Document:

Exhibit 10.1

 

WAIVER AND RELEASE 

 

This Waiver and Release, (“Release”,
undersigned and dated as of September 1, 2005, (“Release”), is entered into by
and between NorthWestern Corporation, d/b/a NorthWestern Energy, a Delaware
corporation with its principal place of business located at 125 South Dakota Avenue, Suite 1100,
Sioux Falls, South Dakota, 57104-6403, its officers, agents,
directors, employees, successors, subsidiaries, insurers, parents and/or
affiliated companies, and assigns (“NWEC or Company”) and Roger Schrum (“Schrum”), a
South Dakota resident, to settle all issues between us in connection with Schrum’s severance of employment. NWEC and Schrum are collectively referred to herein as
the “Parties”.

 

NOW, THEREFORE, in consideration of the
foregoing premises and further in consideration of the mutual covenants,
conditions and agreements contained in this Release and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto do hereby agree as follows:

 

1.  Benefits
Payable.  In exchange for this
Release, Schrum will receive a severance
payment of $95,555.60 (Ninety-five thousand five hundred and fifty-five and 60 cents)
to be paid within two weeks of signing this release.  In his last payroll check, Schrum shall receive his accrued but unpaid
vacation.

 

NWEC acknowledges that Schrum has received a Special Recognition Grant
of 10,800 shares of stock and that Schrum’s ownership rights in 5,400 of those
shares have vested.  NWEC hereby agrees
that the remaining 5,400 unvested shares in the Special Recognition Grant shall
vest effective Sept. 12, 2005, without further action by NWEC.

 

2.  Employment Severance.  Schrum’s
last date of employment shall be October 7, 2005 (the “Severance Date”),
contingent upon signing this Waiver and Release.

 

3.  Claims Released.  In exchange for the benefits payable, Schrum for himself, his heirs, executors,
administrators, successors, assigns and trustees irrevocably and
unconditionally releases NWEC, its current, former
and future, parent, subsidiary and related companies, its directors, trustees,
officers, employees, agent, attorneys, successors, and assigns, and all persons
acting by, through, under, or in concert with any of them (the “Released
Parties”), from all actions, causes of action, suits, debts, charges,
complaints, claims, obligations, promises, contracts, agreements,
controversies, damages, judgments, rights, costs, losses, expenses, liabilities
and demands of any nature, whether known or unknown, whether actual or
potential, whether specifically mentioned herein or not, in law or equity,
whether statutory or common law, whether federal, state, local, or otherwise,
as a result of any act that has heretofore occurred, including, without limitation
that Schrum may have arising out of or
related to his employment with or separation from, NWEC (“Claims”).  The Claims Schrum
is releasing include, without limitation, claims under his original employment
terms, which are canceled as of the Severance Date with no further benefits or
payments to be provided thereunder, the WARN

 

 

Act, as amended, any and all claims of wrongful discharge or breach of
contract, any and all claims for equitable estoppel, any and all claims for
employee benefits, including, but not limited to, any and all claims under the
Employee Retirement Income Security Act of 1974, as amended, and any and all
claims of employment discrimination on any basis, including, but not limited
to, any and all claims under Title VII of the Civil Rights Act of 1964, as
amended, under the Age Discrimination in Employment Act of 1967, as amended, under the Civil Rights Act of 1866, 42
U.S.C. §1981, under the Civil Rights Act of 1991, as amended, under the
Americans with Dis­abilities Act of 1990, as amended, under the Family and
Medical Leave Act of 1993, under the Immigration Reform and Control Act of
1986, as amended, under the Fair Labor Standards Act, as amended, 29 U.S.C.
§201 et seq., the Older Workers Benefit Protection Act, as amended, the
Wrongful Discharge from Employment Act, 39-2-901 et seq., MCA, any federal,
state or local law enforcing express or implied employment contracts or
requiring an employer to deal with employees fairly or in good faith including
27-1-221, MCA, any federal, state, or local laws prohibiting employment
discrimination, such as in the State of South
Dakota, any claim filed in NWEC’s bankruptcy proceedings, and any and
all claims under any other federal, state, or local labor law, civil rights
law, fair employment practices law, or human rights law, any and all claims of
slander, libel, defamation, invasion of privacy, intentional or negligent
infliction of emotional distress, inten­tional or negligent misrepresentation,
fraud, and prima facie tort, any and all claims for monetary recovery,
including but not limited to, back pay, front pay, liquidated, compensatory,
and puni­tive damages, and attorneys’ fees, experts’ fees, disbursements and
costs which against the Released Parties, that Schrum
ever had, now have, or hereafter can, shall, or may have, for, upon, or by
reason of any matter, cause, or thing whatsoever from the beginning of time to
the date of Schrum’s execution of this
Release. Schrum will never file any
lawsuit, complaint or claim based on any Claims, and Schrum will withdraw with prejudice any such lawsuit, complaint, or
claim that may already be pending in any court or administrative agency.  Schrum
promises never to seek any damages, remedies, or other relief for himself
personally (any right to which Schrum
hereby waives) by filing or prosecuting a charge with any administrative agency
with respect to the Claims purportedly released by this Release. This
subsection shall not apply to challenges to the ADEA release, to the extent, if
any, prohibited by applicable law.

 

4.  No admission of
Liability.  This Release
is not an admission of guilt or wrongdoing by any released party.  Schrum acknowledges that he has not suffered
any age or other discrimination or wrongful treatment by any released party.

 

5.  Consideration of
Release.  NWEC advised
Schrum to take this Release home, read it, and carefully consider all of its
terms before signing it.  NWEC gave
Schrum at least twenty-one (21) days in which to consider this Release.  Schrum
waives any right he may have to additional time beyond this consideration
period within which to consider this Release. 
Schrum understands that he has
seven (7) days after signing this Release to revoke it.  If Schrum
chooses to revoke this Release, Schrum
agrees to provide such revocation in writing, accompanied by any sums received
pursuant to this Release, to be received by the Vice President and General
Counsel by the end of the seven (7) day period. 
NWEC, in writing, 

 

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advised Schrum
to discuss this Release with his own attorney (at Schrum’s own expense) during this period if Schrum wished to do so.  Schrum has carefully read this Release, fully
understands what it means, and is entering into it voluntarily. Schrum is receiving valuable consideration in
exchange for his execution of this Release that he would not otherwise be
entitled to receive.

 

6.  Company Property.  Schrum
agrees to return to NWEC, by his Severance Date, all files, memoranda,
documents, records, copies of the foregoing, credit cards, and any other
property of NWEC or its affiliates in his possession.

 

7.  False Claims
Representations and Promises.  Schrum
has disclosed to NWEC any information he has concerning any conduct involving
NWEC or any affiliate that he has any reason to believe may be unlawful or that
involves any false claims to the United States. 
Schrum promises to cooperate fully
in any investigation NWEC or any affiliate undertakes into matters occurring
during his employment with NWEC or any affiliate. Schrum understands that nothing in this Release prevents his from
cooperating with any U.S. government investigation.  In addition, to the fullest extent permitted
my law, Schrum hereby irrevocably assigns
to the U.S. government any right he may have to any proceeds or awards in
connection with any false claims proceedings against NWEC or any affiliate.

 

8.  Non-Disclosure, Return of Proprietary
Information, and Inventions and Patents.  NWEC and Schrum
agree that during his employment with NWEC, Schrum
has received and become acquainted with confidential, proprietary, and trade
secret information of NWEC including, but not limited to, information regarding
NWEC business programs, plans, and strategies; finances; customers and
prospective customers; suppliers and vendors; marketing plans and results;
personnel matters regarding NWEC employees, officers, directors, and owners;
manners of operation and services provided; negotiating positions and
strategies; legal arguments, theories, claims, investigations, and audits; or
information regarding the operation and business of NWEC.  Schrum
acknowledges that such information has been developed or acquired by NWEC
through the expenditure of substantial time, effort, and money, that such
information provides NWEC with strategic and business advantages over others
who do not know or use such information, and that NWEC has implemented specific
policies and practices to keep such information secret.  Schrum
agrees that he shall not during the term of employment or at any time
thereafter, directly or indirectly:

 

A.  Use for his own purpose or for the
benefit of any person or entity other than NWEC, or otherwise disclose or
permit others to obtain access to, any proprietary of confidential information
to any individual or entity unless such disclosure has been authorized in
writing by NWEC or is otherwise required by law.  Information or material that is not novel or
copyrighted or patented may nonetheless be proprietary information.  Proprietary information shall not include,
however, any information that is or becomes generally known to the industries
in which NWEC competes through sources independent of NWEC or Schrum or through authorized publication by
NWEC to persons other than NWEC employees.

 

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B.  Except as required by law, give or
disclose any records containing confidential information or material to, or
permit any inspection or copying of such records by, any individual or entity
other than in the authorized course and scope of such individual’s or entity’s
employment or retention by NWEC.  In
addition, Schrum shall promptly return to
NWEC all such records upon resignation hereunder and shall not use or retain
any such records thereafter.  Records
subject to this subsection shall include, but not be limited to, all
correspondence, memoranda, files, analyses, studies, reports, notes, documents,
manuals, books, lists, financial, operating, or marketing records, computer
software, magnetic tape, or electronic or other media or equipment of any kind
that may be in the my possession or under Schrum’s
control or accessible to his which contain or may be derived from proprietary
or confidential information covered by this section.  All such records are and will remain the sole
property of NWEC.

 

9.  Confidentiality.  Schrum
agrees that he will keep confidential the existence and terms of this Release;
provided, however, that nothing herein shall prevent Schrum from disclosing the fact and terms of this Release to his
attorney, accountant, or financial advisor for the purposes of receiving
professional advice from such individual in that capacity.  Schrum
will advise those individuals that the existence and terms of this Agreement
shall be kept confidential.

 

10.  Public
Statements.  Except as
necessary to secure other employment or for other necessary reasons, Schrum
agrees that he will make no public statements concerning his employment or the
severance thereof with NWEC.  NWEC by its
senior management and Schrum also agree
neither party will make any disparaging remarks to any third parties concerning
the other party.  Schrum further agrees that he will not disparage NWEC’s business
capabilities, products, plans, or management to any customer, potential
customer, vendor, suppler, contractor or subcontractor of NWEC so as to affect
adversely the good will or business of NWEC. 
NWEC by and through its senior management agrees that it will refrain
from making any adverse, derogatory or disparaging comments or statements about
Schrum or his performance during his
employment with NWEC and will be supportive of Schrum’s
attempts to secure future employment.  If
either party is contacted by the media concerning Schrum’s departure from NWEC, either party may explain that Schrum left NWEC to pursue other business
opportunities.

 

11.  Consequences of
Violating Promises:

 

A.  General Consequences. 
In addition to any other remedies or relief that may be available, Schrum agrees to pay the reasonable attorneys’
fees and any damages Released Parties may incur as a result of his breaching a
promise he made in this Release (such as by suing a Released Party over a
released Claim) or if any representation he made in this Release was false when
made.  Schrum
agrees that the minimum damages for each breach will be half of the attorney’s
fees each Released Party incurs as a result of the breach, which is a
reasonable estimate of the value of the time the Released Party is likely to
have to spend seeking a remedy for the breach. 
Schrum further agrees that NWEC
would be irreparably harmed by any actual or

 

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threatened
violation of any paragraph of this Waiver and Release that involves
Release-related disclosures or disclosure or use of confidential information or
trade secrets, and that NWEC will be entitled to an injunction prohibiting Schrum from committing any such violation.

 

B.  Challenges to Validity.  Should Schrum
attempt to challenge the enforceability of this Release, Schrum agrees first (1) to deliver a certified
check to NWEC for all amounts he has received because he signed this Release
(2) to direct in writing that all future benefits or payments Schrum is to receive because he signed this
Release be suspended, and (3) to invite NWEC to cancel this Release.  If NWEC accepts Schrum’s offer, this Release will be canceled.  If it rejects Schrum’s
offer, NWEC will notify Schrum and
deposit the amount Schrum repaid, plus
all suspended future benefits and payments, in an interest-bearing account
pending a determination of the enforceability of this Release.  If the Release is determined to be
enforceable, NWEC is to pay Schrum the
amount in the account, less any amounts Schrum
owes NWEC.  If the Release is determined
to be unenforceable, the amount credited to the account shall be paid to the
entities that paid the consideration for this Release in proportion to their
payments, and the suspension of future benefits or payments shall become
permanent.

 

C.  ADEA Claims.  This section shall not apply to ADEA Claims to
the extent, if any, prohibited by applicable law.

 

12.  Successors and
Assigns.  This Release shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, successors, legal representatives, and assigns.  However, neither this Release nor any right
or interest hereunder shall be assignable by Schrum, Schrum’s beneficiaries, or
legal representatives, except as provided by law or pursuant to referenced
benefit policy documents.

 

13.  Severability and
Reformation.  The provisions
of this Release are severable.  If any
provision of this Release shall be determined to be invalid, illegal, or
unenforceable, in whole or in part, neither the validity of the remaining parts
of such provision nor the validity of any other provision of this Release shall
in any way be affected thereby.  In lieu
of such invalid, illegal, or unenforceable provision, there shall be added
automatically as part of this Release a provision as similar in terms to such
invalid, illegal, or unenforceable provision as may be possible and be valid,
legal, and enforceable.  Each party also
agrees that, without receiving further consideration, it will sign and deliver
such documents and do anything else necessary in the future to make the provisions
of this Release effective.

 

14.  Taxes. 
Schrum understands that he will be responsible for paying all taxes that
may become due on any of the payments provided herein. If Schrum fails to pay
any taxes due and owing on any of the payments, or any taxing authority alleges
that Schrum has failed to do so or that NWEC is responsible for the payment of
these taxes, for any reason, Schrum agrees to be fully responsible for any
judgments or orders, fines and penalties, and that he will indemnify NWEC including,
but not limited to, the satisfaction of judgments, orders, fines or penalties

 

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in the payment of NWEC’s defense by counsel of its choice in such
proceedings.  The taxability of the
amounts contained herein shall not affect the validity of this Release.

 

15.  Governing Law and Jurisdiction.  This Agreement shall be governed by, and
construed in accordance with, the laws of the State of South Dakota, without reference to conflict of laws principles thereof.
The Parties also hereby irrevocably and unconditionally submit to the
jurisdiction of any South Dakota state
court or federal court sitting in South
Dakota and any appellate court from any such court, in any suit, action
or proceeding arising out of or relating to this Agreement, or for recognition
or enforcement of any judgment resulting from any such suit, action or
proceeding, and each party hereby irrevocably and unconditionally agrees that
all claims in respect of any such suit, action or proceeding may be heard and
determined in such South Dakota state
court or, to the extent permitted by law, by removal or otherwise, in such
federal court.

 

16.  Further Assurances. 
Each party agrees to take all further actions and to execute and deliver
all further documents and instruments that are reasonably necessary or
appropriate in order to effectuate the purposes of this Agreement and the transactions contemplated
hereby.

 

17.  Waiver. 
Any failure by a party hereto to comply with any obligation, agreement
or condition contained herein may only be waived in a writing executed by the
party granting the waiver, but such waiver or failure to insist upon strict
compliance with such obligation, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, such failure or any subsequent or other
failure.  All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law.

 

18.  Entire Agreement.  This
Agreement sets forth the entire agreement and understanding of the parties
relating to the subject matter hereof, and supersedes all prior agreements and
arrangements, written or oral, relating to the subject matter hereof.

 

19.  Amendment.  This
Agreement may be amended only by a written instrument executed by both of the
parties hereto.

 

20.  Successors or Survivors and Assigns.  This
Agreement shall inure to the benefit of, and be binding upon, the parties
hereto and their respective successors. 
NWEC may assign this Agreement without the prior consent of Executive or his/her successors and
assigns.  Nothing in this Agreement,
express or implied, is intended to confer on any person other than the parties
hereto and the Released Parties, or their respective successors or permitted
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.

 

21.  Notice. 
Any notice required or permitted by this Agreement shall be in writing
and shall be deemed delivered when delivered personally or by overnight
courier or sent by telegram, fax, or email, or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party’s address or
fax number set forth on the

 

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signature page hereto, as appropriate, which address or fax number may
be subsequently modified by a written notice delivered in accordance with this
section.

 

	
  TAKE THIS RELEASE HOME, READ IT, AND CAREFULLY CONSIDER ALL OF ITS PROVISIONS
  BEFORE SIGNING IT: IT INCLUDES A RELEASE OF KNOWN AND UNKNOWN CLAIMS. IF YOU
  WISH, YOU SHOULD TAKE ADVANTAGE OF THE FULL CONSIDERATION PERIOD AFFORDED BY
  SECTION 5 AND YOU SHOULD CONSULT YOUR ATTORNEY.

  

 

 

	
  Schrum

  	
   

  	
  NORTHWESTERN ENERGY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Address: 

  	
   

  	
   

  	
  Its: 

  	
  Vice President and General Counsel 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date: 

  	
   

  	
  , 2005

  	
   

  	
  Date: 

  	
   

  	
  , 2005

  
										

 

7Exhibit 10.1

 

EXECUTION
VERSION

LEASE
AGREEMENT

 

THIS LEASE is entered into on September 6, 2005, by and between BMR-2282 FARADAY AVENUE LLC,
a Delaware limited liability company (the “Landlord”), and ISIS PHARMACEUTICALS, INC., a Delaware corporation, (the “Tenant”).

 

ARTICLE 1

 

Description
of Premises

 

1.1           Premises.  Landlord hereby leases to Tenant and Tenant
leases from Landlord, pursuant to the terms, conditions and uses herein set
forth, that certain real property commonly known as 2282 Faraday Avenue,
Carlsbad, California and more particularly described in Exhibit ’A’
attached hereto (the “Premises”), including a building located on the Premises
containing approximately 28,704 square feet of rentable space, as shown on the
drawing attached hereto as Exhibit ”B” (the “Building”).

 

ARTICLE 2

 

Term

 

2.1           Lease
Term.  The term of this Lease will be
for 180 months commencing on September [  ], 2005 (the “Commencement
Date”)[THE LEASE TERM WILL COMMENCE THE DATE OF THE CLOSING UNDER THE PURCHASE
AGREEMENT] and ending on September [19], 2020 (“Lease Term”).  Tenant has two options to extend the term, as
further described in Article 36.

 

ARTICLE 3

 

Rent

 

3.1           Base
Monthly Rental.  Tenant shall pay to
Landlord at the address set forth in Section 35.10, or such other address
as Landlord may advise Tenant in writing, without deduction, offset or prior
notice or demand, and Landlord shall accept, as rent for the Premises the sum
of $74,630.40 per month, subject to adjustments pursuant to Section 3.3
below, in lawful money of the United States payable in advance on the first day
of each month of the term of this Lease. 
Said monthly installments shall hereinafter be referred to as the “Base
Monthly Rental.”  Tenant has delivered to
Landlord the Base Monthly Rental for the first month of the term hereof upon
execution and delivery of this Lease. 
For purposes of this Lease, “Rent” will mean the Base Monthly Rent plus
the Additional Rent plus any other charges due Landlord by Tenant under this
Lease.

 

3.2           Proration
of Rent.  Prior to the first day of
the first full calendar month of occupancy, in lieu of the Base Monthly Rental,
Tenant will pay Landlord an amount equal to the

 

 

Base Monthly Rental multiplied by a factor having as its numerator the
number of days remaining in the month from, after and including the
Commencement Date and as its denominator the number thirty.  Thereafter, rent shall be payable in
accordance with the terms of Section 3. 1. 
The total consideration for the term of this Lease shall be increased by
the amount of the installment required by this Section 3.2.

 

3.3           Biennial
Adjustments.  The Base Monthly Rental
will be increased biennially commencing on the first day of the calendar month
immediately following the second anniversary of the Commencement Date, and on
each two-year anniversary thereafter, by an amount equal to 5% of the Base
Monthly Rental for the preceding year.

 

3.4           Additional
Rent, Expenses and Costs.  Tenant
shall pay as additional rent the cost of: insurance pursuant to Section 10,
taxes pursuant to Section 12, maintenance, roof and structural repairs
pursuant to Sections 11.2 and 11.3, and a management fee pursuant to Section 13.3 or other charges, expenses and cost provided for herein, (“Additional
Rent”) as described and in the manner provided in Article 13.  Notwithstanding anything to the contrary in
this Lease, in no event will Additional Rent or any other expense to be paid by
Tenant include the costs and expenses listed on Schedule 3.4 attached
hereto.

 

3.5           Late
Fees.  Tenant acknowledges that late
payment by Tenant to Landlord of the Base Monthly Rental or other charges
incurred under this Lease will cause Landlord to incur costs not contemplated
by this Lease, the exact amount of such costs being extremely difficult and impracticable
to fix.  Such costs include, without
limitation, processing, administrative and accounting charges.  If any payment of Base Monthly Rental,
Additional Rent, or other charges due from Tenant is not received by Landlord
within 5 business days of when due, such unpaid amounts shall bear interest at
the rate of eight percent (8%) per annum (“Default Rate”) from the date due to
the date of payment.  In addition to
interest, Tenant shall pay a sum of the greater of (i) 3% of the overdue
rent or (ii) $15.00 as a late charge; provided, however,
that twice but only twice in any twelve (12) month period during the Lease
Term, Tenant shall be entitled to written notice of non-receipt of Base Monthly
Rental or Additional Rent from Landlord, and Tenant shall not be liable for any
late charge hereunder with respect thereto if such installment of Base Monthly
Rental or Additional Rent is received by Landlord within five (5) days
after Tenant’s receipt of such notice from Landlord.  Late charges shall constitute Additional
Rent.  The parties agree that the late
charge represents a fair and reasonable estimate of the costs that Landlord
will incur by reason of late payment by Tenant. Acceptance of any late charge
shall not constitute a waiver of Tenant’s default with respect to the overdue
amount, or prevent Landlord from exercising any of the other rights and
remedies available to Landlord hereunder.

 

3.6           Security
Deposit.  Tenant will pay a security
deposit of $500,000 (payable in cash or in the form of a letter of credit
reasonably acceptable to Landlord) (the “Security Deposit”).

 

3.6.1        In lieu of depositing cash as the Security
Deposit, Tenant shall have the right to deliver to Landlord an unconditional,
irrevocable, standby letter of credit in the amount of the cash Security
Deposit otherwise required hereunder, which letter of credit shall (i) be
in a form reasonably acceptable to Landlord, (ii) be issued by a financial
institution selected by Tenant and reasonably acceptable to Landlord, (iii) be
for the benefit of Landlord, but shall be

 

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transferable
at Tenant’s sole cost and expense by Landlord to any subsequent purchaser or
encumbrancer of the Building, (iv) be automatically renewable from year to
year throughout the Lease Term, (v) be payable by draft sight in a
location reasonably acceptable to Landlord upon presentation of a certification
signed by an officer of Landlord which states that Tenant has failed to perform
any of its monetary or non-monetary obligations, and (vi) be payable in
the event such letter of credit is not renewed on or before the date which is
thirty (30) days prior to its expiration. Any amounts of cash drawn on a letter
of credit Security Deposit will thereafter be treated as a cash Security
Deposit hereunder.

 

3.6.2        Tenant
shall have the right at any time during the Lease Term upon thirty (30) days
prior written notice to Landlord (i) to replace a cash Security Deposit
with a letter of credit which complies with all the terms of Section 3.6.1,
or (ii) to replace a letter of credit Security Deposit with a
corresponding amount of cash.

 

3.6.3        Starting
with the third anniversary of the Commencement Date, this Security Deposit will
be reduced by $100,000 on such third anniversary, on the sixth anniversary, on
the ninth anniversary and on the twelfth anniversary of the Commencement Date,
provided Tenant has not been in default after the expiration of the applicable
cure periods set forth in Section 18.1 during the 36-month period
prior to the date of such reduction and has had positive net income (according
to US generally accepted accounting principles) for the twelve month fiscal
year that ended most recently before the date of such reduction, as
substantiated by financial statements that are filed with the US Securities and
Exchange Commission (“SEC”) or, in the event Tenant ceases to be required to
file annual financial statements with the SEC, the year-end financial
statements for such period that have been audited by a nationally or regionally
recognized firm of certified public accountants.

 

3.6.4        If
Tenant fails to pay Rent when required or fails to perform any other covenant
contained herein, Landlord may use or retain all or any part of the Security
Deposit for the payment of any sum not so paid, or for the payment of any
amount which Landlord may spend or become obligated to spend by reason of
Tenant’s default.  If any portion of said
Security Deposit is so applied or used, then Tenant shall, within 5 days after
written notice thereof, deposit an additional amount with Landlord sufficient
to restore said Security Deposit to the amount set forth above and Tenant’s
failure to do so shall constitute a breach of this Lease.

 

3.6.5        If
Tenant has performed all of its monetary and other obligations hereunder at the
termination of this Lease, Landlord shall return said Security Deposit to
Tenant within 30 days after termination of this Lease, less any amounts
required to restore the Premises to good condition and repair, reasonable wear
and tear excepted, including repairing any damage resulting from the removal by
Tenant of its trade fixtures or equipment.

 

3.6.6        Landlord’s
obligation with respect to any Security Deposit is that of a debtor and not as
a trustee, consequently, such sums may be commingled with rental receipts or
dissipated and no interest shall accrue thereon.

 

3.6.7        In
the event of the sale of the real property of which the Premises constitute a
part, Landlord’s successor in interest shall assume Landlord’s obligations with
respect to the sums held as security or advance rent and notify Tenant in
writing setting forth the

 

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particularity of such transfer, including the successor’s name and
address.  Upon such assumption and
written notification, Tenant shall have no further claim against Landlord with
respect to any such Security Deposit and hereby waives all rights against
Landlord in such regard.  Notwithstanding
the foregoing, Landlord will remain personally liable to the extent Landlord’s
successor in interest fails to assume the Landlord’s obligations with respect
to the deposit as specified above.

 

3.6.8        In
the event of foreclosure by the holder of any mortgage or deed of trust
encumbering the Premises, Landlord shall continue to be liable for any security
deposit and any such mortgagee shall have no liability or responsibility
therefore, except to the extent the Security Deposit is delivered to such
mortgagee and such mortgagee assumes responsibility for such Security Deposit.

 

ARTICLE 4

 

Possession

 

4.1           Possession.  Tenant hereby acknowledges that it currently
owns and is in possession of the Premises, and is familiar with the condition
thereof and accepts the Premises in its “as is” condition with all faults, and
Landlord makes no representation or warranty of any kind with respect the
Premises, and Landlord will have no obligation to improve, alter or repair the
Premises, except as specifically set forth herein.  Except as otherwise expressly provided
herein, it is understood and agreed that Landlord is not obligated to install
any equipment, or make any repairs, improvements or alterations to the
Premises.

 

4.2           NOTWITHSTANDING
ANYTHING TO THE CONTRARY HEREIN, IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT
LANDLORD IS LEASING THE PREMISES “AS IS” AND “WHERE IS,” AND WITH ALL FAULTS
AND THAT, LANDLORD IS MAKING NO REPRESENTATIONS AND WARRANTIES WHETHER EXPRESS
OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE, WITH RESPECT TO THE QUALITY OR
PHYSICAL CONDITION OF THE PROPERTY, THE INCOME OR EXPENSES FROM OR OF THE
PROPERTY, OR THE COMPLIANCE WITH THE PROPERTY WITH APPLICABLE BUILDING OR FIRE
CODES, ENVIRONMENTAL LAWS OR OTHER LAWS, RULES, ORDERS OR REGULATIONS.  WITHOUT LIMITING THE FOREGOING, IT IS UNDERSTOOD
AND AGREED THAT LANDLORD MAKES NO WARRANTY OF THE HABITABILITY, SUITABILITY,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.  TENANT AGREES THAT IT ASSUMES FULL
RESPONSIBILITY FOR, AND THAT IT HAS PERFORMED EXAMINATIONS AND INVESTIGATIONS
OF THE PREMISES, INCLUDING SPECIFICALLY, WITHOUT LIMITATION, EXAMINATIONS AND
INVESTIGATIONS FOR THE PRESENCE OF ASBESTOS, PCBS AND OTHER HAZARDOUS
SUBSTANCES, MATERIALS AND WASTES (AS THOSE TERMS MAY BE DEFINED HEREIN OR
BY APPLICABLE FEDERAL OR STATE LAWS, RULES OR REGULATIONS) ON OR IN THE PREMISES.  WITHOUT LIMITING THE FOREGOING, EXCEPT FOR
CLAIMS ARISING UNDER THE

 

4

 

AGREEMENT FOR PURCHASE AND SALE DATED AS OF JULY 21, 2005, TENANT
IRREVOCABLY WAIVES ALL CLAIMS AGAINST LANDLORD WITH RESPECT TO ANY
ENVIRONMENTAL CONDITION, INCLUDING CONTRIBUTION AND INDEMNITY CLAIMS, WHETHER
STATUTORY OR OTHERWISE, EXCEPT TO THE EXTENT ARISING OUT OF THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD.

 

ARTICLE 5

 

Use

 

5.1           Permitted
Use of Premises.  The Premises shall
be used and occupied by Tenant solely for research and development and
manufacture of drug candidates and substances along with associated office, lab
and warehouse uses.  The Premises are to
be used for no other purposes without first obtaining the consent of Landlord,
which consent shall not be unreasonably withheld.

 

5.2           Compliance
with Laws.  Tenant, at Tenant’s sole
expense, shall promptly comply, or cause compliance, with all laws, ordinances,
zoning restrictions, rules, regulations, orders and requirements of any duly
constituted public authorities now or hereafter affecting the Premises,
including the use, safety, cleanliness and occupation of the Premises.

 

5.3           Prohibited
Uses.  Tenant shall not do, bring or
keep anything in or about the Premises that will cause a cancellation of any
insurance covering the Premises or the Building.  Tenant shall not use the Premises in any
manner that will constitute waste, nuisance or unreasonable annoyance to owners
or occupants of nearby properties.  Tenant
shall not do anything on the Premises that will cause material damage to the
Building.  Tenant shall place no loads
upon the floors, walls or ceiling of the Building in excess of the maximum
designed load specified by Landlord or which may materially damage the
Building.  No machinery, apparatus, or
other appliance shall be used or operated in or on the Premises that will
vibrate or shake the Premises.

 

5.4           Rules and
Regulations.  Tenant shall comply
with all reasonable nondiscriminatory rules and regulations (the “Rules and
Regulations”) from time to time adopted by Landlord with respect to the
Premises.  Notwithstanding anything to
the contrary contained in this Lease, if any rule or regulation is in
conflict with any term, covenant or condition of this Lease, this Lease shall
prevail.  In addition, no such rule or
regulation, or any subsequent amendment thereto adopted by Landlord, shall in
any way alter, reduce or adversely affect any of Tenant’s rights or enlarge
Tenant’s obligations under this Lease.

 

5

 

ARTICLE 6

 

Alterations
and Additions

 

 6.1          Prohibited
Alterations.  Tenant shall not make
any alterations, improvements or additions to the Premises, except for
non-structural alterations not exceeding $100,000 per occurrence or an
aggregate amount of $250,000 in any 12-month period, without obtaining Landlord’s
prior written consent, which consent shall not unreasonably be withheld.  Notwithstanding the foregoing, Tenant shall
not make any alterations that affect the structural elements of the Premises or
require a construction or building permit without Landlord’s prior written
consent, which consent may be granted or withheld in Landlord’s sole and
absolute discretion.  Any such
improvements, excepting movable furniture and trade fixtures, shall become part
of the realty and belong to Landlord. 
All alterations and improvements shall be properly permitted and
installed at Tenant’s sole cost, by a licensed contractor, in a good and
workmanlike manner, and in conformity with the laws of all applicable duly
constituted public authorities.  Each
such licensed contractor and any subcontractor that performs work with a cost
greater than $50,000, shall be acceptable to Landlord in its reasonable
discretion.  Any alternations that Tenant
shall desire to make and which require the consent of Landlord shall be
presented to Landlord in written form with detailed plans.  Tenant shall: (i) acquire all applicable
governmental permits; (ii) furnish Landlord with copies of both the
permits and the plans and specifications before the commencement of the work,
and (iii) comply with all conditions of said permits in a prompt and
expeditious manner.  Any alterations
shall be performed in a workmanlike manner with good and sufficient
materials.  Tenant shall promptly upon
completion furnish Landlord with as-built plans and specifications.

 

6.2           Notice
of Commencement.  At least 20 days
prior to commencing any work relating to any alterations, improvements or
additions approved by Landlord, Tenant shall notify Landlord in writing of the
expected date of commencement.  Landlord
shall have the right at any time thereafter to post and maintain on the
Premises such notices as Landlord reasonably deems necessary to protect
Landlord and the Premises from mechanics’ liens, materialmen’s liens or any
other liens.  Tenant shall pay, when due,
all claims for labor or materials furnished to or for Tenant for use in
improving the Premises.  Tenant shall not
permit any mechanics’ or materialmen’s liens to be levied against the Premises
arising out of work performed, materials furnished, or obligations to have been
performed on the Premises by or at the request of Tenant. Tenant hereby
indemnifies and holds Landlord harmless against loss, damage, attorneys’ fees
and all other expenses on account of claims of lien of laborers or materialmen
or others for work performed or materials or supplies furnished for Tenant or
its contractors, agents or employees. If Tenant fails to remove or bond any
lien(s) filed against the Premises in connection with any work performed or any
work claimed to have been performed by or at the direction of Tenant within 10
days from the date of the lien(s) filing, Landlord may remove such lien(s) at
Tenant’s expense and Tenant shall reimburse Landlord for all costs incurred by
Landlord in connection with the removal of the lien(s), which amount shall be
deemed Additional Rent, and shall include, without limitation, all sums
disbursed, incurred or deposited by Landlord, including Landlord’s costs,
expenses and actual attorneys’ fees, with interest thereon, at the Default Rate
from the date of expenditure.

 

6.3           Trade
Fixtures.  Tenant may install trade
fixtures, machinery or other trade equipment in conformance with the ordinances
of all applicable duly constituted public authorities.  Tenant may remove any of such trade fixtures
or machinery upon the termination of this Lease. In the event that Tenant
installs improvements, machinery or trade fixtures, or makes any alterations, Tenant
shall, at Landlord’s option, return the Premises on termination of this

 

6

 

Lease to the same condition as existed at the date of entry, reasonable
wear and tear excepted, including the removal of improvements or alterations
approved by Landlord in Section 6.1; provided, however, if
such improvements or alterations were approved by Landlord, Tenant shall only
be required to remove such improvements or alterations if Landlord’s approval
was conditioned upon Tenant’s removal of such improvements or alterations.
Tenant shall, in any event, repair any damage resulting from the removal of
machinery or trade fixtures of Tenant.

 

ARTICLE 7

 

Surrender
of Premises

 

7.1           Conditions
upon Surrender.  Upon the expiration,
or earlier termination, of this Lease, Tenant shall surrender the Premises to
Landlord in its condition existing as of the Commencement Date, normal wear and
tear, casualty, condemnation and acts of God excepted, with all interior walls
in good repair and repainted if marked, all carpets shampooed and cleaned, the
HVAC equipment, plumbing, electrical and other mechanical installations in good
operating order, and all floors cleaned and waxed, all to the reasonable
satisfaction of Landlord. Tenant shall remove from Premises all of Tenant’s
alterations which Landlord requires Tenant to remove pursuant to Section 6.3
and all Tenant’s personal property, and shall repair any damage and perform any
restoration work caused by such removal. 
Landlord and Tenant shall each initial and attach a narrative
description or floor plan of the Premises to this Lease, to be incorporated
herein as Exhibit ”D”. Said narrative description or floor plan shall
describe, among other things, those interior improvements which are to remain
in the Premises upon expiration, or earlier termination, of this Lease. It is
the intent of the parties that the condition of the Premises, after Tenant’s
removal, be in substantial conformance with the layout reflected in Exhibit ”D”.
If Tenant fails to remove such alterations and Tenant’s personal property which
Tenant is authorized and obligated to remove pursuant to the above, and such
failure continues after the termination of the Lease, Landlord may retain such
property and all rights of Tenant with respect to it shall cease, or Landlord
may place all or any portion of such property in public storage for Tenant’s
account. Tenant shall pay to Landlord upon demand costs of removal of such
alterations and Tenant’s personal property and storage and transportation costs
of same, and the cost of repairing and restoring the Premises, together with
attorneys’ fees and interest at the Default Rate on said amounts, from the date
of expenditure by Landlord. If the Premises are not so surrendered at the termination
of this Lease, Landlord may, in its sole discretion, either (a) upon
written notice to Tenant, treat Tenant as a month-to-month tenant at will,
subject to all the terms, covenants and conditions of this Lease, or (b) proceed
with an unlawful detainer action and pursue all other rights and remedies
available to Landlord.

 

ARTICLE 8

 

Utilities
and Services

 

8.1           Utilities.  Tenant shall make all arrangements for and
pay for all water, sewer, gas, heat, light, power, telephone service and any
other service or utility Tenant requires at the Premises. Landlord shall not be
liable for any failure or interruption of any utility service being

 

7

 

furnished to the Premises, and no such failure or interruption shall
entitle Tenant to terminate this Lease; provided, however,
that Tenant will be entitled to rent abatement in connection with any such
failure or interruption to the extent Landlord receives lost rental income
insurance proceeds.

 

8.2           Landlord
Service. In the event that any utilities are furnished by Landlord, Tenant
shall pay to Landlord the cost thereof in the manner set forth in Section 13.3.
Tenant’s cost shall be the total cost shown on utility meters servicing the
Premises and any extraordinary use which may be made by Tenant.

 

ARTICLE 9

 

Indemnification

 

9.1           Indemnity
of Landlord.  Tenant hereby agrees to
indemnify, defend (with attorneys approved by Landlord), protect, and hold
Landlord and Landlord’s agents, employees, directors, officers, managers,
members, partners, affiliates, independent contractors and property managers (“Landlord’s
Agents”), harmless from any and all liabilities, costs, expenses and losses by
reason of injury to person or property (“Losses”), caused by, arising out of,
or related to, the condition of the Premises or the use or occupancy of the
Premises by Tenant, its agents, directors, officers, managers, members,
partners, affiliates, independent contractors and property managers, or
invitees (“Tenant’s Agents”), including without limitation, any liability for
injury to the person or property of Tenant or Tenant’s Agents, but excepting
any Loss: (i) resulting from the willful breach of the Lease by Landlord
or the negligence or willful misconduct of Landlord or Landlord’s Agents, (ii) arising
solely out of the condition of the Premises that Tenant demonstrates existed
before the Commencement Date or (iii) resulting from the migration of
Hazardous Materials onto the Premises from adjoining properties, except to the
extent caused by Tenant or Tenant’s Agents. 
Tenant’s obligation hereunder shall survive the termination of this
Lease with respect to any claims or liability arising in connection with any
event occurring prior to such termination.

 

9.2           Waiver
of Claims.  Tenant, as a material
part of the consideration rendered to Landlord in entering into this Lease,
hereby waives all claims against Landlord for damages to goods, wares,
machinery, trade fixtures, or other property of Tenant, Tenant’s Agents or any
other person in or about the Premises, whether such damage or injury is caused
by or results from Landlord’s negligence, fire, steam, electricity, gas, water
or rain, or from the breakage, leakage, obstruction or other defects of pipes,
fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or
from any other cause, whether the said injury or damage results from conditions
arising upon the Premises or upon other portions of the building of which the
Premises are a part, or from other sources or places, but excepting any claims
resulting from the gross negligence or willful misconduct of Landlord or
Landlord’s Agents or breach of this Lease by Landlord.  Notwithstanding Landlord’s negligence or
breach of this Lease, Landlord shall under no circumstances be liable for loss
of profits or special, incidental or consequential damages arising therefrom.

 

8

 

9.3           Landlord
Indemnification.  Landlord agrees to
indemnify Tenant and hold it harmless from any and all loss, cost, damage,
expense and liability (including without limitation court costs and reasonable
attorneys’ fees) incurred in connection with or arising from any Losses, caused
by the gross negligence or willful misconduct of Landlord and/or any of
Landlord’s Agents or caused by the willful breach of this Lease by
Landlord.  The obligations of Landlord
under this Section 9.3 shall survive the termination of this Lease with
respect to any claims or liability arising in connection with any event
occurring prior to such termination.

 

9.4           Claims
for Indemnification.  If any
indemnitee under Sections 9.2 or 9.3 above (an “Indemnitee”) shall believe that
such Indemnitee is entitled to indemnification pursuant to this Article 9
in respect of any Losses, such Indemnitee shall give the appropriate
indemnifying party (each, as applicable, an “Indemnifying Party”) prompt
written notice thereof.  Any such notice
shall set forth in reasonable detail and to the extent then known the basis for
such claim for indemnification.  The
failure of such Indemnitee to give notice of any claim for indemnification
promptly shall not adversely affect such Indemnitee’s right to indemnity
hereunder except to the extent that such failure adversely affects the right of
the Indemnifying Party to assert any reasonable defense to such claim.

 

9.5           Defense
of Claims.  In connection with any
claim which may give rise to indemnity under this Article 9 resulting from
or arising out of any claim or proceeding against an Indemnitee by a person
that is not a party hereto, the Indemnifying Party shall (unless such
Indemnitee elects not to seek indemnity hereunder for such claim), upon written
notice to the relevant Indemnitee, assume the defense of any such claim or
proceeding.  The Indemnifying Party shall
select counsel reasonably acceptable to such Indemnitee to conduct the defense
of such claim or proceeding, shall take all steps necessary in the defense or
settlement thereof and shall at all times diligently and promptly perform
resolution thereof.  Without the prior
written consent of the Indemnitee, which consent shall not be unreasonably
withheld, the Indemnifying Party will not enter into any settlement of, or any
claim or proceeding which would lead to liability or create any financial or
other obligation on the part of the Indemnitee for which the Indemnitee is not
entitled to indemnification hereunder. Without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld, the
Indemnitee will not enter into any settlement or any claim or proceeding which
would lead to liability or create any financial or other obligation on the part
of the Indemnifying Party unless the Indemnifying Party has failed or refused
to acknowledge responsibility for or defend such claim or proceeding within a
reasonable period of time after notice is provided pursuant to Section 9.4.

 

ARTICLE 10

 

Insurance

 

10.1         Landlord’s
Insurance.  Landlord shall maintain,
at Tenant’s sole expense, which Tenant shall pay to Landlord as Additional Rent
in the manner set forth in Section 13.3, a policy or policies of insurance
protecting Landlord against the following:

 

10.1.1      Fire
and other perils normally included within the classification of fire and
extended coverage, together with insurance against vandalism and malicious
mischief, to the

 

9

 

extent of the full replacement cost of the Premises (including, without
limitation, any real
property and/or fixture improvements located within the Premises existing
as of the Commencement Date), but exclusive of trade fixtures, equipment and
improvements insured by Tenant, with agreed value, full replacement and such
other endorsements Landlord elects to maintain. 
Landlord may also maintain earthquake and flood coverage if available at
commercially reasonable rates.

 

10.1.2      Eighteen
(18) months of rental loss insurance and to the extent of 100% of the gross
rentals from the Building of which the Premises constitute a part.

 

10.1.3      Public
liability and property damage insurance with respect to common areas in amounts
(i) not less than $1,000,000 for injury or
death to any one person in any one accident or occurrence, (ii) not less
than $2,000,000 for injury or death to more than one person in any one accident
or occurrence, (iii) not less than $4,000,000 of excess umbrella liability
insurance, and, (iv) not less than $200,000 per occurrence for damage to
Premises.

 

10.1.4      At
Landlord’s sole option, environmental liability or environmental
clean-up/remediation insurance in such amounts and with such deductibles and
other provisions as Landlord may determine in its sole and absolute discretion.

 

10.2         Payment.  Tenant shall pay to Landlord in the manner
set forth in Section 13.3, the cost of insurance required in Section 10.1.  To the extent that any such insurance is
maintained pursuant to a blanket or similar policy of insurance, then the cost
thereof shall be equitably allocated to the Premises by Landlord.

 

10.3         Tenant’s
Insurance.  Tenant shall maintain at
its sole cost and expense, in force a policy or policies of insurance
protecting Landlord and Tenant against each of the following:

 

10.3.1      Comprehensive
general liability insurance with respect to the Premises insuring against
bodily injury or death and property damage in amounts (i) not less than
$2,000,000 in the aggregate, (ii) not less than $2,000,000 per occurrence
and (iii) not less than $5,000,000 of excess umbrella liability insurance.
Landlord shall be included as additional insured. The amount of such public
liability insurance shall be increased from time to time as Landlord may
reasonably determine. All such bodily injury and property damage insurance
shall specifically insure the performance by Tenant of the indemnity agreement
as to personal injury or property damage contained in Section 9.

 

10.3.2      Insurance
covering alterations, additions or improvements permitted under Section 6,
trade fixtures and personal property made after the Commencement Date from time
to time in or upon the Premises in an amount not less than 80% of their full
replacement cost from time to time during the term of this Lease, providing
protection against any peril included within the classification “fire and
extended coverage,” for the repair or replacement of the property damaged or
destroyed unless this Lease shall terminate pursuant to Section 20 hereof.

 

10.3.3      All
policies of insurance to be provided by Tenant shall be issued by insurance
companies, with general policy holder’s rating of not less than A- and a
financial

 

10

 

rating of not less than Class VII as rated in the most current
available “Best’s” Insurance Reports, and admitted to do business in the State
of California. Such policies shall be issued in the names of Landlord and
Tenant. The policies provided by Tenant shall be for the mutual and joint
benefit and protection of Landlord and Tenant, and executed copies of such
policies of insurance or certificates thereof shall be delivered to the
Landlord within 10 days after the Commencement Date and, thereafter, within 30
days prior to the expiration of the term of each such policy. All public
liability and property damage policies shall contain a provision that the
Landlord, although named as an insured, shall nevertheless be entitled to
recover under said policies for any loss occasioned to it or Landlord’s Agents
by reason of the negligence of the Tenant. Upon the expiration or termination
of any such policy, renewal or additional policies shall be procured and
maintained by the Tenant to provide the required coverage. All policies of
insurance delivered to Landlord must contain a provision that the company
writing said policy will provide to Landlord with 30 days notice in writing in
advance of any cancellation or lapse or the effective date of any reduction in
the amounts of insurance. All public liability, property damage and other
casualty policies shall be written as primary policies, not contributing with
and not in excess of coverage which Landlord may carry.

 

10.3.4      Notwithstanding
anything to the contrary, Tenant’s obligation to carry the insurance described
in this Section may be brought within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by the Tenant, provided
that (i) Landlord will be named as an additional insured thereunder as
their interests may appear, (ii) the coverage afforded Landlord will not
be reduced or diminished by reason of the use of such blanket policy of
insurance, and (iii) the requirements set forth herein are otherwise
satisfied. Tenant agrees to permit Landlord at all reasonable times to inspect
the policies of insurance of Tenant covering the Premises for policies which
are not required to be delivered to Landlord.

 

10.4         Release
of Subrogation Rights.  Landlord and
Tenant hereby mutually release each other from liability and waive all right to
recover against each other for any loss from perils insured against under their
respective insurance policies, including any extended coverage and special form
endorsements to said policies; provided, however, this Section shall be
inapplicable if it would have the effect, but only to the extent that it would
have the effect of invalidating any insurance coverage of Landlord or Tenant.
The parties shall obtain, if available, from their respective insurance
companies, a waiver of any right of subrogation which said insurance company
may have against the Landlord or the Tenant, as the case may be.

 

ARTICLE 11

 

Care of
the Premises

 

11.1         Care
of Premises.  Tenant shall, at its
sole cost and expense keep the Premises and exterior and interior portions of
windows, doors, and all other glass or plate glass fixtures in a working neat,
clean, sanitary, safe and good condition and repair, and shall keep the
Premises free from trash, rubbish and dirt. Tenant shall make all repairs or
replacements thereon or thereto, whether ordinary or extraordinary.

 

11

 

11.2         Maintenance
of Equipment.  Tenant shall, at its
sole cost and expense, keep and maintain all utilities, fixtures and mechanical
equipment used, or available for use, by Tenant in connection with the
Premises, in good working order, condition and repair. Said items shall
include, but are not limited to, all plumbing or sewage facilities in the
Premises, doors, locks and closing devices, windows, including glass, lights,
electric systems and equipment, heating and air conditioning systems and
equipment, and all other appliances and equipment of every kind necessary for the
use of the Premises.

 

11.3         Roof,
Walls, Foundation and Structural.  At
its cost and expense, Tenant will keep in good condition and repair the roof,
foundation, load bearing walls and structural elements of the Premises to keep
the Premises in the same condition and repair existing as of the Commencement
Date, normal wear and tear, casualty and condemnation excepted.

 

11.3.1      Notwithstanding
the foregoing, with respect to a Capital Structural Repair (as defined below),
Tenant may elect in its sole discretion to either (i) require Landlord to
complete such Capital Structural Repair with the costs and expenses of which to
be paid by Tenant as set forth in Section 11.3.2 below or (ii) complete
such Capital Structural Repair at Tenant’s own cost and expense.  For purposes of this Article 11, “Capital
Structural Repair” means a repair of structural elements of the Premises or the
building systems (a) that requires a construction or building permit from
the City of Carlsbad to conduct such repair and (b) the estimated cost of
which exceeds $250,000.  The parties will
use their diligent good faith efforts to mutually agree on the budget and plans
for any Capital Structural Repair.

 

11.3.2      At
Tenant’s election, Tenant shall pay Landlord the cost and expense plus interest
(at Landlord’s actual cost of borrowing on an arms-length basis) of any Capital
Structural Repairs that Landlord completes pursuant to subpart (i) of Section 11.3.1
above (“Capital Structural Expenses”): (i) in one lump sum, or (ii) as
equal monthly installments over the lesser of (a) the useful life of the
Capital Structural Repair for which such Capital Structural Expenses were
incurred, or (b) the remaining Term of the Lease (as may be extended).

 

11.4         Compliance
with Governmental Regulations.  Tenant
shall, at its sole cost and expense, promptly and properly observe and comply
with, including the making by Tenant of any alterations to the Premises, all
present and future orders, regulations, directions, rules, laws ordinances, and
requirements of all governmental authorities (including, without limitation,
state, municipal, county and federal governments and their departments,
bureaus, boards and officials) arising from the use or occupy of, applicable
to, the Premises.

 

11.5         Service
Contracts.  Except to the extent
self-performed by Tenant’s qualified and experienced personnel, as reasonably
determined by Landlord, Tenant shall, at Tenant’s sole cost and expense,
procure and maintain contracts, with copies to Landlord, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (i) HVAC equipment, (ii) boiler, and
pressure vessels, (iii) fire extinguishing systems, including fire alarm
and/or smoke detection, (iv) except as maintained by Faraday Court Owners’
Association, landscaping and irrigation system, (v) roof covering and
drains, (vi) clarifiers, (vii) basic utility feed to the perimeter of
the Building, and (vii) any other equipment, if reasonably required by

 

12

 

Landlord.  However, Landlord
reserves the right, upon notice to Tenant, to procure and maintain any or all
of such service contracts, and if Landlord so elects, Tenant shall reimburse
Landlord, upon demand, for the cost thereof.

 

11.6         Action
by Landlord if Tenant Fails to Maintain. 
If Tenant refuses or neglects to repair or maintain the Premises as
required by Sections 11.1, 11.2, 11.3 and 11.4 to the reasonable satisfaction
of Landlord, Landlord, at any time following 10 days from the date on which
Landlord shall make written demand on Tenant to affect such repair or
maintenance, may, but shall not have the obligation to, make such repair and/or
maintenance with qualified and experienced contractors (without liability to
Tenant for any loss or damage which may occur to Tenant’s merchandise, fixtures
or other personal property, or to Tenant’s business by reason thereof) and upon
completion thereof, Tenant shall pay to Landlord as Additional Rent Landlord’s
costs for making such repairs, plus interest at the Default Rate upon demand
herefore. Moreover, Tenant’s failure to pay any of the charges in connection
with the performance of its maintenance and repair obligations under this Lease
will constitute a material default under the Lease.

 

ARTICLE 12

 

Taxes

 

12.1         Personal
Property Taxes.  Tenant shall pay
prior to delinquency all taxes, assessments, license fees, and other public
charges levied, assessed or imposed or which become payable during the term of
this Lease upon any trade fixtures, furnishings, equipment and all other
personal property of Tenant installed or located in the Premises. Whenever
possible, Tenant shall cause said trade fixtures, furnishings, equipment and
personal property to be separately assessed. If, however, any or all of said
items shall be assessed and taxed with the real property, Tenant shall pay to
Landlord such taxes as are attributable to Tenant’s trade fixtures,
furnishings, equipment and personal property within 15 days after receipt of an
invoice from Landlord advising Tenant of the taxes applicable to Tenant’s
property.

 

12.2         Real
Property Taxes.  Tenant shall also
pay at least 20 days before delinquent any and all real estate taxes, as
defined in Section 12.3, assessed or imposed, or which become a lien upon
or become chargeable against or payable in connection with the Premises.  Within three business days of such payment,
Tenant shall provide Landlord evidence of such payment in a form reasonably
acceptable to Landlord.  In the event
that the Premises are not separately assessed, Tenant shall pay an equitable
proportion of the real estate taxes and assessments for all the land and improvements
included within the tax parcel(s) assessed, such proportion shall be determined
by Landlord from the respective valuations assigned in the Assessor’s
worksheets and such other information as is reasonably available to Landlord,
including the Building and any special improvements constructed for the benefit
of Tenant. Real estate taxes for the last year of the term of this Lease shall
be prorated between Landlord and Tenant as of the expiration date of the term.
With respect to any assessments which may be levied against or upon the Premises,
or which under the laws then in force may be evidenced by improvement or other
bonds and may be paid in annual installments, only the amount of such annual
installment, with appropriate

 

13

 

proration for any partial year, and interest thereon, shall be included
within a computation of taxes and assessments levied against the Premises.  To the extent tax bills are not otherwise
delivered to Tenant and such tax bills are delivered to Landlord, at least 60 days
prior to the applicable delinquency date, Landlord will provide Tenant with
written notice detailing the amount and due date of each real estate tax Tenant
is required to pay pursuant to this Section 12.2.  In the event that Tenant incurs a late charge
on the payment of the Base Monthly Rental or fails to pay the real property
taxes within 20 days before delinquent, Landlord may estimate the current real
property taxes, and require that such taxes be paid in advance to Landlord by
Tenant monthly in advance with the payment of the Base Monthly Rental.  Such monthly payment shall be equal to the
amount of the estimated installment of taxes divided by the number of months
remaining before the month in which such installment becomes delinquent.  When the actual amount of the applicable tax
bill is known, the amount of such equal monthly advance payments shall be
adjusted as required to provide the funds needed to pay the applicable
taxes.  If the amount collected by Landlord
is insufficient to pay such real estate taxes when due, Tenant shall pay
Landlord, upon demand, such additional sum as is necessary.  Upon receipt of the full amount of the real
estate taxes for such period, Landlord shall, if practicable, pay such real
estate taxes before they are delinquent. 
Advance payments may be intermingled with other moneys of Landlord and
shall not bear interest.  In the event of
a breach by Tenant in the performance of its obligations under this Lease, then
any such advance payments may be treated by Landlord as an additional security
deposit; provided, however, to the extent that Landlord applies such payments
to anything other than real estate taxes, then Landlord shall promptly give
Tenant notice of such application.

 

12.3         Definition
of Taxes.  For purposes of this
Lease, “taxes” shall also include each of the following:

 

12.3.1      Any
form of assessment, license fee, license tax, bond or improvement bond,
business license tax, commercial rental tax, levy, charge, penalty, or tax,
imposed by any authority having the direct power to tax, including any city,
county, state or federal government, or any school, agricultural, lighting,
drainage or other improvement or special district thereof, as against any legal
or equitable interest of Landlord in the Premises or the real property of which
the Premises constitute a part;

 

12.3.2      Any
tax on Landlord’s right to rent or other income from the Premises or as against
Landlord’s business of leasing the Premises;

 

12.3.3      Any
assessment, tax, fee, levy or charge in substitution, partially or totally, of
any assessment, tax, fee, levy or charge previously included with the
definition of real property tax, it being acknowledged by Tenant and Landlord
that Proposition 13 was adopted by the voters of the State of California in the
June 1978 election and that assessments, taxes, fees, levies and charges
may be imposed by governmental agencies for such services as fire protection,
street, sidewalk and road maintenance, refuse removal and for other
governmental services formerly provided without charge to property owners or
occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges and all similar
assessments, taxes, fees, levies and charges be included within the definition
of real property tax for purposes of this Lease;

 

14

 

12.3.4      Any
tax allocable to or measured by the area of the Premises or the rental payable
hereunder, including without limitation, any gross income tax or excise tax
levied by the State, any political subdivision thereof, city, or federal
government, with respect to the receipt of such rental, or upon or with respect
to the possession, leasing, operating, management, maintenance, alteration,
repair, use of occupancy by Tenant of the Premises, or any portion thereof,

 

12.3.5      Any
tax upon this transaction or any document to which Tenant is a party, creating
or transferring an interest or an estate in the Premises; and

 

12.3.5      Any
tax, fee, levy, assessment or charge, or any increase therein: (i) imposed
by reason of events occurring during the term of this Lease, including but not
limited to, a change in the ownership of the Premises, and (ii) levied or
assessed on machinery or equipment, if any, provided by Landlord to Tenant
pursuant to this Lease.

 

12.3.6      Notwithstanding
anything contained in this Lease, “Real estate taxes” shall not include
Landlord’s federal or state income, franchise, inheritance or estate taxes.

 

ARTICLE 13

 

Common
Areas

 

13.1         Common
Area.  Common areas shall include all
areas within the Premises outside the exterior boundaries of the buildings
situated thereon, including, but not limited to, streets, driveways, parking
areas, truckways, delivery passages, loading doors, sidewalks, ramps, open and
closed courts and malls, landscaped and planted areas, exterior stairways, bus
stops, retaining and decorative walls and planters, and other areas provided
for the common use of Landlord and Tenant, their employees and invitees.

 

13.2         Maintenance.  Except to the extent maintained by Faraday
Court Owners’ Association, Landlord shall maintain said common areas in a neat,
clean and orderly condition, properly lighted and landscaped as Landlord and
the Faraday Court Owners’ Association shall determine, including, but not
limited to, general maintenance, repairs, pest control, resurfacing, painting,
restriping, cleaning, sweeping and trash removal; maintenance and repair of
sidewalks and curbs; sprinkler systems, planting and landscaping; lighting,
water, music and other utilities; directional signs and other markers and
bumpers; maintenance and repair of any fire protection systems, automatic
sprinkler systems, lighting systems, storm drainage systems and any other
utility systems; personnel to implement such service and to police the common
areas; and police and fire protection services. 
Tenant shall reimburse Landlord for all costs incurred by Landlord in
connection with such maintenance of said common areas pursuant to Section 13.3,
which amount shall be deemed Additional Rent.

 

13.3         Tenant’s
Costs.  Within 60 days after the
Commencement Date, and within 60 days after the beginning of each calendar
year, Landlord shall give Tenant a written estimate, for

 

15

 

such calendar year, of Tenant’s share of the cost of utilities, if not
separately metered, insurance provided by Landlord and expenses in connection
with maintenance of common areas. Tenant shall pay such estimated amount to
Landlord in equal monthly installments, in advance. Within 90 days after the
end of each calendar year, Landlord shall furnish to Tenant a statement showing
in reasonable detail the costs incurred by Landlord for the operation and
maintenance of the Premises during such year (the “Annual Statement”), and
Tenant shall pay to Landlord Tenant’s proportionate share of the cost incurred
in excess of the payments made by Tenant within 10 days of receipt of such
statement. In the event that the payments made by Tenant for the operation and
maintenance of the Premises exceed Tenant’s share of the cost of same, such
amount shall be credited by Landlord to the rent or other charges next due and
owing, provided that, if the Lease term has expired, Landlord shall accompany
said statement with the amount due Tenant. At the request of Tenant, to be made
within 90 days of receipt by Tenant of the Annual Statement, Landlord shall
provide Tenant with copies of invoices, or other forms of payment verification,
covering the costs incurred by Landlord as set forth in the Annual Statement.
Tenant shall have the right, within 90 days of receipt of this additional
information, to audit, through a nationally or regionally recognized firm of
certified public accountants engaged on a non-contingency basis, the Landlord’s
records in connection with the Annual Statement. Landlord shall make the
records readily available for such examination. If any audit discloses that the
Annual Statement submitted by Landlord overstates the expenses by more than 5%,
Landlord shall pay Tenant within 5 days after written request the reasonable
cost of such audit together with any overpayment which may have been made by
Tenant. Any information obtained by Tenant pursuant to the provisions of this Section shall
be treated as confidential.

 

13.4.        Management
Fee. Tenant shall pay to Landlord, as Additional Rent, a monthly fee to
cover costs of property management services in an amount equal to one percent
(1%) of the Base Monthly Rental due from Tenant, whether or not Landlord incurs
fees payable to any third party to provide such services and without regard to
the actual costs incurred by Landlord for such services.

 

ARTICLE 14

 

Signs and
Advertising

 

14.1 Signs.  Landlord shall designate the location on the
Premises for one or more exterior Tenant identification sign(s) and Tenant
shall not display or erect any other signs, displays, or other advertising
materials that are visible from the exterior of the building. The size, design,
and other physical aspects of the permitted sign(s) shall be subject to the
Landlord’s written approval prior to installation, which approval will not
unreasonably be withheld, any covenants, conditions, or restrictions
encumbering the Premises, any applicable municipal or other governmental
permits and approvals. The cost of the sign(s), including but not limited to
the permitting, installation, maintenance and removal thereof shall be at
Tenant’s sole cost and expense. If Tenant fails to maintain its sign(s), or if
Tenant fails to remove such sign(s) upon termination of the Lease, or fails to
repair any damage caused by such removal (including without limitation,
painting the building, if required by Landlord), Landlord may do so at Tenant’s
expense. Tenant shall on demand reimburse Landlord for all costs incurred by
Landlord

 

16

 

to effect such removal, which amounts shall be deemed Additional Rent
and shall include without limitation, all sums disbursed, incurred or deposited
by Landlord, including Landlord’s costs, expenses and actual attorneys’ fees
with interest thereon.  By executing this
Lease, Landlord hereby approves the signage currently existing on the Premises.

 

ARTICLE 15

 

Entry by
Landlord

 

15.1         Entry
by Landlord.  Tenant shall permit
Landlord and Landlord’s Agents, and, if accompanied by a representative of
Tenant, prospective purchasers, lenders, investors and contractors to enter the
Premises at all reasonable times, upon giving Tenant a 24 hour written notice,
except in the event of an emergency in which case neither the 24 hour written
notice nor the presence of a representative of Tenant is required: (i) for
the purpose of inspecting the same, (ii) for the purpose of maintenance,
repairs, alterations, or additions to any portion of the Building, including
the erection and maintenance of such scaffolding, canopies, fences, and props
as may be required, (iii) for the purposes of performing any of Tenant’s
obligations under this Lease, or (iv) for the purpose of posting notices
of non-responsibility for alterations, additions, or repairs.

 

15.2         Entry
to Relet Premises.  Landlord may,
during reasonable business hours within 18 months prior to the expiration of
this Lease, enter the Premises for the purpose of allowing prospective tenants
to view the Premises.

 

15.3         No
Liability.  Landlord shall be
permitted to enter the Premises for any of the purposes stated in and in
accordance with Sections 15.1 and 15.2 above without any liability to Tenant
for any loss of occupation of quiet enjoyment of the Premises resulting
therefrom.

 

ARTICLE 16

 

Assignment
and Subletting

 

16.1         Assignment
and Subletting.  Tenant shall neither
voluntarily nor by operation of law, assign, sell, encumber, pledge or
otherwise transfer all or any part of Tenant’s leasehold estate hereunder, or
permit the Premises to be occupied by anyone other than Tenant or Tenant’s
employees, or sublet the Premises or any portion thereof, without Landlord’s
prior written consent in each instance, which consent shall not be unreasonably
withheld. Any purported assignment or subletting contrary to these provisions
shall be void. Landlord’s consent shall be based upon a determination that the
same type, class, nature and quality of business, service, management, and
financial soundness of ownership shall exist after such assignment or
subletting and, provided further, that each and every covenant, condition or
obligation imposed upon Tenant by this Lease is assumed by such assignee or
subtenant and each and every right, remedy or benefit afforded Landlord by this
Lease is not thereby impaired or diminished. 

 

17

 

Consent by Landlord to one or more assignments of this Lease or to one
or more sublettings of the Premises shall not operate to exhaust Landlord’s
rights under this Section.

 

16.2         Notice
to Landlord.  If Tenant desires at
any time to assign this Lease or to sublet the Premises or any portion thereof,
it shall first notify Landlord of its desire to do so and shall submit in
writing to Landlord (the “Transfer Notice”); (i) the size and location of
the space Tenant proposes to assign or sublet; (ii) the name of the
proposed Subtenant or assignee; (iii) the date on which the Tenant
proposes that the transfer be effective, which shall not be earlier than the
date which is 10 business days after the Transfer Notice (iv) the nature
of the proposed Subtenant’s or assignee’s business to be carried on in the
Premises; (v) the terms and provisions of the proposed sublease or
assignment; (vi) such reasonable financial information as Landlord may
request concerning the proposed Subtenant or assignee, and (vii) such
other information as Landlord may reasonably require. Tenant agrees to
reimburse Landlord for Landlord’s actual costs and attorneys’ fees (not to
exceed $5000) incurred in conjunction with the processing and documentation of
any such requested assignment, subletting, transfer, change or ownership or
hypothecation of this Lease.

 

16.3         Notwithstanding
Section 16.1 and 16.2, Landlord agrees that Tenant may assign its interest
in this Lease or sublet the Premises, or any portion thereof, without Landlord’s
prior written consent but with written notice, to any (each such assignment, a “Specially
Permitted Assignment”):

 

(i)            successor
by merger or sale of substantially all of Tenant’s assets to which this Lease
relates in a manner such that the assignee will become liable and responsible
for the performance and observance of all Tenant’s duties and obligations
hereunder;

 

(ii)           corporation
or other entity which controls, is controlled by, or is under common control
with Tenant (a corporation or other entity will be regarded as in control of
another corporation or entity if its owns or controls in excess of 50% of the
voting stock or other ownership interest of the other corporation or entity);
or

 

(iii) corporation
or other entity with whom Tenant has a bona fide collaboration (by joint
venture, license or otherwise) (“Other Occupants”) subject to satisfaction of
the following conditions:

 

(a)           the
purpose of such collaboration is to develop and/or commercialize any or all of
Tenant’s drug products;

 

(b)           there
shall be no separate identification of the portion of the Premises occupied by
the Other Occupants visible from inside or outside the Premises,

 

(c)           there
shall be no separate entrances or partitions separating the portion of the
Premises occupied by Other Occupants;

 

(d)           there
shall be no agreement purporting to transfer any part of Tenant’s leasehold to
any Other Occupant, and each Other Occupant (but not their

 

18

 

individual employees) shall affirm in writing
that it is not a subtenant or other transferee of any leasehold interest; and

 

(e) such
occupancy shall not be a subterfuge or a means to circumvent the restrictions
on transfer set forth in this Section.

 

16.4         No
Release of Liability.  No subletting
or assignment, even with the consent of Landlord, shall relieve Tenant of its
obligation to pay the rent and perform all the other obligations to be performed
by Tenant hereunder. The acceptance of rent by Landlord from any other person
shall not be deemed to be a waiver by Landlord of any provision of this Lease
or to be a consent to any assignment or subletting.

 

16.5         Transfer
Premiums.  If Tenant assigns or
sublets its rights under this Lease, Tenant shall pay to Landlord as Additional
Rent, after Tenant has recovered any relevant leasing commissions, costs of
real property and/or tenant improvements and other expenses of the assignment
or sublease, 50% of such excess consideration due and payable to Tenant from
said assignment or sublease to the extent said consideration exceeds the Rent
or a pro rata portion of the Rent, in the event only a portion of the Premises
is sublet or assigned (“Profits”); provided, however, Landlord
will not be entitled to any Profits derived in connection with a Specially
Permitted Assignment.

 

16.6         Landlord’s
Option.  Except for Specially
Permitted Assignments, if Tenant desires at any time to assign or sublet all or
substantially all of the Premises, Landlord, within 15 days after Landlord’s
receipt of all of the information required in the Transfer Notice, may by
written notice to Tenant elect to terminate this Lease as to the entire
Premises.  In the event the Landlord
elects to terminate the Lease, the Lease shall terminate on the proposed date
the transfer would be effective as specified in the Transfer Notice and Tenant
shall have no furhter obligations with respect to the Premises other than to
surrender and vacate the Premises on or before the effective date of
termination.  After any such election by
Landlord, Landlord shall be entitled to re-lease the Premises in Landlord’s
sole and absolute discretion.

 

ARTICLE 17

 

Dispossession

 

17.1         No
Dispossession.  If Tenant shall
surrender the Premises, or be disposed by process of law, or otherwise,
Landlord may terminate this Lease, retake possession of the Premises, pursue
its remedies provided herein, and any personal property or trade fixtures
belonging to Tenant and left on the Premises shall, at the option of Landlord,
be deemed abandoned.  In such case,
Landlord may dispose of said personal property in any manner and is hereby
relieved of all liability for doing so.

 

19

 

ARTICLE 18

 

Breach by
Tenant

 

18.1         Events
of Default.  The occurrence of any of
the following shall constitute a breach and material default of this Lease by
Tenant:

 

18.1.1      The
failure of Tenant to pay or cause to be paid when due any Base Monthly Rental,
Additional Rent, Rent, taxes, monies, or charges required by this Lease to be
paid by Tenant when such failure continues for a period of 5 business days
after written notice thereof from Landlord to Tenant;

 

18.1.2      The
failure of Tenant to perform any term, covenant or condition, other than
payment of rent, taxes, monies or charges, required by this Lease and Tenant
shall have failed to cure such failure within 30 days after written notice from
Landlord; provided, however, that where such
failure cannot reasonably be cured within the 30 day period, the Tenant shall
not be in default if it has commenced such cure within the same 30 day period
and diligently thereafter prosecutes the same to completion;

 

18.1.3      Subject
to the notice and cure provisions of Section 18.1.3 above, Tenant causing,
permitting, or suffering, without the prior written consent of Landlord, any
act when this Lease requires Landlord’s prior written consent or prohibits such
act; or

 

18.1.4      To
the extent permitted by applicable law, any act of bankruptcy caused, suffered
or permitted by Tenant. For purposes of this Lease, “act of bankruptcy” shall
include any of the following:

 

18.1.4.1.  Any
general assignment or general arrangement for the

 

benefit of creditors;

 

18.1.4.2.  The
filing of any petition by or against Tenant to have Tenant adjudged a bankrupt
or a petition for reorganization or arrangement under any law relating to
bankruptcy, unless such petition is filed against Tenant and same is dismissed
within 120 days;

 

18.1.4.3.  The
appointment of a trustee or receiver to take possession of substantially all of
Tenant’s assets located in the Premises or of Tenant’s interest in this Lease;
or,

 

18.1.4.4.  The
attachment, execution or other judicial seizure of substantially all of Tenant’s
assets located at the Premises or of Tenant’s interest in this Lease.

 

18.2         Three-Day
Notice.  In the event that Landlord
issues a three-day notice, notice of abandonment or comparable document by
reason of Tenant’s breach, and Tenant cures such default, Tenant agrees to pay
to Landlord, the reasonable cost of preparation and delivery of same.

 

20

 

18.3         No
Waiver.  The acceptance by Landlord
of rent due hereunder after breach by Tenant will not constitute a waiver of
such breach, unless a written notice to that effect has been delivered to
Tenant.

 

18.4         Replacement
of Statutory Notice Requirements. 
When this Lease requires service of a notice, that notice shall replace
rather than supplement any equivalent or similar statutory notice, including
any notices required by Code of Civil Procedure section 1161 or any
similar or successor statute.  When a
statute requires service of a notice in a particular manner, service of that
notice (or a similar notice required by this Lease) in the manner required by Section 35.10
shall replace and satisfy the statutory service-of-notice procedures, including
those required by Code of Civil Procedure section 1162 or any similar or
successor statute.

 

ARTICLE 19

 

Remedies
Upon Breach

 

19.1         Landlord’s
Remedies.  If Tenant fails to perform
any of its affirmative duties or obligations, within 30 days after written
notice (or in the case of any facts or circumstances that create an imminent
risk of damage to the Property or the Premises or injury to, or death of,
persons, without written notice), Landlord may, at its option, perform such
duty or obligation on Tenant’s behalf, including but not limited to the
obtaining of reasonable required bonds, insurance policies, or governmental
licenses, permits or approvals; provided, however, in the event
Tenant begins to cure within such 30 day period, Landlord shall provide Tenant
a reasonable opportunity to cure such default. 
Tenant shall pay to Landlord an amount equal to the costs and expenses incurred
by Landlord in such performance upon receipt of an invoice, with interest
thereon, at the Default Rate from the date of expenditure.   Upon the occurrence of any breach or
material default by Tenant under Section 18.1, in addition to other rights
or remedies of Landlord at law or in equity, Landlord shall have the following
remedies:

 

19.1.1      Landlord
shall have the remedy in Civil Code section 1951.4, which provides that,
when a tenant has the right to sublet or assign (subject only to reasonable limitations),
the landlord may continue the lease in effect after the tenant’s breach and
abandonment and recover Rent as it become due. 
Accordingly, if Landlord does not elect to terminate this Lease on
account of any default by Tenant, Landlord may enforce all of Landlord’s rights
and remedies under this Lease, including the right to recover all Rent as it
becomes due; and

 

19.1.2      Landlord,
either as an alternative or subsequent to exercising the remedies set forth in Section 19.1.1,
may terminate Tenant’s right to possession of the Premises by and upon delivery
to Tenant of written notice of termination. Landlord may then immediately
reenter the Premises and take possession thereof pursuant to legal proceedings
and remove all persons and property from the Premises; such property may be
removed and stored in a public warehouse or elsewhere at the cost of and for
the account of Tenant. No notice of termination shall be necessary in the event
that Tenant has abandoned the Premises. In the event that Landlord elects to
terminate Tenant’s right of possession, Landlord may recover the following:

 

21

 

19.1.2.1.  The
worth at the time of the award of the unpaid rent which had been earned at the
time of termination. “Worth at the time of award” shall be computed by allowing
interest at the Default Rate from the first day the breach occurs;

 

19.1.2.2.  The
worth at the time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of award exceeds the amount
of such rental loss that the Tenant proves could have been reasonably avoided. “Worth
at the time of award” shall be determined by allowing interest at the Default
Rate from the first day a breach occurs;

 

19.1.2.3.  The
worth at the time of award of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of such rental
loss that the Tenant proves could be reasonably avoided. “Worth at the time of
award” shall be computed by discounting such amount at the discount rate at the
Federal Reserve Bank of San Francisco at the time of award plus 1%; and

 

19.1.2.4.  Any
other amount necessary to compensate Landlord for all the detriment proximately
caused by Tenant’s failure to perform its obligations under the Lease or which
in the ordinary course of things would be likely to result therefrom including,
but not limited to, commissions and expenses of reletting, attorneys’ fees,
costs of alterations and repairs, recording fees, filing fees and any other
expenses customarily resulting from obtaining possession of leased premises and
re-leasing.

 

19.2         Landlord
Default.  If Landlord fails to
perform any of its obligations under this Lease, such failure materially
interferes with the Tenant’s use and operations within the Premises and
Landlord fails to cure such default within twenty (20) days after written
notice from Tenant specifying the nature of such default where such default
could reasonably be cured within said twenty (20) day period, or fails to
commence such cure within said twenty (20) day period and thereafter fails to
continue with due diligence to prosecute such cure to completion where such
default could not reasonably be cured with said twenty (20) day period, then (1) Tenant
may proceed in equity or at law to compel Landlord to perform its obligation
and/or to recover damages proximately caused by such failure to perform; and/or
(2) Tenant may perform such obligations and have the right to be
reimbursed for the sum it actually and reasonably expends in the performance
thereof; and if Landlord does not reimburse Tenant therefore within thirty (30)
days after written demand therefore from Tenant, Tenant shall have the right to
withhold such sum from future Rent due hereunder until Tenant is reimbursed in
full therefore; provided, however, that such right to withhold rent shall be
limited to not more than one month’s Base Monthly Rent in any twelve (12) month
period.  In the event the sum expended by
Tenant exceeds one (1) month’s Base Monthly Rent, Tenant by withholding
such rent shall not be deemed to waive any of Tenant’s rights to collect any
excess proceeds pursuant to its remedies at law and/or pursue its remedies in
equity.  Notwithstanding the foregoing,
Tenant shall have no right to terminate this Lease for any such default by
Landlord.

 

22

 

ARTICLE 20

 

Damage or
Destruction

 

20.1         Landlord’s
Obligation to Rebuild.  If the
Premises are damaged or destroyed, Landlord shall promptly and diligently
repair the Premises unless it has the right to terminate this Lease as provided
in Section 20.2 below and it elects to so terminate.  For purposes of this Article 20, “Premises”
shall include any real property and/or fixture improvements located within the
Premises as of the Commencement Date.

 

20.2         Landlord’s
Right to Terminate.  Landlord shall
have the right to terminate this Lease following damage to or destruction of
the Premises if any of the following occurs: (i) insurance proceeds
together with additional amounts Tenant agrees to contribute are not confirmed
to be available to Landlord, within 90 days following the date of damage, to
pay 100% of the cost to fully repair the damaged Premises, excluding the
deductible for which Tenant shall also be responsible; (ii) the Premises
cannot, with reasonable diligence, be fully repaired by Landlord within 12
months after the date of the damage or destruction; (iii) the Premises
cannot be safely repaired because of the presence of hazardous factors,
including, but not limited to, earthquake faults, radiation, chemical waste and
other similar dangers; (iv) the Premises are destroyed or damaged during
the last 12 months of the Term; or (v) Tenant is in uncured material
default under the terms of this Lease at the time of such damage or
destruction.

 

20.3         Tenant’s
Right to Terminate.  Tenant shall
have the right to terminate this Lease following damage to or destruction of
the Premises if any of the following occurs: (i) the Premises cannot, with
reasonable diligence, be fully repaired by Landlord within 18 months after the
date of the damage or destruction; or (ii) the Premises are destroyed or
damaged during the last 12 months of the Term.

 

If a party elects to terminate this Lease and
has the right to so terminate, such party will give the other party written
notice of its election to terminate within 30 days after it has knowledge of
such damage or destruction, and this Lease will terminate 15 days after receipt
of such notice.  If this Lease is
terminated pursuant to Section 20.2, Landlord shall, subject to the rights
of its lender(s), be entitled to receive and retain all the insurance proceeds
resulting from such damage, except for: (i) those proceeds payable under
policies obtained by Tenant which specifically insure Tenant’s personal
property, trade fixtures and machinery, and (ii) that portion of the
proceeds which are directly attributable to that portion of the real property
and/ or fixture improvements located within the Premises and which were paid
for by Tenant after the Commencement Date. 
If neither party elects to terminate the Lease, Landlord shall, promptly
following the date of such damage or destruction and receipt of amounts
required of Tenant pursuant to Section 20.2(i) above, commence the
process of obtaining necessary permits and approvals, and shall diligently
commence repair of the Premises as soon as practicable and thereafter prosecute
the same diligently to completion, in which event this Lease will continue in
full force and effect.

 

20.4         Limited
Obligation to Repair.  Landlord’s
obligation, should it elect or be obligated to repair or rebuild, shall be
limited to the Premises (including any real property and/or

 

23

 

fixture improvements existing on the Premises as of the Commencement
Date), Building and common areas, and Tenant shall, at its expense, replace or
fully repair all Tenant’s personal property and any alterations installed by
Tenant existing at the time of such damage or destruction. If the Premises are
to be repaired in accordance with the foregoing, Landlord shall make available
to Tenant any portion of insurance proceeds it receives which are allocable to
the alterations constructed by Tenant pursuant to this Lease provided Tenant is
not then in default.

 

20.5         Abatement
of Rent.  Rent shall be temporarily
abated in proportion to the degree to which Tenant’s use of the Premises is
impaired and only to the extent of any proceeds received by Landlord from the
rental abatement insurance described in Section 10.1 hereof, during any
period when, by reason of such damage or destruction, Landlord and Tenant
reasonably determines that there is substantial interference with Tenant’s use
of the Building. Such abatement shall commence upon such damage or destruction
and end upon substantial completion by Landlord of the repair or reconstruction
which Landlord is obligated or undertakes to do. Tenant shall not be entitled
to any compensation or damages from Landlord for loss of the use of the
Premises, damage to Tenant’s personal property or any inconvenience occasioned
by such damage, repair or restoration. Tenant hereby waives the provisions of Section 1932(2) and
Section 1933(4) of the California Civil Code, and the provisions of
any similar law hereinafter enacted.

 

20.6         Replacement
Cost.  The determination in good
faith by Landlord of the estimated cost of repair of any damage, of the
replacement cost, or of the time period required for repair shall be conclusive
for purposes of this Section.

 

ARTICLE 21

 

Condemnation

 

21.1         Total
Taking – Termination.  If title to
all of the Premises or so much thereof is taken for any public or quasi-public
use under any statute or by right of eminent domain so that reconstruction of
the Premises will not result in the Premises being reasonably suitable (as
reasonably determined by Landlord and Tenant) for Tenant’s continued occupancy
for the uses and purposes permitted by this Lease, this Lease shall terminate
as of the date possession of the Premises or part thereof be taken.

 

21.2         Partial
Taking.  If any part of the Premises
is taken and the remaining part after Landlord makes repairs and alterations is
reasonably suitable, as reasonably determined by Landlord and Tenant, for
Tenant’s continued occupancy for the purposes and uses permitted by this Lease,
this Lease shall, as to the part so taken terminate as of the date that
possession of such part of the Premises is taken and the Base Monthly Rental
shall be reduced in the same proportion that the floor area of the portion of
the Building so taken (less any addition thereto by reason of any
reconstruction) bears to the original floor area of the Building. Landlord
shall, at its sole cost and expense, make all necessary repairs or alterations
to the Building so as to make the portion of the Building not taken a complete
architectural unit. Such work shall not, however, exceed the scope of the work
done by Landlord in originally constructing the Building. Base

 

24

 

Monthly Rental due and payable hereunder shall be temporarily abated
during such restoration period in proportion to the degree to which Tenant’s
use of Premises is impaired. Each party hereby waives the provisions of Section 1265.130
of the California Code of Civil Procedure allowing either party to petition the
Superior Court to terminate in the event of a partial taking of the Building or
Premises.  Notwithstanding the foregoing,
if more than twenty-five percent (25%) of the square footage of the Building is
taken or sold under such threat, Landlord may terminate this Lease as of the
date that the condemning authority takes possession by delivery of written
notice of such election within twenty (20) days after Landlord has been notified
of the taking or, in the absence thereof, within twenty (20) days after the
condemning authority shall have taken possession.

 

21.3         No
Apportionment of Award.  No award for
any partial or entire taking shall be apportioned, it being agreed and
understood that Landlord shall be entitled to the entire award for any partial
or entire taking. Tenant assigns to Landlord its interest in any award which
may be made in such taking or condemnation, together with any and all rights of
Tenant arising in or to the same or any part thereof. Nothing contained herein
shall be deemed to give Landlord any interest in or require Tenant to assign to
Landlord any separate award made to Tenant for the taking of Tenant’s personal
property, trade fixtures or machinery for the interruption of Tenant’s
business, or its moving costs, or for the loss of its goodwill.  Notwithstanding the foregoing, Tenant shall
be entitled to receive (i) an award to the extent of that portion of the
award which is directly attributable to the real property and/or fixture
improvements located within the Premises paid for by Tenant after the
Commencement Date, and (ii) 50% of the amount attributable to any excess
of the market value of the Premises for the remainder of the Lease term over
the present value as of the termination date of the fixed rent and management
fee payable for the remainder of the Lease term.  In addition, Tenant will have the right to
make a separate claim in the condemnation proceeding for (a) the taking of
the unamortized or undepreciated value of any leasehold improvements that
Tenant has the right to remove at the end of the Lease Term and that Tenant
elects not to remove, (b) loss of goodwill, and (c) any other amount
in addition to the foregoing, so long as any such claim does not reduce the
amount of the award payable to Landlord.

 

21.4         Temporary
Taking.  No temporary taking of the
Premises shall terminate this Lease or give Tenant any right to any abatement
of Rent, except to the extent covered by insurance proceeds payable to
Landlord. Any award made to Tenant by reason of such temporary taking shall
belong entirely to Tenant and Landlord shall not be entitled to share therein.
Each party agrees to execute and deliver to the other all instruments that may
be required to effectuate the provisions of this Section.

 

21.5         Sale
Under Threat of Condemnation.  A sale
made in good faith by Landlord to any authority having the power of eminent
domain, either under threat of condemnation or while condemnation proceedings
are pending, shall be deemed a taking under the power of eminent domain for all
purposes of this Section.

 

25

 

ARTICLE 22

 

Surrender
of Lease

 

22.1         Surrender
of Lease.  The voluntary or other
surrender of its interest in this Lease by Tenant or a mutual cancellation of
this Lease shall not work a merger, and shall, at the election of Landlord,
either terminate all or any existing subleases or subtenancies or operate as an
assignment to Landlord of any or all of such subleases or subtenancies.
Landlord shall exercise its election within 30 days of any such surrender or
cancellation.

 

ARTICLE 23

 

Attorneys’
Fees

 

23.1         Attorneys’
Fees.  If either party institutes or
is made a party to any action or proceeding to enforce or interpret this Lease,
the prevailing party in such action or proceeding shall be entitled to recover
all costs and attorneys’ fees incurred in connection with such action or
proceeding, or any appeal or enforcement of such action or proceeding.

 

ARTICLE 24

 

Sale of
the Premises by Landlord; ROFN

 

24.1         Sale
of Premises.  Notwithstanding any
provisions of this Lease to the contrary, Landlord may assign, in whole or in
part, Landlord’s interest in this Lease and may sell all or part of the real
estate of which the Premises are a part (the “Real Property”).  Should Landlord elect to sell the Real
Property, Landlord agrees to notify Tenant of its intent to do so. Landlord’s
willingness to notify Tenant is to be considered a courtesy notice only and not
an offer to sell, or an obligation of any form on the part of Landlord to sell
the Real Property to Tenant. This courtesy notice is not to be construed as an
option, an offer to negotiate, a right of first refusal, or any other form of
agreement that would obligate Landlord to pursue a sale of the Real Property to
Tenant or in any manner prohibit Landlord from its rights to sell all or part
of the Real Property as it chooses.

 

24.2         Right
of First Negotiation.  If at any time
during the Term, Landlord decides to sell the Real Property, Landlord shall
deliver to Tenant written notice thereof (the “Sale Notice”).  Tenant may, within 10 business days after its
receipt of the Sale Notice, elect by written notice to Landlord to negotiate
with Landlord to purchase the Premises by delivering written notice to Landlord
(“Tenant’s Acceptance Notice”).  Promptly
thereafter, the parties shall negotiate in good faith the terms and conditions
of such purchase and sale of the Premises. 
If the parties are unable to agree on mutually acceptable terms and
conditions and execute a binding commitment for the purchase and sale of the
Premises within 60 days after the date of the Sale Notice (“Offer Period”),
Landlord shall be deemed to have satisfied its obligation to provide Tenant
with the right of first negotiation provided for herein and may offer to sell
the Premises in the open market.  If
Landlord fails to close on the sale of the Premises with a third party within 6
months from the expiration of the Offer Period (provided such period shall be
extended as

 

26

 

necessary to close the transaction if Landlord and such third party are
in escrow within the 6-month period), the right of first negotiation provided
for herein shall again apply.

 

ARTICLE 25

 

Quiet
Enjoyment

 

25.1.        Quiet
Enjoyment.  If Tenant is not in
breach under the covenants made in this Lease, Landlord covenants that Tenant
shall have peaceful and quiet enjoyment of the Premises without hindrance on
the part of Landlord. Landlord will defend Tenant in the peaceful and quiet
enjoyment of the Premises against claims of all persons claiming through or
under Landlord.

 

ARTICLE 26

 

Estoppel
Certificates and Financial Statements

 

26.1         Tenant
Estoppel Certificate.  Tenant shall
at any time during the term of this Lease, within 5 business days of written
notice from Landlord, execute and deliver to Landlord a statement in writing
certifying that this Lease is unmodified and in full force and effect or, if
modified, stating the nature of such modification. Tenant’s statement shall
include other details requested by Landlord, such as the date to which rent and
other charges are paid, Tenant’s knowledge concerning any uncured defaults with
respect to Landlord’s obligations under this Lease and the nature of such
defaults if they are claimed, and such other matters as Landlord may reasonably
request. Any such statement may be relied upon conclusively by any purchaser or
lender having an interest in the Premises. Tenant’s failure to deliver such statements
within such time shall be conclusive upon the Tenant that this Lease is in full
force and effect, except as and to the extent any modification has been
represented by Landlord, and that there are no uncured defaults in Landlord’s
performance, and that not more than 1 month’s rent has been paid in advance.

 

26.2         Tenant
Financial Statements.  Within 120
days after the end of each fiscal year, Tenant shall provide Landlord, upon
Landlord’s written request, a copy of the audited financial statements that
have been provided to the SEC or, in the event Tenant is no longer required to
deliver such financial statements to the SEC, year-end financial statements,
including balance sheets and income statements, reflecting Tenant’s current
financial condition for such fiscal year that have been audited by a nationally
or regionally recognized firm of certified public accountants.  In the event Tenant is no longer required to
deliver such financial statements to the SEC, Tenant will represent and warrant
at the time it provides any financial statements, records or information
pursuant hereto that all financial statements, records and information
furnished by Tenant to Landlord in connection with this Lease are true, correct
and complete in all respects.

 

27

 

ARTICLE 27

 

Subordination
and Attornment

 

27.1         Subordination
of Lease.  This Lease and Tenant’s
rights under this Lease are subject and subordinate to any Mortgage, ground
lease, and to all renewals, modifications, consolidations, replacements, or
extensions thereof, now or hereafter affecting the Premises. The provisions of
this Section shall be self-operative, and no further instrument of
subordination shall be required. In confirmation of such subordination, however,
Tenant shall within ten days execute and deliver any instruments that Landlord,
the holder of any Mortgage, or the Landlord of any ground lease may request to
evidence such subordination. If Tenant fails to execute and deliver any such
instruments, Tenant irrevocably constitutes and appoints Landlord as Tenant’s
special attorney-in-fact to execute and deliver such instruments.

 

27.2         Attornment
to Lender.  If the holder of any
Mortgage, or the Landlord of any ground lease affecting the Premises, shall hereafter
succeed, by foreclosure or otherwise, to the rights of Landlord under this
Lease, Tenant shall attorn to and recognize such successor as Tenant’s Landlord
under this Lease, and shall promptly execute and deliver any instruments that
may be necessary to evidence such attornment, and Tenant hereby irrevocably
appoints Landlord as Tenant’s special attorney in fact to execute and deliver
such instruments on behalf of Tenant should Tenant refuse or fail to do so.
Upon such attornment, this Lease shall continue in effect as a direct lease
between such successor Landlord and Tenant upon and subject to all of the
provisions of this Lease. Notwithstanding the foregoing, Tenant’s agreement
both to subordinate and to attorn, as set forth in this Article, is contingent
upon Tenant’s receipt of a nondisturbance agreement from the holder of any
encumbrance placed against the Premises, in a recordable, commercially
reasonable form, providing that in the event of any foreclosure, sale under a
power of sale, ground or master lease termination, or transfer in lieu of any
of the foregoing, or the exercise of any other remedy under any such
encumbrance, but subject to reasonable exceptions: (i) Tenant’s use,
possession, and enjoyment of the Premises will not be disturbed and this Lease
will continue in full force and effect so long as Tenant is not in default; and
(ii) this Lease will automatically become a lease directly between any
successor to Landlord’s interest, as landlord, and Tenant, as if that successor
were the landlord originally named in the lease.

 

ARTICLE 28

 

Holding
Over

 

28.1         Holding
Over.  If Tenant should remain in
possession of the Premises after the expiration of the term of this Lease
without executing a new lease or after Landlord has declared a forfeiture by
reason of a default by Tenant, the such holding over shall be construed as a
tenancy from month to month, subject to all the conditions, provisions and
obligations of this Lease insofar as they are applicable to a month to month
tenancy, including the provisions of Article 3, except that the Base
Monthly Rental shall be one hundred fifty percent (150%) of the Base Monthly
Rental last due, payable monthly in advance. 
Notwithstanding the foregoing, if Tenant fails to vacate the Premises or
Tenant fulfills less than all of its obligations hereunder at the end of the
Lease Term, Tenant also shall be liable for all damages incurred by Landlord by

 

28

 

reason of the latter’s inability to deliver possession of the Premises
or any portion thereof to any other person.

 

ARTICLE 29

 

Mortgagee
Protection

 

29.1         Mortgagee
Protection.  In the event of any
default on the part of Landlord, Tenant agrees to give notice by registered or
certified mail to any beneficiary of a deed of trust or mortgage covering the
Premises whose address shall have been furnished to the Tenant and shall offer
such beneficiary or mortgagee a reasonable opportunity to cure such default
(such cure period not to exceed 90 days after receipt of such notice).

 

ARTICLE 30

 

Liability
of Successors

 

30.1         Successor’s
Liability.  The covenants and
conditions herein contained shall, subject to the provisions as to assignment,
apply to and bind the heir, successors, executors, administrators, and permitted
assigns of all the parties hereto and all of the parties hereto shall be
jointly and severally liable for the covenants contained herein.

 

ARTICLE 31

 

Easements

 

31.1.        Easements.  Landlord reserves the right, from time to
time, to grant such easements, rights and dedications that Landlord deems
necessary or desirable, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Tenant. Tenant shall sign any documents or instruments to accomplish the
foregoing upon request of Landlord, and failure to do so shall constitute a
material breach of this Lease. Tenant irrevocably appoints Landlord as Tenant’s
special attorney in fact to execute and deliver such documents or instructions
on behalf of Tenant should Tenant refuse or fail to do so.

 

ARTICLE 32

 

Covenants,
Conditions and Restrictions

 

32.1         Compliance
with Covenants, Conditions and Restrictions.  In addition to requirements imposed by law,
the care of the Premises and conduct of business thereupon, among other things,
are restricted or subject to heightened requirements pursuant to one or more
recorded Covenant, Conditions and Restrictions (“CC&R’s”). The terms of all
applicable

 

29

 

CC&R’s, in their entirety, are incorporated herein by this
reference. Tenant has received a copy of all applicable CC&R’s prior to its
execution of this Lease, and such receipt is acknowledged hereby.

 

32.2         Associations.  Tenant shall faithfully observe and comply
with the provisions of all applicable CC&R’s, and all modifications and
additions which may from time to time be enacted pursuant to their terms.
Tenant shall similarly observe and comply with all requests, demand and orders
otherwise made by any governing associations created under the authority of the
CC&R’s (the “Associations”). Any violation by Tenant of the CC&R’s or
rightful orders of the Associations created thereby after written notice to
Tenant shall be a default under this Lease, subject to the cure provisions of Section 18.1.3.
However, Landlord will not be responsible to Tenant for the nonperformance of
any provisions of such CC&R’s by its tenants occupying neighboring
properties, if any.

 

32.3         Association
Fees.  All payments, charge, dues,
and assessments imposed under the authority of the CC&R’s and the
Associations (“Association Fees”) shall be the sole responsibility of Tenant,
who shall timely pay such Association Fees to Landlord as Additional Rent. Each
payment shall be made promptly on demand throughout the term of this Lease and
shall be paid without deduction or offset.

 

32.4         Faraday
Court Owners Association.  Landlord
shall not vote in favor of any matter to be voted upon by the Faraday Court
Owners Association that if adopted would materially alter, reduce or adversely
affect any of Tenant’s rights or materially enlarge Tenant’s obligations under
this Lease.  Landlord will promptly copy
Tenant on communications from the Faraday Court Owners Association that relate
to the Premises and the common areas.

 

ARTICLE 33

 

Quitclaim
Deed

 

33.1         Quitclaim
Deed.  Tenant shall execute and
deliver to Landlord on the expiration date or earlier termination of this
Lease, promptly on Landlord’s request, a quitclaim deed to the Premises, in
recordable form, designating Landlord as transferee.

 

ARTICLE 34

 

Hazardous
Materials

 

34.1         Definitions:

 

34.1.1      Hazardous
Materials Laws.  “Hazardous Materials
Laws” means any and all federal, state or local laws, ordinances, rules,
decrees, orders, regulations or court decisions relating to hazardous
substances, hazardous materials, hazardous waste, toxic substances,

 

30

 

environmental conditions on, under or about the Premises, or soil and
ground water conditions, including, but not limited to, California Labor Code Section 6382,
California Health and Safety Code Section 25249.5, et seq., any amendments
to and any regulations promulgated pursuant to the foregoing, and any similar
federal, state or local laws, ordinances, rules, decrees, orders or
regulations.

 

34.1.2      Hazardous
Materials.  “Hazardous Materials”
means any chemical, compound, substance or other material, including, without
limitation, gasoline, diesel, aviation fuels, lubricating oils, solvents and
chemicals, that: (i) is defined as a hazardous substance, hazardous
material, hazardous waste or toxic substance under any Hazardous Material Law; (ii) is
controlled or governed by any Hazardous Materials Law, or gives rise to any
reporting, notice or publication requirements thereunder, or gives rise to any
liability, responsibility or duty on the part of Tenant or County with respect
to any third person thereunder; or (iii) is a flammable or explosive
material, asbestos, radioactive material, nuclear medicine material, drug,
vaccine, bacterial, virus, hazardous waste, toxic substance, or related
injurious or potentially injurious material (by itself or in combination with
other materials).

 

34.2         Tenant’s
Obligations

 

34.2.1      Compliance
with Laws.  Tenant shall strictly
comply with, and shall maintain the Premises in compliance with, all Hazardous
Materials Laws. Tenant shall obtain and maintain in full force and effect all
permits, licenses and other governmental approvals required for Tenant’s
operations on the Premises under any Hazardous Materials Laws and shall comply
with all terms and conditions thereof. At Landlord’s request, Tenant shall
deliver copies of, or allow Landlord to inspect, all such permits, licenses and
approvals. Tenant shall perform any monitoring, investigation, clean-up,
removal, detoxification, preparation of closure or other required plans and any
other remedial work (collectively, “Remedial Work’) required as a result of any
release or discharge of Hazardous Materials from the Premises or any violation
of Hazardous Materials Laws caused by Tenant or any Subtenant of Tenant or
their respective agents, contractors, employees, licensees or invitees (but not
by Landlord or Landlord’s Agents). Landlord shall have the right to intervene
in any governmental action or proceeding involving any Remedial Work, and to
approve performance of the work, in order to protect Landlord interests. Tenant
shall be solely responsible for paying all fines, damages and penalties imposed
by any governmental agency resulting from Tenant’s violation of any Hazardous
Materials Laws.

 

34.2.2 Compliance with
Insurance Requirements.  Tenant shall
comply with the requirements of Tenant’s insurers regarding Hazardous Materials
and with such insurers’ recommendations based upon prudent industry practices
regarding management of Hazardous Materials.

 

34.2.3      Notice;
Reporting.  Tenant shall notify
Landlord in writing immediately after any of the following: (a) Tenant has
knowledge, or has reasonable cause to believe, that any Hazardous Material has
been released or discharged under or about the Premises, whether or not the
Hazardous Material is in quantities that would require reporting to a public
agency; (b) Tenant receives any order of a governmental agency requiring
any Remedial Work pursuant to any Hazardous Materials Laws; (c) Tenant
receives any warning, notice of inspection, notice of violation or alleged
violation, or Tenant receives notice or knowledge of any proceeding,

 

31

 

investigation of enforcement action, pursuant to any Hazardous
Materials Laws; or (d) Tenant receives written notice of any claims made
by any third party against Tenant or the Premises relating to any loss or
injury resulting from Hazardous Materials. Tenant shall deliver to Landlord
copies of all test results, reports and business management plans required to
be filed with any government agency pursuant to any Hazardous Materials Laws.

 

34.2.4      Entry
and Inspection; Cure.  Landlord and
its agents, employees and contractors, shall have the right to enter the
Premises at all reasonable times to inspect the Premises and Tenant’s
compliance with the terms and conditions of this Section 34, or to conduct
investigations and tests. No prior notice to Tenant shall be required in the
event of any emergency, or if Landlord has reasonable cause to believe that
violations by Tenant of this Section 34 have occurred, or if Tenant
consents at the time of entry. In all other cases, Landlord shall give at least
48 hours’ prior written notice to Tenant. Landlord shall have the right, but
not the obligation, to remedy any violation by Tenant of the provisions of this
Section 34, or to perform any Remedial Work necessitated as a result of
any discharge by Tenant of Hazardous Materials on the Premises. Tenant shall
pay, upon demand, all costs incurred by Landlord in remedying such violations
or performing all Remedial Work necessitated by the acts or omissions of Tenant
and/or its agents or employees, plus interest thereon at the rate of 10 percent
per annum from the date of demand until the date paid by the Tenant.

 

34.2.5      Termination/Expiration.
Upon termination or expiration of this Lease, Tenant shall, at Tenant’s cost,
remove any equipment, improvements or storage facilities utilized in connection
with any Hazardous Materials and shall clean up, detoxify, repair and otherwise
restore the Premises to a condition in compliance with applicable laws
governing Hazardous Materials, to the extent such condition is caused by Tenant
or any Subtenant of Tenant or their respective agents, contractors, employees,
licensees or invitees. Upon termination or expiration of this Lease, Tenant
shall permit Landlord and Landlord’s Agents to enter the Premises upon giving
Tenant a 24 hour written notice for the purposes of inspecting, at Tenant’s
cost, the environmental condition of the Premises, including an audit of any
Hazardous Materials that are located on the Premises; provided, however,
Landlord shall be responsible for the cost of such inspection in the event such
inspection determines that the Premises are in material compliance with this
Lease.

 

34.2.6      Indemnification.  Tenant shall indemnify, protect, defend and
hold Landlord (and its employees and agents) harmless from and against any and
all claims, costs, expenses, suits, judgments, actions, investigations,
proceedings and liabilities arising out of or in connection with any breach of
any provision of this Lease to the extent arising out of the use, generation,
storage, release, disposal or transportation of Hazardous Materials by Tenant
or any Subtenant, or their respective agents, contractors or employees upon the
Premises (but not by Landlord or Landlord’s Agents), on, under or about the
Premises during the Term, including, but not limited to, all foreseeable and
unforeseeable consequential damages and the cost of any Remedial Work, but
excepting any loss or injury resulting from the breach of the Lease by Landlord
or the gross negligence or willful misconduct of Landlord or Landlord’s
Agents.  Neither the consent by Landlord
to the use, generation, storage, release, disposal or transportation of
Hazardous Materials, nor strict compliance with all Hazardous Materials Laws,
shall excuse Tenant from Tenant’s indemnification obligations pursuant to this Section 34.2.6.

 

32

 

The foregoing indemnity shall be in addition to and not a limitation of
the indemnification provisions of Section 9 of this Lease. Tenant’s
obligations pursuant to this Section 34.2.6 shall survive the termination
or expiration of the Lease.  The
procedures set forth in Section 9.2 also will apply to this Section.

 

34.2.7      Default.  The release or discharge of any Hazardous
Material or violation of any Hazardous Materials Law by Tenant or any Subtenant
of Tenant shall be a material default by Tenant under the Lease, subject to the
cure provisions set forth in 18.1.3. In addition to or in lieu of the remedies available
under the Lease as a result of such default, Landlord shall have the right,
without terminating the Lease, to require Tenant to suspend its operations and
activities on the Premises until Landlord is satisfied that appropriate
Remedial Work has been or is being adequately performed; Landlord’s election of
this remedy shall not constitute a waiver of Landlord’s right thereafter to
declare a default and pursue other remedies set forth in the Lease.

 

ARTICLE 35

 

Miscellaneous

 

35.1         Gender.  Whenever the singular number is used in this
Lease, the same shall include the plural, and the masculine gender shall
include the feminine and neuter genders, and the word “person” shall include
corporation, firm, or association, when required by the context.

 

35.2         Headings.  The headings or title to the paragraphs of
this Lease are for convenience only and do not in any way define, limit or
construe the contents of such paragraphs.

 

35.3         Integration.  This instrument contains all of the
agreements and conditions made between the parties with respect to the hiring
of the Premises and may not be modified orally or in any other manner other
than by a written instrument signed by all the parties to this Lease.

 

35.4         Choice
of Laws.  The laws of the State of
California as applied to contracts entered into between citizens of the State
of California and to be performed within the State of California shall govern
the validity, performance and enforcement of this Lease.

 

35.5         Severability.  If any provision of this Lease is determined
to be void by any court of competent jurisdiction, such determination shall not
affect any other provisions of this Lease and such other provisions shall
remain in full force and effect. If any provision of this Lease is capable of
two constructions, one which would render the provision void and one which
would render the provision valid, the provision shall be interpreted in the
manner which would render it valid.

 

35.6         Amendment
for Financing.  Upon written request
of Landlord, Tenant agrees to execute any lease amendments not materially
altering the terms of this Lease, if required by the first mortgagee or
beneficiary of a deed of trust encumbering real property of which the Premises

 

33

 

constitute a part (“Mortgagee”) incident to the financing of the real
property of which the Premises constitute a part. Any change affecting the
amount or timing of the consideration to be paid by Tenant or modifying the
term of this Lease shall be deemed as materially alter the terms hereof.

 

35.7         Payments.  Except as may otherwise be expressly stated,
each payment required to be made by Tenant shall be in addition to and not in
substitution for other payments to be made by Tenant.

 

35.8         Time
of Essence.  Time is of the essence
in this Lease.

 

35.9         Force
Majeure.  Any prevention, delay or
stoppage due to strikes, lockouts, labor disputes, acts of God, inability
to obtain labor or materials or reasonable substitutes thereof, governmental
restrictions, regulations, or controls, enemy or hostile governmental action,
civil commotion, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, shall excuse the performance by such
party for a period equal to that resulting from such prevention, delay or
stoppage, except those obligations of Tenant to make payment for rental and
other charges pursuant to the terms of this Lease.

 

35.10.      Notices.  All notices to be given by one party to the
other under this Lease shall be in writing, mailed or delivered to the other
party at the following addresses:

 

	
  To Landlord:

  	
   

  	
  BMR-2282 Faraday Avenue LLC

  
	
   

  	
   

  	
  Attn: General Counsel

  
	
   

  	
   

  	
  17140 Bernardo Center Drive, Suite 222

  
	
   

  	
   

  	
  San Diego, California 92128

  
	
   

  	
   

  	
  Phone: (858) 485-9840 Fax: (858) 485-9843

  
	
   

  	
   

  	
   

  
	
  To Tenant:

  	
   

  	
  Isis Pharmaceuticals, Inc.

  
	
   

  	
   

  	
  Attn: Patricia Lowenstam

  
	
   

  	
   

  	
  1896 Rutherford Road

  
	
   

  	
   

  	
  Carlsbad, California 92008

  
	
   

  	
   

  	
  Phone: (760) 931-9200 Fax: (760) 918-3599

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to: General Counsel

  
	
   

  	
   

  	
  Fax: 760-268-4922

  

 

Mailed notices shall be sent by United States
Postal Service, certified or registered mail, postage prepaid and shall be
deemed to have been given on the date of posting in the United States Postal
Service.

 

Either party may, with proper notice, at any
time designate a different address to which notices shall be sent.

 

34

 

35.11.      Brokers.  Landlord and Tenant each represents to the
other that it has had no dealings with any real estate broker or agent in
connection with the negotiation and/or execution of this Lease except as
follows: CB Richard Ellis, Inc. and agree to indemnify and defend the
other against all liability, costs, expenses and charges arising from any
claims that may be made against them by any real estate broker, agent, finder,
or other person, alleging to have acted on behalf of Landlord or Tenant.

 

35.12.      Confidentiality.  During the course of this Lease the Parties
may exchange certain financial statements, accounting records and other
documents that are clearly stamped “confidential” (“Confidential Information”).  Landlord and Tenant hereby acknowledge and
agree that the Confidential Information of each Party is to be kept strictly
confidential.  Accordingly, except as may
be required by law or court order, neither Landlord nor Tenant will, without
the prior written consent of the other party, release, publish or otherwise
distribute (and shall not authorize or permit any other person or entity to
release, publish or otherwise distribute) any of the other party’s Confidential
Information to any person or entity other than such party’s prospective lenders
and purchasers of the Real Property and legal and financial advisors, each of
whom shall agree to hold such information strictly confidential as if such
persons were bound by the provisions of this Section 35.12.  The obligations of this Section 35.12
will not apply to information that the receiving party can establish by written
records (a) was known by it prior to the receipt of the confidential
information from the disclosing Party; (b) was disclosed to the receiving
Party by a third party having the right to do so; (c) was, or subsequently
became, in the public domain through no fault of the receiving Party, its
officers, directors, employees or agents; or (d) was disclosed by the
receiving Party pursuant to any judicial, governmental or stock exchange
request, requirement or order, so long as the receiving party provides the
disclosing party with sufficient prior notice in order to allow the disclosing
party to contest such request, requirement or order.  Notwithstanding the foregoing, Landlord and
Tenant may disclose on a confidential basis such information to such party’s
accountants, attorneys and other professional advisors in connection with the
transactions contemplated by this Agreement.

 

ARTICLE 36

 

OPTION TO
EXTEND

 

36.1         Options
To Extend.  Tenant shall have the
option to extend the term of this Lease for two, five year periods, subject to
the following provisions:

 

36.1.1      Tenant
shall have no right to exercise an option: (i) during the period
commencing with the giving of any notice of default and continuing until said
default is cured, (ii) during the period of time any Rent is unpaid, or (iii) in
the event that Landlord has given three or more notices of separate monetary or
material non-monetary defaults, whether or not the defaults are cured, during
the 12 months immediately preceding the exercise of the option.

 

36.1.2      The
period of time within which an option may be exercised shall not be extended or
enlarged by reason of Tenant’s inability to exercise an option because of
paragraph 36.1.1.

 

35

 

36.1.3      An
option shall terminate and be of no further force or effect, notwithstanding
Tenant’s due and timely exercise of the option, if, after such exercise and
prior to the commencement of the extended term, (i) Tenant fails to pay
Rent for a period of 30 days after such Rent becomes due, or (ii) if
Tenant commits a default under this Lease and such default is continuing after
the expiration of the applicable cure periods set forth in Section 18.1.

 

36.1.4      Tenant
shall exercise the option by delivery of written notice to Landlord not less
than 12 months prior to the expiration of the initial term and, if exercised,
the first option period, of this Lease. If said notice is not delivered within
said time period(s), this option shall terminate.

 

36.2         Rent
–Option.

 

36.2.1      Rent
- First Option.  The Base Monthly
Rental payable by Tenant during the first option period shall be the greater
of: (a) 95% of the fair market rent for the Premises at the commencement
date of such option period, and (b) the Base Monthly Rental as increased
by an amount equal to 2.5% of the Base Monthly Rental for the preceding
year.  The Base Monthly Rental payable by
Tenant would continue to be increased as of the expiration of every other year
(biennially) of the option period commencing on the second anniversary of the
commencement of such option period (i.e., the second anniversary of the commencement
of the option period and the fourth anniversary of the commencement of the
option period) by an amount equal to 5% of the Base Monthly Rental for the
preceding year.

 

36.2.2      Rent
– Second Option.  The Base Monthly
Rental payable by Tenant during the first year of the second option period
shall be the greater of: (a) 95% of the fair market rent for the Premises
at the commencement date of such option period, and (b) the Base Monthly
Rental as increased by an amount equal to 2.5% of the Base Monthly Rental for
the preceding year.  The Base Monthly
Rental payable by Tenant would continue to be increased as of the expiration of
every other year (biennially) of the option period commencing on the second
anniversary of the commencement of such option period (i.e., the second
anniversary of the commencement of the option period and the fourth anniversary
of the commencement of the option period) by an amount equal to 5% of the Base
Monthly Rental for the preceding year.

 

36.2.3      Fair
Market Rent.  If Landlord and Tenant
cannot agree on the fair market rent of the Premises for the extension period
within 30 days after the Tenant has notified Landlord of Tenant’s exercise of
the option, Landlord and Tenant shall each select, within 15 days of such
notification, an appraiser who must be a qualified MAI appraiser with at least
5 years experience appraising commercial properties to determine said fair
market rental value. If one party fails to so designate an appraiser within the
time required, the determination of fair market rental value of the one
appraiser who has been designated by the other party within the time required
shall be binding on both parties. The appraisers shall submit their
determinations of fair market rental value to both parties within 30 days after
their selection. If the difference between the two determinations is 10% or
less of the higher appraisal, then the average between the determinations shall
be the fair market rental value of the Premises. If said difference is greater
than 10%, then the two appraisers shall within 15 days of the date the second
determination is submitted to the parties designate a third appraiser who must
also be a qualified

 

36

 

MAI appraiser. The sole responsibility of the third appraiser will be
to determine which of the determinations made by the first two appraisers is
most accurate. The third appraiser shall have no right to propose a middle
ground or any modification of either of the determinations made by the first
two appraisers. The third appraiser’s choice shall be submitted to the parties
within 20 days after his or her selection. Such determination shall bind both
of the parties and shall establish the fair market rental value of the
Premises. Each party shall pay equal shares of the fees and expenses of the
third appraiser. Fair market rent for the purposes of this Lease shall mean the
then prevailing rent for premises comparable in size, quality and location to
the demised Premises, leased on terms comparable to the terms contained in this
Lease.

 

36.2.4      Memorandum
of Lease.  Except as set forth in
this Section 36.2.4, Tenant shall neither execute nor record a memorandum
of this Lease.  Tenant shall execute,
acknowledge and deliver at any time after the date of this Lease, at the
request of Landlord, a “memorandum of lease” suitable for recording.  Landlord may record such a memorandum of
lease.

 

36.2.5      Absolute
Net Lease.  This Lease shall be
deemed and construed to be an “absolute net lease” and, except as herein
expressly provided, the Landlord shall receive all payments required to be made
by Tenant, free from all charges, assessments, impositions, expenses,
deductions of any and every kind or nature whatsoever.  Except as otherwise expressly provided in this
Lease, Landlord shall not be required to furnish any services or facilities or
to make any repairs, replacements, or alterations of any kind in or on the
Premises. Tenant shall receive all invoices and bills relative to the Premises
and, except as otherwise provided herein, shall pay for all expenses directly
to the person or company submitting a bill without first having to forward
payment for the expenses to Landlord. 
Tenant shall at Tenant’s sole cost and expense be responsible for the
management of the Premises, shall maintain the landscaping, parking lot and
shall make all additional repairs and alterations as required to maintain the
property in first class condition.

 

36.2.6      Waiver
of Jury Trial.  The parties hereby
waive their respective rights to trial by jury in any action or proceeding
invlving the Premises or arising out of this Agreement.

 

36.2.7      Americans
with Disabilities Act.  Since
compliance with the Americans with Disabilities Act (ADA) is dependent on
Tenant’s specific use of the Premises, Landlord makes no warranty or
representation as to whether or not the Premises comply with the ADA or any
similar legislation.  In the event that
Tenant’s use of the Premises requires modifications or additions to the
Premises in order to be in ADA compliance, subject to Section 11.3, Tenant
agrees to make any such necessary modifications and/or additions at Tenant’s
expense.

 

 

[Signature
Page Follows]

 

37

 

IN WITNESS WHEREOF, Landlord and Tenant have executed
this Lease as of the day and year set forth at the beginning hereof.

 

 

	
  LANDLORD:

  	
   

  	
  TENANT:

  
	
   

  	
   

  	
   

  
	
  BMR-2282 FARADAY AVENUE LLC,

  	
   

  	
  ISIS PHARMACEUTICALS, INC.

  
	
  a Delaware limited liability company

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  BioMed Realty, L.P.,

  	
   

  	
  By:

  	
       /s/ B. Lynne
  Parshall

  
	
   

  	
  a Maryland limited partnership,

  	
   

  	
   

  	
       B. Lynne
  Parshall,

  
	
   

  	
  its Member

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /s/ 

  	
  Gary A. Kreitzer

  	
   

  	
   

  	
   

  
	
   

  	
  Name: Gary A. Kreitzer

  	
   

  	
   

  	
   

  
	
   

  	
  Title: Executive Vice President

  	
   

  	
   

  	
   

  
						

 

 

[FARADAY LEASE SIGNATURE PAGE]

 

 

Schedule 3.4

 

OPERATING
EXPENSE EXCLUSIONS

 

Notwithstanding anything contained in the Lease, the following are
specifically excluded from property operating costs and Tenant shall have no
obligation to pay directly or reimburse Landlord for all or any portion of the
following except to the extent any of the following are caused by the actions
or inactions of Tenant, or result from the failure of Tenant to comply with the
terms of this Lease:

 

(i) costs incurred because Landlord actually violated the terms
and conditions of this Lease or any other lease for premises within the
Building, if any;

 

(ii) legal and auditing fees (other than those fees reasonably
incurred in connection with the maintenance and operation of all or any portion
the Building), leasing commissions, advertising expenses, and other costs
incurred in connection with the original leasing of the Real Property or future
re-leasing of any portion of the Building;

 

(iii) depreciation of the Building or any other improvements
situated within the project of which the Buildings are a part;

 

(iv) any items for which Landlord is actually reimbursed by
insurance or by direct reimbursement by Tenant or any other party;

 

(v) costs of repairs or other work necessitated by fire, windstorm
or other casualty (excluding any deductibles) and/or costs of repair or other
work necessitated by the exercise of the right of eminent domain to the extent
insurance proceeds or a condemnation award, as applicable, is actually received
by Landlord for such purposes;

 

(vi) other than any interest charges for capital improvements
referred to in the Lease, any interest or payments on any financing for the
Building, interest and penalties incurred as a result of Landlord’s late
payment of any invoice, and any bad debt loss, rent loss or reserves for same;

 

(vii) overhead and profit increment paid to Landlord or to
subsidiaries or affiliates of Landlord for goods and/or services in the project
to the extent the same exceeds the costs of such by unaffiliated third parties
on a competitive basis; or any costs included in property operating expenses
representing an amount paid to a person, firm, corporation or other entity
related to Landlord which is in excess of the amount which would have been paid
in the absence of such relationship; and

 

(viii) costs
incurred in the investigation and/or remediation of hazardous materials which
either existed on the Real Property on the Commencement Date or were brought
onto the Real Property by Landlord, its agents, employee or contractors, except those costs caused by Tenant or Tenant’s
Agents whether before or after the Commencement Date.

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