Document:

Prepared by MERRILL CORPORATION

 

Exhibit 10.5

 

Loan

Agreement, dated September 21, 2001

 

 

REMEDENT USA, INC.

 

 

September 21,

2001

Mr. Gary Legator

C/O Mr. Jonathan J. Marine

448

21st Street

Manhattan

Beach, CA 90266

Dear

Mr. Legator:

This letter

will serve to confirm the agreement between Remedent USA, Inc. (the “Company”)

and yourself (the “advisor”).

(1)    The advisor will receive 100,000 fully vested options.  These options will carry a strike price of

$0.10 per share, and will be provided as compensation for investor relations

services to be provided by the advisor. 

As such, these options will be registered through the filing of an S-8

and will be fully registered as advisor compensation.

The

above-mentioned terms are agreed upon on this day, by the following:

 

 

	

  /s/ Kenneth J. Hegemann

  	

   

  	

  /s/ Stephen F. Ross

  	

   

  	

  /s/ Gary Legator

  
	

  Kenneth J. Hegemann

  	

   

  	

  Stephen F. Ross

  	

   

  	

  Gary Legator

  
	

  Chief Executive Officer

  	

   

  	

  Chief Financial Officer

  	

   

  	

  Advisor

  
	

  Remedent

  USA, Inc.

  	

   

  	

  Remedent

  USA, Inc.

  	

   

  	

   

  

 

 

 

 

 

17555 VENTURA BLVD..SUITE 200 • ENCINO, CA • 91316

PHONE: (818) 922-0585 • FAX: (818) 922-0584Prepared by MERRILL CORPORATION

 

 

LEASE

 

 

 

 

 

BY AND BETWEEN

 

 

MENLO BUSINESS PARK, LLC, LESSOR

 

 

AND

 

 

DEPOMED, INC., LESSEE

 

 

 

 

 

 

 

Menlo

Business Park

1360

O’Brien Drive

Menlo

Park, California

 

 

 

 

February

4, 2000

 

 

TABLE OF CONTENTS

	

  Paragraph

  	

   

  
	

   

  	

   

  	

   

  
	

  1.

  	

  Lease

  	

   

  
	

  2.

  	

  Initial Term

  	

   

  
	

  3.

  	

  Option to

  Extend

  	

   

  
	

  4

  	

  Monthly

  Base Rent

  	

   

  
	

  5

  	

  Additional

  Rent; Operating Expenses and Taxes

  	

   

  
	

  6

  	

  Payment of Rent

  	

   

  
	

  7

  	

  Security

  Deposit

  	

   

  
	

  8

  	

  Use

  	

   

  
	

  9

  	

  Hazardous

  Materials

  	

   

  
	

  10.

  	

  Taxes on Lessee’s Property

  	

   

  
	

  11.

  	

  Insurance

  	

   

  
	

  12.

  	

  Indemnification

  	

   

  
	

  13.

  	

  Tenant

  Improvement Work

  	

   

  
	

  14.

  	

  Maintenance

  and Repairs; Alterations; Surrender and Restoration

  	

   

  
	

  15.

  	

  Utilities

  and Services.

  	

   

  
	

  16.

  	

  Liens

  	

   

  
	

  17.

  	

  Assignment and Subletting

  	

   

  
	

  18.

  	

  Waiver

  	

   

  
	

  19.

  	

  Holding Over

  	

   

  
	

  20.

  	

  Damage

  or Destruction

  	

   

  
	

  21.

  	

  Eminent Domain

  	

   

  
	

  22.

  	

  Remedies

  	

   

  
	

  23.

  	

  Lessee’s Personal Property

  	

   

  
	

  24.

  	

  Notices

  	

   

  
	

  25.

  	

  Estoppel

  Certificate

  	

   

  
	

  26.

  	

  Signage

  	

   

  
	

  27.

  	

  Real

  Estate Brokers

  	

   

  
	

  28.

  	

  Subordination; Attornment

  	

   

  
	

  29.

  	

  No

  Termination Right

  	

   

  
	

  30.

  	

  Lessor’s Entry

  	

   

  
	

  31.

  	

  Attorneys’ Fees

  	

   

  
	

  32.

  	

  Compliance with

  CC&Rs

  	

   

  
	

  33.

  	

  Quiet Enjoyment

  	

   

  
	

  34.

  	

  General

  Provisions

  	

   

  

 

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

  

 

 

 

L

E A S E

Menlo Business Park

1360 O’Brien Drive

Menlo Park, California

 

 

                THIS

LEASE, referred to herein as “this Lease,” is made and entered into as of

February 4, 2000 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 1360 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 1.13 acres, together

with all easements and appurtenances thereto (the “Land”) and the existing

building thereon, referred to as Building #6, 1360 O’Brien Drive, containing

approximately 20,624 rentable square feet, and all other improvements located

thereon, including 72 on-site parking spaces (collectively, the

“Improvements”).  The Land and

Improvements are referred to herein collectively as the “Premises.”  The Premises are shown on the Menlo Business

Park Master Plan attached hereto as Exhibit “B.”  Building #6 is sometimes referred to herein as “the Building.”  The floor plan of Building #6 is attached

hereto as Exhibit “C.”

                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 the Premises at the rental and upon all of the terms and

conditions set forth herein.

                2.             Initial

Term.

                                (a)           The initial term of this Lease (the

“initial term”) shall commence on March 15, 2000 (the “Commencement Date”);

provided that Lessee’s obligation to pay rent pursuant to this Lease shall

commence in two phases (“Phase I” and “Phase II”).  Rent shall commence on Phase I on the

Commencement Date, March 15, 2000.  Rent

shall commence on Phase II on May 15, 2000. 

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)           Phase I shall consist of 14,000

rentable square feet (the “Phase I Premises”). 

Phase II shall consist of the entire Premises, 20,624 rentable square

feet as shown on Exhibit “C” attached hereto.

                                (c)           Lessor hereby grants to Lessee the

right of early possession of the Premises prior to the Commencement Date for

the purpose of preparing the Premises for Lessee’s occupancy upon the execution

and delivery by Lessor and Lessee of this Lease, the delivery by Lessee to

Lessor of the sum of Forty-Eight Thousand Four Hundred Sixty-Six and Forty

Hundredths Dollars ($48,466.40), representing one month of the initial Monthly

Base Rent for the entire Premises, and the delivery by Lessee to Lessor of the

Security Deposit referred to in Paragraph 7.  Lessee shall provide Lessor with evidence that Lessee’s insurance

required by Paragraph 11(a) is in full force and effect before Lessee takes

early possession of the Premises.  Such

early occupancy by Lessee shall be subject to all of the provisions of this

Lease except for the obligation to pay any Monthly Base Rent and Additional

Rent hereunder which shall commence on the Commencement Date.

                                (c)           The initial term of this Lease shall

expire, unless sooner terminated in accordance with the provisions hereof, on

March 14, 2005.

                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 nine (9) 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 applicable notice

and cure periods, if applicable (referred to herein as “in default”) under this

Lease at the time of exercise of the option or at 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 Paragraph 13, 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 a “permitted affiliate” under

Paragraph 17(f) below.  Said option may

not be assigned or transferred by said entity to any assignee or sublessee

other than a permitted affiliate.

                                (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 one hundred percent (100%) of the then current fair market rental

for the Premises 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 then current fair market rent for the

Premises, 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 market.

                                If only one

appraiser is selected, that appraiser shall notify the parties in simple letter

form of its determination of the fair market Monthly Base Rent for the Premises

within fifteen (15) days following its selection.  Said appraisal shall be binding on the parties as the appraised

current “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

Premises 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 current fair market Monthly Base

Rent for the Premises in simple letter form. 

If two (2) or more of the appraisers agree on the rent for the Premises,

such agreement shall be binding upon the parties.  If multiple appraisers are selected and two (2) appraisers are

unable to agree on the rent, 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 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 during the initial term, Lessee shall pay to Lessor in monthly

installments in advance Monthly Base Rent in lawful money of the United States

as follows:

(1)           Commencing on March 15, 2000 and

continuing through May 14, 2000, the sum of Thirty-Two Thousand Nine Hundred

Dollars ($32,900) (14,000 rentable square feet x $2.35/rentable square

foot/month).

(2)           Commencing on May 15, 2000 and

continuing through the date immediately preceding the first anniversary of the

Commencement Date, Monthly Base Rent of Forty-Eight Thousand Four Hundred

Sixty-Six and Forty Hundreths Dollars ($48,466.40) (20,624 rentable square feet

x $2.35/rentable square foot/month). 

Monthly Base Rent for the partial calendar month of March 2000 at the

commencement of the initial term shall be prorated on the basis of a thirty

(30) day month.

(b)           Upon

the execution and delivery of this Lease by Lessor and Lessee, Lessee shall pay

to Lessor the sum of Forty-Eight Thousand Four Hundred Sixty-Six and Forty

Hundreths Dollars ($48,466.40) representing the initial Monthly Base Rent for

the entire Premises.

                                (c)           The Monthly Base Rent shall be

adjusted as of each anniversary of the Commencement Date during the initial

term, commencing with the first anniversary of the Commencement Date and

continuing on each anniversary of the Commencement Date thereafter during the

initial lease term (the “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.”  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

occurs shall be considered the “base 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 initial Monthly Base Rent for the Premises referred

to in Paragraph 4(a) 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 base Index; 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,

calculated for each individual year from the previous Rental Adjustment Date,

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 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, Lessee shall pay to Lessor, as

“Additional Rent,” (i) the operating expenses of the Premises, and

(ii) Lessee’s pro rata share of the operating expenses of Menlo Business

Park of which the Premises are a part, in accordance with Paragraph 5(b)

hereof, and (iii) real property taxes and assessments levied or assessed

against the Premises in accordance with Paragraph 5(c) hereof.  Lessee’s pro rata share of the operating

expenses of Menlo Business Park is 2.39% based upon the ratio of the number of

square feet of the Land 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 Premises, including the

cost of all maintenance, repairs, and restoration of the Premises 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 four percent (4%) 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 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 Premises; 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 Premises, 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 Premises.

                                (c)           Real property taxes and assessments

upon the Premises, 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 Premises including the Land,

the Building, all improvements located thereon, including any increase in Taxes

resulting from a reassessment following any transfer of ownership of the

Premises or any interest therein; 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 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 Premises, 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

Premises; 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 Premises, 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 Premises, the Building and Improvements thereon, and the

Land.

                                (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 Premises;

                                                (4)           Advertising or promotional costs or other costs incurred

by Lessor in procuring tenants for the Premises 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 management and

administration of the Premises in excess of the maximum sum specified 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 Premises in an economically

reasonable manner at costs not disproportionately higher than those experienced

by other comparable premises in the market area in which the Premises are

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 2000, 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.

                                Not later than

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 Operating Expenses and Taxes broken down

by component expenses, Base Taxes and Base Operating Expenses of the Premises

broken down by component expenses, and the total payments made by Lessee 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 accord 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 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 (1) the sum of One Hundred Forty-Five Thousand

Three Hundred Ninety-Nine and Twenty Hundreths Dollars ($145,399.20) in cash,

and (2) an unconditional irrevocable standby letter of credit issued by a bank with a banking office in

San Mateo County, California (the “Bank”) in the amount of One Hundred Forty-Five Thousand Three Hundred Ninety-Nine and Twenty

Hundreths Dollars ($145,399.20) in favor of Lessor as beneficiary with

an expiration date of one (1) year from the date of issuance (collectively, 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 of the cash portion of the Security Deposit, Lessee shall

within ten (10) days after written request therefor deposit moneys with Lessor

sufficient to restore the cash portion of the Security Deposit to the original

amount required by this Lease.  Lessor

shall not be required to keep all or any part of the cash portion of the

Security Deposit separate from its general accounts.  The letter of credit shall provide that the

Bank shall pay the amount of the letter of credit (or such lesser amount as

Lessor shall specify) to Lessor upon receipt by the Bank of a letter signed by

a Manager of Lessor certifying (1) that an event of default by Lessee

under this Lease (as defined in Paragraph 22) has occurred and is

continuing, and (2) the amount reasonably estimated by Lessor to cure such

default. The form of the letter of credit shall be subject to Lessor’s

reasonable approval.

(b)           Lessee

shall deliver to Lessor annually during the entire Lease term (and option

period, if exercised) at least thirty (30) days prior to the expiration of the

letter of credit then outstanding a new one (1) year unconditional irrevocable

standby letter of credit issued by the Bank in the form previously approved by

Lessor in an amount as hereafter provided, in favor of Lessor as beneficiary,

with the same provision for payment by the Bank referred to in Paragraph 7(a)

above.  Failure of Lessee to deliver to

Lessor a new letter of credit which complies with the foregoing provisions at

least thirty (30) days prior to the expiration of the then outstanding letter

of credit shall constitute a default by Lessee under this Lease, which shall

give Lessor the right to draw on the then outstanding letter of credit.

If no event of default by Lessee under this Lease has

occurred and is then continuing (1) as of the date delivery of the first annual

renewal letter of credit, the first annual renewal letter of credit shall be

reduced to Ninety-Six Thousand Nine Hundred Thirty-Two and Eighty Hundredths

Dollars ($96,932.80); (2) as of the date of delivery of the second annual

renewal letter of credit, the second annual renewal letter of credit shall be

reduced to Forty-Eight Thousand Four Hundred Sixty-Six and Forty Hundredths

Dollars ($48,466.40); and (3) upon the expiration of the second annual renewal

letter of credit, no renewal letter of credit shall be required.  If as of the date for delivery of any annual

renewal letter of credit, or if as of the date thirty (30) days prior to the

expiration of the second annual renewal letter of credit, an event of default

by Lessee under this Lease has occurred and is continuing, Lessee shall deliver

to Lessor a renewal letter of credit in the same amount of the letter of credit

which is expiring.

(c)           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 cash Security Deposit not used

or applied by Lessor, and if any letter of credit is then held by Lessor, the

letter of credit, 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.

                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)           Lessor represents and warrants that

to the best of John C. Tarlton’s current actual knowledge as of the date of

this Lease (i) no Hazardous Materials are currently present in the

building or at the Premises or the soil, surface water, or groundwater thereof,

(ii) no underground storage tanks are present at the Premises, and

(iii) no action, proceeding or claim is pending or threatened regarding

the Building or the Premises concerning any Hazardous Materials or pursuant to

any Environmental Law.  Lessor further

represents and warrants that Lessor has delivered to Lessee prior to the date

of this Lease true, correct and complete copies of all studies, audits,

reports, investigations, inspections, and correspondence in Lessor’s possession

regarding the presence or absence of Hazardous Materials in, on, under or about

the Premises or the Building and/or the compliance or non-compliance of the

Premises or the Building with Environmental Laws.

                                (c)           Lessee shall not engage in any

activity in or on the Premises 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 of Hazardous

Materials with respect to which any Environmental Law requires that a notice be

given to persons entering or occupying the Premises or neighboring

properties.  Notwithstanding the

foregoing, Lessee may use 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 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 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.

                                (d)            “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. §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.

                                (e)           If Lessee knows, or has reasonable

cause to believe, that Hazardous Materials have come to be located in, on,

under or about the Premises, 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.

                                (f)            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 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.

                                (g)           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

Building 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.

                                (h)           Lessor shall indemnify, defend and

hold Lessee 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 before, 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 Building or Menlo Business Park, unless the (1) Hazardous

Materials are present in whole or in part as a result of the breach of this

Lease by Lessee, or the negligence, willful misconduct, or other acts of

Lessee, Lessee’s employees, agents, contractors or invitees; or (2) such

Hazardous Materials have flowed, diffused, migrated, or percolated into, onto,

or under the Premises, the Building, or Menlo Business Park from other property

after the Commencement Date.  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,

except to the extent the Hazardous Materials are present as a result of the

negligence, willful misconduct or other acts of Lessee, Lessee’s agents,

employees, contractors or invitees. The foregoing indemnity shall survive the

expiration or earlier termination of this Lease.

                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 date Lessee takes early

possession of the Premises pursuant to Paragraph 2(c) 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 arising out of the condition, use, occupancy, alteration or

maintenance of the Premises, 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.

                                (b)           Lessor shall obtain and carry in

Lessor’s name, as insured, as an Operating Expense of the Premises 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 Premises (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 and to the fixtures,

personal property, leasehold improvements and alterations of either Lessor or

Lessee in or on the Premises 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 from any cause arising at any 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, (2) for bodily injury or damage to property which arises in or about

the Land, the Building, or the Improvements 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, (2) for bodily injury or damage to property which arises in or about

the Land, the Building or the Improvements 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.

                                (d)           Lessor shall not be liable to Lessee

for any damage because of any act or negligence of 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 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 caused by the misuse or neglect of the

Premises by Lessee or its employees, agents, or contractors, including, but not

limited to, the breakage of glass in the Premises.  Any damage to the Premises 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 One Hundred Three Thousand One Hundred Twenty

Dollars ($103,120) ($5.00 per rentable square foot) (the “Tenant Improvement

Allowance”) to defray a portion of the cost of the real property improvements

to the Premises (“Tenant Improvement Work”) listed on Exhibit “E” attached

hereto.  The entire balance of the cost

of the Tenant Improvement Work shall be performed at Lessee’s expense.

                                (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.

                                (d)           Subject to completion of the Tenant

Improvement Work, 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 Premises 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

Premises pursuant to Paragraph 5(b) hereof, all services and work relating to

the operation, maintenance, repair, and replacement, as needed, of the Premises,

including the HVAC, mechanical, electrical, and plumbing systems in the

Building; the interior of the Building; the roof membrane; the outside areas of

the Premises; 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.  Notwithstanding the foregoing, Lessee shall have the option, at

its discretion, to operate, maintain, and repair, as needed, the HVAC systems

in the Building and to provide janitorial services to the Premises, all at its

expense and under its discretion. 

Lessee shall engage contractors for the maintenance, repair and

replacement of the HVAC systems from a list of not less than three contractors

that shall have been reasonably approved by Lessor.

                                (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 Premises 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 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

Premises 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 of any nature which would be considered a capital

expenditure under generally accepted accounting principles to the Premises

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 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 Phase II 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.  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.  Furthermore, Lessee shall have the option to

contract directly for janitorial services to the Premises pursuant to Paragraph

14(b).

                                (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 Premises 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 Premises 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 Premises 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

Premises.  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 Premises 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 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; or (2) notify Lessee in writing that Lessor refuses such consent,

specifying reasonable grounds for such refusal.

                                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, seventy-five percent (75%) of

the amount of any excess of the consideration to be received 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, 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.

                                (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).

                18.           Waiver.  The waiver by Lessor or Lessee of any breach

of any term, covenant, or condition contained herein shall not be deemed to be

a waiver of such term, covenant, or condition of any subsequent breach of the

same or any other term, covenant, or condition contained herein.  The subsequent acceptance of rent hereunder

by Lessor shall not be deemed to be a waiver of any preceding breach by Lessee

of any term, covenant, or condition of this Lease, other than the failure of

Lessee to pay the particular rent so accepted, regardless of Lessor’s knowledge

of such preceding breach at the time of acceptance of such rent.

                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, 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. 

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

of the Building and Improvements during the lease term from any cause, either

party may elect 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 or the 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 in a diligent manner

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.

                                (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 of the Premises 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 twenty (120) days

from the date of such casualty, either Lessor or Lessee may terminate this

Lease by giving written notice of termination to the other within thirty (30)

days after the casualty.

                                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 by

giving written notice of termination to Lessee.  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.

                                If this Lease is

not terminated by Lessor or Lessee pursuant to the foregoing provisions, Lessor

shall complete the repairs in a diligent manner 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.

                                (d)           Subject to the limitation in

Paragraph 20(b) above which applies if Lessee elects to restore the Premises 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 Premises 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 Premises shall include the

Tenant Improvement Work referred to in Paragraph 13 and 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 Premises shall be extended by

a period equal to any delays caused by strikes, labor disputes, unavailability

of materials, inclement weather, acts of God, or other causes beyond Lessor’s

control.

                                (f)            In the event of termination of this

Lease pursuant to any of the provisions of this Paragraph 20, the monthly 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 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 Building or the Premises shall be 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

Premises by eminent domain which is not a substantial part of the Building and

the balance of the Premises remains reasonably suitable for continued use and

occupancy by Lessee in Lessee’s reasonable judgment 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,

to reflect the number of square feet of the Premises taken and the number of

square feet remaining.  If after a

partial taking, the Premises and parking 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 fails to deliver to Lessor a

renewal Letter of Credit which complies with Paragraph 7(b) within the time

period referred to in Paragraph 7(b); 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.

                                (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 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

  
	

   

  	

   

  	

   

  
	

  Lessee:

  	

   

  	

  DepoMed, Inc.

  
	

   

  	

   

  	

  366 Lakeside

  Drive

  
	

   

  	

   

  	

  Foster City, California  94404

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Attention:  John Hamilton

  

 

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 located in the landscaped

median in front of the Building.  Lessee

may also place Lessee’s vinyl lettering signage at the glass door entrances 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 the vinyl

lettering on the monument sign and at the glass 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., Lessor’s broker, pursuant

to a separate agreement between Lessor and said broker.  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 Lease other than Tarlton

Properties, Inc. who has acted as exclusive leasing agent for Lessor, and

Technology Commercial, Inc. and BT Commercial, who have acted as Lessee’s

agents, and 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.           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.

                                (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.

                29.           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.

                30.           Lessor’s

Entry.  Except in the case of an

emergency and except for permitted entry during Lessee’s normal working hours,

Lessor and Lessor’s agents shall provide Lessee with at least twenty-four (24)

hours’ notice prior to entry of the Premises. 

Such entry by Lessor 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.

                31.           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.

                32.           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.

                33.           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.

                34.           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 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.

                                (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)           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.

                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:

  	

   

  
	

   

  	

  John O. Lewis, Manager

  
	

   

  	

   

  
	

   

  	

   

  
	

  By:

  	

   

  
	

   

  	

  J. O. Oltmans, II, Manager

  
	

   

  	

   

  
	

   

  	

   

  
	

  “Lessee”

  
	

  DEPOMED, INC.,

  
	

  a California corporation

  
	

   

  	

   

  
	

   

  	

   

  
	

  By:

  	

   

  
	

   

  	

  Its

  
	

   

  	

   

  
	

   

  	

   

  
	

  By:

  	

   

  
	

   

  	

  Its

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