Document:

Exhibit 10.3

LEASE

 

 

BY AND BETWEEN

MENLO BUSINESS PARK, LLC, LESSOR

AND

DEPOMED, INC., LESSEE

 

 

Menlo Business
Park

1430 O’Brien Drive

Menlo Park, California

 

 

July 28, 2006

 

LEASE
SUMMARY

	
  Date of Lease:

  	
   

  	
  July 28, 2006

  
	
   

  	
   

  	
   

  
	
  Lessor:

  	
   

  	
  Menlo Business Park, LLC, a California limited
  liability company

  
	
   

  	
   

  	
   

  
	
  Lessee:

  	
   

  	
  DepoMed, Inc., a California corporation

  
	
   

  	
   

  	
   

  
	
  Premises:

  	
   

  	
  Suite H, Building #7, 1430 O’Brien Drive, Menlo
  Park,

  California 94025

  
	
   

  	
   

  	
   

  
	
  Floor Area:

  	
   

  	
  9,255 rentable square feet

  
	
   

  	
   

  	
   

  
	
  Parcel Size:

  	
   

  	
  3.530 acres

  
	
   

  	
   

  	
   

  
	
  Lessee’s Pro Rata

  Share of Building 7

  Operating Expenses:

  	
   

  	
  14.25%

  
	
   

  	
   

  	
   

  
	
  Lessee’s Pro Rata Share

  of Menlo Business Park

  Operating Expenses:

  	
   

  	
  1.06%

  
	
   

  	
   

  	
   

  
	
  Commencement Date:

  	
   

  	
  August 1, 2006

  
	
   

  	
   

  	
   

  
	
  Initial Term:

  	
   

  	
  Thirty-six (36) months

  
	
   

  	
   

  	
   

  
	
  Option to Extend:

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Monthly Base Rent:

  	
   

  	
  8/1/06 – 7/31/07 $15,733.50 ($1.70 x 9,255 sf) Annual
  CPI Adjustment (3% minimum – 6% maximum) commencing 8/1/07

  
	
   

  	
   

  	
   

  
	
  Security Deposit:

  	
   

  	
  $15,733.50

  
	
   

  	
   

  	
   

  
	
  Tenant Improvement Allowance:

  	
   

  	
  $92,550.00 ($10 per sq. ft.)

  
	
   

  	
   

  	
   

  
	
  Addresses for Notice:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Lessor:

  	
   

  	
  Menlo Business Park, LLC

  
	
   

  	
   

  	
  c/o Tarlton Properties, Inc.

  
	
   

  	
   

  	
  955 Alma Street

  
	
   

  	
   

  	
  Palo Alto, California 94301

  
	
   

  	
   

  	
  Attention: John C. Tarlton, President

  
	
   

  	
   

  	
  Telephone: (650) 330-3600

  
	
   

  	
   

  	
   

  
	
  Lessee:

  	
   

  	
  DepoMed, Inc.

  
	
   

  	
   

  	
  1330 O’Brien Drive

  Menlo Park, California 94025

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:

  
	
   

  	
   

  	
  Telephone:

  

 

 

TABLE
OF CONTENTS

	
  Paragraph

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
   

  	
  Lease

  	
   

  	
  1

  	
   

  
	
  2.

  	
   

  	
  Initial Term

  	
   

  	
  2

  	
   

  
	
  3.

  	
   

  	
  Option to Extend

  	
   

  	
  2

  	
   

  
	
  4

  	
   

  	
  Monthly Base Rent

  	
   

  	
  4

  	
   

  
	
  5

  	
   

  	
  Additional Rent; Operating Expenses and Taxes

  	
   

  	
  5

  	
   

  
	
  6

  	
   

  	
  Payment of Rent

  	
   

  	
  9

  	
   

  
	
  7

  	
   

  	
  Security Deposit

  	
   

  	
  10

  	
   

  
	
  8

  	
   

  	
  Use

  	
   

  	
  10

  	
   

  
	
  9

  	
   

  	
  Hazardous Materials

  	
   

  	
  11

  	
   

  
	
  10.

  	
   

  	
  Taxes on Lessee’s Property

  	
   

  	
  13

  	
   

  
	
  11.

  	
   

  	
  Insurance

  	
   

  	
  13

  	
   

  
	
  12.

  	
   

  	
  Indemnification

  	
   

  	
  14

  	
   

  
	
  13.

  	
   

  	
  Tenant Improvement Work

  	
   

  	
  16

  	
   

  
	
  14.

  	
   

  	
  Maintenance and Repairs; Alterations; Surrender and
  Restoration

  	
   

  	
  17

  	
   

  
	
  15.

  	
   

  	
  Utilities and Services.

  	
   

  	
  19

  	
   

  
	
  16.

  	
   

  	
  Liens

  	
   

  	
  20

  	
   

  
	
  17.

  	
   

  	
  Assignment and Subletting

  	
   

  	
  20

  	
   

  
	
  18.

  	
   

  	
  Non-Waiver

  	
   

  	
  24

  	
   

  
	
  19.

  	
   

  	
  Holding Over

  	
   

  	
  24

  	
   

  
	
  20.

  	
   

  	
  Damage or Destruction

  	
   

  	
  24

  	
   

  
	
  21.

  	
   

  	
  Eminent Domain

  	
   

  	
  27

  	
   

  
	
  22.

  	
   

  	
  Remedies

  	
   

  	
  27

  	
   

  
	
  23.

  	
   

  	
  Lessee’s Personal Property

  	
   

  	
  29

  	
   

  
	
  24.

  	
   

  	
  Notices

  	
   

  	
  29

  	
   

  
	
  25.

  	
   

  	
  Estoppel Certificate

  	
   

  	
  30

  	
   

  
	
  26.

  	
   

  	
  Signage

  	
   

  	
  30

  	
   

  
	
  27.

  	
   

  	
  Real Estate Brokers

  	
   

  	
  30

  	
   

  
	
  28.

  	
   

  	
  Parking

  	
   

  	
  30

  	
   

  
	
  29.

  	
   

  	
  Subordination; Attornment

  	
   

  	
  31

  	
   

  
	
  30.

  	
   

  	
  No Termination Right

  	
   

  	
  31

  	
   

  
	
  31.

  	
   

  	
  Lessor’s Entry

  	
   

  	
  31

  	
   

  
	
  32.

  	
   

  	
  Attorneys’ Fees

  	
   

  	
  32

  	
   

  
	
  33.

  	
   

  	
  Compliance with CC&Rs

  	
   

  	
  32

  	
   

  
	
  34.

  	
   

  	
  Quiet Enjoyment

  	
   

  	
  32

  	
   

  
	
  35.

  	
   

  	
  Lessee’s Right of First Offer

  	
   

  	
  32

  	
   

  
	
  36.

  	
   

  	
  General Provisions

  	
   

  	
  33

  	
   

  

 

 i
 

 

SCHEDULE OF EXHIBITS

	
  EXHIBIT “A”

  	
   

  	
  Legal Description

  
	
  EXHIBIT “B”

  	
   

  	
  Menlo Business Park Master Plan

  
	
  EXHIBIT “C”

  	
   

  	
  Floor Plan

  
	
  EXHIBIT “D”

  	
   

  	
  Commencement Memorandum

  
	
  EXHIBIT “E”

  	
   

  	
  Tenant Improvement Work

  
	
  EXHIBIT “F”

  	
   

  	
  Estoppel Certificate

  

 

 ii

L E A S E

Suite H, Building #7

Menlo Business Park

1430 O’Brien Drive

Menlo Park, California

THIS LEASE, referred to herein as “this
Lease,” is made and entered into as of July 28, 2006 by and between MENLO
BUSINESS PARK, LLC, a California limited liability company, hereafter referred
to as “Lessor,” and DEPOMED, INC., a California corporation, hereafter referred
to as “Lessee” or “DepoMed.”

RECITALS:

A.            Lessor is the owner of the real
property located in Menlo Business Park, Menlo Park, California, commonly
referred to as 1430 O’Brien Drive, Menlo Park, California, more particularly
described on Exhibit “A” attached hereto and incorporated by reference herein,
consisting of a parcel of land containing approximately 3.530 acres, together
with all easements and appurtenances thereto (the “Land”) and the existing
building thereon, referred to as Building #7, 1430 O’Brien Drive, City of Menlo
Park, County of San Mateo, State of California, containing approximately 64,951
rentable square feet, and all other improvements located thereon (collectively,
the “Improvements”).  The Land and
Improvements are referred to herein collectively as the “Property.”  The Property is shown on the Menlo Business
Park Master Plan attached hereto as Exhibit “B.”  Building #7 is sometimes referred to herein
as “the Building.”  The floor plan of
Building #7 is attached hereto as Exhibit ”C” and incorporated by
reference herein.

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

NOW, THEREFORE, the parties agree as follows:

1.             Lease.  Lessor hereby leases to
Lessee, and Lessee leases from Lessor, at the rental rate and upon the terms
and conditions set forth herein, the portion of the Building consisting of a
total of approximately 9,255 rentable square feet referred to as Suite H as
shown on the floor plan of the Building attached hereto as Exhibit ”C.”  Suite H, together with Lessee’s share of
the on-site parking spaces on the Land which Lessee has the right to use
pursuant to Paragraph 28, and the non-exclusive right to use the common areas
of the Building and the other Improvements on the Property intended for use in
common by the tenants of the Building, are referred to herein collectively as
the “Premises.”  “Lessee’s Share” of the
Building is 14.25% (9,255/64,951).

 

2.             Initial
Term.

(a)           The
initial term of this Lease (the “initial term”) shall commence on August 1,
2006 (the “Commencement Date”).  The
Commencement Date shall be confirmed in writing by Lessor and Lessee by the
execution and delivery of the Commencement Memorandum in the form attached
hereto as “Exhibit “D.”

(b)           Lessor shall deliver the Premises to
Lessee on the Commencement Date with the Premises in broom clean condition and
with all Building systems and subsystems in good working condition.  The Commencement Date shall not be delayed by
the fact that the Tenant Improvement Work referred to in Paragraph 13(a)
is not completed as of the Commencement Date.

(c)           The
initial term of this Lease shall expire, unless sooner terminated in accordance
with the provisions hereof, on July 31, 2009.

(d)           As
used in this Lease, “term” or “term of this Lease” shall include the initial
term and the option extension period, if exercised.

3.             Option to Extend.

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

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

 2
 

 

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

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

If only one appraiser is
selected, that appraiser shall notify the parties in simple letter form of its
determination of the amount equal to ninety-five percent (95%) of the fair
market Monthly Base Rent for the Premises on the commencement date of the
option extension period within fifteen (15) days following its selection.  Said appraisal shall be binding on the
parties as the appraised current ninety-five percent (95%) of the “fair market
rental” for the Premises which shall be based upon the then current rental paid
by tenants for premises in the vicinity of the Property of similar age, size,
quality of construction and specifications. If multiple appraisers are
selected, each appraiser shall within ten (10) days of being selected make its
determination of the amount equal to ninety-five percent (95%) of the current
fair market Monthly Base Rent for the Premises in simple letter form.  If two (2) or more of the appraisers agree on
said amount, such agreement shall be binding upon the parties.  If multiple appraisers are selected and two
(2) appraisers are unable to agree on said amount, the amount equal to
ninety-five percent (95%) of the fair market Monthly Base Rent for the Premises
shall be determined by taking the mean average of the appraisals; provided,
that any high or low appraisal, differing from the middle appraisal by more
than ten percent (10%) of the middle appraisal, shall be disregarded in
calculating the average.  Said initial
Monthly Base Rent shall be adjusted annually on the anniversary of the
commencement of the option term in the manner determined by the appraisers to
be consistent with the then prevailing market practice for comparable space.

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

(d)           Thereafter, provided that Lessee has
previously given timely notice to Lessor of the exercise by Lessee of the
option to extend the term, Lessor and Lessee shall 

 3
 

 

execute an amendment to this
Lease stating that the initial Monthly Base Rent for the Premises during the
option extension period shall be equal to the determination by appraisal.

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

4.             Monthly Base Rent.

(a)           Commencing on the
Commencement Date and continuing on the first day of each calendar month
thereafter through July 31, 2007, Lessee shall pay to Lessor in monthly
installments in advance Monthly Base Rent in the sum of Fifteen Thousand Seven
Hundred Thirty-three and Fifty Hundredths Dollars ($15,733.50) (9,255 rentable
square feet x $1.70/rentable square foot/month).

(b)           Upon the execution
and delivery of this Lease by Lessor and Lessee, Lessee shall pay to Lessor the
sum of Fifteen Thousand Seven Hundred Thirty-three and Fifty Hundredths Dollars
($15,733.50) representing the Monthly Base Rent for the month of July 2006,
plus the additional sum of Fifteen Thousand Seven Hundred Thirty-three and
Fifty Hundredths Dollars ($15,733.50) representing the Security Deposit.

(c)           The Monthly Base Rent shall be
adjusted as of the first anniversary of the Commencement Date and as of the
second anniversary of the Commencement Date (each, a “Rental Adjustment Date”)
to reflect any increases in the cost of living. 
The adjustment shall be calculated upon the basis of the United States
Department of Labor, Bureau of Labor Statistics Consumer Price Index, all
items,  for all Urban Consumers - San
Francisco-Oakland-San Jose (1982-84=100), hereafter referred to as the “Index.”

(d)           The Monthly Base Rent shall be
adjusted as of each Rental Adjustment Date to an amount equal to the product
obtained by multiplying the Monthly Base Rent for the Premises for the
preceding twelve (12) months by a fraction, the numerator of which is the Index
most recently published as of the end of the calendar  month immediately preceding each Rental
Adjustment Date and the denominator of which is the Index published most
recently prior to the date which is twelve (12) months prior to the applicable
Rental Adjustment Date; provided that in no event shall the Monthly Base Rent
be increased on any Rental Adjustment Date to an amount less than three percent
(3%) per annum or more than six percent (6%) per annum of the Monthly Base Rent
payable before such Rental Adjustment Date.

(e)           When the new Monthly Base Rent is
determined for each Rental Adjustment Date, Lessor shall give Lessee written
notice of the amount of the new Monthly Base Rent and how the new Monthly Base
Rent figure was computed in 

 4
 

 

accordance with subparagraphs
4(c) and 4(d) above.  Lessee shall pay to
Lessor retroactively any unpaid increase in Monthly Base Rent due from and
after the Rental Adjustment Date.  If the
Index does not exist on any Rental Adjustment Date in the same format as
referred to in subparagraph (b), Lessor shall substitute in lieu thereof an
index reasonably comparable to the Index referred to above which is acceptable
to Lessee and which is then published by the Bureau of Labor Statistics, or
successor or similar governmental agency, or if no governmental agency then
publishes an index, Lessor shall substitute therefor any index commonly
accepted which is published by a reputable private organization.

5.             Additional Rent; Operating
Expenses and Taxes.

(a)           In addition to the Monthly Base Rent
payable by Lessee pursuant to Paragraph 4, commencing on the Commencement Date
Lessee shall pay to Lessor, as “Additional Rent,” (1) Lessee’s pro rata
share of the operating expenses of the Property (14.25%), and (2) Lessee’s
pro rata share of the operating expenses of Menlo Business Park of which the
Property is a part, in accordance with Paragraph 5(b) hereof, and (3)
Lessee’s pro rata share of the real property taxes and assessments levied or
assessed against the Property in accordance with Paragraph 5(c) hereof.  Lessee’s pro rata share of the operating
expenses of Menlo Business Park is 1.06% based upon the ratio of the number of
square feet of the Land allocable to the Property to the total number of square
feet of land in Menlo Business Park.  The
operating expenses of Menlo Business Park currently include maintenance of the
common areas of Menlo Business Park, parking lot lighting (cost of electricity
and maintenance of the fixtures), maintenance of the network conduit, all
landscape maintenance and irrigation of Menlo Business Park, Lessor’s insurance
coverages of Menlo Business Park, and security patrol.  The operating expenses of Menlo Business Park
may include other items from time to time during the term of this Lease.  Monthly Base Rent and Additional Rent are
referred to herein collectively as “rent.”

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

Personal
property taxes related to the Premises; any parking taxes or parking levies
imposed on the Premises in the future by any governmental agency; a pro rata
portion of the management fee charged for the management and operation of Menlo
Business Park, in an amount equal to three percent (3%) of the total gross
income received by Lessor from the operation of Menlo Business Park (including
Monthly Base Rent and Additional Rent received from tenants); water and sewer
charges; waste disposal; insurance premiums for insurance coverages maintained
by Lessor pursuant to Paragraph 11(b) hereof; license, permit, and inspection
fees; charges for electricity, heating, air 

 5
 

 

conditioning, gas, and any other
utilities (including, without limitation, any temporary or permanent utility
surcharge or other exaction); security; maintenance, repair, and replacement of
the roof membrane; painting and repairing, interior and exterior; maintenance
and replacement of floor and window coverings; repair, maintenance, and
replacement of air-conditioning, heating, mechanical and electrical systems,
elevators, plumbing and sewage systems; janitorial service; landscaping,
gardening, and tree trimming; glazing; repair, maintenance, cleaning, sweeping,
striping, and resurfacing of the parking area; exterior Building lighting and parking
lot lighting; supplies, materials, equipment and tools in the maintenance of
the Property; costs for accounting services incurred in the calculation of
Operating Expenses and Taxes as defined herein; and the cost of any other
capital expenditures for any improvements or changes to the Building which are
required by laws, ordinances, or other governmental regulations adopted after
the Commencement Date, or for any items or capital expenditures voluntarily
made by Lessor which are intended to and have the effect of reducing Operating
Expenses; provided, however, that except for capital improvements required
because of Lessee’s specific use of the Property, if Lessor is required to or
voluntarily makes such capital improvements, Lessor shall amortize the cost of
said improvements over the useful life of said improvements (together with
interest on the unamortized balance at the rate equal to the effective rate of
interest on Lessor’s bank line of credit at the time of completion of said
improvements, but in no event in excess of twelve percent (12%) per annum) as
an Operating Expense in accordance with generally accepted accounting
principles, except that with respect to capital improvements made to save
Operating Expenses such amortization shall not be at a rate greater than the
actual savings in Operating Expenses. 
Operating Expenses shall also include any other expense or charge,
whether or not described herein not specifically excluded by other provisions
of this Lease, which in accordance with generally accepted accounting
principles would be considered an expense of managing, operating, maintaining,
and repairing the Property.

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

As used herein, “Taxes” shall mean:

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

(2)           all other taxes which may be levied
in lieu of real estate taxes, assessments, and other fees, charges, and levies,
general and special, ordinary and extraordinary, unforeseen as well as
foreseen, of any kind and nature by any authority having the direct or indirect
power to tax, including without limitation any governmental 

 6
 

 

authority or any improvement or
other district or division thereof, for public improvements, services, or
benefits which are assessed, levied, confirmed, imposed, or become a lien (i)
upon the Property, and/or any legal or equitable interest of Lessor in any
part thereof; or (ii) upon this transaction or any document to which
Lessee is a party creating or transferring any interest in the Property; and
(iii) any tax or excise, however described, imposed in addition to, or in substitution
partially or totally of, any tax previously included within the definition of “Taxes”
or any tax the nature of which was previously included in the definition “Taxes.”

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

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

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

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

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

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

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

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

(6)           Any wages, bonuses or other
compensation of employees above the grade of building manager and any executive
salary of any officer or employee of Lessor, including fringe benefits other
than insurance plans and tax-qualified benefit plans, or any fee, profit or
compensation retained by Lessor or its affiliates for 

 7
 

 

management and administration of
the Property in excess of the management fee referred to in Paragraph 5(b) of
this Lease;

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

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

Lessor
shall at all times use its best efforts to operate the Property in an
economically reasonable manner at costs not disproportionately higher than
those experienced by other comparable premises in the market area in which the
Property is located (Menlo Park).

(e)           At the Commencement Date, and as
close as reasonably possible to the end of each calendar year thereafter,
Lessor shall notify Lessee of the Operating Expenses estimated by Lessor for
the calendar year 2006, and for each following calendar year.  Concurrent with such notice, Lessor shall
provide a description of such Operating Expenses and Taxes.  Commencing on the Commencement Date, and on
the first (1st) day of each calendar month thereafter, Lessee
shall pay to Lessor, as Additional Rent, one-twelfth (1/12th) of the estimated
Operating Expenses and Taxes.  If at any
time during any such calendar year, it appears to Lessor that the Operating
Expenses or Taxes for such year will vary from Lessor’s estimate, Lessor may,
by written notice to Lessee, revise Lessor’s estimate for such year and the
Additional Rent and Taxes payments by Lessee for such year shall thereafter be
based upon such revised estimate.  Lessor
shall furnish to Lessee with such revised estimate written verification showing
that the actual Operating Expenses or Taxes are greater than Lessor’s
estimate.  The increase in the monthly
installments of Additional Rent and Taxes resulting from Lessor’s revised
estimate shall not be retroactive, but the Additional Rent and Taxes for each
calendar year shall be subject to adjustment between Lessor and Lessee after
the close of the calendar year, as provided below.

Within approximately ninety (90) days after the
expiration of each calendar year of the term, Lessor shall furnish Lessee a
statement certified by a responsible employee or agent of Lessor (the “Operating
Statement”) with respect to such year, prepared by an employee or agent of
Lessor, showing the actual Operating Expenses and Taxes for such year broken
down by component expenses and the total payments made by Lessee for such year
on the basis of any previous estimate of such Operating Expenses and Taxes, all
in sufficient detail for verification by Lessee.  Unless Lessee raises any objections to the
Operating Statement within ninety (90) days after receipt of the same, such
statement shall conclusively be deemed correct and Lessee shall have no right
thereafter to dispute such statement or any item therein or the computation of
Operating Expenses and/or Taxes.  Lessee
or its accountants shall have the right to inspect and audit Lessor’s books and
records with respect to this Lease once each Lease Year to verify actual
Operating Expenses and/or Taxes.  Lessor’s
books and records shall be kept in accordance 

 8
 

 

with generally accepted accounting principles.  If Lessee’s audit of the Operating Expenses
and/or Taxes for any year reveals a net overcharge of more than five percent
(5%), Lessor promptly shall reimburse Lessee for the cost of the audit;
otherwise, Lessee shall bear the cost of Lessee’s audit.  If Lessee objects to Lessor’s Operating
Statement, Lessee shall continue to pay on a monthly basis the Operating
Expenses and/or Taxes based upon the prior year’s Operating Statement until the
dispute is resolved.

If
the Operating Expenses and Taxes for the year as finally determined exceeds the
total payments made by Lessee based on Lessor’s estimates, Lessee shall pay to
Lessor the deficiency, within thirty (30) days after the receipt of Lessor’s
Operating Statement.  If the total
payments made by Lessee based on Lessor’s estimate of the Operating Expenses
and/or Taxes exceed the Operating Expenses and/or Taxes, Lessee’s extra
payment, plus the cost of the audit if charged to Lessor, shall be credited
against payments of Monthly Base Rent and Additional Rent next due hereunder.

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

6.             Payment of Rent.

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

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

 9
 

 

Journal,” plus five percent (5%)
or (2) the maximum rate allowed by law (the “Interest Rate”), in addition to
the late payment charge.

Initials:  Lessor                                                    Lessee                     

7.             Security Deposit.

(a)           Lessee shall deposit with Lessor upon
execution hereof the sum of Fifteen Thousand Seven Hundred
Thirty-three and Fifty Hundredths Dollars ($15,733.50) (the
“Security Deposit”), as security for Lessee’s faithful performance of Lessee’s
obligations under this Lease.  If Lessee
fails to pay Monthly Base Rent or Additional Rent or charges due hereunder, or
otherwise defaults under this Lease (as defined in Paragraph 22), Lessor may
use, apply or retain all or any portion of said Security Deposit to the extent
reasonably necessary to cure the default, for the payment of any amount due
Lessor, and to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys’ fees) which Lessor may suffer or incur by
reason thereof.  If Lessor uses or
applies all or any portion of the Security Deposit, Lessee shall within ten
(10) days after written request therefor deposit moneys with Lessor sufficient
to restore the Security Deposit to the original amount required by this
Lease.  Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.

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

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

 10

 

9.             Hazardous Materials.

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

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

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

 11
 

 

§1251 et seq., the River and
Harbors Act of 1899, 33 U.S.C. §§401 et seq., and all rules and regulations of
the EPA, the California Environmental Protection Agency, or any other state or
federal department, board or any other agency or governmental board or entity
having jurisdiction over the environment, as any of the foregoing have been, or
are hereafter amended.

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

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

(f)            Lessee shall indemnify, defend and
hold Lessor harmless from any and all claims, damages, fines, judgments,
penalties, costs, liabilities or losses (including, without limitation, any and
all sums paid for settlement of claims, attorneys’ fees, consultant and expert
fees) arising during or after the term (as such may be extended) from or in
connection with the presence of Hazardous Materials in or on the Premises, the
Property, or Menlo Business Park as a result of Lessee’s breach of the
foregoing covenant, or as a result of the negligence, willful misconduct or
other acts of Lessee, Lessee’s employees, agents, contractors or invitees.  Without limitation of the foregoing, this
indemnification shall include any and all costs incurred due to any
investigation of the site or any cleanup, removal or restoration mandated by a
federal, state or local agency or political subdivision.  The foregoing indemnity shall survive the
expiration or earlier termination of this Lease.  No termination,
cancellation or release agreement 
entered into by Lessor and Lessee shall release Lessee from its
obligations under this Lease with respect to Hazardous Materials, unless
specifically so agreed by Lessor in writing at the time of such agreement.

(g)           To the current actual knowledge of John C.
Tarlton, President of Tarlton Properties, Inc., Lessor’s property manager,
except as disclosed to Lessee in writing by Lessor or as contained in any
environmental site assessment report delivered by Lessor to Lessee prior to the
execution of this Lease, (1) no Hazardous Materials are present on the
Property or the soil, surface water or groundwater thereof, (2) no 

 12
 

 

underground storage tanks are present on the
Property, and (3) no action, proceeding or claim is pending or threatened
regarding the Property concerning any Hazardous Materials or pursuant to any
environmental law.  Lessor shall be
responsible (at no cost to Lessee) for Hazardous Materials present on the
Property prior to the Commencement Date, and for Hazardous Materials present at
any time on the Menlo Business Park due to Lessor or its employees, agents, and
contractors.  Lessee shall not be responsible
under this Lease, and Lessor hereby releases Lessee for any Hazardous Materials
present on the Menlo Business Park that were not released by Lessee or its
agents, contractors, or employees.

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

11.           Insurance.

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

 13
 

 

(b)           Lessor shall obtain and carry in
Lessor’s name, as insured, as an Operating Expense of the Property as provided
in Paragraph 5(b), during the lease term, “all risk” property insurance
coverage (with rental loss insurance coverage for a period of one year), flood
insurance, public liability and property damage insurance, and insurance
against such other risks or casualties as Lessor shall determine, including,
but not limited to, insurance coverages required of Lessor by the beneficiary
of any deed of trust which encumbers the Property, including earthquake
insurance coverage insuring Lessor’s interest in the Property (including the
Tenant Improvement Work performed pursuant to Paragraph 13 and any other
leasehold improvements to the Premises constructed by Lessor or by Lessee with
Lessor’s prior written approval) in an amount not less than the full
replacement cost of the Building and all other Improvements from time to
time.  The proceeds of any such insurance
shall be payable solely to Lessor and Lessee shall have no right or interest
therein.  Lessor shall have no obligation
to insure against loss by Lessee to Lessee’s leasehold improvements installed
at Lessee’s expense, or Lessee’s equipment, fixtures, furniture, or other
personal property of Lessee in or about the Premises occurring from any cause
whatsoever.  Lessor’s public liability
insurance shall provide for contractual liability referred to in Paragraph
12(b) of this Lease.

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

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

12.           Indemnification.

(a)           Lessee waives all claims against Lessor
for damages to property, or to goods, wares, and merchandise stored in, upon,
or about the Premises, and for injuries to persons in, upon, or about the
Premises or the Property from any cause arising at any 

 14
 

 

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

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

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

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

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

 15
 

 

(d)           Lessor shall not be liable to Lessee
for any damage because of any act or negligence of any other occupant of the
Building or any other owner or occupant of adjoining or contiguous property,
nor for overflow, breakage, or leakage of water, steam, gas, or electricity
from pipes, wires, or otherwise in the Premises or the Building, except to the
extent caused by the gross negligence or willful misconduct of Lessor or Lessor’s
employees, agents, or contractors. 
Except as otherwise herein provided, Lessee will pay for damage to the Premises
or the Property caused by the misuse or neglect of the Premises or the Property
by Lessee or its employees, agents, or contractors, including, but not limited
to, the breakage of glass in the Building. 
Any damage to the Building caused by other tenants of Menlo Business
Park shall be paid for by such other tenants or by Lessor.

13.           Tenant Improvement Work.

(a)           Lessor shall provide Lessee with a
tenant improvement allowance of Ninety-two Thousand Five Hundred Fifty Dollars
($92,550.00) ($10.00 per rentable square foot) (the “Tenant Improvement
Allowance”) to defray a portion of the cost of the improvements to the Premises
(“Tenant Improvement Work”) as shown on the mark-up of the floor plan of Suite
H attached hereto as Exhibit “E” and incorporated herein by reference.  The entire cost of the Tenant Improvement
Work in excess of the Tenant Improvement Allowance, if any, shall be paid by
Lessee.   Lessor’s approval of the Tenant
Improvement Work shown on Exhibit “E” is given on the condition that Lessee
shall, at Lessee’s expense, restore the Premises to its condition and layout as
of the date of this Lease upon the expiration or sooner termination of this
Lease.  Lessee confirms its agreement to
do so by initialing this provision.

Lessee                    

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

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

 16
 

 

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

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

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

(b)           Lessor shall provide or cause to be
provided and shall supervise the performance of, as an Operating Expense of the
Property pursuant to Paragraph 5(b) hereof, all services and work relating to
the operation, maintenance, repair, and replacement, as needed, of the
Property, including the HVAC, mechanical, electrical, and plumbing systems in
the Building; the interior of the Building; the roof membrane; the outside
areas of the Property; the janitorial service for the Building; landscaping,
tree trimming, resurfacing and restriping of the parking lot, repairing and
maintaining the walkways; exterior building painting, exterior building lighting,
parking lot lighting, and exterior security patrol.  In the event Lessee provides Lessor with
written notice of the need for any repairs, Lessor shall commence any such
repairs promptly following receipt by Lessor of such notice and Lessor shall
diligently prosecute such repairs to completion.

(c)           Subject to the foregoing and except
as provided elsewhere in this Lease, Lessee shall at all times use and occupy
the Premises in a manner which keeps the Premises in good and safe order,
condition, and repair.  Lessor shall
execute and maintain in full force and effect throughout the term as an
Operating Expense of the Property pursuant to Paragraph 5(b) a service contract
with a recognized air conditioning service company.  Lessor may, if Lessor determines that it is
necessary to do so, obtain on a semi-annual basis an inspection report of the
HVAC system from a separate HVAC service firm 

 17
 

 

designated by Lessor for the
purpose of monitoring the performance of the HVAC maintenance and repair work
performed by the HVAC service firm which performs the regular repair and
maintenance.  The cost of such inspection
report shall be an Operating Expense pursuant to Paragraph 5.  Subject to the release of claims and waiver
of subrogation contained in Paragraphs 11(c) and 11(d), if Lessor is required
to make any repairs to the Property by reason of Lessee’s negligent acts or
omissions, Lessor may add the cost of such repairs to the next installment of
rent which shall thereafter become due, and Lessee shall promptly pay the same
upon receipt of an invoice therefor.

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

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

(e)           Lessee, at Lessee’s sole cost and
expense, shall promptly and properly observe and comply with all present and
future orders, regulations, rules, laws, and ordinances of all governmental
agencies or authorities, and the Board of Fire Underwriters.  Any structural changes or repairs or other
repairs or changes to the Premises of any nature which would be considered a
capital expenditure under generally accepted accounting principles shall be
made by Lessor at Lessee’s expense if such structural repairs or changes are
required by reason of the specific nature of the use of the Premises by
Lessee.  If such structural changes or
repairs are not required by reason of the 

 18
 

 

specific nature of Lessee’s use
of the Premises, the cost of such structural changes or repairs shall be
treated as an Operating Expense and amortized in accordance with the provisions
of Paragraph 5(b).

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

Notwithstanding
anything contained in this Paragraph 14 to the contrary, upon the conversion by
Lessee of any laboratory space in the Premises to offices (with or without
Lessor’s prior consent) including, without limitation, the conversion of
laboratory space to offices pursuant to the Tenant Improvement Work approved by
Lessor and Lessee shown on Exhibit “E” attached hereto.  Lessee shall, at Lessee’s expense, restore
such space to laboratory space, pursuant to plans and specifications approved
by Lessor in writing, promptly following the expiration or sooner termination
of this Lease.

(g)           Prior to the expiration of the term
of the this Lease or any earlier termination date, Lessee shall, at Lessee’s expense,
obtain a closure report from the San Mateo County Health Department with
respect to any Hazardous Materials used, stored, or released by Lessee on or
about the Premises.  Any removal and
remediation of Hazardous Materials by Lessee shall be certified by the San
Mateo County Health Department and a copy of such certification shall be
delivered to Lessor.

15.           Utilities and Services.

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

 19
 

 

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

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

17.           Assignment and Subletting.

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

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

 20
 

 

money or other
consideration to be received by Lessee for such assignment or sublease.  Within ten (10) days after the receipt of
such documentation and other information, Lessor shall (1) notify Lessee in
writing that Lessor elects to consent to the proposed assignment or sublease
subject to the terms and conditions hereinafter set forth; (2) notify Lessee in
writing that Lessor refuses such consent, specifying reasonable grounds for
such refusal; or (3) except with respect to
a transfer to an affiliate pursuant to Paragraph 17(f) if at the time Lessee
requests that Lessor consent to an assignment of sublease Lessee has vacated the
Premises and is not conducting on-going operations in the Building, Lessor may
notify Lessee that Lessor elects to terminate this Lease, provided that with
respect to a proposed sublease of a portion of the Premises Lessor’s
termination right shall apply only to the proposed sublease space, and
specifying the effective date of termination which shall be the same as the
commencement date of the proposed sublease. 
If Lessor elects to terminate this Lease pursuant to the foregoing
provision, upon the effective date of termination, Lessor and Lessee shall each
be released and discharged from any liability or obligation to the other under
this Lease accruing thereafter with respect to the Premises or the portion
thereof to which the termination applies, except for any obligations then
outstanding and except for any indemnity obligations which survive the
expiration or termination of this Lease by the express terms hereof, and Lessee
agrees that Lessor may enter into a direct lease with such proposed assignee or
sublessee without any obligation or liability to Lessee.

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

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

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

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

(c)           As a condition to Lessor’s granting
its consent to any assignment or sublease, (1) Lessor may require that Lessee
pay to Lessor, as and when received by Lessee, fifty percent (50%) of the
amount of any excess of the consideration to be received 

 21
 

 

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

(d)           Each assignment or sublease agreement
to which Lessor has consented shall be an instrument in writing in form
satisfactory to Lessor, and shall be executed by both Lessee and the assignee
or sublessee, as the case may be.  Each
such assignment or sublease agreement shall recite that it is and shall be
subject and subordinate to the provisions of this Lease, that the assignee or
sublessee accepts such assignment or sublease, that Lessor’s consent thereto
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or the assignee or sublessee, and, except as otherwise set forth in a
sublease approved by Lessor, the assignee or sublessee agrees to perform all of
the obligations of Lessee hereunder (to the extent such obligations relate to
the portion of the Premises assigned or subleased), and that the termination of
this Lease shall, at Lessor’s sole election, constitute a termination of every
such assignment or sublease.

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

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

 22

 

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

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

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

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

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

 23
 

 

18.           Non-Waiver.

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

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

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

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

20.           Damage or Destruction.

(a)           In the event of a total destruction
during the lease term from any cause, of (1) the Building and Improvements, or
(2) the Building and Improvements referred to as Building #6, 1360 O’Brien
Drive, Menlo Park, California (the “1360 O’Brien Drive Premises”) during the
term of Lessee’s Lease of said Premises, either party may elect 

 24
 

 

to terminate this Lease by
giving written notice of termination to the other party within thirty (30) days
after the casualty occurs.  A total
destruction shall be deemed to have occurred for this purpose if the Building
and the Improvements which are the subject of this Lease or the Building and
Improvements consisting of the 1360 O’Brien Drive Premises are destroyed to the
extent of seventy-five percent (75%) or more of the replacement cost
thereof.  If the Lease is not terminated,
Lessor shall repair and restore the Premises and the 1360 O’Brien Drive
Premises (if applicable) in a diligent manner and this Lease shall continue in
full force and effect, except that Monthly Base Rent and Additional Rent of the
Premises which are the subject of this Lease shall be abated in accordance with
Paragraph 20(d) below.

(b)           In the event of a partial destruction of the
Building or the Premises to an extent not exceeding fifty percent (50%) of the
replacement cost thereof and if the damage thereto can be repaired,
reconstructed, or restored within a period of one hundred twenty (120) days from
the date of such casualty, and if the casualty is from a cause which is insured
under Lessor’s “all risk” property insurance, or is insured under any other
coverage then carried by Lessor, Lessor shall forthwith repair the same, and
this Lease shall continue in full force and effect, except that Monthly Base
Rent and Additional Rent shall be abated in accordance with Paragraph 20(d)
below.  If any of the foregoing
conditions is not met, Lessor shall have the option of either repairing and
restoring the Building and Improvements, or terminating this Lease by giving
written notice of termination to Lessee within thirty (30) days after the
casualty, subject to the provisions of Paragraph 20(c).  Notwithstanding the foregoing, Lessor shall
not have the right to terminate this Lease if the cost to repair the damage to
the Building or to restore the Premises would cost less than five percent (5%)
of the replacement cost of the Building, regardless of whether or not the
casualty is insured.  Notwithstanding the
foregoing, if the casualty is uninsured, the cost to restore the Premises
exceeds five percent (5%) of the replacement cost, and Lessor elects to
terminate this Lease, Lessee may nullify the effect of such termination by
giving Lessor written notice within ten (10) days after receipt by Lessee of
Lessor’s notice of termination that Lessee elects to restore the Premises at
Lessee’s sole cost, in which event this Lease shall remain in effect, provided
that Rent abatement shall not extend beyond the date that the restoration is
completed, or one hundred twenty (120) days after the casualty, whichever
occurs first.(c) In the event of a partial destruction of the
Building and Improvements to an extent equal to or exceeding twenty-five
percent (25%) but less than seventy-five percent (75%) of the replacement cost
thereof, or if the damage thereto cannot be repaired, reconstructed, or
restored within a period of one hundred eighty (180) days from the date of such
casualty plus the period of any force majeure delays, Lessee may terminate this
Lease effective as of the date of the casualty by giving written notice of
termination to Lessor within thirty (30) days after the casualty.  The foregoing shall not affect Lessor’s
termination rights under subparagraph (b) above.

 25
 

 

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

(d)           Subject
to the limitation in Paragraph 20(b) above which applies if Lessee elects to
restore the Building and Improvements at Lessee’s expense, in the event of
repair, reconstruction, or restoration as provided herein, the Monthly Base
Rent and Additional Rent shall be abated proportionally in the ratio which the
Lessee’s use of the Premises is impaired during the period of such repair,
reconstruction, or restoration, from the date of the casualty until such
repair, reconstruction or restoration is completed.

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

(f)            In
the event of termination of this Lease pursuant to any of the provisions of
this Paragraph 20, the Monthly Base Rent and Additional Rent shall be
apportioned on a per diem basis and shall be paid to the date of the
casualty.  In no event shall Lessor be
liable to Lessee for any damages resulting to Lessee from the occurrence of
such casualty, or from the repairing or restoration of the Building and
Improvements, or from the termination of this Lease as provided herein, nor
shall Lessee be relieved thereby 

 26
 

 

from
any of Lessee’s obligations hereunder, except to the extent and upon the
conditions expressly set forth in this Paragraph 20.

21.           Eminent
Domain.

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

(b)           If
there is a partial taking of the Property by eminent domain which is not a
substantial part of the Property and the Premises remain reasonably suitable
for continued use and occupancy by Lessee for the purposes referred to in
Paragraph 8, Lessor shall complete any necessary repairs in a diligent
manner and this Lease shall remain in full force and effect with a just and
proportionate abatement of the Monthly Base Rent and Additional Rent, based on
the extent to which Lessee’s use of the Premises is impaired thereafter.  If after a partial taking, the Premises are
not reasonably suitable for Lessee’s continued use and occupancy for the uses
permitted herein, Lessee may terminate this Lease effective on the earlier of
the date title vests in the public authority or the date possession is
taken.  Subject to the provisions of
Paragraph 21(a), the entire award for such taking shall be the property of
Lessor.

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

 27
 

 

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

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

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

(3)           the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss for the same period that Lessee
proves could be reasonably avoided discounted at the discount rate established
by the Federal Reserve Bank of San Francisco for member banks at the time of
the award plus one percent (1%); and

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

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

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

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

(c)           Lessor’s failure to perform or
observe any of its obligations under this Lease or to correct a breach of any
warranty or representation made in this Lease within thirty (30) days after
receipt of written notice from Lessee setting forth in reasonable detail the
nature and extent of the failure referencing pertinent Lease provisions or if
more than 

 28
 

 

thirty (30) days is required to
cure the breach, Lessor’s failure to begin curing within the thirty (30) day
period and diligently prosecute the cure to completion, shall constitute a
default.  If Lessor commits a default,
Lessee’s remedy shall be to institute an action against Lessor for damages or
for equitable relief, but Lessee shall not have the right to rent abatement, to
offset against rent, or to terminate this Lease in the event of any default by
Lessor.

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

23.           Lessee’s Personal Property.  If any personal property of Lessee remains on
the Premises after (1) Lessor terminates this Lease pursuant to Paragraph 22
above following an event of default by Lessee, or (2) after the expiration of
the Lease term or after the termination of this Lease pursuant to any other
provisions hereof, Lessor shall give written notice thereof to Lessee pursuant
to applicable law.  Lessor shall
thereafter release, store, and dispose of any such personal property of Lessee
in accordance with the provisions of applicable law.

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

	
  Lessor:

  	
  Menlo
  Business Park, LLC

  
	
   

  	
  c/o Tarlton Properties, Inc.

  
	
   

  	
  955 Alma Street

  
	
   

  	
  Palo Alto, California 94301

  
	
   

  	
   

  
	
   

  	
  Attention: John C. Tarlton

  
	
   

  	
  Telephone: (650) 330-3600

  
	
   

  	
   

  
	
  Lessee:

  	
  DepoMed,
  Inc.

  
	
   

  	
  1330 O’Brien Drive

  
	
   

  	
  Menlo Park, California 94025

  
	
   

  	
   

  
	
   

  	
  Attention:

  
	
   

  	
  Telephone:

  

 

 29
 

 

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

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

26.           Signage.  Lessor shall provide to
Lessee space for Lessee’s sign on the monument sign for the Building in the
proportion that the number of rentable square feet in the Premises bears to the
total rentable square feet of the Building. 
Lessee may also place Lessee’s vinyl lettering signage on the glass near
the front door entrance to the Building. 
All of Lessee’s signage shall comply with the Menlo Park sign ordinances
and regulations and shall be subject to Lessor’s approval as to the location,
size and design thereof.  The cost of the
installation of Lessee’s sign on the monument sign and on the glass at the
front door entrance shall be paid by Lessee. 
Any additional signage shall be subject to Lessor’s prior approval and,
if approved, shall be installed at Lessee’s expense.

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

28.           Parking.  Lessee shall have the
right to use twenty-eight (28) unreserved on-site vehicular parking spaces on
the Land at no additional cost to Lessee in the parking area for the Building,
subject to such rules and regulations for such parking facilities which may be
established or altered by Lessor at any time from time to time during the 

 30
 

 

Lease
term, provided that such rules and regulations shall not unreasonably interfere
with Lessee’s parking rights.  Vehicles
of Lessee or its employees shall not park in driveways or occupy parking spaces
or other areas reserved for  deliveries,
or loading or unloading.

29.           Subordination; Attornment.

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

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

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

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

31.           Lessor’s Entry.  Except in the case of an emergency and except
for permitted entry during Lessee’s normal working hours, both of which may
occur without prior notice to Lessee, Lessor and Lessor’s agents shall provide
Lessee with at least twenty-four (24) hours’ notice prior to entry of the
Premises.  Lessor may enter the Premises
for any reasonable purpose related to Lessor’s ownership of the Property.  Such entry by Lessor 

 31
 

 

and Lessor’s agents shall not
impair Lessee’s operations more than reasonably necessary.  Lessor and Lessor’s agents shall at all times
be accompanied by Lessee during any such entry except in case of emergency and
except for janitorial work.  Lessor may
enter the Premises without prior notice to Lessee if Lessee has vacated the
Premises.

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

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

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

35.           Lessee’s
Right of First Offer.  During the initial term, Lessor hereby grants to Lessee the continuing
right of first offer to lease the space in the Building referred to as “Suite
G,” consisting of approximately 9,255 rentable square feet (“Suite G”).  Said right of first offer shall be upon the
following terms and conditions:

(a)           Provided that no
current default after the expiration of applicable notice and cure periods by
Lessee hereunder then remains uncured, and provided that Lessee or any
permitted transferee is then occupying the Premises described in Paragraph 1
hereof pursuant to the terms of this Lease, prior to entering into a lease of
Suite G with any other tenant during the initial term of this Lease, Lessor
shall deliver to Lessee a written offer (“First Offer”) to lease Suite G to
Lessee containing the terms upon which Lessor is willing to lease such
space.  Such space shall be offered to
Lessee for lease at the then market rent for such space, as determined by
Lessor in Lessor’s good faith judgment, and upon the same terms and conditions
under which Lessor is then offering the space for lease generally.  Lessee shall have five (5) business days after
receipt of written notice from Lessor of the availability of such space and the
applicable rental and lease terms, within which to exercise in writing said
right of first offer to lease such space by giving written notice to Lessor of
Lessee’s acceptance of Lessor’s offer to lease such space upon the terms and
conditions specified by Lessor.  Failure
of Lessee to deliver such written acceptance within said period of five (5)
business days

 32
 

 

shall be deemed a rejection of the first offer.  If Lessee rejects the first offer, Lessor
shall have the right to lease the space offered to Lessee to a third party
tenant for such term and on the same terms and conditions as set forth in
Lessor’s offer notice to Lessee.  If
Lessee accepts Lessor’s First Offer, Lessor and Lessee shall execute and
deliver an amendment to this Lease to add to the Premises the space offered,
which shall be leased by Lessee at the Monthly Base Rent and on the other terms
and conditions specified by Lessor in the First Offer.  If Lessor does not lease such space within
ninety (90) days after the expiration of said five (5) business day
period, any further transaction shall be deemed a new determination by Lessor
to lease such space and the provisions of this paragraph shall again be
applicable.

(b)           If Lessee leases the space offered to Lessee (1) Lessee’s
share of the Additional Rent (Operating Expenses and Taxes) provided for in
Paragraph 5, shall be adjusted to include such space; (2)  such space shall be leased by Lessee for a
term which is co-terminus with the then remaining term of this Lease of Suite
H; (3) such space shall be leased to Lessee subject to all of the other terms
and provisions of this Lease, except as otherwise specified in Lessor’s First
Offer; and (4) if Lessee exercises the option to extend contained in
Paragraph 3 of this Lease, the Premises shall include the Suite H space.

36.           General Provisions.

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

(b)           Each and all of the provisions of
this Lease shall be binding upon and inure to the benefit of the parties
hereto, and except as otherwise specifically provided elsewhere in this Lease,
their respective heirs, executors, administrators, successors, and assigns,
subject at all times, nevertheless, to all agreements and restrictions
contained elsewhere in this Lease with respect to the assignment, transfer,
encumbering, or subletting of all or any part of Lessee’s interest in this
Lease.

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

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

 33
 

 

respect to representations is
solely upon the representations and agreements contained in this instrument.

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

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

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

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

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

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

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

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

 34
 

 

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

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

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

(p)           Lessor and Lessee each agree to and
they hereby do waive trial by jury in any action, proceeding or counterclaim
brought by either of the parties hereto against the other on any matters
whatsoever arising out of or in any way connected with this Lease, the
relationship of Lessor and Lessee, Lessee’s use or occupancy of the Premises
and/or any claim of injury or damage, and any statutory remedy.

(q)           This Lease shall not be recorded.

 35
 

 

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

	
   

  	
  “Lessor”

  
	
   

  	
   

  
	
   

  	
  MENLO BUSINESS PARK, LLC

  
	
   

  	
  a California limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. O. Oltmans, II

  
	
   

  	
   

  	
  J. O. Oltmans, II, Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James R. Swartz

  
	
   

  	
   

  	
  James R. Swartz, Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “Lessee”

  
	
   

  	
   

  
	
   

  	
  DEPOMED, INC.,

  
	
   

  	
  a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John F. Hamilton

  
	
   

  	
   

  	
       John F. Hamilton,
  Vice President

       and Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Matthew M. Gosling

  
	
   

  	
   

  	
       Matthew M.
  Gosling, Vice

       President and General Counsel

  

 

 36

 

COMMENCEMENT MEMORANDUM

Date:  July 28, 2006

Re:                               Lease dated July 28, 2006 between MENLO
BUSINESS PARK, LLC, a California limited liability company, Lessor, and
DEPOMED, INC., a California corporation, Lessee, concerning the Premises
consisting of Suite H, in the building commonly known as Building #7, 1430 O’Brien
Drive, Menlo Park, California.

Gentlemen:

In accordance with the subject Lease, we hereby
confirm the following:

1.             That
the Premises have been accepted by Lessee.

2.             That
Lessee has possession of the Premises and acknowledges that pursuant to the
Lease, the initial term of the Lease commenced on August 1, 2006 (the “Commencement
Date”), and shall expire on the last day of the thirty-sixth (36th)
full calendar month after the Commencement Date.

3.             That
in accordance with the provisions of the Lease, Monthly Base Rent and
Additional Rent commenced to accrue on August 1, 2006, which is the
Commencement Date.

4.             Thereafter,
rent is due and payable in advance on the first day of each month during the term
of the Lease.  Rent checks should be made
payable to Menlo Business Park, LLC, c/o Tarlton Properties, Inc., 955 Alma
Street, Palo Alto, California 94301.

AGREED AND ACCEPTED

	
  LESSEE:

  	
   

  	
  LESSOR:

  
	
   

  	
   

  	
   

  
	
  DEPOMED, INC.,

  	
   

  	
  MENLO BUSINESS PARK, LLC,

  
	
  a California corporation

  	
   

  	
  a California limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ John F. Hamilton

  	
   

  	
  By:

  	
  /s/ J. O. Oltmans, II

  
	
   

  	
  John F. Hamilton, Vice
  President

  	
   

  	
   

  	
  J. O. Oltmans, II,
  Manager

  
	
   

  	
  and Chief Financial
  Officer

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ James R. Swartz

  
	
   

  	
   

  	
   

  	
  James R. Swartz, Manager

  
						

 

 

EXHIBIT “D”Exhibit
10.4

LEASE EXTENSION AGREEMENT

Building #5

1330 O’Brien Drive

Menlo Park, California 94025

THIS LEASE EXTENSION
AGREEMENT (this “Agreement”) is made and entered into on June 23, 2006 by and
between MENLO BUSINESS PARK, LLC, a California limited liability company
(“Lessor”), and DEPOMED, INC., a California corporation (“Lessee”).

RECITALS

A.            Lessor and Lessee entered into a
Lease dated April 30, 2003 (the “Lease”) of the premises referred to as
Building #5 located at 1330 O’Brien Drive, Menlo Park, California 94025, more
particularly described on Exhibit “A” attached to the Lease and incorporated by
reference herein (the “Premises”).  The
Premises contain approximately 25,366 rentable square feet of space.

B.            The expiration date of the initial
term of the Lease is April 30, 2008. 
Lessor and Lessee wish to extend the expiration date of the initial term
of the Lease, subject to the terms and conditions set forth herein.

AGREEMENT

NOW THEREFORE, in
consideration of the mutual covenants contained herein, the parties agree as
follows:

1.             Defined Terms.  Terms defined in the Lease and used in this
Agreement shall have the meaning ascribed to them in the Lease.

2.             Extension of Initial Term.

(a)           The initial term of the Lease is hereby extended for a
period of fourteen (14) calendar months commencing on May 1, 2008 and ending on
June 30, 2009 (the “Extension Term”). 
The Extension Term shall be upon all of the same terms and conditions of
the Lease, except that the Monthly Base Rent payable by Lessee to Lessor during
the Extension Term shall be as set forth in Paragraph 3 hereof.

(b)           The option to extend provided for in Paragraph 3 of the
Lease shall be for one period of sixty (60) calendar months immediately
following the expiration of 

 

the Extension Term and shall
otherwise be upon the same terms and conditions as set forth in Paragraph 3 of
the Lease.

3.             Monthly Base Rent.  Lessee shall pay to Lessor Monthly Base Rent
during the Extension Term, in monthly installments in advance on a triple net
basis in lawful money of the United States, as follows:

(a)           Commencing on May 1, 2008 and continuing through April 30,
2009, the sum of Fifty Thousand Seven Hundred Thirty-two Dollars ($50,732.00)
per month ($2.00/square foot/NNN).

(b)           Commencing on May 1, 2009 (the “Rental Adjustment Date”),
the Monthly Base Rent shall be adjusted to reflect any increases in the cost of
living.  The adjustment shall be
calculated upon the basis of the United States Department of Labor, Bureau of
Labor Statistics Consumer Price Index, all items,  for all Urban Consumers - San
Francisco-Oakland-San Jose (1982-84=100), hereafter referred to as the “Index.”  The Index for said subgroup published most
recently as of the end of the calendar month immediately preceding the month in
which the commencement date of the Extension Term occurs shall be considered
the “base Index.”

(c)           The
Monthly Base Rent shall be adjusted as of the Rental Adjustment Date to an
amount equal to the product obtained by multiplying Fifty Thousand Seven Hundred Thirty-two
Dollars ($50,732.00)
(the Monthly Base Rent for the Premises commencing on May 1, 2008 referred to
in Paragraph 3(a) above), by a fraction, the numerator of which is the Index
most recently published as of the end of the calendar  month immediately preceding the Rental
Adjustment Date and the denominator of which is the base Index; provided that
in no event shall the Monthly Base Rent be increased on the Rental Adjustment
Date to an amount less than three percent (3%) per annum or more than six
percent (6%) per annum of the Monthly Base Rent immediately payable before the
Rental Adjustment Date.  The Monthly Base
Rent as so adjusted shall continue through June 30, 2009, the expiration date
of the Extension Term.

(d)           When
the new Monthly Base Rent is determined for the Rental Adjustment Date, Lessor
shall give Lessee written notice of the amount of the new Monthly Base Rent and
how the new Monthly Base Rent figure was computed in accordance with
subparagraphs 3(b) and 3(c) above. 
Lessee shall pay to Lessor retroactively any unpaid increase in Monthly
Base Rent due from and after the Rental Adjustment Date.  If the Index does not exist on the Rental
Adjustment Date in the same format as referred to in subparagraph 3(b) above,
Lessor shall substitute in lieu thereof an index reasonably comparable to the
Index referred to above which is acceptable to Lessee and which is then
published by the Bureau of Labor Statistics, or successor or similar 

 2
 

 

governmental agency, or if no
governmental agency then publishes an index, Lessor shall substitute therefor
any index commonly accepted which is published by a reputable private
organization.

(e)           Monthly
Base Rent for any partial month shall be prorated on the basis of the number of
calendar days in such month.

4.             Additional Rent; Operating
Expenses and Taxes.  In addition to
the Monthly Base Rent payable by Lessee pursuant to Paragraph 3 above, Lessee
shall pay to Lessor during the Extension Term, as Additional Rent, Operating
Expenses and Taxes pursuant to Paragraph 5 of the Lease.

5.             Condition of the Premises.  Lessee is currently in possession of the
Premises and is conducting business thereon pursuant to the Lease.  Lessee agrees to accept the Premises in its “as
is” condition at the commencement of the Extension Term, subject to the
performance by Lessor of Lessor’s obligations under Paragraph 14(a) of the
Lease.

6.             Security
Deposit.  Lessor acknowledges that
Lessor has received from Lessee and is currently holding the sum of Thirty-four Thousand Two Hundred
Fifty-nine and Fifty-eight Hundredths
Dollars ($34,259.58) in cash (the “Security Deposit”), as security for Lessee’s
faithful performance of Lessee’s obligations under the Lease.  Lessor shall continue to hold the Security
Deposit during the remainder of the initial term and during the Extension Term
pursuant to Paragraph 7 of the Lease.

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

8.             Notices.  Paragraph 24, Notices, of the Lease is
amended to read as follows:

 3
 

 

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

	
  Lessor:

  	
  Menlo Business Park, LLC

  
	
   

  	
  c/o Tarlton
  Properties, Inc.

  
	
   

  	
  955 Alma Street

  
	
   

  	
  Palo Alto, California
  94301

  
	
   

  	
   

  
	
   

  	
  Attention: John C.
  Tarlton

  
	
   

  	
  Telephone: (650)
  330-3600

  
	
   

  	
   

  
	
  Lessee:

  	
  DepoMed, Inc.

  
	
   

  	
  1330 O’Brien Drive

  
	
   

  	
  Menlo Park,
  California 94025

  
	
   

  	
   

  
	
   

  	
  Attention:

  
	
   

  	
  Telephone:

  

 

All
such notices or other communications given hereunder shall be addressed to the
parties to such other address as either party may have furnished to the other
as a place for the service of notice. 
Notices shall be deemed given upon receipt or attempted delivery where
delivery is not accepted.”

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

10.           Continuing Effect.  The parties acknowledge that the Lease
remains in full force and effect as amended hereby, and with the initial term
extended as provided herein.

 4
 

 

IN WITNESS WHEREOF, the
parties have executed this Agreement as of the date set forth above.

	
   

  	
  “Lessor”

  
	
   

  	
   

  
	
   

  	
  MENLO BUSINESS PARK,
  LLC

  
	
   

  	
  a California limited
  liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J.O. Oltmans, II

  
	
   

  	
   

  	
  J. O. Oltmans, II, Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James R. Swartz

  
	
   

  	
   

  	
  James R. Swartz,
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  “Lessee”

  
	
   

  	
   

  
	
   

  	
  DEPOMED, INC.,

  
	
   

  	
  a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John F. Hamilton

  
	
   

  	
   

  	
  John F. Hamilton, Vice President and

  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Matthew M.
  Gosling

  
	
   

  	
   

  	
  Matthew M. Gosling, Vice President and

  General Counsel

  

 

 5

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