
“Registrable Securities” shall not include any such shares that have been sold
to the public pursuant to the Registration Statement or Rule 144.

 

“Registration Statement” has the meaning set forth in the
Registration Rights Agreement.

 

“Rights Agreement” means the Preferred Stock Rights Agreement,
dated as of December 19, 2002, between the Company and EquiServe Trust
Company, N.A.

 

“Rule 144” means Rule 144 under the Securities Act, or any
successor provision.

 

“SEC Documents” has the meaning specified in Section 3.4 hereof.

 

“Securities” has the meaning specified in the preamble to this
Agreement.

 

“Stated Value” means $1,000, subject to adjustment in the event
of a stock split or similar event.

 

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“Subsidiary” means, with respect to the Company, any corporation
or other entity (other than an entity having no material operations or business
during the twelve month period immediately preceding the Execution Date) of
which at least a majority of the outstanding shares of stock or other ownership
interests having by the terms thereof ordinary voting power to elect a majority
of the board of directors (or Persons performing similar functions) of such
corporation or entity (regardless of whether, in the case of a corporation,
stock of any other class or classes of such corporation shall or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned or controlled by the Company and/or one or more
of its Affiliates.

 

“Termination Date” means the first date on which there are no
Preferred Shares or Warrants outstanding.

 

“Trading Day” means any day on which the Common Stock is
purchased and sold on the Principal Market.

 

“Transaction Documents” means (i) this Agreement, (ii) the
Series A Warrants, (iii) the Series B Warrants, (iv) the Registration Rights
Agreement, and (v) all other agreements, documents and other instruments
executed and delivered by or on behalf of the Company or any of its officers at
the Closing.

 

1.3                                 Other Definitional Provisions.  All
definitions contained in this Agreement are equally applicable to the singular
and plural forms of the terms defined. 
The words “hereof”, “herein” and “hereunder” and words of similar import
referring to this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement.

 

2.                                       REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.

 

Each Investor hereby represents and warrants to the Company and agrees
with the Company that, as of the Execution Date and as of the Closing Date:

 

2.1                                 Authorization; Enforceability. 
Such Investor is duly and validly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization as set forth below such Investor’s name on the signature page
hereof with the requisite corporate power and authority to purchase the
Securities being purchased by it and to execute and deliver this Agreement and
the other Transaction Documents.  This
Agreement constitutes, and upon execution and delivery thereof, each other
Transaction Document to which such Investor is a party will constitute, such
Investor’s valid and legally binding obligation, enforceable in accordance with its terms, subject to (i) applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws of general application relating to or affecting the enforcement of
creditors’ rights generally and (ii) general principles of equity.

 

2.2                                 Accredited Investor.  Such
Investor is an “accredited investor” as that term is defined in Rule 501 of
Regulation D; (ii) is acquiring the Securities solely for its own account, and
not with a present view to the public resale or distribution of all or any part
thereof, except pursuant to sales that are registered under the Securities Act
or are exempt from the registration requirements of the Securities Act; provided,
however, that, in making such representation, such Investor does not
agree to

 

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hold the Securities for any minimum or specific term and reserves the
right to sell, transfer or otherwise dispose of the Securities at any time in
accordance with the provisions of this Agreement and with Federal and state
securities laws applicable to such sale, transfer or disposition.

 

2.3                                 Information.  The Company has provided such
Investor with information regarding the business, operations and financial
condition of the Company, and has granted to such Investor the opportunity to
ask questions of and receive satisfactory answers from representatives of the
Company, its officers, directors, employees and agents concerning the Company
and materials relating to the terms and conditions of the purchase and sale of
the Securities hereunder, and based thereon believes it can make an informed
decision with respect to its investment in the Securities. Neither such
information nor any other investigation conducted by such Investor or its
representatives shall modify, amend or otherwise affect such Investor’s right
to rely on the Company’s representations and warranties contained in this
Agreement.  The foregoing shall not be
interpreted to mean that the Company has provided to any Investor any material
nonpublic information of or relating to the Company.

 

2.4                                 Limitations on Disposition. 
Such Investor acknowledges that, except as provided in the Registration
Rights Agreement, the Securities have not been and are not being registered
under the Securities Act and may not be transferred or resold without
registration under the Securities Act or unless pursuant to an exemption
therefrom.

 

2.5                                 Legend.  Such Investor understands
that the certificates representing the Securities may bear at issuance a
restrictive legend in substantially the following form:

 

“The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the “Securities Act”),
or the securities laws of any state, and may not be offered or sold unless a
registration statement under the Securities Act and applicable state securities
laws shall have become effective with regard thereto, or an exemption from
registration under the Securities Act and applicable state securities laws is
available in connection with such offer or sale.”

 

Notwithstanding the foregoing, it is agreed that, as long as (A) the
resale or transfer (including without limitation a pledge) of any of the
Securities is registered pursuant to an effective registration statement and
the holder represents in writing to the Company that such Securities have been
or will be sold pursuant to such registration statement, (B) such Securities
have been sold pursuant to Rule 144, subject to receipt by the Company of
customary documentation in connection therewith, or (C) such Securities are
eligible for resale under Rule 144(k) or any successor provision and the holder
thereof represents in writing to the Company that it is eligible to use such
rule for public resales of such Securities, the certificates representing such
Securities shall be issued without any legend or other restrictive language
and, with respect to Securities upon which such legend is stamped, the Company
shall issue new certificates without such legend to the holder upon request.

 

2.6                                 Reliance on Exemptions. 
Such Investor understands that the Securities are being offered and sold
to it in reliance upon specific exemptions from the registration requirements
of federal and state securities laws and that the Company is relying on the
truth and accuracy of the

 

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representations and warranties of such Investor set forth in this
Section 2 in order to determine the availability of such exemptions and the
eligibility of such Investor to acquire the Securities.

 

2.7                                 Non-Affiliate Status; Common Stock Ownership. 
Such Investor is not an Affiliate of the Company or of any other
Investor and is not acting in association or concert with any other Person with
regard to its purchase of Preferred Shares and Warrants or otherwise in respect
of the Company.  Such Investor’s
investment in the Securities is not for the purpose of acquiring, directly or
indirectly, control of, and it has no intent to acquire or exercise control of,
the Company or to influence the decisions or policies of the Board of
Directors.

 

2.8                                 No Short Position in Company Securities. 
Neither such Investor nor any person trading on its behalf or at its
direction has established or maintained a short position in the Common Stock or
any other securities of the Company at any time during the period of fifteen
(15) Trading Days immediately preceding the Execution Date.

 

3.                                       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.                                              The Company hereby represents and warrants to
each Investor and agrees with such Investor that, except as expressly set forth
on the disclosure schedules to this Agreement, as of the Execution Date and
(except as otherwise expressly set forth below) as of the Closing Date:

 

3.1                                 Organization, Good Standing and Qualification. 
Each of the Company and the Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite power and authority to
carry on its business as now conducted. 
Each of the Company and the Subsidiaries is duly qualified to transact
business and is in good standing in each jurisdiction in which it conducts
business except where the failure so to qualify has not had or would not
reasonably be expected to have a Material Adverse Effect.

 

3.2                                 Authorization; Consents.

 

3.2.1                        The Company has the requisite corporate power
and authority to adopt and file the Certificate of Designation and perform its
obligations thereunder, to enter into and perform its obligations under this
Agreement and the other Transaction Documents, including without limitation its
obligations to issue and sell the Preferred Shares and Warrants to such
Investor in accordance with the terms thereof and to issue Conversion Shares
and Warrant Shares upon conversion of the Preferred Shares or exercise of the
Warrants, as the case may be.  Except as
expressly set forth below, all corporate action on the part of the Company by
its officers, directors and stockholders necessary for the authorization, execution
and delivery of, and the performance by the Company of its obligations under,
the Certificate of Designation, this Agreement and the other Transaction
Documents has been taken and no further consent or authorization of the
Company, its Board of Directors, stockholders, any Governmental Authority or
organization, or any other person or entity is required (pursuant to any rule
of the Nasdaq National Market or otherwise) other than such approval as may be
required under the Securities Act and applicable state securities laws in
respect of the Registration Rights Agreement.

 

3.2.2                        The Board of Directors has determined, at a
duly convened meeting or pursuant to a unanimous written consent, that the
issuance and sale of the Securities, and the consummation of the transactions
contemplated by the Certificate of Designation, this Agreement

 

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and the other Transaction Documents (including without limitation the
issuance of the Conversion Shares and the Warrant Shares), are in the best
interests of the Company.

 

3.3                                 Due Execution; Enforceability. 
This Agreement has been and, at or prior to the  Closing, each other Transaction Document
executed and/or delivered thereat will be, duly executed and delivered by the
Company.  Each Transaction Document constitutes
(or as of the Closing will constitute) the valid and legally binding obligation
of the Company, enforceable against it in accordance with its terms, subject to
(i) applicable bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization or other similar laws of general application relating to or
affecting the enforcement of creditors’ rights generally and (ii) general
principles of equity.

 

3.4                                 SEC Documents; Agreements; Financial
Statements; Other Information.  The Company has filed with the Commission
all reports, schedules, registration statements and definitive proxy statements
that the Company was required to file with the Commission on or after January
26, 2003 (collectively, the “SEC Documents”).  The Company is not aware of any event occurring on or prior to
the Closing Date (other than the transactions effected hereby) that would
require the filing of, or with respect to which the Company intends to file, a
Form 8-K after the Closing. Each SEC Document, as of the date of the filing
thereof with the Commission, complied in all material respects with the
requirements of the Securities Act or Exchange Act, as applicable, and the
rules and regulations promulgated thereunder and, as of the date of such filing
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing), such SEC Document (including all exhibits and
schedules thereto and documents incorporated by reference therein) did not
contain an untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. All
documents required to be filed as exhibits to the SEC Documents have been filed
as required. Except as set forth in the Disclosure Documents, the Company has
no liabilities, contingent or otherwise, other than liabilities incurred in the
ordinary course of business which, under GAAP, are not required to be reflected
in the financial statements included in the SEC Documents and which,
individually or in the aggregate, are not material to the consolidated business
or financial condition of the Company and the Subsidiaries taken as a whole.
The financial statements included in the SEC Documents have been prepared in
accordance with GAAP consistently applied at the times and during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end adjustments).

 

3.5                                 Capitalization; Debt Schedule.  The
capitalization of the Company as of the Execution Date, including its
authorized capital stock, the number of shares issued and outstanding, the
number of shares issuable and reserved for issuance pursuant to the Company’s
stock option plans and agreements, the number of shares issuable and reserved
for issuance pursuant to securities (other than the Securities) exercisable
for, or convertible into or exchangeable for any shares of Common Stock and the
number of shares initially to be reserved for issuance upon conversion of the
Series B Preferred Shares and exercise of the Warrants is set forth on Schedule
3.5 hereto.  All issued and
outstanding shares of capital stock of the Company have been validly issued,
fully paid and non-assessable, and all shares of capital stock issued by
any Subsidiary have been validly issued, fully paid and non-assessable,

 

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free and clear of all Liens other than Permitted Liens. No shares of
the capital stock of the Company are subject to preemptive rights or any other
similar rights of security holders of the Company or any Liens created by or
through the Company.  Except as set
forth or Schedule 3.5, there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company, or arrangements
by which the Company is or may become bound to issue additional shares of
capital stock of the Company or any of the Subsidiaries (whether pursuant to
anti-dilution, “reset” or other similar provisions). Except as described on Schedule
3.5 hereto, neither the Company nor any of the Subsidiaries has any
material Debt outstanding as of the date hereof.

 

3.6                                 Due Authorization; Valid Issuance.  The
shares of Preferred Stock are duly authorized and, when issued, sold and
delivered in accordance with the terms hereof, (i) will be duly and validly
issued, free and clear of any Liens imposed by or through the Company, (ii)
assuming the accuracy of each Investor’s representations in this Agreement,
will be issued, sold and delivered in compliance with all applicable Federal
and state securities laws and (iii) will be entitled to all rights, preferences
and privileges described in the Certificate of Designation. The Series A
Warrants, the Series B Warrants, the Conversion Shares issuable with respect to
the Series B Preferred Shares and the Warrant Shares issuable with respect to
the Series A Warrants and the Series B Warrants are duly authorized and, when
issued, sold and delivered in accordance with the terms of this Agreement, the
Series B Certificate the Series A Warrants or the Series B Warrants, as the
case may be, will be duly and validly issued, fully paid and non-assessable,
free and clear of any Liens imposed by or through the Company and, assuming the
accuracy of each Investor’s representations in this Agreement, will be issued,
sold and delivered in compliance with all applicable Federal and state
securities laws.

 

3.7                                 No Conflict with Other Instruments. 
Neither the Company nor any of the Subsidiaries is in violation of any
provisions of its charter, bylaws or any other governing document or in default
(and no event has occurred which, with notice or lapse of time or both, would
constitute a default) under any provision of any instrument or contract to
which it is a party or by which it or any of its Property is bound, or in
violation of any provision of any Governmental Requirement applicable to it,
except for any default under any such instrument or contract or any violation of
any provision of a Governmental Requirement that, in either such case, has not
had or would not reasonably be expected to have a Material Adverse Effect (any
such violation or default being referred to herein as a “Current Violation”).  The (i) execution, delivery and performance
of this Agreement and the other Transaction Documents, (ii) filing of and
performance of its obligations under the Certificate of Designation, and (iii)
consummation of the transactions contemplated hereby and thereby (including without
limitation, the issuance of the Preferred Stock and the Warrants and the
reservation for issuance and issuance of the Conversion Shares and the Warrant
Shares) will not result in a Current Violation or in the creation of any Lien
upon any assets of the Company or of any of the Subsidiaries or the triggering
of any preemptive or anti-dilution rights (including without limitation
pursuant to any “reset” or similar provisions) or rights of first refusal or
first offer, or any other rights that would allow or permit the holders of the
Company’s securities or other Persons to purchase shares of Common Stock or
other securities of the Company (whether pursuant to the Rights Agreement or
otherwise).

 

11

 

3.8                                 Financial Condition; Taxes; Litigation.

 

3.8.1  The Company’s financial
condition is, in all material respects, as described in the Disclosure
Documents, except for changes in the ordinary course of business and normal
year-end adjustments that are not, in the aggregate, materially adverse to the
consolidated business or financial condition of the Company and the
Subsidiaries taken as a whole. There has occurred no (i) material adverse
change to the Company’s business, operations, properties, financial condition,
or results of operations since the date of the Company’s most recent audited
financial statements contained in the Disclosure Documents or (ii) change by
the Company in its accounting principles, policies and methods except as
required by changes in GAAP or applicable law.

 

3.8.2  Each of the Company and
the Subsidiaries (i) has prepared in good faith and duly and timely filed all
tax returns required to be filed by it and such returns are complete and
accurate in all material respects and (ii) has paid all taxes required to have
been paid by it, except for taxes which it reasonably disputes in good faith or
the failure of which to pay has not had or would not reasonably be expected to
have a Material Adverse Effect, and has no liability with respect to accrued
taxes in excess of the amounts that are described as accrued in the most recent
financial statements included in the Disclosure Documents.

 

3.8.3  Except as described in Schedule
3.8.3, neither the Company nor any of the Subsidiaries is the subject of
any pending or, to the Company’s knowledge, threatened inquiry, investigation
or administrative or legal proceeding by the Internal Revenue Service, the
taxing authorities of any state or local jurisdiction (other than with respect
to taxes which it reasonably disputes in good faith or the failure of which to
pay has not had or would not reasonably be expected to have a Material Adverse
Effect), the Commission, the NASD, any state securities commission or other
Governmental Authority.

 

3.8.4  Except as described in Schedule
3.8.4, there is no material claim, litigation or administrative proceeding
pending or, to the Company’s knowledge, threatened or contemplated, against the
Company or any of the Subsidiaries, or, to the Company’s knowledge, against any
officer, director or employee of the Company or any such Subsidiary in
connection with such person’s employment therewith.  Neither the Company nor any of the Subsidiaries is a party to or
subject to the provisions of, any order, writ, injunction, judgment or decree
of any court or Governmental Authority which has had or would reasonably be
expected to have a Material Adverse Effect.

 

3.9                                 Form S-3.  The Company is eligible to
register the Registrable Securities for resale by each Investor on a
registration statement on Form S-3 under the Securities Act. To the Company’s
knowledge, there exist no facts or circumstances (including without limitation
any required approvals or waivers of any circumstances that may delay or
prevent the obtaining of accountant’s consents) that could reasonably be
expected to prohibit or delay the preparation, filing or effectiveness of such
registration statement.

 

3.10                           Acknowledgement of Dilution.  The
Company acknowledges that the issuance of the Conversion Shares upon conversion
of the Preferred Shares and issuance of Warrant Shares upon exercise of the
Warrants may result in dilution of the outstanding shares of Common Stock. The
Company further acknowledges that its obligation to issue Conversion Shares and
Warrant Shares in

 

12

 

accordance with the terms of the Certificate of Designation and
Warrants, respectively, is unconditional regardless of the effect of any such
dilution.

 

3.11                           Intellectual Property.  Except
as set forth in Schedule 3.11:

 

(a)                                  The
Company owns, free and clear of claims or rights or any other Person, with full
right to use, sell, license, sublicense, dispose of, and bring actions for
infringement of, or has acquired licenses or other rights to use, all Intellectual
Property necessary for the conduct of its business as presently conducted
(other than with respect to “off-the-shelf” software which is generally
commercially available and open source software which may be subject to one or
more “general public” licenses).  All
Intellectual Property that is used or incorporated into the Company’s services,
products or services or products actively under development and which is
proprietary to the Company was developed by or for the Company by the current
or former employees, consultants or independent contractors of the Company or
its predecessors in interest or purchased by the Company or its predecessors in
interest and are owned by the Company, free and clear of claims and rights of
any other Person.

 

(b)                                 The
business of the Company as presently conducted and the production, marketing,
licensing, use and servicing of any products or services of the Company do not
infringe or conflict with any patent, trademark, copyright, or trade secret
rights of any third parties or any other Intellectual Property of any third
parties.  The Company has not received
written notice from any third party asserting that any Intellectual Property
owned or licensed by the Company, or which the Company otherwise has the right
to use, is invalid or unenforceable by the Company and, to the Company’s
knowledge, there is no valid basis for any such claim (whether or not pending
or threatened).

 

(c)                                  No
claim is pending or, to the Company’s knowledge, threatened against the Company
nor has the Company received any written notice or other written claim from any
Person asserting that any of the Company’s present or contemplated activities
infringe or may infringe in any material respect any Intellectual Property of
such Person and the Company is not aware of any infringement by any other
Person of any material rights of the Company under any Intellectual Property
Rights.

 

(d)                                 All
licenses or other agreements under which the Company is granted Intellectual
Property (excluding licenses to use “off-the-shelf” software utilized in the
Company’s internal operations and which is generally commercially available)
are listed in Schedule 3.11.  All
such licenses or other agreements are in full force and effect and, to the
Company’s knowledge, there is no material default by any party thereto.  The Company has no reason to believe that
the licensors under such licenses and other agreements do not have and did not
have all requisite power and authority to grant the rights to the Intellectual
Property purported to be granted thereby.

 

(e)                                  All
licenses or other agreements under which the Company has granted rights to
Intellectual Property to others (including all end-user agreements) are in full
force and effect, there has been no material default thereunder and, to the
Company’s knowledge, there is no material default by any party thereto.

 

13

 

(f)                                    The
Company has taken all steps required in accordance with commercially reasonable
business practice to establish and preserve its ownership in its owned
Intellectual Property and to keep confidential all material technical
information developed by or belonging to the Company which has not been
patented or copyrighted.  The Company is
not making unlawful use of any Intellectual Property of any other Person,
including, without limitation, any former employer of any past or present
employees of the Company.  Neither the
Company nor any of its employees or consultants has any agreements or
arrangements with former employers of such employees or consultants relating to
any Intellectual Property of such employers, which materially interfere or
conflict with the performance of such employee’s or consultant’s duties for the
Company or result in any former employers of such employees and consultants
having any rights in, or claims on, the Company’s Intellectual Property.  To the Company’s knowledge, the activities
of the Company’s employees and consultants do not violate any agreements or arrangements
which any such employees have with former employers.  Each current or former employee, independent contractor or
consultant of the Company has executed agreements regarding confidentiality,
proprietary information and assignment of inventions and copyrights to the
Company, and the Company has not received written notice that any employee,
consultant or independent contractor is in violation of any agreement or in
breach of any agreement or arrangement with former or present employers
relating to proprietary information or assignment of inventions.  Each employee listed in Schedule 3.11
has executed a non-competition agreement. 
Without limiting the foregoing: (i) the Company has taken reasonable
security measures to guard against unauthorized disclosure or use of any of its
Intellectual Property; and (ii) the Company has no reason to believe that any
Person (including, without limitation, any former employee or consultant of the
Company) has unauthorized possession of any of its Intellectual Property, or
any part thereof, or that any Person has obtained unauthorized access to any of
its Intellectual Property.  The consummation of the transactions
contemplated by the Certificate, this Agreement and the other Transaction
Documents will not materially alter or impair, individually or in the aggregate,
any of such rights of the Company. The Company and the Subsidiaries each has
complied in all material respects with its obligations pursuant to all
agreements relating to Intellectual Property rights that are the subject of
licenses granted by third parties, except for any non-compliance that has
not had or would not reasonably be expected to have a Material Adverse Effect.

 

3.12                           Registration Rights. 
Except as described on Schedule 3.12 hereto, the Company has not
granted or agreed to grant to any person or entity any rights (including
“piggy-back” registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority which has
not been satisfied in full prior to the date hereof.

 

3.13                           Fees.  Except as set forth on Schedule
3.13, the Company is not obligated to pay any compensation or other fee,
cost or related expenditure to any underwriter, broker, agent or other
representative in connection with the transactions contemplated hereby. The
Company will indemnify and hold harmless each Investor from and against any
claim by any person or entity alleging that, as a result of any agreement or
arrangement between such Person and the Company, such Investor is obligated to
pay any such compensation, fee, cost or related expenditure in connection with
the transactions contemplated hereby.

 

3.14                           Foreign Corrupt Practices. 
Neither the Company, nor to the Company’s knowledge any of the
Subsidiaries nor to the Company’s knowledge any director, officer, agent,
employee or other

 

14

 

person acting on behalf of the Company or any Subsidiary, has (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity, (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee (including without limitation any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment), or (iii) violated any provision
of the Foreign Corrupt Practices Act of 1977, as amended.

 

3.15                           Key Employees. Each Key Employee named in the SEC
Documents is currently serving in the capacity described therein.   The Company has no knowledge of any fact or
circumstance (including without limitation (i) the terms of any agreement to
which such person is a party or any litigation in which such person is or may
become involved and (ii) any illness or medical condition that could reasonably
be expected to result in the disability or incapacity of such person) that
would limit or prevent any such person from serving in such capacity on a
full-time basis in the foreseeable future, or of any intention on the part of
any such person to limit or terminate his or her employment with the
Company.  Except as set forth on Schedule
3.15, no Key Employee has borrowed money pursuant to a currently
outstanding loan that is secured by Common Stock or any right or option to
receive Common Stock.

 

3.16                           Employee Matters. 
There is no strike, labor dispute or union organization activities
pending or, to the knowledge of the Company, threatened between it and its
employees (or between any of the Subsidiaries and such Subsidiary’s
employees).  No employees of the Company
belong to any union or collective bargaining unit. The Company has complied in
all material respects with all applicable federal and state equal opportunity
and other laws related to employment.

 

3.17                           Environment. To the Company’s knowledge, neither the Company nor any of the Subsidiaries
has any current liability under any Environmental Law, nor, to the knowledge of
the Company, do any factors exist that are reasonably likely to give rise to
any such liability that, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect. To the Company’s
knowledge, neither the Company nor any of the Subsidiaries has violated any
Environmental Law applicable to it now or previously in effect, other than such
violations or infringements that, individually or in the aggregate, have not
had and would not reasonably be expected to have a Material Adverse Effect.

 

3.18                           ERISA.  Except as described on Schedule
3.18, neither the Company nor any of the Subsidiaries maintains or
contributes to, or has any obligation under, any Pension Plan. The Company and
each of the Subsidiaries is in compliance in all material respects with the
presently applicable provisions of ERISA and the United States Internal Revenue
Code of 1986, as amended, except for matters that, individually or in the
aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect.

 

3.19                           Disclosure.  To the Company’s knowledge,
no written statement, information, report, representation or warranty made by
the Company in this Agreement or any other Transaction Document or furnished to
such Investor by or on behalf of the Company or any of the Subsidiaries in
connection with the Closing or such Investor’s due diligence investigation of
the Company contains any untrue statement of a material fact or omits to state
any material fact necessary to make the statements herein or therein, in light
of the circumstances in which made, not misleading. Neither the Company nor any
Person acting on its behalf or at its direction has provided such

 

15

 

Investor with material non-public information. Following the issuance
of the press release in accordance with Section 4.1(c) hereof, to the Company’s
knowledge, such Investor will not possess any material non-public information
concerning the Company.  The Company
acknowledges that such Investor is relying on the representations,
acknowledgements and agreements made by the Company in this Section 3.19 and
elsewhere in this Agreement in making trading and other decisions concerning
the Company’s securities.

 

3.20                           Insurance.  The Company maintains
insurance for itself and the Subsidiaries in such amounts and covering such
losses and risks as the Company believes to be reasonably prudent in relation
to the businesses in which the Company and the Subsidiaries are engaged. No
notice of cancellation has been received for any of such policies and the
Company reasonably believes that is in compliance with all of the terms and
conditions thereof.  The Company has no
reason to believe that it will not be able to renew any existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue doing business as currently
conducted without a significant increase in cost, other than normal increases
in the industry.  Without limiting the
generality of the foregoing, the Company maintains Director’s and Officer’s
insurance in an amount not less than $10 million for each covered occurrence
and in the aggregate.

 

3.21                           Property.  The Company and the
Subsidiaries have good and marketable title to all personal Property and good
and marketable title in fee simple to all real property owned by them which,
individually or in the aggregate, is material to the business of the Company
and the Subsidiaries, in each such case free and clear of all Liens except for
Permitted Liens.  Any Property held
under lease by the Company and the Subsidiaries is held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made or proposed to be made of such Property by
the Company and the Subsidiaries.

 

3.22                           Regulatory Permits.  The
Company and the Subsidiaries possess all material certificates, authorizations
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses other than where
the failure to possess such certificates, authorizations or permits, individually
or in the aggregate, has not had and would not reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any such Subsidiary has
received any notice or otherwise become aware of any proceedings, inquiries or
investigations relating to the revocation or modification of any such
certificate, authorization or permit.

 

3.23                           Exchange Act
Registration; Listing.  The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act and is listed on the Nasdaq National Market. The Company currently meets
the continuing eligibility requirements for listing on the Nasdaq National
Market and has not received any notice from such market or the NASD that it may
not currently satisfy such requirements or that such continued listing is in
any way threatened.  The Company has
taken no action designed to, or which, to the knowledge of the Company, may
have the effect of, terminating the registration of the Common Stock under the
Exchange Act or delisting the Common Stock from the Nasdaq National Market.

 

3.24                           Investment Company Status. The Company is not, and immediately after
receipt of the Purchase Price for the Securities issued under this Agreement
will not be, an “investment company” or an entity “controlled” by
an “investment company” within the meaning of the

 

16

 

Investment Company Act of 1940, as amended (the “Investment Company
Act”), and shall conduct its business in a manner so that it will not
become subject to the Investment Company Act.

 

3.25                           Transfer Taxes. No stock transfer or other taxes (other
than income taxes) are required to be paid in connection with the issuance and
sale of any of the Securities, other than such taxes for which the Company has
established appropriate reserves and intends to pay in full on or before the
relevant Closing.

 

3.26                           Internal Controls and
Procedures. The Company maintains internal accounting controls, policies
and procedures, and such books and records as are reasonably designed to
provide reasonable assurance that (i) all transactions to which the Company or
any Subsidiary is a party or by which its properties are bound are effected by
a duly authorized employee or agent of the Company, supervised by and acting
within the scope of the authority granted by the Company’s senior management;
(ii) the recorded accounting of the Company’s consolidated assets is compared
with existing assets at regular intervals; and (iii) all transactions to which
the Company or any Subsidiary is a party, or by which its properties are bound,
are recorded (and such records maintained) in accordance with all Government
Requirements and as may be necessary or appropriate to ensure that the
financial statements of the Company are prepared in accordance with GAAP, except,
in any individual case or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect.

 

3.27                           Embargoed Person. 
None of the funds or other assets of the Company shall constitute
property of, or shall be beneficially owned, directly or indirectly, by any
person subject to trade restrictions under United States law, including, but
not limited to, the International Emergency Economic Powers Act, 50 U.S.C.
§ 1701 et seq., The
Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or
regulations promulgated under any such United States laws (each, an “Embargoed
Person”), with the result that the investments evidenced by the Securities
are or would be in violation of law. No Embargoed Person shall have any
interest of any nature whatsoever in the Company with the result that the
investments evidenced by the Securities are or would be in violation of
law.  None of the funds or other assets
of the Company shall be derived from any unlawful activity with the result that
the investments evidenced by the Securities are or would be in violation of
law.

 

3.28                           Solvency.  (i) The fair saleable value of the Company’s
assets exceeds the amount that will be required to be paid on or in respect of
the Company’s existing Debt as such Debt matures or is otherwise payable; (ii)
the Company’s assets do not constitute unreasonably small capital to carry on
its business for the current fiscal year as now conducted and as proposed to be
conducted taking into account the current and projected capital requirements of
the business conducted by the Company and projected capital availability; and
(iii) the current cash flow of the Company, together with the proceeds the
Company would receive upon liquidation of its assets, after taking into account
all anticipated uses of such amounts, would be sufficient to pay all Debt when
such Debt is  required to be paid.  The Company does not intend to incur Debt
beyond its ability to pay such Debt as it matures. The Company has no knowledge
of any facts or circumstances which lead it to believe that it will be required
to file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction, and has no present intention to so
file.

 

17

 

3.29                           Transactions
with Interested Person.   Except as
set forth in Schedule 3.29, no officer, director or employee of the
Company is or has taken any steps to become a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.

 

3.30                           Customers;
Suppliers.  The relationships of the
Company with its customers and suppliers are maintained on commercially
reasonable terms.  Except as set forth
in Schedule 3.30, since January 26, 2004, no customer or supplier of the
Company has canceled, materially modified, or otherwise terminated its
relationship with the Company or decreased materially its usage or purchase or
supply of the services or products of the Company, nor does any Customer or
Supplier have, to such Stockholder’s knowledge, any plan or intention to do any
of the foregoing.  The Company has no
reason to believe that any of its suppliers will experience a manufacturing
disruption, a failure to dedicate adequate resources to the production,
assembly or testing of the Company’s products, or financial instability, or
that any such supplier will be unable to successfully transition its
manufacturing capabilities to the future needs of the Company.

 

3.31                           Full
Disclosure.  The representations,
warranties and statements contained in this Agreement and in the certificates,
exhibits and schedules delivered by the Company pursuant to this Agreement to
such Investor do not contain any untrue statement of a material fact, and do
not omit to state a material fact required to be stated therein or necessary in
order to make such representations, warranties or statements not misleading in
light of the circumstances under which they were made.

 

3.32                           No
Other Agreements.  The Company has
not, directly or indirectly, entered into any agreement with or granted any right
to any Investor relating to the terms or conditions of the transactions
contemplated by the Certificate of Designation or the Transaction Documents
except as expressly set forth therein.

 

4.                                       COVENANTS OF THE COMPANY AND EACH INVESTOR.

 

4.1                                 The Company agrees with each Investor that it
will:

 

(a)                                  file a Form D with respect to the Securities
issued at the Closing as and when required under Regulation D and provide a
copy of each such Form D to such Investor promptly after such filing;

 

(b)                                 take such action as the Company reasonably
determines upon the advice of counsel is necessary to qualify the Securities
for sale under applicable state or “blue-sky” laws or obtain an exemption
therefrom, and shall provide evidence of any such action to such Investor at
the Closing; and

 

18

 

(c)                                  (i) on or prior to 9:30 a.m. (eastern time)
on the Business Day immediately following the Execution Date, issue a press
release disclosing the material terms of this Agreement and the other
Transaction Documents and the transactions contemplated hereby and thereby and
(ii) on or prior to 5:30 p.m. (eastern time) on the Business Day immediately
following the Execution Date, file with the Commission a Current Report on Form
8-K disclosing the material terms of this Agreement, the Certificate of
Designation and the other Transaction Documents and the transactions
contemplated hereby and thereby, including as exhibits this Agreement, the
Certificate of Designation and the other Transaction Documents; provided,
however, that each Investor named therein shall have a reasonable
opportunity to review and comment on any such press release or Form 8-K prior
to the issuance or filing thereof. Thereafter, the Company shall timely file
any filings and notices required by the Commission or applicable law with
respect to the transactions contemplated hereby.

 

4.2                                 The Company agrees that it will, during the
period beginning on the Execution Date and ending (except as otherwise
specified herein) on the Termination Date:

 

(a)                                  maintain its corporate existence in good
standing;

 

(b)                                 maintain, keep and preserve all of its
Properties necessary in the proper conduct of its businesses in good repair,
working order and condition (ordinary wear and tear excepted) and make all
necessary repairs, renewals and replacements and improvements thereto, except
where the failure to do so would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;

 

(c)                                  pay or discharge before becoming delinquent
(a) all taxes, levies, assessments and governmental charges imposed on it
or its income or profits or any of its Property and (b) all lawful claims
for labor, material and supplies, which, if unpaid, might become a Lien upon
any of its Property, except where the failure to do so would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect; provided,
however, that the Company shall not be required to pay or discharge any
tax, levy, assessment or governmental charge, or claim for labor, material or
supplies, whose amount, applicability or validity is being contested in good
faith by appropriate proceedings being diligently pursued and for which
adequate reserves have been established under GAAP;

 

(d)                                 comply with all Governmental Requirements
applicable to the operation of its business, except for instances of
noncompliance that would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect; provided, however, that
the Company shall not be required to comply with any Governmental Requirements,
the applicability or validity of which is being contested in good faith by
appropriate proceedings being diligently pursued and for which adequate
reserves have been established under GAAP;

 

(e)                                  comply with all agreements, documents and
instruments binding on it or affecting its Properties or business, including,
without limitation, all Material Contracts, except for instances of
noncompliance that would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect;

 

19

 

(f)                                    provide each Investor with copies of all
materials sent to its stockholders, in each such case at the same time as
delivered to such stockholders;

 

(g)                                 timely file with the Commission all reports
required to be filed pursuant to the Exchange Act and refrain from terminating
its status as an issuer required by the Exchange Act to file reports thereunder
even if the Exchange Act or the rules or regulations thereunder would permit
such termination;

 

(h)                                 during the period commencing on the Execution
Date and ending on the earlier to occur of (i) six (6) months from the Closing
Date and (ii) the Effective Date, take commercially reasonable steps to
restrict Key Employees from selling shares of Common Stock, or entering into
any arrangement or transaction that has substantially the same economic effect
as selling shares of Common Stock, other than pursuant to any 10b-5(1) trading
plans in effect as of the Execution Date and disclosed to each Investor in
writing; provided,
however, that in the event that the employment of any Key Employee
(other than Prakash C. Agarwal) is involuntarily terminated by the Company (and
such Key Employee is not then an employee of any Affiliate of the Company),
such Key Employee may, upon the effectiveness of such involuntary termination,
be released from such restriction;

 

(i)                                     use commercially reasonable efforts to
maintain adequate insurance coverage (including D&O insurance) for the
Company and each Subsidiary;

 

(j)                                     refrain from incurring any Debt or issuing
any securities that would rank senior to or pari passu with the Preferred Stock in
right of payment or distribution upon liquidation;

 

(k)                                  not create, incur, assume or suffer to exist
any Lien upon or with respect to any of its properties or assets, whether now
owned or hereafter acquired, other than Permitted Liens; and

 

(l)                                     until sixty (60) days following the Effective
Date, refrain from issuing any equity securities or securities convertible into
or exchangeable for equity securities; provided, however, that the foregoing
restriction shall not restrict the Company from issuing (i) shares of Common
Stock to officers, directors and employees of, or consultants to, the Company
pursuant to stock grants, option plans, purchase plans or other employee stock
incentive programs or arrangements approved by the Board of  Directors, or shares of Common Stock upon
exercise of options or warrants granted to such parties pursuant to any of the
foregoing, and (ii) shares of Common Stock in connection with sponsored
research, collaboration, technology license, development, OEM, marketing or
other similar agreements or strategic arrangements approved by the Board of
Directors .

 

4.3                                 Reservation of Common Stock.  The
Company shall authorize and reserve for issuance to the Investors, free from
any preemptive rights, a number of shares of Common Stock that, on the Closing
Date, is not less than one hundred and twenty five percent (125%) of the sum of
(A) the number of Conversion Shares issuable upon conversion of all of the
Series B Preferred Shares issuable at the Closing plus (B) the number of
Warrant Shares issuable upon exercise of all of the Series A Warrants and
Series B Warrants issuable at the Closing, in each case without regard to any
limitation on such conversion or exercise that may otherwise exist.  Such authorized and reserved shares of

 

20

 

Common Stock (the “Reserved Amount”) shall be allocated in
accordance with each Investor’s Pro Rata Share.  In the event that an Investor shall sell or otherwise transfer
any of such Investor’s Preferred Shares or Warrants, each transferee shall be allocated
a pro rata portion of such
transferor’s Reserved Amount. Any portion of the Reserved Amount allocated to
any Investor or other Person which no longer holds any Preferred Shares or
Warrants shall be reallocated to the remaining Investors pro rata based on the number of Outstanding
Registrable Securities held by such Investors at such time.  In the event that the Reserved Amount is insufficient at any
time to cover one hundred percent 100% of the Registrable Securities issuable
upon the conversion of the then outstanding Preferred Stock and the exercise of
the then outstanding Warrants (without regard to any restriction on such
conversion or exercise), the Company shall take such action (including without
limitation holding a meeting of its stockholders) to increase the Reserved Amount
to cover 125% of the Registrable Securities issuable upon such conversion and
exercise, such increase to be effective not later than the thirtieth (30th)
day (or sixtieth (60th) day, in the event stockholder approval is
required for such increase) following the Company’s receipt of written notice
of such deficiency. While any Preferred
Shares or Warrants are outstanding, the Company shall not reduce the Reserved
Amount without obtaining the prior written consent of each Investor.

 

4.4                                 Use of Proceeds.  The
Company shall use the proceeds from the sale of the Securities in the ordinary
course of its business and consistent with past practice; provided, however,
that the Company shall not use such proceeds (i) to pay down, repurchase or
redeem any debt or securities issued by the Company or any Subsidiary, (ii) to
pay any dividend or make any distribution on any such securities, or (iii) to
repay any loan made to or incurred by any Key Employee or Affiliate of the
Company.

 

4.5                                 Use of Investor Name. 
Except as may be required by applicable law and/or this Agreement, the
Company shall not use, directly or indirectly, any Investor’s name or the name
of any of its affiliates in any advertisement, announcement, press release or
other similar communication unless it has received the prior written consent of
such Investor for the specific use contemplated or as otherwise required by
applicable law or regulation.

 

4.6                                 No Adverse Action. The Company and the Subsidiaries shall
refrain, during the period beginning on the Execution Date and ending on the
Termination Date, from taking any action or entering into any arrangement which
in any way materially and adversely affects the provisions of the Certificate
of Designation, this Agreement or any other Transaction Document.

 

4.7                                 Limitations on
Disposition.  No Investor shall
sell, transfer, assign or dispose of any Securities, unless:

 

(a)                                  there is then in
effect an effective registration statement under the Securities Act covering
such proposed disposition and such disposition is made in accordance with such
registration statement; or

 

(b)                                 such Investor has notified the Company in
writing of any such disposition, received the Company’s written consent to such
disposition and furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require
registration of such Securities under the Securities Act; provided, however,
that no such consent or opinion of counsel will be required (A) if the
sale, transfer or assignment complies with federal and

 

21

 

state securities laws and is made to an Affiliate of such Investor
which is also an “accredited investor” as that term is defined in Rule 501 of
Regulation D, (B) if the sale, transfer or assignment is made pursuant to
Rule 144 and such Investor provides the Company with evidence reasonably
satisfactory to the Company that the proposed transaction satisfies the
requirements of Rule 144 or (C) in connection with a bona fide pledge or hypothecation of any
Securities under a margin arrangement with a broker-dealer or other financial
institution.

 

4.8                                 Disclosure of Information.  The
Company agrees that it will not at any time following the Execution Date
disclose material non-public information to any Investor without first
obtaining such Investor’s written consent to such receive such information.

 

4.9                                 Listing.  The Company shall (i)
promptly following the Closing, use its best efforts to include all of the
Conversion Shares issuable upon conversion of the Series B Preferred Shares and
all of the Warrant Shares issuable upon exercise of the Series A Warrants and
Series B Warrants (without regard to any limitation on such conversion or
exercise) for listing on the Nasdaq National Market, and (ii) use its best
efforts to maintain the designation and quotation, or listing, of the Common
Stock on the Nasdaq National Market or the New York Stock Exchange for a
minimum of five (5) years and six (6) months following the Closing Date.

 

4.10                           Indemnification
of Investors.   The Company will
indemnify and hold each Investor and its directors, managers, officers,
shareholders, members, partners, employees and agents (each, an “Investor
Party”) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Investor Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against an Investor, or any
of them or their respective Affiliates, by any stockholder of the Company who
is not an Affiliate of such Investor, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Investor’s representation, warranties or covenants under the
Transaction Documents or any agreements or understandings such Investor may
have with any such stockholder or any violations by such Investor of state or
federal securities laws or any conduct by such Investor which constitutes
fraud, gross negligence, willful misconduct or malfeasance).  If any
action shall be brought against any Investor Party in respect of which
indemnity may be sought pursuant to this Agreement, such Investor Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing.  Any Investor
Party shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Investor Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in
the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Company and the position of such
Investor Party.  The Company will not be liable to any Investor Party
under this Agreement (i) for any settlement by an Investor Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to such Investor Party’s wrongful
actions or omissions, or gross

 

22

 

negligence or to such Investor Party’s breach of any of the
representations, warranties, covenants or agreements made by such Investor in
this Agreement or in the other Transaction Documents.

 

4.11                           Certain Trading Limitations. 
Each Investor agrees that, prior to the later to occur of (i) ninety
(90) days following the Closing Date and (ii) the Effective Date, it will not
enter into any Short Sales (as hereinafter defined).  For purposes of this Section 4.11, a “Short Sale” shall
mean a sale of Common Stock that is marked as a short sale and that is executed
at a time when such Investor has no equivalent offsetting long position in the
Common Stock.  For purposes of
determining whether an Investor has an equivalent offsetting long position in
the Common Stock at any time, all Common Stock that (i) is held long by such
Investor at such time, or (ii) is issuable upon the conversion and/or exercise
in full of all Securities then held by such Investor at such time (assuming
that such Securities were then fully convertible or exercisable (as the case
may be), notwithstanding any limitations on such conversion or exercise that
would otherwise apply, and giving effect to any conversion price, exercise
price or other adjustments then in effect or scheduled to take effect in the
future) shall be deemed to be held long by such Investor.

 

5.                                       CONDITIONS TO CLOSING.

 

5.1                                 Conditions to Investors’ Obligations at the
Closing.  Each Investor’s obligations to effect the
Closing, including without limitation its obligation to purchase Series B
Preferred Shares, the Series A Warrants and the Series B Warrants at the
Closing, are conditioned upon the fulfillment (or waiver by such Investor in
its sole and absolute discretion) of each of the following events as of the
Closing Date:

 

5.1.1                        the representations and warranties of the Company set forth in this
Agreement and in the other Transaction Documents shall be true and correct in
all material respects as of such date as if made on such date (except that to
the extent that any such representation or warranty relates to a particular
date, in which case such representation or warranty shall be true and correct
in all respects as of that particular date);

 

5.1.2                        the Company shall have complied with or performed in all material
respects all of the agreements, obligations and conditions set forth in the
Certificate of Designation, this Agreement or the other Transaction Documents that are required to be complied with
or performed by the Company on or before such date;

 

5.1.3                        the Company shall have filed the Certificate of Designation with the
Secretary of State of the State of Delaware, and delivered to such Investor
written evidence of the acceptance of such filing;

 

5.1.4                        the Closing Date shall occur not later than August 23, 2004;

 

5.1.5                        the Company shall have delivered to such Investor a certificate, signed
by the Chief Executive Officer and Chief Financial Officer of the Company,
certifying that the conditions specified in this paragraph 5.1

 

23

 

have been fulfilled as of the Closing Date, it being understood that
such Investor may rely on such certificate as though it were a representation
and warranty of the Company made herein;

 

5.1.6                        the Company shall have
delivered to such Investor a certificate, signed by the Secretary or an
Assistant Secretary of the Company, attaching (i) the Certificate of
Incorporation and By-Laws of the Company, and (ii) resolutions passed by its
Board of Directors to authorize the transactions contemplated hereby and by the
other Transaction Documents, and certifying that such documents are true and
complete copies of the originals and that such resolutions have not been
amended or superseded, it being understood that such Investor may rely on such
certificate as though it were a representation and warranty of the Company made
herein;

 

5.1.7                        the Company shall have delivered to such Investor an opinion of counsel
for the Company, dated as of the Closing Date, in form and substance
reasonably satisfactory to such Investor;

 

5.1.8                        the Company shall have delivered to such Investor duly executed Series
A Warrants and Series B Warrants and certificates representing the Series B
Preferred Shares being purchased by such Investor at the Closing;

 

5.1.9                        the Company shall have executed and delivered to such Investor the
Registration Rights Agreement;

 

5.1.10                      the Company shall have obtained the written agreement of each Key
Employee to refrain from selling shares of Common Stock (or engaging in any
arrangement or transaction that has substantially the same economic effect as
selling shares of Common Stock) during the period beginning on the Execution
Date and ending on  the earlier to occur
of (i) six months following the Closing Date and (ii) the Effective Date other
than, in any such case, pursuant to any 10b-5(1) trading plans in effect as of
the Execution Date and disclosed to each Investor in writing; provided,
however, that in the event that the employment of any Key Employee
(other than Prakash C. Agarwal) is involuntarily terminated by the Company,
such Key Employee may, upon the effectiveness of such involuntary termination,
be released from such restriction;

 

5.1.11                      there shall have occurred no material adverse change in the Company’s
consolidated business or financial condition since the date of the Company’s
most recent financial statements contained in the Disclosure Documents;

 

24

 

5.1.12                      (i) the Common Stock shall be listed and actively traded on the Nasdaq
National Market, and (ii) the Company shall be in compliance, in all material
respects, with each of the quantitative and qualitative listing standards and
requirements (without regard to any specified compliance periods) of the Nasdaq
National Market, and (iii) the Company shall not have received any notice from
Nasdaq that the Company may not be in such compliance; and

 

5.1.13                      there shall be no injunction, restraining order or decree of any nature
of any court or Government Authority of competent jurisdiction that is in
effect that restrains or prohibits the consummation of the transactions
contemplated hereby or by the other Transaction Documents.

 

5.2                                 Conditions to Company’s Obligations at the
Closing.  The Company’s obligations to effect the
Closing with each Investor are conditioned upon the fulfillment (or waiver by
the Company in its sole and absolute discretion) of each of the following
events as of the Closing Date:

 

5.2.1                        the representations and warranties of such Investor set forth in this
Agreement and in the other Transaction Documents shall be true and correct in
all material respects as of such date as if made on such date (except that to
the extent that any such representation or warranty relates to a particular
date, in which case such representation or warranty shall be true and correct
in all respects as of that particular date);

 

5.2.2                        such Investor shall have complied with or performed all of the
agreements, obligations and conditions set forth in this Agreement and in the
other Transaction Documents that are required to be complied with or performed
by such Investor on or before the Closing Date;

 

5.2.3                        there shall be no injunction, restraining order or decree of any nature
of any court or Government Authority of competent jurisdiction that is in
effect that restrains or prohibits the consummation of the transactions
contemplated hereby or by the other Transaction Documents;

 

5.2.4                        such Investor shall have executed each Transaction Document to which it
is a party and delivered the same to the Company; and

 

5.2.5                        such Investor shall have tendered to the Company the Purchase Price for
the Series B Preferred Shares, Series A Warrants and Series B Warrants being
purchased by it at the Closing.

 

25

 

6.                                       MISCELLANEOUS.

 

6.1                                 Survival; Severability.  The
representations, warranties, covenants and indemnities made by the parties
herein, in the Certificate of Designation and in the other Transaction
Documents shall survive the Closing notwithstanding any due diligence
investigation made by or on behalf of the party seeking to rely thereon.  In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that in such case the parties shall negotiate
in good faith to replace such provision with a new provision which is not
illegal, unenforceable or void, as long as such new provision does not
materially change the economic benefits of this Agreement to the parties.

 

6.2                                 Successors and Assigns.  The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the
parties.  Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.  Each Investor may assign its rights and obligations hereunder, in
connection with any private sale or transfer of Preferred Shares or Warrants in
accordance with the terms hereof, as long as, as a condition precedent to such
transfer, the transferee executes an acknowledgment agreeing to be bound by the
applicable provisions of this Agreement, in which case the term “Investor”
shall be deemed to refer to such transferee as though such transferee were an
original signatory hereto. The Company may not assign its rights or obligations
under this Agreement.

 

6.3                                 No Reliance.  Each party acknowledges that
(i) it has such knowledge in business and financial matters as to be fully
capable of evaluating this Agreement, the other Transaction Documents, and the
transactions contemplated hereby and thereby, (ii) it is not relying on any
advice or representation of any other party in connection with entering into
this Agreement, the other Transaction Documents, or such transactions (other
than the representations made in this Agreement or the other Transaction
Documents), (iii) it has not received from any party any assurance or guarantee
as to the merits (whether legal, regulatory, tax, financial or otherwise) of
entering into this Agreement or the other Transaction Documents or the
performance of its obligations hereunder and thereunder, and (iv) it has
consulted with its own legal, regulatory, tax, business, investment, financial
and accounting advisors to the extent that it has deemed necessary, and has
entered into this Agreement and the other Transaction Documents based on its
own independent judgment and on the advice of its advisors as it has deemed
necessary, and not on any view (whether written or oral) expressed by any
party.

 

6.4                                 Independent
Nature of Investors’ Obligations and Rights.  The obligations of each Investor hereunder are several and not
joint with the obligations of the other Investors hereunder, and no Investor
shall be responsible in any way for the performance of the obligations of any
other investor hereunder.  Nothing
contained herein, in the Certificate of Designation or in any other Transaction
Document, and no action taken by any Investor pursuant hereto or thereto, shall
be deemed to constitute any Investors as a partnership, an association, a joint
venture or any other kind of entity, or a “group” as described in Section 13(d)
of the Exchange Act, or create a presumption that any Investors are in any way
acting in concert with respect to such obligations or

 

26

 

the transactions contemplated by this Agreement.  Each Investor has been represented by its
own separate counsel in connection with the transactions contemplated hereby,
shall be entitled to protect and enforce its rights, including without
limitation rights arising out of this Agreement or the other Transaction
Documents, individually, and shall not be required to be join any other
Investor as an additional party in any proceeding for such purpose.

 

6.5                                 Injunctive Relief.  The
parties hereto acknowledge and agree that a breach by either of their
obligations hereunder will cause irreparable harm the other party and that the
remedy or remedies at law for any such breach will be inadequate and agrees, in
the event of any such breach, in addition to all other available remedies, the
non-breaching party shall be entitled to an injunction restraining any breach
and requiring immediate and specific performance of such obligations without
the necessity of showing economic loss.

 

6.6                                 Governing Law; Jurisdiction. 
This Agreement shall be governed by and construed under the laws of the
State of New York applicable to contracts made and to be performed entirely
within the State of New York.  Each
party hereby irrevocably submits to the non-exclusive jurisdiction of the state
and federal courts sitting in the City of New York in the borough
of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby, and hereby irrevocably waives, and agrees not
to assert in any suit, action or proceeding involving the Investor or permitted
assignee of the Investor, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding
is improper.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.

 

6.7                                 Counterparts. 
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, and all of which together shall constitute
one and the same instrument.  This
Agreement may be executed and delivered by facsimile transmission.

 

6.8                                 Headings.  The headings used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

 

6.9                                 Notices. Any notice, demand or request required or permitted to be given by
the Company or the Investor pursuant to the terms of this Agreement shall be in
writing and shall be deemed delivered (i) when delivered personally or by
verifiable facsimile transmission, unless such delivery is made on a day that
is not a Business Day, in which case such delivery will be deemed to be made on
the next succeeding Business Day, (ii) on the next Business Day after timely
delivery to an overnight courier and (iii) on the Business Day actually
received if deposited in the U.S. mail (certified or registered mail, return
receipt requested, postage prepaid), addressed as follows:

 

27

 

If
to the Company:

 

NeoMagic Corporation
3250 Jay Street

Santa Clara, CA 95054
Attn:       Chief
Financial Officer

Tel:         (408) 988-7020

Fax:         (408) 988-5196

 

with
a copy to:

 

Wilson Sonsini Goodrich & Rosati

650 Page Mill Road

Palo Alto, CA 94304

Attn:       Michael J.
Danaher, Esq.

Tel:         (650) 493-9300

Fax:         (650) 493-6811

 

and if to an Investor, to such address for such Investor as shall
appear on the signature page hereof executed by such Investor, or as shall be
designated by such Investor in writing to the Company in accordance with this
Section 6.9.

 

6.10                           Expenses.  The Company and each Investor
shall pay all costs and expenses that it incurs in connection with the
negotiation, execution, delivery and performance of this Agreement or the other
Transaction Documents, provided, however, that that the Company
shall, at the Closing, pay up to an aggregate of $65,000 in immediately
available funds for all reasonable out-of-pocket expenses (including without
limitation reasonable legal fees and expenses) incurred or to be incurred by
Satellite Strategic Finance Associates, LLC (“Satellite”) in connection
its due diligence investigation of the Company and the negotiation,
preparation, execution, delivery and performance of this Agreement, the
Certificate of Designation and the other Transaction Documents. At the Closing,
the amount due for such fees and expenses (which may include fees and expenses
estimated to be incurred for completion of the transaction and post-closing
matters) may be netted out of the Purchase Price payable by Satellite.  In the event the amount paid by the Company
for such fees and expenses is less than the amount of fees and expenses
actually incurred by Satellite, the Company shall promptly pay such deficiency
(up to $65,000 in the aggregate) within thirty (30) days following receipt of
an invoice therefor.

 

6.11                           Entire Agreement; Amendments. 
This Agreement, the Certificate of Designation and the other Transaction
Documents constitute the entire agreement between the parties with regard to
the subject matter hereof and thereof, superseding all prior agreements or
understandings, whether written or oral, between or among the parties.  Except as expressly provided herein, neither
this Agreement nor any term hereof may be amended except pursuant to a written
instrument executed by the Company and the holders of at least two-thirds (2/3)
of the Outstanding Registrable Securities at such time, and no provision hereof
may be waived other than by a written instrument signed by the party against
whom enforcement of any such waiver is sought. Any waver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

 

28

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.

 

	
  NEOMAGIC CORPORATION

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  
	
   

  
	
  SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC

  
	
   

  
	
  By:

  	
  Satellite Asset Management, L.P., its Manager

  
	
   

  
	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Brian S. Kriftcher

  
	
   

  	
   

  	
  Chief Operating Officer and Principal

  
					

 

ADDRESS:

 

c/o Satellite Advisors, L.L.C.

623 Fifth Avenue, 20th Floor

New York, New York 10022

Tel:         212-209-2000

Fax:         212-209-2021

 

With a
copy to:

 

Duval & Stachenfeld LLP

300 East 42nd Street

New York, New York 10017

Attn:       Robert L. Mazzeo, Esq.

Tel:         212-883-1700

Fax:         212-883-8883

 

 

Number of Preferred Shares to be Purchased: 5,000 Shares

 

Purchase Price for Preferred Shares to be Purchased: $5,000,000

 

29Exhibit 10.1

 

SINGLE-TENANT INDUSTRIAL LEASE

(TRIPLE NET)

 

LANDLORD:

 

WHAMC REAL ESTATE LIMITED PARTNERSHIP,

a Delaware limited partnership

 

TENANT:

 

ALLIANCE PHARMACEUTICAL CORP.,

a New York corporation

 

 

SUMMARY OF BASIC LEASE INFORMATION AND
DEFINITIONS

 

This SUMMARY
OF BASIC LEASE INFORMATION AND DEFINITIONS (“Summary”) is hereby incorporated
into and made a part of the attached Single-Tenant Industrial Lease which
pertains to the Premises described in Section 14 below  All references in the Lease to the “Lease”
shall include this Summary. All references in the Lease to any term defined in
this Summary shall have the meaning set forth in this Summary for such
term  Any initially capitalized terms
used in this Summary and any initially capitalized terms in the Lease which are
not otherwise defined in this Summary shall have the meaning given to such
terms in the Lease

 

	
  1 1  Landlord’s
  Address:

  	
  WHAMC REAL ESTATE LIMITED PARTNERSHIP

  
	
   

  	
   

  
	
   

  	
  c/o
  WCB Properties

  
	
   

  	
  450
  Newport Center Drive, Suite 304

  
	
   

  	
  Newport
  Beach, California 92660

  
	
   

  	
  Attn:
  Mr Ronald Lack

  
	
   

  	
  Telephone
  (714) 640-6900

  
	
   

  	
  Facsimile.
  (714) 640-8399

  
	
   

  	
   

  
	
  1 2  Tenant’s
  Address:

  	
  ALLIANCE PHARMACEUTICAL CORP

  
	
   

  	
   

  
	
   

  	
  3040
  Science Park Road

  
	
   

  	
  San
  Diego, California 92121

  
	
   

  	
  Attn:  Mr Duane Roth

  
	
   

  	
  Telephone.
  (619) 558-4300

  
	
   

  	
  Facsimile
  (819) 558-3825

  

 

1
3  Project:  The
industrial development known as Pacific Corporate Plaza in the City of San
Diego, County of San Diego, State of California, as shown on the project site
plan attached hereto as Exhibit “A-1” and the legal description of which
s attached hereto as Exhibit “A-2” 
The Project includes all buildings, improvements and facilities now or
subsequently located within such development, including, without limitation,
the Building constituting the Premises

 

1
4  Premises:  That
certain 58,799 rentable square foot building (“Building”) located within the
Project known as 6175 Lusk Boulevard, San Diego, California and more
particularly described in Exhibit “A-1” and Exhibit “B” attached
hereto

 

1
5  Term: Ten (10) years

 

1
6  Commencement Date: The earlier of (i) that date which is one
hundred twenty (120) days after the date of the full execution and delivery of
this Lease by Landlord and Tenant, (ii) the date Tenant commences business
operations from the Premises, or (iii) March 1, 1998.

 

1
7  Lease Expiration Date: The last day of the tenth (10th)
annual anniversary of the Commencement Date, subject to two (2) extension
options of three (3) years pursuant to Section 2.4 of the Lease

 

1 8  Rent

 

 

	
  Period

  	
   

  	
  Annual Rent

  	
   

  	
  Monthly
  Rent

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1-12

  	
   

  	
  $

  	
  647,508.60

  	
   

  	
  $

  	
  53,959.05

  
	
  13-24

  	
   

  	
  $

  	
  670,171.39

  	
   

  	
  $

  	
  55,847 61

  
	
  25-36

  	
   

  	
  $

  	
  693,627.31

  	
   

  	
  $

  	
  57,802.28

  
	
  37-48

  	
   

  	
  $

  	
  717,904 26

  	
   

  	
  $

  	
  59,825 35

  
	
  49-60

  	
   

  	
  $

  	
  743,030.84

  	
   

  	
  $

  	
  61,919 24

  
	
  61-72

  	
   

  	
  $

  	
  769,036 91

  	
   

  	
  $

  	
  64,086 41

  
	
  73.84

  	
   

  	
  $

  	
  795,953 20

  	
   

  	
  $

  	
  68,329 43

  
	
  85.98

  	
   

  	
  $

  	
  823,811 52

  	
   

  	
  $

  	
  88,650 96

  
	
  97-108

  	
   

  	
  $

  	
  852,644 92

  	
   

  	
  $

  	
  71.053 74

  
	
  109-120

  	
   

  	
  $

  	
  882,487.45

  	
   

  	
  $

  	
  73,540 62

  

 

1
9  Security Deposit. 
$297,330 00 subject to the terms of Section 5 below

 

1
10   Permitted Use.  The
Premises may be used only for general office and biomedical manufacturing and
any other legally permitted use consistent with the character of the Project
and approved by Landlord in Landlord’s reasonable discretion

 

1
11   Brokers.  CB
Commercial Real Estate Group, Inc representing Landlord and The Irving Hughes
Group, Inc representing Tenant

 

1
12   Interest Rate.  The
lesser of: (a) the rate announced from time to time by Wells Fargo Bank or, if
Wells Fargo Bank ceases to exist or ceases to publish such rate, then the rate
announced from time to time by the largest (as measured by deposits) chartered
operating bank operating in California, as its “prime rate” or “reference
rate”, plus three percent (3%), or (b) the maximum rate permitted by law

 

1
13   Tenant Improvements. The tenant improvements installed or to
be installed in the Premises by Tenant, as described in the Work Letter
Agreement attached hereto as Exhibit “C”.

 

1
14   Parking Passes.  One
hundred sixty eight (168) parking privileges consisting of (i) one hundred and
sixty (160) unreserved, uncovered parking privileges, and (ii) eight (8)
unreserved, uncovered guest parking privileges (which guest parking shall be
identified as such and located in front of the main entrance to the Building)

 

 

SINGLE-TENANT INDUSTRIAL LEASE

 

This LEASE
(“Lease”), which includes the preceding Summary of Basic Lease Information and
Definitions (“Summary”) attached hereto and incorporated herein by this
reference, is made as of the 7th day of November, 1997, by and
between WHAMC REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership
(“Landlord”), and ALLIANCE PHARMACEUTICAL CORP , a New York corporation
(“Tenant”)

 

1         Premises

 

1 1          Lease of Premises.  Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord the Premises upon and subject to the terms,
covenants and conditions contained in this Lease to be performed by each party
Throughout the Term of this Lease, Tenant shall have the right to the exclusive
use of that portion of that certain building in the Project commonly known as
6173 Lusk Boulevard, San Diego, California (the “Other Building”) where the
existing HVAC system serving the Premises is situated only so long as such
Other Building contains the HVAC system servicing the Premises, provided,
however, that Tenants exclusive use is limited to such portion of the Other
Building (where the existing HVAC system servicing the Premises is situated)
and Tenant’s use is further limited for the express purposes of Tenant’s
access, maintenance and repair of such HVAC system and for no other purpose
Such Other Building shall be deemed to be part of the Premises for all purposes
under this Lease except that Tenant will not be obligated to pay Monthly Rent
for such Other Building

 

1 2          Measurement of Premises and/or Project  At Landlord’s discretion, the number of
rentable square feet of the Premises and/or the Project shall be subject to
verification from time to time by Landlord’s space measurement consultant, and
such verification shall be made in accordance with the provisions of this
Section 1 2 Tenant’s architect may consult with Landlord’s space measurement
consultant regarding verification of the number of rentable square feet of the
Premises, however, the reasonable determination of Landlord’s space measurement
consultant shall be conclusive and binding upon the parties In the event that
Landlord’s space measurement consultant determines that the amounts thereof
shall be different from those set forth in this Lease, Landlord shall modify
all amounts, percentages and figures appearing or referred to in this Lease to
conform to such corrected rentable square footage (including, without
limitation, the amount of the “Rent,” as that term is defined in Section 3 of
this Lease) If such modification is made, it will be confirmed in writing by
Landlord to Tenant As used in this Lease, the following terms have the meanings
indicated

 

(a)                                  The
term “usable area” or “usable square footage” means the usable area as
determined in accordance with the Standard Method for Measuring Floor Area in
Office Buildings, ANSI/BOMA Z65 1 - 1996 (the “BOMA Standard”); and

 

(b)                                 The
term rentable area” or “rentable square footage” means the rentable area
measured in accordance with the BOMA Standard

 

2         Term

 

2 1          Term; Notice of Lease Dates. This Lease shall be effective upon
the date first above written (the “Effective Date”) Subject to Section 2.4
below, the term of this Lease (the “Term”) shall commence upon the Commencement
Date and shall expire on the Lease Expiration Date, unless sooner terminated or
extended as permitted herein, and if extended, the “Term” will Include the
applicable Option Period

 

2 2          Early Occupancy.   Subject to Section 2 4 below, Landlord shall deliver possession
of the Premises but not the Occupied Portion (as such term is defined in
Section 2 4 below) within three (3) days following the full execution and
delivery of this Lease (the “Early Occupancy Date”) for purposes of
construction of improvements to the Premises (but not the Occupied Portion) in
accordance with the Work letter attached hereto as Exhibit “C” (“Work
Letter”) Such early occupancy shall be subject to all of the terms and
conditions of this Lease, including, without limitation, those provisions
requiring that Tenant shall be responsible for all costs, expenses and
obligations relating to the Premises (including, without limitation, Sections 3
2, 3 3, 4, 6, 10, 11, 17, 20 and 22) except that Tenant will not be obligated
to pay

 

 

Monthly Rent during the period of such early
occupancy end Tenant will not, unless and until Tenant enters or occupies such
Occupied Portion, be subject to any of the terms and conditions of this Lease
for the Occupied Portion until Landlord delivers possession of the Occupied
Portion to Tenant, which delivery date is anticipated to occur on or about January
1, 1998, subject to the surrender of such Occupied Portion by the existing
tenant thereof.

 

2 3          Options to Extend. 
Tenant shell have two (2) options (each, an “Extension Option” to extend
the Term (for the entire Premises only) for a period (each, an “Option Period”)
of three (3) years, commencing upon the Lease Expiration Date or, as
applicable, the second Option Period, upon the same terms and conditions
previously applicable, except for the grant of any exercised Extension Option
and Annual Rent (which shall be determined as set forth below) Each Extension
Option may be validly exercised only by notice in writing received by Landlord
not later than three hundred sixty (360) calendar days prior to commencement of
the applicable Option Period, provided, however, that each such Extension
Option may the validly exercised only if no uncured material Tenant default
exists as of the date of exercise and, at Landlord’s option, as of the
commencement of the applicable Option Period If Tenant does not exercise the
applicable Extension Option during the exercise period set forth above in
strict accordance with the provisions hereof, the Extension Option and any
unexercised Extension Option (if any) shall forever terminate and be of no
further force or effect Each such Extension Option is personal to the original
Tenant, may not be exercised by any person or entity other than the original
Tenant and shall become null and void if the original Tenant assigns its
interest in this Lease unless such assignment is to an Affiliate of Tenant (as
that term is defined in Section 14 5) or to a Transferee who is a Permitted
Business (as defined in Section 14 1) but only to the extent such Transferee is
conducting the biomedical manufacturing portion of Tenant’s Permitted Use (“Special
Transferee”) For purposes of this Section 2 3 and Section 33, the term
“material” relative to a Tenant default shall mean any monetary default and any
material non-monetary default

 

Annual Rent
during the applicable Option Period shall be equal to ninety-five percent (95%)
of the Fair Market Rental as of the commencement of the applicable Option
Period, but in no event less than Annual Rent payable immediately prior to the
applicable Option Period  For purposes
hereof, “Fair Market Rental” shall mean the base rent then being charged to
renewal tenants by Landlord in the Project (or, if not enough comparable
transactions exist In the Project, then the base rent payable during the
applicable Option Period to a willing landlord by a willing renewal tenant for
comparable space in comparable buildings in the vicinity of the Building) with
tenants having a similar financial responsibility, credit rating and
capitalization as Tenant then has, taking into account all other relevant
factors for like and comparable space, improved with tenant Improvements of
like and comparable quality to those then existing In the Premises  At least four (4) months prior to the
applicable Option Period, Landlord shall notify Tenant of the Fair Market
Rental as determined by Landlord  Any
dispute between the parties hereto with respect to the amount so determined
shall be resolved by arbitration, as set forth below; provided, however, that
there shall be deemed not to be such a dispute unless Tenant notifies Landlord
thereof in writing within one (1) month after Landlord so notifies Tenant of
the Fair Market Rental and Tenant sets forth in such notice Tenant’s
determination of Fair Market Rental If, in the event of a dispute, the
arbitrators have not determined the Fair Market Rental by commencement of the
applicable Option Period, Tenant shall pay as Annual Rent the amount determined
by Landlord until such time as the Fair Market Rental has been determined by
arbitration, whereupon Tenant shall pay any additional amount due to Landlord
based upon such subsequent determination of Fair Market Rental. If the Annual
Rent so paid by Tenant is higher than that ultimately determined by the
arbitration process, then Landlord shall reimburse such difference to Tenant.

 

If Tenant
timely notifies Landlord in writing of Tenant’s dispute regarding Landlord’s
determination of the Fair Market Rental, then Fair Market Rental shall be
determined as follows. Landlord and Tenant shall each appoint one arbitrator
who shall by profession be a real estate appraiser active over the five (5)
year period ending on the date of such appointment in the appraisal of
commercial properties in San Diego County and who shall not have been employed
or engaged by either party during said five (5) year period Each such arbitrator
shall be appointed within fifteen (15) days after Tenant notifies Landlord of
Tenant’s dispute of Landlord’s determination of Fair Market Rental The two
arbitrators so appointed shall within fifteen (15) days of the date of the
appointment of the last appointed arbitrator agree upon and appoint a

 

 

third
arbitrator who shall be qualified under the same criteria set forth above The
three arbitrators shall, within thirty (30) days of the appointment of the
third arbitrator, reach a decision as to whether the parties shall use
Landlord’s or Tenant’s submitted Fair Market Rental for the Premises, and shall
notify Landlord and Tenant thereof Such decision shall be based upon the
criteria and variables set forth above The new Annual Rent shall thereafter be
equal to the Fair Market Rental of the Premises so selected by the arbitrators.
The decision of the majority of the three arbitrators shall be binding upon
Landlord and Tenant. If either Landlord or Tenant fails to appoint an
arbitrator within the time period specified hereinabove, the arbitrator
appointed by one of them shall reach a decision, notify Landlord and Tenant
thereof, and such arbitrator’s decision shall be binding upon Landlord and
Tenant If the two arbitrators fail to agree upon and appoint a third
arbitrator, both arbitrators shall be dismissed and the matter to be decided
shall be forthwith submitted to arbitration under the provisions of the
American Arbitration Association in accordance with the method described above
The cost of arbitration shall be paid by Landlord and Tenant equally.

 

2 4          Conditions Precedent. Landlord will not be obligated to
deliver possession of the Premises to Tenant (but Tenant will be liable,
subject to Section 2 2 hereof and the occurrence of the Commencement Date, for
Rent if Landlord can otherwise deliver the Premises, or the applicable portion
thereof, to Tenant as required hereunder) until (A) Landlord has received from
Tenant all of the following: (i) a copy of this Lease fully executed by Tenant;
(ii) evidence satisfactory to Landlord of the deposit of the Security Deposit
in accordance with Section 5 below, and the first installment of Monthly Rent
in accordance with Section 3 1 below; and (iii) copies of policies of insurance
or certificates thereof as required under Section 21 of this Lease and (B)
NextLevel Systems, Inc., the existing tenant (“Existing Tenant”) in a portion
(the “Occupied Portion”) of the Premises as of the date hereof has vacated the
Premises; provided, however, that Landlord and Tenant acknowledge and agree
that, subject to the other condition precedents set forth in this Section 2 4,
Landlord shall deliver possession of the Premises (but not the Occupied
Portion) to Tenant in accordance with Section 2 2 and Tenant shall accept possession
of such portion of the Premises on the date of Landlord’s delivery thereof
Notwithstanding anything above to the contrary, the Commencement Date of this
Lease shall occur in the event that Landlord is unable to deliver possession of
the Occupied Portion to Tenant by the Commencement Date of the Lease with
respect to the other portion of the Premises (not including the Occupied
Portion), provided, however, that (i) Tenant’s obligation to pay Monthly Rent
with respect to the Occupied Portion of the Premises will, on a per diem basis,
be waived by Landlord (in the proportion that the rentable square feet of the
Occupied Portion bears to the total rentable square feet of the Premises), for
each day past March 1, 1998 (“Outside Date”) that Landlord so fails to deliver
possession of the Occupied Portion of the Premises to Tenant and (ii) in
accordance with, and subject to, Section 2 2 of this Lease, Tenant will not be
subject to any of the other terms and conditions of this Lease until Landlord
delivers possession of the Occupied Portion to Tenant (unless Tenant enters or
occupies such Occupied Portion)

 

3         Rent

 

3 1          Annual Rent   Tenant
agrees to pay Landlord, as rent for the Premises, the Annual Rent designated in
Section 1 8 of the Summary. The Annual Rent shall be paid by Tenant in twelve
(12) equal monthly installments of Monthly Rent in the amounts designated in
Section 1 8 of the Summary in advance on the first day of each and every
calendar month commencing upon the Commencement Date, except that the first
full month’s Monthly Rent for the Premises shall be paid upon execution of this
Lease by Tenant  Monthly Rent for any
partial month shall be prorated in the proportion that the number of days this
Lease is in effect during such month bears to the actual number of days in such
month

 

3 2          Additional Rent.  All
amounts and charges payable by Tenant under this Lease in addition to the
Annual Rent described in Section 3 1 above shall be considered additional rent
for the purposes of this Lease, and the word “Rent” in this Lease shall include
such additional rent unless the context specifically or clearly implies that
only the Annual Rent is referenced The Annual Rent and additional rent shall be
paid to landlord as provided in Section 7, without any prior demand therefor
and without any deduction or offset except as specified elsewhere in the Lease,
in lawful money of the United States of America.

 

 

3 3          Late Payments.  Late payments of Monthly Rent and/or any
item of additional rent will be subject to Interest and a late charge as
provided in Sections 22 6 and 22 7 below

 

3 4          Tenant’s Obligations  Except as otherwise provided herein, all
Rent shall be absolutely net to Landlord so that this Lease shall yield net to
Landlord, the Rent to be paid each month during the Term of this Lease Nothing
herein contained shall be deemed to require Tenant to pay or discharge any
liens or mortgages of any character whatsoever which may exist or hereafter be
placed upon the Premises by an affirmative act or omission of Landlord

 

4         Common Areas: Operating Expenses

 

4 1          Definition of Common Area. 
The term “Common Area,” as used in this Lease means all areas and the
improvements thereon within the exterior boundaries of the Project now or later
made available for the general use of Landlord, Tenant and other persons
entitled to occupy floor area in the Project and their customers, including,
without limitation, the parking facilities of the Project, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, and similar areas and facilities situated within
the Project which are not reserved for the exclusive use of any Project
occupants and the exterior surfaces and roofs of all buildings (including the
Building) located within the Project Without limiting this definition, Landlord
may include in  the Common Area those portions
of the Project presently or later sold or leased to purchasers or tenants, as
the case may be, until the commencement of construction of the building(s) thereon,
at which time there shall be withdrawn from the Common Area those areas not
provided by such owner or lessee for common use. Common Area shall not Include
(i) the entryway to a tenant’s premises, (ii) any improvements Installed by a
tenant outside of its premises, whether with or without Landlord’s knowledge or
consent, or (iii) any areas or facilities that are included in the description
of premises leased to a tenant

 

4 2          Maintenance and Use of
Common Area.  The manner in
which the Common Area shall be maintained shall be solely determined by
Landlord in Landlord’s reasonable discretion If any owner or tenant of any
portion of the Project maintains Common Area located upon its parcel or demised
premises (Landlord shall have the right in its sole discretion to allow any
purchaser or tenant to so maintain Common Area located upon its parcel or
demised premises and to be excluded from participation in the payment of Common
Area Expenses as provided below), Landlord shall not have any responsibility for
the maintenance of that portion of the Common Area and Tenant shall have no
claims against Landlord arising out of any failure of such owner or tenant to
so maintain its portion of the Common Area The use and occupancy by Tenant of
the Premises shall include the right to use the Common Area (except areas used
in the maintenance or operation of the Project), in common with Landlord and
other tenants of the Project and their customers and invitees, subject to (i)
any covenants, conditions and restrictions now or hereafter of record (the
“Declaration”), and (ii) such reasonable, non-discriminatory rules and
regulations concerning the Project as may be established by Landlord from time
to time Tenant agrees to promptly comply with all such rules and regulations and
any reasonable, non-discriminatory amendments thereto upon receipt of written
notice from Landlord.

 

4 3          Control of and Changes to Common Area.  Landlord shall have the sole and exclusive
control of the Common Area, as well as the right to make reasonable changes to
the Common Area. Provided Landlord does not materially interfere with Tenant’s
use of and access to the Premises, Landlord’s rights shall include, but not be
limited to, the right to (a) restrain the use of the Common Area by
unauthorized persons; (b) cause Tenant to remove or restrain persons from any
unauthorized use of the Common Area if they are using the Common Area by reason
of Tenant’s presence in the Project, (c) utilize from time to time any portion
of the Common Area for promotional, entertainment, and related matters, (d)
temporarily close any portion of the Common Area for repairs, improvements or
alterations, to discourage non-customer use, to prevent public dedication or an
easement by prescription from arising, or for any other reason deemed
appropriate in Landlord’s judgment, and (e) reasonably change the shape and
size of the Common Area, add, eliminate or change the location of improvements
to the Common Area, including, without limitation, buildings, lighting, parking
areas, landscaped areas, roadways, walkways, drive aisles and curb cuts

 

 

4 4          Operating Expenses.  
As used in this Section 4 4, the term “Building’s Share” shall mean a
fraction, the numerator of which is the rentable square footage of the
Building, and the denominator of which is the rentable square footage of the
Project Throughout the Term of this Lease, commencing on the Commencement Date,
and in addition to Tenant’s obligations set forth in Section 3 4 hereof, Tenant
agrees to pay Landlord, as additional rent in accordance with the terms of this
Section 4, the Building’s Share of Operating Expenses for the operation,
maintenance, repair, and replacement of the Project and the Common Area
including, without limitation: (i) any form of real property tax, assessment
(including, without limitation, change in ownership taxes and assessments),
license fee, license tax, business license fee, commercial rental tax, levy,
charge, improvement bond or similar imposition of any kind or nature 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 assessment district thereof, (ii) any and all
assessments under any covenants, conditions and restrictions affecting the
Project, (iii) water, sewer and other utility charges for the Common Area, (iv)
costs of commercially reasonable insurance obtained by landlord, (v) waste
disposal and janitorial services, (vi) security (if any), (vii) labor, (viii)
commercially reasonable management costs including, without limitation (A)
wages and salaries (and payroll taxes and similar charges) of property
management employees for the Common Area, (B) management office rental,
supplies, equipment and related operating expenses for the Common Area, (C)
commercially reasonable management/administrative fees, and (D) association
fees and assessments, (ix) supplies, materials, equipment and tools including
rental of personal property, (x) repair and maintenance of the structural
portions of the buildings within the Project, including the plumbing, heating,
ventilating, air-conditioning and electrical systems installed or furnished by
Landlord; (xi) maintenance, sweeping, repairs, resurfacing, and upkeep of all parting
and other Common Areas; (xii) amortization on a straight line basis over the
useful life together with interest at the Interest Rate on the unamortized
balance of all capitalized expenditures to the Project, (xiii) gardening and
landscaping, (xiv) maintenance of signs (other than signs of tenants of the
Project), (xv) personal property taxes levied on or attributable to personal
property used in connection with the Common Areas; (xvi) reasonable accounting,
audit, verification, legal and other consulting fees, and (xvii) any other
costs and expenses of repairs, maintenance, painting, fighting, cleaning, and
similar items, including commercially reasonable reserves. Notwithstanding
anything above to the contrary, the term “Operating Expenses” shall not include
costs to correct latent defects in the base, shell and core of the Premises to
the extent not caused by Tenant or Tenant’s Improvements to the Premises.

 

4 5          Tenant’s Monthly Operating Expense Charge.  From and after the Commencement Date, Tenant
shall pay to Landlord, on the first day of each calendar month during the Term
of this Lease, the Building’s Share of an amount estimated by Landlord to be
the Monthly Operating Expenses for the Project for that month (“Tenants Monthly
Operating Expanse Charge”) Notwithstanding anything in this Section 4 to the
contrary, in no event will Tenant be liable, in any calendar year of this
Lease, for Operating Expense increases in excess of ten percent (10%) over the
Operating Expenses for the immediately preceding calendar year (the “Cap”);
provided, however, that for purposes of the Cap, costs of commercially
reasonable insurance maintained by Landlord, Real Property Taxes and the costs
of capital expenditures, shall not be deemed to be part of Operating Expenses

 

4 6          Estimate Statement. 
Prior to the Commencement Date and on or about May 1st of each
subsequent calendar year  during the
Term of this Lease, Landlord will endeavor to deliver to Tenant a statement
(“Estimate Statement”) wherein Landlord will estimate Tenant’s Monthly
Operating Expense Charge for the then currant calendar year Tenant agrees to
pay Landlord, as additional rent, Tenant’s estimated Monthly Operating Expense
Charge each month thereafter, beginning with the next installment of rent due, until
such time as Landlord issues a revised Estimate Statement or the Estimate
Statement for the succeeding calendar year; except that, concurrently with the
regular monthly rent payment next due following the receipt of each such
Estimate Statement, Tenant agrees to pay Landlord an amount equal to one
monthly installment of Tenant’s estimated Monthly Operating Expense Charge
(less any applicable Operating Expenses already paid) multiplied by the number
of months from January, in the current calendar year, to the month of such rent
payment next due, all months inclusive 
If at any time during the Term of this Lease, but not more often than
quarterly, Landlord reasonably determines that the Building’s Share of
Operating Expenses for the current calendar year will be greeter than the
amount set forth in the then current Estimate Statement, Landlord may issue a
revised Estimate Statement and

 

 

Tenant agrees to pay Landlord, within thirty
(30) days of receipt of the revised Estimate Statement, the difference between
the amount owed by Tenant under such revised Estimate Statement and the amount
owed by Tenant under the original Estimate Statement for the portion of the
then current calendar year which has expired Thereafter Tenant agrees to pay
Tenant’s Monthly Operating Expense Charge based on such revised Estimate
Statement until Tenant receives the next calendar year’s Estimate Statement or
a new revised Estimate Statement for the current calendar year

 

4 7          Actual Statement.  
By May 1st of each calendar year during the Term of this Lease, Landlord
will also endeavor to deliver to Tenant a statement (“Actual Statement”) which
states the Building’s Share of the actual Operating Expenses for the preceding
calendar year. If the Actual Statement reveals that the Building’s Share of the
actual Operating Expenses is more than the total Additional Rent paid by Tenant
for Operating Expenses on account of the preceding calendar year,  Tenant agrees to pay Landlord the difference in a lump sum
within thirty (30) days of receipt of the Actual Statement. If the Actual
Statement reveals that the Building’s Share of the actual Operating
Expenses is less than the Additional Rent paid by Tenant for Operating Expenses
on account of the preceding calendar year, Landlord will
credit any overpayment toward the next monthly Installment(s) of the Building’s
Share of the Operating Expenses due under this Lease Such obligation will be a
continuing one which will survive the expiration or earlier termination of this
Lease Prior to the expiration or sooner termination of the Lease Term and
Landlord’s acceptance of Tenant’s surrender of the Premises, Landlord will have
the right to estimate the actual Operating Expenses for the then current Lease
Year and to collect from Tenant prior to Tenant’s surrender of the Premises,
the Building’s Share of any excess of such actual Operating Expenses over the
estimated Operating Expenses paid by Tenant in such Lease Year.

 

4 8          Miscellaneous.  Any
delay or failure by Landlord in delivering any Estimate Statement or Actual
Statement pursuant to this Section 4 will not constitute a waiver of its right
to require an increase in additional rent for Operating Expenses nor will it
relieve Tenant of its obligations pursuant to this Section 4, except that
Tenant will not be obligated to make any payments based on such Estimate
Statement or Actual Statement until thirty (30) days after receipt of such
Estimate Statement or Actual Statement. If Tenant does not object to any
Estimate Statement or Actual Statement within ninety (90) days after Tenant
receives any such statement, such statement will be deemed final and binding on
Tenant Even though the Term has expired and Tenant has vacated the Premises,
when the final determination is made of the Building’s Share of the actual
Operating Expenses for the year in which this Lease terminates, Tenant agrees
to promptly pay any increase due over the estimated expenses paid and,
conversely, any overpayment made in the event said expenses decrease shall
promptly be rebated by Landlord to Tenant Such obligation will be a continuing
one which will survive the expiration or termination of this Lease

 

4 9          Books and Records. 
Landlord shall maintain books and records in accordance with sound
accounting and management practices, reflecting the Operating Expenses If
Tenant wishes to review or audit the amount of the Building’s Share of
Operating Expenses, Tenant must deliver to Landlord a written notice of
Tenant’s desire to review or audit Landlord’s books and records (“Audit Notice”)
within three (3) months following Tenant’s receipt of Landlord’s first annual
reconciliation. Thereafter, if Tenant wishes to review or audit the Building’s
Share of Operating Expenses as to any subsequent Lease Year, Tenant and its
duly authorized representatives (which representatives (including Tenant’s
auditors, if any) shall be subject to Landlord’s approval) shall have the right
to do so with respect to any calendar year within six (6) months following
receipt of the applicable Actual Statement for such calendar year, upon thirty
(30) days’ prior delivery of an Audit Notice Such audit will be conducted (i)
during normal business hours at Landlord’s California business offices or at
the management office of the Building, (ii) on consecutive business days until
completed, and (iii) in an expeditious manner so as to minimize interference
with Landlord’s operations Landlord agrees that Tenant or its auditors shall
have the right to photocopy Landlord’s books and records at Tenant’s sole cost
and expense Tenant shall pay in a timely manner as required by this Lease any
amounts stated as due on the Actual Statement, provided that such payment shall
not waive any right to audit and/or dispute by Tenant as set forth herein In no
event will Landlord or its property manager be required to (i) photocopy any
accounting records or other items or contracts (provided however, that Tenant
or its auditors shall have the right to photocopy Landlord’s books and records
at Tenant’s sole cost and expense as provided above), (ii) create any ledgers
or schedules not already In existence, (iii) incur any costs or expenses
relative to such inspection, or (iv)

 

 

perform any other tasks other than making
available such accounting records as are described in this paragraph. Tenant
agrees to deliver to Landlord the results of any such audit within thirty (30)
days of completion of the audit. If Tenant does not deliver an Audit Notice as
to any annual reconciliation within the time frames set forth hereinabove, then
Tenant acknowledges and agrees that such annual reconciliation, and the Actual
Statement and/or any Estimate Statement for such Lease Year, will be
conclusively binding on Tenant

 

If Tenant’s
audit or review reveals that Landlord has overcharged Tenant and Landlord
agrees with the results of such audit or the results of such audit are
confirmed in an arbitration between the parties pursuant to Section 34, then
within thirty (30) days after the results of such audit are made available to
Landlord, Landlord agrees to reimburse Tenant the amount of such overcharge
plus interest at the Interest Rate stated in Section 1 12 of the Summary If the
audit reveals that Tenant was undercharged, then within thirty (30) days after
the results of the audit are made available to Tenant, Tenant agrees to
reimburse Landlord the amount of such undercharge plus interest thereon at the
Interest Rate stated in Section 1 12 of the Summary within thirty (30) days of
demand by Landlord Tenant agrees to pay the cost of such audit, provided that
if the audit reveals that Landlord’s determination of the Building’s Share of
Operating Expenses as set forth in a certified statement sent to Tenant was in
error in Landlord’s favor by more than six percent (6%) of the amount paid by
Tenant prior to delivering the Audit Notice and Landlord agrees with the
results of such audit or the results of such audit are confirmed In an
arbitration between the parties pursuant to Section 34, then Landlord agrees to
pay the reasonable, third-party cost of such audit incurred by Tenant within
thirty (30) days of demand by Tenant. To the extent Landlord must pay the cost
of such audit, such cost shall not exceed a reasonable hourly charge for a
reasonable amount of hours spent by such third-party in connection with the
audit Landlord shall not be liable for any contingency fee payments to any
auditors or consultants of Tenant Tenant agrees to keep the results of the
audit (and any settlement. if any, resulting therefrom) confidential and will
cause its agents, employees and contractors to keep such results (and any
settlement, if any, resulting therefrom) confidential. If Landlord disputes the
results of Tenant’s audit of Operating Expenses, Landlord shall have the right
to initiate an arbitration of the dispute as provided In Section 34

 

5         Security Deposit

 

5 1          Delivery of Letter of Credit.  On or before December 10, 1997, Tenant shall deliver to Landlord
the Security Deposit in the form of an unconditional, irrevocable and renewable
letter of credit (“Letter of Credit”) In favor of Landlord in form and issued
by a bank with an office (capable of honoring a demand on the Letter of Credit)
located in San Diego County, California, reasonably satisfactory to Landlord.
In the initial principal amount specified in Section 1 9 of the Summary, as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this Lease The Letter of Credit shall state that
an authorized officer or other representative of Landlord may make demand on
Landlord’s behalf for the amount owed by Tenant to Landlord, and that the
issuing bank must immediately honor such demand, without qualification or
satisfaction of any conditions, except the proper identification of the party
making such demand and a certification that Tenant is in default under this
Lease, which default is continuing after notice and expiration of any
applicable notice and cure period required by this Lease. In addition, the
Letter of Credit shall indicate that it is transferable in its entirety by Landlord
as beneficiary and that upon receiving written notice of transfer, and upon
presentation to the issuer of the original Letter of Credit, the issuer will
reissue the Letter of Credit naming such transferee as the beneficiary. If the
term of the Letter of Credit held by Landlord will expire prior to thirty (30)
days following the last day of the Term and It Is not extended, or a new litter
of Credit for an extended period of time is not substituted, within thirty (30)
days prior to the expiration of the Letter of Credit, then Landlord may deliver
written notice of such fact to Tenant and if Tenant does not extend the Letter
of Credit or substitute a new Letter of Credit within ten (10) business days
after Tenant’s receipt of such notice from Landlord, Landlord shall be entitled
to make demand for the principal amount of said Letter of Credit and,
thereafter, to hold such funds in accordance with Section 5.3 below In the
event Tenant fails to deliver such  Letter of
Credit to Landlord on or before December 10, 1997 then Landlord, in addition to
any of its other rights and remedies, shall have the right to immediately
terminate this Lease or cause Tenant to cease construction of its Tenant
Improvements until such Letter of Credit is furnished to Landlord

 

 

5 2          Principal Amount of Letter of Credit.  The principal amount of the Letter of Credit
shall be as follows

 

	
  Months of Tem

  	
   

  	
  Required

  Principal Amount

  
	
  1.60

  	
   

  	
  $297,330 00

  
	
   

  	
   

  	
   

  
	
  61-120

  	
   

  	
  To
  be equal to the Monthly Rent due and payable by Tenant for the sixty-first
  (61st) month of the Lease Term

  

 

Notwithstanding the foregoing,
if as of the applicable reduction date set forth above, (i) Tenant is in
default under this Lease, or (ii) circumstances exist that would, with notice
or lapse of time, or both, constitute a default, then the principal amount
shall not be reduced, unless and until such default or circumstances shall have
been fully cured, at which time the principal amount may be reduced as
hereinabove described Further notwithstanding the foregoing, the reduction of
the Security Deposit after the sixtieth (60th) month shall also be conditioned
upon (i) Landlord’s not having given Tenant written notice of a failure to pay
Rent pursuant to Section 22.1(b) more than three (3) times during the preceding
sixty (60) month period and (ii) Tenant not exercising its Termination Option
(as defined In Section 33 hereof)

 

5 3          Application of Letter of Credit. The Letter of Credit shall
be held by Landlord as security for the faithful performance by Tenant of all
of the terms, covenants and conditions of this Lease If Tenant commits a
default with respect to any provision of this Lease, Landlord may (but shall
not be required to) draw upon the Letter of Credit and use, apply or retain all
or any part of the proceeds for the payment of any sum which is in default, or
for the payment of any other amount which Landlord may spend or become
obligated to spend by reason of Tenants default or to compensate Landlord for
any loss or damage which Landlord may suffer by reason of Tenant’s default. If
any portion of the Letter of Credit is so used or applied, Tenant shall, within
ten (10) business days after demand therefor, post an additional Letter of
Credit in an amount sufficient to restore the Letter of Credit to the principal
amount required under Section 5 2 above Landlord shall not be required to keep
any proceeds from the Letter of Credit separate from its general funds and
Tenant shall not be entitled to any interest on such proceeds Should Landlord
sell its interest in the Premises during the Term and if Landlord deposits with
the purchaser thereof the Letter of Credit or any proceeds of the Letter of
Credit, thereupon Landlord shall be discharged from any further liability with
respect to the Letter of Credit and said proceeds

 

6         Use

 

6 1          General.  Tenant
shall use the Premises solely for the Permitted Use specified in Section 1 10
of the Summary, and shall not use or permit the Premises to be used for any
other use or purpose whatsoever Except for Landlord’s obligations under Section
11 2 of this Lease, Tenant shall, at its sole cost and expense, observe and
comply with all requirements of any board of fire underwriters or similar body
relating to the Premises, and all laws, statutes, codes, rules and regulations
now or hereafter in force relating to or affecting the use, occupancy,
alteration or improvement (whether structural or non-structural, including
unforeseen and/or extraordinary alterations or Improvements, and regardless of
the period of time remaining in the Term) of the Premises, including, without
limitation, the provisions of the Americans with Disabilities Act (“ADA”) as it
pertains to Tenants use, occupancy, Improvement and alteration (whether
structural or non-structural, including unforeseen and/or extraordinary
alterations or Improvements, and regardless of the period of time remaining in
the Term) of the Premises. Tenant shall not use or allow the Premises to be
used (a) in violation of any recorded covenants, conditions and restrictions
effecting the Premises or of any law or governmental rule or regulation, or of
any certificate of occupancy issued for the Premises, or (b) for any improper,
immoral, unlawful or reasonably objectionable purpose Tenant shall not cause,
maintain or permit any nuisance in, on or about the Premises, nor commit or
suffer to be committed any waste in, on or about the Premises

 

 

6 2          Signs, Awnings and Canopies. Tenant shall have the right. at
Tenants sole cost and expense to install a sign on the Building constituting
the Premises, provided Tenant complies with any covenants of record and obtains
approval from all governmental authorities having jurisdiction over the
Premises and from Landlord, which approval shall not be unreasonably withheld
To the extent Landlord installs a signage monument adjacent to the Premises,
Tenant shall have the right, at Tenant’s sole cost and expense, to install its
name on such signage monument if and when such signage monument is installed by
Landlord. The exact location, dimensions, color, illumination and other
features of all of Tenant’s signage shall be subject to Landlord’s prior
written approval and otherwise In accordance with the Project’s signage
program. All of Tenant’s exterior sign rights are personal to the original
Tenant executing this Lease, to any Affiliate of the original Tenant, and to
any Special Transferee, only so long as the original Tenant and/or any
Affiliate of the original Tenant and/or any Special Transferee is occupying at
least seventy-five percent (75%) of the total rental square feet comprising the
Premises. Tenant agrees, at Tenant’s sole cost and expense, to maintain any
such sign, awning, canopy, decoration, lettering or advertising matter as may
be approved by Landlord in good condition and repair at all times At the expiration
or earlier termination of this Lease, at landlord’s election, Tenant shall
remove all signs, awnings, canopies, decorations, lettering and advertising
installed by or at the direction of Tenant and shall repair any damage to the
Premises resulting therefrom all at Tenant’s sole cost and expense. If Tenant
falls to maintain any such approved sign, awning, decoration, lettering, or
advertising, Landlord may do so and Tenant shall reimburse Landlord for such
cost plus a twenty percent (20%) overhead fee If, without Landlord’s prior
written consent, Tenant installs any sign, awning, decoration, lettering or
advertising, or fails to remove any such item(s) at the expiration or earlier
termination of this Lease, Landlord may have such item(s) removed and stored
and may repair any damage to the Premises at Tenants expense The removal,
repair and/or storage costs shall bear interest until paid at the Interest Rate
specified in Section 1 12 of the Summary

 

6 3          Hazardous Materials. 
Except for ordinary and general office supplies, such as copier toner,
liquid paper, glue, ink and common household cleaning materials and, to the
extent approved in writing by Landlord (which shall not be unreasonably
withheld), materials reasonably necessary for the conduct of Tenants business
that are used and stored In compliance with all applicable laws (some or all of
which may constitute “Hazardous Materials” as defined in this Lease), Tenant
agrees not to cause or permit any Hazardous Materials to be brought upon,
stored, used, handled, generated, released or disposed of on, in, under or
about the Premises by Tenant, its agents, employees, subtenants, assignees,
licensees, contractors or invitees (collectively, “Tenant’s Parties”), without
the prior written consent of Landlord, which consent Landlord may, except as
otherwise expressly provided above (with respect to materials reasonably
necessary for the conduct of Tenant’s business that are used and stored in
compliance with all applicable laws), withhold in its sole and absolute
discretion. Concurrently with the execution of this Lease, Tenant agrees to
complete and deliver to Landlord an Environmental Questionnaire in the form of Exhibit
“E” attached hereto Upon the expiration or earlier termination of this
Lease, Tenant agrees to promptly remove from the Premises, at its sole cost and
expense, any and all Hazardous Materials, including any equipment or systems
containing Hazardous Materials which are installed, brought upon, stored, used,
generated or released upon, In, under or about the Premises by Tenant or any of
Tenant’s Parties To the fullest extent permitted by law, Tenant agrees to
promptly indemnify, protect, defend and hold harmless Landlord and Landlord’s
partners, officers, directors, employees, agents, successors and assigns
(collectively, “Landlord Indemnified Parties”) from and against any and all
claims, damages, judgments, suits, causes of action, losses, liabilities,
penalties, fines, expenses and costs including, without limitation, clean-up,
removal, remediation and restoration costs, sums paid in settlement of claims,
attorneys’ fees, consultant fees and expert fees and court costs) which arise
or result from the presence of Hazardous Materials on, In, under or about the
Premises and which are caused or permitted by Tenant or any of Tenant’s Panics.
Tenant agrees to promptly notify Landlord of any release of Hazardous Materials
which Tenant becomes aware of during the Term of this Lease, whether caused by
Tenant or any other persons or entities In the event of any release of
Hazardous Materials caused or permitted by Tenant or any of Tenant’s Parties or
any other persons or entitles, Landlord shall have the right, but not the
obligation, to cause Tenant to immediately take all steps Landlord deems
necessary or appropriate to remediate such release and prevent any similar
future release to the satisfaction of Landlord and Landlord’s mortgagee(s) At
all times during the Term of this Lease and in accordance with Section 15
hereof, Landlord will have the right, but not the obligation, to enter upon the
Premises to inspect,

 

 

investigate, sample and/or monitor the
Premises to determine if Tenant is in compliance with the terms of this Lease
regarding Hazardous Materials Tenant will, upon the reasonable request of Landlord
(which request shall not, unless Tenant has failed to comply with the terms and
provisions of this Section 6 3 or except in cases of emergency, be made more
than once every six (6) months throughout the Term of this Lease, cause to be
performed an environmental audit of the Premises at Tenant’s expense by an
environmental consulting firm reasonably acceptable to Landlord As used in this
Lease, the term “Hazardous Materials” shall mean and include any hazardous or
toxic materials, substances or wastes as now or hereafter designated under any
law, statute, ordinance, rule, regulation, order or ruling of any agency of the
State, the United States Government or any local governmental authority,
including, without limitation, asbestos, petroleum, petroleum hydrocarbons and
petroleum based products, was formaldehyde foam insulation, polychlorinated
biphenyls (“PCBs”), freon and other chlorofluorocarbons, and any material
defined as a “biohazardous waste” or “medical waste” or other waste under
California Health and Safety Code, Division 20, Chapter 81 (Medical Waste
Management Act) The provisions of this Section 6 3 will survive the expiration
or earlier termination of this Lease Tenant shall immediately advise Landlord
in writing of, and provide Landlord a copy of:

 

(1)          Any
notice of violation or potential or alleged violation of any law concerning
Hazardous Materials received by Tenant from any governmental agency, and

 

(2)          Any
and all inquiry, investigation, enforcement, clean-up, removal or governmental or
regulatory actions Instituted or threatened relating to the Premises.

 

Landlord shall
indemnify, defend and hold harmless Tenant from and against any and all claims,
judgments, damages, penalties, fines, costs, liabilities and losses (including,
without limitation, sums paid In settlement of claims and for reasonable
attorneys’ fees, consultant fees and expert fees, (but specifically excluding
special, indirect or consequential damages including but not limited to claims
for loss of use, anticipated profit or business opportunity, market-based
stigma damages or business interruption, or mental or emotional distress or
fear of injury or disease) to the extent arising as a result of any Hazardous
Materials (1) located in, on or under the Building as of the commencement of
Tenant’s occupancy of the Premises, or (2) hereafter caused to be located in,
on or under the Building by Landlord and/or any of Landlord’s employees, agents
or representatives or any other persons or entitles (except Tenant or Tenant’s
Parties) This indemnification of Tenant by Landlord includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work. The
provisions of this paragraph shall survive the expiration of the Term or
earlier termination of this Lease. Notwithstanding anything above to the
contrary, the foregoing indemnity shall not extend to Hazardous Materials
caused to be located in, on or under the Building by Tenant or any of Tenant’s
Parties

 

6 4          Refuse and Sewage. Tenant agrees not to keep any trash,
garbage, waste or other refuse on the Premises except in sanitary containers
and agrees to regularly and frequently remove same from the Premises Tenant
shall keep all containers or other equipment used for storage of such materials
in a clean and unitary condition. Tenant shall, at Tenant’s sole cost and
expense, properly dispose of all sanitary sewage and shall not use the sewage
disposal system for the disposal of anything except sanitary sewage Tenant
shall keep the sewage disposal system free of all obstructions and in good
operating condition. Tenant shall contract directly for all trash disposal
services at Tenant’s sole cost and expense

 

6 5          Parking.

 

(a)                                  Tenant’s
Parking Privileges. During the Term of this Lease, Landlord shall lease to
Tenant, and Tenant shall lease from Landlord, the number of parking privileges
specified In Section 1.14 of the Summary hereof for use by Tenant’s employees
in the common parking areas for the Premises within the Project, as designated
by Landlord from time to time. Landlord shall at all times have the right to
reasonably establish and modify the nature and extent of the parking areas for
the Premises and Project (including whether such areas shall be surface,
underground and/or other structures) as long as Tenant is provided the number
of parking privileges designated in Section 1 14 of the Summary In

 

 

addition,
Landlord may, in its sole discretion, assign any unreserved and unassigned
parking privileges, and/or make all or a portion of such privileges reserved or
unreserved so long as Tenant Is provided the total number of parking privileges
in Section 1 14 of the Summary

 

(b)                                 Parking
Privileges. Loss of Privileges. Each of Tenant’s parking privileges set
forth in Section 1 14 of the Summary hereof shall not be subject to any
additional charge to Tenant. In addition to such parking privileges for use by
Tenant’s employees, Landlord shall permit access to the parking areas for
Tenant’s visitors, subject to availability of spaces

 

(c)                                  Parking
Rules The use of the parking areas shall be subject to any reasonable,
non-discriminatory rules and regulations adopted by Landlord and/or Landlord’s
parking operators from time to time, including any system for controlled
ingress and egress and charging visitors and invitees, with appropriate
provision for validation of such charges Tenant shall not use more parking
privileges than its allotment and shall not use any parking spaces specifically
assigned by Landlord to other tenants of the Project or for such other uses as
visitor parking Tenant’s parking privileges shall be used only for parking by
vehicles no larger than normally sized passenger automobiles or pick-up trucks
Tenant shall not permit or allow any vehicles that belong to or are controlled
by Tenant or Tenant’s employees, suppliers, shippers, customers or invitees to
be loaded, unloaded, or parked in areas other than those designated by Landlord
for such activities if Tenant permits or allows any of the prohibited
activities described herein, then Landlord shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost thereof to Tenant,
which cost shall be immediately payable by Tenant upon demand by Landlord

 

7         Payments and Notices. All Rent and
other sums payable by Tenant to Landlord hereunder shall be paid to Landlord at
the address designated in Section 1 1 of the Summary, or to such other persons
and/or at such other places as Landlord may hereafter designate in writing. Any
notice required or permitted to be given hereunder must be in writing and may
be given by personal delivery (including delivery by nationally recognized
overnight courier or express mailing service), facsimile transmission, or by
registered or certified mail postage prepaid, return receipt requested,
addressed to Tenant at the address(es) designated in Section 1 2 of the
Summary, or to Landlord at the address(es) designated in Section 1 1 of the
Summary Either party may, by written notice to the other, specify a different
address for notice purposes Any such notice shall be deemed duly served or
given when actually (i) delivered or refused, if personally delivered or sent
by registered or certified mail or (ii) recorded as transmitted, if by
facsimile transmission

 

8         Brokers. The parties recognize that
the broker(s) who negotiated this Lease are stated in Section 1 11 of the
Summary. Each party represents and warrants to the other, that, to its
knowledge, no other broker, agent or finder (a) negotiated or was Instrumental
in negotiating or consummating this Lease on its behalf, and (b) is or might he
entitled to a commission or compensation in connection with this Lease. Any
broker, agent or finder of Tenant whom Tenant has failed to disclose herein
shall be paid by Tenant. Tenant shall Indemnify, protect, defend (by counsel
reasonably approved in writing by Landlord) and hold Landlord harmless from and
against any and all claims, judgments, suits, causes of action, damages,
losses, liabilities and expenses (including attorneys’ fees and court costs)
resulting from any breach by Tenant of the foregoing representation, including,
without limitation, any claims that may be asserted against Landlord by any
broker, agent or finder undisclosed by Tenant herein Landlord shall Indemnify,
protect, defend (by counsel reasonably approved in writing by Tenant) and hold
Tenant harmless from and against any and all claims, judgments, suits, causes of
action, damages, losses, liabilities and expenses (including attorneys’ fees
and court costs) resulting from any breach by Landlord of the foregoing
representation, including, without limitation. any claims that may be asserted
against Tenant by any broker, agent or finder undisclosed by Landlord herein.
The foregoing indemnities shall survive the expiration or earlier termination
of this Lease

 

 

9         Surrender: Holding Over

 

9 1          Surrender of Premises. 
Upon the expiration or sooner termination of this Lease, Tenant shall
surrender all keys for the Premises to Landlord, and Tenant shall deliver
exclusive possession of the Premises to Landlord broom clean and in first-class
condition and repair, reasonable wear and tear excepted (and casualty damage
excepted if this Lease is terminated as a result thereof pursuant to Section
16), with all of Tenants personal property (and those items, if any, of Tenant
improvements and Tenant Changes identified by Landlord pursuant to Section 12 2
below) removed therefrom and all damage caused by such removal repaired, as
required pursuant to Sections 12 2 and 12 3 below If, for any reason, Tenant
fails to surrender the Premises on the expiration or earlier termination of
this Lease, with such removal and repair obligations completed, then, in
addition to the provisions of Section 9 3 below and Landlord’s rights and
remedies under Section 12 4 and the other provisions of this Lease, Tenant
shall indemnify, protect, defend (by counsel reasonably approved in writing by
Landlord) and hold Landlord harmless from and against any and all claims,
judgments, suits, causes of action, damages, losses, liabilities and expenses
(including attorneys’ fees and court costs) resulting from such failure to
surrender, including, without limitation, any claim made by any succeeding
tenant based thereon The foregoing indemnity shall survive the expiration or
earlier termination of this Lease

 

9 2          Holding Over.  If
Tenant holds over after the expiration or earlier termination of the Lease
Term, then, without waiver of any right on the part of Landlord as a result of
Tenants failure to timely surrender possession of the Premises to Landlord,
Tenant shall become a tenant at sufferance only, upon the terms and conditions
set forth in this Lease so far as applicable (including Tenants obligation to
pay all costs, expenses and any other additional rent under this Lease), but at
a Monthly Rent equal to one hundred fifty percent (150%) of the Monthly Rent
applicable to the Premises immediately prior to the date of such expiration or
earlier termination. Acceptance by Landlord of rent after such expiration or
earlier termination shall not constitute a consent to a hold over hereunder or
result in an extension of this Lease. Tenant shall pay an entire month’s Monthly
Rent calculated in accordance with this Section 9 2 for any portion of a month
it holds over and remains in possession of the Premises pursuant to this
Section 9.2

 

9 3          No Effect on Landlord’s Rights. The foregoing provisions of
this Section 9 are in addition to, and do not affect, Landlord’s right of
re-entry or any other rights of Landlord hereunder or otherwise provided at law
or in equity

 

10       Taxes.

 

10 1        Real Property Taxes. 
Tenant agrees to pay the
Building’s Share of all general and special real property taxes, assessments
(including, without limitation, change in ownership taxes or assessments),
liens, bond obligations, license fees or taxes and any similar impositions
in-lieu of other impositions now or previously within the definition of real
property taxes or assessments and any and all assessments under any covenants,
conditions and restrictions affecting the Project (collectively “Real Property
Taxes”) which may be now or hereafter levied or assessed against the Project
applicable to the period from the Early Occupancy Date , until the expiration
or sooner termination of this Lease Notwithstanding the foregoing provisions,
if the Real Property Taxes are not levied and assessed against the entire
Project by means of a single tax bill (i e , if the Project is separated into
two (2) or more separate tax parcels for purposes of levying and assessing the
Real Property Taxes), then, at Landlord’s option, Tenant shall pay Tenant’s pro
rata share of all Real Property Taxes which may be levied or assessed by any
lawful authority against the land and improvements of the separate tax parcel
on which the Premises are located Tenant’s pro rata share under such
circumstances shall be apportioned according to the floor area of the Premises
as it relates to the total leasable floor area of all of the buildings
(including the Premises) situated in the separate tax parcel In which the
Premises is located Notwithstanding anything in this Section 10 1 to the
contrary, “Real Property Taxes” shall not include Landlord’s federal or state
income, franchise, Inheritance or estate taxes Upon Tenant’s request, Landlord
shall, at Tenant’s sole cost and expense, contest the amount of Real Property
Taxes for the Project, which contest shall be undertaken in a manner to be reasonably
determined by Landlord.

 

All Real
Property Taxes for the tax year in which the Early Occupancy Date occurs and
for the tax year In

 

 

which this
Lease terminates shall be apportioned and adjusted so that Tenant shall not be
responsible for any Real Property Taxes for a period of time occurring prior to
the Early Occupancy Date or subsequent to the expiration of the Lease term.

 

The amount to
be paid pursuant to the provisions of this Section 10.1 shall be paid monthly
in advance as part of Tenant’s Monthly Operating Expense Charge as estimated by
Landlord based on the most recent tax bills and estimates of reappraised values
(if reappraisal is to occur), commencing with the month (or partial month on a
prorated basis If such be the case) that the Commencement Date occurs The
initial estimated monthly charge for the Building’s Share of Real Property
Taxes is included in the Monthly Operating Expense Charge as provided in
Section 4

 

Notwithstanding
anything in this Lease to the contrary, Tenant shall be solely responsible for,
and shall pay directly to Landlord (in addition to Tenant’s Monthly Operating
Expense Charge pertaining to Real Property Taxes), any increase in Real
Property Taxes on account of any Improvements made to the Premises by Tenant including,
but not limited to, the Tenant Improvements

 

If at any time
during the Term under the laws of the United States, or the state, county,
municipality, or any political subdivision thereof In which the Premises is
located, a tax or excise on rent or any other tax however described is levied
or assessed by any such political body against Landlord on account of rent
payable to Landlord hereunder or any tax based on or measured by expenditures
made by Tenant on behalf of landlord, such tax or excise shall be considered
“Real Property Taxes” for purposes of this Section 10.1, and shall be payable
in full by Tenant. Such taxes or excises shall be payable within thirty (30)
days after Tenant’s receipt of the tax bill therefor from Landlord

 

10 2        Personal Property Taxes. 
Tenant shall be liable for, and shall pay before delinquency, all taxes
and assessments (real and personal) levied against (a) any personal property or
trade fixtures placed by Tenant in or about the Premises (including any
increase in the assessed value of the Premises based upon the value of any such
personal property or trade fixtures); and (b) any Tenant Improvements or
alterations in the Premises (whether installed and/or paid for by Landlord or
Tenant). If any such taxes or assessments are levied against Landlord or
landlord’s property, Landlord may, after written notice to Tenant (and under
proper protest if requested by Tenant) pay such taxes and assessments, and
Tenant shad reimburse Landlord therefor within thirty (30) days after demand by
Landlord; provided, however, Tenant, at Its sole cost and expense, shall have
the right, with Landlord’s cooperation, to bring suit in any court of competent
jurisdiction to recover the amount of any such
taxes and assessments so paid under protest

 

11       Repairs

 

11 1        Tenant’s Repair Obligations.  Except for Landlord’s obligations under Section 11 2 and except
for latent defects in the Premises not caused by Tenant or Tenant’s
improvements to the Premises, Tenant shall at all times and at Tenant’s sole
cost and expense, keep, maintain, clean, repair, renovate, retrofit, replace
and preserve the Premises and all parts thereof, structural and non-structural,
including, without limitation, utility meters, plumbing, pipes and conduits,
all heating, ventilating and air conditioning systems located within the
Premises, all fixtures, furniture and equipment. Tenant’s signs, if any, locks,
closing devices, security devices, windows, window sashes, casements and
frames, floors and floor coverings, shelving, restrooms, ceilings, interior
walls, roof, skylights, interior and demising walls, doors, electrical and
lighting equipment, sprinkler systems, walkways, loading dock areas and doors,
rail spur areas, fences, signs, and any Tenant improvements, Tenant Changes or
other alterations, additions and other property and/or fixtures located within
the Premises in good condition and repair, reasonable wear and tear excepted
Tenant shall at all times during the Term make all structural and
non-structural changes, repairs and improvements to the Premises of every kind
and nature, whether ordinary or extraordinary, foreseen or unforeseen, which
may be required by any Laws or for the safety of the Premises Tenant agrees to
procure and maintain maintenance contracts for all heating, ventilating and air
conditioning systems with reputable contractors reasonably approved by Landlord
Tenant agrees, at Tenant’s sole cost and expense, to use contractors designated
or otherwise approved by Landlord for any repairs to, or that will adversely
affect, the Building’s systems and equipment Such maintenance and repairs shall
be performed with due diligence, lien-free and in a good and workmanlike
manner, by

 

 

licensed contractor(s) which are selected by
Tenant and approved by Landlord, which approval Landlord shall not unreasonably
withhold or delay

 

11 2        Landlord’s Repair Rights and Obligations.  Except as provided in this Section 11 2,
Landlord has no obligation whatsoever to alter, remodel, improve, repair,
renovate, retrofit, replace, redecorate or paint all or any part of the
Premises Tenant waives the right to make repairs at Landlord’s expense under
any law, statute or ordinance now or  hereafter in
effect (including the provisions of California Civil Code Section 1942 and any
successive sections or statutes of a similar nature). If Tenant falls to
perform Tenant’s obligations under Section 11 1 hereof, or under any other
provision of this Lease, then Landlord shall have the option (but not the
obligation) to enter upon the Premises after ten (10) days’ prior written
notice to Tenant, or in the case of an emergency immediately without prior
notice, to perform such obligations on Tenant’s behalf necessary to return the
Premises to good order, condition and repair, whereupon the costs incurred by
Landlord shall become due and payable to Landlord, upon demand. together with a
fee of ten percent (10%) of the costs of such work for Landlord’s managing
agent In addition, Landlord shall, as part of Operating Expenses (but subject,
to the extent applicable, Section 4 4(xii) hereof) for the Project, repair and
maintain the Building shell, exterior walls, foundations and structural
portions of the roof; provided, however, to the extent such maintenance or
repairs are required as a result of any act, neglect, fault or omission of
Tenant or any of Tenant’s Parties or otherwise made necessary due to Tenant’s
use or occupancy of the Premises, Tenant shall pay to Landlord upon demand, as
additional rent, the costs of such maintenance and repairs, together with a fee
of ten percent (10%) of said costs

 

11 3        AS-IS Tenant acknowledges and agrees that, except to the
extent specifically set forth in this Lease and except for latent defects in
the Premises not caused by Tenant or Tenant’s improvements to the Premises,
Landlord has not made, does not make and specifically negates and disclaims any
representations, warranties, promises, covenants, agreements or guarantees of
any kind or character whatsoever concerning or with respect to (a) the value,
nature, quality or condition of the Premises, (b) the suitability of the
Premises for any and all activities and uses which Tenant may conduct thereon;
(c) tie compliance of the Premises with any laws, rules, ordinances or
regulations of any applicable governmental authority or body, including,
without limitation, environmental laws (collectively, “Laws”), (d) the
habitability, merchantability, marketability, profitability or fitness for a
particular purpose of the Premises, (e) the manner or quality of the construction
or materials incorporated into the Premises, (f) the manner, quality, state of
repair or lack of repair of the Premises; or (g) any other matter with respect
to the Premises Tenant further acknowledges and agrees that having been given
the opportunity to inspect the Premises, Tenant is retying solely on its own
Investigation of the Premises and not on any information provided or to be
provided by Landlord Tenant further acknowledges and agrees that any
information provided or to be provided by or on behalf of Landlord with respect
to the Premises, was obtained from a variety of sources and that Landlord has
not made any independent investigation or verification of such information and
makes no representations as to the accuracy or completeness of such information
Tenant further acknowledges and agrees that, except to the extent specifically
set forth In this Lease, the leasing of the Premises as provided for herein is
made on an “AS-IS” condition and basis with all faults Except as otherwise
expressly provided in this Lease, Landlord shall have no liability or
responsibility for any latent or patent defects in the Premises Tenant and
anyone claiming by, through or under Tenant hereby fully and irrevocably
releases Landlord from any and all claims that it may now have or hereafter
acquire against Landlord for any cost, loss, liability, damage, expense,
demand, action or cause of action arising from or related to any construction
defects, errors, omissions or other conditions, including, but not limited to,
environmental matters (but subject to Landlord’s indemnity set forth In Section
6 3 hereof), now or hereafter affecting the Premises. This release Includes
claims of which Tenant Is presently unaware or which Tenant does not presently
suspect to exist in its favor which, if known by Tenant, would materially
affect Tenant’s release of Landlord Tenant specifically waives the provision of
California Civil Code § 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 favor at the time of executing the release, which If known by him must
have materially affected his settlement with the debtor”

 

 

12       Alterations.

 

12 1        Tenant
Changes; Conditions

 

(a)                                  Tenant
shall not make any alterations, additions, improvements or decorations to the
Premises (collectively, “Tenant Changes,” and individually, a “Tenant Change”)
unless Tenant first obtains Landlord’s prior written approval thereof, which
approval Landlord shall not unreasonably withhold or delay Notwithstanding the
foregoing, Landlord’s prior approval shall not be required for any Tenant
Change which satisfies all of the following conditions (hereinafter a
“Pre-Approved Change”): (i) the costs of such Tenant Change does not exceed Twenty-Five
Thousand Dollars ($25,000 00) individually, (ii) the costs of such Tenant
Change when aggregated with the costs of all other Tenant Changes made by
Tenant do not exceed One Hundred Thousand Dollars ($100,000 00) In any one (1)
year period, (iii) Tenant delivers to Landlord final plans, specifications and
working drawings for such Tenant Change at least ten (10) days prior to
commencement of the work thereof, (iv) Tenant and such Tenant Change otherwise
satisfy all other conditions set forth in this Section 12 1, and (v) the Tenant
Change does not affect the structural, mechanical, life-safety, the roof or the
exterior of the Premises

 

(b)                                 All
Tenant Changes shall be performed: (i) in accordance with the approved plans,
specifications and working drawings; (ii) lien-free and In a good and
workmanlike manner, (iii) In compliance with all laws, rules and regulations of
all governmental agendas and authorities including, without limitation, the
provisions of Title Ill of the ADA, and (iv) at such times, In such manner and
subject to such rules and regulations as Landlord may from time to time
reasonably designate

 

(c)                                  Throughout
the performance of the Tenant Changes, Tenant shall obtain, or cause its
contractors to obtain, workers compensation insurance and commercial general
liability insurance in compliance with the provisions of Section 20 of this
Lease

 

12 2        Removal of Tenant Changes and Tenant Improvements. All
Tenant Changes and the initial Tenant Improvements in the Premises (whether
installed or paid for by Landlord or Tenant), shall become the property of
Landlord and shall remain upon and be surrendered with the Premises at the end
of the Term of this Lease, provided, however, Landlord may, by written notice
delivered to Tenant on or before the expiration of the Lease Term (or upon any
sooner termination of this Lease) identify those items of the Initial Tenant
Improvements and Tenant Changes which Landlord shall require Tenant to remove
at the end of the Term of this Lease Landlord shall notify Tenant nine (9)
months before the expiration of the Lease Term of any Tenant Changes and Tenant
Improvements that Landlord shall require Tenant to remove at the end of the
Term of this Lease If Landlord requires Tenant to remove any such items as
described above, Tenant shall, at its sole cost, remove the identified items on
or before the expiration or sooner termination of this Lease and repair any
damage to the Premises caused by such removal (or, at Landlord’s option, shall
pay to Landlord all of Landlord’s costs of such removal and repair).
Notwithstanding anything above to the contrary, Tenant shall have the right, at
Tenant’s sole cost and expense, to remove any Tenant Improvements in the
Premises that constitute Tenant’s biomedical manufacturing use improvements (as
opposed to those Tenant Improvements that are general office type improvements)
(the “Special Improvements”), which Special Improvements are more particularly
described on Exhibit “C-3” attached hereto, provided, however that
Tenant shall remove such Special Improvements on or before the expiration or
sooner termination of this Lease and repair any damage to the Premises caused
by the removal of such Special Improvements (or, at Landlord’s option, shall
pay to Landlord all of Landlord’s costs of such removal and repair)

 

12 3        Removal of Personal Property.  All articles of personal property owned by Tenant or installed by
Tenant at its expense in the Premises (including business and trade fixtures,
furniture and movable partitions) shall be, and remain the property of Tenant,
and shall be removed by Tenant from the Premises, at Tenant’s sole cost and
expense, on or before the expiration or sooner termination of this Lease Tenant
shall repair any damage caused by such removal

 

 

12 4        Tenant’s Failure to Remove. 
If Tenant falls to remove by the expiration or sooner termination of
this Lease all of its personal property, or any Items of Tenant Improvements or
Tenant Changes identified by Landlord for removal pursuant to Section 12 2
above, Landlord may, (without liability to Tenant for loss thereof), at
Tenant’s sole cost and in addition to Landlord’s other rights and remedies
under this Lease, at law or in equity (a) remove and store such items in
accordance with applicable law, and/or (b) upon ten (10) days’ prior notice to
Tenant sell all or any such items at private or public sale for such price as
Landlord may obtain as permitted under applicable law Landlord shall apply the
proceeds of any such sale to any amounts due to Landlord under this Lease from
Tenant (including Landlord’s attorneys’ fees  and other
costs incurred in the removal, storage and/or sale of such items), with any
remainder to be paid to Tenant

 

13       Liens.  Tenant shall not permit any mechanic’s, materialmen’s or other
liens to be filed against all or any part of the Premises, nor against Tenant’s
leasehold interest in the Premises, by reason of or in connection with any
repairs, alterations, improvements or other work contracted for or undertaken
by Tenant or any other act or omission of Tenant or Tenant’s agents, employees,
contractors, licensees or Invitees. Tenant shall, at Landlord’s request,
provide Landlord with enforceable, conditional and final lien releases (and
other reasonable evidence reasonably requested by Landlord to demonstrate
protection from liens) from all persons furnishing labor and/or materials with
respect to the Premises Landlord shall have the right at all reasonable times
to post on the Premises and record any notices of non-responsibility which it
deems necessary for protection from such liens If any such liens are filed,
Tenant shall, at its sole cost, immediately cause such lien to be released of
record or bonded so that it no longer affects title to the Premises If Tenant
falls to cause such lien to be so released or bonded within thirty (30) days
after filing thereof, Landlord may, without waiving its rights and remedies
based on such breach, and without releasing Tenant from any of its obligations,
cause such lien to be released by any means it shall deem proper, including
payment in satisfaction of the claim giving rise to such lien Tenant shall pay
to Landlord within thirty (30) days alter receipt of invoice from Landlord, any
sum paid by Landlord to remove such liens, together with interest at the Interest
Rate from the date of such payment by Landlord

 

14       Assignment and Subletting.

 

14 1        Restriction on Transfer. 
Tenant will not assign or encumber this Lease in whole or in part, nor
sublet all or any part of the Premises, without the prior mitten consent of
Landlord, which consent Landlord will not unreasonably withhold, except as
provided in this Section 14 The consent by Landlord to any assignment,
encumbrance or subletting shall not constitute a waiver of the necessity for
such consent to any subsequent assignment or subletting This prohibition
against assigning or subletting shall be construed to include a prohibition
against any assignment or subletting by operation of law If this Lease is
assigned by Tenant, or it the Premises or any part thereof are sublet or
occupied by any person or entity other than Tenant, Landlord may collect rent
from the assignee, subtenant or occupant, and apply the net amount collected to
the rent herein reserved, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver on the part of Landlord, or the acceptance
of the assignee, subtenant or occupant as Tenant, or a release of Tenant from
the further performance by Tenant of covenants on the pan of Tenant herein
contained unless expressly made in writing by Landlord irrespective of any
assignment or sublease, Tenant shall remain fully liable under this Lease and
shall not be released from performing any of the terms, covenants and
conditions of this Lease. Without limiting In any way Landlord’s right to
withhold its consent on any reasonable grounds, it is agreed that Landlord will
not be acting unreasonably in refusing to consent to an assignment or sublease
if, in Landlord’s opinion, (i) the net worth or financial capabilities of such
assignee is less than that of Tenant at the date
hereof, (ii) the proposed assignee or subtenant does not have the financial
capability to fulfill the obligations imposed by the assignment, (iii) the
proposed assignment or sublease involves a change of use of the Premises from
that specified herein, or (iv) the proposed assignee or subtenant is not, in
Landlord’s reasonable opinion, of reputable or good character Any proposed
assignee or subtenant which Landlord does not disapprove shall be deemed a
“Permitted Business.” Except with respect to a transfer of stock of Tenant if
Tenant is a publicly-held corporation and such stock is transferred publicly or
through a recognized security exchange or over-the-counter market, if Tenant is
a corporation, or is an unincorporated association or partnership, the
transfer, assignment or hypothecation of any stock or interest in such
corporation,

 

 

association or partnership in the aggregate
in excess of forty-nine percent (49%) shall be deemed an assignment within the
meaning and provisions of this Section 14 1

 

14 2        Transfer Notice.  If
Tenant desires to effect an assignment, encumbrance or subletting (a
“Transfer”), then at least thirty (30) days prior to the date when Tenant
desires the Transfer to be effective (the “Transfer Date”), Tenant agrees to
give Landlord a notice (the “Transfer Notice”), stating the name, address and
business of the proposed assignee, sublessee or other transferee (sometimes
referred to hereinafter as “Transferee”), reasonable information (including
references) concerning the character, ownership, and financial condition of the
proposed Transferee, the Transfer Date, any ownership or commercial
relationship between Tenant and the proposed Transferee, and the consideration
and all other material terms and conditions of the proposed Transfer, all in
such detail as Landlord may reasonably require

 

14 3        Landlord’s Options. 
Within fifteen (15) days of Landlord’s receipt of any Transfer Notice,
and any additional information requested by Landlord concerning the proposed
Transferee’s financial responsibility, Landlord will notify Tenant of Its
election to do one of the following (i) consent to the proposed Transfer
subject to such reasonable conditions as Landlord may impose in providing such
consent; or (ii) refuse such consent, which refusal shall be on reasonable
grounds, or (iii) with respect to a Transfer (but not including a Transfer to
an Affiliate or to a Special Transferee) of more than fifty-one percent (51%)
of the Premises, terminate this Lease as to all of the Premises or, in
Landlord’s sole and absolute discretion, such portion of the Premises which is
proposed to be sublet or assigned and recapture all or such portion of the
Premises for reletting by Landlord

 

14 4        Additional Conditions. 
A condition to Landlord’s consent to any Transfer of this Lease will be
the delivery to Landlord of a true copy of the fully executed instrument of
assignment, sublease, transfer or hypothecation, in form and substance
reasonably satisfactory to Landlord Tenant agrees to pay to Landlord, as
additional rent, fifty percent (50%) of all sums and other consideration
payable to and for the benefit of Tenant by the assignee or sublessee in excess
of the rent payable under this Lease for the same period and portion of the
Premises In calculating excess rent or other consideration which may be payable
to Landlord under this Section, Tenant will be entitled to deduct commercially
reasonable third party brokerage commissions and attorneys’ fees and other
amounts reasonably and actually expended by Tenant in connection with such
assignment or subletting if acceptable written evidence of such expenditures is
provided to Landlord No Transfer will release Tenant of Tenant’s obligations
under this Lease or alter the primary liability of Tenant to pay the Rent and
to perform all other obligations to be performed by Tenant hereunder landlord
may require that any Transferee remit directly to Landlord on a monthly basis,
all monies due Tenant by said Transferee, and each sublease shall provide that
if Landlord gives said sublessee written notice that Tenant is in default under
this Lease, said sublessee will thereafter make all payments due under the
sublease directly to or as directed by Landlord, which payments will be
credited against any payments due under this Lease. Tenant hereby irrevocably
and unconditionally assigns to Landlord all rents and other sums payable under
any sublease of the Premises, provided, however, that Landlord hereby grants
Tenant a license to collect all such rents and other sums so long as Tenant is
not In default under this Lease Tenant shall, within ten (10) days after the
execution and delivery of any assignment or sublease, deliver a duplicate
original copy thereof to Landlord. Consent by Landlord to one Transfer will not
be deemed consent to any subsequent Transfer. In the event of default by any
Transferee of Tenant or any successor of Tenant in the performance of any of
the terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against such Transferee or successor If Tenant
effects a Transfer or requests the consent of Landlord to any Transfer (whether
or not such Transfer is consummated), then, upon demand, and as a condition
precedent to Landlord’s consideration of the proposed assignment or sublease,
Tenant agrees to pay Landlord a non-refundable administrative fee of Five
Hundred Dollars ($500.00), plus Landlord’s reasonable attorneys’ fees and costs
and other costs incurred by Landlord in reviewing such proposed assignment or
sublease Notwithstanding any contrary provision cleft Lease, if Tenant or any
proposed Transferee claims that Landlord has unreasonably withheld or delayed
its consent to a proposed Transfer or otherwise has breathed its obligations
under this Section 14, Tenants and such Transferee’s only remedy shall be to
seek a declaratory judgment and/or injunctive relief, and Tenant, on behalf of
itself and, to the extent permitted by law, such proposed Transferee waives,
unless Landlord’s consent was

 

 

withheld in bad faith, all other remedies
against Landlord, including without limitation, the right to seek monetary
damages or to terminate this Lease

 

14 5        Permitted Transfers. 
Notwithstanding anything to the contrary contained in this Article 14,
Landlord consents to the Transfer of the Premises to an adequately capitalized
entity which is controlled by, controls, or is under common control with,
Tenant (an “Affiliate”), provided that Tenant notifies Landlord of any such
Transfer prior to the effective date thereof and promptly supplies Landlord
with any documents or information requested by Landlord regarding such Transfer
or such Affiliate (Including an assumption of Tenant’s obligations under this
Lease), and further provided that such Transfer is not a subterfuge by Tenant
to avoid its obligations under this Lease. “Control,” as used in this Section
14 5, shall mean the ownership, directly or indirectly, of greater than fifty
percent (50%) of the voting interest in an entity

 

15       Entry by Landlord. Landlord and its
employees and agents shall at all reasonable times following prior notice to
Tenant (which notice, except in the case of emergencies and except with  respect to ordinary services to be
provided by Landlord within the Premises, shall be no less than twenty-four
(24) hours prior notice), have the right to enter the Premises to inspect the
same, to exhibit the Premises to prospective lenders or purchasers (or during
the last twelve (12) months of the Term, to prospective tenants), to post
notices of non-responsibility, and/or to alter, improve or repair the Premises
as contemplated by Section 11 2 In the event Tenant fails to perform its
obligations under Section 11 1, all without being deemed guilty of or liable
for any breach of Landlord’s covenant of quiet enjoyment or any eviction of
Tenant, and without abatement of rent. In exercising such entry rights,
Landlord shall endeavor to minimize, as reasonably practicable, the
interference with Tenant’s business, and shall provide Tenant with reasonable
advance written notice of such entry (except In emergency situations) Landlord
shall have the means which Landlord may deem proper to open Tenant’s doors in
an emergency in order to obtain entry to the Premises. Any such entry (in accordance
with the terms hereof) to the Premises obtained by Landlord by any of said
means or otherwise shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction of Tenant from the Premises or any portion thereof, or grounds for any
abatement or reduction of Rent and Landlord shall not have any liability to
Tenant for any damages or losses on account of any such entry by Landlord
except, subject to the provisions of Sections 21.1 and 23, to the extent of
Landlord’s gross negligence or willful misconduct Except for services (if any)
required to be provided by Landlord to the Premises under this Lease and except
in the case of emergencies, Landlord’s entry rights are conditioned upon a
representative of Tenant (but only to the extent a representative is available)
accompanying Landlord during any other entry into the Premises

 

16       Utilities and Services.  Except for Landlord’s Work (as
such term is defined in Exhibit “C”), Tenant shall be solely responsible
for obtaining and shall promptly pay all charges for heat, air conditioning,
water, gas, electricity or any other utility used, consumed or provided in,
furnished to or attributable to the Premises directly to the supplying utility
companies Tenant shall reimburse Landlord within thirty (30) days of billing
for fixture charges and/or water tariffs, if applicable, which are charged to
Landlord by utility companies Landlord will notify Tenant of this charge as
soon as it becomes known This charge will increase or decrease with current
charges being levied against Landlord or the Premises by the local utility
company, and will be due as additional rent In no event shall Rent abate or
shall Landlord be liable for any interruption or failure in the supply of any
such utility services to Tenant.  Tenant
acknowledges and agrees that Tenant shall be solely responsible for providing
security for the Premises and that Landlord shall not be liable for, and
Landlord is hereby released from any responsibility for, any damage either to
persons or property sustained by Tenant or any Tenant Parties on account of any
acts of third parties Tenant may, at its own expense, install its own security
system (“Tenant’s Security System”) in the Premises, provided, however, that
Tenant shall coordinate the installation and operation of Tenant’s Security
System with Landlord to assure that Tenant’s Security System is compatible with
the Building’s systems and equipment and to the extent that Tenant’s Security System
is not compatible with the Building’s systems and equipment. Tenant shall not
be entitled to install or operate it. 
Tenant shall  be solely
responsible, at Tenant’s sole cost and expense, for the monitoring, operation
and removal of Tenant’s Security System

 

 

17       Indemnification and Exculpation

 

17 1        Tenants Assumption of Risk and Waiver.  Except to the extent such matter is not
covered by the insurance required to be maintained by Tenant under this Lease
and such matter is attributable to the gross negligence or willful misconduct
of Landlord or Landlord’s agent(s), Landlord shall not be liable to Tenant.
Tenant’s employees, agents or Invitees for (i) any damage to property of
Tenant, or of others, located in, on or about the Premises, (ii) the loss of or
damage to any property of Tenant or of others by theft or otherwise, (iii) any
injury or damage to persons or properly resulting from fire, explosion, falling
plaster, steam, gas, electricity, water, rain or leaks from any part of the
Premises or from the pipes, appliance of plumbing works or from the roof,
street or subsurface or from any other places or by dampness or by any other
cause of whatsoever nature, or (iv) any such damage caused by other persons in
the Premises, occupants of adjacent property, or the public, or caused by
operations in construction of any private, public or quasi-public work Landlord
shall in no event be liable for any consequential damages or loss of business
or profits and Tenant hereby waives any and all claims for any  such damages All property of Tenant kept or stored on the
Premises shall be so kept or stored at the sole risk of Tenant and Tenant shall
hold Landlord harmless from any claims arising out of damage to the same,
including subrogation claims by Tenant’s insurance carriers, unless such damage
shall be caused by the gross negligence or willful misconduct of Landlord or
Landlord’s agent(s) Landlord or its agents shall not be liable for interference
with the light or other intangible rights.

 

17 2        Indemnification. 
Tenant shall be liable for, and shall indemnify, defend, protect and
hold Landlord and Landlord’s partners, officers, directors, employees, agents,
successors and assigns (collectively, “Landlord indemnified Parties”) harmless
from and against, any and all claims, damages, judgments, suits, causes of
action, losses, liabilities and expenses, including attorneys’ fees and court
costs (collectively, “Indemnified Claims”), arising or resulting from (a) any
ad or omission of Tenant or any of Tenant’s agents, employees, contractors,
subtenants, assignees, licensees or Tenant’s invitees (collectively, “Tenant
Parties”), (b) the use of the Premises and conduct of Tenant’s business by
Tenant or any Tenant Parties, or any other activity, work or thing done, permitted
or suffered by Tenant or any Tenant Parties, in or about the Premises, and/or
(c) any default by Tenant of any obligations on Tenant’s part to be performed
under the terms of this Lease In case any action or proceeding is brought
against Landlord or any Landlord Indemnified Parties by reason of any such
Indemnified Claims, Tenant, upon notice from Landlord, shall defend the same at
Tenant’s expense by counsel approved in writing by Landlord, which approval
shall not be unreasonably withheld.

 

17 3        Landlord’s Indemnification of Tenant.  Notwithstanding anything to the contrary
contained In Section 17 2 above, subject to the limitation on Landlord’s
liability contained in Section 30 below and the mutual waivers contained in
Section 21 1 below, Landlord will be liable for, and agrees to indemnify,
protect, defend and hold harmless Tenant and Tenant’s agents, successors and
assigns (collectively, “Tenant Indemnified Parties”), from and against, any
Indemnified Claims (as defined in Section 17 2 above) (but not for injury to,
or interference with, Tenant’s or any Tenant Indemnified Parties’ business or
for consequential damages), to the extent any such Indemnified Claim arises or
results from (a) any negligent or willful act or omission of Landlord, (b) any
default by Landlord of any obligations on Landlord’s part to be performed under
the terms of this Lease; and (c) to the extent covered by the insurance
required to be maintained by Landlord under this Lease (or which would have
been covered if Landlord had carried such required insurance), any acts or
omissions of any third parties occurring in the Common Areas other than the
gross negligence or willful misconduct of Tenant or any Tenant’s Parties,
provided, however, that Landlord’s indemnity shall not apply or extend to any
such damage or injury which occurs within the Premises which is covered by any
insurance maintained by Tenant or any Tenant indemnified Parties (or which
would have been covered had Tenant obtained the Insurance required under this
Lease) In case any action or proceeding Is brought against Tenant or any Tenant
indemnified Parties by reason of any such injury or damage indemnified by
Landlord as set forth hereinabove, Landlord, upon notice from Tenant, agrees to
defend the same at Landlord’s expense by counsel approved in writing by Tenant,
which approval Tenant will not unreasonably withhold.

 

17 4        Survival; No Release of Insurers. Tenant’s indemnification
obligation under Section 17 2, shall survive the expiration or earlier
termination of this Lease Tenant’s covenants, agreements and

 

 

indemnification in Sections 17.1 and 17.2
above, are not intended to and shall not relieve any insurance carrier of Its
obligations under policies required to be carried by Tenant, pursuant to the
provisions of this Lease

 

18       Damage or Destruction.

 

18 1        Landlord’s Rights and Obligations.  In the event the Premises are damaged by fire or other casualty
to an extent not exceeding forty percent (40%) of the full replacement cost
thereof, and Landlord’s contractor estimates in a writing delivered to the
parties that the damage thereto is such that the Premises may be repaired,
reconstructed or restored to substantially its condition immediately prior to
such damage within two hundred ten (210) days from the date of such casualty,
an Landlord will receive insurance proceeds sufficient to cover the costs of
such repairs, reconstruction and restoration (including proceeds from Tenant
and/or Tenant’s Insurance which Tenant is required to deliver to Landlord
pursuant to Section 18 2 below), then Landlord shall commence and proceed
diligently with the work of repair, reconstruction and restoration and this
Lease shall continue in full force and effect If, however, the Premises are
damaged to an extent exceeding forty percent (40%) of the full replacement cost
thereof, or Landlord’s contractor estimates that such work of repair,
reconstruction and restoration will require longer than two hundred ten (210)
days to complete, or Landlord will not receive insurance proceeds (and/or
proceeds from Tenant, as applicable) sufficient to cover the costs of such
repairs, reconstruction and restoration, then Landlord may elect to either

 

(a)                                  repair,
reconstruct and restore the portion of the Premises damaged by such casualty
(including the Tenant Improvements and Tenant Changes to the extent of
insurance proceeds received from Tenant) to substantially the same condition as
existed before the damage or destruction, except for modifications required by
building codes and other laws and except for any reasonable modifications to
the common areas, in which case this Lease shall continue In full force and
effect, or

 

(b)                                 terminate
this Lease effective as of the date which is thirty (30) days after Tenant’s
receipt of Landlord’s election to so terminate.

 

Under any of
the conditions of this Section 18 1, Landlord shall give written notice
(“Election Notice”) to Tenant of its intention to repair or terminate within
the later of sixty (80) days Martha occurrence of such casualty, or fifteen
(I5) days after Landlord’s receipt of the estimate from Landlord’s contractor
Notwithstanding anything above to the contrary, in the event of a damage or
destruction of the Premises where Landlord has made the election In Section 18
1(a) above, Tenant shall have the right to elect to perform the reconstruction
and restoration of the Tenant Improvements, which reconstruction and
restoration shall be performed In a diligent manner and In accordance with the
Work Letter Agreement attached hereto and otherwise In accordance with Section
12 hereof

 

18 2        Tenant’s Costs and Insurance Proceeds.  In the event of any damage or destruction of
all or any part of the Premises, Tenant shall immediately: (a) notify Landlord
thereof; and (b) deliver to Landlord all insurance proceeds received by Tenant
with respect to the Tenant Improvements and Tenant Changes in the Premises
(excluding proceeds for Tenants furniture and other personal property), whether
or not this Lease is terminated as permitted in this Section 18, and Tenant
hereby assigns to Landlord all rights to receive such insurance proceeds. In
the event Tenant has elected to reconstruct and restore the Tenant Improvements
pursuant to Section 18 1 above, than Landlord shall disburse such insurance
proceeds to Tenant on a progress payment basis during Tenant’s reconstruction
and restoration of the Tenant Improvements. If, for any reason (including
Tenant’s failure to obtain Insurance for the full replacement cost of any
Tenant Changes which Tenant is required to insure pursuant to Sections 12.1
and/or 20 1(a) hereof). Tenant fails to receive insurance proceeds covering the
full replacement cost of such Tenant Improvements and Tenant Changes which are
damaged, Tenant shall be deemed to have self-Insured the replacement cost of
such Tenant Improvements and Tenant Changes, and upon any damage or destruction
thereto, Tenant shall immediately pay to Landlord the full replacement cost of
such Items, less any insurance proceeds actually received by Landlord from
Landlord’s or Tenant’s insurance with respect to such items.

 

 

18 3        Abatement of Rent. 
In the event that as a result of any such damage, repair, reconstruction
and/or restoration of the Premises, Tenant is prevented from using, and does
not use, the Premises or any portion thereof, than the rent shell be abated or
reduced, as the case may be, during the period that Tenant continues to be so
prevented from using and does not use the Premises or portion thereof, in the
proportion that the rentable square feet  of the portion
of the Premises that Tenant is prevented from using, and does not use, bears to
the total rentable square feet of the Premises. Notwithstanding the foregoing
to the contrary, if the damage is due to the negligence or willful misconduct
of Tenant or any Tenant Parties, there shall be no abatement of rent. Except
for abatement of rent as provided hereinabove, Tenant shall not be entitled to
any compensation or damages for loss of, or Interference with, Tenant’s
business or use or access of all or any part of the Premises resulting from any
such damage, repair, reconstruction or restoration.

 

18 4        Inability to Complete. Notwithstanding anything to the
contrary contained in this Section 18, If Landlord is obligated or elects to
repair, reconstruct and/or restore the damaged portion of the Premises pursuant
to Section 18.1 above, but is delayed from completing such repair,
reconstruction and/or restoration beyond the date which is two hundred ten
(210) days after the date of the damage or destruction or the date specified in
Landlord’s Election Notice, whichever is later, then any party who has not
caused such delay may elect to terminate this Lease upon thirty (30) days’
prior written notice sent to the other, provided, however, if Tenant terminates
this Lease, Landlord may rescind such termination by completing such work
within twenty (20) days following Landlord’s receipt of Tenants written notice
to terminate. In no event will Tenant have the right to terminate this Lease
pursuant to this Section 18 4 to the extent Tenant has elected to perform the
reconstruction and restoration of the Tenant Improvements pursuant to Section
18 1 above

 

18 5        Damage to the Project. 
If there is a total destruction of the Project or a partial destruction
of the Project, the cost of restoration of which would exceed one-third (1/3)
of the then replacement value of the Project, by any cause whatsoever, whether
or not insured against and whether or not the Premises are partially or totally
destroyed, Landlord may within a period of one hundred eighty (180) days after
the occurrence of such destruction, notify Tenant in writing that it elects not
to so reconstruct or restore the Project, in which event this Lease shall cease
and terminate as of the date of such destruction

 

18 6        Damage Near End of Term.  In
addition to its termination rights in Sections 18.1 and 18.4 above, Landlord
shall have the right to terminate this Lease if any damage to the Premises
occurs during the last twelve (12) months of the Term of this Lease and
Landlord’s contractor estimates in a writing delivered to the parties that the
repair, reconstruction or restoration of such damage cannot be completed within
the earlier of (a) the scheduled expiration date of the Lease Term, or (b)
sixty (60) days after the date of such casualty

 

18 7        Waiver of Termination Right.  This Lease sets forth the terms and conditions upon which this
Lease may terminate In the event of any damage or destruction Accordingly, the
parties hereby waive the provisions of California Civil Code Section 1932,
Subsection 2, and Section 1933, Subsection 4 (and any successor statutes
thereof permitting the parties to terminate this Lease as a result of any
damage or destruction)

 

19       Eminent Domain

 

19 1        Total or Partial Taking. In case all of the Premises, or
such part thereof as shall materially and substantially interfere with Tenant’s
ability to conduct its business upon the Premises, shall be taken for any
public or quasi-public purpose by any lawful power or authority by exercise of
the right of appropriation, condemnation or eminent domain, or sold to prevent
such taking, Tenant shall have the right to terminate this Lease effective as
of the date possession is required to be surrendered to said authority Tenant
shall not assert any claim against Landlord or the taking authority for any
compensation because of such taking, and Landlord shall be entitled to receive
the entire amount of any award without deduction for any estate or interest of
Tenant, provided, however, in the event of such a
taking, Tenant shall be entitled to such portion of the award as shall be
attributable to the loss of the unamortized cost of the Improvements to the
Premises made and paid for by Tenant pursuant to Exhibit “C” (such

 

 

amortization being the same as that used by
Tenant for federal income tax purposes), goodwill and for damage to, or the
cost of removal of, Tenant’s personal property In the event the amount of
property or the type of  estate taken
shall not materially and substantially interfere with the ability of Tenant to
conduct its business upon the Promises, Landlord shall be entitled to the
entire amount of the award without deduction for any estate or interest of
Tenant, Landlord shall restore the Premises to substantially their same
condition prior to such partial taking to the extent of any award proceeds
received by Landlord, and a fair and equitable abatement shall be made to
Tenant for the Annual Rent corresponding to the time during which, and to the
part of the Premises of which, Tenant shall be so deprived on account of such
taking and restoration if  the award
proceeds from the taking are insufficient to restore the Premises as required
by the preceding sentence and Landlord does not provide its own funds to so
restore the Premises, and if as a result thereof Tenant’s ability to use the
Premises as contemplated by this Lease is materially and substantially
Impaired, then Tenant may elect to terminate this Lease by giving Landlord
written notice thereof; provided. however, Landlord may rescind such termination
by giving Tenant written notice within ten (10) business days following
Landlord’s receipt of such termination notice from Tenant that Landlord will
provide the necessary funds to so restore the Premises Notwithstanding anything
above to the contrary, if  any part of
the Project shall be taken (whether or not such taking substantially Interferes
with Tenant’s use of the Premises), Landlord may terminate this Lease upon
thirty (30) days’ prior written notice to Tenant as long as Landlord also
terminates leases of all other tenants leasing comparably sized space within
the Project for comparable lease terms

 

19 2        Temporary Taking.  In
the event of taking of the Premises or any part thereof for temporary use, (i)
this Lease shall be and remain unaffected thereby and Rent shall not abate, and
(ii) Tenant shall be entitled to receive for itself such portion or portions of
any award made for such use with respect to the period of the taking which is
within the Lease Term For purposes of this Section 19 2, a temporary taking
shall be defined as a taking for a period of one (1) year or less

 

19 3        Waiver of Termination. Tenant and Landlord waive any right
to terminate this Lease under Section 1265 130 of the California Code of Civil
Procedure, or any similar statute or law now or hereafter in force.

 

20       Insurance.

 

20 1        Types of Tenant’s Insurance.  On or before the earlier of the Early Occupancy Date or the date
Tenant commences or causes to be commenced any work of any type in or on any
portion of the Premises, and continuing during the entire Term, Tenant shall
obtain and keep In full force and effect respecting the Premises, the following
insurance

 

(a)                                  All
Risk insurance. including fire and extended coverage, sprinkler leakage
(including earthquake sprinkler leakage), vandalism and malicious mischief upon
property of every description and kind located on the premises, including,
without limitation, furniture, equipment and any other personal property, any
Tenant Changes and the Tenant Improvements (but excluding any improvements
previously existing in the Premises) in an amount not less then the full
replacement cost thereof. In the event that there shall be a dispute as to the
amount which comprises full replacement cost, the decision of Landlord or the
mortgagees of Landlord shall be presumptive

 

(b)                                 Commercial
general liability insurance coverage, including personal injury, bodily injury
(including wrongful death), broad form property damage, operations hazard,
owner’s protective coverage, contractual liability, liquor liability (if Tenant
serves or stores alcohol on the Premises), products and completed operations
liability, and owned/non-owned auto liability, with a general aggregate of not
less than Two Million Dollars ($2,000,000 00) The general aggregate amount of
such commercial general liability insurance shall be increased every three (3)
years during the Term of this Lease to an amount reasonably required by
Landlord but only to the extent such increase is required of tenants comparable
to Tenant by landlords of buildings comparable to the Building

 

 

(c)                                  Workers
compensation and employer’s liability insurance, in statutory amounts and
limits, covering all persons employed in connection with any work done in, on
or about the Premises for which claims for death or bodily injury could be
asserted against Landlord, Tenant or the Premises.

 

(d)                                 Any
other form or forms of Insurance as Tenant or Landlord or the mortgagees of
Landlord may reasonably require from time to time, in form, amounts and for
Insurance risks against which a prudent tenant would protect itself, but only
to the extent such risks and amounts are available in the Insurance market at
commercially reasonable costs and Is required of tenants comparable to Tenant
by landlords of buildings comparable to the Building.

 

20 2        Requirements.  Each
policy required to be obtained by Tenant hereunder shall. (a) be
issued by insurers authorized to do business in the state in which  the Premises is located and rated not less than financial
class VII, and not less than policyholder rating A- in the most recent version
of Best’s Key Rating Guide (provided that, in any event, the same insurance
company shall provide the coverages described in Section 20.1(a) above), (b) be
in form reasonably satisfactory from time to time to Landlord, (c) name Tenant
as named insured thereunder and shall name Landlord and, at Landlord’s request,
Landlord’s mortgagees and ground lessors of which Tenant has been informed in
writing, as additional insureds (and with respect to the insurance described in
Section 20 1(a) above, as loss-payees) thereunder, all as their respective
interests may appear, (d) shall not have a property insurance deductible amount
exceeding Twenty-Five Thousand Dollars ($25,000.00), (e) specifically provide
that the insurance afforded by such policy for the benefit of Landlord and
Landlord’s mortgagees and ground lessors shall be primary, and any insurance
carried by Landlord or Landlord’s mortgagees and ground lessors shall be excess
and non-contributing, (i) except for worker’s compensation insurance, contain
an endorsement that the insurer waives its right to subrogation as described in
Section 22 below, and (g) contain an undertaking by the Insurer to notify
Landlord (and the mortgagees and ground lessors of Landlord who are named as
additional Insureds) in writing not less than thirty (30) days prior to any
change, reduction in coverage, cancellation or other termination thereof Tenant
agrees to deliver to Landlord, as soon as practicable after the placing of the
required insurance, but in no event later than ten (10) days after the data
Tenant takes possession of all or any part of the Premises, certificates from
the insurance company evidencing the existence of such Insurance and Tenant’s
compliance with the foregoing provisions of this Section 20) Tenant shall cause
replacement certificates to be delivered to Landlord not less than thirty (30)
days prior to the expiration of any such policy or policies If any such Initial
or replacement certificates are not furnished within the times) specified
herein, Tenant shall be deemed to be In material default under this Lease
without the benefit of any additional notice or cure period provided in Section
22 1 below, and Landlord shall have the right, but not the obligation, to
procure such policies and certificates at Tenant’s expense

 

20 3        Effect on Insurance. Tenant shall not do or permit to be
done anything which (a) will violate or invalidate any insurance policy
maintained by Tenant or Landlord hereunder or (b) increase the costs of any
insurance policy maintained by Landlord pursuant to Section 20.4 below. If
Tenant’s occupancy or conduct of its business in or on the Premises results In
any increase in premiums for any insurance carried by Landlord with respect to
the Building and/or the Project, Tenant shall pay such increase as additional
rent within thirty (30) days after being billed therefor by Landlord. If any
insurance coverage canted by Landlord shall be cancelled or reduced (or
cancellation or reduction thereof shall be threatened) by reason of the use or
occupancy of the Premises by Tenant or by anyone permitted by Tenant to be upon
the Premises, and if Tenant fails to remedy such condition within five (5)
business days after notice thereof, Tenant shall be deemed to be in default
under this Lease, without the benefit of any additional notice or cure period
specified In Section 22 1 below, and Landlord shall have all remedies provided
in this Lease, at law or in equity, including, without limitation, the right
(but not the obligation) to enter upon the Premises and attempt to remedy such
condition at Tenant’s cost.

 

20 4        Landlord’s Insurance. 
During the Term, Landlord shall insure the Common Area Improvements and
the Premises (excluding, however, Tenant’s furniture, equipment, personal
property, the Tenant Improvements and Tenant Changes) against damage by fire
and standard extended coverage perils and

 

 

with vandalism and malicious mischief
endorsements, rental loss coverage, at Landlord’s option, earthquake damage
coverage, and such additional coverage as Landlord deems appropriate Landlord
shall also carry commercial general liability Insurance, in such reasonable
amounts and with such reasonable deductibles as would be carried by a prudent
owner of a similar building in the state in which the Bulking is located. At
Landlord’s option, all such insurance may be carried under any blanket or
umbrella policies which Landlord has in force for other buildings and projects
In addition, at Landlord’s option, Landlord may elect to self-insure all or any
part of such required Insurance coverage. Landlord may, but shall not be
obligated to, carry any other form or foam of insurance as Landlord or the
mortgagees or ground lessors of Landlord may reasonably determine is advisable
The cost of Insurance obtained by Landlord pursuant to this Section 20 4
(Including self-insured amounts and deductibles) shall be included in Operating
Expenses

 

21       Waiver of Subrogation

 

21 1        Waiver.  Tenant and
Landlord hereby waive their rights against each other with respect to any
claims or damages or losses which are caused by or result from (a) damage
insured against under any insurance policy carried by Tenant or Landlord (as
the case may be) pursuant to the provisions of this Lease and enforceable at
the time of such damage or loss, or (b) damage which would have been covered
under any insurance required to be obtained and maintained by Tenant or
Landlord (as the case may be) under Section 20 of this Lease had such insurance
been obtained and maintained as required therein The foregoing waiver shall be
in addition to, and not a limitation of, any other waivers or releases
contained in this Lease

 

21 2        Waiver of Insurers.  Tenant shall cause each insurance policy required to be obtained
by it pursuant to Section 20 to provide that the insurer waives all rights of
recovery by way of subrogation against Landlord in connection with any claims,
losses and damages covered by such policy. If Tenant fails to maintain property
insurance required hereunder, such insurance shall be deemed to be self-Insured
with a deemed full waiver of subrogation as set forth in the immediately
preceding sentence

 

22       Tenant’s Default and Landlord’s
Remedies

 

22 1        Tenants Default.  The
occurrence of any one or more of the following events shall constitute a
default under this Lease by Tenant

 

(a)                                  the
vacation or abandonment of the Premises by Tenant.  “Abandonment” is herein defined to include, but is not limited
to, any absence by Tenant from the Premises for eight (8) business days or
longer while in default in the payment of Rent “Vacation” shall mean vacating
the Premises without providing a reasonable level of security to minimize the
potential for vandalism, or where the coverage of the property Insurance under
Section 20.1(a) is jeopardized as a result thereof,

 

(b)                                 the
failure by Tenant to make any payment of Rent or any other payment required to
be made by Tenant hereunder, within ten (10) days of written notice from
Landlord that such payment was not received;

 

(c)                                  the
failure by Tenant to observe or perform any of the express or Implied covenants
or provisions of this Lease to be observed or performed by Tenant, other than
as specified in Sections 22 1(a) or (b) above, where such failure shall
continue for a period of thirty (30) days alter written notice thereof from
Landlord to Tenant, provided, however, that if the nature of Tenant’s default
is such that more than thirty (30) days are reasonably required for its cure,
then Tenant shall not be deemed to be In default if Tenant shall commence such
cure within said thirty (30) day period and thereafter diligently prosecute
such cure to completion, and

 

(d)                                 (i)
the making by Tenant of any general assignment for the benefit of creditors,
(ii) the

 

 

filing by or
against Tenant of a petition to have Tenant adjudged a bankrupt or a petition
for reorganization or arrangement under any law relating to bankruptcy (unless,
In the case of a petition filed against the Tenant, the same is dismissed
within sixty (60) days), (iii) the appointment of a trustee or receiver to take
possession of substantially all of Tenants assets located at the Premises or of
Tenants Interest in this Lease, where possession is not restored to Tenant
within sixty (60) days, or (iv) the attachment, execution or other judicial
seizure of substantially all of Tenants assets located at the Premises or of
Tenants interest In this Lease where such seizure is not discharged within
sixty (60) days

 

(e)                                  Any
notice given under this Section 22 1 shall be in lieu of, and not In addition
to, any notice required under California Code of Civil Procedure, Section 1181

 

22 2        Landlord’s Remedies; Termination.  In the event of any such default by Tenant, in addition to any
other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall have the immediate option to terminate this Lease and any rights
of Tenant hereunder. In the event that Landlord shall elect to so terminate
this Lease, then Landlord may recover from Tenant

 

(a)                                  the
worth at the time of award of any unpaid rent which had been earned at the time
of such termination, plus

 

(b)                                 the
worth at the time of the 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 Tenant proves could have been reasonably
avoided; plus

 

(c)                                  the
worth at the time of award of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of such rental
loss that Tenant proves could be reasonably avoided; plus

 

(d)                                 any
other amount necessary to compensate landlord for all the detriment proximately
caused by Tenant’s failure to perform Its obligations under this Lease or
which, in the ordinary course of things, would be likely to result therefrom
including, but not limited to: unamortized Tenant Improvement costs; attorneys’
fees, unamortized brokers’ commissions; the costs of refurbishment,
alterations, renovation and repair of the Premises; and removal (including the
repair of any damage caused by such removal) and storage (or disposal) of
Tenant’s personal property, equipment, fixtures, Tenant Changes, Tenant
Improvements and any other items which Tenant is required under this Lease to
remove but does not remove.

 

As used in
Sections 22 2(a) and 22 2(b) above, the “worth at the time of award” Is
computed by allowing interest at the Interest Rate set forth in Section 1 12 of
the Summary As used in Section 22 2(c) above, the “worth at the time of award” is
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%)

 

22 3        Landlord’s Remedies; Re-Entry Rights. In the event of any
such default by Tenant (with all applicable notice and cure periods having
expired), in addition to any other remedies available to Landlord under this
Lease, at law or In equity, Landlord shall also have the right as permitted by
applicable law, with or without terminating this Lease, to re-enter the
Premises and remove all persons and property from the Premises; such property
may be removed, stored and/or disposed of pursuant to Section 12.4 of this
Lease or any other procedures permitted by applicable law. No re-entry or
taking possession of the Premises by Landlord pursuant to this Section 22 3,
and no acceptance of surrender of the Premises or other action on Landlord’s
part, shall be construed as an election to terminate this Lease unless a
written notice of such intention be given to Tenant or unless the termination
thereof be decreed by a court of competent jurisdiction

 

 

22 4        Landlord’s Remedies; Continuation of Lease.  In the event of any such default by Tenant,
in addition to any other remedies available to Landlord under this Lease, at law
or in equity, Landlord shall have the right to continue this Lease in full
force and effect, whether or not Tenant shall have abandoned the Premises. The
foregoing remedy shall also be available to Landlord pursuant to California
Civil Code Section 1951 4 and any successor statute thereof in the event Tenant
has abandoned the Premises. In the event Landlord elects to continue this Lease
in full force and effect pursuant to this Section 22.4, then Landlord shall be
entitled to enforce all of its rights and remedies under this Lease, including
the right to recover rent as it becomes due Landlord’s election not to
terminate this Lease pursuant to this Section 22 4 or pursuant to any other
provision of this Lease, at law or in equity, shall not preclude Landlord from
subsequently electing to terminate this Lease or pursuing any of its other
remedies

 

22 5        Landlord’s Right to Perform.  Except as specifically provided otherwise to this Lease, all
covenants and agreements by Tenant under this Lease shall be performed by
Tenant at Tenants sole cost and expense and without any abatement or offset of
rent If Tenant shall fail to pay any sum of money (other than Annual Rent) or
perform any other act on its part to be paid or performed hereunder and such
failure shall continue for ten (10) days with respect to monetary obligations
(or thirty (30) days with respect to non-monetary obligations) after Tenant’s
receipt of written notice thereof from Landlord, Landlord may, without waiving
or releasing Tenant from any of Tenant’s obligations, make such payment or
perform such other act on behalf of Tenant All sums so paid by Landlord and all
necessary incidental costs incurred by Landlord in performing such other acts
shall be payable by Tenant to Landlord within five (5) days after demand
therefor as additional rent

 

22 6        Interest.  If any
monthly installment of Annual Rent, or any other amount payable by Tenant
hereunder is not received by Landlord by the date which is ten (10) days from
the date when due, it shall bear interest at the interest Rate set forth in
Section 1 12 of the Summary from the date due until paid All interest, and any
late charges Imposed pursuant to Section 22 7 below, shall be considered
additional rent due from Tenant to Landlord under the terms of this Lease

 

22 7        Late Charges.  Tenant
acknowledges that, in addition to interest costs, the late payments by Tenant
to Landlord of any Annual Rent or other sums due under this Lease will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
such costs being extremely difficult and impractical to fix Such other costs
include, without limitation, processing, administrative and accounting charges
and late charges that may be imposed on Landlord by the terms of any mortgage,
deed of trust or related loan documents encumbering the Premises Accordingly,
if any monthly Installment of Annual Rent or any other amount payable by Tenant
hereunder is not received by Landlord by that date which is ten (10) days from
the due date thereof, Tenant shall pay to Landlord an additional sum of six
percent (6%) of the overdue amount as a late charge, but in no event more than
the maximum late charge allowed by law The parties agree that such late charge
represents a fair and reasonable estimate of the costs that Landlord will incur
by reason of any late payment as hereinabove referred to by Tenant, and the
payment or late charges and interest are distinct and separate in that the
payment of interest is to compensate Landlord for the use of Landlord’s money
by Tenant, while the payment of late charges is to compensate Landlord for
Landlord’s processing, administrative and other costs incurred by Landlord as a
result of Tenant’s delinquent payments Acceptance of a late charge or interest
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 under this Lease or at law or in equity now or hereafter
in effect

 

22 8        [Intentionally
Deleted].

 

22 9        Rights and Remedies Cumulative.  All rights, options and remedies of landlord contained in this
Section 22 and elsewhere in this Lease shall be construed and held to be
cumulative, and no one of them shall be exclusive of the other, and Landlord shall
have the right to pursue any one or all of such remedies or any other remedy or
relief which may be provided by law or in equity, whether or not stated in this
Lease Nothing in this Section 22 shall be deemed to limit or otherwise affect
Tenant’s indemnification of Landlord pursuant to any provision of this Lease

 

 

23       Landlord’s Default.  Landlord shall not be in default In the
performance of any obligation required to be performed by Landlord under this
Lease unless Landlord has failed to perform such obligation within thirty (30)
days after the receipt of written notice from Tenant specifying in detail
Landlord’s failure to perform; provided however, that if the nature of
Landlord’s obligation is such that more than thirty (30) days are required for
its performance, then Landlord shall not be deemed in default if it commences
such performance within such thirty (30) day period and thereafter diligently
pursues the same to completion. Upon any such uncured default by Landlord,
Tenant may exercise any of its rights provided in law or at equity, provided,
however (a) Tenant shall have no right to offset or abate Rent in the event of
any default by Landlord under this Lease; and (b) Tenant’s rights and remedies
hereunder shall be limited to the extent (i) Tenant has expressly waived In
this Lease any of such rights or remedies, and/or (ii) this Lease otherwise
expressly limits Tenant’s rights or remedies, including the limitation on
Landlord’s liability contained in Section 30 hereof

 

24       Subordination.  Without the necessity of any additional
document being executed by Tenant for the purpose of effecting a subordination,
this Lease shall be subject and subordinate at all times to (a) all ground
leases or underlying leases which may now exist or hereafter be executed
affecting the Premises and/or the land upon which the Premises and Project are
situated, or both and (b) any mortgage or deed of trust which may now exist or
be placed upon the Building, the Project and/or the land upon which the
Premises or the Project are situated and (c) any ground lease or underlying
leases, or Landlord’s interest or estate in any of said items, which is
specified as security Notwithstanding the foregoing, Landlord shall have the
right to subordinate or cause to be subordinated any such ground leases or
underlying leases or any such liens to this Lease. In the event that any ground
lease or underlying lease terminates for any reason, or any mortgage or deed of
trust is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any subordination, attorn and become the
Tenant of the successor in interest to Landlord and Tenant shall not be
disturbed in its possession under this Lease by such successor in interest so
long as Tenant is not In default under this Lease. Within ten (10) days after
request by Landlord, Tenant shall execute and deliver any additional documents
evidencing Tenant’s attornment or the subordination of this Lease with respect
to any such ground leases or underlying leases or any such mortgage or deed of
trust, in the form requested by Landlord or by any ground landlord, mortgagee,
or beneficiary under a deed of trust, subject to such nondisturbance
requirement Notwithstanding anything above to the contrary, any subordination
of this Lease to any such future mortgage, ground lease or deed of trust is
conditioned upon any such future mortgagee, lessor or beneficiary providing
Tenant with a commercially reasonable form of non-disturbance agreement Tenant
hereby waives its rights under any current or future law which gives or
purports to give Tenant any right to terminate or otherwise adversely affect
this Lease and the obligations of Tenant hereunder in the event of any such
foreclosure proceeding or sale. Should Tenant fail to sign and return any such
additional documents within the ten (10) day period referred to above, Tenant
shall be in default hereunder without the benefit of any additional notice or
cure periods specified in Section 22 1 above Landlord agrees to cause the
mortgagees existing as of the date hereof to provide Tenant with a commercially
reasonable non-disturbance agreement within a commercially reasonable period of
time after Tenant’s request therefor

 

25       Estoppel Certificate.

 

25 1        Tenant’s Obligations. 
Within ten (10) business days following Landlord’s written request,
Tenant shall execute and deliver to Landlord an estoppel certificate, in a form
substantially similar to the form of Exhibit “F” attached hereto,
certifying (a) the Commencement Dale of this Lease, (b) that this Lease is
unmodified and in full force and effect (or, if modified, that this Lease Is in
full force and effect as modified, and stating the data and nature of such
modifications), (c) the date to which the Rent and other sums payable under
this Lease have been paid; (d) that there are not, to the best of Tenant’s
knowledge, any defaults under this Lease by either landlord or Tenant, except
as specified In such certificate, and (e) such other matters as are set forth
to Exhibit “F” or are reasonably requested by Landlord. Any such
estoppel certificate delivered pursuant to this Section 25 1 may be relied upon
by any mortgagee, beneficiary, purchaser or prospective purchaser of any
portion of the Premises, as well as their assignees

 

 

25 2        Tenant’s Failure to Deliver.  Tenant’s failure to deliver such estoppel certificate within such
time shall constitute a default hereunder without the applicability of notice
and cure periods specified in Section 22 1 above and shall be  conclusive upon Tenant that (a) this Lease
is in full force and effect without modification, except as may be represented
by Landlord, (b) there are no uncured defaults in Landlord’s or Tenant’s
performance (other than Tenant’s failure to deliver the estoppel certificate);
and (c) not more than one (1) month’s rental has been paid in advance

 

26       Intentionally Omitted.

 

27       Modification and Cure Rights of
Landlord’s Mortgagees and Lessors.

 

27 1        Modifications.  If,
in connection with Landlord’s obtaining or entering into any financing or
ground lease for any portion of the Premises, the lender or ground lessor shall
request modifications to this Lease, Tenant shall, within ten (10) days after
request therefor, execute an amendment to this Lease including such modifications,
provided such modifications are reasonable, do not increase the obligations of  Tenant hereunder, or adversely affect the leasehold estate
created hereby or Tenant’s rights hereunder

 

27 2        Cure Rights.   In the
event of any default on the part of Landlord, Tenant will give notice by
registered or certified mail to any beneficiary of a deed of trust or mortgagee
covering the Premises or ground lessor of Landlord whose address shall have
been furnished to Tenant, and shall offer such beneficiary, mortgagee or ground
lessor a reasonable opportunity to cure the default (including with rasped to
any such beneficiary or mortgagee, time to obtain possession of the Premises,
subject to this Lease and Tenant’s rights hereunder, by power of  sale or judicial foreclosure, if such should prove
necessary to effect a cure).

 

28       Quiet Enjoyment.  Landlord covenants and agrees with Tenant
that, upon Tenant performing all of the covenants and provisions on Tenant’s
part to be observed and performed under this Lease (including payment of rent
hereunder), Tenant shall and may peaceably and quietly have, hold and enjoy the
Premises in accordance with and subject to the terms and conditions of this
Lease as against all persons claiming by, through or under Landlord.

 

29       Transfer of Landlord’s Interest.  The term “Landlord” as used in this Lease,
so far as covenants or obligations on the part of the Landlord are concerned,
shall be limited to mean and include only the owner or owners, at the time In
question, of the fee title to, or a lessee’s interest in a ground lease of, the
Premises. In the event of any transfer or conveyance of any such title or
interest (other than a transfer for security purposes only), the transferor
shall be automatically relieved of all covenants and obligations on the part of
Landlord contained in this Lease accruing after the date or such transfer or
conveyance Landlord and Landlord’s transferees and assignees shall have the
absolute right to transfer all or any portion of their respective title and interest
in the Premises and/or this Lease without the consent of Tenant, and such
transfer or subsequent transfer shall not be deemed a violation on Landlord’s
part of any of the terms and conditions of this Lease

 

30       Limitation on Landlord’s Liability.  Notwithstanding anything contained in this
Lease to the contrary, the obligations of  Landlord
under this Lease (including any actual or alleged breach or default by
Landlord) do not constitute personal obligations of the individual partners,
directors, officers or shareholders of Landlord or Landlord’s partners, and
Tenant shall not seek recourse against the individual partners, directors,
officers or shareholders of Landlord or Landlord’s partners, or any of their
personal assets for satisfaction of any liability with respect to this Lease In
addition, in consideration of the benefits accruing hereunder to Tenant and
notwithstanding anything contained In this Lease to the contrary, Tenant hereby
covenants and agrees for itself and all of its successors and assigns that the
liability of Landlord for Its obligations under this Lease (including any
liability as a result of any actual or alleged failure, breach or default
hereunder by Landlord), shall be limited solely to, and Tenant’s and its
successors’ and assigns’ sole and exclusive remedy shall be against, Landlord’s
interest in the Premises, and no other assets of landlord.

 

 

31       Miscellaneous

 

31 1        Governing Law.  This
Lease shall be governed by, and construed pursuant to, the laws of the state in
which the Premises is located

 

31 2        Successors and Assigns. 
Subject to the provisions of Section 29 above, and except as otherwise
provided in this Lease, all of the covenants, conditions and provisions of this
Lease shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective heirs, personal representatives and permitted
successors and assigns, provided, however, no rights shall inure to the benefit
of any Transferee of Tenant unless the Transfer to such Transferee is made In compliance
with the provisions of Section 14, and no options or other rights which are
expressly made personal to the original Tenant or an Affiliate of Tenant or in
any rider attached hereto shall be assignable to or exercisable by anyone other
than the original Tenant or an Affiliate of Tenant

 

31 3        No Merger. The voluntary or other surrender of this Lease by
Tenant or a mutual termination thereof shall not work as a merger and shall, at
the option of Landlord, either (a) terminate all or any existing subleases, or
(b) operate as an assignment to Landlord of Tenant’s Interest under any or all
such subleases

 

31 4        Professional Fees. 
If either Landlord or Tenant should bring suit against the other with
respect to this Lease, including for unlawful detainer or any other relief
against the other hereunder, then all costs and expenses incurred by the
prevailing party therein (including, without limitation, its actual
appraisers’, accountants’, attorneys’ and other professional fees, expenses and
court costs), shall be paid by the other party

 

31 5        Waiver.  The waiver
by either party of any breach by the other party 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 and condition herein contained,
nor shall any custom or practice which may become established between the
parties in the administration of the terms hereof be deemed a waiver of, or in
any way affect, the right of any party to insist upon the performance by the
other in strict accordance with said terms. No waiver of any default of either
party hereunder shall be Implied from any acceptance by Landlord or delivery by
Tenant (as the case may be) of any rent or other payments due hereunder or any
omission by the non-defaulting party to take any action on account of such
default if such default persists or is repeated, and no express waiver shall
affect defaults other than as specified in said waiver The subsequent
acceptance of real hereunder by Landlord shall not be deemed to be a waiver of
any preceding breath by Tenant of any term, covenant or condition of this Lease
other than the failure of Tenant to pay the particular rent so accepted,
regardless of Landlord’s knowledge of such preceding breech at the time of
acceptance of such rent

 

31 6        Terms and Headings; Interpretation.  The words “Landlord” and “Tenant” as used
herein shall include the plural as well as the singular. Words used in any
gender include other genders. The Section headings of this Lease are not a part
of this Lease and shall have no effect upon the construction or Interpretation
of any part hereof Any deletion of language from this Lease prior to its
execution by Landlord and Tenant shall not be construed to raise any
presumption. canon of constriction or implication, including, without
limitation, any implication that the parties intended thereby to state the
converse of the deleted language.

 

31 7        Time.   Time is of
the essence with respect to performance of every provision of this Lease In
which time or performance is a factor All references in this Lease to “days”
shall mean calendar days unless specifically modified herein to be “business”
days.

 

31 8        Prior Agreements; Amendments.  This Lease, including the Summary and all Exhibits and Riders
attached hereto contains all of the covenants, provisions, agreements,
conditions and understandings between Landlord and Tenant concerning the
Premises and any other matter covered or mentioned in this tease, and no prior
agreement or understanding, oral or written, express or implied, pertaining to
the Premises or any such other matter shall be effective for any purpose No
provision of this Lease may be amended or added to except by an agreement in
writing signed by the parties hereto or their respective successors In
interest. The parties acknowledge that all prior agreements,

 

 

representations and negotiations are deemed
superseded by the execution of this Lease to the extent they are not expressly
Incorporated herein.

 

31 9        Separability.  The
invalidity or unenforceability of any provision of this Lease (except for
Tenant’s obligation to pay Rent) shall in no way affect, impair or invalidate
any other provision hereof, and such other provisions shall remain valid and in
full forth and effect to the fullest extent permitted by law.

 

31 10      Recording.  Neither
Landlord nor Tenant shall record this Lease. In addition, neither party shall
record a short form memorandum of this Lease without
the prior written consent (and signature on the memorandum) of the other, and provided that prior to recordation Tenant
executes and delivers to Landlord, in recordable form, a properly acknowledged
quitclaim deed or other instrument extinguishing all of the Tenant’s rights and
interest in and to the Premises, and designating Landlord as the transferee,
which deed or other instrument shall be held by Landlord and may be recorded by
Landlord once this Lease terminates or expires (but not prior thereto). If such
short form memorandum is recorded In accordance with the foregoing, the party
requesting the recording shall pay for all costs of or related to such
recording, including, but not limited to, recording charges and documentary
transfer taxes

 

31 11      Exhibits and Riders. 
All Exhibits attached to this Lease are hereby incorporated in this
Lease for all purposes as though set forth at length herein.

 

31 12      Auctions.  Tenant
shall have no right to conduct any auction in, on or about the Premises

 

31 13      Accord and Satisfaction.   No
payment by Tenant or receipt by Landlord of a lesser amount than the rent payment
herein stipulated shall be deemed to be other than on account of the rent, nor
shall any endorsement or statement on any check or any letter accompanying any
check or payment as rent be deemed an accord and satisfaction, end Landlord may
accept such check or payment without prejudice to Landlord’s right to recover
the balance of such rent or pursue any other remedy provided In this Lease.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this
Lease or imposed by any statute or at common law.

 

31 14      Financial Statements. 
Upon ten (10) days prior written request from Landlord (which Landlord
may make at any time during the Term but no more often than once In any
calendar year), Tenant shall deliver to Landlord a current 10-Q quarterly
report and/or 10-K annual report (“Statements” of Tenant and any guarantor of
this Lease Such Statements shall be prepared in accordance with generally
acceptable accounting principles and certified as true in all material respects
by Tenant (if Tenant is an Individual) or by an authorized officer or general
partner of Tenant (if Tenant is a corporation or partnership, respectively)

 

31 15      No Partnership.  
Landlord does not, In any way or for any purpose, become a partner of
Tenant in the conduct of its business, or otherwise, or joint venturer or a
member of a joint enterprise with Tenant by reason of this Lease

 

31 16      Force Majeure. In the event that either party hereto shall
be delayed or hindered in or prevented from the performance of any act required
hereunder by reason of strikes, lock-outs, labor troubles, inability to procure
materials, failure of power, governmental moratorium or other governmental
action or inaction (including failure, refusal or delay in Issuing permits,
approvals and/or authorizations), Injunction or court order, riots,
insurrection, war, fire, earthquake, flood or other natural disaster or other
reason of a like nature not the fault of the party delaying in performing work
or doing acts required under the terms of this Lease (but excluding delays due
to financial Inability) (herein collectively, “Force Majeure Delays”, then
performance of such act shall be excused for the period of the delay and the
period for the performance of any such act shall be extended for a period
equivalent to the period of such delay The provisions of this Section 31 18
shall not apply to nor operate to excuse Tenant from the payment of Rent
strictly in accordance with the terms of this Lease

 

 

31 17      Counterparts. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement

 

31 18      Nondisclosure of Lease Terms. Tenant acknowledges and agrees
that the terms of this Lease are confidential and constitute proprietary
information of Landlord Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord’s
relationship with other tenants Accordingly, Tenant agrees that it, and its
partners, officers, directors, employees, agents and attorneys, shall not
intentionally and voluntarily disclose the terms and conditions of this Lease
to any newspaper or other publication or any other tenant or apparent
prospective tenant of the Building or other portion of the Premises, or real
estate agent, either directly or indirectly, without the prior written consent
of Landlord, provided, however, that Tenant may disclose the terms to
prospective subtenants or assignees under this Lease

 

31 19      Non-Discrimination. 
Tenant acknowledges and agrees that there shall be no discrimination
against, or segregation of, any person, group of persons, or entity on the
basis of race, color, creed, religion, age, sex, marital status, national
origin, or ancestry In the leasing, subleasing, transferring, assignment,
occupancy, tenure, use, or enjoyment of the Premises, or any portion thereof

 

32       Lease Execution.

 

32 1        Tenant’s Authority. 
If Tenant executes this Lease as a partnership or corporation, then
Tenant and the persons and/or entities executing this Lease on behalf of Tenant
represent and warrant that: (a) Tenant is a duly authorized and existing
partnership or corporation, as the case may be, and is qualified to do business
in the state In which the Premises are located; (b) such persons and/or
entities executing this Lease are duly authorized to execute and deliver this
Lease on Tenant’s behalf in accordance with the Tenants partnership agreement
(if Tenant is a partnership), or a duly adopted resolution of Tenant’s board of
directors and the Tenant’s by-laws (if Tenant is a corporation), and (c) this
Lease Is binding upon Tenant in accordance with its terms.

 

32 2        Joint and Several Liability.   If more than one person or entity executes this Lease as Tenant
(a) each of them is and shall be jointly and severally liable for the
covenants, conditions, provisions and agreements of this Lease to be kept, observed
and performed by Tenant; and (b) the act or signature of, or notice iron or to,
any one or more of them with reaped to this Lease shall be binding upon each
and all of the persons and entitles executing this Lease as Tenant with the
same force and effect as if each and all of them had so acted or signed, or
given or received such notice

 

32 3        No Option.  The
submission of this Lease for examination or execution by Tenant does not
constitute a reservation of or option for the Premises and this Lease shall not
become effective as a Lease until It has been executed by Landlord and
delivered to Tenant.

 

33           Cancellation Option.  Provided Tenant fully and completely
satisfies each of the conditions set forth in this Section 33, Tenant shall
have a one-time option (“Cancellation Option”) to terminate this Lease
effective between the period (“Cancellation Period”) commencing on January 1,
2003 to March 31, 2003, with the exact cancellation date (“Cancellation Date”)
to be the date within the Cancellation Period specified by Tenant in Tenant’s
Cancellation Notice (as defined below) but in no event earlier than nine (9)
months after the date of Tenant’s Cancellation Notice. In older to exercise the
Cancellation Option, Tenant must fully and completely satisfy each and every
one of the following conditions (a) Tenant must give Landlord written notice
(“Cancellation Notice”) of its intention to terminate this Lease, which
Cancellation Notice must be delivered to Landlord at least nine (9) months
prior to the expiration of the Cancellation Period, (b) at the time of the
Cancellation Notice, Tenant shall not be in material default under this Lease
after expiration of applicable notice and cure periods, (c) concurrently with
Tenant’s delivery of the Cancellation Notice to Landlord, Tenant shall pay to
Landlord a cancellation fee (“Cancellation Fee”) equal to the sum of (i) the
unamortized balance, as of the Cancellation Data, of the brokerage commissions
paid by Landlord in connection with this Lease, plus (ii) an amount equal to
four (4) months’ Monthly Rent calculated at the rate payable at the
time of the Cancellation Date and (d) Tenant shall have satisfied all of
Tenant’s surrender obligations under Section 9 1 of the Lease. On the

 

 

Cancellation Data, the parties shall be
relieved of any further obligations under this Lease except for those
obligations in the Lease which survive the termination or expiration thereof
Amortization pursuant to this Section 33 shall be calculated on a ten (10) year
amortization schedule commencing as of the Commencement Date based upon equal
monthly payments of principal and interest, with interest imputed on the
outstanding principal balance at the rate of ten percent (10%) per annum

 

34       Arbitration.  In the eventof any dispute by Landlord of Tenant’s audit of the Building’s Share
of Operating Expenses as set forth in Section 4 9, such dispute shall be
resolved through binding arbitration pursuant to this Section 34. if demand for
arbitration is timely made as provided in Subsection (a) below, such arbitration
shall be conducted in accordance with Title 9 of the California Code of Civil
Procedure, Section 1280, et seq„ unless otherwise specified herein The
arbitrator shall be selected from the Commercial Arbitration panel of the
American Arbitration Association and shall have commercial real estate leasing
and, with respect to a dispute under Section 4 9 hereof, accounting expertise
Any such arbitration shall be held and conducted, within thirty (30) days after
the selection of an arbitrator, in San Diego County, California. The provisions
of the Commercial Arbitration Rules of the American Arbitration Association
shall apply and govern such arbitration, subject, however, to the following

 

(a)                                  Any
demand for arbitration shall be in writing and must be made and served on
Tenant within a reasonable time after the claim, dispute or other matter in
questions has arisen and in no event shall the demand for arbitration be made
after the date that institution of legal or equitable proceedings based on such
claim, dispute, or other matter would be barred by the applicable statute or
limitations

 

(b)                                 All
proceedings Involving the parties shall be reported by a certified shorthand
court reporter and written transcripts of the proceedings shall be prepared and
made available to the parties

 

(c)                                  A
party can require the arbitrator to make specific rulings on specific Items or
questions of fact The arbitrator shall be bound by the provisions of this
Lease, and shall not add to, subtract from or otherwise modify such provisions

 

(d)                                 Final
decision by the arbitrator must be provided to the parties within thirty (30)
days from the date on which the matter is submitted to the arbitrator

 

(e)                                  The
prevailing party (as defined below) shall be awarded reasonable attorneys’
fees, expert and nonexpert witness costs and expenses (including without
limitation the fees and costs of the court reporter described in Subsection (c)
above), and other costs and expenses incurred in connection with the
arbitration, unless the arbitrator for good cause determines otherwise

 

(f)                                    As
used herein, the term “prevailing party” shall mean the party, if any, that the
arbitrator determines is “clearly the prevailing party”

 

(g)                                 Costs
and fees of the arbitrator shall be borne by the nonprevailng party, unless the
arbitrator for good cause determines otherwise. If there is no prevailing
party, the parties shall bear their own fees and costs and split the fees and
costs of the arbitrator and court reporter.

 

(h)                                 The
award or decision of the arbitrator, which may include equitable relief, shall
be final and judgment may be entered on it in accordance with applicable law in
any court having jurisdiction over the matter. The provisions of this Section
34 are not intended to alter the applicable provisions of law which provide the
grounds on which a court may vacate an arbitration award

 

(i)                                     The
provisions of this Section 34 are not intended to require (1) Landlord to
arbitrate any

 

 

matters
relating to any monetary default by Tenant under this Lease, which matters shall,
at the election of landlord, be governed by the applicable provisions of this
Lease and/or applicable law, or (2) either party to arbitrate any matters
arising under this Lease which are not described in the first sentence of this
Section 34

 

IN WITNESS
WHEREOF, the parties have executed this Lease as of the day and year first
above written.

 

	
  “TENANT”

  	
  ALLIANCE PHARMACEUTICAL CORP.

  
	
   

  	
  a New York corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  “LANDLORD”

  	
  WHAMC REAL ESTATE LIMITED

  PARTNERSHIP,

  
	
   

  	
  a Delaware limited partnership

  
	
   

  	
   

  
	
   

  	
  By: WHAMC Gen-Par, Inc., a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Brad E. Baker

  
	
   

  	
   

  	
  Its:  Senor Vice
  President-Southern California

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