Document:

Exhibit
10.60

 

LEASE

BY
AND BETWEEN

CASTRO MOUNTAIN VIEW, LLC, a California limited liability
company; THOMAS A. LYNCH; JOLEN FLORES AND TRUDY MOLINA FLORES JOINT
LIVING TRUST DATED APRIL 3, 2001; E.
WILLIAM AND CHARLOTTE DUERKSEN; The DUERKSEN
FAMILY TRUST DATED FEBRUARY 16, 1999; The DUTTON FAMILY TRUST DATED SEPTEMBER 16, 1993; The NOEL S. SCHUURMAN TRUST; THE DUARTE FAMILY PARTNERS, L.P., a
California limited partnership; The MARIE
ANTOINETTE CLOUGH REVOCABLE LIVING TRUST DATED JANUARY 11, 1989; BLUE OAK PROPERTIES, INC., a California
corporation; and CP6CC, LLC, a
Delaware limited liability company

collectively,
as Landlord

and

VIVUS,
INC.

as
Tenant

 

CASTRO COMMONS

LEASE

TABLE
OF CONTENTS

	
  ARTICLE

  	
   

  	
   

  	
   

  	
  PAGE

  
	
  1

  	
   

  	
  REFERENCE

  	
   

  	
  3

  
	
  2

  	
   

  	
  LEASED PREMISES, TERM AND
  POSSESSION

  	
   

  	
  5

  
	
  3

  	
   

  	
  RENT LATE CHARGES AND SECURITY
  DEPOSITS

  	
   

  	
  7

  
	
  4

  	
   

  	
  USE OF LEASED PREMISES AND
  OUTSIDE AREA

  	
   

  	
  10

  
	
  5

  	
   

  	
  REPAIRS, MAINTENANCE, SERVICES
  AND UTILITIES

  	
   

  	
  16

  
	
  6

  	
   

  	
  ALTERATIONS AND IMPROVEMENTS

  	
   

  	
  18

  
	
  7

  	
   

  	
  ASSIGNMENT AND SUBLETTING BY TENANT

  	
   

  	
  19

  
	
  8

  	
   

  	
  LIMITATION ON LANDLORD’S
  LIABILITY AND INDMENITY

  	
   

  	
  24

  
	
  9

  	
   

  	
  INSURANCE

  	
   

  	
  25

  
	
  10

  	
   

  	
  DAMAGE TO LEASED PREMISES

  	
   

  	
  28

  
	
  11

  	
   

  	
  CONDEMNATION

  	
   

  	
  29

  
	
  12

  	
   

  	
  DEFAULT AND REMEDIES

  	
   

  	
  31

  
	
  13

  	
   

  	
  GENERAL PROVISIONS

  	
   

  	
  35

  
	
  14

  	
   

  	
  CORPORATE AUTHORITY AND
  BROKERS

  	
   

  	
  42

  
	
  15

  	
   

  	
  OPTION TO EXTEND

  	
   

  	
  43

  
	
  16

  	
   

  	
  INTENTIONALLY DELETED

  	
   

  	
  45

  
	
  17

  	
   

  	
  GROUND LEASE

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  	
   

  	
   

  	
   

  
	
  A

  	
   

  	
  SITE PLAN

  	
   

  	
   

  
	
  B

  	
   

  	
  FLOOR PLAN

  	
   

  	
   

  
	
  C

  	
   

  	
  FORM ESTOPPEL CERTIFICATE

  	
   

  	
   

  

 

 2
 

 

LEASE

THIS LEASE, dated October 16, 2006 for reference
purposes only, is made by and between CASTRO
MOUNTAIN VIEW, LLC, a California limited
liability company; THOMAS
A. LYNCH; Trudy Molina Flores, Trustee of the JOLEN FLORES AND TRUDY MOLINA FLORES JOINT LIVING TRUST DATED APRIL 3,
2001; E.
WILLIAM AND CHARLOTTE DUERKSEN, husband and wife; E. William and
Charlotte Duerksen, Trustees of the DUERKSEN FAMILY TRUST DATED FEBRUARY 16, 1999;
Daniel F. Dutton, Jr. and Joyce F. Dutton, Trustees under the DUTTON FAMILY TRUST DATED
SEPTEMBER 16, 1993; Noel S. Schuurman, Trustee of the NOEL S. SCHUURMAN TRUST;
THE DUARTE FAMILY
PARTNERS, L.P., a California limited partnership; Marie Straube,
Trustee of the MARIE
ANTOINETTE CLOUGH REVOCABLE LIVING TRUST DATED JANUARY 11, 1989; BLUE OAK PROPERTIES, INC.,
a California corporation; and CP6CC, LLC, a Delaware limited liability company,
as tenants in common (collectively the “Landlord”)
and VIVUS, INC., a Delaware corporation (“Tenant”), to be effective and binding
upon the parties as of the date the last of the designated signatories to this
Lease shall have executed this Lease (the “Effective Date of this Lease”).

ARTICLE 1

REFERENCE

1.1
References.  All references in this Lease (subject to any
further clarifications contained in this Lease) to the following terms shall
have the following meaning or refer to the respective address, person, date,
time period, amount, percentage, calendar year or fiscal year as below set
forth:

	
  

  	
  Tenants Address for Notice:

  	
  VIVUS, Inc.

  
	
   

  	
   

  	
  1172 Castro Street

  
	
   

  	
   

  	
  Mountain View, CA 94040

  
	
   

  	
  Tenant’s
  Representative:

  	
  Lee B. Perry, Senior
  Director of Finance

  
	
   

  	
   

  	
   

  
	
   

  	
  Landlord’s Address for
  Notices:

  	
  c/o West Valley
  Properties, Inc.

  280 Second Street, Suite 230

  Los Altos, California 94022

  
	
   

  	
  Landlord’s
  Representative:

  	
  Jon Rayden, President

  
	
   

  	
  Phone Number(s):

  	
  (650) 559-4664

  
	
   

  	
  Lease Commencement
  Date:

  	
  The earlier of February
  1, 2007 or the early termination of the master lease between Owner and KVO
  Public Relations, Inc.

  

 3
 

 

 

	
  

  	
  Lease Term:

  	
  The “Lease Term” will be from the Commencement Date
  and will expire on July 31, 2009

  
	
   

  	
  Lease Expiration Date:

  	
  July 31, 2009

  
	
   

  	
  First Month’s Rent:

  	
  $26,338.45

  
	
   

  	
  Tenant’s Security
  Deposit:

  	
  $26,338.45

  
	
   

  	
  Late Charge Amount:

  	
  Ten Percent (10%) of
  the Delinquent Amount

  
	
   

  	
  Tenant’s Required
  Liability Coverage:

  	
  $2,000,000 Combined
  Single Limit

  
	
   

  	
   

  	
   

  
	
   

  	
  Tenant’s Broker(s):

  	
  Tory Corporate Real
  Estate Advisors, Inc. (dba The Staubach Company)

  
	
   

  	
  Property:

  	
  That certain real
  property situated in the City of Mountain View, County of Santa Clara, State
  of California, as presently improved with 2 building(s), which real property
  is shown on the Site Plan attached hereto as Exhibit “A” and is commonly
  known as Castro Commons.

  
	
   

  	
  Building:

  	
  That certain building
  on the Property in which the Lease Premises are located commonly known as
  1172 Castro Street, Mountain View, California (the “Building”) located on
  Assessor’s Parcel No. 189-61-023, which building is shown outlined on Exhibit
  “A” hereto.

  
	
   

  	
  Outside Areas:

  	
  The “Outside Areas”
  shall mean all areas within Assessor’s Parcel No. 189-61-023 which are
  located outside the buildings, such as pedestrian walkways, parking areas,
  landscaped areas, open areas and enclosed trash disposal areas.

  
	
   

  	
  Leased Premises:

  	
  Certain interior space
  within the Building, consisting of approximately 14,237 square feet and, for
  purposes of this Lease, agreed to contain said number of square feet, as
  shown on the Floor Plan attached hereto as Exhibit “B”.

  
	
   

  	
  Tenant’s Expense Share:

  	
  The term “Tenant’s
  Expense Share” shall mean the percentage obtained by dividing the rentable
  square footage of Leased Premises at the time of calculation by the rentable
  square footage of all buildings located on the property at the time of 

  

 4
 

 

 

	
  

  	
   

  	
  calculation. Such percentage is currently 100% of
  the Building and 34.3% of the Complex. In the event that any portion of the
  Property is sold by Landlord, or the rentable square footage of the Leased
  Premises or the Property is otherwise changed, Tenant’s expense share shall
  be recalculated to equal the percentage described in the first sentence of
  this paragraph, so that the aggregate Tenant’s Expense Share of all tenants
  of the Property shall equal 100%. Tenant’s Expense Share is subject to
  adjustment as set forth in Paragraphs 13.12 (b) and 13.12 (c).

  
	
   

  	
  Base Monthly Rent:

  	
  The term “Base Monthly
  Rent” shall mean the following:

  

 

	
  

  	
   

  	
   

  
	
   

  	
   

  	
  Period

  	
   

  	
  Rent per square foot

  
	
  

  	
   

  	
  Commencement Date through
  July 31, 2009

  	
   

  	
  $1.85

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Permitted Use:

  	
  The Premises shall be
  used exclusively for the purpose of office use.

  
	
   

  	
  Exhibits:

  	
  The term “Exhibits”
  shall mean the Exhibits of this Lease which are described as follows:

  
	
   

  	
   

  	
  Exhibit “A” - Site Plan
  showing the Property and delineating the Building in which the Leased
  Premises are located.

  
	
   

  	
   

  	
  Exhibit “B” - Floor
  Plan showing the Leased Premises within the Building.

  
	
   

  	
   

  	
  Exhibit “C” - Form of
  Tenant Estoppel Certificate.

  

 

ARTICLE
2

LEASED PREMISES, TERM AND POSSESSION

2.1
Demise Of Leased Premises. 
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
for Tenant’s own use in the conduct of Tenant’s business and not for purposes
of speculating in real estate, for the Lease Term and upon the terms and
subject to the conditions of this Lease, that certain interior space described
in Article I as the Leased Premises, reserving and excepting to Landlord the
right to fifty percent (50%) of all assignment consideration and excess rentals
as provided in Article 7 below.  Tenant’s
lease of the Leased Premises, together with the 

 5
 

 

appurtenant right
to use the Outside Areas as described in Paragraph 2.2 below, shall be
conditioned upon and be subject to the continuing compliance by Tenant with (i)
all the terms and conditions of this Lease, (ii) all Laws governing the use of
the Leased Premises and the Property, and (iii) all Private Restrictions,
easements and other matters now of public record respecting the use of the
Leased Premises and Property, and (iv) all reasonable rules and regulations
from time to time established by the Landlord.  Notwithstanding any provision of this Lease to
the contrary, Landlord hereby reserves to itself and its designees all rights
of access, use and occupancy of the Building roof, and Tenant shall have no
right of access, use or occupancy of the Building roof except (if at all) to
the extent required in order to enable Tenant to perform Tenant’s maintenance
and repair obligations pursuant to this Lease.

2.2
Right to Use Outside Areas.  As
an appurtenant right to Tenant’s right to the use and occupancy of the Leased
Premises, Tenant shall have the right to use the Outside Areas in conjunction
with its use of the Leased Premises solely for the purposes for which they were
designated and intended and for no other purposes whatsoever.  Tenant’s right to so use the Outside Areas
shall be subject to the limitations of such use as set forth in Article I and
shall terminate concurrently with any termination of this Lease.

2.3
Lease commencement date and Lease Term.  
The term of
this Lease shall begin, and the Commencement Date shall be deemed to have
occurred, on the Lease Commencement Date, as set forth in Article I (the “Lease
Commencement Date”).  The term of this
Lease shall in all events end on the Lease Expiration Date (as set forth in
Article I).  The Lease Term shall be that
period of time commencing on the Lease Commencement Date and ending on the
Lease Expiration Date (the “Lease Term”).

2.4
Delivery of Possession.  Tenant
shall accept the Leased Premise in their “as is” condition.  If Landlord is unable to so deliver
possession of the Leased Premises to Tenant on or before the Intended
Commencement Date, Landlord shall not be in default under this Lease, nor shall
this Lease be void, voidable or cancelable by Tenant until the lapse of one
hundred eighty (180) days after the Intended Commencement Date (the “delivery
grace period”).  The delivery grace
period above set forth shall extend for such number of days Landlord may be
delayed in delivering possession of the Leased Premises to Tenant by reason of
Force Majeure or the action or inaction of Tenant.  If Landlord is unable to deliver possession
of the Leased Premises to Tenant within the described delivery grace period
(including any extension thereof by reason of Force Majeure or the action or
inaction of Tenant), the Tenant’s sole remedy shall be to terminate this Lease,
and in no event shall Landlord be liable in damages to Tenant for such
delay.  Tenant may not terminate this
Lease at any time after the date Landlord notifies Tenant that the Leased
Premises have been put into agreed condition and are available for delivery to
Tenant, unless Landlord’s notice is not given in good faith.

2.5
Acceptance of Possession.  It
is agreed that by occupying the Leased Premises, Tenant formally accepts same
and acknowledges that the Leased Premises are in the condition called for
hereunder.

2.6
Surrender of Possession.  Immediately
prior to the expiration or upon the sooner termination of this Lease, Tenant
shall remove all of Tenant’s signs from the exterior of the Building and shall
remove all of Tenant’s equipment, trade fixtures, furniture, supplies and wall 

 6
 

 

decorations and
other personal property from within the Leased Premises, the Building and
Outside Areas, and shall vacate and surrender the Leased Premises, the Building
the Outside Areas to Landlord in the same condition, broom clean, as existed at
the Lease Commencement Date, reasonable wear and tear, casualty and alterations
Tenant is not required under this Lease to remove excepted.  Tenant shall repair all damage to the Leases
premises, the exterior to the Building and the Outside Areas caused by Tenant’s
removal of Tenant’s property. Tenant shall patch and refinish, to Landlord’s
reasonable satisfaction, all penetrations made by Tenant or its employees to
the floor, walls or ceiling of the Leased Premises, whether such penetrations
were made with Landlord’s approval or not. 
Tenant shall repair all damage caused by Tenant to the exterior surface
of the Building and the paved surfaces of the Outside Areas, and where
necessary, replace or resurface same. 
Additionally, to the extent the Landlord shall have notified or is
deemed to have notified Tenant in writing at the time the improvements were
completed that it desired to have certain improvements made by Tenant or at the
request of Tenant removed at the expiration or sooner termination of the Lease,
Tenant shall, upon the expiration or sooner termination of the Lease, remove
any such improvements constructed or installed by Landlord or Tenant and repair
all damage caused by such removal.  If
the Leased Premises, the Building or the Outside Areas and Property are not
surrendered to Landlord in the condition required by this paragraph at the
expiration or sooner termination of this Lease, Landlord may, at Tenant’s
expense, so remove Tenant’s signs, property and/or improvements not so removed
and make such repairs and replacements not so made or hire, at Tenant’s
expense, independent contractors to perform such work.  Tenant shall be liable to Landlord for all
reasonable costs incurred by Landlord in returning the Leased Premises, the
Building and Outside Areas to the required condition, together with interest on
all costs so incurred from the date paid by Landlord at the then maximum rate
of interest not prohibited or made usurious by law until paid. Tenant shall pay
to Landlord the amount of all costs so incurred and interest thereon within
thirty (30) days of Landlord billing Tenant for same.  Tenant shall indemnify Landlord against loss
or liability resulting from delay by Tenant in surrendering the Leased
Premises, including without limitation, any claims made by any succeeding
Tenant or any losses to Landlord with respect to lost opportunities to lease
succeeding tenants.

ARTICLE 3

RENT LATE CHARGES AND SECURITY DEPOSITS

3.1
Base Monthly Rent.  Commencing
on the Lease Commencement Date (as determined pursuant to Paragraph 2.3 above)
and continuing throughout the Lease Term, Tenant shall pay to Landlord, without
prior demand therefore, in advance of the first day of each calendar month, the
amount set forth as “Base Monthly Rent” in Article I (the “Base Monthly Rent”).

3.2
Additional Rent.  Commencing
on the Lease Commencement Date (as pursuant to Paragraph 2.3 above) and
continuing through the Lease Term, in addition to the Base Monthly Rent and to
the extent not required by Landlord to be contracted for and paid directly by
Tenant, Tenant shall pay to Landlord as additional rent (the “Additional Rent”)
the following amounts:

(a)           An amount equal to all Property Operating
Expenses (as defined in Article 13) incurred by Landlord.  Payment shall be made by whichever of the
following methods (or combination of methods) is (are) from time to time
designated by Landlord.

 7
 

 

(i)          Landlord
may forward invoices or bills for such expenses to Tenant, and Tenant shall, no
later than the later of thirty (30) days after delivery by Landlord or ten (10)
days prior to due date, pay such invoices or bills and deliver satisfactory
evidence of such payment to Landlord, and/or

(ii)         Landlord
may bill to Tenant, on a periodic basis not more frequently than monthly, the
amount of such expenses (or group of expenses) as or incurred by Landlord, and
Tenant shall pay to Landlord the amount of such expenses within thirty days
after receipt of a written bill therefore from Landlord, and/or

(iii)        Landlord
may deliver to Tenant Landlord’s reasonable estimate of any given expense (such
as Landlord’s Insurance Costs or Real Property Taxes), or group of expenses,
which it anticipates will be paid or incurred for the ensuing calendar or
fiscal year, as Landlord may determine, and Tenant shall pay to Landlord an
amount equal to the estimated amount of such expenses for such year in equal
monthly installments during such year with the installments of Base Monthly
Rent.

Landlord reserves
the right to change from time to time the methods of billing Tenant for any
given expense or group of expenses or the periodic basis on which such expenses
are billed.

(b)          Landlord’s share of the consideration
received by Tenant upon certain assignments and sublettings a required by
Article 7.

(c)          Any legal fees and costs that Tenant
is obligated to pay or reimburse to Landlord pursuant to Article 13; and

(d)           Any other charges or reimbursements
due Landlord from Tenant pursuant to the terms of this Lease.

Notwithstanding
the foregoing, Landlord may elect by written notice to Tenant to have Tenant
pay Real Property Taxes or any portion thereof directly to the applicable
taxing authority, in which case Tenant shall make such payments and deliver
satisfactory evidence of payment to Landlord no later than the later of thirty
(30) days after delivery by Landlord or ten (10) days before such Real Property
Taxes become delinquent.

3.3
Year-end Adjustments.  If
Landlord shall have elected to bill Tenant for the Property Operating Expenses
(or any group of such expenses) on an estimated basis in accordance with the
provisions of Paragraph 3.2(a)(iii) above, Landlord shall furnish to Tenant
within three months following the end of the applicable calendar or fiscal
year, as the case may be, a statement setting forth (i) the amount of such
expenses paid or incurred during the just ended calendar or fiscal year, as
appropriate, and (ii) the amount that Tenant has paid to Landlord for credit against
such expenses for such period.  If Tenant
shall have paid more than its obligation for such expenses for the stated
period, Landlord shall, at its election, either (i) credit the amount of such
overpayment toward the next ensuing payment of payments of Additional Rent that
would otherwise be due or (ii) refund in cash to Tenant the amount of such
overpayment.  If such year-end statement
shall show that Tenant did not pay its obligation for such expenses in full, then
Tenant shall pay to Landlord the amount of such underpayment within thirty days
from 

 8
 

 

Landlord’s billing
of same to Tenant.  The provision of this
Paragraph shall survive the expiration or sooner termination of this Lease.

3.4
Late Charge, And Interest On Rent In Default. 
Tenant acknowledges that the late payment by Tenant of
any monthly installment of Base Monthly Rent or Additional Rent will cause the
Landlord to incur certain costs and expenses nor contemplated under this Lease,
the exact amounts of which are extremely difficult or impractical to fix.  Such costs and expenses will include without
limitation, administration and collection costs and processing and accounting
expenses.  Therefore, if any installment
of Base Monthly Rent is not received by Landlord from Tenant within five (5)
calendar days after which same becomes due, Tenant shall immediately pay to
Landlord a late charge in the amount equal to the amount set forth in Article I
as the “Late Charge Amount,” and if any Additional Rent is not received by
Landlord within three (3) calendar days after when the same amount becomes due,
Tenant shall immediately pay to Landlord a late charge in the amount of equal
to 10% of Additional Rent not so paid. 
Landlord and Tenant agree that this late charge represents a reasonable
estimate of such costs and expenses and is fair compensation to Landlord for
the anticipated loss Landlord would suffer by reason of Tenant’s failure to
make timely payment. In no event shall this provision for a late charge be
deemed to grant to Tenant a grace period or extension of time within which to
pay any rental installment or prevent Landlord from exercising any right or
remedy available to Landlord upon Tenant’s failure to pay each rental
installment due under this Lease when due, including the right to terminate
this Lease.  If any rent remains
delinquent for a period in excess of five (5) calendar days, then, in addition
to such late charge, Tenant shall pay to Landlord interest on any rent that is
not so paid from said tenth day at the then maximum rate of interest not
prohibited or made usurious by Law until paid. 
Notwithstanding the foregoing, before assessing a late charge the first
time in any twelve (12) month period, Landlord shall provide Tenant written
notice of the delinquency, and shall waive such late charge if Tenant pays such
delinquency within three (3) calendar days thereafter.

3.5
Payment Of Rent.  Except
as specifically provided otherwise in this Lease, all rent shall be paid in
lawful money of the United States, without any abatement, reduction or offset
for any reason whatsoever, to Landlord at such address as Landlord may
designate from time to time.  Tenant’s
obligation to pay Base Monthly Rent and all Additional Rent shall be
appropriately prorated at the commencement and expiration of the Lease
Term.  The failure by Tenant to pay any
Additional Rent as required pursuant to this Lease when due shall be treated
the same as a failure by Tenant to pay Base Monthly Rent when due, and Landlord
shall have the same rights and remedies against Tenant as Landlord would have
had against Tenant to pay the Base Monthly Rent when due.

3.6
Prepaid Rent.  Tenant
shall, on or prior to the Lease Commencement Date, pay to Landlord the amount
set forth in Article I as “First Month’s Rent” as prepayment of the first
payment of Base Monthly Rent due hereunder.

3.7
Security Deposit. Tenant has deposited or shall deposit
concurrently with Tenant’s execution of this Lease, with Landlord the amount
set forth in Article I as the “Security Deposit” as security for the
performance by Tenant of the terms of this Lease to be performed by Tenant, and
not as prepayment of rent.  Tenant hereby
grants to Landlord a security interest in the Security Deposit, including but
not limited to replenishments thereof. 
Landlord may apply such 

 9
 

 

portion or
portions of the Security Deposit as are reasonably necessary for the following
purposes: (i) to remedy any default by Tenant in the payment of Base Monthly
Rent or Additional Rent or a late charge or interest on defaulted rent, or any
other monetary payment obligation of Tenant under this Lease; (ii) to repair
damage to the Leased Premises, the Building or Outside Areas caused or
permitted to occur by Tenant; (iii) to clean and restore and repair the Leased
Premises following their surrender to Landlord if not surrendered in the
condition required pursuant to the provisions of Article 2, and (iv) to remedy
any other default of Tenant to the extent permitted by Law including, without
limitation, paying in full on Tenant’s behalf any sums claimed by materialmen
or contractors of Tenant to be owing them by Tenant for work done or
improvements made at Tenant’s request to the Leased Premises.  In this regard, Tenant hereby waives any
restriction on the uses to which the Security Deposit may be applied as
contained in section 1950.7 (c) of the California Civil Code and/or any
successor statute.  In the event the
Security Deposit or any portion thereof is so used, Tenant shall pay to
Landlord, promptly upon demand, an amount in cash sufficient to restore the
Security Deposit to the full original sum. If Tenant fails to promptly restore
the Security Deposit and if Tenant shall have paid to Landlord any sums as “Last
Month’s Prepaid Rent,” Landlord may, in addition to any other remedy Landlord
may have under this Lease, reduce the amount of Tenant’s Last Month’s Prepaid
Rent by transferring all or portions of such Last Month’s Prepaid Rent to
Tenant’s Security Deposit until such Security Deposit is restored to the mount
set forth in Article I.  Landlord will
not be deemed a trustee of the Security Deposit.  Landlord may use the Security Deposit in
Landlord’s ordinary business and shall not be required to segregate it from
Landlord’s general accounts.  Tenant
shall not be entitled to any interest on the Security Deposit.  If Landlord transfers the Building or the
Property during the Lease Term, Landlord may pay the Security Deposit to any
subsequent owner in conformity with the provisions of Section 1950.7 of the
California Civil Code and /or any successor statute, in which event the
transferring landlord shall be released from all liability for the return of
the Security Deposit.  Tenant
specifically grants to Landlord (and Tenant hereby waives the provisions of
California Civil Code 1950.7 to the contrary) a period of sixty days following
surrender of the Leased Premises by Tenant to Landlord within which to inspect
the Leased Premises, make required restorations and repairs, receive and verify
workmen’s billings therefore, and prepare a final accounting with respect to
the Security Deposit.  In no event shall
the Security Deposit or any portion thereof, be considered prepaid rent.

ARTICLE 4

USE OF LEASED PREMISES AND OUTSIDE AREA

4.1
Permitted Use. Tenant shall be entitled to use the Leased
Premises solely for the “Permitted use” as set forth in Article I and for no
other purpose whatsoever.  Tenant shall
have the right to use the Outside Areas in conjunction with its Permitted Use
of the Leased Premises solely for the purposes for which they were designed and
intended and for no other purposes whatsoever.

4.2
General Limitations On Use. 
Tenant shall not do or permit anything to be done in or about the Leased
Premises, the Building, the Outside Areas or the Property which does or could
(i) jeopardize the structural integrity of the Building or (ii) cause damage to
any part of the Leased Premises, the Building, the Outside Areas or the
Property.  Tenant shall not operate any
equipment within the Leased Premises which does or could (i) injure, vibrate or
shake the Leased

 10

 

 Premises or the Building, (ii) damage,
overload or impair the efficient operation of any electrical, plumbing, heating
ventilating or air conditioning systems within or servicing the Leased Premises
of the Building, or (iii) damage or impair the efficient operation of the
sprinkler system (if any) within the Leased Premises or the Building.  Tenant shall not install any equipment or
antennas on or make any penetrations of the exterior walls or roof of the
Building.  Tenant shall not make any
penetrations or cuts in the floor, ceiling, walls or roof of the Leased
Premises without Landlord’s  written
consent.  Tenant shall not place any
loads upon the floors, walls, ceiling or roof systems which could endanger the
structural integrity of the Building or damage its floors, foundations or
supporting structural components. Tenant shall not place any explosive,
flammable or harmful fluids or other waste materials in the drainage systems of
the Leased Premises, the Building and Outside Areas or the Property.  Tenant shall not drain or discharge any
fluids in the landscaped areas or across the paved areas of the Property.  Tenant shall not use any of the Outside Areas
for the storage of its materials, supplies, inventory or equipment and all such
materials, supplies, inventory or equipment shall at all times be stored within
the Leased Premises.  Tenant shall not
commit nor permit to be committed any waste in or about the Leased Premises,
the Building, the Outside Areas or the Property.

4.3
Noise And Emissions.  All
noise generated by Tenant in its use of the Leased Premises shall be confined
or muffled so that it does not interfere with the businesses of or annoy the
occupants and/or users of adjacent properties. 
All dust, fumes, odors and other emissions generated by Tenant’s use of
the Leased Premises shall be sufficiently dissipated in accordance with the
sound environmental practice and exhausted from the Leased Premises in such a
manner so as not to interfere with the businesses of or annoy the occupants
and/or users of adjacent properties, or cause any damage to the Leased
Premises, the Building, the Outside Areas or the Property or any component part
thereof or the property of adjacent property owners.

4.4
Trash Disposal.  Landlord
shall provide trash bins or other adequate garbage disposal facilities within
the trash enclosure areas provided or permitted by Landlord outside the Leased
Premises sufficient for the interim disposal of all of its trash, garbage and
waste.  All of such trash, garbage and
waste temporarily stored in such areas shall be stored in such a manner that it
is not visible from outside such areas, and Landlord shall, at Tenant’s
expense, cause such trash, garbage and waste to be regularly removed from the
Property.  Tenant shall keep the Leased
Premises and the Outside Areas in a clean, safe and neat condition free and
clear of all of Tenant’s trash, garbage, waste and/or boxes, pallets and
containers containing same at all times.

4.5
Parking.  Tenant shall have the non-exclusive right to
use forty-three (43) unreserved spaces on the Property free of charge
throughout the Lease Term.   Tenant
shall not, at any time, park or permit to be parked any recreational vehicles,
inoperative vehicles or equipment in the Outside Areas or on any portion of the
Property.  Tenant agrees to assume
responsibility for compliance by its employees and invitees with the parking
provisions contained herein.  If Tenant
or its employees park any vehicle within the Property in violation of these
provisions, then Landlord may, upon prior written notice to Tenant giving
Tenant one (1) day (or any applicable statutory notice period, if longer than
one (1) day) to remove such vehicle(s), in addition to any other remedies
Landlord may have under this Lease, charge Tenant as Additional Rent, and
Tenant agrees to pay, as Additional Rent, Ten Dollars ($10) per day for each
day or partial day that such vehicle is so parked within the Property.  Landlord reserves the right to grant
easements and access rights to others for use of the parking areas on the
Property, provided that such grants do 

 11
 

 

not unreasonably
interfere with or materially reduce Tenant’s use of the parking areas or access
to the Leased Premises.

4.6
Signs.  Tenant shall
not place or install on or within any portion of the Leased Premises, the
exterior of the Building, the Outside Areas or the Property any sign,
advertisement, banner, placard, or picture that is visible from the exterior of
the Leased Premises.  Tenant shall not
place or install on or within any portion of the Leased Premises, the exterior
of the Building, the Outside Areas or the Property any business identification
sign which is visible from the exterior of the Leases Premises until Landlord
shall have approved in writing and in its sole 
discretion the location, size, content, design, method of attachment and
material to be used in the making of such sign; provided, however, that so long as such signs are normal and
customary business directional or identification signs within the Building,
Tenant shall not be required to obtain Landlord’s approval.  Any sign, once approved Landlord, shall be
installed at Tenant’s sole cost and expense and only in strict compliance with
Landlord’s approval, using a person approved by Landlord to install same.  Landlord may remove any signs (which have not
been approved in writing by Landlord), advertisements, banners, placards or
pictures so placed by Tenant on or within the Leased Premises, the exterior of
the Building, the Outside Areas or the Property and charge to Tenant the cost
of such removal, together with any costs incurred by Landlord to repair any
damage caused thereby, including any cost incurred to restore the surface (upon
which such sign was so affixed) to its original condition.  Tenant shall remove all of Tenant’s signs,
repair any damage caused thereby, and restore the surface upon which it was
affixed to its original condition, all to the Landlord’s reasonable
satisfaction, upon termination of this Lease. 
Landlord hereby approves of all of Tenant’s signage in existence as of
the Effective Date of this Lease.

4.7
Compliance With Laws And Private Restrictions. 
Tenant shall abide
by and shall promptly observe and comply with, at its sole cost and expense,
all Laws and Private Restrictions respecting the use and occupancy of the
Leased Premises the Building, the Outside Areas or the Property including,
without limitation, all Laws governing the use and/or disposal of hazardous
materials by Tenant, and shall defend with competent counsel, indemnify and hold
Landlord harmless from any claims, damages or liability resulting from Tenant’s
failure to so abide, observe or comply. 
Tenant’s obligations hereunder shall survive the expiration or sooner
termination of this Lease. 
Notwithstanding the foregoing or Section 4.8, Tenant shall not be
required to comply with or cause the Leased Premises to comply with any Laws or
insurance or underwriter’s requirements requiring the construction of
alterations except as provided in Section 6.3.

4.8
Compliance With Insurance Requirements.  With
respect to any insurance policies required or permitted to be carried by
Landlord in accordance with the provisions of this Lease, Tenant shall not
conduct nor permit any other person to conduct any activities nor keep, store
or use (or allow any other person to keep store or use) any item or thing
within the Leased Premises, the Building, the Outside Areas or the property
which (i) is prohibited under the terms of on any such policies, (ii) could
result in the termination of the coverage afforded under any of such policies,
(iii) could give to the insurance carrier the right to cancel any of such
policies, or (iv) could cause an increase in the rates (over the standard
rates) charged for the coverage afforded under any such policies.  Tenant shall comply with all requirements of
any insurance company, insurance underwriter, or Board of Fire Underwriters
which are necessary to maintain, at standard rates, the insurance carried by
either Landlord or Tenant pursuant to this Lease.

 12
 

 

4.9
Landlord’s Right To Enter.   Landlord and its agents shall have the right
to enter the Leased Premises during normal business hours after giving Tenant
reasonable notice and subject to Tenant’s reasonable security measures for the
purpose of (i) inspecting the same; (ii) showing the Leased Premises to
prospective purchasers, mortgagees or tenants; (iii) making necessary
alterations, additions or repairs; and (iv) performing any of Tenant’s
obligations when Tenant has failed to do so. 
Landlord shall have the right to enter the Leased Premises during normal
business hours (or as otherwise agreed), subject to Tenant’s reasonable
security measures, for purposes of supplying any maintenance or services agreed
to be supplied by Landlord.  Landlord
shall have the right to enter the Outside Areas during normal business hours
for purposes of (i) inspecting the exterior of the Building and the
Outside Areas; (ii) posting notices of non-responsibility (and for such
purposes Tenant shall provide Landlord prior written notice of any work to be
performed on the Leased Premises as provided in Section 6.1); and (iii) and
supplying any services to be provided by Landlord.  Landlord shall use commercially reasonable
efforts to minimize any interference with Tenant’s use of the Premises as a
result of such entry.  Any entry into the
Leased Premises or the Outside Areas obtained by landlord in accordance with
this paragraph shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the Leased Premises, or an
eviction, actual or constructive of Tenant from the Leased premises or any
portion thereof.

4.10
Use Of Outside Areas.  Tenant, in its use of the Outside
Areas, shall at all times keep the Outside Areas in a safe condition free and
clear of all materials, equipment, debris, trash (except within existing
enclosed trash areas), inoperable vehicles, and other items of Tenant, its
employees, agents, invitees and contractors, which are not specifically
permitted by Landlord to be stored or located thereon by Tenant.  If, in the opinion of Landlord, unauthorized
persons are using any of the Outside Areas by reason of, or under claim of, the
expressed or implied authority of Tenant, then Tenant upon demand of Landlord,
shall restrain, to the fullest extent then allowed by Law, such unauthorized
use, and shall initiate such appropriate proceedings as may be required to so
restrain such use.  Landlord reserves the
right to grant easements and access rights to others for use of the Outside
Areas and shall not be liable to Tenant for any diminution in Tenant’s right to
use the Outside Areas as a result, provided that any such grant does not
unreasonably interfere with or materially reduce Tenant’s parking and access
rights from the condition existing as of the Effective Date of this Lease.

4.11
Environmental Protection.  Tenant’s obligations under this
Paragraph 4.11 shall survive the expiration or termination of this Lease.

(a)
As used herein, the term “Hazardous
Materials” shall mean any toxic or hazardous substance, material or waste or
any pollutant or infectious or radioactive material, including but not limited
to those substances, materials or wastes regulated now or in the future under
any of the following statutes or
regulations and any
and all of those substances included within the definitions of  “hazardous
substances,” “hazardous materials,” “hazardous waste,” “hazardous chemical
substance or mixture,” “imminently hazardous chemical substance or
mixture,” “toxic substances,” “hazardous
air pollutant,” “toxic pollutant,” or “solid waste” in the (a) Comprehensive
Environmental Response, Compensation and Liability Act of 1990 (“CERCLA” or “Superfund”)
as amended by the Superfund Amendments and
Reauthorization Act of 1986 (“SARA”), 42 U.S.C. §9601 et seq., (b) Resource Conservation and Recovery Act of 1976
(“RCRA”), 42 U.S.C. §6901 et seq., (c)
Federal Water Pollution Control Act (“ESPCA”), 33 

 13
 

 

U.S.C. §1251 et seq., (d)
Clean Air Act (“CAA”), 42 U.S.C. § 7401 et seq., (e)
Toxic Substances Control Act (“TSCA”), 14 U.S.C. §2601 et. seq.,
(f) Hazardous Materials Transportation Act, 49 U.S.C. § 1801, et seq., (g) Carpenter-Presley-Tanner Hazardous Substance
Account Act (“California Superfund”), Cal. Health & Safety Code §25300 et seq., (h) California Hazardous Waste Control Act, Cal.
Health & Safety Code §25100 et seq. (i)
Porter-Cologne Water Quality Control Act (“Porter-Cologne Act”), Cal. Water
Code §13000 et seq.,  (j) Hazardous Waste Disposal Land Use Law,
Cal. Health & Safety Code §25220 et seq., (k)
Safe Drinking Water and Toxic Enforcement Act of 1986 (“Proposition 65”), Cal.
Health & Safety Code §25249.5 et seq., (l)
Hazardous Substances Underground Storage Tank Law, Cal. Health & Safety
Code §25280 et seq., (m) Air Resources Law, Cal.
Health & Safety Code §39000 et seq., and
(n) regulations promulgated pursuant to said laws or any replacement thereof,
or as similar terms are defined in the federal, state, and local laws,
statutes, regulations, orders or rules. 
Hazardous Materials shall also mean any and all other bio-hazardous
wastes and substances, materials and wastes which are, or in the future become,
regulated under applicable laws for the protection of health or the
environment, or which are, or in the future become, regulated under applicable
laws for the protection of health or the environment, or which are classified
as hazardous or toxic substances, materials or wastes, pollutants or
contaminants, as defined, listed or regulated by any federal, state or local
law, regulation or order or by common law decision, including, without
limitation, (i) trichloroethylene, tetrachloroethylene, perchloroethylene and
other chlorinated solvents, (ii) any petroleum products or fractions thereof,
(iii) asbestos, (iv) polychlorinated biphenyls, (v) flammable explosives, (vi)
urea formaldehyde, (vii) radioactive materials and wastes, and (viii) materials
and wastes that are harmful to or may threaten human health, ecology or the
environment.

(b) Notwithstanding
anything to the contrary in this Lease, Tenant, at its sole cost, shall comply
with all laws relating to the storage, use and disposal of Hazardous Materials
by Tenant; its employees, agents or contractors, provided,
however, that Tenant shall not be responsible for contamination of
the Leased Premises by Hazardous Materials existing prior to Tenant’s occupancy
of the Premises unless caused by Tenant. 
Tenant shall not store, use or dispose of any Hazardous Materials except
for those Hazardous Materials listed in a Hazardous Materials management plan (“HMMP”)
which Tenant shall deliver to Landlord upon execution of this Lease and update
at least annually with Landlord (“Permitted Materials”) which may be used,
stored and disposed of provided (i) such Permitted Materials are used, stored,
transported, and disposed of in strict compliance with applicable laws, (ii)
such Permitted Materials shall be limited to the materials listed on and may be
used only in the quantities specified in the HMMP, and (iii) Tenant shall
provide Landlord with copies of all material safety data sheets and other
documentation required under applicable laws in connection with Tenant’s use of
Permitted Materials as and when such documentation is provided to any
regulatory authority having jurisdiction, in no event shall Tenant or its
employees, agents, contractors or invitees discharge into the plumbing or
sewage system of the Building or onto the land underlying or adjacent to the
Building any Hazardous Materials.  Tenant
shall be solely responsible for and shall defend, indemnify, and hold Landlord
and its agents harmless from and against all claims, costs and liabilities,
including attorneys’ fees and costs, arising out of or in connection with
Tenant’s storage, use and/or disposal of Hazardous Materials.  If the presence of Hazardous Materials on the
Leased Premises caused by the release, emission or discharge of Hazardous
Materials by Tenant or its employees, agents, contractors or invitees results
in contamination or deterioration of water or soil, then Tenant shall promptly
take any and all action necessary to clean up such 

 14
 

 

contamination, but the foregoing shall in no event be
deemed to constitute permission by Landlord to allow the presence of such
Hazardous Materials.  At any time prior
to the expiration of the Lease Term, if Tenant has a reasonable basis to
suspect that there has been any release or the presence of Hazardous Materials
in the ground or ground water on the Leased Premises which did not exist upon
commencement of the Lease Term, Tenant shall have the right to conduct
appropriate tests of water and soil and deliver to Landlord the results of such
tests to demonstrate that no contamination in excess of permitted levels has
occurred as a result of Tenant’s use of the Leased Premises.  Tenant shall further be solely responsible
for, and shall defend, indemnify, and hold Landlord and its agents harmless
from and against all claims, costs and liabilities, including attorneys’ fees
and costs, arising out of or in connection with any removal, cleanup and restoration
work and materials required hereunder of Tenant to return the Leased Premises
and any other property of whatever nature to their condition existing prior to
the appearance of the Hazardous Materials.

(c) Upon termination or
expiration of the Lease, Tenant, at its sole expense, shall cause all Hazardous
Materials placed in or about the Leased Premises, the Building and/or the
Property by Tenant, its agents, contractors, or invitees, and all installations
(whether interior or exterior) made by or on behalf of Tenant relating to the
storage, use, disposal or transportation of Hazardous Materials to be removed
from the property and transported for use, storage or disposal in accordance
and compliance with all laws and other requirements respecting Hazardous
Materials used or permitted to be used by Tenant.  Tenant shall apply for and shall obtain from
all appropriate regulatory authorities (including any applicable fire
department or regional water equality control board) all permits, approvals and
clearances necessary for the closure of 
the Leased Premises and Tenant’s operations on the Property, if any, and
shall take all other actions as may be required to complete the closure of the
Leased Premises and Tenant’s operations at the Building and the Property.  In addition, at Landlord’s request (which
request shall only be made if Landlord has reason to believe that Tenant used
Hazardous Materials at the Leased Premises) prior to vacating the Leased
Premises, Tenant shall undertake to submit to Landlord an environmental site
assessment from an environmental consulting company reasonably acceptable to
Landlord which site assessment shall evidence Tenant’s compliance with this
Paragraph 4.11.

(d) At any time prior to
the expiration of the Lease Term, subject to reasonable prior notice (not less
than forty-eight (48) hours) and Tenant’s reasonable security requirements and
provided such activities do not unreasonably interfere with the conduct of
Tenant’s business at the Leased Premises, Landlord shall have the right to
enter in and upon the Property, Building and Leased Premises in order to
conduct appropriate tests of water and soil to determine whether levels of
Hazardous Materials in excess of legally permissible levels has occurred as a
result of Tenant’s use thereof.  Landlord
shall furnish copies of all such test results and reports to Tenant and, at
Tenant’s option and cost, shall permit split sampling for testing and analysis
by Tenant.  Such testing shall be at
Tenant’s expense if Landlord has a reasonable basis for suspecting and confirms
the presence of Hazardous Materials in the soil or surface or ground water in,
on, under, or about the Property, the Building or the Leased Premises, which
has been caused by or resulted from the activities of Tenant, its agents,
contractors, or invitees.

(e) Landlord may
voluntarily cooperate in a reasonable manner with the efforts of all
governmental agencies in reducing actual or potential environmental
damage.  Tenant shall not 

 15
 

 

be entitled to terminate this Lease or to any
reduction of abatement of rent by reason of such compliance or
cooperation.  Tenant agrees at all times
to cooperate fully with the requirements and recommendations of governmental
agencies regulating, or otherwise involved in, the protection of the
environment.

(f)  Under no circumstance shall Tenant be liable
for, and Landlord shall indemnify, defend, protect and hold harmless Tenant,
its agents, contractors, stockholders, directors, successors, representatives,
and assigns from and against, all losses, costs, claims, liabilities and
damages (including attorneys’ and consultants’ fees), in connection with any
Hazardous Material present on or about the Property, or the soil, air,
improvements, groundwater or surface water thereof, except to the extent that
any of the foregoing results from the release or emission of Hazardous Material
by Tenant or its agents, contractors, invitees, or employees.

4.12  Rules
And Regulations.   Landlord
shall have the right from time to time to establish reasonable rules and
regulations and/or amendments or additions thereto respecting the use of the
Leased Premises and the Outside Areas for the care and orderly management of
the Property.  Upon delivery to Tenant of
a copy of such rules and regulations or any amendments or additions thereto,
Tenant shall comply with such rules and regulations.  A violation by Tenant of any such rules and
regulations shall constitute a default by Tenant under this Lease after the
expiration of applicable notice and cure periods.  If there is a conflict between the rules and
regulations and any of the provisions of this Lease, the provisions of this
Lease shall prevail.  Landlord shall not
be responsible or liable to Tenant for the violation of such rules and
regulations by any other tenant of the Property.  Notwithstanding the foregoing, Tenant shall
not be required to comply with any new rule or regulation unless the same
applies non-discriminatorily to all occupants of the Property, does not unreasonably
interfere with Tenant’s use of the Leased Premises or Tenant’s parking rights
and does not materially increase the obligations or decrease the rights of
Tenant under this Lease.

4.13 
Reservations.  
Landlord reserves the right from time to time to grant, without the
consent or joinder of Tenant, such easements, rights of way and educations that
Landlord deems necessary, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights of way and dedications do not
unreasonably interfere with the use of or access to the Leased Premises by
Tenant, or unreasonably interfere with or materially reduce Tenant’s use of the
parking areas on the Property.  Tenant
agrees to execute any documents reasonably requested by Landlord to effectuate
any such easement rights, dedications, maps or restrictions.

ARTICLE
5

REPAIRS, MAINTENANCE, SERVICES AND UTILITIES

5.1 
Repair And Maintenance.    Except
in the case of damage to or destruction of the Leased Premises, the Building,
the Outside Areas or the Property caused by an act of God or other peril, in
which case the provisions of Article 10 shall control, or a taking of the
Leased Premises, the Building, the Outside Areas or the Property, in which case
the provisions of Article 11 shall control, the parties shall have the following
obligations and responsibilities with respect to the repair and maintenance of
the Leased Premises, the Building, the Outside Areas, and the Property.

 16
 

 

(a)
Tenant’s Obligations.   Tenant
shall, at all times during the Lease Term and at its sole cost and expense,
regularly clean and continuously keep and maintain in neat and orderly
condition the Leased Premises and every part thereof.    Tenant shall, at its sole cost and expense, repair all damage to the
Leased Premises, the Building, the Outside Areas or the Property caused by the
activities of Tenant, its employees, invitees or contractors promptly following
written notice from Landlord to so repair such damages.  If Tenant shall fail to perform the required
maintenance or fail to make repairs required of it pursuant to this paragraph
within a reasonable period of time following notice from Landlord to do so,
then Landlord may, at its election and without waiving any other remedy it may
otherwise have under this Lease or at law, perform such maintenance or make
such repairs and charge to Tenant, as Additional Rent, the costs so incurred by
Landlord for same.  All glass within or a
part of the Leased Premises, both interior and exterior, is at the sole risk of
Tenant and any broken glass shall promptly be replaced by Tenant at Tenant’s
expense with glass of the same kind, size and quality.  Notwithstanding the foregoing, Landlord shall
perform and construct, and Tenant shall have no responsibility to perform or
construct, any repair, maintenance or improvements (a) necessitated by the acts
or omissions of Landlord, or its agents, employees or contractors, (b) for
which Landlord has a right of reimbursement from others or (c) which could be
treated as a “capital expenditure” under generally accepted accounting
principles.

(b)
Landlord’s Obligation.  Landlord shall, at all times during the Lease Term, maintain in good
condition and repair in compliance with all Laws, including ADA and seismic
(subject to Section 6.2 and Section 6.3) (consistent with similar quality
professional office projects in the vicinity of the Property) the foundation,
roof structure and membrane, load-bearing and exterior walls of the Building,
all exterior components of the Building, Building operating systems
(electrical, plumbing, HVAC and mechanical), the Outside Areas and the Leased
Premises (subject to Tenant’s obligations under Section 5.1(a) above).  Landlord may cause such maintenance and
repair to be performed by service contract providers or otherwise, as
reasonably determined by Landlord.  The
provisions of this subparagraph (b) shall in no way limit the right of Landlord
to charge to Tenant, as Additional Rent pursuant to Article 3 (to the extent
permitted pursuant to Article 3), the costs incurred by Landlord in performing
such maintenance and/or making such repairs.

5.2 Utilities.  Tenant shall pay at its sole cost and expense and in its own name, any
utilities that are separately metered to the Leased Premises.  In the event that any utilities are not
separately metered, Tenant shall pay Tenant’s Expense Share of such
expenses.  Landlord shall have the right,
at any time, to install separate meters for any utilities furnished to the
Leased Premises.  Tenant shall be responsible
for determining if the existing sanitary and storm sewer systems now servicing
the Leased Premises and the Property are adequate for Tenant’s needs.  Tenant shall pay all charges for water, gas,
electricity and storm and sanitary sewer services as so supplied to the Leased
Premises, irrespective of whether or not the services are maintained in
Landlord’s or Tenant’s name.

5.3 Security.  Tenant acknowledges that Landlord has not undertaken any duty whatsoever
to provide security for the Leased Premises, the Building, the Outside Areas or
the Property and, accordingly, Landlord is not responsible for the security of
same or the protection of Tenant’s property or Tenant’s employees, invitees or
contractors.  To the extent Tenant
determines that 

 17
 

 

such security or protection
services are advisable or necessary, Tenant shall arrange for and pay the costs
of providing same.

5.4 Energy And Resource Consumption.  
Landlord may voluntarily cooperate in a reasonable manner with the
efforts of governmental agencies and/or utility supplier in reducing energy or
other resource consumption within the Property. 
Tenant shall not be entitled to terminate this Lease or to any reduction
in or abatement of rent by reason of such compliance or cooperation.  Tenant agrees at all times to cooperate fully
with Landlord and to abide by all reasonable rules established by Landlord (i)
in order to maximize the efficient operation of the electrical, heating,
ventilating and air conditioning systems and all other energy or other resource
consumption systems with the Property and/or (ii) in order to comply with the
requirements and recommendations of utility suppliers and governmental agencies
regulating the consumption of energy and/or other resources.

5.5 Limitation of Landlord’s
Liability.   Landlord shall not be liable to Tenant for
injury to Tenant, its employees, agents, invitees or contractors, damage to
Tenant’s property or loss of Tenant’s business or profits, nor shall Tenant be
entitled to terminate this Lease or to any reduction in or abatement of rent by
reason of (i) Landlord’s failure to provide security services or systems within
the Property for the protection of the Leased Premises, the Building or the
Outside Areas, or the protection of Tenant’s property or Tenant’s employees,
invitees, agents or contractors, or (ii) Landlord’s failure to perform any
maintenance or repairs to the Leased Premises, the Building, the Outside Areas
or the Property  until Tenant shall have
first notified Landlord, in writing, of the need for such maintenance or
repairs, and then only after Landlord shall have had a reasonable period of
time following its receipt of such notice within which to perform such
maintenance or repairs, or (iii) any failure, interruption, rationing or other
curtailment in the supply of water, electric current, gas or other utility
service to the Leased Premises, the Building, the Outside Areas or the Property
from whatever cause (other than Landlord’s sole active negligence or willful
misconduct), or (iv) the unauthorized intrusion or entry into the Leased Premises
by third parties (other than Landlord).

ARTICLE
6

ALTERATIONS AND IMPROVEMENTS

6.1 
By Tenant.  Tenant shall not make any alterations to or
modifications of the Leased Premises or construct any improvements within the
Leased Premises until Landlord shall have first approved, in writing, the plans
and specifications therefore, which approval shall not be unreasonably
withheld.  At the time Landlord consents
to a proposed alteration, Landlord shall also state whether or not it will
require Tenant to remove the subject alterations, modifications or improvements
at the expiration or earlier termination of the Lease.   All such modifications, alterations or
improvements, once so approved, shall be made, constructed or installed by
Tenant at Tenant’s expense (including all permit fees and governmental charges
related thereto), using a licensed contractor first approved by Landlord, such
approval shall not be unreasonably withheld, in substantial compliance with the
Landlord approved plans and specifications therefore.  All work undertaken by Tenant shall be done
in accordance with all laws and a good and workmanlike manner using new
materials of good quality.  Tenant shall
not commence the making of any such modifications or alterations or the
construction of any such improvements until (i) all required governmental
approvals and permits shall have been obtained, (ii) all 

 18
 

 

requirements regarding
insurance imposed by this Lease have been satisfied, (iii) Tenant shall have
given Landlord at least five (5) business days prior written notice of its
intention to commence such work so that Landlord may post and file notices of
non-responsibility, and (iv) if requested by Landlord, Tenant shall have
obtained contingent liability and broad from builder’s risk insurance in an
amount satisfactory to Landlord in its reasonable discretion to cover any
perils relating to the proposed work not covered by insurance carried by Tenant
pursuant to Article 9.  In no event shall
Tenant make any modification, alterations or improvements whatsoever to the
Outside Areas or the exterior or the structural components of the Building
including, without limitation, any cuts or penetrations in the floor, roof or
exterior walls of the Leased Premises without Landlord’s specific prior written
consent thereto.  As used in this
Article, the term “modifications, alterations and/or improvements” shall
include, without limitation, the installation of additional electrical outlets,
overhead lighting fixtures, drains, sinks, partitions, doorways, or the like.  Notwithstanding the foregoing, Tenant may
construct non-structural alterations in the Leased Premises without Landlord’s
prior approval, if the cost of any such project does not exceed Ten Thousand
Dollars ($10,000) in the aggregate.

6.2 
Ownership Of Improvements.   All modifications, alterations
and improvements made or added to the Leased Premises by Tenant (other than
Tenant’s inventory, equipment, movable furniture, wall decorations and trade
fixtures) shall be deemed real property and a part of the Leased Premises, but
shall remain the property of Tenant during the Lease, and Tenant hereby
covenants and agrees not to grant a security interest in any such items to any
party other than Landlord.  Any such modifications,
alterations or improvements, once completed, shall not be altered or removed
from the Leased Premises during the Lease Term without Landlord’s written
approval first obtained in accordance with the provisions of Paragraph 6.1
above.  At the expiration or sooner
termination of this Lease, all such modifications, alterations and improvements
other than Tenant’s inventory, equipment, movable furniture, wall decorations
and trade fixtures, shall automatically become the property of Landlord and
shall be surrendered to Landlord as part of the Leased Premises as required
pursuant to Article 2, unless Landlord shall require Tenant to remove any of
such modifications, alterations or improvements 
in accordance with the provisions of Article 2, in which case, Tenant
shall so remove same.  Landlord shall
have no obligations to reimburse Tenant for all or any portions of the cost or
value of any such modifications, alterations or improvements so surrendered to
Landlord.  All modifications, alterations
or improvements which are installed or constructed or attached to the Leased
Premises by Landlord and/or at Landlord’s expense shall be deemed real property
and a part of the Leased Premises and shall be the property of Landlord.  All lighting, plumbing, electrical, heating,
ventilating and air conditioning fixtures, partitioning, window coverings, wall
coverings and floor coverings installed by Tenant shall be deemed improvements
to the Leased Premises and not trade fixtures of Tenant.  Except for alterations which cannot be
removed without structural injury to the Leased Premises, at any time Tenant
may remove Tenant’s property or alterations made by Tenant from the Leased
Premises, provided that Tenant repairs all damage caused by such removal.

6.3 Alterations Required By Law.   Tenant shall make all modifications,
alterations and improvements to the Leased Premises, at its sole cost, that are
required by any Law because of (i) Tenant’s specific use of the Leased
Premises, the Building, the Outside Areas or the Property , (ii) Tenant’s
application for any permit or governmental approval, or (iii) Tenant’s making
of 

 19
 

 

any modifications,
alterations or improvements to or within the Leased Premises.  If Landlord shall, at any time during the
Lease Term, be required by any governmental authority or by any Law (including
seismic and ADA) or insurance requirement to make any modifications,
alterations or improvements to the Building or the Property other than those
which are the responsibility of Tenant pursuant to this Section 6.3, the cost
incurred by Landlord in making such modifications, alterations or improvements,
shall be at Landlord’s sole cost and shall not be considered a Property
Maintenance Cost reimbursable by Tenant.

6.4 Liens.  Tenant
shall keep the Property and every part thereof free from any lien, and shall
pay when due all bills arising out of any work performed, materials furnished,
or obligations incurred by Tenant, its agents, employees or contractors
relating to the Property.  If any such
claim of lien is recorded against Tenant’s interest in this Lease, the Property
or any part thereof, Tenant shall bond against, discharge or otherwise cause
such lien to be entirely released within ten days after the same has been
recorded.  Tenant’s failure to do so
shall be conclusively deemed a material default under the terms of this Lease
after the expiration of applicable notice and cure periods.

ARTICLE
7

ASSIGNMENT AND SUBLETTING BY TENANT

7.1 
By Tenant.  Tenant shall not sublet the Leased Premises
or any portion thereof or assign its interest in this Lease, whether
voluntarily or by operation of law, without Landlord’s prior written consent
which shall not be unreasonably withheld. 
Any attempted subletting or assignment without Landlord’s prior written
consent, at Landlord’s election, shall constitute a default after the
expiration of applicable notice and cure periods by Tenant under the terms of
this Lease.  The acceptance of rent by
Landlord from any person or entity other than Tenant, or the acceptance of rent
by Landlord from Tenant with knowledge of a violation of the provisions of this
paragraph, shall not be deemed to be a waiver by Landlord of any provision of
this Article or this Lease or to be a consent to any subletting by Tenant or
any assignment of Tenant’s interest in this Lease.  Without limiting the circumstances in which
it may be reasonable for Landlord to withhold its consent to an assignment or
subletting, Landlord and Tenant acknowledge that it shall be reasonable for
Landlord to withhold its consent in the following instances:

(a)  the
proposed assignee or sublessee is a governmental agency;

(b)  in Landlord’s reasonable judgment, the use of
the Leased Premises by the proposed assignee or sublessee would involve
occupancy by other than for a Permitted Use, would entail any alterations which
would lessen the value of the leasehold improvements in the Leased Premises, or
would require increased services by Landlord;

(c)  in Landlord’s
reasonable judgment, the financial worth of the proposed assignee is less than
that of Tenant or does not meet the credit standards applied by Landlord;

 20

 

(d)  the proposed assignee or sublessee (or any of
its affiliates) has been in material default under a lease, has been in
litigation with a previous landlord, or in the ten years prior to the
assignment or sublease has filed for bankruptcy protection, has been the
subject of an involuntary bankruptcy, or has been adjudged insolvent;

(e)  Landlord has experienced a previous default
by or is in litigation with the proposed assignee or sublessee;

(f)  in Landlord’s reasonable judgment, the Leased
Premises, or the relevant part thereof, will be used in a manner that will
violate any negative covenant as to use contained in this Lease;

(g)  the use of the Leased Premises by the
proposed assignee or sublessee will violate any applicable law, ordinance or
regulation;

(h)  the proposed assignee or sublessee is, as of
the date of this Lease, a tenant in the Building;

(i)  the proposed assignment or sublease fails to
include all of the terms and provisions required to be included therein
pursuant to this Article 7;

(j)  Tenant is in default of any obligation of
Tenant under this Lease, or Tenant has defaulted under this Lease and Landlord
shall have provided Tenant with written notice of such default on three (3) or
more occasions during the 12 months preceding the date that Tenant shall
request consent; or

(k)  in the case of a subletting of less than the
entire Leased Premises, if the subletting would result in the division of the
Leased Premises into more than two subparcels or would require improvements to
be made outside of the Leased Premises.

7.2 
Merger, Reorganization, Or Sale Of Assets. 
Notwithstanding the foregoing, Tenant may, without Landlord’s prior
written consent (but with prior notice to Landlord containing a copy of the
proposed documentation supporting compliance with (a), (b) or (c) below) and
without constituting an assignment or sublease hereunder, sublet the Leased
Premises or assign this Lease to (a) an entity controlling, controlled by or
under common control with Tenant, (b) an entity related to Tenant by merger,
consolidation or reorganization, or (c) a purchaser of all or substantially
all  of Tenant’s assets (a “Permitted
Transferee”).  A sale or transfer of
Tenant’s capital stock shall not be deemed an assignment, subletting or any
other transfer of this Lease or the Leased Premises. If Tenant is a
partnership, a withdrawal or change, voluntary, involuntary or by operation of
law, of any general partner, or the dissolution of the partnership, shall be
deemed a voluntary assignment of Tenant’s interest in this Lease.  Upon Landlord’s request, from time to time,
Tenant shall promptly provide Landlord with a statement certified by the Tenant’s
chief operating officer, which shall provide the following information (a) the
names of all of Tenant’s shareholders and their ownership interests at the time
thereof, provided Tenant’s 

 21
 

 

shares are not publicly
traded: (b) the state in which Tenant is incorporated; (c) the location of
Tenant’s principal place of business; (d) information regarding a material
change in the corporate structure of Tenant, including, without limitation a
merger or consolidated; and (e) any other information regarding Tenant’s
ownership that Landlord reasonably requests. 
Tenant shall provide Landlord with a copy of any assignment or sublease
agreement for which Landlord’s consent is not required pursuant to this Section
7.2

7.3 
Landlord’s Election.  If Tenant shall desire to assign its interest
under the Lease or to sublet the Leased Premises, Tenant must first notify
Landlord, in writing, of its intent to so assign or sublet, at least thirty
(30) days in advance of such date, specifying in detail the terms of such
proposed assignment or subletting, including the name of the proposed assignee
or sublessee, the property assignee’s or sublessee’s intended use of the Leased
Premises, current financial statements (including a balance sheet, income
statement and statement of cash flow, all prepared in accordance with generally
accepted accounting principles) of such proposed assignee or sublessee, the
form of documents to be used in effectuating such assignment or subletting and
such other information as Landlord may reasonably request.  Landlord shall have a period of ten (10)
business days following receipt of such notice and the required information
within which to do one of the following: 
(i) consent to such requested assignment or subletting subject to Tenant’s
compliance with the conditions set forth in Paragraph 7.4 below, or (ii) refuse
to so consent to such requested assignment or subletting, provided that such
consent shall not be unreasonably refused. 
During such ten (10) business day period, Tenant covenants and agrees to
supply to Landlord, upon request, all necessary or relevant information which
Landlord may reasonably request respecting such proposed assignment or
subletting and/or the proposed assignee or sublessee.

7.4 
Conditions To Landlord’s Consent.  If
Landlord elects to consent, or shall have been ordered to so consent by a court
of competent jurisdiction, to such requested assignment or subletting, such
consent shall be expressly conditioned upon the occurrence of each of the
conditions below set forth, and any purported assignment or subletting made or
ordered prior to the full and complete satisfaction of each of the following
conditions shall be void.  The conditions
are as follows:

(a)  Landlord having approved in form and
substance the assignment or sublease agreement and any ancillary documents,
which approval shall not be unreasonably withheld by Landlord if the
requirements of this Article 7 are otherwise complied with,

(b)  Each such sublessee or assignee having
agreed, in writing satisfactory to Landlord and its counsel and for the benefit
of Landlord, to assume, to be bound by, and to perform the obligations of this
Lease to be performed by Tenant which relate to space being subleased,

(c)  Tenant having fully and completely performed
all of its obligations under the terms of this Lease through and including the
date of such assignment or subletting,

 22
 

 

(d)  Tenant having reimbursed to Landlord all
reasonable costs and reasonable attorneys’ fees incurred by Landlord in
conjunction with the processing and documentation of any such requested
subletting or assignment.

(e)  Tenant having delivered to Landlord a complete
and fully-executed duplicate original of such sublease agreement or assignment
agreement (as applicable) and all related agreements,

(f)  Tenant having paid, or having agreed in
writing to pay as to future payments, to Landlord fifty percent (50%) of all
assignment consideration or excess rentals paid to Tenant or to any other on
Tenant’s behalf or for Tenant’s benefit for such assignment or subletting as
follows:

(i)  If Tenant assigns its interest under this
Lease and if all or a portion of the consideration for such assignment is to be
paid by the assignee at the time of the assignment, that Tenant shall have paid
to Landlord and Landlord shall have received an amount equal to fifty percent
(50%) of the assignment consideration so paid (whichever is the greater) at the
time of the assignment by the assignee; or

(ii)  If Tenant assigns its interest under this
Lease and if Tenant is to receive all or a portion of the consideration for
such assignment in future installments, that Tenant shall have entered into a
written agreement with and for the benefit of Landlord reasonably satisfactory
to Landlord and its counsel whereby Tenant agrees to pay Landlord an amount
equal to fifty percent (50%) of all such future assignment consideration
installments paid by such assignee as and when such assignment consideration is
so paid.

(iii)  If Tenant subleases the Leased Premises, that
Tenant and Tenant’s sublessee shall have entered into a written agreement with
and for the benefit of Landlord reasonably satisfactory to Landlord and its
counsel whereby Tenant agrees to pay Landlord fifty percent (50%) of all excess
rentals paid by such sublessee as and when such excess rentals are so paid.

7.5 
Assignment Consideration And Excess Rentals Defined.  For
purposes of this Article, including any amendment to this Article by way of
addendum or other writing, the term “assignment consideration” shall mean all
consideration to be paid by the assignee to Tenant or to any other party on
Tenant’s behalf or for Tenant’s benefit as consideration for such assignment,
after deduction for reasonable leasing commissions, reasonable tenant
improvement costs and reasonable legal fees incurred by Tenant in connection
with such assignment, but without deduction for any other costs or expenses
(including, without limitation, capital improvements, building upgrades, permit
fees, attorneys’ fees, and other consultants’ fees), and the term “excess
rentals” shall mean all consideration to be paid by the sublessee to Tenant or
to any other party on Tenant’s behalf or for Tenant’s benefit for the sublease
of the Leased Premises in excess of the rent due to Landlord under the terms of
this Lease for the same period, after deduction for reasonable leasing
commissions, reasonable tenant improvement costs and reasonable legal fees
incurred by Tenant in connection with such sublease, but without deduction for
any other costs or expenses (including, without limitation, capital
improvements, building upgrades, permit fees, attorneys’ fees, and other consultants’
fees).  Any commissions, costs and
expenses deducted shall be amortized over the term of the sublease or the
remainder of the Lease 

 23
 

 

Term (in the case of an
assignment) and only the monthly amortizing portion thereof shall be deducted
from the excess rentals and assignment consideration payable to Landlord under
this Article 7.  Tenant agrees that the
portion of any assignment consideration and/or excess rentals arising from any
assignment or subletting by Tenant which is to be paid to Landlord pursuant to
this Article now is and shall then be the property of Landlord and not the
property of Tenant.

7.6 
Payments.  All payments required by this Article to be
made to Landlord shall be made in cash in full as and when they become
due.  At the time Tenant, Tenant’s
assignee or sublessee makes each such payment to Landlord, Tenant or Tenant’s
assignee or sublessee, as the case may be, shall deliver to Landlord an
itemized statement in reasonable detail showing the method by which the amount
due Landlord was calculated and certified by the party making such payment as
true and correct.

7.7 
Good Faith.  The rights granted to Tenant by this Article
are granted in consideration of Tenant’s express covenant that all pertinent
allocations which are made by Tenant between the rental value of the Leased
Premises and the value of any of Tenant’s personal property which may be
conveyed or leased generally concurrently with and which may reasonably be
considered a part of the same transaction as permitted assignment or subletting
shall be made fairly, honestly and in good faith.  If Tenant shall breach this covenant,
Landlord may immediately declare Tenant to be in default under the terms of
this Lease after expiration of applicable notice and cure periods and terminate
this Lease and/or exercise any other rights and remedies Landlord would have
under the terms of this Lease in the case of a material default by Tenant under
this Lease.

7.8          Effect Of Landlord’s Consent.   No subletting or assignment, even
with the consent of Landlord, shall relieve Tenant of its personal and primary
obligation to pay rent and to perform all of the other obligations to be
performed by Tenant hereunder.  Consent
by Landlord to one or more assignments of Tenant’s interest in this Lease or to
one or more sublettings of the Leased Premises shall not be deemed to be
consent to any subsequent assignment or subletting.  If Landlord shall have been ordered by a
court of competent jurisdiction to consent to a requested assignment or
subletting, or such an assignment or subletting shall have been ordered by a
court of competent jurisdiction over the objection of Landlord, such assignment
or subletting shall not be binding between the assignee (or sublessee) and
Landlord until such time as all conditions set forth in Paragraph 7.4 above
have been fully satisfied (to the extent not then satisfied) by the assignee or
sublessee, including, without limitation, the payment to Landlord of all agreed
assignment considerations and/or excess rentals then due Landlord.   

ARTICLE
8

LIMITATION ON LANDLORD’S LIABILITY AND
INDEMNITY

8.1         Limitation On Landlord’s Liability And
Release.  Landlord shall not be liable to Tenant for,
and Tenant hereby releases Landlord and its partners, principals, members,
officers, agents, employees, lenders, attorneys, and consultants from any and
all liability, whether in contract, tort or on any other basis, for any injury
to or any damage sustained by Tenant, Tenant’s agents, employees, contractors
or invites, any damage to Tenant’s property, or any loss to Tenant’s business,
loss of Tenant’s profits or other financial loss of Tenant resulting from or
attributable to the condition of, the management of, the repair of maintenance
of, the protection 

 24
 

 

of,
the supply of services or utilities to, the damage in or destruction of the
Leased Premises, the Building, the Property or the Outside Areas, including
without limitation (i) the failure, interruption, rationing or other
curtailment or cessation in the supply of electricity, water, gas or other utility
service to the Property, the Building or the Leased Premises; (ii) the
vandalism or forcible entry into the Building or the Leased Premises; (iii) the
penetration of water into or onto any portion of the Leased Premises; (iv) the
failure to provide security and/or adequate lighting in or about the Property,
the Building or the Leased Premises, (v) the existence of any design or
construction defects within the Property, the Building or the Leased Premises;
(vi) the failure of any mechanical systems to function properly (such as the
HVAC systems); (vii) the blockage of access to any portion of the Property, the
Building or the Leased Premises, except that Tenant does not so release
Landlord from such liability to the extent such damage was proximately caused
by Landlord’s active negligence, willful misconduct, or Landlord’s failure to
perform an obligation expressly undertaken pursuant to this Lease after a
reasonable period of time shall have elapsed following receipt of written
notice from Tenant to perform such obligation.. 
In this regard, Tenant acknowledges that it is fully apprised of the
provisions of law relating to releases, and particularly to those provisions
contained in Section 1542 of the California Civil Code which reads as follows:

“A general release does not extend to claims
which the Creditor does not know or suspect to exist in his or her favor at the
time of executing the release, which if known by him or her must have
materially affected his or her settlement with the debtor.”

Notwithstanding such
statutory provision, and for the purpose of implementing a full and complete
release and discharge, Tenant hereby (i) waives the benefit of such statutory
provision and (ii) acknowledges that, subject to the exceptions specifically
set forth herein, the release and discharge set forth in this paragraph is a
full and complete settlement and release and discharge of all claims and is
intended to include in its effect, without limitation, all claims which Tenant,
as of the date hereof, does not know of or suspect to exist in its favor.

8.2          Tenant’s
Indemnification Of Landlord.  Tenant shall defend with competent counsel
satisfactory to Landlord any claims made or legal actions filed or threatened
against Landlord with respect to the violation of any law, or the death, bodily
injury, personal injury, property damage, or interference with contractual or
property rights suffered by any third party occurring within the Leased
Premises or resulting from Tenant’s use or occupancy of the Leased Premises,
the Building or the Outside Areas, or resulting from Tenant’s activities in or
about the Leased Premises, the Building or the Outside Areas or the Property,
and Tenant shall indemnify and hold Landlord, Landlord’s partners, principals,
members, employees, agents and contractors harmless from any loss liability,
penalties, or expense whatsoever (including any loss attributable to vacant
space which otherwise would have been leased, but for such activities)
resulting therefrom, except to the extent caused by the active negligence or
willful misconduct of Landlord or Landlord’s breach of this Lease.  This indemnity agreement shall survive the
expiration or sooner termination of this Lease.

ARTICLE
9

INSURANCE

 25
 

 

9.1 
Tenant’s Insurance.   Tenant shall maintain insurance complying
with all of the following:

a)  Tenant shall procure, pay for and keep in
full force and effect, at all times during the Lease Term, the following:

(i)            Commercial general liability insurance insuring Tenant
against liability for personal injury, bodily injury, death and damage to
property occurring within the Leased Premises, or resulting from Tenant’s use
or occupancy of the Leased Premises, the Building, the Outside Areas or the
Property, or resulting from Tenant’s activities in or about the Leased Premises
or the Property, with coverage in an amount equal to Tenant’s Required
Liability Coverage (as set forth in Article 1), which insurance shall contain “contractual
liability” and “property damage liability” endorsements insuring Tenant’s
performance of Tenant’s obligations to indemnify Landlord as contained in this
Lease.

(ii)           Fire and property damage insurance in “special form”
coverage insuring Tenant against loss from physical damage to Tenant’s personal
property, inventory, and trade fixtures within the Leased Premises with
coverage for the full actual replacement cost thereof;

(iii)          Business income/extra expense insurance sufficient to pay
Base Monthly Rent and Additional Rent for a period of not less than twelve (12)
months;

(iv)          Workers’ compensation insurance (statutory coverage) with
employer’s liability in amounts not less than $1,000,000 insurance sufficient
to comply with all laws; and

(v)           With respect to making of any alterations or modifications
or the construction of improvements or the like undertaken by Tenant, course of
construction, commercial general liability, automobile liability and workers’
compensation (to be carried by Tenant’s contractor), in an amount and with
coverage reasonably satisfactory to Landlord.

(b)  Each policy of liability insurance required
to be carried by Tenant pursuant to this paragraph or actually carried by
Tenant with respect to the Leased Premises or the Property: (i) shall,
except with respect to insurance required by subparagraph (a)(iv) or (v) above,
name Landlord, and such others as are designated by Landlord as additional
insureds; (ii) as to the general liability policy, shall be the primary
insurance providing that the insurer shall be liable for the full amount of the
loss, up to and including the total amount of liability set forth in the
declaration of coverage, without the right of contributions from or prior
payment by any other insurance coverage of Landlord; (iii) shall be in a form
satisfactory to Landlord; (iv) shall be carried with companies reasonably
acceptable to Landlord with Best’s ratings of at least A and XI; (v) shall
provide that such policy shall not be subject to cancellation or lapse except
after at least thirty (30) days prior written notice to Landlord, and (vi) shall
contain a so-called “severability” or “cross liability” endorsement.  Each policy of property insurance maintained
by Tenant with respect to the Lased Premises or the Property or any property
therein (a) shall provide that such policy shall not be subject to
cancellations or lapse except after at least thirty (30) days prior written
notice to Landlord and (b) shall contain a waiver and/or a permission to 

 26
 

 

waive by the insurer of any right of subrogation
against Landlord, its partners, principals, members, officers and employees,
which might arise by reason of any payment under such policy or by reason of
any act or omission of Landlord, its partners, principals, members, officers,
employees, agents and contractors.

(c)  Prior to the time Tenant or any of its
contractors enters the Leased Premises under this Lease, Tenant shall deliver
to Landlord, with respect to each policy of insurance required to be carried by
Tenant pursuant to this Article, a copy of such policy (appropriately
authenticated by the insurer as having been issued, premium paid) or a
certificate of the insurer certifying in form satisfactory to Landlord that a
policy has been issued, premium paid, providing the coverage required by this
Paragraph and containing the provisions specified herein.  With respect to each renewal or replacement
of any such insurance, the requirements of this Paragraph must be compiled with
not less than thirty (30) days prior to the expiration or cancellation of the
policies being renewed or replaced. 
Landlord may, at any time and from time to time, inspect and/or copy any
and all insurance policies required to be carried by Tenant pursuant to the
Article.  If Landlord’s Lender, insurance
broker, advisor or counsel reasonably determines at any time that the amount of
coverage set forth in Paragraph 9.1(a) for any policy of insurance Tenant is
required to carry pursuant to this Article is not adequate, then Tenant shall
increase the amount of coverage for such insurance to such greater amount as
Landlord’s Lender, insurance broker, advisor or counsel reasonably deems
adequate, provided such amount shall not exceed coverage amounts typically
carried by similar tenants occupying similar types of properties in the
vicinity of the Leased Premises.

9.2
Landlord’s Insurance.   With respect to insurance maintained by
Landlord:

(a)  Landlord shall maintain, as the minimum
coverage required of it by this Lease, fire and property damage insurance in
so-called special form coverage insuring Landlord (and such others as Landlord may
designate) against loss from physical damage to the Building with coverage of
not less than one hundred percent (100%) of the full actual replacement cost
thereof and against loss of rents for a period of not less than six months.  Such fire and property damage insurance, at
Landlord’s election but without any requirements on Landlord’s behalf to do so,
(i) may be written in so-called “all risk” form, excluding only those
perils commonly excluded from such coverage by Landlord’s then property damage
insurer; (ii) may provide coverage for physical damage to the improvements so
insured for up to the entire full actual replacement cost thereof; (iii) may be
endorsed to cover loss or damage caused by any additional perils against which
Landlord may elect to insure, including earthquake and/or flood; and/or (iv)
may provide coverage for loss of rents for a period of up to twelve
months.  Landlord shall not be required
to cause such insurance to cover any of Tenant’s personal property, inventory,
and trade fixtures.  Landlord shall use
commercially reasonable efforts to obtain such insurance at competitive rates.

(b)  Landlord shall maintain commercial general
liability insurance insuring Landlord (and such other as are designated by
Landlord) against liability for personal injury, bodily injury, death, and
damage to property occurring in, on or about, or resulting from the use or
occupancy of the Property, or any portion thereof, with combined single limit
coverage of at least Ten Million Dollars ($10,000,000).  Landlord may carry such greater coverage as
Landlord or Landlord ‘s Lender, insurance broker, advisor or counsel may from
time to time determine is reasonably necessary for the adequate protection of
Landlord and the Property.

 27
 

 

(c)
Landlord may maintain any other insurance which in the opinion of its insurance
broker, advisor or legal counsel is prudent to carry, given the circumstances,
provided such insurance is commonly carried by owners of property similarly
situated and operating under similar circumstances.

9.3  Mutual
Waiver of Subrogation.  Notwithstanding
anything to the contrary in this Lease, Landlord
hereby releases Tenant, and Tenant hereby releases Landlord and their
respective partners, principals, members, officers, agents, subtenants, employees
and servants, from any and all liability for loss, damage or injury to the
property of the other in or about the Leased Premises or in the Property which
is caused by or results from a peril or event or happening which is covered by
property insurance required to be carried hereunder or actually carried and in
force at the time of the loss by the party sustaining such loss.

ARTICLE 10

DAMAGE TO LEASED PREMISES

10.1                        Landlord’s Duty To Restore.  If the Leased Premises, the Building or the
Outside Area are damaged by any peril after the Effective Date of this Lease,
Landlord shall restore the same, as and when required by this paragraph unless
this Lease is terminated pursuant to Paragraph 10.3 or by Tenant pursuant to
Paragraph 10.4.  If this Lease is not so
terminated, then upon the issuance of all necessary governmental permits,
Landlord shall commence and diligently prosecute to completion the restoration
of the Leased Premises, the Building or the Outside Area, as the case may be,
to the extent then allowed by law, to substantially the same condition in which
it existed prior to such casualty. 
Landlord shall have no obligation to restore any of Tenant’s personal
property, inventory or trade fixtures. 
Upon completion of the restoration by Landlord, Tenant shall forthwith
replace or fully repair all of Tenant’s personal property, inventory, trade
fixtures to like or similar conditions as existed at the time immediately prior
to such damage or destruction.

10.2 
Insurance Proceeds.  All insurance proceeds available from the
fire and property damage insurance carried by Landlord shall be paid to and
become the property of Landlord.

10.3 
Landlord’s Right to Terminate.    Landlord shall have the option to terminate
this Lease in the event of any of the following occurs, which option may be
exercised only by delivery to Tenant of a written notice of election to
terminate within thirty (30) days after the date of such damage or destruction:

(a)  The Building is damaged by any peril covered
by valid and collectible insurance actually carried by Landlord in full force
at the time of such damage or destruction (an “insured peril”) to such an
extent that the estimated cost to restore the building exceeds the lesser of
(i) the insurance proceeds available from insurance actually carried (or
required to be carried hereunder) by Landlord plus the amount of any deductible
payable thereunder, or (ii) fifty percent of the then actual replacement cost
thereof;

 28
 

 

(b)  The Building is damaged by an uninsured
peril, which (i) damage would cost more than ten percent (10%) of replacement
cost of the Building to restore and (ii) peril Landlord was not required to
insure against pursuant to the provisions of Article 9 of this Lease.

(c)  The Building is damaged by any peril and, because
of the laws then in force, the Building (i) cannot be restored at reasonable
cost or (ii) if restored, cannot be used for the same use being made thereof
before such damage.

10.4  Tenant’s
Right to Terminate.  If the Leased Premises, the Building or the
Outside Area are damaged by any period and Landlord does not elect to terminate
this Lease or is not entitled to terminate this Lease pursuant to this Article,
then as soon as reasonably practicable, Landlord shall furnish Tenant with the
written opinion of Landlord’s architect or construction consultant as to when
the restoration work required of Landlord may be complete.  Tenant shall have the option to terminate
this Lease in the event any of the following occurs, which option may be
exercised only by delivery to Landlord of a written notice of election to
terminate within ten (10) business days after Tenant receives from Landlord the
estimate of the time needed to complete such restoration:

(a)  If the time estimated to substantially
complete the restoration exceeds four (4) months from and after the date of
such damage; or

(b)
If the damage occurred within twelve months of the last day of the Lease Term
and time estimated to substantially complete the restoration exceeds ninety
days from and after the date of such damage.

10.5  Tenant’s
Waiver.  Landlord and Tenant agree that the provisions
of Paragraph 10.4 above, captioned “Tenant’s Right To Terminate”, are intended
to supersede and replaced the provisions contained in California Civil Code,
Section 1932, Subdivision 2, and California Civil Code, Section 1934, and
accordingly, Tenant hereby waives the provisions of such Civil Code Sections
and the provisions of any successor Civil Code Sections or similar laws
hereinafter enacted.

10.6 
Abatement Of Rent.  In
the event of damage to the Leased Premises that does not result in the
termination of this Lease, the base Monthly Rent (and any Additional Rent)
shall be temporarily abated during the period of restoration in proportion in
the degree to which Tenant’s use of the Leased Premises is impaired by such
damage.

ARTICLE
11

CONDEMNATION

11.1  Tenant’s Right To Terminate.  Except as otherwise
provided in Paragraph 11.4 below regarding temporary takings, Tenant shall have
the option to terminate this Lease if, as a result of any taking, (i) all of
the Leased Premises is taken, or (ii) twenty-five percent (25%) or more of the
Leased Premises is taken and the part of the Leased Premises that remains
cannot, within a reasonable period of time, be made reasonably suitable for the
continued operation of Tenant’s business. 
Tenant must exercise such option within a reasonable period of time, to
be effective on the later to occur of (i) the date possession of that portion
of the Leased Premises that is 

 29
 

 

condemned is taken
by the condemning authority or (ii) the date Tenant vacated the Leased
Premises.

11.2 
Landlord’s Right To Terminate.    Except as otherwise provided in Paragraph
11.4 below regarding temporary takings, Landlord shall have the option to
terminate this Lease if, as a result of any taking, (i) all of the Leased
Premises is taken, or (ii) twenty-five percent (25%) or more of the Leased
Premises is taken and the part of the Leased Premises that remains cannot,
within a reasonable period of time, be and reasonably suitable for the
continued operation of Tenant’s business, or (iii) because of the laws then in
force, the Leased Premises may not be used for the same use being made before
such taking, whether or not restored as required by Paragraph 11.3 below.  Any such option to terminate by Landlord must
be exercised within a reasonable period of time, to be effective as of the date
possession is taken by the condemnor.

11.3 
Restoration.  If
any part of the Leased Premises or the Building is taken and this Lease is not
terminated, then Landlord shall, to the extent not prohibited by laws then in
force, repair any damage occasioned thereby to the remainder thereof to a
condition reasonably suitable for Tenant’s continued operations and otherwise,
to the extent practicable, in the manner and to the extent provided in
Paragraph 10.1.

11.4
Temporary Taking.  If a
portion of the Leased Premises is temporarily taken for a period of four (4)
months or less and such period does not extend beyond the Lease Expiration
Date, this Lease shall remain in effect. 
If any portion of the Leased Premises is temporarily taken for a period
which exceeds four (4) months or which extends beyond the Lease Expiration
Date, then the rights of the Landlord and Tenant shall be determined in
accordance with Paragraphs 11.1 and 11.2.

11.5        Division Of Condemnation Award.  Any award made for any
taking of the Property, the Building, or the Leased Premises, or any portion
thereof, shall belong to and be paid to Landlord, and Tenant hereby assigns to
Landlord all of its right, title and interest in any such award; provided, however, that Tenant shall be
entitled to receive any portion of the award that is made specifically (i) for
the taking of personal property, inventory or trade fixtures belonging to
Tenant, (ii) for the interruption of Tenant’s business or its moving costs, or
(iii) for the value of any leasehold improvements installed and paid for by
Tenant.  The rights of Landlord and
Tenant regarding any condemnation shall be determined as provided in this
Article, and each party hereby waives the provisions of Section 1265.130 of the
California Code of Civil Procedure, and the provisions of any similar law
hereinafter enacted, allowing either party to petition the Supreme Court to
terminate this Lease and/or otherwise allocate condemnation awards between
Landlord and Tenant in the vent of a taking of the Leased Premises.

11.6        Abatement Of Rent.  In the event of a taking of the Leased
Premises which does not result in a termination of this Lease (other than a
temporary taking), then, as of the date possession is taken by the condemning
authority, the Base Monthly Rent shall be reduced in the same proportion that
the area of that part of the Leased Premises so taken (less any addition to the
area of the Leased Premises by reason of any reconstruction) bears to the area
of the Leased Premises immediately prior to such taking.

 30

 

11.7        Taking Defined.  The term “taking” or “taken” as used in this
Article 11 shall mean any transfer or conveyance of all or any portion of the
Property to a public or quasi-public agency or other entity having the power of
eminent domain pursuant to or as a result of the exercise of such power by any
such agency, including any inverse condemnation and/or any sale or transfer by
Landlord of all or any portion of the Property to such an agency under threat
of condemnation or the exercise of such power.

ARTICLE 12

DEFAULT AND REMEDIES

12.1 
Events Of Tenant’s Default.  Tenant
shall be in default of its obligations under this Lease if any of the following
events occur:

(a)  Tenant shall have failed to pay Base Monthly
Rent or any Additional Rent within three (3) calendar  days after delivery of written notice from
Landlord to Tenant specifying such failure; or

(b)  Tenant
shall have done or permitted to be done any act, use or thing in its use,
occupancy or possession of the Leased Premises or the Building or the Outside
Areas which is prohibited by the terms of this Lease which continues more than
three (3) calendar days after delivery of written notice from Landlord to
Tenant specifying such violation; or

(c)  Tenant
shall have failed to perform any term, covenant or condition of this Lease
(except those requiring the payment of Base Monthly Rent or Additional Rent,
which failures shall be governed by subparagraph (a) above) within the shorter
of (i) any specific time period expressly provided under this Lease for the
performance of such term, covenant or condition, or (ii) thirty (30) days after
delivery of written notice from Landlord to Tenant specifying the nature of
such failure and requesting Tenant to perform same; or

(d)  Tenant shall have sublet the Leased Premises
or assigned or encumbered its interest in this Lease in violation of the
provisions contained in Article 7, whether voluntarily or by operation of law;
or

(e)  Tenant shall have abandoned the Leased
Premises; or

(f)  Tenant or any Guarantor of this Lease shall
have permitted or suffered the sequestration of attachment of, or execution on,
or the appointment of a custodian or receiver with respect to, all or any
substantial part of the property or assets of Tenant (or such Guarantor) or any
property or asset essential to the conduct of Tenant’s (or such Guarantor) or
any property or asset essential to the conduct of Tenant’s (or such Guarantor’s)
business, and Tenant (or such Guarantor) shall have failed to obtain a return
or release of the same within thirty (30) days thereafter, or prior to sale
pursuant to such sequestration, attachment or levy, whichever is earlier; or

(g)  Tenant or any Guarantor of this Lease shall
have made a general assignment of all or a substantial part of its assets for
the benefit of its creditors; or

 31
 

 

(h)  Tenant or any Guarantor of this Lease shall
have allowed (or sought) to have entered against it a decree or order which:
(i) grants or constitutes an order for relief, appointment of a trustee, or
condemnation or a reorganization plan under the bankruptcy laws of the United
States; (ii) approves as properly filed a petition seeking liquidation or
reorganization under the bankruptcy laws or any other debtor’s relief law or
similar statute of the United States or any state thereof; or (iii) otherwise
directs the winding up or liquidation of Tenant; provided, however, if any
decree or order was entered without Tenant’s consent or over Tenant’s
objection, Landlord may not terminate this Lease pursuant to this Subparagraph if
such decree or order is rescinded or reversed within thirty (30) days after its
original entry; or

(h)  Tenant or
any Guarantor of this Lease shall have availed itself of the protection of any
debtor’s relief law, moratorium law or other similar law which does not require
the prior entry of a decree or order.

12.2 Landlord’s Remedies.   In the event of any
default by Tenant, and without limiting Landlord’s right to indemnification as
provided in Article 8.2, Landlord shall have the following remedies, in
addition to all other rights and remedies provided by law or otherwise provided
in this Lease, to which Landlord may resort cumulatively, or in the
alternative:

(a) Landlord may, at
Landlord’s election, keep this Lease in effect and enforce, by an action at law
or in equity, all of its rights and remedies under this Lease including,
without limitation, (i) the right to recover the rent and other sums as they
become due by appropriate legal action, (ii) the right to make payments
required by Tenant, or perform Tenant’s obligations and be reimbursed by Tenant
for the cost thereof with interest at the then maximum rate of interest not
prohibited by law from the date the sum is paid by Landlord until Landlord is
reimbursed by Tenant, and (iii) the remedies of injunctive relief and specific
performance to prevent Tenant from violating the terms of this Lease and/or to
compel Tenant to perform its obligations under this Lease, as the case may be.

(b) Landlord may, at
Landlord’s election, terminate this Lease by giving Tenant written notice of
termination, in which event this Lease shall terminate on the date set forth
for termination in such notice, in which event, Tenant shall immediately
surrender the Leased Premises to Landlord, and if Tenant fails to do so, Landlord
may, without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Leased Premises and
expel or remove Tenant and any other person who may be occupying the Leased
Premises or any part thereof, without being liable for prosecution or any claim
or any claim or damages therefore.  Any
termination under this subparagraph shall not relieve Tenant from its
obligation to pay to Landlord all Base Monthly Rent and Additional Rent then or
thereafter due, or any other sums due or thereafter accruing to Landlord, or
from any claim against Tenant for damages previously accrued or then or
thereafter accruing.  In no event shall
any one or more of the following actions by Landlord, in the absence of a
written election by Landlord to terminate this Lease constitute a termination
of this Lease:

(i)                                     Appointment
of a receiver or keeper in order to protect Landlord’s interest hereunder;

 32
 

 

(ii)                                  Consent
to any subletting of the Leased Premises or assignment of this Lease by Tenant,
whether pursuant to the provisions hereof or otherwise; or

(iii)                               Any
action take by Landlord or its partners, principals, members, officers, agents,
employees, or servants which is intended to mitigate the adverse effects of any
breach of this Lease by Tenant, including, without limitation, any action taken
to maintain any preserve the Leased Premises on any action taken to relet the
Leased Premises or any portion thereof for the account at Tenant’ and in the
name of Tenant.

(c) In the event Tenant breaches this Lease and
abandons the Leased Premises, Landlord may terminate this Lease, but this Lease
shall not terminate unless Landlord given Tenant written notice of
termination.  If Landlord does not
terminate this Lease by giving written notice of termination, Landlord may
enforce all its rights and remedies under this Lease, including the right and
remedies provided by California Civil Code Section 1951.4 (“lessor may continue
lease in effect after lessee’s breach and abandonment and recover rent as it
becomes due, if lessee has right to sublet or assign, subject only to
reasonable limitation”), as in effect on the Effective Date of this Lease.

(d)  In the event Landlord terminates this Lease,
Landlord shall be entitled, at Landlord’s election to the rights and remedies
provided in California Civil Code Section 1951.2, as in effect on the Effective
Date of this Lease.  For purposes of
computing damages pursuant to Section 1951.2, an interest rate equal to the
maximum rate of interest then not prohibited by law shall be used where
permitted.  Such damages shall include,
without limited:

(i)  The worth at the time of the award of the
unpaid rent that had been earned at the time of termination;

(ii)  The worth
at the time of award of the amount by which the unpaid rent for the balance of
the term after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided, computed by discounting such amount
at the discount rate of the Federal Reserve Bank of San Francisco, at the time
of award plus one percent; and

(iii)  Any other
amount necessary to compensate Landlord for all detriment proximately caused by
Tenant’s failure to perform Tenant’s obligations under this Lease, or which in
the ordinary course of  things would be
likely to result therefrom, including without limitation, the following: (i)
expenses for cleaning, repairing or restoring the Leased Premises, (ii)
expenses for altering, remodeling or otherwise improving the Leased Premises
for the purpose of reletting, including removal of existing leasehold
improvements and/or installation of additional leasehold improvements
(regardless of how the same is funded, including reduction of rent, a direct
payment or allowance to a new tenant or otherwise), (iii) brokers fees
allocable to the remainder of the term of this Leased Premises, (iv) operating
expenses allocable to the remainder of the term such as taxes, insurance,
premiums, utility charges and security precautions, (v) expenses incurred in removing,
disposing of and/or storing any 

 33
 

 

of
Tenant’s personal property, inventory or trade fixtures remaining therein; (vi)
reasonable attorney’s fees, expert witness fees, court costs and other
reasonable expenses incurred by Landlord (but no limited to taxable costs) in
retaking possession of the Leased Premises, establishing damages hereunder, and
releasing the Leased Premises; and (vii) any other expenses, costs or damages
otherwise incurred or suffered as a result of Tenant’s default.

12.3 Landlord’s Default And Tenant’s
Remedies.  In the event
Landlord fails to perform its obligations under this Lease, Landlord shall
nevertheless not be in default under the terms of this Lease until such time as
Tenant shall have first given Landlord written notice specifying the nature of
such failure to perform its obligations, and then only after Landlord shall
have had thirty (30) days following its receipt of such notice within which to
perform such obligations; provided that,
if longer than thirty (30) days is reasonably required in order to perform such
obligations, Landlord shall have such longer period.  In the event of Landlord’s default as above
set forth, then, and only then, Tenant may then proceed in equity or at law to
compel Landlord to perform its obligations and/or to recover damages
proximately caused by such failure to perform (except as and to the extent
Tenant has waived its right to damages as provided in this Lease).

12.4 Limitation Of Tenant’s Recourse.  Tenant’s sole recourse against Landlord shall
be to the amount of Landlord’s interest in the Building and the Outside
Areas.  If Landlord is a corporation,
trust, partnership, joint venture, limited liability company, unincorporated
association, or other form of business entity, Tenant agrees that (i) the
obligations of Landlord under this Lease shall not constitute personal
obligations of the officers, directors, trustees, partners, joint venturers,
members, owners, stockholders, or other principals of such business entity, and
(ii) Tenant shall have recourse only to the amount of the interest of such
corporation, trust, partnership, joint venture, limited liability company,
unincorporated association, or other form of business entity in the Building
and the Outside Areas for the satisfaction of such obligations and not against
the assets of such officers, directors, trustees, partners, joint venturers,
members, owners, stockholders or principals. 
Additionally, if Landlord is a partnership or limited liability company,
then Tenant covenants and agrees:

a)               No partner or member of Landlord shall be sued or
named as a party in any suit or action brought by Tenant with respect to any
alleged breach of this Lease (except to the extent necessary to secure
jurisdiction over the partnership and then only for that sole purpose);

b)               No service of process shall be made against any
partner or member of Landlord except for the sole purpose of securing
jurisdiction over the partnership; and

c)               No writ of execution will ever be levied against the
assets of any partner or member of Landlord other than to the extent of his or
her interest in the assets of the partnership or limited liability company
constituting Landlord.

Tenant further agrees that each of the foregoing
covenants and agreements shall be enforceable by Landlord and by any partner of
member of Landlord and shall be applicable to any actual or alleged
misrepresentation or nondisclosure made regarding this Lease or the Leased
Premises or 

 34
 

 

any actual or alleged failure, default or breach of
any covenant or agreement either expressly or implicitly contained in this
Lease or imposed by statute or at common law.

12.5 
Tenant’s Waiver. 
Landlord and Tenant agree that the provisions of Paragraph 12.3 above
are intended to supersede and replace the provisions of California Civil Code
Sections 1932 (1), 1941 and 1942, and accordingly, Tenant hereby waives the
provisions of California Civil Code Sections 1932(1), 1941 and 1942 and/or any
similar or successor law regarding Tenant’s right to terminate this Lease or to
make repairs and deduct the expenses of such repairs from the Rent due under
this Lease.

ARTICLE
13

GENERAL PROVISIONS

13.1 
Taxes On Tenant’s Property.  Tenant
shall pay before delinquency any and all taxes, assessments, license fees, use
fees, permit fees and public charges of whatever nature or description levied,
assessed or imposed against this Lease, Tenant’s ownership of property,
improvements made by Tenant to the Leased Premises or the Outside Areas,
improvements made by Landlord for Tenant’s use within the Leased Premises or
the Outside Areas, Tenant’s use (or estimated use) of public facilities or
services or Tenant’s consumption (or estimated consumption) of public
utilities, energy, water or other resources (collectively, “Tenant’s Interest”).
 Upon demand by Landlord, Tenant shall
furnish Landlord with satisfactory evidence of these payments.  If any such taxes, assessments, fees or
public charges are levied against Landlord, Landlord’s property, the Building
or the Property, or if the assessed value of the Building or the Property is
increased by the inclusion therein of a value placed upon Tenant’s Interest,
regardless of the validity thereof, Landlord shall have the right to require
Tenant to pay such taxes, and if not paid and satisfactory evidence of payment
delivered to Landlord at least ten days prior to delinquency, then Landlord
shall have the right to pay such taxes on Tenant’s behalf and to invoice Tenant
for the same.  Tenant shall, within the
earlier to occur of (a) thirty (30) days of the date it receives an invoice
from Landlord setting forth the amount of such taxes, assessments, fees, or
public charge so levied, or (b) the due date of such invoice, pay to Landlord,
as Additional assessments, fees, or public charge so levied, or (b) the due
date of such invoice, pay to Landlord, as Additional Rent the amount set forth
in such invoice.  Failure by Tenant to
pay the amount so invoiced within such time period shall be conclusively deemed
a default by Tenant under this Lease. 
Tenant shall have the right to bring suit in any court of competent
jurisdiction to recover from the taxing authority the amount of any such taxes,
assessments, fees or public charges so paid.

13.2 
Holding Over.   This Lease shall terminate without further
notice on the Lease Expiration Date (as set forth in Article 1).  Any holding over by Tenant after expiration
of the Lease Term shall neither constitute a renewal nor extension of this
Lease nor give Tenant any rights in or to the Leased Premises except as expressly
provided in this Paragraph.  Any such
holding over to which Landlord has consented shall be construed to be a tenancy
from month to month, on the same terms and conditions herein specified insofar
as applicable, except that the Base Monthly Rent shall be increased to an
amount equal to one hundred fifty percent (150%) of the base 

 35
 

 

Monthly Rent payable during the last full month
immediately preceding such holding over. 
Tenant acknowledges that if Tenant holds over without Landlord’s
consent, such holding over may compromise or otherwise affect Landlord’s
ability to enter into new leases with prospective tenants regarding the Leased
Premises.  Therefore, if Tenant fails to
surrender the Leased Premises upon the expiration or termination of this Lease,
in addition to any other liabilities to Landlord accruing therefrom, Tenant
shall protect, defend, indemnify and hold Landlord harmless from and against
all claims resulting from such failure, including, without limiting the
foregoing, any claims made by any succeeding tenant founded upon such failure
to surrender, and any losses suffered by Landlord, including lost profits,
resulting from such failure to surrender.

13.3 Subordination To Mortgages.  This Lease is subject to and subordinate to
all ground leases, mortgages and deeds of trust which affect the Building or
the Property and which are now or hereafter placed thereon, and to all
renewals, modifications, consolidations, replacements and extensions thereof,
without the necessity of the execution and delivery of any further instruments
on the part of tenant to effectuate such subordination.  However, if the lessor under any such ground
lease or any lender holding any such mortgage or deed of trust shall advise
Landlord that it desires or requires this Lease to be made prior and superior
thereto, then, this Lease shall be deemed superior to the lien of any such
mortgage or deed of trust, and upon written request of Landlord to Tenant,
Tenant shall promptly execute, acknowledge and deliver any and all customary or
reasonable documents or instruments which Landlord and such lessor or lender
deems necessary or desirable to make this Lease prior thereto.  Tenant hereby acknowledges that Landlord
holds a leasehold estate of the Property. 
Tenant hereby agrees to execute and deliver to Landlord and/or Landlord’s
mortgagee or beneficiary named in said mortgage or deed of trust, within ten
(10) days after Landlord’s request, a subordination and attornment agreement in
such form as is requested by any existing or future mortgagee or beneficiary of
Landlord, and any other evidence of attornment as Landlord’s lender may from
time to time request.  If Landlord
assigns the Lease as security for a loan, Tenant agrees to execute such
documents as are reasonably requested by the lender and to provide reasonable
provisions in the Lease protecting such lender’s security interest which are
customarily required by institutional lenders making loans secured by a deed of
trust.

Notwithstanding the
foregoing (a) prior to February 1, 2007, Landlord shall use commercially
reasonable efforts to obtain from any lenders or ground lessors of this Leased
Premises a written agreement in form reasonably satisfactory to Tenant
providing for recognition of Tenant’s interests under this Lease in the event
of a foreclosure of the lender’s security interest or termination of the ground
lease (an “SNDA”) and (b) the subordination of this Lease to a future ground
lease or instrument of security shall be conditioned upon Tenant’s receipt from
any such ground lessors or lenders such a recognition agreement.  In the event Landlord is unsuccessful in
obtaining such an SNDA from each of Landlord’s lender and Landlord’s ground
lessor by February 1, 2007, Tenant shall have the right to terminate this Lease
on the following terms and conditions: 
(i) Tenant must provide Landlord written notice of the exercise of
Tenant’s right to terminate no later than March 1, 2007, time being strictly of
the essence, and (ii) the Lease shall terminate on the termination date
specified in Tenant’s notice, which termination date shall be no earlier than
90 days after Tenant’s notice is deemed given to Landlord.  Failure of Tenant to provide written notice
of the exercise of the right to terminate by March 1, 2007 shall be deemed a
waiver by Tenant of its right to terminate, and thereafter, this 

 36
 

 

Lease shall continue in full force and effect and
Tenant’s right to terminate hereunder and Landlord’s obligation to obtain such
SNDAs shall each thereafter be void and of no further force or effect.

13.4 Tenant’s Attornment Upon
Foreclosure.  Tenant
shall, upon request, attorn (i) to any purchaser of the Ground Lease, Building
or Property at any foreclosure sale or private sale conducted pursuant to any
security instruments encumbering the Building or the Property, (ii) to any
grantee or transferee designated in any deed given in lieu of foreclosure of
any security interest encumbering the Building or the Property, or (iii) to the
lessor under an underlying ground lease of the land underlying the Building or
the Property, should such ground lease be terminated; provided that such
purchaser, grantee or lessor recognizes Tenant’s rights under this Lease.

13.5
Mortgagee Protection. 
In the event of any default on the part of Landlord, Tenant will give
notice by certified mail to any Lender or lessor under any underlying ground
lease who shall have requested, in writing, to Tenant that it be provided with
such notice, and Tenant shall offer such Lender or lessor a reasonable
opportunity to cure the default, including time to obtain possession of the
Leased Premises if reasonably necessary to effect a cure.

13.6  Estoppel Certificate.   Tenant will, following any request by
Landlord, promptly execute and deliver to Landlord an estoppel certificate
substantially in the form attached as Exhibit B, (i) certifying that this
Lease is unmodified and in full force and effect, or, if modified, stating the
nature of such modifications and certifying that this Lease, as so modified, is
in full force and effect, (ii) stating the date to which the rent and other
charges are paid in advance, if any, (iii) acknowledging that there are
not, to Tenant’s knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed, and (iv) certifying
such other information about this Lease as may be reasonably requested by
Landlord, its Lender or prospective lenders, investors or purchasers of the
Building or the Property.  Tenant’s
failure to execute and deliver such estoppel certificate within ten days after
Landlord’s request therefore shall be a material default by Tenant under this
Lease if Tenant fails to execute and deliver such certificate within three (3)
business days of Landlord’s written notice of such failure, and Landlord shall
have all of the rights and remedies available to Landlord as Landlord would
otherwise have in the case of any other material default by Tenant, including
the right to terminate this Lease and sue for damages proximately caused
thereby, it being agreed and understood by Tenant that Tenant’s failure to so
deliver such estoppel certificate in a timely manner could result in Landlord
being unable to perform committed obligations to other third parties which were
made by Landlord in reliance upon this covenant of Tenant.  Landlord and Tenant intend that any statement
delivered pursuant to this paragraph may be relied upon by any Lender or
purchaser or prospective Lender or purchaser of the Building, the Property, or
any interest in them.

13.7  Tenant’s Financial Information.  Tenant shall, within ten business days after
Landlord’s request therefore, deliver to Landlord a copy of Tenant’s (and any
guarantor’s) current financial statements (including a balance sheet, income
statement and statement of cash flow, all prepared in accordance with generally
accepted accounting principles) and any such other information reasonably
requested by Landlord regarding Tenant’s financial condition.  Landlord shall be entitled to disclose such
financial statements or other information to its Lender, to any present or 

 37
 

 

prospective
principal of or investor in Landlord, or to any prospective Lender or purchaser
of the Building, the Property, or any portion thereof or interest therein.  Any such financial statement or other
information which is marked “confidential” or “company secrets” (or is
otherwise similarly marked by Tenant) shall be confidential and shall not be
disclosed by Landlord to any third party except as specifically provided in
this paragraph, unless the same becomes a part of the public domain without the
fault of Landlord.

13.8  Transfer By Landlord.  Landlord and its successors
in interest shall have the right to transfer their interest in the Building,
the Property, or any portion thereof at any time and to any person or
entity.  In the event of any such
transfer, the Landlord originally named herein (and in the case of any
subsequent transfer, the transferor), from the date of such transfer, shall be
automatically relieved, without any further act by any person or entity, of all
liability for the performance of the obligations of the Landlord hereunder
which have accrued before the date of transfer if its transferee agrees to
assume and perform all such prior obligations of the Landlord hereunder.  Tenant shall attorn to any such
transferee.  After the date of any such
transfer, the term “Landlord” as used herein shall mean the transferee of such
interest in the Building or the Property.

13.9  Force Majeure.  The obligations of each of
the parties under this Lease (other than the obligations to pay money) shall be
temporarily excused if such party is prevented or delayed in performing such
obligations by reason of any strikes, lockouts or labor disputes; government
restrictions, regulations, controls, action or inaction; civil commotion; or
extraordinary weather, fire or other act of God.

13.10  Notices.  Any notice required
or permitted to be given under this Lease shall be in writing and (i)
personally delivered, (ii) sent by United States mail, registered or certified
mail, postage prepaid, return receipt requested, or (iii) sent by Federal
Express or similar nationally recognized overnight courier service, and in all
cases addressed as follows, and such notice shall be deemed to have been given
upon the date of actual receipt of delivery (or refusal to accept delivery) at
the address specified below (or such other addresses as may be specified by
notice in the foregoing manner) as indicated on the return receipt or air bill:

	
   

  	
  If to Landlord:

  	
  Castro Mountain View, LLC, et al.

  
	
   

  	
   

  	
  c/o West Valley
  Properties, Inc.

  
	
   

  	
   

  	
  280 Second
  Street, Suite 230

  
	
   

  	
   

  	
  Los Altos,
  California 94022

  
	
   

  	
   

  	
  Attn: Vice
  President, Asset Management

  
	
   

  	
   

  	
  Phone: 650 559
  8484

  
	
   

  	
   

  	
  Fax: 650 559
  8485

  
	
   

  	
   

  	
   

  
	
   

  	
  With a copy to:

  	
  Lisa Barton-Olt, Esq.

  
	
   

  	
   

  	
  Sr. Vice
  President and General Counsel

  
	
   

  	
   

  	
  West Valley
  Properties, Inc.

  
	
   

  	
   

  	
  280 Second
  Street, Suite 230

  
	
   

  	
   

  	
  Los Altos,
  California 94022

  
	
   

  	
   

  	
   

  
	
   

  	
  If to Tenant:

  	
  VIVUS, INC.

  

 38
 

 

 

	
  

  	
   

  	
  1172 Castro
  Street

  
	
   

  	
   

  	
  Mountain View,
  Ca. 94040

  
	
   

  	
   

  	
  Attn: Chief
  Financial Officer

  

 

Any delivery given
in accordance with the foregoing shall be deemed received upon actual receipt
or refusal to accept delivery.

13.11  Attorneys’ Fees.  In the event any party
shall bring any action, arbitration proceeding or legal proceeding alleging a
breach of any provision of this Lease, to recover rent, to terminate this
Lease, or to enforce, protect, determine or establish any term or covenant of
this Lease or rights or duties hereunder of either party, the prevailing party
shall be entitled to recover from the non-prevailing party as a part of such
action or proceeding, or in a separate action for that purpose brought within
one year from the determination of such proceeding, reasonable attorneys’ fees,
expert witness fees, court costs and other reasonable expenses incurred by the
prevailing party.

13.12  Definitions. 
Any term that is given a special meaning by any
provision in this Lease shall, unless otherwise specifically stated, have such
meaning wherever used in this Lease or in any Addenda or amendment hereto.  In addition to the terms defined in Article
1, the following terms shall have the following meanings:

(a) 
Real Property Taxes. 
The term “Real Property Tax” or “Real Property Taxes” shall each mean
Tenant’s Expense Share of (i) all taxes, assessments, levies and other charges
of any kind or nature whatsoever, general or special assessments for public
improvements and any increases resulting from reassessments caused by any
change in ownership or new construction, now or hereafter imposed by any
governmental or quasi-governmental authority or special district having the
direct or indirect power to tax or levy assessments, which are levied or
assessed for whatever reason against the Property or any portion thereof, or
Landlord’s interest herein, or Landlord’s business or owning, leasing or
managing the Property or the gross receipts, income or rentals from the
Property, (ii) all charges, levies or fees imposed by any governmental
authority against Landlord by reason of or based upon the use of or number of
parking spaces within the Property, the amount of public services or public
utilities used or consumed (e.g. water, gas, electricity, sewage or waste water
disposal) at the Property, the number of persons employed by tenants of the Property, the size (whether
measured in area, volume, number of tenants or whatever) or the value of the
Property, on the type or use or uses conducted within the Property, and all
costs and fees (including attorneys’ fees) reasonably incurred by Landlord in
contesting any Real Property Tax and in negotiating with public authorities as
to any Real Property Tax.  If, at any
time during the Lease Term, the taxation or assessment of the Property
prevailing as of the Effective Date of this Lease shall be altered so that in
lieu of or in addition or any of the Real Property Tax described above there
shall be levied, awarded or imposed (whether by reason of a change in the
method of taxation or assessment, creation of a new tax or charge,; or any
other cause) an alternate, substitute, or additional use or charge (i) on the
value, size, use or occupancy of the Property or Landlord’s interest therein or
(ii) on or measured by the gross receipts, income or rentals from the Property,
or on Landlord’s business of owning, leasing or managing the Property or
(iii) computed in any manner with respect to the operation of the
Property, then any such tax or charge, however designated, shall be included
within the meaning 

 39
 

 

of the terms “Real
Property Tax” or “Real Property Taxes” for purposes of this Lease.  If any Real Property Tax is partly based upon
property or rents unrelated to the Property, then only that part of such Real
Property Tax that is fairly allocable to the Property shall be included within
the meaning of the terms “Real Property Tax” or “Real Property Taxes.”  Notwithstanding the foregoing, the terms “Real
Property Tax” or “Real Property Taxes” shall not include estate, inheritance,
transfer, gift or franchise taxes of Landlord or the federal or state income
tax imposed on Landlord’s income from all sources or any assessment expense in
excess of the installments as  billed on
the property tax bill for the Property.

(b) 
Landlord’s Insurance Costs.  The
term “Landlord’s Insurance Costs” shall mean Tenant’s Expense Share of the
costs to Landlord to carry and maintain the policies of fire and property
damage insurance for the Building and the Property and general liability and
any other insurance required or permitted to be carried by Landlord pursuant to
Article 9, but shall not include, and Tenant shall not be responsible for
paying for earthquake insurance premiums in excess of current amounts or
insurance deductibles.   In the event any
Landlord’s Insurance Cost relates solely to the Building or the Outside Area
and not to any other portion of the Property, then Tenant’s Expense Share with
respect to such Landlord’s Insurance Costs shall be deemed to be the percentage
obtained by dividing the rentable square footage of the Leased Premises at the
time of calculation by the rentable square footage of the Building at the time
of calculation.  Such percentage is
currently deemed Tenant’s Expense Share shall be recalculated so that the
aggregate deemed Tenant’s Expense Share of all tenants in the Building shall
equal 100%.

(c) 
Property Maintenance Costs.  The
term “Property Maintenance Costs” shall mean Tenant’s Expense Share of all
costs and expenses (except Landlord’s Insurance Costs and Real Property Taxes)
paid or incurred by Landlord in protecting, operating, maintaining, repairing
and preserving the Property and all parts thereof, including without  limitation, (i) the amortizing portion of any
costs incurred by Landlord in the making of any modifications, alterations or
improvements which are required to be capitalized for income tax purposes in
accordance with generally accepted accounting principles, which shall be
amortized over the useful life of such item, as reasonably determined by
Landlord, and such amortizing portion including in Property Maintenance Costs
on annual basis during the Lease Term, and (ii) such other costs as may be paid
or incurred with respect to operating, maintaining, and preserving the
Property, such as repairing and resurfacing the exterior surfaces of the
Building (including roofs), repairs and resurfacing paved areas, repairing and
replacing structural parts of the Building, and repairing and replacing, when
necessary, electrical, plumbing, heating, ventilating and air conditions
systems serving the Building, (which costs shall be amortized, if appropriate,
in accordance with the above provisions). 
Notwithstanding the foregoing “Property Maintenance Costs” shall not
include and Tenant shall have no obligation to pay directly, or to reimburse
Landlord, for: (a) costs occasioned by casualties or by the exercise of
the power of eminent domain; (b) costs to correct any construction defect in
the Property or to comply with any covenant, condition, restriction,
underwriter’s requirement or Law (including ADA and seismic) except to the
extent the same are Tenant’s responsibility under Section 6.3; (c) Costs
incurred in connection with the presence of any Hazardous Material, except to
the extent caused by the release or emission of the Hazardous Material in
question by Tenant; (d) interest, charges and fees incurred on debt;
(e) expense reserves; (f) Costs which could properly be capitalized under
generally accepted accounting principles, except to the extent amortized as set
forth in subpart (ii) above; and (g) management fees.  In the event a Property Maintenance Cost
relates solely to the Building or

 40

 

the Outside Area
and not to any other portion of the Property, then Tenant’s Expense Share with
respect to such Property Maintenance Cost shall be deemed to be the percentage
obtained by dividing the rentable square footage of the Leased Premises at the
time of calculation by the rentable square footage of the Building at the time
of calculation.  In the event the
rentable square footage of the Leased Premises or the Building is changed,
Tenant’s Expense Share shall be recalculated so that the aggregate deemed
Tenant’s Expense Share of all tenants in the Building shall equal 100%.

(d) 
Property Operating Expenses.  The term “Property Operating Expenses” shall
mean and include all Real Property Taxes, plus all Landlord’s Insurance Costs,
plus all Property Maintenance Costs, plus a market rate professional management
fee of five percent (5%) of the sum of the Base Monthly Rent and the Property
Operating Expenses under this Lease, excluding such management fee (the “Gross
Revenues”); provided, however, if the Property Operating Expenses for the first
twelve (12) months of the Lease Term exceed Two Hundred Thirty-Four Thousand
Fifty-Six Dollars and 28/100 (the “Estimate”), the amount of such management
fee for the first twelve (12) months of the Lease Term shall be reduced for
such twelve (12) month period to the amount necessary to cause the Property
Operating Expenses not to exceed the Estimate during such period; provided,
further, that in no event shall such management fees be reduced below three
percent (3%) of the Gross Revenues.

(e) 
Law.   The term “Law” shall mean any judicial
decisions and any statute, constitution, ordinance, resolution, regulation,
rule, administrative order, or other requirements of any municipal, county,
state, federal, or other governmental agency or authority having jurisdiction
over the parties to this Lease, the Leased Premises, the Lease Term, including,
without limitation, any regulation, order, or policy of any quasi-official
entity or body (e.g. a board of fire examiners or a public utility or special
district).

(f) 
Lender.  The
term “Lender” shall mean the holder of any promissory note or other evidence of
indebtedness secured by the Property or any portion thereof.

(g) 
Private Restrictions.   The term “Private Restrictions” shall mean (as
they may exist from time to time) any and all covenants, conditions and
restrictions, private agreements, easements, and any other recorded documents
or instruments affecting the use of the Property, the Building, the Leased
Premises, or the Outside Areas.

(h) 
Rent.  The term “Rent”
shall mean collectively Base Monthly Rent and all Additional Rent.

13.13  General Waivers.   One party’s consent to or
approval of any act by the other party requiring the first party’s consent or
approval shall not be deemed to waive or render unnecessary the first party’s
consent to or approval of any subsequent similar act by the other party.  No waiver of any provision hereof, or any
waiver of any breach of any provision hereof, shall be effective unless in writing
and signed by the waiving party.  The
receipt by Landlord of any rent or payment with or without knowledge of the
breach of any other provision hereof shall not be deemed a waiver of any such
breach.  No waiver of any provision of
this Lease shall be deemed a continuing waiver unless such waiver specifically
states so in writing and is signed by both Landlord and Tenant.  No delay or omission in the exercise of any
right or remedy accruing 

 41
 

 

to either party
upon any breach by the other party under this Lease shall impair such right or
remedy or be construed as a waiver of any such breach theretofore or thereafter
occurring.  The waiver by either party of
any breach of any provision of this Lease shall not be deemed to be a waiver of
any subsequent breach of the same or any other provisions herein contained.

13.14  
Miscellaneous.   Should any provisions of this Lease prove to
be invalid or illegal, such invalidity or illegality shall in no way affect,
impair or invalidate any other provisions hereof, and such remaining provisions
shall remain in full force and effect. 
Time is of the essence with respect to the performance of every
provision of this Lease in which time of performance is a factor.  Any copy of this Lease which is executed by
the parties shall be deemed an original for all purposes.  This Lease shall, subject to the provisions
regarding assignment, apply to and bind the respective heirs, successors,
executors, administrators and assigns of Landlord and Tenant.  The term “party” shall mean Landlord or
Tenant as the context implies.  If Tenant
consists of more than one person or entity, then all members of Tenant shall be
jointly and severally liable hereunder. 
Submission of this Lease for review, examination or signature by Tenant
does not constitute an offer to lease, a reservation of or an option for lease,
and notwithstanding any inconsistent language contained in any other document,
this Lease is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant. 
This Lease shall be construed and enforced in accordance with the Laws
of the State in which the Leased Premises are located.  The captions in this Lease are for
convenience only and shall not be construed in the construction or
interpretation of any provision hereof. 
When the context of this Lease requires, the neuter gender includes the
masculine, the feminine, a partnership, corporation, limited liability company,
joint venture, or other form of business entity, and singular includes the
plural.  The terms “must,” “shall,” “will,” and “agree” are
mandatory.  The term “may” is
permissive.  When a party is required to
do something by this Lease, it shall do so at its sole cost and expense without
right of reimbursement from the other party unless specific provision is made
therefore.  Where Landlord’s consent or
approval is required hereunder, unless another standard is set forth, such
consent shall not be unreasonably withheld or delayed.  The rule of construction that a document is
to be construed against the drafting party shall not be employed in the
construction or interpretation of this Lease. 
Where Tenant is obligated not to perform any act or is not permitted to
perform any act, Tenant is also obligated to restrain any others reasonably
within its control, including agents, invitees, contractors, subcontractors and
employees, from performing such act. 
Landlord shall not become or be deemed a partner or a joint venturer
with Tenant by reason of any of the provisions of this Lease.  This Lease may be executed in counterparts, each of
which shall be original, and taken together shall constitute one and the same
document.

ARTICLE 14

CORPORATE AUTHORITY AND BROKERS

14.1  Corporate Authority.  If Tenant is a corporation,
Tenant represents and warrants that Tenant is validly formed and duly
authorized and existing, and that Tenant is qualified to do business in the
State in which the Leases Premises are located 
Tenant and each individual executing this Lease represent that Tenant
has the full right and legal authority to enter into this Lease, and that
such  individual executing this Lease is
duly authorized to execute and deliver this Lease on behalf of Tenant in
accordance with its terms.

 42
 

 

14.2  Brokerage Commissions.  Tenant represents, warrants
and agrees that it has not had any dealings with any real estate broker(s),
leasing agent (s), finder(s) or salesmen, other than the Brokers (as named in
Article 1) with respect to the lease by it of the Leased Premises pursuant to
this Lease, and that it will indemnify, defend with competent counsel, and hold
Landlord harmless from any liability for the payment of any real estate
brokerage commissions, leasing commissions or finder’s fees claimed by any
other real estate broker(s), leasing agent(s), finder(s), or salesmen to be
earned or due and payable by reason of Tenant’s agreement or promise (implied
or otherwise) to pay (or to have Landlord pay) such a commission or finder’s
fee by reason of its leasing the Leased Premises pursuant to this Lease.  Landlord shall pay the Tenant’s broker listed
in Article 1 a broker commission equal to Thirty-Seven Thousand Five Hundred
Dollars ($37,500)  by March 31, 2007,
provided that Tenant has not terminated this Lease pursuant to Section 13.3 by
giving Landlord notice thereof by March 1, 2007.

14.3  Entire Agreement.  This Lease and the Exhibits
(as described in Article 1), which Exhibits are by this reference incorporated
herein, constitute the entire agreement between the parties, and there are no
other agreements, understandings or representations between the parties
relating to the lease by Landlord of the Leased Premises to Tenant, expect as
expressed herein.  No subsequent changes,
modifications or additions to this Lease shall be binding upon the parties
unless in writing and signed by both Landlord and Tenant.

14.4  Landlord’s Representations.  Tenant acknowledges that
neither Landlord nor any of its agents made any representations or warranties
respecting the Property, the Building or the Leased Premises, upon which Tenant
relied in entering into the Lease, which are not expressly set forth in this
Lease.  Tenant further acknowledges that
neither Landlord nor any of its agents made any representations as to (i)
whether the Leased Premises may be used for Tenant’s intended use under the
existing Law, or (ii) the suitability of the Leased Premises for the conduct of
Tenant’s business, or (iii) the exact square footage of the Leased Premises,
and that Tenant relies solely upon its own investigations with respect to such matters.  Tenant expressly waives any and all claims
for damage by reason of any statement, representation, warranty, promise or
other agreement of Landlord or Landlord’s agent(s), if any, not contained in
this Lease or in any Exhibit attached hereto.

ARTICLE 15

OPTION TO EXTEND

15.1  So long as Vivus, Inc. or a
Permitted Transferee is the Tenant hereunder, and occupies the entirety of the
Leased Premises, and subject to the condition set forth in clause (b) below,
Tenant shall have one (1) option to extend the term of this Lease with respect
to the entirety of the Leased Premises, for a period of one (1) year from the
expiration of the Lease Term (the “Extension Period”), subject to the following
conditions:

(a)  Each option
to extend shall be exercised, if at all, by notice of exercise given to
Landlord by Tenant not less than nine months prior to the expiration of the
Lease Term;

(b)  Anything
herein to the contrary notwithstanding, if Tenant is in default beyond
applicable notice and cure periods under any of the terms, covenants or
conditions of this Lease, at the time Tenant exercises the extension option or
on the commencement date of the Extension 

 43
 

 

Period, Landlord
shall have, in addition to all of Landlord’s other rights and remedies provided
in this Lease, the right to terminate such option(s) to extend upon notice to
Tenant.

15.2  In the event the applicable
option is exercised in as timely fashion, the Lease shall be extended for the
term of the Extension Period upon all of the terms and conditions of this
Lease, provided that the Base Monthly Rent for the Extension Period shall be
the “Fair Market Rent” for the Leased Premises, with annual increases as
determined as part of the process set forth below.

15.3   Within thirty (30) days after receipt of
Tenant’s notice of exercise, Landlord shall notify Tenant in writing of
Landlord’s estimate of the Fair Market Rent for the Extension Period, based on
the provisions of Paragraph 15.2 above. 
For purposes hereof, “Fair Market Rent” shall mean the fair market rent
for the Premises, taking into consideration that there will be no free rent,
allowances or other concessions and excluding the value of any improvements to
the Leased Premises made by Tenant and shall include collectively, (1) Base
Monthly Rent for the first year of the applicable extension period and (2) the
annual increases determined at the time Base Monthly Rent for the first year is
determined.  Within thirty (30) days
after receipt of such notice from Landlord, Tenant shall have the right either
(i) to accept Landlord’s statement of Fair Market Rent as the Base Monthly Rent
for the Extension Period; (ii) to rescind its exercise of the extension option;
or (iii) elect to arbitrate Landlord’s estimate of Fair Market Rent, such
arbitration to be conducted pursuant to the provisions hereof.  Failure on the part of Tenant to require
arbitration of Fair Market Rent or rescind within such 30-day period shall
constitute acceptance of the Base Monthly Rent for the applicable extension
period as calculated by Landlord.  If
Tenant elects arbitration, the arbitration shall be concluded within 90 days
after the date of Tenant’s election, subject to extension for an additional
30-day period if a third arbitrator is required and does not act in a timely
manner.  To the extent that arbitration
has not been completed prior to the expiration of any preceding period for
which Base Monthly Rent has been determined, Tenant shall pay Base Monthly Rent
as the rate calculated by Landlord, with the potential for an adjustment to be
made once Fair Market Rent is ultimately determined by arbitration.

15.4  In the event of
arbitration, the judgment or award rendered in any such arbitration may be
entered in any court having jurisdiction and shall be final and binding between
the parties.  The arbitration shall be
conducted and determined in the County of Santa Clara in accordance with the
then prevailing rules of the American Arbitration Association or its successor
for arbitration of commercial disputes except to the extent that the procedures
mandated by such rules shall be modified as follows:

a)             Tenant
shall make demand for arbitration in writing within thirty (30) days  after service of Landlord’s determination of
Fair Market Rent given under Paragraph 15.3 above, specifying therein the name
and address of the person to act as the arbitrator on its behalf.  The arbitrator shall be qualified as a real
estate appraiser familiar with the Fair Market Rent of office space in the
Silicon Valley Area who would qualify as an expert witness over objection to
give opinion testimony addressed to the issue in a court of competent
jurisdiction.  Failure on the part of
Tenant to make a proper demand in a timely manner for such arbitration shall constitute
a waiver of the right thereto.  Within
fifteen (15) days after the service of the demand for arbitration, Landlord
shall give notice to Tenant, specifying the name and address of the person 

 44
 

 

designated by Landlord to act as arbitrator on its
behalf who shall be similarly qualified. 
If Landlord fails to notify Tenant of the appointment of its arbitrator,
within or by the time above specified, then the arbitrator appointed by Tenant
shall be the arbitrator to determine the issue.

b)             In
the event that two arbitrators are chosen pursuant to Paragraph 15.4(a) above,
the arbitrators so chosen shall, within fifteen (15) days after the second
arbitrator is appointed determine the Fair Market Rent; provided, however, if
they are unable to agree upon the Fair Market Rent within such 15-day period,
they, themselves, shall appoint a third arbitrator, who shall be a competent
and impartial person with qualifications similar to those required of the first
two arbitrators pursuant to Paragraph 15.4(a). In the event they are unable to
agree upon such appointment within seven days after the expiration of such
15-day period, the parties themselves shall select the third arbitrator, if
they can agree thereon, within a further period of fifteen (15) days.  If the parties do not so agree, then either
party, on behalf of both, may request appointment of such a qualified person by
the then Chief Judge of the United States District Court having jurisdiction
over the County of Santa Clara, and the other party shall not raise any
question as to such Judge’s full power and jurisdiction to entertain the
application for and make the appointment. 
The three arbitrators shall decide the dispute if it has not previously
been resolved by following the procedure set forth below.

c)             Where
an issue cannot be resolved by agreement between the two arbitrators selected
by Landlord and Tenant or settlement between the parties during the course of
arbitration, the issue shall be resolved by the three arbitrators within 15
days of the appointment of the third arbitrator in accordance with the
following procedure.  The arbitrator
selected by each of the parties shall state in writing his determination of the
Fair Market Rent supported by the reasons therefore with counterpart copies to
each party.  The arbitrators shall
arrange for a simultaneous exchange of such proposed resolutions.  The role of the third arbitrator shall be to
select which of the two proposed resolutions most closely approximates his
determination of Fair Market Rent.  The
third arbitrator shall have no right to propose a middle ground or any
modification of either of the two proposed resolutions.  The resolutions he chooses as most closely
approximating his determination shall constitute the decision of the
arbitrators and be final and binding upon the parties.

d)             In
the event of a failure, refusal or inability of any arbitrator to act, his
successor shall be appointed by him, but in the case of the third arbitrator,
his successor shall be appointed in the same manner as provided for appointment
of the third arbitrator.  The arbitrator
shall decide the issue within fifteen (15) days after the appointment of the
third arbitrator.  Any decision in which
the arbitrator appointed by Landlord and the arbitrator appointed by Tenant
concur shall be binding and conclusive upon the parties.  Each party shall pay the fee and expenses of
its respective arbitrator and both shall share the fee and expenses of the
third arbitrator, if any, any the attorneys’ fees and expenses of counsel for
the respective parties and of witnesses shall be paid by the respective party
engaging such counsel or calling such witnesses.

e)             The
arbitrators shall have the right to consult experts and competent authorities
to obtain factual information or evidence pertaining to a determination of Fair
Market Rent, but any such consultation shall be made in the presence of both
parties with full right on their part to cross-examine.  The arbitrators shall render their decision
and award in writing with 

 45
 

 

counterpart copies to each party.  The arbitrators shall have no power to modify
the provisions of this Lease.

ARTICLE 16

[Intentionally Deleted]

ARTICLE 17

GROUND LEASE

Landlord presently
is the tenant under that certain Ground Lease Agreement dated October 29, 1992,
by and between John G. Nicholas and Marche Ruth Nicholas as Trustees of the
Nicholas Family Trust dated May 27, 1994, as to an undivided two-thirds
interest, and Comerica Bank Trust Department, as successor trustee under the
will of Anthony S. Nicholas Sr., as to an undivided one-third interest, collectively
as landlord (“Ground Landlord”), and DLC-Castro Commons, a California limited
partnership, as tenant, as amended by that First Amendment to Ground Lease
Agreement dated April 25, 1997, as assigned to Mountain View Income Partners
LLC, a California limited liability company by that Assignment and Assumption
of Ground Lease dated December 8, 1997, and as assigned to Landlord by that
Assignment and Assumption of Ground Lease dated November 21, 2005
(collectively, the “Ground Lease”).  By
the terms of the Ground Lease, Landlord is leasing from the Ground Landlord the
land on which the Building (including the Leased Premises therein) and the
Property are located.  This Lease is and
shall be subject and subordinate to the Ground Lease and all renewals, modification,
and extensions thereof.  Landlord
represents and warrants that the term of the Ground Lease extends beyond the
Term of this Lease, and to Landlord’s knowledge, there is no default by any
party thereunder.

IN WITNESS
WHEREOF, Landlord and Tenant have executed this Lease as of
the respective dates below set forth with the intent to be legally bound
thereby as of the Effective Date of this Lease first set forth.

	
  

  	
   

  	
   

  	
   

  	
  TENANT:

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Vivus, Inc.,

  
	
   

  	
   

  	
   

  	
   

  	
  a Delaware
  corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Dated: 

  	
  October 19, 2006

  	
   

  	
  By:

  	
  VIVUS, Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name: 

  	
  Timothy E. Morris

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President and CFO

  
								

 46
 

 

LANDLORD:

 

	
  

  	
   

  	
   

  	
   

  	
  Castro Mountain
  View, LLC

  
	
   

  	
   

  	
   

  	
   

  	
  a California
  limited liability company

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  West Valley Properties, Inc.,

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  a California corporation, Manager

  
	
   

  	
  Dated: 

  	
  October 27, 2006

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  By: 

  	
  /s/ Jon Rayden

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  Title: 

  	
   

  President

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  Guardian Equity Growth, Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  a California corporation, Manager

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Dated: 

  	
  October 31, 2006

  	
   

  	
   

  	
  By: 

  	
  /s/ Jerry Moison

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  Title: 

  	
   

  Manager

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Thomas A. Lynch

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Dated: 

  	
  October 31, 2006

  	
   

  	
  /s/ Thomas A.
  Lynch

  
	
   

  	
   

  	
   

  	
   

  	
  Thomas A. Lynch

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Dated: 

  	
  October 31, 2006

  	
   

  	
  Trudy Molina Flores, Trustee of the Jolen Flores and
  Trudy Molina Flores Joint Living Trust dated April 3, 2001

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By: 

  	
  /s/ Trudy Molina Flores

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Trudy Molina Flores, Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  E. William and
  Charlotte Duerksen, husband and wife

   

  
	
   

  	
  Dated: 

  	
  October 28, 2006

  	
   

  	
  /s/ E. William
  Duerksen

  
	
   

  	
   

  	
   

  	
   

  	
  E. William
  Duerksen

  
	
   

  	
   

  	
   

  	
   

  	
   

  /s/ Charlotte
  Duerkson

  
	
   

  	
   

  	
   

  	
   

  	
  Charlotte
  Duerksen

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 47
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  E. William and Charlotte Duerksen, Trustees of the
  Duerksen Family Trust dated February 16, 1999

  
	
   

  	
  Dated:

  	
  October 28,
  2006

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/ W. William Duerksen, Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  E. William Duerksen, Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  By: 

  	
   

  /s/ Charlotte Duerksen, Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Charlotte Duerksen, Trustee

  

 48
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  Daniel F. Dutton, Jr. and Joyce F. Dutton, Trustees
  under the Dutton Family Trust dated September 16, 1993

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Dated: 

  	
  October 31, 2006

  	
   

  	
  By:

  	
  /s/ Daniel F. Dutton, Jr., Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Daniel F. Dutton, Jr., Trustee

   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Joyce F. Dutton, Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Joyce F. Dutton, Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Noel S. Schuurman, Trustee of the Noel S. Schuurman
  Trust

  
	
   

  	
  Dated: 

  	
  October 30, 2006

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Noel S. Schuurman, Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Noel S. Schuurman, Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  The Duarte Family Partners, L.P., a California
  limited partnership

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Dated: 

  	
  October 31, 2006

  	
   

  	
  By:

  	
  /s/ Lawrence M. Duarte, Jr.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Lawrence M. Duarte, Jr., General Partner

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Dated: 

  	
  November 1 2006

  	
   

  	
  By: 

  	
  /s/ Karilyn R. Duarte

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Karilyn R. Duarte, General Partner

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Dated:

  	
  October 28,
  2006

  	
   

  	
  Marie Straube, Trustee of the Marie Antoinette
  Clough Revocable Living Trust dated January 11, 1989

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By: 

  	
  /s/ Marie Straube, Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Marie Straube, Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Dated: 

  	
  October 31, 2006

  	
   

  	
  Blue Oak Properties, Inc., a California corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By: 

  	
  /s/ Duncan M. Smith

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Duncan M. Smith, President

  

 49
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  CP6CC, LLC, a Delaware limited liability company

  
	
   

  	
  Dated: 

  	
  October 27, 2006

  	
   

  	
  By:  

  	
  Cupertino Partners VI, a California limited Partnership,
  its Sole Member 

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:  

  	
  West Valley
  Properties, Inc., a California corporation, its General Partner  

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  By: 

  	
  /s/ Jon Rayden

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Title: 

  	
  President

  

 

 50
 

 

EXHIBIT A

SITE PLAN

 51

 

EXHIBIT B

FLOOR PLAN

 

EXHIBIT C

FORM OF ESTOPPEL CERTIFICATE

	
  , 200    

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

Re:                Castro Street,
Mountain View, California

Ladies and Gentlemen:

Reference is made to that certain Lease, dated as of                                     ,
200          between Castro
Mountain View, LLC, et al. (“Landlord”), and the undersigned (herein referred
to as the (“Lease”).  A copy of the Lease
[and all amendments thereto] is [are] attached hereto as Exhibit A.  At the request of Landlord in connection with
[                  state
reasons for request for estoppel certificate                  ],
the undersigned hereby certifies to Landlord and to [                  state
names of other parties requiring certification                                             ]
and each of your respective successors and assigns as follows:

1.                                The undersigned is the tenant under the
Lease.

2.         The Lease is in full force and effect
and has not been amended, modified, supplemented or superseded except as
indicated in Exhibit A.

3.           There is currently no defense,
offset, claim or counterclaim by or in favor of the undersigned against
Landlord under the Lease or against the obligations of the undersigned under
the Lease.  The undersigned has no
renewal, extension of expansion option, no right o first offer or right of
first refusal and no other similar right to renew or extend the term of the
Lease or expand the property demised thereunder except as may be expressly set
forth in the Lease.

4.           The undersigned is not aware of any
default now existing of the undersigned or of Landlord under the Lease, nor of
any event which with notice of the passage of time or both would constitute a
default of the undersigned or of Landlord under the Lease.

5.           The undersigned has not received
notice of a prior transfer, assignment, hypothecation or pledge by Landlord of
any of Landlord’s interest in the Lease.

 

6.           The monthly rent due
under the Lease is $                  
and has been paid through                                              ,
and all additional rent due and payable under the Lease has been paid
through                            .

7.           The term of the Lease
commenced on                                     ,
and expires on                                     
unless sooner terminated pursuant to the provisions of the Lease.  Landlord has performed all work required by
the Lease for the undersigned’s initial occupancy of the demised property.

8.           The undersigned as
deposited the sum of $                  
with Landlord as security for the performance of its obligations as tenant
under the Lease, and to the undersigned’s knowledge, without inquiry, no
portion of such deposit has been applied by Landlord to any obligation under
the Lease.

9.           There is no free rent period pending,
nor is Tenant entitled to any Landlord’s contribution.

The above certifications are
made to Landlord and Lender knowing that Lender and Lender will rely thereon in
accepting an assignment of the Lease.

	
  Very truly yours,

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  

 

 54Exhibit 10.1

AMENDMENT TO THE

MERITAGE HOMES CORPORATION

2006 STOCK INCENTIVE PLAN

Meritage
Homes Corporation (the “Company”) previously approved and adopted the Meritage
Homes Corporation 2006 Stock Incentive Plan (the “Plan”) to promote the success
and enhance the value of the Company by linking the personal interests of the
members of the Board, employees, officers, executives, consultants and advisors
to those of Company stockholders and by providing such individuals with an
incentive for outstanding performance to generate superior returns to Company
stockholders.  By this instrument, the
Company desires to amend the Plan to (i) provide for minimum vesting periods on
non-tenure (i.e., performance based) and tenure
awards (i.e., time based) granted under the
Plan, and (ii) provide that, for non-tenure and tenure awards not granted in
accordance with these minimum vesting periods, the Company may not grant shares
subject to these awards in excess of five percent of the total number of shares
authorized under the Plan.

1.             Capitalized
terms used but not otherwise defined herein shall have the respective meanings
assigned to such terms in the Plan.

2.             Except
as other provided, this Amendment shall be effective as of the date set forth
below.

3.             Section 9.1 (Provisions
Applicable to Awards — Grant of Performance Shares) of the Plan is
amended and restated as follows:

9.1.          GRANT OF PERFORMANCE SHARES.  The Committee is authorized to grant
Performance Shares to Participants on such terms and conditions as may be selected
by the Committee; provided, however and except as otherwise provided in Section
12.8 of the Plan, the minimum vesting period for Performance Share Awards shall
be (i) one year in the case of non-tenure Performance Share Awards (i.e., 

 

Performance Share Awards
subject to performance vesting criteria), and (ii) pro rata over three years in
the case of tenure Performance Share Awards. 
Subject to Section 12.8, the Committee shall have the complete
discretion to determine the number of Performance Shares granted to each
Participant.  All Awards of Performance
Shares shall be evidenced by an Award Agreement.

4.             Section
10.1 (Restricted Stock Awards — Grant of Restricted Stock) of the
Plan is amended and restated as follows:

10.1.        GRANT OF RESTRICTED STOCK.  The Committee is authorized to make Awards of
Restricted Stock to Participants in such amounts and subject to such terms and
conditions as determined by the Committee; provided, however and except as
otherwise provided in Section 12.8 of the Plan, the minimum vesting period for
Restricted Stock Awards shall be (i) one year in the case of non-tenure
Restricted Stock Awards (i.e.,
Restricted Stock Awards subject to performance vesting criteria), and (ii) pro
rata over three years in the case of tenure Restricted Stock Awards.  All Awards of Restricted Stock shall be
evidenced by a written Restricted Stock Award Agreement.

5.             Section
11.3 (Performance-Based Awards — Discretion of Committee with Respect
to Performance Awards) of the Plan is amended and restated as follows:

11.3.        DISCRETION OF COMMITTEE WITH RESPECT
TO PERFORMANCE AWARDS.  With regard
to a particular Performance Period, the Committee shall have full discretion to
select the length of such Performance Period (provided, however, and except as
otherwise provided in Section 12.8 of the Plan, that, in no event may the
Performance Period be for less than one year), the type of Performance-Based
Awards to be issued, the kind and/or level of the Performance Goal, and whether
the Performance Goal is to apply to the Company, a Subsidiary or any division
or business unit thereof.  Unless
otherwise provided in an Award Agreement, Performance-Based Awards will be
forfeited if a Participant’s employment is terminated for Cause.

6.             Article
12 (Provisions Applicable to Awards) of the Plan is hereby amended by
adding the following Section 12.8 (Provisions Applicable to Awards — Limitation
on Grants of Awards) to the end thereof:

12.8         LIMITATION ON GRANTS OF AWARDS.  Notwithstanding the provisions of Section
9.1, Section 10.1 and Section 11.3 of the Plan, the Committee shall not have
the authority to grant shares 

 2
 

 

pursuant to any
Performance Share Award or Restricted Stock Award that does not comply with the
minimum vesting period or minimum Performance Period that exceeds five percent
(5%) of the aggregate number of shares of Stock authorized for grant pursuant
to Section 5.1 of the Plan.

7.             This
Amendment shall amend only the provisions of the Plan as set forth herein.  Those provisions of the Plan not expressly amended
hereby shall be considered in full force and effect.

The Company has caused this Amendment to be signed by
its duly authorized representative.

	
  

  	
   

  	
  MERITAGE HOMES CORPORATION

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ LARRY W. SEAY

  
	
   

  	
   

  	
  Its:

  	
   

  	
  Chief Financial Officer

  

 

 3

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