Document:

Exhibit 10.17

 

QUARK BIOTECH, INC.

2007 EQUITY INCENTIVE PLAN

APPROVED
BY BOARD ON:  MARCH 2, 2007 (“EFFECTIVE
DATE”)

APPROVED
BY STOCKHOLDERS:          , 2007

TERMINATION DATE: MARCH  1, 2017

1.             GENERAL.

(a)           Eligible Award
Recipients.  The persons eligible to receive Awards are
Employees, Directors and Consultants.

(b)           Available Awards. 
The Plan provides for the grant of the following Awards: (i) Incentive
Stock Options, (ii) Nonstatutory Stock Options, (iii) Restricted Stock Awards,
(iv) Restricted Stock Unit Awards, (v) Stock Appreciation Rights, (vi)
Performance Stock Awards, (vii) Performance Cash Awards, and (viii) Other Stock
Awards. Israeli Optionees may be issued with Awards in accordance with Exhibit
B of the Plan.

(c)           General Purpose. 
The Company, by means of the Plan, seeks to secure and retain the
services of the group of persons eligible to receive Awards as set forth in
Section 1(b), to provide incentives for such persons to exert maximum efforts
for the success of the Company and any Affiliate and to provide a means by
which such eligible recipients may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Stock Awards.

(d)           Compliance
with Section 25102(o) California Code of Corporations. 
In the case of a Participant who is a resident of the State of
California, notwithstanding anything to the contrary in the Plan or in such
Participant’s Stock Award Agreement, the terms and conditions set forth in Exhibit
A hereto shall apply to any Stock Award granted to such Participant in
reliance on Section 25102(o) of the California Corporate Securities Law of
1968, as amended from time to time, (“Section 25102(o)”)
and shall be deemed to be a part of the Plan, if and to the extent compliance
with the terms set forth on Exhibit A is required under Section
25102(o).  In the event of any conflict
or inconsistency between the provisions of Exhibit A and any provisions
otherwise appearing in the Plan, the provisions of Exhibit A shall
control solely with respect to Stock Awards granted under the Plan to residents
of the State of California in reliance on Section 25102(o), if and to the
extent compliance with the terms set forth on Exhibit A required under
Section 25102(o), provided that, for the avoidance
of doubt, with respect to any requirement set forth on Exhibit A, the
corresponding provision set forth in the applicable Stock Award Agreement or
the Plan shall control in lieu of the minimum requirement set forth on Exhibit
A as long as such corresponding provision of the Stock Award Agreement or
the Plan is no less favorable to the Participant than the applicable minimum
requirement set forth on Exhibit A.

(e) Israeli Optionees In the case of a Participant who is an
Israeli Optionee (as defined in Exhibit B), notwithstanding anything to the
contrary in the Plan or in such Participant’s Stock 

 

1

 

Award Agreement,
the terms and conditions set forth in Exhibit B hereto shall apply to
any Stock Award granted to such Participant.

2.             ADMINISTRATION.

(a)           Administration
by Board.  The Board shall administer the Plan unless
and until the Board delegates administration of the Plan to a Committee or
Committees, as provided in Section 2(c).

(b)           Powers
of Board.  The Board shall have the power, subject to,
and within the limitations of, the express provisions of the Plan:

(i)            To determine from time to time (A) which
of the persons eligible under the Plan shall be granted Awards; (B) when and
how each Award shall be granted; (C) what type or combination of types of Award
shall be granted; (D) the provisions of each Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive cash or Common Stock pursuant to a Stock Award; and (E) the number of
shares of Common Stock with respect to which a Stock Award shall be granted to
each such person.

(ii)           To construe and interpret the Plan and
Awards granted under it, and to establish, amend and revoke rules and
regulations for its administration (including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws).  The Board, in
the exercise of this power, may correct any defect, omission or inconsistency in
the Plan or in any Stock Award Agreement or in the written terms of a
Performance Cash Award, in a manner and to the extent it shall deem necessary
or expedient to make the Plan or Award fully effective.

(iii)         To settle all controversies regarding the
Plan and Awards granted under it.

(iv)          To accelerate the time at which a Stock
Award may first be exercised or the time during which an Award or any part
thereof will vest in accordance with the Plan, notwithstanding the provisions
in the Award stating the time at which it may first be exercised or the time
during which it will vest.

(v)            To suspend or terminate the Plan at any
time.  Suspension or termination of the
Plan shall not impair rights and obligations under any Stock Award granted
while the Plan is in effect except with the written consent of the affected
Participant.

(vi)          To
amend the Plan in any respect the Board deems necessary or advisable,
including, without limitation, relating to Incentive Stock Options and certain
nonqualified deferred compensation under Section 409A of the Code and/or to
bring the Plan or Stock Awards granted under the Plan into compliance
therewith, subject to the limitations, if any, of applicable law. However,
except as provided in Section 9(a) relating to Capitalization Adjustments, stockholder
approval shall be required for any amendment of the Plan that either (A)
materially increases the number of shares of Common Stock available for
issuance under the Plan, (B) materially expands the class of individuals
eligible to receive Awards under the Plan, (C) materially increases the
benefits accruing to Participants under the Plan or materially reduces the
price at which shares of Common Stock may be issued or purchased under the
Plan, (D) 

 

2

 

materially extends the term of the Plan, or (E) expands the types of
Awards available for issuance under the Plan, but only to the extent required
by applicable law or listing requirements. Except as provided above, rights under any Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (1) the Company requests the consent of the affected Participant, and
(2) such Participant consents in writing.

(vii)         To submit any amendment to the Plan for
stockholder approval, including, but not limited to, amendments to the Plan
intended to satisfy the requirements of (A) Section 162(m) of the Code and the
regulations thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
Covered Employees, (B) Section 422 of the Code regarding Incentive Stock
Options or (C) Rule 16b-3.

(viii)        To approve forms of Award Agreements for
use under the Plan and to amend the terms of any one or more Awards, including,
but not limited to, amendments to provide terms more favorable to the
Participant than previously provided in the Award Agreement, subject to any
specified limits in the Plan that are not subject to Board discretion; provided however, that the Participant’s rights under any
Award shall not be impaired by any such amendment unless (A) the Company
requests the consent of the affected Participant, and (B) such Participant
consents in writing.  Notwithstanding the
foregoing, subject to the limitations of applicable law, if any, and without
the affected Participant’s consent, the Board may amend the terms of any one or
more Awards if necessary to maintain the qualified status of the Award as an
Incentive Stock Option or to bring the Award into compliance with Section 409A
of the Code and the related guidance thereunder.

(ix)          Generally, to exercise such powers and to
perform such acts as the Board deems necessary or expedient to promote the best
interests of the Company and that are not in conflict with the provisions of
the Plan or Awards.

(x)           To adopt such procedures and sub-plans as
are necessary or appropriate to permit participation in the Plan by Employees,
Directors or Consultants who are foreign nationals or employed outside the
United States.

(xi)          To effect, at any time and from time to
time, with the consent of any adversely affected Optionholder, (1) the
reduction of the exercise price of any outstanding Option under the Plan, (2)
the cancellation of any outstanding Option under the Plan and the grant in
substitution therefore of (A) a new Option under the Plan or another equity
plan of the Company covering the same or a different number of shares of Common
Stock, (B) a Restricted Stock Award (including a stock bonus), (C) a Stock
Appreciation Right, (D) Restricted Stock Unit, (E) an Other Stock Award, (F)
cash and/or (G) other valuable consideration (as determined by the Board, in
its sole discretion), or (3) any other action that is treated as a repricing
under generally accepted accounting principles.

(c)           Delegation
to Committee.

(i)            General. 
The Board may delegate some or all of the administration of the Plan to
a Committee or Committees.  If
administration of the Plan is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers 

 

3

 

theretofore
possessed by the Board that have been delegated to the Committee, including the
power to delegate to a subcommittee of the Committee any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board.  The Board may retain the authority to
concurrently administer the Plan with the Committee and may, at any time,
revest in the Board some or all of the powers previously delegated.

(ii)           Section 162(m) and Rule
16b-3 Compliance.  In the sole discretion of the Board, the
Committee may consist solely of two (2) or more Outside Directors, in
accordance with Section 162(m) of the Code, or solely of two (2) or more
Non-Employee Directors, in accordance with Rule 16b-3.  In addition, the Board or the Committee, in
its sole discretion, may (A) delegate to a Committee of Directors who need not
be Outside Directors the authority to grant Awards to eligible persons who are
either (I) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Stock Award,
or (II) not persons with respect to whom the Company wishes to comply with
Section 162(m) of the Code, or (B) delegate to a Committee of Directors who
need not be Non-Employee Directors the authority to grant Stock Awards to
eligible persons who are not then subject to Section 16 of the Exchange Act.

(d)           Delegation to an
Officer.  The Board may delegate to one (1) or more
Officers the authority to do one or both of the following (i) designate
Employees who are not Officers
to be recipients of Options (and, to the extent permitted by applicable law,
other Stock Awards) and the terms thereof, and (ii) determine the number of
shares of Common Stock to be subject to such Stock Awards granted to such
Employees; provided, however, that
the Board resolutions regarding such delegation shall specify the total number
of shares of Common Stock that may be subject to the Stock Awards granted by
such Officer and that such Officer may not grant a Stock Award to himself or
herself.  Notwithstanding anything to the
contrary in this Section 2(d), the Board may not delegate to an Officer
authority to determine the Fair Market Value of the Common Stock pursuant to
Section 13(w)(ii) below.

(e)           Effect of Board’s
Decision. All
determinations, interpretations and constructions made by the Board in good
faith shall not be subject to review by any person and shall be final, binding
and conclusive on all persons.

3.             SHARES SUBJECT TO THE PLAN.

(a)           Share
Reserve.  Subject to the provisions of Section 9
relating to adjustments upon changes in stock, the aggregate number of shares
of Common Stock of the Company that may be issued pursuant to Stock Awards
after the Effective Date shall not exceed 5,655,056 shares (such number
consisting of (i) the 1,186,149 shares of Common Stock that have been reserved
but not made subject to any awards under the Quark Biotech, Inc. 1997 Stock
Plan (such plan, including its subplan (the 2003 Israeli Stock Option Plan), is
referred to herein as the “1997 Plan”)
as of the Effective Date, (ii) up to 1,662,175 shares of Common Stock that are
subject to awards outstanding under the 1997 Plan as of the Effective Date that
expire or otherwise terminate without having been exercised in full, and (iii)
an additional 2,806,732 shares to be approved by the stockholders of the
Company as part of the approval of this Plan. 

 

4

 

For clarity, the
limitation in this subsection 3(a) is a limitation in the number of shares of
the Company’s common stock that may be issued pursuant to the Plan.  Accordingly, this subsection 3(a) does not
limit the granting of Stock Awards except as provided in subsection 7(a).  Shares may be issued in connection with a
merger or acquisition as permitted by NASD Rule 4350(i)(1)(A)(iii) or, if
applicable, NYSE Listed Company Manual Section 303A.08, or AMEX Company Guide
Section 711 and such issuance shall not reduce the number of shares available
for issuance under the Plan. 
Furthermore, if a Stock Award (i) expires or otherwise terminates
without having been exercised in full or (ii) is settled in cash (i.e., the holder of the Stock Award receives cash rather
than stock), such expiration, termination or settlement shall not reduce (or
otherwise offset) the number of shares of the Company’s Common Stock that may
be issued pursuant to the Plan.

(b)           In addition, if any shares of Common Stock issued
pursuant to a Stock Award are forfeited back to the Company because of the
failure to meet a contingency or condition required to vest such shares in the
Participant, then the shares which are forfeited shall revert to and again
become available for issuance under the Plan. 
Also, any shares reacquired by the Company pursuant to subsection 8(g)
or as consideration for the exercise of an Option shall again become available
for issuance under the Plan. 
Notwithstanding the provisions of this subsection 3(b), any such shares
shall not be subsequently issued pursuant to the exercise of Incentive Stock
Options.

(c)           Share
Reserve Limitation.  Notwithstanding the provisions of Section
3(a) and (b), to the extent it is necessary to comply with Section 260.140.45
of Title 10 of the California Code of Regulations, the total number of shares
of Common Stock issuable upon exercise of all outstanding Stock Awards and the
total number of shares of Common Stock provided for under any Common Stock
bonus or similar plan of the Company shall not exceed the applicable percentage
as calculated in accordance with the conditions and exclusions of Section
260.140.45 of Title 10 of the California Code of Regulations, based on shares
of the Common Stock of the Company that are outstanding at the time the
calculation is made.

(d)           Incentive Stock Option
Limit.  Notwithstanding anything to the contrary in this
Section 3(d), subject to the provisions of Section 9(a) relating to
Capitalization Adjustments the aggregate maximum number of shares of Common
Stock that may be issued pursuant to the exercise of Incentive Stock Options
granted after the Effective Date shall be 5,655,056 shares of Common Stock.

(e)           Section 162(m)
Limitation on Annual Grants.  Subject to
the provisions of Section 9(a) relating to Capitalization Adjustments, at such
time as the Company may be subject to the applicable provisions of Section
162(m) of the Code, no Employee shall be eligible to be granted during any
calendar year Stock Awards whose value is determined by reference to an
increase over an exercise or strike price of at least one hundred percent
(100%) of the Fair Market Value of the Common Stock on the date the Stock Award
is granted covering more than  2,000,000  shares of Common Stock.

(f)            Source
of Shares.  The stock issuable under the Plan shall be
shares of authorized but unissued or reacquired Common Stock, including shares
repurchased by the Company on the market or otherwise.

 

5

 

(g)           Arbitration. 
Any dispute or claim concerning any Stock Awards granted (or not granted)
pursuant to the Plan or any disputes or claims relating to or arising out of
the Plan shall be fully, finally and exclusively resolved by binding and
confidential arbitration conducted pursuant to the rules of Judicial Arbitration and Mediation Services, Inc. (“JAMS”) in Sacramento, California.  The Company shall pay all arbitration
fees.  In addition to any other relief,
the arbitrator may award to the prevailing party recovery of its attorneys’
fees and costs.  By accepting a Stock
Award, Participants and the Company waive their respective rights to have any
such disputes or claims tried by a judge or jury.

4.             ELIGIBILITY.

(a)           Eligibility
for Specific Stock Awards.  Incentive Stock Options may be
granted only to employees of the Company or a parent corporation or subsidiary
corporation (as such terms are defined in Code Sections 424(e) and (f)).  Stock Awards other than Incentive Stock
Options may be granted to Employees, Directors and Consultants.

(b)           Ten
Percent Stockholders.  A Ten Percent Stockholder shall
not be granted an Incentive Stock Option unless the exercise price of such
Option is at least one hundred ten percent (110%) of the Fair Market Value of
the Common Stock on the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.

(c)           Consultants.   A Consultant shall be eligible for the grant of a
Stock Award only if, at the time of grant, (i) a Form S-8 Registration
Statement under the Securities Act (“Form S-8”) is available to register either
the offer or the sale of the Company’s securities to such Consultant, (ii) such
grant complies with the requirements of Rule 701 of the Securities Act, or
(iii) the Company determines that such grant will otherwise comply with the
securities laws of all relevant jurisdictions.

5.             OPTION PROVISIONS.

Each Option shall be in
such form and shall contain such terms and conditions as the Board shall deem
appropriate.  All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and, if certificates are issued, a separate certificate or
certificates shall be issued for shares of Common Stock purchased on exercise
of each type of Option. If an Option is not specifically designated as an
Incentive Stock Option, then the Option shall be a Nonstatutory Stock Option.
The provisions of separate Options need not be identical; provided, however, that each Option
Agreement shall include (through incorporation of provisions hereof by
reference in the Option Agreement or otherwise) the substance of each of the
following provisions:

(a)           Term. 
Subject to the provisions of Section 4(b) regarding Ten Percent
Stockholders, no Option shall be exercisable after the expiration of ten (10)
years from the date of its grant or such shorter period specified in the Option
Agreement.

(b)           Exercise
Price.  Subject to the provisions of Section 4(b)
regarding Ten Percent Stockholders and the requirements set forth on Exhibit
A, the exercise price of each Option shall be generally not less than one
hundred percent (100%) of the Fair Market Value of the Common Stock subject to
the Option on the date the Option is granted. 
Notwithstanding the foregoing, an 

 

6

 

Option may be
granted with an exercise price lower than one hundred percent (100%) of the
Fair Market Value of the Common Stock subject to the Option if such Option is
granted pursuant to an assumption of or substitution for another option in a
manner consistent with the provisions of Section 424(a) of the Code (whether or
not such options are Incentive Stock Options) or is otherwise granted in a
manner designed to satisfy the requirements of Section 409A of the Code and
applicable securities laws.

(c)           Consideration. 
The exercise price of Common Stock acquired pursuant to the exercise of
an Option shall be paid, to the extent permitted by applicable law and as
determined by the Board in its sole discretion, by any combination of the
methods of payment set forth below.  The
Board shall have the authority to grant Options that do not permit all of the
following methods of payment (or otherwise restrict the ability to use certain
methods) and to grant Options that require the consent of the Company to
utilize a particular method of payment. 
The methods of payment permitted by this Section 5(c) are:

(i)            by cash, check, bank draft or money order
payable to the Company;

(ii)           pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board that, prior to the
issuance of the stock subject to the Option, results in either the receipt of
cash (or check) by the Company or the receipt of irrevocable instructions to
pay the aggregate exercise price to the Company from the sales proceeds;

(iii)         by delivery to the Company (either by
actual delivery or attestation) of shares of Common Stock;

(iv)          by a “net exercise” arrangement pursuant
to which the Company will reduce the number of shares of Common Stock issued
upon exercise by the largest whole number of shares with a Fair Market Value
that does not exceed the aggregate exercise price; provided, however, that the Company shall accept a cash or
other payment from the Participant to the extent of any remaining balance of
the aggregate exercise price not satisfied by such reduction in the number of
whole shares to be issued; provided,
further, that shares of Common Stock will no longer be outstanding
under an Option and will not be exercisable thereafter to the extent that (A)
shares are used to pay the exercise price pursuant to the “net exercise,” (B)
shares are delivered to the Participant as a result of such exercise, and (C)
shares are withheld to satisfy tax withholding obligations;  or

(v)            in any other form of legal consideration
that may be acceptable to the Board.

(d)           Transferability
of Options.  The Board may, in its sole discretion, impose
such limitations on the transferability of Options as the Board shall
determine, subject to the provisions of Exhibit A, as applicable.  In the absence of such a determination by the
Board to the contrary, the following restrictions on the transferability of
Options shall apply:

(i)            Restrictions
on Transfer.  An Option shall not be transferable except by
will or by the laws of descent and distribution and shall be exercisable during
the lifetime of the Optionholder only by the Optionholder; provided, however,
that the Board may, in its sole 

 

7

 

discretion, permit
transfer of the Option in a manner consistent with applicable tax and securities
laws upon the Optionholder’s request.

(ii)           Domestic
Relations Orders.  Notwithstanding the foregoing, an Option may
be transferred pursuant to a domestic relations order, provided,
however, that an Incentive Stock Option may be deemed to be a
Nonqualified Stock Option as a result of such transfer.

(iii)         Beneficiary
Designation.  Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
provided by or otherwise satisfactory to the Company, designate a third party
who, in the event of the death of the Optionholder, shall thereafter be the
beneficiary of an Option with the right to exercise the Option and receive the
Common Stock or other consideration resulting from an Option exercise.

(e)           Vesting
Generally.  The total number of shares of Common Stock
subject to an Option may vest and therefore become exercisable in periodic
installments that may or may not be equal. 
The Option may be subject to such other terms and conditions on the time
or times when it may or may not be exercised (which may be based on the
satisfaction of Performance Goals or other criteria) as the Board may deem
appropriate.  The vesting provisions of
individual Options may vary.  The
provisions of this Section 5(e) are subject to any Option provisions governing
the minimum number of shares of Common Stock as to which an Option may be
exercised, including but not limited to those provisions set forth on Exhibit
A.

(f)            Termination of
Continuous Service.  Except as otherwise provided in the
applicable Option Agreement or other agreement between the Optionholder and the
Company (which provisions shall comply with the provisions of Exhibit A,
as applicable), in the event that an Optionholder’s Continuous Service
terminates (other than for Cause or upon the Optionholder’s death or
Disability), the Optionholder may exercise his or her Option (to the extent
that the Optionholder was entitled to exercise such Option as of the date of
termination of Continuous Service) but only within such period of time ending
on the earlier of (i) the date three (3) months following the termination of
the Optionholder’s Continuous Service (or such longer or shorter period
specified in the Option Agreement), or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. 
If, after termination of Continuous Service, the Optionholder does not
exercise his or her Option within the time specified herein or in the Option
Agreement (as applicable), the Option shall terminate.

(g)           Extension of Termination
Date.  If the exercise of the Option following the
termination of the Optionholder’s Continuous Service (other than for Cause)
would be prohibited at any time during the post-termination exercise period
solely because the issuance of shares of Common Stock would violate the
registration requirements under the Securities Act, then the Option shall
terminate on the earlier of (i) the expiration of a period of three (3) months
after the termination of the Optionholder’s Continuous Service during which the
exercise of the Option would not be in violation of such registration
requirements, or (ii) the expiration of the term of the Option as set forth in
the Option Agreement.

(h)           Disability of
Optionholder.  In the event that an Optionholder’s
Continuous Service terminates as a result of the Optionholder’s Disability, the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise such Option as of the 

 

8

 

date of termination
of Continuous Service), but only within such period of time ending on the
earlier of (i) the date twelve (12) months following such termination of
Continuous Service (or such longer or shorter period specified in the Option
Agreement; provided, however, that any shorter period shall comply with the
provisions of Exhibit A, as applicable), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement.  If, after termination of Continuous Service,
the Optionholder does not exercise his or her Option within the time specified
herein or in the Option Agreement (as applicable), the Option shall terminate.

(i)            Death of Optionholder.  In the event
that (i) an Optionholder’s Continuous Service terminates as a result of the
Optionholder’s death, or (ii) the Optionholder dies within the period (if any)
specified in the Option Agreement after the termination of the Optionholder’s
Continuous Service for a reason other than death, then the Option may be
exercised (to the extent the Optionholder was entitled to exercise such Option
as of the date of death) by the Optionholder’s estate, by a person who acquired
the right to exercise the Option by bequest or inheritance or by a person
designated as the beneficiary of the Option upon the Optionholder’s death, but
only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement;
provided, however, that any shorter period shall comply with the provisions of Exhibit
A, as applicable), or (ii) the expiration of the term of such Option
as set forth in the Option Agreement. 
If, after the Optionholder’s death, the Option is not exercised within
the time specified herein or in the Option Agreement (as applicable), the
Option shall terminate.  If the
Optionholder designates a third party beneficiary of the Option in accordance
with Section 5(d)(iii), then upon the death of the Optionholder such designated
beneficiary shall have the sole right to exercise the Option and receive the
Common Stock or other consideration resulting from an Option exercise.

(j)            Termination for Cause. 
Except as explicitly provided otherwise in an Optionholder’s Option
Agreement, in the event that an Optionholder’s Continuous Service is terminated
for Cause, the Option shall terminate upon the termination date of such
Optionholder’s Continuous Service, and the Optionholder shall be prohibited
from exercising his or her Option from and after the time of such termination
of Continuous Service.

(k)           Non-Exempt Employees. 
No Option granted to an Employee that is a non-exempt employee for
purposes of the Fair Labor Standards Act shall be first exercisable for any
shares of Common Stock until at least six (6) months following the date of
grant of the Option.  The foregoing
provision is intended to operate so that any income derived by a non-exempt
employee in connection with the exercise or vesting of an Option will be exempt
from his or her regular rate of pay.

(l)            Early
Exercise.  The Option may, but need not, include a
provision whereby the Optionholder may elect at any time before the
Optionholder’s Continuous Service terminates to exercise the Option as to any
part or all of the shares of Common Stock subject to the Option prior to the
full vesting of the Option.  Any unvested
shares of Common Stock so purchased may be subject to a repurchase option in
favor of the Company or to any other restriction the Board determines to be
appropriate, including but not limited to those set forth on Exhibit A
hereto.  The Company will not exercise
its repurchase option until at least six (6) months (or such longer or shorter
period of time required to avoid a charge to earnings for financial accounting 

 

9

 

purposes) have
elapsed following exercise of the Option unless the Board otherwise
specifically provides in the Option.

6.             PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

(a)           Restricted
Stock Awards.  Each Restricted Stock Award Agreement shall
be in such form and shall contain such terms and conditions as the Board shall
deem appropriate (including the terms and conditions set forth on Exhibit A,
as applicable).  To the extent consistent
with the Company’s Bylaws, at the Board’s election, shares of Common Stock may
be (x) held in book entry form subject to the Company’s instructions until any
restrictions relating to the Restricted Stock Award lapse; or
(y) evidenced by a certificate, which certificate shall be held in such
form and manner as determined by the Board. 
The terms and conditions of Restricted Stock Award Agreements may change
from time to time, and the terms and conditions of separate Restricted Stock
Award Agreements need not be identical; provided,
however, that each Restricted Stock Award Agreement shall include
(through incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:

(i)            Consideration.  A
Restricted Stock Award may be awarded in consideration for (A) past (or, to the
extent permitted by applicable law, future) services actually or to be rendered
to the Company or an Affiliate, or (B) any other form of legal consideration
that may be acceptable to the Board in its sole discretion and permissible
under applicable law.

(ii)           Vesting. 
Shares of Common Stock awarded under the Restricted Stock Award
Agreement may be subject to forfeiture to the Company in accordance with a
vesting schedule to be determined by the Board.

(iii)         Termination
of Participant’s Continuous Service.  In the event a
Participant’s Continuous Service terminates, the Company may receive via a
forfeiture condition, any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination of Continuous
Service under the terms of the Restricted Stock Award Agreement.

(iv)          Transferability. 
Rights to acquire shares of Common Stock under the Restricted Stock
Award Agreement shall be transferable by the Participant only upon such terms
and conditions as are set forth in the Restricted Stock Award Agreement, as the
Board shall determine in its sole discretion, so long as Common Stock awarded
under the Restricted Stock Award Agreement remains subject to the terms of the
Restricted Stock Award Agreement.

(b)           Restricted
Stock Unit Awards.  Each Restricted Stock Unit Award
Agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate (including the terms and conditions set forth
on Exhibit A, as applicable).  The
terms and conditions of Restricted Stock Unit Award Agreements may change from
time to time, and the terms and conditions of separate Restricted Stock Unit
Award Agreements need not be identical; provided,
however, that each Restricted Stock Unit Award Agreement shall
include (through incorporation of the provisions hereof by reference in the
Agreement or otherwise) the substance of each of the following provisions:

 

10

 

(i)            Consideration. 
At the time of grant of a Restricted Stock Unit Award, the Board will
determine the consideration, if any, to be paid by the Participant upon
delivery of each share of Common Stock subject to the Restricted Stock Unit
Award. The consideration to be paid (if any) by the Participant for each share
of Common Stock subject to a Restricted Stock Unit Award may be paid in any
form of legal consideration that may be acceptable to the Board in its sole
discretion and permissible under applicable law.

(ii)           Vesting.  At the time of the grant of a Restricted Stock Unit
Award, the Board may impose such restrictions or conditions to the vesting of
the Restricted Stock Unit Award as it, in its sole discretion, deems
appropriate.

(iii)         Payment. 
A Restricted Stock Unit Award may be settled by the delivery of shares
of Common Stock, their cash equivalent, any combination thereof or in any other
form of consideration, as determined by the Board and contained in the
Restricted Stock Unit Award Agreement.

(iv)          Additional
Restrictions.  At the time of the grant of a Restricted
Stock Unit Award, the Board, as it deems appropriate, may impose such
restrictions or conditions that delay the delivery of the shares of Common
Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to a
time after the vesting of such Restricted Stock Unit Award.

(v)            Dividend
Equivalents.  Dividend equivalents may be credited in
respect of shares of Common Stock covered by a Restricted Stock Unit Award, as
determined by the Board and contained in the Restricted Stock Unit Award
Agreement.  At the sole discretion of the
Board, such dividend equivalents may be converted into additional shares of
Common Stock covered by the Restricted Stock Unit Award in such manner as
determined by the Board.  Any additional
shares covered by the Restricted Stock Unit Award credited by reason of such
dividend equivalents will be subject to all the terms and conditions of the
underlying Restricted Stock Unit Award Agreement to which they relate.

(vi)          Termination
of Participant’s Continuous Service.  Except as otherwise provided in the
applicable Restricted Stock Unit Award Agreement, such portion of the
Restricted Stock Unit Award that has not vested will be forfeited upon the
Participant’s termination of Continuous Service.

(vii)         Compliance with Section
409A of the Code.   Notwithstanding anything to the contrary set
forth herein, any Restricted Stock Unit Award granted under the Plan that is
not exempt from the requirements of Section 409A of the Code shall contain such
provisions so that such Restricted Stock Unit Award will comply with the
requirements of Section 409A of the Code. 
Such restrictions, if any, shall be determined by the Board and
contained in the Restricted Stock Unit Award Agreement evidencing such Restricted
Stock Unit Award.  For example, such
restrictions may include, without limitation, a requirement that any Common
Stock that is to be issued in a year following the year in which the Restricted
Stock Unit Award vests must be issued in accordance with a fixed pre-determined
schedule.

(c)           Stock
Appreciation Rights.  Each Stock Appreciation Right Agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate 

 

11

 

(including the
terms and conditions set forth on Exhibit A, as applicable).  Stock Appreciation Rights may be granted as
stand-alone Stock Awards or in tandem with other Stock Awards.  The terms and conditions of Stock
Appreciation Right Agreements may change from time to time, and the terms and
conditions of separate Stock Appreciation Right Agreements need not be
identical; provided, however,
that each Stock Appreciation Right Agreement shall include (through
incorporation of the provisions hereof by reference in the Agreement or
otherwise) the substance of each of the following provisions:

(i)            Term. 
No Stock Appreciation Right shall be exercisable after the expiration of
ten (10) years from the date of its grant or such shorter period specified in
the Stock Appreciation Right Agreement.

(ii)           Strike Price. Each Stock Appreciation Right will be
denominated in shares of Common Stock equivalents.  The strike price of each Stock Appreciation
Right shall generally not be less than one hundred percent (100%) of the Fair
Market Value of the Common Stock equivalents subject to the Stock Appreciation
Right on the date of grant.

(iii)         Calculation of
Appreciation.  The appreciation distribution payable on the
exercise of a Stock Appreciation Right will be not greater than an amount equal
to the excess of (A) the aggregate Fair Market Value (on the date of the
exercise of the Stock Appreciation Right) of a number of shares of Common Stock
equal to the number of Common Stock equivalents in which the Participant is
vested under such Stock Appreciation Right, and with respect to which the
Participant is exercising the Stock Appreciation Right on such date, over (B)
the strike price that will be determined by the Board at the time of grant of
the Stock Appreciation Right.

(iv)          Vesting.  At the time of the grant of a Stock Appreciation
Right, the Board may impose such restrictions or conditions to the vesting of
such Stock Appreciation Right as it, in its sole discretion, deems appropriate.

(v)            Exercise. 
To exercise any outstanding Stock Appreciation Right, the Participant
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Appreciation Right Agreement evidencing such Stock
Appreciation Right.

(vi)          Payment. 
The appreciation distribution in respect to a Stock Appreciation Right
may be paid in Common Stock, in cash, in any combination of the two or in any
other form of consideration, as determined by the Board and contained in the
Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.

(vii)         Termination of
Continuous Service.  In the event that a Participant’s Continuous
Service terminates (other than for Cause), the Participant may exercise his or
her Stock Appreciation Right (to the extent that the Participant was entitled
to exercise such Stock Appreciation Right as of the date of termination) but
only within such period of time ending on the earlier of (A) the date three (3)
months following the termination of the Participant’s Continuous Service (or
such longer or shorter period specified in the Stock Appreciation Right
Agreement), or (B) the expiration of the term of the Stock Appreciation Right
as set forth in the 

 

12

 

Stock Appreciation
Right Agreement.  If, after termination,
the Participant does not exercise his or her Stock Appreciation Right within
the time specified herein or in the Stock Appreciation Right Agreement (as
applicable), the Stock Appreciation Right shall terminate.

(viii)        Termination for Cause. 
Except as explicitly provided otherwise in an Participant’s Stock
Appreciation Right Agreement, in the event that a Participant’s Continuous
Service is terminated for Cause, the Stock Appreciation Right shall terminate
upon the termination date of such Participant’s Continuous Service, and the
Participant shall be prohibited from exercising his or her Stock Appreciation
Right from and after the time of such termination of Continuous Service.

(ix)          Compliance
with Section 409A of the Code.   Notwithstanding anything to the contrary
set forth herein, any Stock Appreciation Rights granted under the Plan that are
not exempt from the requirements of Section 409A of the Code shall contain such
provisions so that such Stock Appreciation Rights will comply with the
requirements of Section 409A of the Code. 
Such restrictions, if any, shall be determined by the Board and
contained in the Stock Appreciation Right Agreement evidencing such Stock
Appreciation Right.  For example, such
restrictions may include, without limitation, a requirement that a Stock
Appreciation Right that is to be paid wholly or partly in cash must be
exercised and paid in accordance with a fixed pre-determined schedule.

(d)           Performance Awards.

(i)            Performance Stock Awards. 
A Performance Stock Award is a Stock Award that may be granted, may
vest, or may be exercised based upon the attainment during a Performance Period
of certain Performance Goals.  A
Performance Stock Award may, but need not, require the completion of a
specified period of Continuous Service. 
Notwithstanding the foregoing, to the extent required by applicable law,
any Performance Stock Award will be subject to the provisions of Exhibit A,
including provisions regarding minimum vesting requirements  The length of any Performance Period, the
Performance Goals to be achieved during the Performance Period, and the measure
of whether and to what degree such Performance Goals have been attained shall
be conclusively determined by the Committee in its sole discretion.  The maximum number of shares that may be
granted to any Participant in a calendar year attributable to Stock Awards
described in this Section 6(d)(i) shall not exceed 75,000 shares of Common
Stock.  In addition, to the extent
permitted by applicable law and the applicable Award Agreement, the Board may
determine that cash may be used in payment of Performance Stock Awards.

(ii)           Performance Cash Awards. 
A Performance Cash Award is a cash award that may be granted upon the
attainment during a Performance Period of certain Performance Goals.  A Performance Cash Award may also require the
completion of a specified period of Continuous Service.  The length of any Performance Period, the Performance
Goals to be achieved during the Performance Period, and the measure of whether
and to what degree such Performance Goals have been attained shall be
conclusively determined by the Committee in its sole discretion.  The maximum value that may be granted to any
Participant in a calendar year attributable to cash awards described in this
Section 6(d)(i) shall not exceed one million dollars ($1,000,000). The Board
may provide for or, subject to such terms and conditions as the Board 

 

13

 

may specify, may
permit a Participant to elect for, the payment of any Performance Cash Award to
be deferred to a specified date or event. 
The Committee may specify the form of payment of Performance Cash
Awards, which may be cash or other property, or may provide for a Participant
to have the option for his or her Performance Cash Award, or such portion
thereof as the Board may specify, to be paid in whole or in part in cash or
other property. In addition, to the extent permitted by applicable law and the
applicable Award Agreement, the Board may determine that Common Stock
authorized under this Plan may be used in payment of Performance Cash Awards,
including additional shares in excess of the Performance Cash Award as an
inducement to hold shares of Common Stock.

(e)           Other Stock Awards. 
Other forms of Stock Awards valued in whole or in part by reference to,
or otherwise based on, Common Stock may be granted either alone or in addition
to Stock Awards provided for under Section 5 and the preceding provisions of
this Section 6.  Subject to the provisions
of the Plan (including Exhibit A, as applicable), the Board shall have
sole and complete authority to determine the persons to whom and the time or
times at which such Other Stock Awards will be granted, the number of shares of
Common Stock (or the cash equivalent thereof) to be granted pursuant to such
Other Stock Awards and all other terms and conditions of such Other Stock
Awards.

7.             COVENANTS OF THE COMPANY.

(a)           Availability
of Shares.  During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
reasonably required to satisfy such Stock Awards.

(b)           Securities
Law Compliance.  The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided,
however, that this undertaking shall not require the Company to
register under the Securities Act the Plan, any Stock Award or any Common Stock
issued or issuable pursuant to any such Stock Award.  If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
that counsel for the Company deems necessary for the lawful issuance and sale
of Common Stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell Common Stock upon exercise of such
Stock Awards unless and until such authority is obtained.

(c)           No
Obligation to Notify.  The Company shall have no duty or
obligation to any holder of a Stock Award to advise such holder as to the time
or manner of exercising such Stock Award. 
Furthermore, the Company shall have no duty or obligation to warn or
otherwise advise such holder of a pending termination or expiration of a Stock
Award or a possible period in which the Stock Award may not be exercised.  The Company has no duty or obligation to
minimize the tax consequences of a Stock Award to the holder of such Stock
Award.

 

14

 

8.             MISCELLANEOUS.

(a)           Use of Proceeds from
Sales of Common Stock.  Proceeds from the sale of shares of
Common Stock pursuant to Stock Awards shall constitute general funds of the
Company.

(b)           Corporate Action
Constituting Grant of Stock Awards.  Corporate
action constituting a grant by the Company of a Stock Award to any Participant
shall be deemed completed as of the date of such corporate action, unless
otherwise determined by the Board, regardless of when the instrument,
certificate, or letter evidencing the Stock Award is communicated to, or
actually received or accepted by, the Participant.

(c)           Stockholder
Rights.  No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of Common Stock subject to such Stock Award unless and until such Participant
has exercised the Stock Award pursuant to its terms and the Participant shall
not be deemed to be a stockholder of record until the issuance of the Common
Stock pursuant to such exercise has been entered into the books and records of
the Company.

(d)           No
Employment or Other Service Rights.  Nothing in the
Plan, any Stock Award Agreement or other instrument executed thereunder or in
connection with any Award granted pursuant to the Plan shall confer upon any
Participant any right to continue to serve the Company or an Affiliate in the
capacity in effect at the time the Stock Award was granted or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of
a Consultant pursuant to the terms of such Consultant’s agreement with the
Company or an Affiliate, or (iii) the service of a Director pursuant to the
Bylaws of the Company or an Affiliate, and any applicable provisions of the
corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.

(e)           Incentive
Stock Option $100,000 Limitation.  To the extent
that the aggregate Fair Market Value (determined at the time of grant) of
Common Stock with respect to which Incentive Stock Options are exercisable for
the first time by any Optionholder during any calendar year (under all plans of
the Company and any Affiliates) exceeds one hundred thousand dollars
($100,000), the Options or portions thereof that exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options, notwithstanding any contrary provision of the applicable Option
Agreement(s).

(f)            Investment
Assurances.  The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant’s knowledge
and experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring Common
Stock subject to the Stock Award for the Participant’s own account and not with
any present intention of selling or otherwise 

 

15

 

distributing the
Common Stock.  The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (x) the issuance of the shares upon the exercise or acquisition
of Common Stock under the Stock Award has been registered under a then
currently effective registration statement under the Securities Act, or (y) as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws.  The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.

(g)           Withholding
Obligations.  Unless prohibited by the terms of a Stock
Award Agreement, the Company may, in its sole discretion, satisfy any federal,
state, local or foreign tax withholding obligation relating to an Award by any
of the following means (in addition to the Company’s right to withhold from any
compensation paid to the Participant by the Company) or by a combination of
such means: (i) causing the Participant to tender a cash payment;
(ii)  withholding shares of Common Stock from the shares of Common
Stock issued or otherwise issuable to the Participant in connection with the
Award; provided, however, that no shares of Common Stock are withheld with a
value exceeding the minimum amount of tax requried to be withheld by law (or
such lower amount as may be necessary to avoid classification of the Award as a
liability for financial accounting purposes); (iii) withholding cash from an
Award settled in cash; (iv) withholding payment from any payments otherwise
payable to a Participant; or (v) by such other method as may be set forth in
the Award Agreement.

(h)           Electronic
Delivery.  Any reference herein to a “written” agreement
or document shall include any agreement or document delivered electronically or
posted on the Company’s intranet.

(i)            Deferrals. 
To the extent permitted by applicable law, the Board, in its sole
discretion, may determine that the delivery of Common Stock or the payment of
cash, upon the exercise, vesting or settlement of all or a portion of any Award
may be deferred and may establish programs and procedures for deferral elections
to be made by Participants.  Deferrals by
Participants will be made in accordance with Section 409A of the Code.
Consistent with Section 409A of the Code, the Board may provide for
distributions while a Participant is still an employee.  The Board is authorized to make deferrals of
Stock Awards and determine when, and in what annual percentages, Participants
may receive payments, including lump sum payments, following the Participant’s
termination of employment or retirement, and implement such other terms and
conditions consistent with the provisions of the Plan and in accordance with
applicable law.

(j)            Compliance
with Section 409A of the Code.  To the extent that the Board determines
that any Award granted under the Plan is subject to Section 409A of the Code,
the Award Agreement evidencing such Award shall incorporate the terms and
conditions necessary to avoid the consequences specified in Section 409A(a)(1) of
the Code.  To the extent applicable, the Plan and Award
Agreements shall be interpreted in accordance with Section 409A of the Code and
Department of Treasury regulations and other interpretive guidance issued
thereunder, including without limitation any such regulations or other guidance
that may be issued or amended after the Effective Date.  Notwithstanding any provision of the Plan to
the contrary, in 

 

16

 

the event that
following the Effective Date the Board determines that any Award may be subject
to Section 409A of the Code and related Department of Treasury guidance
(including such Department of Treasury guidance as may be issued after the
Effective Date), the Board may adopt such amendments to the Plan and the
applicable Award Agreement or adopt other policies and procedures (including
amendments, policies and procedures with retroactive effect), or take any other
actions, that the Board determines are necessary or appropriate to (1) exempt
the Award from Section 409A of the Code and/or preserve the intended tax
treatment of the benefits provided with respect to the Award, or (2) comply
with the requirements of Section 409A of the Code and related Department of
Treasury guidance.

9.             ADJUSTMENTS UPON CHANGES IN COMMON STOCK; OTHER
CORPORATE EVENTS.

(a)           Capitalization
Adjustments.  In the event of a Capitalization Adjustment,
the Board shall appropriately adjust: (i) the class(es) and maximum number of
securities subject to the Plan pursuant to Section 3(a), (ii) the class(es) and
maximum number of securities that may be issued pursuant to the exercise of
Incentive Stock Options pursuant to Section 3(d), (iii) the class(es) and
maximum number of securities that may be awarded to any person pursuant to
Section 3(d) and 6(d)(i), and (iv) the class(es) and number of securities and
price per share of stock subject to outstanding Stock Awards.  The Board shall make such adjustments, and
its determination shall be final, binding and conclusive.

(b)           Dissolution
or Liquidation.  Except as otherwise provided in the Stock
Award Agreement, in the event of a dissolution or liquidation of the Company,
all outstanding Stock Awards (other than Stock Awards consisting of vested and
outstanding shares of Common Stock not subject to the Company’s right of
repurchase) shall terminate immediately prior to the completion of such
dissolution or liquidation, and the shares of Common Stock subject to the
Company’s repurchase option may be repurchased by the Company notwithstanding
the fact that the holder of such Stock Award is providing Continuous Service, provided, however, that the Board may, in
its sole discretion, cause some or all Stock Awards to become fully vested,
exercisable and/or no longer subject to repurchase or forfeiture (to the extent
such Stock Awards have not previously expired or terminated) before the
dissolution or liquidation is completed but contingent on its completion.

(c)           Corporate Transaction.   The following provisions shall apply to Stock
Awards in the event of a Corporate Transaction unless otherwise provided in the
instrument evidencing the Stock Award or any other written agreement between
the Company or any Affiliate and the holder of the Stock Award or unless
otherwise expressly provided by the Board at the time of grant of a Stock
Award.

(i)            Stock Awards May Be
Assumed.  Except as otherwise stated in the Stock Award
Agreement, in the event of a Corporate Transaction, any surviving corporation
or acquiring corporation (or the surviving or acquiring corporation’s parent
company) may assume or continue any or all Stock Awards outstanding under the
Plan or may substitute similar stock awards for Stock Awards outstanding under
the Plan (including but not limited to, awards to acquire the same
consideration paid to the stockholders of the Company pursuant to the Corporate
Transaction), and any reacquisition or repurchase rights held by the Company in
respect of Common Stock issued pursuant to Stock Awards may be assigned by the
Company to 

 

17

 

the successor of
the Company (or the successor’s parent company, if any), in connection with
such Corporate Transaction.  A surviving
corporation or acquiring corporation (or its parent) may choose to assume or
continue only a portion of a Stock Award or substitute a similar stock award
for only a portion of a Stock Award.  The
terms of any assumption, continuation or substitution shall be set by the Board
in accordance with the provisions of Section 2.

(ii)           Stock Awards Held by
Current Participants.  Except as otherwise stated in
the Stock Award Agreement, in the event of a Corporate Transaction in which the
surviving corporation or acquiring corporation (or its parent company) does not
assume or continue such outstanding Stock Awards or substitute similar stock
awards for such outstanding Stock Awards, then with respect to Stock Awards
that have not been assumed, continued or substituted and that are held by
Participants whose Continuous Service has not terminated prior to the effective
time of the Corporate Transaction (referred to as the “Current Participants”),
the vesting of such Stock Awards (and, if applicable, the time at which such
Stock Awards may be exercised) shall (contingent upon the effectiveness of the
Corporate Transaction) be accelerated in full to a date prior to the effective
time of such Corporate Transaction as the Board shall determine (or, if the
Board shall not determine such a date, to the date that is five (5) days prior
to the effective time of the Corporate Transaction), and such Stock Awards
shall terminate if not exercised (if applicable) at or prior to the effective
time of the Corporate Transaction, and any reacquisition or repurchase rights
held by the Company with respect to such Stock Awards shall lapse (contingent
upon the effectiveness of the Corporate Transaction).

(iii)         Stock Awards Held by
Persons other than Current Participants.  Except as
otherwise stated in the Stock Award Agreement, in the event of a Corporate
Transaction in which the surviving corporation or acquiring corporation (or its
parent company) does not assume or continue such outstanding Stock Awards or
substitute similar stock awards for such outstanding Stock Awards, then with
respect to Stock Awards that have not been assumed, continued or substituted
and that are held by persons other than Current Participants, the vesting of
such Stock Awards (and, if applicable, the time at which such Stock Award may
be exercised) shall not be accelerated and such Stock Awards (other than a
Stock Award consisting of vested and outstanding shares of Common Stock not subject
to the Company’s right of repurchase) shall terminate if not exercised (if
applicable) prior to the effective time of the Corporate Transaction; provided, however, that any reacquisition
or repurchase rights held by the Company with respect to such Stock Awards
shall not terminate and may continue to be exercised notwithstanding the
Corporate Transaction.

(iv)          Payment for Stock Awards
in Lieu of Exercise.  Notwithstanding the foregoing, in the event a
Stock Award will terminate if not exercised prior to the effective time of a
Corporate Transaction, the Board may provide, in its sole discretion, that the
holder of any Stock Award that is not exercised prior to such effective time
will receive a payment, in such form as may be determined by the Board, equal
in value to the excess, if any, of (A) the value of the property the holder of
the Stock Award would have received upon the exercise of the Stock Award, over
(B) any exercise price payable by such holder in connection with such exercise.

(d)           Change
in Control.  A Stock Award may be subject to additional
acceleration of vesting and exercisability upon or after a Change in Control as
may be provided in the Stock Award Agreement for such Stock Award or as may be
provided in any other written agreement 

 

18

 

between the
Company or any Affiliate and the Participant, but in the absence of such
provision, no such acceleration shall occur.

10.          TERMINATION OR SUSPENSION OF THE PLAN.

(a)           Plan
Term.  Unless sooner terminated by the Board
pursuant to Section 2, the Plan shall automatically terminate on the day before
the tenth (10th) anniversary of the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier.  No Awards may be granted under the Plan while
the Plan is suspended or after it is terminated.

(b)           No
Impairment of Rights.  Termination of the Plan shall
not impair rights and obligations under any Award granted while the Plan is in
effect except with the written consent of the affected Participant.

11.          EFFECTIVE DATE OF PLAN.

This Plan shall become
effective on the Effective Date (as set forth on the first page of this Plan);
provided, however, that no Award shall be exercised unless and until the Plan
has been approved by the shareholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board.

12.          CHOICE OF LAW.

Except as (and solely to
the extent) expressly provided in Exhibit B hereto, the law of the State
of California shall govern all questions concerning the construction, validity
and interpretation of this Plan, without regard to such state’s conflict of
laws rules.

13.          DEFINITIONS.   As used in the Plan, the definitions contained in this
Section 13 shall apply to the capitalized terms indicated below:

(a)           “Affiliate” means, at the time of determination, any “parent” or “subsidiary”
of the Company as such terms are defined in Rule 405 of the Securities
Act.  The Board shall have the authority
to determine the time or times at which “parent” or “subsidiary” status is
determined within the foregoing definition.

(b)           “Applicable Laws” means the requirements relating to the administration
of compensatory cash and equity-based award plans under United States federal,
state and local laws, the rules and regulations of any stock exchange or
quotation system on which the Common Stock is listed or quoted and/or the
applicable laws of any other country or jurisdiction where Awards are granted
under the Plan.

(c)           “Award” means a Stock Award or a Performance Cash Award.

(d)           “Board” means the Board of Directors of the Company.

(e)           “Capitalization Adjustment” means any change that is made in, or other events
that occur with respect to, the Common Stock subject to the Plan or subject to
any Stock Award 

 

19

 

after the
Effective Date without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by
the Company.  Notwithstanding the
foregoing, the conversion of any convertible securities of the Company shall
not be treated as a transaction “without receipt of consideration” by the
Company.

(f)            “Cause”
means with
respect to a Participant, the occurrence of any of the following events:  (i) such Participant’s commission of any
felony or any crime involving fraud, dishonesty or moral turpitude under the
laws of the United States or any state thereof; (ii) such Participant’s
attempted commission of, or participation in, a fraud or act of dishonesty
against the Company; (iii) such Participant’s intentional, material violation
of any contract or agreement between the Participant and the Company or of any
statutory duty owed to the Company; (iv)  such Participant’s
unauthorized use or disclosure of the Company’s confidential information or
trade secrets; or (v) such Participant’s gross misconduct. The determination
that a termination of the Participant’s Continuous Service is either for Cause
or without Cause shall be made by the Company in its sole discretion.  Any determination by the Company that the
Continuous Service of a Participant was terminated by reason of dismissal
without Cause for the purposes of outstanding Awards held by such Participant
shall have no effect upon any determination of the rights or obligations of the
Company or such Participant for any other purpose.

Notwithstanding the
foregoing or any other provision of this Plan, the definition of Cause (or any
analogous term) in an individual written agreement between the Company or any
Affiliate and the Participant shall supersede the foregoing definition with
respect to Awards subject to such agreement; provided,
however, that if no definition of Cause or any analogous term is set
forth in such an individual written agreement, the foregoing definition shall
apply.

(g)           “Change in Control” means the occurrence, in a single transaction or in a
series of related transactions, of any one or more of the following events:

(i)            any Exchange Act Person becomes the
Owner, directly or indirectly, of securities of the Company representing more
than fifty percent (50%) of the
combined voting power of the Company’s then outstanding securities other than
by virtue of a merger, consolidation or similar transaction .  Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur (A) on account
of the acquisition of securities of the Company by an investor, any affiliate
thereof or any other Exchange Act Person from the Company in a transaction or
series of related transactions the primary purpose of which is to obtain
financing for the Company through the issuance of equity securities or (B)
solely because the level of Ownership held by any Exchange Act Person (the “Subject Person”) exceeds the designated percentage
threshold of the outstanding voting securities as a result of a repurchase or
other acquisition of voting securities by the Company reducing the number of
shares outstanding, provided that if a Change in Control would occur (but for
the operation of this sentence) as a result of the acquisition of voting
securities by the Company, and after such share acquisition, the Subject Person
becomes the Owner of any additional voting securities that, assuming the
repurchase or other acquisition had not occurred, increases the percentage of
the then outstanding 

 

20

 

voting securities Owned by the Subject Person over the designated
percentage threshold, then a Change in Control shall be deemed to occur;

(ii)           there is consummated a merger,
consolidation or similar transaction involving (directly or indirectly) the
Company and, immediately after the consummation of such merger, consolidation
or similar transaction, the stockholders of the Company immediately prior
thereto do not Own, directly or indirectly, either (A) outstanding voting
securities representing more than fifty percent
(50%) of the combined outstanding voting power of the surviving Entity
in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined
outstanding voting power of the parent of the surviving Entity in such merger,
consolidation or similar transaction, in each case in substantially the same
proportions as their Ownership of the outstanding voting securities of the Company
immediately prior to such transaction;

(iii)         there is consummated a sale, lease,
exclusive license or other disposition of all or substantially all of the
consolidated assets of the Company and its Subsidiaries, other than a sale,
lease, license or other disposition of all or substantially all of the
consolidated assets of the Company and its Subsidiaries to an Entity, more than
fifty percent (50%) of the
combined voting power of the voting securities of which are Owned by
stockholders of the Company in substantially the same proportions as their
Ownership of the outstanding voting securities of the Company immediately prior
to such sale, lease, license or other disposition; or

(iv)          individuals who, on the date this Plan is
adopted by the Board, are members of the Board (the “Incumbent
Board”) cease for any reason to constitute at least a majority
of the members of the Board; (provided, however,
that if the appointment or election (or nomination for election) of any new
Board member was approved or recommended by a majority vote of the members of
the Incumbent Board then still in office, such new member shall, for purposes
of this Plan, be considered as a member of the Incumbent Board).

For the avoidance of
doubt, the term Change in Control shall not include a sale of assets, merger or
other transaction effected exclusively for the purpose of changing the domicile
of the Company.

Notwithstanding the
foregoing or any other provision of this Plan, the definition of Change in
Control (or any analogous term) in an individual written agreement between the
Company or any Affiliate and the Participant shall supersede the foregoing
definition with respect to Awards subject to such agreement; provided, however, that if no definition
of Change in Control or any analogous term is set forth in such an individual
written agreement, the foregoing definition shall apply.

(h)           “Code” means the Internal Revenue Code of 1986, as amended.

(i)            “Committee” means a committee of two (2) or more Directors to
whom authority has been delegated by the Board in accordance with Section 2(c).

(j)            “Common Stock” means the common stock of the Company.

(k)           “Company” means Quark Biotech, Inc., a California corporation.

 

21

 

(l)            “Consultant” means any person, including an advisor,
who is (i) engaged by the Company or an Affiliate to render consulting or
advisory services and is compensated for such services, or (ii) serving as a
member of the board of directors of an Affiliate and is compensated for such
services.  However, service solely as a
Director, or payment of a fee for such service, shall not cause a Director to
be considered a “Consultant” for purposes of the Plan.

(m)          “Continuous Service” means that the Participant’s service with the Company
or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated.  A change in
the capacity in which the Participant renders service to the Company or an
Affiliate as an Employee, Consultant or Director or a change in the entity for
which the Participant renders such service, provided that there is no
interruption or termination of the Participant’s service with the Company or an
Affiliate, shall not terminate a Participant’s Continuous Service.  For example, a change in status from an
employee of the Company to a consultant to an Affiliate or to a Director shall
not constitute an interruption of Continuous Service.  To the extent permitted by law, the Board or
the chief executive officer of the Company, in that party’s sole discretion,
may determine whether Continuous Service shall be considered interrupted in the
case of any leave of absence approved by that party, including sick leave,
military leave or any other personal leave. 
Notwithstanding the foregoing, a leave of absence shall be treated as
Continuous Service for purposes of vesting in a Stock Award only to such extent
as may be provided in the Company’s leave of absence policy, in the written
terms of any leave of absence agreement or policy applicable to the Participant,
or as otherwise required by law.

(n)           “Corporate Transaction” means the occurrence, in a single transaction or in a
series of related transactions, of any one or more of the following events:

(i)            the consummation of a sale  or other disposition of all or substantially all, as
determined by the Board in its sole discretion, of the consolidated assets of
the Company and its Subsidiaries;

(ii)           the consummation of a sale or other
disposition of at least ninety percent
(90%) of the outstanding securities of the Company;

(iii)         the consummation of a merger,
consolidation or similar transaction following which the Company is not the
surviving corporation; or

(iv)          the consummation of a merger,
consolidation or similar transaction following which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger, consolidation or similar transaction are converted or
exchanged by virtue of the merger, consolidation or similar transaction into
other property, whether in the form of securities, cash or otherwise.

(o)           “Covered Employee” shall have the meaning provided in Section 162(m)(3)
of the Code and the regulations promulgated thereunder.

(p)           “Director” means a member of the Board.

(q)           “Disability” means, with respect to a Participant,  the inability of such Participant to engage
in any substantial gainful activity by reason of any medically determinable
physical or 

 

22

 

mental impairment
which can be expected to result in death or can be expected to last for a
continuous period of not less than twelve (12) months, as provided in Section
22(e)(3) and 409A(a)(2)(c)(i) of the Code.

(r)           “Effective Date” means the effective date of
this Plan document, which is the earlier of (i) the date that this Plan is
first approved by the Company’s shareholders or (ii) the date this Plan is
approved by the Board.

(s)           “Employee” means any person employed by the Company
or an Affiliate.  However, service solely
as a Director, or payment of a fee for such services, shall not cause a
Director to be considered an “Employee” for purposes of the Plan.

(t)            “Entity” means a corporation, partnership, limited liability
company or other entity.

(u)           “Exchange Act” means the Securities Exchange Act of 1934, as
amended.

(v)            “Exchange Act Person” means any natural person, Entity or “group” (within
the meaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange
Act Person” shall not include (i) the Company or any Subsidiary of the Company,
(ii) any employee benefit plan of the Company or any Subsidiary of the Company
or any trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any Subsidiary of the Company, (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities, (iv)
an Entity Owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their Ownership of stock of the Company;
or (v) any natural person, Entity or “group” (within the meaning of Section
13(d) or 14(d) of the Exchange Act) that, as of the Effective Date of the Plan
as set forth in Section 11, is the Owner, directly or indirectly, of securities
of the Company representing more than fifty percent (50%) of the combined
voting power of the Company’s then outstanding securities.

(w)           “Fair Market Value” means, as of any date, the value of the Common Stock
determined as follows:

(i)            If the Common Stock is listed on any
established stock exchange or traded on any established market, unless
otherwise determined by the Board, the Fair Market Value of a share of Common
Stock shall be the closing sales price for such stock (or the closing bid, if
no sales were reported) as quoted on such exchange or market (or the exchange
or market with the greatest volume of trading in the Common Stock) on the date
of determination, as reported in The Wall Street Journal  or such other source as the Board deems
reliable.  Unless otherwise provided by
the Board, if there is no closing sales price (or closing bid if no sales were
reported) for the Common Stock on the date of determination, then the Fair
Market Value shall be the closing selling price (or closing bid if no sales
were reported) on the last preceding date for which such quotation exists.

(ii)           In the absence of such markets for the
Common Stock, the Fair Market Value shall be determined by the Board in good
faith.

 

23

 

(x)           “Incentive Stock Option” means an option granted pursuant to Section 5 of the
Plan that is intended to be, and qualifies as, an “incentive stock option”
within the meaning of Section 422 of the Code and the regulations
promulgated thereunder.

(y)           “Non-Employee Director”  means a Director who either (i) is not a current
employee or officer of the Company or an Affiliate, does not receive
compensation, either directly or indirectly, from the Company or an Affiliate
for services rendered as a consultant or in any capacity other than as a
Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
(“Regulation S-K”)),
does not possess an interest in any other transaction for which disclosure
would be required under Item 404(a) of Regulation S-K, and is not engaged in a
business relationship for which disclosure would be required pursuant to
Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee
director” for purposes of Rule 16b-3.

(z)           “Nonstatutory Stock Option” means any option granted pursuant to Section 5 of the
Plan that does not qualify as an Incentive Stock Option.

(aa)         “Officer” means any person designated by the Company as an
officer; provided, however, that at any time that any class of the equity
securities of the Company is registered pursuant to Section 12 of the Exchange
Act, “Officer” shall mean a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(bb)         “Option” means an Incentive Stock Option or a Nonstatutory
Stock Option to purchase shares of Common Stock granted pursuant to the Plan.

(cc)         “Option Agreement” means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an Option grant.  Each Option Agreement shall be subject to the
terms and conditions of the Plan.

(dd)         “Optionholder” means a person to whom an Option is granted pursuant
to the Plan or, if permitted under the terms of this Plan, such other person
who holds an outstanding Option.

(ee)         “Other
Stock Award”
means an award based in whole or in part by reference to the Common Stock which
is granted pursuant to the terms and conditions of Section 6(e).

(ff)           “Other
Stock Award Agreement” means a written agreement between the Company and a
holder of an Other Stock Award evidencing the terms and conditions of an Other
Stock Award grant.  Each Other Stock
Award Agreement shall be subject to the terms and conditions of the Plan.

(gg)         “Outside Director” means a Director who either (i) is not a current
employee of the Company or an “affiliated corporation” (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an “affiliated corporation” who receives
compensation for prior services (other than benefits under a tax-qualified
retirement plan) during the taxable year, has not been an officer of the
Company or an “affiliated corporation,” and does not receive remuneration from
the Company or an 

 

24

 

“affiliated
corporation,” either directly or indirectly, in any capacity other than as a
Director, or (ii) is otherwise considered an “outside director” for purposes of
Section 162(m) of the Code.

(hh)         “Own,” “Owned,” “Owner,” “Ownership”  A person or Entity shall be deemed to “Own,” to have “Owned,”
to be the “Owner” of, or to have acquired “Ownership” of securities if such
person or Entity, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares voting power, which
includes the power to vote or to direct the voting, with respect to such
securities.

(ii)           “Participant” means a person to whom an Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.

(jj)           “Performance Cash Award” means an award of cash granted pursuant to the terms
and conditions of Section 6(d)(ii).

(kk)        “Performance
Criteria”
means the one or more criteria that the Board shall select for purposes of
establishing the Performance Goals for a Performance Period.  The Performance Criteria that shall be used
to establish such Performance Goals may be based on any one of, or combination
of, the following: (i) earnings per share; (ii) earnings before interest, taxes
and depreciation; (iii) earnings before interest, taxes, depreciation and
amortization; (iv) total stockholder return; (v) return on equity; (vi) return
on assets, investment, or capital employed; (vii) operating margin; (viii)
gross margin; (ix) operating income; (x) net income (before or after taxes);
(xi) net operating income; (xii) net operating income after tax; (xiii) pre-tax
profit; (xiv) operating cash flow; (xv) sales or revenue targets; (xvi)
increases in revenue or product revenue; (xvii) expenses and cost reduction
goals; (xviii) improvement in or attainment of working capital levels; (xix)
economic value added (or an equivalent metric); (xx) market share; (xxi) cash
flow; (xxii) cash flow per share; (xxiii) share price performance; (xxiv) debt
reduction; (xxv) implementation or completion of projects or processes; (xxvi)
customer satisfaction; (xxvii) stockholders’ equity; and (xxviii) to the extent
that an Award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by
the Board.  Partial achievement of the
specified criteria may result in the payment or vesting corresponding to the
degree of achievement as specified in the Stock Award Agreement or the written
terms of a Performance Cash Award.  The
Board shall, in its sole discretion, define the manner of calculating the
Performance Criteria it selects to use for such Performance Period.

(ll)           “Performance
Goals” means,
for a Performance Period, the one or more goals established by the Board for
the Performance Period based upon the Performance Criteria.  Performance Goals may be based on a
Company-wide basis, with respect to one or more business units, divisions,
Affiliates, or business segments, and in either absolute terms or relative to
the performance of one or more comparable companies or the performance of one
or more relevant indices.  At the time of
the grant of any Award, the Board is authorized to determine whether, when
calculating the attainment of Performance Goals for a Performance Period: (i)
to exclude restructuring and/or other nonrecurring charges; (ii) to exclude
exchange rate effects, as applicable, for non-U.S. dollar denominated net sales
and operating earnings; (iii) to exclude the effects of changes to generally
accepted accounting standards required by the Financial Accounting Standards
Board; (iv) to exclude the effects of any statutory adjustments to corporate
tax rates; and (v) to exclude the effects of any “extraordinary items” as
determined under 

 

25

 

generally accepted
accounting principles.  In addition, the
Board retains the discretion to reduce or eliminate the compensation or
economic benefit due upon attainment of Performance Goals.

(mm)       “Performance
Period” means
the period of time selected by the Board over which the attainment of one or
more Performance Goals will be measured for the purpose of determining a
Participant’s right to and the payment of a Stock Award or a Performance Cash
Award.  Performance Periods may be of
varying and overlapping duration, at the sole discretion of the Board.

(nn)         “Performance Stock Award” means a Stock Award granted under the terms and
conditions of Section 6(d)(i).

(oo)         “Plan” means this Quark Biotech, Inc. 2007 Equity Incentive Plan.

(pp)         “Restricted
Stock Award”
means an award of shares of Common Stock which is granted pursuant to the terms
and conditions of Section 6(a).

(qq)         “Restricted
Stock Award Agreement” means a written agreement between the Company and a
holder of a Restricted Stock Award evidencing the terms and conditions of a
Restricted Stock Award grant.  Each
Restricted Stock Award Agreement shall be subject to the terms and conditions
of the Plan.

(rr)         “Restricted
Stock Unit Award” means a right to receive shares of Common Stock which is granted
pursuant to the terms and conditions of Section 6(b).

(ss)         “Restricted
Stock Unit Award Agreement” means a written agreement between the Company and a
holder of a Restricted Stock Unit Award evidencing the terms and conditions of
a Restricted Stock Unit Award grant. 
Each Restricted Stock Unit Award Agreement shall be subject to the terms
and conditions of the Plan.

(tt)            “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act
or any successor to Rule 16b-3, as in effect from time to time.

(uu)         “Securities Act” means the Securities Act of 1933, as amended.

(vv)          “Stock
Appreciation Right” means a right to receive the appreciation on Common Stock that is
granted pursuant to the terms and conditions of Section 6(c).

(ww)        “Stock
Appreciation Right Agreement” means a written agreement between the Company and a
holder of a Stock Appreciation Right evidencing the terms and conditions of a
Stock Appreciation Right grant.  Each
Stock Appreciation Right Agreement shall be subject to the terms and conditions
of the Plan.

(xx)         “Stock
Award” means
any right to receive Common Stock granted under the Plan, including an
Incentive Stock Option, a Nonstatutory Stock Option, a Restricted Stock Award,
a Restricted Stock Unit Award, a Stock Appreciation Right, a Performance Stock
Award or any Other Stock Award.

 

26

 

(yy)         “Stock
Award Agreement”
means a written agreement between the Company and a Participant evidencing the
terms and conditions of a Stock Award grant. 
Each Stock Award Agreement shall be subject to the terms and conditions
of the Plan.

(zz)         “Subsidiary” means, with respect to the Company, (i) any
corporation of which more than fifty percent (50%) of the outstanding capital
stock having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether, at the time, stock of
any other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time, directly
or indirectly, Owned by the Company, and (ii) any partnership, limited
liability company or other entity in which the Company has a direct or indirect
interest (whether in the form of voting or participation in profits or capital)
of more than fifty percent (50%).

(aaa)       “Ten Percent Stockholder” means a person who Owns (or is deemed to Own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Affiliate.

 

27

 

EXHIBIT A

PROVISIONS
APPLICABLE FOR AWARDS MADE PURSUANT TO

SECTION
25102(O) OF THE CALIFORNIA CORPORATE SECURITIES LAW OF 1968

 

As provided in Section
1(d) of the Plan, in the case of a Participant who is a resident of the State
of California, notwithstanding anything to the contrary in the Plan or in such
Participant’s Stock Award Agreement, the following terms shall apply to any
Stock Award granted to such Participant in reliance on Section 25102(o) and
shall be deemed to be a part of the Plan, if and to the extent compliance with
the terms set forth below is required under Section 25102(o).  In the event of any conflict or inconsistency
between the following provisions and any provisions otherwise appearing in the
Plan, the following provisions shall control solely with respect to Stock
Awards granted under the Plan to residents of the State of California in reliance
on Section 25102(o) , if and to the extent compliance with the terms set forth
below is required under Section 25102(o), provided that,
for the avoidance of doubt, with respect to any requirement set forth herein,
the corresponding provision set forth in the applicable Stock Award Agreement
or the Plan shall control in lieu of the minimum requirement set forth herein
as long as such corresponding provision of the Stock Award Agreement or the
Plan is no less favorable to the Participant than the applicable minimum
requirement set forth herein:

 

1.             Exercise Price.  The Exercise Price shall not be
less than 100% of the Fair Market Value of the Common Stock subject to the
Stock Award at the time the Stock Award is granted, except that the Exercise
Price shall not be less than (i) one hundred ten percent (110%) of the Fair
Market Value of the Common Stock in the case of any Participant who owns
securities possessing more than 10% of the total combined voting power (as
defined in Section 194.5 of the California Corporations Code in the case of a
corporate issuer) of all classes of securities of the Company or its Affiliates
possessing voting power, or (ii) such lower percentage of the Fair Market Value
of the Common Stock on the date of grant as is permitted by Section 260.140.41
of Title 10 of the California Code of Regulations at the time of the grant of
the Stock Award.  The
Fair Market Value of the Common Stock shall be determined by the Board in a
manner consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations.

 

2.             Term.  No Stock Award shall have an
exercise period of more than 120 months from the date such Stock Award is
granted.

 

3.             Minimum Vesting.  To the extent that the following restrictions
on vesting are required by Section 260.140.41(f) of Title 10 of the California
Code of Regulations at the time of the grant of the Stock Award, then:

 

                (a)           Stock
Awards granted to a Participant who is not an officer, director, manager or
consultant of the Company or its Affiliates shall provide for vesting of the
total number of shares of Common Stock at a rate of at least twenty percent
(20%) per year over five (5) years from the date the Stock Award was granted,
subject to reasonable conditions such as continued employment; and

 

 

28

 

 

 

                (b)           Stock
Awards granted to officers, directors, managers or consultants of the Company
or its Affiliates may be made fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any period
established by the Company.

 

4.             Extended Exercise.  A Participant who ceases to be an
employee or service provider to the Company or of an Affiliate for any reason
other than for Cause may exercise any Stock Award, to the extent that the Stock
Award is exercisable on the date of such termination:

                 (a)           at least 6 months from the date of termination if
termination was caused by death or disability;

                 (b)           at least 30 days from the date of termination if
termination was caused by other than death or disability.

 

5.             Repurchase Limitation.  The repurchase price for any shares subject
to a Stock Award to be repurchased pursuant to Section 5(l) or Section 6 of the
Plan may be either the Fair Market Value of such Common Stock on the date of
the Participant’s termination of Continuous Service or the lower of (i) the
Fair Market Value of the Common Stock on the date of repurchase, or (ii) the
original purchase price of the Common Stock. 
Notwithstanding anything in the Plan or herein to the contrary, to the
extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations at the time a Stock Award is granted, any
repurchase right contained in a Stock Award Agreement granted to a person who
is not an officer, director, manager or consultant of the Company or its
Affiliates shall be upon the terms described below:

 

                (a)           Fair
Market Value.  If the repurchase
right gives the Company the right to repurchase the Common Stock upon
termination of service at not less than the Fair Market Value of the Common
Stock to be purchased on the date of termination of service, then (i) the right
to repurchase shall be exercised for cash or cancellation of purchase money
indebtedness for the Common Stock within ninety (90) days of termination of
service (or in the case of Common Stock issued upon exercise of Stock Awards
after such date of termination, within ninety (90) days after the date of the
exercise) or such longer period as may be agreed to by the Company and the
Participant, and (ii) the right terminates when the Company’s securities become
publicly traded.

 

                (b)           Original
Purchase Price.  If the repurchase
right gives the Company the right to repurchase the Common Stock upon
termination of service at the lower of (i) the Fair Market Value of the Common
Stock on the date of repurchase or (ii) their original purchase price, then (x)
the right to repurchase at the original purchase price shall lapse at the rate
of at least twenty percent (20%) of the Common Stock per year over five (5)
years from the date the Stock Award is granted (without respect to the date the
Stock Award was exercised or became exercisable) and (y) the right to
repurchase shall be exercised for cash or cancellation of purchase money indebtedness
for the Common Stock within ninety (90) days of termination of service (or in
the case of Common Stock issued upon exercise of Stock Awards after such date
of termination, within ninety (90) days after the date of the exercise) or such
longer period as may be agreed to by the Company and the Participant.

 

 

29

 

 

 

6.             Information Obligation.  To the extent required by Section 260.140.46
of Title 10 of the California Code of Regulations, the Company shall deliver
financial statements to Participants covered by this Exhibit A at least
annually.  This Section shall not apply
to key employees whose duties in connection with the Company assure them access
to equivalent information.

 

7.             Restriction on  Transfer.  A Stock
Award granted to a California resident shall not be transferable, other than by
will or the laws of descent and distribution, or as permitted by rule 701 of
the Securities Act of 1933, as amended.

 

8.             Voting Rights.  The Common Stock subject to Stock Awards
under the Plan will carry equal voting rights on all matters where such vote is
permitted by applicable law.

 

 

30

 

 

EXHIBIT B

ISRAELI
SUB-PLAN

 

 

1.             General Terms.

 

(a)           This Exhibit B to the Quark Biotech,
Inc. 2007 Equity Incentive Plan (the “Plan”) shall apply only to Participants who
are residents of the state of Israel upon the date of grant of the Stock Award
by the Employing Corporation, or those who are deemed to be residents of the
state of Israel for tax purposes upon the date of grant of the Stock Award by
the Employing Corporation (collectively, “Israeli Participants”). The provisions
specified hereunder shall form an integral part of the Plan.

 

(b)           This Exhibit B is effective
with respect to Stock Awards to be granted to Israeli Participants according to
the resolutions of the Board.

 

(c)           This Exhibit B is to be read
as a continuation of the Plan and modifies Stock Awards granted to Israeli
Participants to the extent necessary to comply with the requirements set by the
Israeli law in general, and in particular with the provisions of the Ordinance
and Section 102 thereof and any regulations, rules, orders or procedures
promulgated thereunder, as may be amended or replaced from time to time. For
the avoidance of doubt, this Exhibit B does not add to or modify the
Plan in respect of any other category of Participants.

 

(d)           The Plan and this Exhibit B
are complementary to each other and shall be deemed as one.  In any case of contradiction, whether express
or implied, between the provisions of this Exhibit B and the Plan, the
provisions set out in this Exhibit B shall prevail.

 

(e) Any
capitalized term used herein but not specifically defined in this Exhibit B
shall be construed according to the interpretation given to it in the Plan and
any capitalized term defined in the Ordinance and used herein but not
specifically defined in the Plan or in this Exhibit B shall be construed
according to the interpretation given to it in the Ordinance.

 

2.             Definitions.

 

(a)           “Approved
102 Stock Award” means a Stock Award granted pursuant to
Section 102(b) of the Ordinance and held in trust by a Trustee for the benefit
of the Participant. Approved 102 Stock Awards may either be classified as
Capital Gain Stock Awards (“CGA”) or Ordinary Income Stock Award (“OIA”).

 

(b)           “Capital
Gain Stock Award” or “CGA” means an Approved 102 Stock
Award elected and designated by the Company to qualify under the capital gain
tax treatment in accordance with the provisions of Section 102(b)(2) of the
Ordinance.

 

(c)           “Approved
102 Option” means an Option granted pursuant to Section 102(b)
of the Ordinance and held in trust by a Trustee for the benefit of the
Participant.

 

 

31

 

 

(d)           “Controlling
Shareholder” shall have the meaning ascribed to it in Section
32(9) of the Ordinance.

 

(e)           “Employee”,
as defined in the Plan, but shall also include an individual who is serving as
an Officer Holder, and shall exclude a Controlling Shareholder.

 

(f)            “Employing
Corporation” means Q.B.I. Enterprises Ltd., the Company and any
Affiliate all within the meaning of Section 102(a) of the Ordinance.

 

(g)             “ITA”
means the Israeli Tax Authorities.

 

(h)           “Non-Employee”
means an Israeli Participant that is not an Employee (as defined herein) and
includes a Controlling Shareholder, or Consultant.

 

(i)            “Ordinary
Income Stock Award” or “OIA”,
which means an Approved 102 Stock Award elected and designated by the Company
to qualify under the ordinary income tax treatment in accordance with the
provisions of Section 102(b)(1) of the Ordinance.

 

(j)            “102
Stock Award” means a Stock Award that the Board intends to be a
“102 Stock Award” and which shall only be granted to Employees of the Company
or any Affiliate who are not Controlling Shareholders, and shall be subject to
and construed consistently with the requirements of Section 102.

 

(k)           “3(i)
Stock Award” means Stock Awards issued to Israeli Participants
that do not contain such terms as will qualify under Section 102.

 

(l)            “Office
Holders” (“Nose Misra”) - as such term is defined in the
Companies Law, 5759-1999, including, inter alia, any person who is part of the
upper management of the Company or an Affiliate and who grants managerial
services to the Company, or to an Affiliate.

 

(m)          “Ordinance”
means the 1961 Israeli Income Tax Ordinance (New Version), as now in effect or
as hereafter amended.

 

(n)           “Section
102” means Section 102 of the Ordinance, as now in effect or as
hereafter amended.

 

(o)           “Trustee”
means a trustee to be approved by the ITA pursuant to Section 102.

 

(p)           “Unapproved
102 Stock Award” means a Stock Award granted pursuant to Section
102(c) of the Ordinance and not held in trust by a Trustee.

 

3.             Eligibility; Issuance of Stock
Awards.

 

(a)           The persons eligible for
participation in the Plan as Israeli Participants shall include any Employees,
Office Holders and/or Non-Employees of the Company and its Affiliates 

 

 

32

 

 

(as such term is defined
in the  Plan); provided,
however, that (i) Employees may only be granted 102 Stock Awards and Office
Holders may be granted 102 Stock Awards; and (ii) Non-Employees and/or
Controlling Shareholders may only be granted 3(i) Stock Awards.

 

(b)           The Company may designate Stock
Awards granted to Israeli Employees pursuant to Section 102 as Unapproved 102
Stock Awards or Approved 102 Stock Awards.

 

(c)           The grant of Approved 102 Stock
Awards shall be made under this Exhibit B adopted by the Board, and shall be
conditioned upon the approval of this Exhibit B by the ITA.

 

(d)           Approved 102 Stock Awards may either
be classified as Capital Gain Stock Awards or Ordinary Income Awards.

 

(e)           The Company’s election of the type of
Approved 102 Stock Awards as CGAs or OIAs granted to Israeli Employees (the “Election”), shall be appropriately filed
with the ITA before the date of grant of an Approved 102 Option under such
Election. Such Election shall become effective beginning the first date of
grant of an Approved 102 Stock Award under such Election and shall remain in
effect until the end of the year following the year during which the Company
first granted Approved 102 Stock Awards under such Election. For the avoidance
of doubt, such Election shall not prevent the Company from granting Unapproved
102 Stock Awards simultaneously.

 

(f)            The Company shall have no liability
to an Israeli Participant or to any other party, if a Stock Award (or any part
thereof), which is intended to be a 102 Stock Award, is not a 102 Stock Award.

 

(g)           All Approved 102 Stock Awards, must
be held in trust by a Trustee as described in Section 4 below.

 

(h)           For the avoidance of any doubt, the
designation of Unapproved 102 Stock Awards and Approved 102 Stock Awards shall
be subject to the terms and conditions set forth in Section 102 of the
Ordinance and the regulations promulgated thereunder.

 

(i)            Anything in the Plan to the contrary
notwithstanding, all grants of Stock Awards to directors and Office Holders
shall be authorized and implemented in accordance with the provisions of the
Companies Law, 5759-1999, or any successor act or regulation, as in effect from
time to time, to the extent that these provisions are applicable.

 

(j)            Shares issued upon exercise of a
Stock Award shall be issued in the name of the Trustee (if issued on exercise
of Stock Awards held by the Trustee at the time of exercise) or in the name of
the Israeli Participant or; if requested by the Israeli Participant, in the
name of the Israeli Participant and his or her spouse.

 

(k)           Subject to the provision of Section
102, the Board may at any time offer to buy out for a payment in cash or shares
of Common Stock, a  Stock Award
previously granted, based 

 

 

33

 

 

on such terms and
conditions as the Board shall establish and communicate to the Israeli
Participant at the time that such offer is made.

 

(l)            The grant of a Stock Award hereunder
shall neither entitle an Israeli Participant to participate, nor disqualify an
Israeli Participant from participating in any other grant of Stock Awards
pursuant to the Plan, or any other option or share plan of the Company or any
Affiliate.

 

4.                                      Trustee

 

(a)           Approved 102 Stock Awards which shall
be granted under the Plan and/or any shares allocated or issued upon exercise
of such Approved 102 Stock Awards and/or other shares received subsequently
following any realization of rights including, without limitation, bonus
shares, shall be allocated or issued to the Trustee (and registered in the
Trustee’s name in the register of members of the Company) and held for the
benefit of the Israeli Participants for such period of time as required by
Section 102 (the “Restricted
Period Per Section 102”). All certificates representing shares
issued to the Trustee under the Plan shall be deposited with the Trustee, and
shall be held by the Trustee until such time that such shares are released from
the aforesaid trust as herein provided. In the event that the requirements for
Approved 102 Stock Awards are not met, then the Approved 102 Stock Awards may
be treated as Unapproved 102 Stock Awards, all in accordance with the
provisions of Section 102.

 

(b)           Notwithstanding anything to the
contrary, the Trustee shall not release any shares allocated or issued upon
exercise of Approved 102 Stock Awards prior to the full payment of the Israeli
Participant’s tax liabilities arising from the Approved 102 Stock Awards that
were granted to such Israeli Participant, and/or any shares allocated or issued
upon exercise of such Stock Awards.

 

(c)           With respect to any Approved 102
Stock Award, subject to the provisions of Section 102, a Participant shall not
be entitled to sell or release from trust any Share received upon the exercise
of an Approved 102 Stock Award and/or any share received subsequently following
any realization of rights, including without limitation, bonus shares, until
the lapse of the Restricted Period Per Section 102. Notwithstanding the
foregoing, in the event that any such sale or release from trust occurs during
the Restricted Period Per Section 102, then the sanctions under Section 102
shall apply and shall be borne by the Israeli Participant.

 

(d)           Upon receipt of Approved 102 Stock
Award, the Participant will sign an undertaking to release the Trustee from any
liability in respect of any action or decision duly taken and bona fide
executed in relation with the Plan and this Exhibit B, or any Approved
102 Stock Award or share granted, or issued, to him thereunder.

 

5.             Fair Market Value for Tax Purposes.  Without derogating from the above, solely for the
purpose of determining the tax liability pursuant to Section 102(b)(3) of the
Ordinance, if at the date of grant the Company’s shares are listed on any
established stock exchange or a national market system or if the Company’s
shares will be registered for trading within ninety (90) days following the
date of grant, the Fair Market Value of a Share at the date of grant shall be
determined in accordance with the average value of the Company’s shares in the
thirty (30) 

 

 

34

 

 

trading days
preceding the date of grant or in the thirty (30) trading days following the
date of registration for trading, as the case may be.

 

6.             Integration of Section 102 and Tax
Commissioner’s Permit

 

(a)           With regards to Approved 102 Stock
Awards, the provisions of the Plan and/or any Stock Award Agreement shall be
subject to the provisions of Section 102 and the Income Tax Commissioner’s
permit, and the said provisions and permit shall be deemed an integral part of
the Plan and of the Stock Award Agreement.

 

(b)           Any provision of Section 102 and/or
the said permit which is necessary in order to receive and/or to maintain any
tax benefit pursuant to Section 102, which is not expressly specified in the
Plan or the Stock Award Agreement, shall be considered binding upon the Company
and the Israeli Participants.

 

7.             Tax Consequences

 

(a)           To the extent permitted by Applicable
Laws, any tax consequences arising from the grant or exercise of any Stock
Award, from the payment for shares covered thereby or from any other event or
act (of the Company, and/or its Affiliates, and/or the Trustee or the
Participant), hereunder, shall be borne solely by the Israeli Participant. The
Company and/or its Affiliates and/or the Trustee shall withhold taxes according
to the requirements under the applicable laws, rules, and regulations,
including withholding taxes at source. Furthermore, the Israeli Participants
agrees to indemnify the Company and/or its Affiliates and/or the Trustee and
hold them harmless against and from any and all liability for any such tax or
interest or penalty thereon, including without limitation, liabilities relating
to the necessity to withhold, or to have withheld, any such tax from any
payment made to the Israeli Participant.

 

(b)           The Company and/or the Trustee shall
not be required to release any Share certificate to an Israeli Participant
until all required payments have been fully made by the Israeli Participant.

 

8.             Restricted Period Per Section
102.  The following provisions shall apply for the purpose
of the tax benefits under Section 102 of the ordinance:

 

(a)           In accordance with the requirements
of Section 102 as now in place and as may be amended in the future, the
Stock Awards to be issued shall be issued to the Israeli Participant and held
in trust by the Trustee for the benefit of Israeli Participant for a period of
no less than twenty four (24) months for CGAs and no less than twelve (12)
months for OIAs, from the date of which the Stock Awards were granted and placed
with the Trustee (during the Restricted Period Per Section 102 the Participant
will not be allowed to order the Trustee to sell the Stock Awards held by
him/her on behalf of the Participant or to transfer the Stock Awards from
Trustee’s trust).

 

(b)           As long as the Stock Awards are held
by the Trustee on behalf of an Israeli Participant, all rights of the Israeli
Participant over the Stock Awards and the shares that may 

 

 

35

 

 

derive on the exercise of
the Stock Awards are personal and can not be transferred, assigned, pledged, or
mortgaged other than by testament or pursuant to the laws of descent and
distribution.

 

(c)           In order to receive the tax benefits
of Section 102, the Stock Awards may not be sold or transferred (other
than through a transfer by testament or by operation of law), and no power of
attorney or transfer deed shall be given in respect thereof (other than a power
of attorney for the purpose of participation in general meetings of shareholders).

 

(c)           End of Restricted Period Per Section 102.
Upon the termination of the Restricted Period Per Section 102, as now in place
and as may be amended in the future, an Israeli Participant shall be entitled
to receive from the Trustee the Stock Awards, or the shares acquired in the
exercise thereof, which have vested, subject to the provisions of the Plan
concerning the continued employment of the Israeli Participant by the Company
or any Affiliate, and subject to any other provisions set forth herein or in
the Plan, and the Israeli Participant shall be entitled to exercise the Stock
Awards and/or to sell the Stock Awards or shares thereby obtained subject to
the other terms and conditions of the Stock Award Agreement and the Plan,
including the provisions relating to the payment of taxes as set forth below.

 

9.             Israeli Participant’s
Representations.  The following representations will be
included in the Stock Award Agreement with Israeli Participants who are
Employees, or if not included, shall be deemed to have been given by any
Israeli Participant Employees to the extent that any such Israeli Participant
Employee accepts any Stock Award issued under the Plan:

 

(a)           The Israeli Participant hereby agrees
that the terms of Section 102 shall apply regarding the Stock Awards granted.

 

(b)           The Israeli Participant is obliged
not to sell or remove from the Trustee the Stock Awards granted to the Israeli
Participant prior to the end of Restricted Period Per Section 102.

 

(c)           The Israeli Participant is aware of the
directives set forth in Section 102, and of the tax track that was chosen by
the Company pursuant to Section 102 and its implications.

 

(d)           The Israeli Participant hereby
accepts the terms of the Trust Agreement signed between the Company and the
Trustee.

 

(e)           The Israeli Participant acknowledges
that during the period in which Stock Awards are held by the Trustee (including
any shares issued to the Trustee on behalf of the Israeli Participant upon
exercise of an Approved 102 Stock Award), in the event that dividends payable
in securities are declared on Approved 102 Stock Awards held by the Trustee,
such securities shall also be subject to the provisions of Section 102 and the
provision of the Stock Award Agreement and shall be held in trust by the Trustee.
Notwithstanding anything to the contrary, in the event that an Israeli
Participant that holds Approved 102 Stock Awards is entitled to receive a
dividend in cash, the proceeds of such dividend may be wired to the Israeli
Participant, after deduction of all applicable taxes.

 

 

36

 

 

 

10.          Governing Law & Jurisdiction

 

(a)           The Plan, and the granting and
exercise of Stock Awards hereunder, and the obligation of the Company to sell
and deliver shares of Common Stock under such Stock Awards, shall be subject to
all Applicable Laws, whether of the State of Israel or of the United States or
any other State having jurisdiction over the Company and the Israeli
Participant, including the registration of the shares of Common Stock under the
Securities Act and the Ordinance and to such approvals by any governmental
agencies or national securities exchanges as may be required. Nothing herein
shall be deemed to require the Company to register the shares of Common Stock
under the securities laws of any jurisdiction.

 

(b)           This Exhibit B shall be
governed by and construed and enforced in accordance with the laws of the State
of Israel applicable to contracts made and to be performed therein, without
giving effect to the principles of conflict of laws. The competent courts of
Tel-Aviv, Israel shall have sole jurisdiction in any matters pertaining to this
Exhibit B.

 

(c)           The adoption of the Plan (including
this Exhibit B) by the Board shall not be construed as amending,
modifying or rescinding any previously approved incentive arrangements or as
creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of options otherwise than under the Plan, and such arrangements
may be either applicable generally or only in specific cases. For the avoidance
of doubt, prior grant of Stock Awards to Israeli Participants of the Company
under their employment agreements, and not in the framework of any previous
option plan, shall not be deemed an approved incentive arrangement for the
purpose of this Exhibit B.

 

(d)           Exhibit B may be amended from
time to time by the Company and the Trustee provided however that any amendment
that adversely effects the rights of the holders of Stock Awards, shall not be
made without the approval of the holders of a majority in interest of the then
issued and outstanding Stock Awards.

 

	
   

  	
   

  
	
  Q.B.I. Enterprises , Ltd.

  	
   

  

 

 

37Exhibit 10.19

LEASE AGREEMENT

THIS “LEASE”, made this 8th day of September, 2006, between JOHN ARRILLAGA,
Trustee, or his Successor Trustee, UTA dated
7/20/77 (JOHN ARRILLAGA SURVIVOR’S TRUST) as amended, and RICHARD T.
PEERY, Trustee, or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY
SEPARATE PROPERTY TRUST) as amended, hereinafter called Landlord,
and QUARK BIOTECH, INC., a California corporation,
hereinafter called Tenant.

WITNESSETH:

Landlord hereby leases to
Tenant and Tenant hereby hires and takes from Landlord those certain Premises
(the “Premises”) outlined in Red on Exhibit A, attached hereto and
incorporated herein by this reference thereto more particularly described as
follows:

A portion of that
certain 51,443± square foot, one-story building (“Building”) located at 6503 Dumbarton Circle, Fremont, California 94555 (with a mailing
address to be determined), consisting of approximately 5,540± square feet of space (including Tenant’s Proportionate Share of
the Common Area of the Building) and the Personal Property of Landlord pursuant
to Paragraph 46 (“Personal Property of Landlord”).  Tenant’s leased
portion of the Building is more particularly shown within the area outlined in
Red on Exhibit A attached hereto. 
The entire parcel, of which the Premises is a part, is shown within the
area outlined in Green on Exhibit A attached (“Parcel”).  The Premises, subject to Paragraph 9 (“As-Is
Basis”), is leased on an “as-is” basis, in its
present condition, and in the configuration as shown in Red on Exhibit B
attached hereto.

As used herein the
term “Complex” shall mean and include all of the land outlined in Green in Exhibit
A attached hereto, and all of the buildings, improvements, fixtures and
equipment now or hereafter situated on said land.  The gross leasable area of the Building shall
be measured from outside of exterior walls to outside of exterior walls, and
shall include any atriums, covered entrances or egresses and covered Building
loading areas.

Said letting and hiring
is upon and subject to the terms, covenants and conditions hereinafter set
forth and Tenant covenants as a material part of the consideration for this
Lease to perform and observe each and all of said terms, covenants and
conditions.  This Lease is made upon the
conditions of such performance and observance.

1.             USE.  Tenant shall
use the Premises only in conformance with applicable governmental laws,
regulations, rules and ordinances for the purpose of general office,
microbiology and chemical laboratory and storage uses necessary for Tenant to
conduct Tenant’s business, provided that such approved uses shall be in
accordance with all current and future applicable governmental laws and
ordinances and zoning restrictions, and for no other purpose.  Notwithstanding anything to the contrary
herein, in no event shall any or all of the Premises be allowed, authorized
and/or used for daycare and/or any other child care purpose and Tenant shall
not do or permit to be done in or about the Premises or the Complex nor bring
or keep or permit to be brought or kept in or about the Premises or the Complex
anything which is prohibited by or 

 

1

 

will in any way increase the existing rate of (or
otherwise affect) fire or any insurance covering the Complex or any part
thereof, or any of its contents, or will cause a cancellation of any insurance
covering the Complex or any part thereof, or any of its contents.  Tenant shall not do or permit to be done anything
in, on or about the Premises or the Complex which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Complex or
injure or unreasonably annoy them, or use or allow the Premises to be used for
any immoral or unlawful purpose, nor shall Tenant cause, maintain or permit any
nuisance in, on or about the Premises or the Complex.  No sale by auction shall be permitted on the
Premises.  Tenant shall not place any
loads upon the floors, walls, or ceiling which endanger the structure, or place
any harmful fluids or other materials in the drainage system of the Building,
or overload existing electrical or other mechanical systems.  No waste materials or refuse shall be dumped
upon or permitted to remain upon any part of the Premises or outside of the
Building in which the Premises are a part, except in trash containers placed
inside exterior enclosures designated by Landlord for that purpose or inside of
the Building proper where designated by Landlord.  No materials, supplies, equipment, finished
products or semi-finished products, raw materials or articles of any nature
shall be stored upon or permitted to remain outside the Premises or on any
portion of the common area of the Complex. 
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.  No loudspeaker or
other device, system or apparatus which can be heard outside the Premises shall
be used in or at the Premises without the prior written consent of
Landlord.  Tenant shall not commit or
suffer to be committed any waste in or upon the Premises.  Tenant shall indemnify, defend and hold
Landlord harmless against any loss, expense, damage, reasonable attorneys’
fees, or liability arising out of failure of Tenant to comply with any
applicable law for which Tenant is obligated to comply under the terms of this
Lease.  Tenant shall comply with any
covenant, condition, or restriction (“CC&R’s”) affecting the Premises.  Tenant acknowledges that Landlord has
provided a copy of said CC&R’s to Tenant. 
The provisions of this Paragraph are for the benefit of Landlord only
and shall not be construed to be for the benefit of any Tenant or occupant of
the Complex.

2.             TERM.

A.            Scheduled Lease Term. 
Subject to Paragraph 48 (“Tenant’s Option to Terminate”), the “Term” of
this Lease shall be for a period of Three (3) years
(unless sooner terminated as hereinafter provided) and, subject to Paragraphs
2.B and 3, shall commence on the 1st day of
November, 2006 (the “Commencement Date”) and end on the 31st day of October,
2009 (the “Termination Date”).

B.            Tender of Possession. 
Possession of the Premises shall be tendered by Landlord to Tenant and
the Term of the Lease shall commence when the first of the following occurs:

(a)           Upon the occupancy of the Premises by any of Tenant’s
operating personnel for the conduct of any of its business; or

(b)           When the Tenant Improvements have been substantially
completed for Tenant’s use and occupancy and Landlord has delivered the Premises
to Tenant, in 

 

2

 

accordance and compliance with Paragraph 9.B (“As Is
Basis: Tenant Improvements to be Constructed by Landlord”) and Exhibit B
of this Lease; or

(c)           As otherwise agreed in writing.

C.            Early Entry: 
Subject to the provisions of Paragraph 9 (“As Is Basis”), upon receipt
of written notice from Landlord (by U.S. Mail, facsimile or electronic mail)
that the Premises is available for Tenant’s entry, Tenant and its agents and
contractors shall be permitted to enter the Premises prior to the Commencement
Date for the purpose of installing at Tenant’s sole cost and expense, Tenant’s
trade fixtures and equipment, telephone equipment, security systems and cabling
for computers (“Tenant’s Work”).  Such
entry shall be subject to all of the terms and conditions of this Lease, except
that Tenant shall not be required to pay any Rent on account thereof, provided
none of Tenant’s operating personnel occupy said Premises.  Any entry or installation work by Tenant and
its agents in the Premises pursuant to this Paragraph 2.C shall (i) be
undertaken at Tenant’s sole risk, (ii) not interfere with or delay
Landlord’s work in the Premises (if any), and (iii) not be deemed occupancy or
possession of the Premises for purposes of the Lease.  Tenant shall indemnify, defend, and hold
Landlord harmless from any and all loss, damage, liability, expense (including
reasonable attorney’s fees), claim or demand of whatsoever character, direct or
consequential, including, but without limiting thereby the generality of the
foregoing, injury to or death of persons and damage to or loss of property
arising out of the exercise by Tenant of any early entry right granted
hereunder.  In the event Tenant’s Work in
said Premises delays the completion of the interior improvements to be provided
by Landlord, if any, or in the event Tenant has not completed Tenant’s Work by
the scheduled Commencement Date, it is agreed between the parties that this
Lease will commence on the earlier of (x) occupancy of any portion of the
Premises by any of Tenant’s operating personnel for the conduct of any of its
business pursuant to Paragraph 2.B(b) (“Term: Tender of Possession”) above, or
(y) the scheduled Commencement Date of November 1, 2006 regardless of the
construction status of said interior improvements completed or to be completed
by Tenant or Landlord, as the case may be. 
It is the intent of the parties hereto that the commencement of Tenant’s
obligation to pay Rent under the Lease not be delayed by any of such causes or
by any other act of Tenant (except as expressly provided herein) and, in the
event it is so delayed, Tenant’s obligation to pay Rent under the Lease shall
commence as of the date it would otherwise have commenced absent delay caused
by Tenant.

It is agreed in the event
said Lease commences on a date other than the first day of the month the Term
of the Lease will be extended to account for the number of days in the partial
month.  The Basic Rent during the
resulting partial month will be pro-rated (for the number of days in the
partial month) at the Basic Rent rate scheduled for the projected Commencement
Date as shown in Paragraph 4.A.

3.             POSSESSION.  Subject to
Paragraph 2.C (“Term: Early Entry”) above and the terms and conditions stated
herein, if Landlord, for any reason whatsoever, cannot deliver possession of
said Premises to Tenant at the scheduled Commencement Date, this Lease shall
not be void or voidable; no obligation of Tenant shall be affected thereby; nor
shall Landlord or Landlord’s agents be liable to Tenant for any loss or damage
resulting therefrom; but in that event the commencement and termination dates
of the Lease, and all other dates affected thereby 

 

3

 

shall be revised to conform to the date of Landlord’s
delivery of possession, as specified in Paragraph 2.B above.  The above is, however, subject to the
provision that the period of delay of delivery of the Premises shall not exceed
forty-five (45) days from the latter of (i) the scheduled Commencement Date or
(ii) the date this Lease is executed by all parties hereto (except for those
delays caused by Tenant, Acts of God, strikes, war, utilities, governmental
bodies, weather, unavailable materials, and delays beyond Landlord’s control (“Force
Majeure Delays”) shall be excluded in calculating such period; Force Majeure
Delays shall not exceed sixty (60) days) in which instance Tenant, at its
option, may, by written notice to Landlord, terminate this Lease; provided Tenant
submits said notice to Landlord within five (5) days of the expiration of said
forty-five (45) day period as may be extended by Force Majeure Delays.

4.             RENT.

A.            Basic Rent. 
Subject to Paragraphs 2.B (“Term: Tender of Possession”) and 48 (“Tenant’s
Option to Terminate Lease”), Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand, and
Landlord agrees to accept as Basic Rent for the Leased Premises the total sum
of THREE HUNDRED SEVENTY-FIVE THOUSAND ONE HUNDRED FORTY-FOUR AND 96/100
DOLLARS ($375,144.96) (the “Aggregate Basic Rent”) in lawful money of the
United States of America, payable as follows:

Upon Tenant’s execution
of this Lease, the sum of ONE HUNDRED SIX THOUSAND SEVEN HUNDRED TWENTY-SEVEN
AND 40/100 DOLLARS ($106,727.40) shall be due, representing the Basic Rent for
the period from (i) November 1, 2007 through March 31, 2008, and (ii) November
1, 2008 through March 31, 2009.

On November 1, 2006, the
sum of NINE THOUSAND NINE HUNDRED SIXTEEN AND 60/100 DOLLARS ($9,916.60) shall
be due, and a like sum due on the first day of each month thereafter, through
and including October 1, 2007.

On the date of
Lease execution, the sum of FIFTY-TWO THOUSAND SIXTY-TWO AND 15/100 DOLLARS
($52,062.15) shall be due, representing prepaid Basic Rent for the period of
November 1, 2007 through March 31, 2008.

On April 1, 2008, the sum
of TEN THOUSAND FOUR HUNDRED TWELVE AND 43/100 DOLLARS ($10,412.43) shall be
due, and a like sum due on the first day of each month thereafter, through and
including October 1, 2008.

On the date of
Lease execution, the sum of FIFTY-FOUR THOUSAND SIX HUNDRED SIXTY-FIVE AND
25/100 DOLLARS ($54,665.25) shall be due, representing prepaid Basic Rent for
the period of November 1, 2008 through March 31, 2009.

On April 1, 2009, the sum
of TEN THOUSAND NINE HUNDRED THIRTY-THREE AND 05/100 DOLLARS ($10,933.05) shall
be due, and a like sum due on the first day of each month thereafter, through
and including October 1, 2009; or until the entire aggregate sum of THREE
HUNDRED SEVENTY-FIVE THOUSAND ONE HUNDRED FORTY-FOUR AND 

 

4

 

96/100 DOLLARS
($375,144.96) has been paid (as said Aggregate Basic Rent may be decreased as
noted above).

B.            Time for Payment. 
Full monthly Rent is due in advance on the first day of each calendar
month.  In the event that the Term of
this Lease commences on a date other than the first day of a calendar month, on
the date of commencement of the Term hereof Tenant shall pay to Landlord as
Rent for the period from such date of commencement to the first day of the next
succeeding calendar month that proportion of the monthly Rent hereunder for the
number of days between such date of commencement and the first day of the next
succeeding calendar month.  In the event
that the Term of this Lease for any reason ends on a date other than the last
day of a calendar month, on the first day of the last calendar month of the
Term hereof Tenant shall pay to Landlord as Rent for the period from said first
day of said last calendar month to and including the last day of the Term
hereof that proportion of the monthly Rent hereunder for the number of days
between said first day of said last calendar month and the last day of the Term
hereof.

C.            Late Charge. 
Notwithstanding any other provision of this Lease, if Landlord (or
Landlord’s agent if Landlord has instructed Tenant to make any payment of Rent
and/or other amounts due under the Lease directly to Landlord’s agent) does not
receive any payment of Rent as set forth in this Paragraph 4 and/or other
amounts due under the Lease within ten (10) days of the due date, or any part
thereof, Tenant agrees to pay Landlord, in addition to the delinquent Rent
and/or other amounts that may be due, a late charge for each Rent and/or other
payment not received by Landlord (or Landlord’s agent if Landlord has
instructed Tenant to make any payment of Rent and/or other amounts due under
the Lease directly to Landlord’s agent) within ten (10) days of the due date (“Late
Charge”).  Said Late Charge shall equal
ten percent (10%) of each Rent payment not received by Landlord within such ten
(10) day period.  Said Late Charge shall
be paid by Tenant within thirty (30) days after presentation of an invoice from
Landlord or Landlord’s agent setting forth the amount of said Late Charge.  Notwithstanding anything to the contrary
herein, Landlord’s failure to issue a Late Charge invoice in the month of any
late payment shall not be considered a waiver of Landlord’s right to collect
said Late Charge.

D.            Additional Rent. 
Beginning with the Commencement Date of the Term of this Lease, Tenant
shall pay to Landlord or to Landlord’s designated agent in addition to the
Basic Rent and as Additional Rent the following:

(a)           Tenant’s Proportionate Share of all Taxes relating to
the Complex and Premises as set forth in Paragraph 13, and

(b)           Tenant’s Proportionate Share of all insurance premiums
and deductibles relating to the Complex and Premises, as set forth in Paragraph
17, and

(c)           Tenant’s Proportionate Share of expenses for the
operation, management, maintenance, and repair of the Building (including
common areas of the Building) and Common Areas of the Complex in which the
Premises are located as set forth in Paragraph 7, and

 

5

 

(d)           All prorated costs and expenses related to the
Ardenwood Property Owners’ Association as set forth in Paragraph 47 (“Association
Dues”).

(e)           All charges, costs and expenses, which Tenant is
required to pay hereunder, together with all interest and penalties, costs and
expenses including reasonable attorneys’ fees and legal expenses, that may
accrue thereto in the event of Tenant’s failure to pay such amounts, and all
damages, reasonable costs and expenses which Landlord may incur by reason of
default of Tenant or failure on Tenant’s part to comply with the terms of this
Lease.  In the event of nonpayment by
Tenant of Additional Rent, Landlord shall have all the rights and remedies with
respect thereto as Landlord has for nonpayment of Rent.

References to “Proportionate
Share” herein and throughout the Lease shall mean the Proportionate Share
allocated to the Leased Premises based on (a) the total square footage of
Tenant’s Premises as a percentage of the total square footage of the Building
(5,540± square foot Premises divided by 51,443± square foot Building equals
10.77%) or (b) such other equitable basis as calculated by Landlord.

The Additional Rent due
hereunder shall be paid to Landlord or Landlord’s agent (i) within five days
for taxes and insurance and within thirty (30) days for all other Additional
Rent items after presentation of invoice from Landlord or Landlord’s agent
setting forth such Additional Rent and/or (ii) at the option of Landlord,
Tenant shall pay to Landlord monthly, in advance, Tenant’s Proportionate Share
of an amount estimated by Landlord to be Landlord’s approximate average monthly
expenditure for such Additional Rent items, which estimated amount shall be
reconciled (i) within one hundred twenty (120) days of the end of each calendar
year and (ii) within 120 days of the Lease Termination Date (or as soon
thereafter as reasonably possible if, for whatever reason, the Landlord cannot
complete the reconciliation within said 120 day periods) or more frequently if
Landlord elects to do so at Landlord’s sole and absolute discretion as compared
to Landlord’s actual expenditure for said Additional Rent items, with Tenant
paying to Landlord, upon demand. 
Notwithstanding anything to the contrary herein, Landlord shall not be
required to submit ongoing monthly statements to Tenant reflecting amounts owed
as Additional Rent.  In the event of any
underpayment by Tenant of Additional Rent items, Tenant shall pay to Landlord,
within thirty (30) days of invoice, any amount of actual expenses expended by
Landlord in excess of said estimated amount. 
In the event of any overpayment by Tenant, Landlord shall credit any
amount of estimated payments made by Tenant in excess of Landlord’s actual
expenditures for said Additional Rent items to Tenant, or, if the Lease Term
expires or terminates before such credit is fully utilized, refunding said
credit to Tenant (provided, however, that Landlord may withhold therefrom the
amount necessary to cover any amounts due on Tenant’s account) (provided
Landlord may withhold any amount thereof required to cure Tenant’s default in
the performance of any of the terms, covenants and conditions of this
Lease).  Notwithstanding anything to the
contrary above, any credit due Tenant for a reconciliation of Additional Rent
expenses that has not been fully utilized by the Lease Termination Date shall
be refunded to Tenant; provided however, that Landlord may withhold therefrom
the amount necessary to cover any amounts due on Tenant’s account.  Within thirty (30) days after receipt of
Landlord’s reconciliation, Tenant shall have the right, at Tenant’s sole
expense, to audit, at a mutually convenient time at Landlord’s office, Landlord’s
records specifically limited to the foregoing expenses.  Such audit must be conducted by Tenant or an 

 

6

 

independent
nationally and/or locally recognized accounting firm that is not being
compensated by Tenant or other third party on a contingency fee basis.  If Tenant desires to challenge Landlord’s
reconciliation statement, Tenant shall submit to Landlord a complete copy of
said audit at no expense to Landlord and a written notice stating the results
of said audit, and if such notice by Tenant and the respective audit reveals
that Landlord has overcharged Tenant, and the audit is not challenged by
Landlord within thirty (30) days (or, if challenged, a decision is made by
Landlord that the audit was correct), the amount overcharged shall be credited
to Tenant’s account within thirty (30) days after completion of Landlord’s
review and approval of said audit.  The
audit rights of Tenant under this Paragraph 4.D are granted for Tenant’s
personal benefit and may not be assigned or transferred by Tenant, either
voluntarily or by operation of law, in any manner whatsoever.  In the event that Landlord consents to an
assignment under Paragraph 21, the audit rights herein shall be void and of no
force and effect, whether or not Tenant shall have purported to exercise its
right to audit Landlord’s records prior to such assignment.  Notwithstanding the foregoing, in the event
Tenant assigns this Lease to a parent or subsidiary, the audit rights hereunder
shall continue to be in full force and effect; however, the audit rights shall
only be applicable to the period that commences after the date of
assignment.  Notwithstanding anything to
the contrary herein, no subtenant shall have any right to conduct an audit of
Landlord’s books and/or records.

Landlord shall,
upon request by Tenant, provide Tenant with copies of individual invoices
related to the foregoing actual expenses, either by facsimile or by U.S. mail;
however, in no event shall Landlord be obligated to provide duplicate copies of
any invoice or other Lease documentation to Tenant and/or Tenant’s
representative (if any) for an audit of Tenant’s records outside of Landlord’s
office.

Exclusions
From Additional Rent: The following items shall be excluded from “Additional Rent”:

(a)           Leasing commissions, attorney’s fees, costs,
disbursements, and other expenses incurred in connection with negotiations with
other tenants, or disputes between Landlord and other third party not related
to Tenant (hereinafter referred to as “Third Party”), or in connection with
marketing, leasing, renovating, or improving space for other current or
prospective tenants or other current or prospective occupants of the Complex;
notwithstanding anything to the contrary herein, any costs and expenses
Landlord is entitled to be reimbursed for as stated under Paragraph 24 (“Bankruptcy
and Default”) are not excluded Additional Rent
items as reflected in this Paragraph 4.D.

(b)           The cost of any service sold to any other Third Party
or other occupant whose leased premises are not part of the Premises leased
herein and for which Landlord is entitled to be reimbursed as an additional
charge or rental over and above the basic rent and additional rent payable
under the lease agreement with said other tenant (including, without limitation,
after-hours HVAC costs or over-standard electrical consumption costs incurred
by other tenants).

 

7

 

(c)           Any costs for which Landlord is entitled to be
reimbursed by any other Third Party or other occupant whose leased premises are
not part of the Premises leased herein.

(d)           Any costs, fines, or penalties incurred due to
violations by Landlord of any governmental rule or authority, provided Tenant
is not responsible under the Lease for such costs, fines and/or penalties,
and/or provided Tenant’s actions or inactions did not cause, in whole or in
part, such costs, fines and/or penalties.

(e)           Wages, salaries, or other compensation paid to
executive employees above the grade of Property Manager.

(f)            Repairs or other work occasioned by fire, windstorm,
or other insured peril, to the extent that Landlord receives proceeds from the
real property insurance policy on said Premises to cover one hundred percent of
the costs to repair said perils (“Perils”) and Tenant paid its share of the
premium as required under the Lease and any and all insurance deductible(s)
which Tenant is responsible for paying and provided Tenant is not responsible
for the damage to the Premises.  Notwithstanding
anything to contrary above, Tenant shall remain responsible for paying to
Landlord one hundred percent of the insurance deductible in full within thirty
(30) days of written notice from Landlord.

(g)           Costs covered by a manufacturer’s, contractor’s,
sub-contractor’s, vendor’s or materialman’s warranty or guaranty, if
applicable.

(h)           Except as otherwise noted in this Lease, any mortgage
debt, or ground rents or any other amounts payable under any ground lease for
the Property.

E.             Management Fee. 
Beginning with the Commencement Date of the Term of this Lease, Tenant
shall pay to Landlord, in addition to the Basic Rent and Additional Rent, a
monthly management fee (“Management Fee”) equal to three percent (3%) of the
Basic Rent due for each month during the Term. 
Tenant shall be responsible for calculating the monthly Management Fee
based on the Basic Rent schedule shown in Paragraph 4.A above, and for paying
said Management Fee by the first day of each month during the Term of this
Lease.  Tenant’s failure to pay the
monthly Management Fee by the due date will result in a Late Charge being
assessed pursuant to the terms of Paragraph 4.C above.

The reference to “Rent”
in this Paragraph 4 includes Basic Rent, Additional Rent, and Management
Fee.  The respective obligations of
Landlord and Tenant under this Paragraph shall survive the expiration or other
termination of the Term of this Lease, and if the Term hereof shall expire or
shall otherwise terminate on a day other than the last day of a calendar year,
the actual Additional Rent incurred for the calendar year in which the Term
hereof expires or otherwise terminates shall be determined and settled on the
basis of the statement of actual Additional Rent for such calendar year and
shall be prorated in the proportion which the number of days in such calendar
year preceding such expiration or termination bears to 365.

F.             Place of Payment of Rent. 
All Rent hereunder shall be paid to Landlord at the office of Landlord
at: PEERY/ARRILLAGA, FILE 1504, BOX 60000, SAN FRANCISCO, 

 

8

 

CA 94160, or to such other person or to such other
place as Landlord may from time to time designate in writing.  Invoices for Basic Rent, Additional Rent
and/or Management Fees shall be mailed to Tenant at the addresses shown below.

	
  Prior to Lease
  Commencement

  	
   

  	
  After Lease
  Commencement

  
	
   

  	
   

  	
   

  
	
  Attn: Joe Maurino

  	
   

  	
  Attn: Controller

  
	
  6536 Kaiser Drive

  	
   

  	
  Premises mailing
  address TBD

  
	
  Fremont, CA 94555

  	
   

  	
  Fremont, CA 94555

  
	
  (510) 402-4014 (phone)

  	
   

  	
   

  
	
  (510) 794-8540 (fax)

  	
   

  	
   

  
	
  jmaurino@qbius.com
  (email)*

  	
   

  	
  dparker@qbius.com
  (email)*

  

*         The inclusion of an email address does
not obligate Landlord to provide a notice by electronic mail.

Tenant shall have
the right, upon ten (10) days written notice to Landlord, to change the billing
address as noted herein; however, Landlord shall send Tenant invoices to only
one address of Tenant as identified by Tenant.

G.            Security Deposit. 
Concurrently with Tenant’s execution of this Lease, Tenant shall deposit
with Landlord the sum of Twenty Thousand Eight Hundred Forty-Nine and 65/100
Dollars ($20,849.65).  Said sum shall be
held by Landlord as a Security Deposit for the faithful performance by Tenant
of all of the terms, covenants, and conditions of this Lease to be kept and
performed by Tenant during the Term hereof. 
If Tenant defaults, beyond the expiration of any applicable notice and
cure period, with respect to any provision of this Lease, including, but not
limited to, the provisions relating to the payment of Rent and any of the
monetary sums due herewith, Landlord may (but shall not be required to) use,
apply or retain all or any part of this Security Deposit for the payment of any
other amount which Landlord may spend by reason of Tenant’s default or to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant’s default.  If any
portion of said Deposit is so used or applied, Tenant shall, within five (5)
days after written demand therefor, deposit cash with Landlord in the amount
sufficient to restore the Security Deposit to its original amount.  Tenant’s failure to do so shall be a material
breach of this Lease.  Landlord shall not
be required to keep this Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on such Deposit.  If Tenant fully and faithfully performs every
provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or at Landlord’s option, to the
last assignee of Tenant’s interest hereunder) at the expiration or earlier
termination of the Lease Term and after Tenant has vacated the Premises;
provided, however, that Landlord may withhold therefrom the amount necessary to
cover the cost of restoration of the Premises if Tenant fails to do so as required
under Lease Paragraph 8 and to cure any then uncured default by Tenant under
this Lease.  In the event of termination
of Landlord’s interest in this Lease, Landlord shall transfer said Deposit to
Landlord’s successor in interest whereupon Tenant agrees to release Landlord
from liability for the return of such Deposit or the accounting therefor.  Tenant hereby waives the protection of
Section 1950.7 of the California Civil Code.

 

9

 

5.             RULES AND REGULATIONS AND COMMON AREA. 
Subject to the terms and conditions of this Lease and such Rules and
Regulations as Landlord may from time to time prescribe, Tenant and Tenant’s
employees, invitees and customers shall, in common with other occupants of the
Complex in which the Premises are located, and their respective employees,
invitees and customers, and others entitled to the use thereof, have the
non-exclusive right to use the access roads, parking areas, and facilities
provided and designated by Landlord for the general use and convenience of the
occupants of the Complex in which the Premises are located, which areas and
facilities are referred to herein as “Common Area”.  This right shall terminate upon the
termination of this Lease.  Landlord
reserves the right from time to time to make changes in the shape, size,
location, amount and extent of Common Area. 
Landlord further reserves the right to promulgate such reasonable Rules
and Regulations relating to the use of the Common Area, and any part or parts
thereof, as Landlord may deem appropriate for the best interests of the
occupants of the Complex (“Rules and Regulations”).  The Rules and Regulations shall be binding
upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall abide
by them and cooperate in their observance. 
Such Rules and Regulations may be amended by Landlord from time to time,
with or without advance notice, and all amendments shall be effective upon
delivery of a copy to Tenant.  Landlord
shall not be responsible to Tenant for the non-performance by any other tenant
or occupant of the Complex of any of said Rules and Regulations.

Landlord shall operate,
manage, and maintain the Common Area. 
The manner in which the Common Area shall be maintained and the
expenditures for such maintenance shall be at the discretion of Landlord.

6.             PARKING.  Tenant shall
have the right to use twenty-one (21) parking spaces in the common parking
areas of the Complex, which common parking area may be used by Tenant in common
with other tenants or occupants of the Complex. 
Tenant agrees that Tenant, Tenant’s employees, agents, representatives
and/or invitees shall not use parking spaces in excess of said twenty-one (21)
spaces allocated to Tenant hereunder. 
Landlord shall have the right, at Landlord’s sole and reasonable
discretion, to specifically designate the location of Tenant’s parking spaces
within the common parking areas of the Complex, in which event Tenant agrees
that Tenant, Tenant’s employees, agents, representatives and/or invitees shall
not use any parking spaces other than those parking spaces specifically
designated by Landlord for Tenant’s use. 
Said parking spaces, if specifically designated by Landlord to Tenant,
may be reasonably relocated by Landlord at any time, and from time to time if
necessary.  Landlord shall give Tenant
written notice of any change in Tenant’s parking spaces.  Notwithstanding the foregoing, Landlord shall
not intentionally discriminate against Tenant in assigning parking spaces or a
parking area.  Tenant shall not, at any
time, park or permit to be parked, any trucks or vehicles adjacent to the
loading areas so as to interfere in any way with the use of such areas, nor
shall Tenant at any time park or permit the parking of Tenant’s trucks or other
vehicles or the trucks and vehicles of Tenant’s suppliers or others, in any
portion of the common area not designated by Landlord for such use by
Tenant.  Tenant shall not park nor permit
to be parked, any inoperative vehicles or equipment on any portion of the common
parking area or other common areas of the Complex.  Tenant agrees to assume responsibility for
compliance by its employees with the parking provisions contained herein.  If Tenant or its employees park in other than
such designated parking areas, then Landlord may charge Tenant, as an
additional charge, and Tenant 

 

10

 

agrees to pay, Ten Dollars ($10.00) per day for each
day or partial day each such vehicle is parked in any area other than that
designated.  Tenant hereby authorizes
Landlord at Tenant’s sole expense to tow away from the Complex any vehicle
belonging to Tenant or Tenant’s employees parked in violation of these
provisions, or to attach violation stickers or notices to such vehicles;
provided, however, that unless any such vehicle is parked in a dangerous and/or
designated no parking zone, Landlord will attach a twenty-four (24) hour
violation notice on said vehicle prior to having the vehicle towed from the
Property.  Tenant shall use the parking
area for vehicle parking only and shall not use the parking areas for storage
_Subject to the terms of Paragraph 7 (“Expenses of Operation, Management, and
Maintenance of the Common Areas of the Complex”) and this Paragraph 6, Landlord
shall not apply an additional parking charge for the right to use the parking
area referenced herein.

7.             EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF
THE COMMON AREAS OF THE COMPLEX.

A.            Maintenance of the Common Areas
of the Complex.  Landlord shall operate, manage and maintain
the Common Areas of the Complex.  As
Additional Rent and in accordance with Paragraph 4.D of this Lease, Tenant
shall pay to Landlord Tenant’s Proportionate Share of all expenses of
operation, management, maintenance and repair of the Common Areas of the
Complex including, but not limited to, license, permit, and inspection fees;
security; utility charges associated with exterior landscaping and lighting
(including water and sewer charges); all charges incurred in the maintenance
and replacement of landscaped areas, lakes, if any, parking lots and paved
areas (including repair, replacement, resealing and restriping), sidewalks,
driveways; maintenance, repair, and replacement of all fixtures and electrical,
mechanical and plumbing systems; structural elements and exterior surfaces of
the buildings; salaries and employees benefits of personnel and payroll taxes
applicable thereto; supplies, materials, equipment and tools; the cost of
capital expenditures which have the effect of reducing operating expenses,
provided, however, that in the event Landlord makes such capital improvements,
Landlord may amortize its investment in said improvements together with
interest at the rate of fifteen percent (15%) per annum on the unamortized
balance (“Amortized Cost”) as an operating expense in accordance with standard
accounting practices, provided, that such amortization is not at a rate greater
than the anticipated savings in the operating expenses.

B.            Maintenance of the Common Areas
of the Building.  Landlord shall operate, manage and maintain
the Common Areas of the Building.  As
Additional Rent and in accordance with Paragraph 4.D of this Lease, Tenant
shall pay its Proportionate Share of the cost of operation (including common
utilities), management, maintenance, and repair of the Building (including
structural and common areas such as lobbies, restrooms, janitor’s closets,
hallways, elevators, mechanical and telephone rooms, stairwells, entrances,
spaces above the ceilings and janitorization of said common areas) in which the
Premises are located.  The maintenance
items herein referred to include, but are not limited to, all windows, window
frames, plate glass, glazing, truck doors, main plumbing systems of the
Building (such as water drain lines, sinks, toilets, faucets, drains, showers
and water fountains), main electrical systems (such as panels and conduits),
heating and air-conditioning systems (such as compressors, fans, air handlers,
ducts, boilers, heaters), structural elements and exterior surfaces of the
Building; store fronts, roof, downspouts, Building common area interiors (such
as wall coverings, window coverings, floor 

 

11

 

coverings and partitioning), ceilings, Building
exterior doors, skylights (if any), automatic fire extinguishing systems, and
elevators (if any); license, permit and inspection fees; security, supplies,
materials, equipment and tools; salaries and employees benefits of personnel
and payroll taxes applicable thereto; the cost of capital expenditures which
have the effect of reducing operating expenses, provided, however, that in the
event Landlord makes such capital improvements, Landlord may amortize its
investment in said improvements together with interest at the rate of fifteen percent
(15%) per annum on the unamortized balance (“Amortized Cost”) as an operating
expense in accordance with standard accounting practices, provided, that such
amortization is not at a rate greater than the anticipated savings in the
operating expenses.  Tenant hereby waives
all rights hereunder, and benefits of, subsection 1 of Section 1932 and
Sections 1941 and 1942 of the California Civil Code and under any similar law,
statute or ordinance now or hereafter in effect.

“Additional Rent” as used
herein shall not include Landlord’s debt repayments, interest on charges;
expenses directly or indirectly incurred by Landlord for the benefit of any
other tenant; cost for the installation of partitioning or any other tenant
improvements; cost of attracting tenants; depreciation; interest, or executive
salaries.

8.             ACCEPTANCE AND SURRENDER OF PREMISES. 
Subject to Landlord’s obligations under Paragraph 9.A (“AS-IS Basis:
Leased on “As-Is” Basis”) and completion of its obligations under Paragraph 9.B
(“AS-IS Basis: Tenant Improvements to be Constructed by Landlord”), by entry
hereunder, Tenant accepts the Premises as being in good and sanitary order,
condition and repair and accepts the Building and improvements included in the
Premises in their present condition and without representation or warranty by
Landlord as to the condition of such Building or as to the use or occupancy
which may be made thereof.  Any
exceptions to the foregoing must be by written agreement executed by Landlord
and Tenant.  Tenant agrees on the last
day of the Lease Term, or on the sooner termination of this Lease, to surrender
the Premises promptly and peaceably to Landlord in good condition and repair
(damage by Acts of God, fire, normal wear and tear excepted), with all interior
walls painted, or cleaned so that they appear freshly painted, and repaired or
replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and
shampooed; all broken, marred or nonconforming acoustical ceiling tiles
replaced; all windows washed; the air conditioning and heating systems within
the non-common areas of the Premises serviced by a reputable and licensed
service firm and in good operating condition (provided the maintenance of such
equipment has been the Tenant’s responsibility during the Term of this Lease)
and repair; the plumbing and electrical systems and lighting within the
non-common areas of the Premises in good order and repair, including
replacement of any burned out or broken light bulbs or ballasts (all lights and
ballasts must be of the same type, color and wattage) (and Tenant shall pay
Landlord for Tenant’s Proportionate Share of the cost to insure that all Common
Area features and systems are in good operating condition and repair, including
the lawn and shrubs (including the replacement of any dead or damaged
plantings), the sidewalk, driveways and parking areas); together with all
alterations, additions, and improvements (collectively “Alterations”) which may
have been made, in, to, or on the Premises, except as referenced in Paragraph
10 (“Alterations and Additions”), Tenant shall not be required to remove those
Alterations, if any, that are not subject to restoration pursuant to Landlord’s
written Consent to Alterations agreement as executed by Tenant and
Landlord.  Tenant shall be responsible
for repairing any damage caused by the installation and/or the removal of
Tenant’s 

 

12

 

trade fixtures by Tenant or Tenant’s employees, agents
or contractors.  For all
other such Alterations, Tenant shall ascertain from Landlord within
thirty (30) days before the end of the Term of this Lease whether Landlord
desires to have the Premises or any part or parts thereof restored to their
condition and configuration as when the Premises were delivered to Tenant and
if Landlord shall so desire, then at Landlord’s option and in Landlord’s sole
and absolute discretion, Tenant shall either (i) pay to Landlord a fee in an
amount equal to (a) Landlord’s estimated cost to restore the Premises to the
configuration and condition that existed when the Premises were delivered
Tenant plus (b) an amount equal to the daily prorated Basic Rent due for the
last month of the Lease Term times the number of days Landlord estimates are
required to complete said restoration or (ii) Tenant shall restore said
Premises or such part or parts thereof before the end of this Lease at Tenant’s
sole cost and expense.  In the event
Landlord requires Tenant to pay for the cost of the restoration, the fee shall
be paid by Tenant to Landlord regardless of whether or not Landlord elects to
restore all or part of said Premises.  In
the event Tenant is required to complete the restoration and said restoration
is not completed prior to the Lease Termination Date, Tenant acknowledges that
Tenant shall enter into a Hold Over period pursuant to the terms of Lease
Paragraph 30 (“Holding Over”) and Tenant shall automatically be liable to
Landlord for the monthly Hold Over Basic Rent and all other Additional Rent
until said restoration is completed by Tenant. 
Prior to the Lease Termination Date, as part of the surrender of
Premises procedures, Landlord will have the Building systems inspected, at
Tenant’s sole cost and expense, including, but not limited to the HVAC system,
plumbing systems and roof, and Tenant shall be responsible for its
Proportionate Share (as reasonably determined by Landlord) of all repairs noted
on said inspection reports.  Tenant, on
or before the end of the Term or sooner termination of this Lease, shall remove
all of Tenant’s personal property and trade fixtures from the Premises, and all
property not so removed on or before the end of the Term or sooner termination
of this Lease shall be deemed abandoned by Tenant and title to same shall
thereupon pass to Landlord without compensation to Tenant.  Landlord may, upon termination of this Lease,
remove all moveable furniture and equipment so abandoned by Tenant, at Tenant’s
sole cost, and repair any damage caused by such removal at Tenant’s sole
cost.  Upon surrender of the Premises to
Landlord, Tenant shall provide Landlord with keys for all interior locking
doors and Tenant agrees to pay to Landlord the cost of Landlord re-keying (i)
all exterior doors (including mechanical rooms) and (ii) all interior doors
with locks to which Tenant is not able to provide Landlord keys.  If Tenant has installed a cardkey system,
Tenant shall also be responsible for the costs Landlord incurs in replacing the
doors and/or door frames in which such cardkey system was installed and
removing any and all equipment and wiring related thereto, unless Landlord
notifies Tenant in writing prior to the Lease Termination Date that Landlord
wants the cardkey system to remain in the Premises, in which event the cardkey
system shall remain on the Premises after the expiration of the Term and Tenant
shall provide Landlord with the cardkeys and instructions for such system along
with any other equipment that is necessary for the operation of said cardkey
system.  For example, if software and/or
specialized computer systems are required to operate the cardkey system, Tenant
shall leave the cardkey pads, the software (hard copies and assignment of the
license at no cost to Landlord should Landlord so elect), the computer and the
instructions thereto in place in the Premises. 
If the Premises is not surrendered at the end of the Term or sooner
termination of this Lease, Tenant shall indemnify Landlord against loss or
liability resulting from the delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding Tenant founded
on such delay.  Nothing contained herein
shall be construed as an extension of the Term hereof or as 

 

13

 

a consent of Landlord to any holding over by Tenant.  The voluntary or other surrender of this
Lease or the Premises by Tenant or a mutual cancellation of this Lease shall
not work as a merger and, at the option of Landlord, shall either terminate all
or any existing subleases or subtenancies or operate as an assignment to
Landlord of all or any such subleases or subtenancies.

9.             “AS-IS” BASIS.

A.            Leased on “As-Is” Basis. 
Except as may be noted in this Paragraph 9 and in Paragraph 7 (“Expenses
of Operation, Management, and Maintenance of the Common Areas of the Complex”)
and subject to Landlord making the improvements shown on Exhibit B
attached hereto, it is hereby agreed that the Premises leased hereunder is
leased strictly on an “as-is” basis and in its present condition, and in the
configuration as shown on Exhibit B attached hereto, and by reference
made a part hereof.  Except as noted
herein, it is specifically agreed between the parties that after Landlord makes
the interior improvements as shown on Exhibit B, Landlord shall not be
required to make, nor be responsible for any cost, in connection with any
repair, restoration, and/or improvement to the Premises in order for this Lease
to commence, or thereafter, throughout the Term of this Lease.  Notwithstanding anything to the contrary
within this Lease except as referenced below in Paragraph 9.B (“Tenant
Improvements to be Constructed by Landlord”), Landlord makes no warranty or
representation of any kind or nature whatsoever as to the condition or repair
of the Premises, nor as to the use or occupancy which may be made thereof.

B.            Tenant Improvements to be
Constructed by Landlord.  Notwithstanding anything to
the contrary in Paragraph 9.A (“Leased on “As-Is” Basis”) above, Landlord has
agreed to construct and install, at Landlord’s cost and expense (net of the
cost of the Tenant Improvements in the amount of $48,000.00 to be paid to
Landlord by Tenant (“Tenant Improvements Contribution”) concurrently with
Tenant’s execution of this Lease), the tenant improvements specifically listed
below (“Tenant Improvements”); Landlord shall not be responsible for providing
any additional interior improvements:

1)                                     Install the walls and doors shown in Blue
on Exhibit B attached hereto;

2)                                     Install glass sidelite as shown in Yellow
on Exhibit B attached hereto;

3)                                     Landlord shall replace any broken or
non-functioning lights and/or ballasts;

4)                                     Landlord shall have the HVAC system
within the Premises inspected and any necessary repairs completed;

5)                                     Landlord shall have the roof membrane
affecting the Premises inspected and any necessary repairs completed; and

6)                                     Landlord shall have the plumbing system
within the Premises inspected and any necessary repairs completed.

 

14

 

The Tenant Improvements referenced above shall become
a part of the Premises upon installation and Tenant shall not be required or
allowed to remove said Tenant Improvements upon Lease Termination.  In the event this Lease is terminated early
due to an uncured default by Tenant and/or a written agreement between Landlord
and Tenant to terminate the Lease prior to the scheduled Termination Date,
Tenant agrees to reimburse Landlord for one hundred percent (100%) of the
balance of the unamortized cost of the Tenant Improvements previously paid for
by Landlord (net the Tenant Improvements Contribution paid by Tenant as
described above) outstanding as of the early Termination Date.  Said amount shall be paid by Tenant to
Landlord by the Termination Date and/or Landlord may, at its option, deduct
part or all of said unamortized Tenant Improvement cost from Tenant’s Security
Deposit.

10.          ALTERATIONS AND ADDITIONS.  Tenant shall
not make, or suffer to be made, any Alterations to the Premises, or any part
thereof, without the written consent of Landlord first had and obtained by
Tenant; such consent shall not be unreasonably withheld and such consent to
Alterations shall not be valid until such time as said consent is executed by
both Landlord and Tenant and a fully executed copy delivered by Landlord to
Tenant (“Consent to Alterations”). 
Provided Tenant requests in writing such predetermination from Landlord,
said Consent to Alterations shall specify whether Landlord shall require
removal of said Alterations.  Any
Alteration of the Premises except moveable furniture and trade fixtures, shall
at once become a part of the Premises and belong to Landlord.  Any and all such Alterations shall be paid
for one hundred percent (100%) by Tenant. 
Landlord reserves the right to approve all contractors and mechanics
proposed by Tenant to make such Alterations. 
As a pre-condition to Landlord granting its consent to any Alterations,
Tenant shall deliver plans and specifications reflecting said Alterations for
Landlord’s review and approval; and within five business days of completion of
said Alterations, Tenant shall deliver to Landlord an original 1/8” scaled
sepia or an other electronic format as solely determined by Landlord.  Tenant shall retain title to all moveable
furniture and trade fixtures placed in the Premises.  All heating, lighting, electrical, air
conditioning, security systems, floor to ceiling partitioning, drapery,
carpeting, and floor installations made by Tenant, together with all property
that has become an integral part of the Premises, shall not be deemed trade fixtures.  Tenant agrees that it will not proceed to
make such Alterations, without having obtained consent from Landlord to do so,
and until five (5) business days from the receipt of such consent, in order
that Landlord may post appropriate notices to avoid any liability to
contractors or material suppliers for payment for Tenant’s Alterations.  Tenant will at all times permit such notices
to be posted and to remain posted until the completion of the Alterations.  As a condition of Landlord’s Consent to Alterations
to the Premises, after Landlord provides written Consent to Alterations and
prior to any work commencing on the Alterations, Landlord may, at its sole and
absolute discretion, require Tenant to secure and provide to Landlord at Tenant’s
own cost and expense, a completion and lien indemnity letters of credit,
satisfactory to Landlord in the amount of one hundred fifty percent (150%) of
the cost to fund the original construction of any alterations (“Letter of
Credit A”) and, if Landlord does not agree in the Consent to Alterations that
said Alterations are to remain at the end of the Lease Term, an additional letter of credit in the amount of one hundred
fifty percent (150%) of the cost to fund the subsequent cost of the removal of
said Alterations and the restoration of the Premises at the Lease Termination
Date (“Letter of Credit B”).  Said
performance Letters of Credit shall be kept in place as follows: for the Letter
of Credit A, for ninety-two (92) days after the completion of the original
construction of said Alterations; and for 

 

15

 

Letter of Credit B, the later of (a) ninety-two (92)
days after the Lease Termination Date or (b) ninety-two (92) days after
the completion of the restoration work and Tenant has provided Landlord with
proof of payment to respective vendors and copies of recorded full
unconditional lien releases related to the Alterations and/or restoration
work.  Tenant further covenants and agrees
that any mechanic’s lien filed against the Premises for work claimed to have
been done for, or materials claimed to have been furnished to Tenant, will be
discharged by Tenant, by bond or otherwise, within fifteen (15) days after
Tenant is given notice of filing thereof, at the cost and expense of
Tenant.  As a further condition to its
Consent to Alterations to the Premises, Landlord shall require Tenant to pay
all expenses in connection with any and all requests for alterations and
additions and Landlord’s Consent to Alterations related thereto, including but
not limited to Landlord’s costs, fees and expenses for the processing and
administration of the consent documentation and Landlord’s attorneys’ fees (if
any).  Any
exceptions to the foregoing must be made in writing and executed by both Landlord
and Tenant.

11.          TENANT MAINTENANCE.  Tenant shall,
at its sole cost and expense, keep and maintain the Premises (including
appurtenances) and every part thereof in a high standard of maintenance and
repair, and in good and sanitary condition. 
Tenant’s maintenance, repair and replacement responsibilities herein
referred to include, but are not limited to, janitorization, plumbing systems
within the non-common areas of the Premises (such as water and drain lines,
sinks), electrical systems within the non-common areas of the Premises (such as
outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating and
air-conditioning controls within the non-common areas of the Premises (such as
mixing boxes, thermostats, time clocks, supply and return grills), non-common
elevators (if any), and all interior improvements within the Premises including
but not limited to: wall coverings, window coverings, acoustical ceilings,
vinyl tile, carpeting, partitioning, doors (both interior and exterior,
including closing mechanisms, latches and locks), skylights (if any), automatic
fire extinguishing systems, and all other interior improvements of any nature
whatsoever.  Tenant agrees to provide
carpet shields under all rolling chairs or to otherwise be responsible for wear
and tear of the carpet caused by such rolling chairs if such wear and tear
exceeds that caused by normal foot traffic in surrounding areas.  Areas of excessive wear shall be replaced at
Tenant’s sole expense upon Lease termination. 
Tenant hereby waives all rights hereunder, and benefits of, subsection 1
of Section 1932 and Sections 1941 and 1942 of the California Civil Code and
under any similar law, statute or ordinance now or hereafter in effect.

12.          UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE
LOCATED.  As Additional Rent and in accordance with
Paragraph 4.D of this Lease Tenant shall pay its Proportionate Share, (or if
the Building in which the Premises is located is not one hundred percent (100%)
leased, said Proportionate Share for utilities shall be calculated based on (i)
Tenant’s Premises square footage as a percentage of the total square footage
leased to Tenant and any other third party tenants in the Building or (ii)
other equitable basis as calculated by Landlord) of the cost of all utility
charges such as water, gas, electricity, (and telephone, telex and other
electronic communications service, if applicable), sewer service, waste pick-up
and any other utilities, materials or services furnished directly to the
Building in which the Premises are located, including, without limitation, any
temporary or permanent utility surcharge or other exactions whether or not
hereinafter imposed.  Notwithstanding
anything to the contrary herein, 

 

16

 

in the event any utility charges apply only to the
Premises leased by Tenant, Tenant shall place such utilities in Tenant’s name
and shall pay the related costs directly to the utility company(ies).

Landlord shall not
be liable for and Tenant shall not be entitled to any abatement or reduction of
rent by reason of any interruption or failure of utility services to the
Premises when such interruption or failure is caused by accident, breakage,
repair, strikes, lockouts, or other labor disturbances or labor disputes of any
nature, or by any other cause, similar or dissimilar, beyond the reasonable
control of Landlord.

Provided that
Tenant is not in monetary default or a material non-monetary default (and if in
default, Tenant’s right to cure said default has not expired) in the
performance or observance of any of the terms, covenants or conditions of this
Lease to be performed or observed by it, Landlord shall furnish to the Premises
between the hours of 8:00 am and 6:00 pm, Mondays through Fridays (holidays
excepted) and subject to the Rules and Regulations of the Common Area
hereinbefore referred to, reasonable quantities of water, gas and electricity
suitable for the intended use of the Premises and heat and air-conditioning
required in Landlord’s reasonable judgment for the comfortable use and
occupation of the Premises for such purposes. 
Tenant may, from time to time, have its staff and equipment operate on a
twenty-four (24) hour-a-day, seven (7) day-a-week schedule, and Tenant shall
pay for extra consumption of such utilities attributable to such after-hours
occupancy, if any, used by Tenant. 
Tenant agrees that at all times it will cooperate fully with Landlord
and abide by all regulations and requirements that Landlord may prescribe for
the proper functioning and protection of the Building heating, ventilating and
air-conditioning systems.  Whenever heat
generating machines, equipment, or any other devices (including exhaust fans)
are used in the Premises by Tenant which affect the temperature otherwise
maintained by the air-conditioning system, Landlord shall have the right to
install supplementary air-conditioning units in the Premises and the cost
thereof, including the cost of installation and the cost of operation and
maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord.  Tenant will not, without the
written consent of Landlord, use any apparatus or device in the Premises
(including, without limitation), electronic data processing machines or
machines using current in excess of 110 Volts which will in any way increase
the amount of electricity, gas, water or air-conditioning usually furnished or
supplied to Premises being used as general office space, or connect with
electric current (except through existing electrical outlets in the Premises),
or with gas or water pipes any apparatus or device for the purposes of using
electric current, gas, or water. 
Landlord acknowledges that Tenant may use electrical current up to 220
Volts subject to the terms and conditions of this Paragraph.  If (i) Tenant shall require water, gas, or
electric current in excess of that usually furnished or supplied to Premises
being used as general office space, Tenant shall first obtain the written
consent of Landlord, which consent shall not be unreasonably withheld, or (ii)
if Tenant is found to be using water, gas and/or electrical current in excess
of its Proportionate.  Share (as such
excess usage is confirmed by a study conducted by Landlord’s contractor(s),
Landlord may (a) adjust the Proportionate Share allocated to Tenant based on
Tenant’s actual or estimated use or (b) cause an electric current, gas or water
meter to be installed in the Premises in order to measure the amount of
electric current, gas or water consumed for any such excess use.  In the event Landlord questions Tenant’s
usage, Landlord shall employ the services of a licensed electrical or plumbing
contractor to determine what Tenant’s actual use is and, if Tenant’s use is
determined to be excessive, Tenant shall be responsible for paying the cost
related to said investigation by the 

 

17

 

licensed
contractor or any other qualified third party vendor that Landlord may employ
to provide such service.  The cost of any
such meter and of the installation, maintenance and repair thereof, all charges
for such excess water, gas and electric current consumed (as shown by such
meters and at the rates then charged by the furnishing public utility); and any
additional expense incurred by Landlord in keeping account of electric current,
gas, or water so consumed shall be paid by Tenant, and Tenant agrees to pay
Landlord therefor promptly upon demand by Landlord.

13.          TAXES.

A.            Real Property Taxes. 
As Additional Rent and in accordance with Paragraph 4.D of this Lease,
Tenant shall pay to Landlord, monthly in advance or as they become due,
pursuant to statements submitted by Landlord, Tenant’s Proportionate Share of
all Real Property Taxes relating to the Premises accruing with respect to the
Premises during the Term of this Lease and the Extended Term (if any).  The term “Real Property Taxes” shall also
include supplemental taxes related to the period of Tenant’s Lease Term
whenever levied, including any such taxes that may be levied after the Lease
Term has expired.  The term “Real
Property Taxes”, as used herein, shall mean (i) all taxes, assessments, levies
and other charges of any kind or nature whatsoever, general and special,
foreseen and unforeseen (including all installments of principal and interest
required to pay any general or special assessments for public improvements and
any increases resulting from reassessments caused by any change in ownership of
the Premises) now or hereafter imposed by any governmental or
quasi-governmental authority or special district having the direct or indirect
power to tax or levy assessments, which are levied or assessed against, or with
respect to the value, occupancy or use of, all or any portion of the Complex
(as now constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord’s interest therein; any improvements located
within the Complex (regardless of ownership); the fixtures, equipment and other
property of Landlord, real or personal, that are an integral part of and
located in the Complex; or parking areas, public utilities, or energy within
the Complex; (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the Complex and (iii)
all costs and fees (including reasonable attorneys’ fees) incurred by Landlord
in reasonably contesting any Real Property Tax and in negotiating with public
authorities as to any Real Property Tax. 
If at any time during the Term of this Lease the taxation or assessment
of the Complex prevailing as of the Commencement Date of this Lease shall be
altered so that in lieu of or in addition to any Real Property Tax described
above there shall be levied, assessed or imposed (whether by reason of a change
in the method of taxation or assessment, creation of a new tax or charge, or
any other cause) an alternate or additional tax or charge (i) on the value, use
or occupancy of the Complex or Landlord’s interest therein or (ii) on or
measured by the gross receipts, income or rentals from the Complex, on Landlord’s
business of leasing the Complex, or computed in any manner with respect to the
operation of the Complex, then any such tax or charge, however designated,
shall be included within the meaning of the term “Real Property Taxes” for purposes
of this Lease.  If any Real Property Tax
is based upon property or rents unrelated to the Complex, then only that part
of such Real Property Tax that is fairly allocable to the Complex shall be
included within the meaning of the term “Real Property Taxes.” Notwithstanding
the foregoing, the term “Real Property Taxes” shall not include estate,
inheritance, gift or franchise taxes of Landlord or the federal or state net
income tax imposed on Landlord’s income from all sources.

 

18

 

B.            Taxes on Tenant’s Property.

(a)           Tenant shall be liable for and shall pay
ten days before delinquency, taxes levied against any personal property or
trade fixtures placed by Tenant in or about the Premises.  If any such taxes on Tenant’s personal
property or trade fixtures are levied against Landlord or Landlord’s property
or if the assessed value of the Premises is increased by the inclusion therein
of a value placed upon such personal property or trade fixtures of Tenant and if
Landlord, after written notice to Tenant, pays the taxes based on such
increased assessment, which Landlord shall have the right to do regardless of
the validity thereof, but only under proper protest if requested by Tenant,
Tenant shall upon demand, as the case may be, repay to Landlord the taxes so
levied against Landlord, or the proportion of such taxes resulting from such
increase in the assessment; provided that in any such event Tenant shall have
the right, in the name of Landlord and with Landlord’s full cooperation, to
bring suit in any court of competent jurisdiction to recover the amount of such
taxes so paid under protest, and any amount so recovered shall belong to
Tenant.

(b)           If the Tenant improvements in the Premises, whether
installed, and/or paid for by Landlord or Tenant and whether or not affixed to
the real property so as to become a part thereof, are assessed for real
property tax purposes at a valuation higher than the valuation at which
standard office improvements in other space in the Complex are assessed, then
the real property taxes and assessments levied against the Landlord or the
Complex by reason of such excess assessed valuation shall be deemed to be
taxies levied against personal property of the Tenant and shall be governed by
the provisions of 13B(a) above.  If the
records of the County Assessor are available and sufficiently detailed to serve
as a basis for determining whether said Tenant improvements are assessed at a
higher valuation than standard office space improvements in other space in the
Complex, such records shall be binding on both the Landlord and the
Tenant.  If the records of the County
Assessor are not available or sufficiently detailed to serve as a basis for
making said determination, the actual cost of construction shall be used.

14.          ASSESSMENT CREDITS.  The demised
property herein may be subject to a special assessment levied by the City in
which the Premises are located as part of an Improvement District.  As a part of said special assessment
proceedings (if any), additional bonds were or may be sold and assessments were
or may be levied to provide for construction contingencies and reserve
funds.  Interest shall be earned on such
funds created for contingencies and on reserve funds which will be credited for
the benefit of said assessment district. 
To the extent surpluses are created in said district through unused
contingency funds, interest earnings or reserve funds, such surpluses shall be
deemed the property of Landlord. 
Notwithstanding that such surpluses may be credited on assessments
otherwise due against the Leased Premises, Tenant shall pay to Landlord, as
Additional Rent if, and at the time of any such credit of surpluses, an amount
equal to all such surpluses so credited. 
For example: if (i) the property is subject to an annual assessment of
$1,000.00, and (ii) a surplus of $200.00 is credited towards the current year’s
assessment which reduces the assessment amount shown on the property tax bill
from $1,000.00 to $800.00, Tenant shall, upon receipt of notice from Landlord,
pay to Landlord said $200.00 surplus credit as Additional Rent.

 

19

 

15.          LIABILITY INSURANCE.  Tenant, at
Tenant’s expense, agrees to keep in force during the Term of this Lease a policy
of commercial general liability insurance with combined single limit coverage
of not less than Two Million Dollars ($2,000,000) per occurrence for injuries
to or death of persons occurring in, on, or about the Premises or the Complex
and property damage.  Such insurance
shall be primary and noncontributory as respects any insurance carried by
Landlord.  The policy or policies
affecting such insurance, certificates of insurance of which shall be furnished
to Landlord, shall name Landlord, Richard T. Peery, as Trustee of the Richard
T. Peery Separate Property Trust dated July 20, 1977, as amended; the Richard
T. Peery Separate Property Trust; Richard T. Peery as an individual; John
Arrillaga, as Trustee under the John Arrillaga Survivor’s Trust dated July 20,
1977, as amended; the John Arrillaga Survivor’s Trust; John Arrillaga, as an
individual; and any beneficiaries, trustees and successor trustees, other
partners or co-venturers of Landlord or said trusts as additional insureds
(collectively “Landlord Entities”), and shall insure any liability of the
Landlord Entities, contingent or otherwise, as respects acts or omissions of
Tenant, its agents, employees or invitees or otherwise by any conduct or
transactions of any of said persons in or about or concerning the Premises,
including any failure of Tenant to observe or perform any of its obligations
hereunder; shall be issued by an insurance company admitted to transact
business in the State of California; and shall provide that the insurance
effected thereby shall not be canceled, except upon thirty (30) days’ prior
written notice to Landlord.  Tenant’s
insurance shall be primary as respects to the Landlord Entities, or if excess,
shall stand in an unbroken chain of coverage. 
In either event, any other insurance maintained by the Landlord Entities
shall be in excess of Tenant’s insurance and shall not be called upon to
contribute with any insurance required to be provided by Tenant.  The required insurance
shall be reflected on a certificate of insurance of said policy, which
certificate shall be delivered to Landlord concurrently with Tenant’s return of
this executed Lease to Landlord. 
If, during the Term of this Lease, in the reasonable considered opinion
of Landlord’s Lender, insurance advisor, or counsel, the amount of insurance
described in this Paragraph 15 is not adequate, Tenant agrees to increase said
coverage to such reasonable amount as Landlord’s Lender, insurance advisor, or
counsel shall deem adequate.

16.          TENANT’S PERSONAL PROPERTY INSURANCE AND WORKMAN’S
COMPENSATION INSURANCE.  Tenant shall maintain a policy
or policies of fire and property damage insurance in “all risk” form with a
sprinkler leakage endorsement insuring the personal property, inventory, trade
fixtures (and leasehold improvements paid for by Tenant) within the Leased
Premises for the full replacement value thereof.  The proceeds from any of such policies shall
be used for the repair or replacement of such items so insured.

Tenant shall also
maintain a policy or policies of workman’s compensation insurance and any other
employee benefit insurance sufficient to comply with all laws.

17.          PROPERTY INSURANCE.  Landlord shall
purchase and keep in force, and as Additional Rent and in accordance with
Paragraph 4.D of this Lease, Tenant shall pay to Landlord (or Landlord’s agent
if so directed by Landlord) Tenant’s Proportionate Share (of the deductibles on
insurance claims and the cost of, policy or policies of insurance covering loss
or damage to the Premises and Complex (excluding routine maintenance and
repairs and incidental damage or destruction caused by accidents or vandalism
for which Tenant is responsible under Paragraph 11) in the amount of the full
replacement value thereof, providing protection against 

 

20

 

those perils included within the classification of “all
risks” “special form” insurance and flood and/or earthquake insurance, if
available, plus a policy of rental income insurance in the amount of one
hundred (100%) percent of twelve (12) months Basic Rent, plus sums paid as
Additional Rent and any deductibles related thereto; provided however, that
during the last twenty-four months of the Lease Term, Tenant shall only be
responsible for paying fifty percent (50%) of Tenant’s Proportionate Share of
any earthquake deductibles.  If such
insurance cost is increased due to Tenant’s use of the Premises or the Complex,
Tenant agrees to pay to Landlord, in addition to its Proportionate Share of the
deductibles, the full cost of such increase within five (5) days of receipt of
the related invoice.  Tenant shall have
no interest in nor any right to the proceeds of any insurance procured by
Landlord for the Complex.

In addition and
notwithstanding anything to the contrary in this Paragraph 17, each party to
this Lease hereby waives all rights of recovery against the other party or its
officer, employees, agents and representatives for loss or damage to its
property or the property of others under its control, arising from any cause insured
against under the fire and extended “special form” property coverage
(excluding, however, any loss resulting from Hazardous Material contamination
of the Property) required to be maintained by the terms of this Lease to the
extent full reimbursement of the loss/claim is received by the insured
party.  Each party required to carry
property insurance hereunder shall cause the policy evidencing such insurance
to include a provision permitting such release of liability (“waiver of
subrogation endorsement”); provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained.  If such waiver is so prohibited, the insured
party affected shall promptly notify the other party thereof.  In the event the waivers are issued to the
parties and are not valid under current policies and/or subsequent insurance
policies, the non-complying party will provide, to the other party, thirty (30)
days’ advance notification of the cancellation of the subrogation waiver, in
which case neither party will provide such subrogation waiver thereafter and
this Paragraph will be null and void. 
Notwithstanding anything to the contrary herein, the foregoing waiver of
subrogation shall not include any loss resulting from Hazardous Material
contamination of the Property or any insurance coverage relating thereto.

18.          INDEMNIFICATION.  Landlord shall
not be liable to Tenant and Tenant hereby waives all claims against Landlord
for any injury to or death of any person or damage to or destruction of
property in or about the Premises or the Complex by or from any cause
whatsoever, including, without limitation, gas, fire, oil, electricity or
leakage of any character from the roof, walls, basement or other portion of the
Premises or the Complex but excluding, however, the willful misconduct or
negligence of Landlord, its agents, servants, employees, invitees or
contractors of which negligence Landlord has knowledge and reasonable time to correct.  Except as to injury to persons or damage to
property to the extent arising from the willful misconduct or the negligence of
Landlord, its agents, servants, employees, invitees, or contractors, Tenant
shall hold Landlord harmless from and defend Landlord against any and all
expenses, including reasonable attorneys’ fees, in connection therewith,
arising out of any injury to or death of any person or damage to or destruction
of property occurring in, on or about the Premises, or any part thereof, from
any cause whatsoever, accruing and/or occurring during the Term of this
Lease.  The provisions of this Paragraph
18 shall survive the expiration or termination of this Lease.

 

21

 

19.          COMPLIANCE.  Tenant, at its
sole cost and expense, shall promptly comply with all laws, statutes,
ordinances and governmental rules, regulations or requirements now or hereafter
in effect governing use or occupancy of the Premises; with the requirements of
any board of fire underwriters or other similar body now or hereafter
constituted; and with any direction or occupancy certificate issued pursuant to
law by any public officer; provided, however, that no such failure shall be
deemed a breach of the provisions if Tenant, immediately upon notification,
commences to remedy or rectify said failure. 
The judgment of any court of competent jurisdiction or the admission of
Tenant in any action against Tenant, whether Landlord be a party thereto or
not, that Tenant has violated any such law, statute, ordinance or governmental
rule, regulation, requirement, direction or provision, shall be conclusive of
that fact as between Landlord and Tenant. 
Tenant shall, at its sole cost and expense, comply with any and all
requirements pertaining to said Premises, of any insurance organization or
company, necessary for the maintenance of reasonable fire and public liability
insurance covering requirements pertaining to said Premises.  The provisions of this Paragraph 19 shall
survive the expiration or termination of this Lease.

If a governmental
agency requires any non-conformance of the Premises as set forth on Exhibit B
to be corrected, such non-compliance shall be corrected at the cost and expense
of Landlord; provided such non-conformance exists as of the Commencement Date
of the Lease and further provided that such governing agency’s requirement to
correct the non-conformance is not initiated as a result of: (i) any future
improvements made by or for Tenant; or (ii) any permit request made to a governing
agency by or for Tenant.  Except as noted
above, any non-conformance of the Premises occurring after the Commencement
Date of this Lease shall be the responsibility of Tenant to correct at Tenant’s
sole cost and expense.

20.          LIENS.  Tenant shall
keep the Premises free from any liens arising out of any work performed,
materials furnished or obligation incurred by Tenant.  In the event that Tenant shall not, within
fifteen (15) days following notice of the imposition of such lien, cause the
same to be released of record, Landlord shall have, in addition to all other
remedies provided herein and by law, the right, but no obligation, to cause the
same to be released by such means as it shall deem proper, including payment of
the claim giving rise to such lien.  All
sums paid by Landlord for such purpose, and all expenses incurred by it in
connection therewith, shall be payable to Landlord by Tenant on demand with
interest at the higher of the (i) prime rate of interest as quoted by the Bank
of America or (ii) Landlord’s borrowing rate (the “Interest Rate”).

21.          ASSIGNMENT AND SUBLETTING.

A.            Requirements. 
Tenant shall not assign, transfer, or hypothecate the leasehold estate
under this Lease, or any interest therein, and shall not sublet the Premises,
or any part thereof, or any right or privilege appurtenant thereto, or suffer
any other person or entity to occupy or use the Premises, or any portion
thereof, without, in each case, the prior written consent of Landlord which
consent will not be unreasonably withheld. 
Landlord shall make reasonable efforts to respond within thirty (30)
days to any request from Tenant to sublease the Premises.  Notwithstanding the above, in the event
Tenant enters into a merger and/or acquisition agreement whereby fifty percent
(50%) or more of Tenant’s stock and/or assets are transferred to a third party
entity, not including any offering of Tenant’s stock on any nationally
recognized 

 

22

 

public stock market and any subsequent purchases and
sales of such stock thereon (“Change in Control”), said Change in Control will
require Landlord’s consent pursuant to the terms of this Paragraph 21.A, and
Landlord may, at Landlord’s option, require that said acquiring entity also be
named as a Tenant under this Lease. 
Tenant shall not sublet the Premises, or any part thereof, to more than
two subtenants at any one point in time without Landlord’s prior written
consent, which consent may be withheld at Landlord’s sole and absolute
discretion.  Tenant’s failure to obtain
Landlord’s prior written consent before entering into any such assignment,
transfer and/or subletting shall be considered a default under this Lease and
Landlord shall retain all of its rights under the Lease, including the right to
elect, at Landlord’s sole and absolute discretion, to terminate either the
Lease and/or the related sublease.  As a
condition for granting its consent to any assignment, transfer, or subletting,
Landlord shall require that: (i) the sublease be a triple net
sublease and that the basic rent due under any such sublease be no
less than the then current market rent for subleases with annual increases at
the then prevailing market rent for subleases; (ii) the sublease shall require
that the security deposit clue under the sublease be in the form of a letter of
credit drawn upon an institutional lender acceptable and accessible to Landlord
in form and content reasonably satisfactory to Landlord, with the letter of
credit being assignable to Landlord, at no cost to Landlord, upon notice to
said financial institution of a default by Tenant under the Lease; (iii) the
sublease shall not provide for subtenant to have an option to extend the term
of the sublease or an option to expand the sublet space; and (iv) the Tenant
shall pay to Landlord, monthly throughout the term of any approved sublease, fifty percent (50%) of all rents and/or additional
consideration due Tenant from its assignees, transferees, or subtenants in
excess of the Rent payable by Tenant to Landlord hereunder for the assigned,
transferred and/or subleased space (“Excess Rent”) (with said Excess Rent
subject to the terms of Lease Paragraph 4.C (“Late Charge”) and Lease Paragraph
24 (“Bankruptcy and Default”); provided, however, that before sharing such
Excess Rent, Tenant shall first be entitled to recover from such Excess Rent
(a) the amount of the reasonable leasing commission related to said transaction
paid by Tenant to a third party broker not affiliated with Tenant, and (b) the
amount of any reasonable outside costs incurred by Tenant to construct
improvements to the assigned, transferred or sublet premises which improvements
are required to be made by Tenant under the assignment or transfer agreement or
a sublease agreement.  Tenant shall, by thirty
(30) days written notice, advise Landlord of its intent to assign or transfer
Tenant’s interest in the Lease or sublet the Premises or any portion thereof
for any part of the Term hereof.  Within
thirty (30) days after receipt of said written notice, provided Tenant intends
to sublease fifty percent (50%) or more of the Premises, Landlord may, in its
sole discretion, elect to terminate this Lease as to the portion of the
Premises described in Tenant’s notice on the date specified in Tenant’s notice
by giving written notice of such election to terminate.  If no such notice to terminate is given to
Tenant within said thirty (30) day period, Tenant may proceed to locate an
acceptable sublessee, assignee, or other transferee for presentment to Landlord
for Landlord’s approval of Tenant’s request to sublease and/or assign, all in
accordance with the terms, covenants, and conditions of this Paragraph 21.  Tenant shall provide Landlord with (a) a copy
of the assignment and/or other transfer agreement and a copy of the
certification of the change in corporate identity from the Secretary of State
in the case of an assignment, or (b) a copy of the sublease in the case of a
sublease for Landlord’s review, and upon Landlord’s approval, Tenant and the
assignee, transferee or subtenant shall execute Landlord’s standard written
consent.  If Tenant intends to sublet the
entire Premises and Landlord elects to terminate this Lease, this Lease shall
be terminated on the date specified in Tenant’s notice.  If, however, this Lease shall terminate 

 

23

 

pursuant to the foregoing with respect to less than
all the Premises, the Rent, as defined and reserved hereinabove shall be
adjusted on a pro rata basis to the number of square feet retained by Tenant,
and this Lease as so amended shall continue in full force and effect and
Landlord, at its cost and expense, shall separately demise the remaining
portion of the Premises leased to Tenant. 
In the event Tenant is allowed to assign, transfer or sublet the whole
or any part of the Premises, with the prior written consent of Landlord, no
assignee, transferee or subtenant shall assign or transfer this Lease, either
in whole or in part, or sublet the whole or any part of the Premises, without
also having obtained the prior written consent of Landlord.  Notwithstanding the above,
in no event shall Landlord consent to a sub-sublease.  A consent of Landlord to one assignment,
transfer, hypothecation, subletting, occupation or use by any other person
shall not release Tenant from any of Tenant’s obligations hereunder or be
deemed to be a consent to any subsequent similar or dissimilar assignment,
transfer, hypothecation, subletting, occupation or use by any other
person.  Any such assignment, transfer,
hypothecation, subletting, occupation or use without such consent shall be void
and shall constitute a breach of this Lease by Tenant and shall, at the option
of Landlord exercised by written notice to Tenant, terminate this Lease.  The leasehold estate under this Lease shall
not, nor shall any interest therein, be assignable for any purpose by operation
of law without the written consent of Landlord. 
As a condition to its consent, Landlord shall require Tenant to pay all
expenses in connection with any and all subleases and/or assignments and/or any
amendments related thereto, including but not limited to Landlord’s fees for
the processing and administration of the consent documentation and Landlord’s
attorneys’ fees (if any), and Landlord shall require Tenant’s subtenant,
assignee or transferee (or other assignees or transferees) to assume in writing
all of the obligations under this Lease and for Tenant to remain liable to
Landlord under the Lease.

B.            Grounds to Refuse Proposed
Transfer.  Notwithstanding the foregoing, Landlord and
Tenant agree that it shall not be unreasonable for Landlord to refuse to
consent to a proposed assignment, sublease or other transfer (“Proposed
Transfer”) if the Premises or any other portion of the Property would become
subject to additional or different Government Requirements as a direct or
indirect consequence of the Proposed Transfer and/or the Proposed Transferee’s
use and occupancy of the Premises and the Property.  However, Landlord may, in its sole
discretion, consent to such a Proposed Transfer where Landlord is indemnified
by Tenant and (i) the subtenant or (ii) the assignee, in form and substance
satisfactory to Landlord and/or to Landlord’s counsel, from and against any and
all costs, expenses, obligations and liability arising out of the Proposed
Transfer and/or the Proposed Transferee’s use and occupancy of the Premises and
the Property.

C.            Voluntary Termination of Lease —
Required Sublease Language.  Any and all
sublease agreement(s) between Tenant and any and all subtenant(s) (“Subtenant”)
(which agreements must be consented to by Landlord, pursuant to the
requirements of this Lease) shall contain the following language:

“If Landlord and Tenant
jointly and voluntarily elect, for any reason whatsoever, to terminate the
Master Lease prior to the scheduled Master Lease termination date, then, if
Landlord so elects, this Sublease (if then still in effect) shall terminate
concurrently with the termination of the Master Lease.  Subtenant expressly acknowledges and agrees
that (1) 

 

24

 

the voluntary
termination of the Master Lease by Landlord and Tenant and the resulting
termination of this Sublease shall not give Subtenant any right or power to
make any legal or equitable claim against Landlord, including without
limitation any claim for interference with contract or interference with
prospective economic advantage, and (2) Subtenant hereby waives any and all
rights it may have under law or at equity against Landlord to challenge such an
early termination of the Sublease, and unconditionally releases and relieves
Landlord, and its officers, directors, employees and agents, from any and all
claims, demands, and/or causes of action whatsoever (collectively, “Claims”),
whether such matters are known or unknown, latent or apparent, suspected or
unsuspected, foreseeable or unforeseeable, which Subtenant may have arising out
of or in connection with any such early termination of this Sublease.  Subtenant knowingly and intentionally waives
any and all protection which is or may be given by Section 1542 of the
California Civil Code which provides as follows: “A general release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with debtor.

The term of this Sublease
is therefore subject to early termination. 
Subtenant’s initials here below evidence (a) Subtenant’s consideration
of and agreement to this early termination provision, (b) Subtenant’s
acknowledgment that, in determining the net benefits to be derived by Subtenant
under the terms of this Sublease, Subtenant has anticipated the potential for
early termination, and (c) Subtenant’s agreement to the general waiver and
release of Claims above.

	
  Initials:

  	
   

  	
  Initials:  

  	
   

  	
  ”

  
	
   

  	
  Subtenant

  	
   

  	
  Tenant

  	
   

  

 

D.            State of Incorporation Change;
Name Change.  Notwithstanding anything to the contrary
above, Tenant’s re-incorporation in another jurisdiction and/or the act of
Tenant changing Tenant’s legal name shall not be considered an assignment;
however, (i) Tenant shall provide Landlord with notice of such change in Tenant’s
name and/or state of incorporation, which notice shall include a copy of the certification
from the Secretary of State and (ii) Tenant and Landlord shall execute Landlord’s
standard acknowledgement for any such change in Tenant’s name and/or state of
incorporation.

E.             Permitted Transfers. 
In addition to and notwithstanding anything to the contrary in Paragraph
21.A above, and provided Tenant is not in default of this Lease beyond the
applicable cure period, Landlord hereby agrees that: (1) Landlord shall consent
to Tenant’s assigning or subletting said Lease to: (i) any parent or subsidiary
corporation, or corporation with which Tenant merges or consolidates provided
said entities use of the Premises is the same as Tenant’s use and that (a) said
affiliate or successor owns all or substantially all of the assets of Tenant
and becomes jointly and severally liable with Tenant for the Term of the Lease
from the 

 

25

 

Lease Commencement Date through the scheduled Lease
Termination Date (or the extended Lease Termination Date if said date is extended),
(b) the net worth of said parent or subsidiary corporation, or said corporation
has a net worth equal to or greater than Tenant’s net worth (x) at the time of
Lease execution or (y) at the time of such assignment, merger, or
consolidation, whichever is greater (collectively “Permitted Transfers”), and
(c) Tenant shall give Landlord written notice at least thirty (30) days prior
to the effective date of the proposed purchase, merger, consolidation or
reorganization; or (ii) any third party or entity to whom Tenant, as an ongoing
concern, sells all or substantially all of its assets; provided that (a) said
affiliate or successor owns all or substantially all of the assets of Tenant,
(b) the net worth of the resulting or acquiring corporation has a net worth
after the merger, consolidation or acquisition equal to or greater than the net
worth of Tenant (x) at the time of Lease execution or (y) at the time of such
merger, consolidation or acquisition, whichever is greater ((i) and (ii) above
collectively referred to as “Permitted Transfers”), and (c) Tenant shall give
Landlord written notice at least thirty (30) days prior to the effective date
of the proposed purchase, merger, consolidation or reorganization; and (2)
Landlord shall waive its right to terminate the Lease due to a Permitted
Transfer.

In the event
Tenant transfers fifty percent (50%) or more of Tenant’s stock to a third party
entity and such transfer does not include the sale of Tenant’s assets, said
transfer of stock shall not require Landlord’s approval provided that (a) the
net worth of said third party entity following such stock transfer is equal to
or greater than the net worth of Tenant (x) at the time of Lease execution or
Lease Commencement Date or (y) immediately before the stock transfer and any
such transfer does not leave the Tenant as a shell organization and (b) Tenant
provides Landlord written notice at least thirty (30) days prior to the
effective date of the proposed stock transfer.

No such assignment
or subletting or sale of stock will release the Tenant from its liabilities,
obligations, and responsibilities under this Lease.  Notwithstanding the above, Tenant shall be
required to (a) give Landlord written notice prior to such assignment or
subletting or sale of stock to any party as described above, (b) execute
Landlord’s consent document prepared by Landlord reflecting the assignment or
subletting and (c) pay Landlord’s costs for processing said Consent prior to
the effective date of said assignment or sublease.  Nothing herein shall be deemed to permit (i)
any assignee to further assign this Lease or sublet all or any portion of the
Premises or (ii) any subtenant to assign its interest in the sublease to any
other party without Landlord’s prior written consent.

22.          SUBORDINATION AND MORTGAGES.  In the event
Landlord’s title or leasehold interest is now or hereafter encumbered by a deed
of trust, upon the interest of Landlord in the land and Building in which the
demised Premises are located, to secure a loan from a lender (hereinafter
referred to as “Lender”) to Landlord, Tenant shall, at the request of Landlord
or Lender, execute in writing an agreement (in form reasonably acceptable to
Tenant), subordinating its rights under this Lease to the lien of such deed of
trust, or, if so requested, agreeing that the lien of Lender’s deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease.  Notwithstanding any such
subordination, Tenant’s possession under this Lease shall not be disturbed if
Tenant is not in default (and if in default, Tenant’s right to cure said
default has not expired) and so long as Tenant shall pay all Rent and observe
and perform all of the provisions set forth in this Lease and any subordination
agreement shall reflect 

 

26

 

the agreement of the Lender to the same.  As of the date of this Lease, there are no
mortgages or loans encumbering the Premises.

23.          ENTRY BY LANDLORD.  Landlord
reserves, and shall at all reasonable times after at least twenty four (24)
hours notice (except in emergencies) have the right to enter the Premises to
inspect them; to perform any services to be provided by Landlord hereunder; to
make repairs or provide any services to a contiguous tenant(s) (if any); to
submit the Premises to prospective purchasers, mortgagers or tenants; to post
notices of non-responsibility; and to alter, improve or repair the Premises and
any portion of the Complex, all without abatement of Rent, and may erect
scaffolding and other necessary structures in or through the Premises where
reasonably required by the character of the work to be performed; provided,
however that the business of Tenant shall be interfered with to the least
extent that is reasonably practical. 
Landlord shall also have the right at any time to change the arrangement
or location of entrances or passageways, doors and doorways, and corridors,
elevators, stairs, toilets or other public parts of the Complex and to change
the name, number or designation by which the Complex is commonly known, and
none of the foregoing shall be deemed an actual or constructive eviction of
Tenant, or shall entitle Tenant to any reduction of Rent hereunder.  Any entry to the Premises by Landlord for the
purposes provided for herein shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Premises or
an eviction, actual or constructive, of Tenant from the Premises or any portion
thereof.

24.          BANKRUPTCY AND DEFAULT.  The
commencement of a bankruptcy action or liquidation action or reorganization
action or insolvency action or an assignment of or by Tenant for the benefit of
creditors, or any similar action undertaken by Tenant, or the insolvency of
Tenant, shall, at Landlord’s option, constitute a breach of this Lease by
Tenant.  If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant’s unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.

Within thirty (30) days
after the court approval of the assumption of this Lease, the trustee or
receiver shall cure (or provide adequate assurance to the reasonable
satisfaction of Landlord that the trustee or receiver shall cure) any and all
previous defaults under the unexpired Lease and shall compensate Landlord for
all actual pecuniary loss and shall provide adequate assurance of future
performance under said Lease to the reasonable satisfaction of Landlord.  Adequate assurance of future performance, as
used herein, includes, but shall not be limited to: (i) assurance of source and
payment of Rent, and other consideration due under this Lease; (ii) assurance
that the assumption or assignment of this Lease will not breach substantially
any provision, such as radius, location, use, or exclusivity provision, in any
agreement relating to the above described Premises.

Nothing contained in this
section shall affect the existing right of Landlord to refuse to accept an
assignment upon commencement of or in connection with a bankruptcy,
liquidation, reorganization or insolvency action or an assignment of Tenant for
the benefit of creditors or other similar act. 
Nothing contained in this Lease shall be construed as giving or granting
or creating an equity in the demised Premises to Tenant.  In no event shall the leasehold estate 

 

27

 

under this Lease,
or any interest therein, be assigned by voluntary or involuntary bankruptcy
proceeding without the prior written consent of Landlord.  In no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or
reorganization proceedings.

The failure to perform or
honor any covenant, condition or representation made under this Lease shall
constitute a default under this Lease by Tenant upon expiration of the
appropriate grace period hereinafter provided. 
Tenant shall have a period of five (5) days from the effective date of
written notice from Landlord within which to cure any default in the payment of
Rent or adjustment thereto.  Tenant shall
have a period of thirty (30) days from the effective date of written notice
from Landlord within which to cure any other non-monetary default under this
Lease; provided, however, that with respect to non-monetary defaults not
involving Tenant’s failure to pay Basic Rent or Additional Rent, Tenant shall
not be in default if (i) more than thirty (30) days is required to cure such
non-monetary default and (ii) Tenant commences cure of such default as soon as
reasonably practicable after receiving written notice of such default from
Landlord and thereafter continuously and with due diligence prosecutes such
cure to completion.  Upon an uncured
default of this Lease by Tenant, Landlord shall have the following rights and
remedies in addition to any other rights or remedies available to Landlord at
law or in equity:

(a)           The rights and remedies provided for by California
Civil Code Section 1951.2 including but not limited to, recovery of 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 rental loss for the same
period that Tenant proves could be reasonably avoided, as computed pursuant to
subsection (b) of said Section 1951.2. 
Any proof by Tenant under subparagraphs (2) and (3) of Section 1951.2 of
the California Civil Code of the amount of rental loss that could be reasonably
avoided shall be made in the following manner: Landlord and Tenant shall each
select a licensed real estate broker in the business of renting property of the
same type and use as the Premises and in the same geographic vicinity.  Such two real estate brokers shall select a
third licensed real estate broker, and the three licensed real estate brokers
so selected shall determine the amount of the Rent loss that could be
reasonably avoided from the balance of the Term of this Lease after the time of
award.  The decision of the majority of
said licensed real estate brokers shall be final and binding upon the parties
hereto.  As part of such damages, Landlord
shall have the right to recover that portion of any leasing commission paid by
Landlord in connection with this Lease applicable to the unexpired Term of this
Lease.

(b)           The rights and remedies provided by California Civil
Code Section 1951.4, which allows Landlord to continue the Lease in effect and
to enforce all of its rights and remedies under this Lease, including the right
to recover Rent as it becomes due, for so long as Landlord does not terminate
Tenant’s right to possession; acts of maintenance or preservation, efforts to
relet the Premises, or the appointment of a receiver upon Landlord’s initiative
to protect its interest under this Lease shall not constitute a termination of
Tenant’s right to possession.

(c)           The right to terminate this Lease by giving notice to
Tenant in accordance with applicable law.

 

28

 

(d)           To the extent permitted by law, the right and power to
enter the Premises and remove therefrom all persons and property, to store such
property in a public warehouse or elsewhere at the cost of and for the account
of Tenant, and to sell such property and apply such proceeds therefrom pursuant
to applicable California law.  Landlord
may from time to time sublet the Premises or any part thereof for such term or
terms (which may extend beyond the Term of this Lease) and at such Rent and
such other terms as Landlord in its reasonable sole discretion may deem
advisable, with the right to make alterations and repairs to the Premises.  Upon each subletting, (i) Tenant shall be
immediately liable to pay Landlord, in addition to indebtedness other than Rent
due hereunder, the reasonable cost of such subletting, including, but not
limited to, reasonable attorneys’ fees, and any real estate commissions
actually paid, and the cost of such reasonable alterations and repairs incurred
by Landlord and the amount, if any, by which the Rent hereunder for the period
of such subletting (to the extent such period does not exceed the Term hereof)
exceeds the amount to be paid as Rent for the Premises for such period or (ii)
at the option of Landlord, rents received from such subletting shall be applied
first to payment of indebtedness other than Rent due hereunder from Tenant to
Landlord; second, to the payment of any costs of such subletting and of such
alterations and repairs; third, to payment of Rent due and unpaid hereunder;
and the residue, if any, shall be held by Landlord and applied in payment of
future Rent as the same becomes due hereunder. 
If Tenant has been credited with any Rent to be received by such
subletting under option (i) and such Rent shall not be promptly paid to
Landlord by the subtenant(s), or if such rentals received from such subletting
under option (ii) during any month be less than that to be paid during the
month by Tenant hereunder, Tenant shall pay any such deficiency to
Landlord.  Such deficiency shall be
calculated and paid monthly.  No taking
possession of the Premises by Landlord shall be construed as an election on its
part to terminate this Lease unless a written notice of such intention be given
to Tenant.  Notwithstanding any such
subletting without termination, Landlord may at any time hereafter elect to
terminate this Lease for such previous breach.

(e)           The right to have a receiver appointed for Tenant upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and
remedies granted to Landlord pursuant to subparagraph (d) above.

25.          ABANDONMENT.  Tenant shall
not vacate or abandon the Premises at any time during the Term of this Lease
and if Tenant shall abandon, vacate or surrender said Premises, or be
dispossessed by the process of law, or otherwise, any personal property
belonging to Tenant and left on the Premises shall be deemed to be abandoned,
at the option of Landlord, except such property as may be mortgaged to
Landlord.  Notwithstanding the above,
Tenant shall not be in default under the Lease if it leaves all or any part of
Premises vacant so long as (i) Tenant is performing all of its other
obligations under the Lease including the obligation to pay Rent (ii) Tenant
provides on-site security during normal business hours for those parts of the
Premises left vacant, (iii) such vacancy does not materially and adversely
affect the validity or coverage of any policy of insurance carried by Landlord
with respect to the Premises, and (iv) the utilities and heating and
ventilation systems are operated and maintained to the extent necessary to
prevent damage to the Premises or its systems.

 

29

 

26.          DESTRUCTION.  In the event
the Premises are destroyed in whole or in part from any cause, except for
routine maintenance and repairs and incidental damage for which Tenant is
responsible under Paragraph 11 (“Tenant Maintenance”), Landlord may, at its
option:

(a)           Rebuild or restore the Premises to their condition
prior to the damage or destruction, or

(b)           Terminate this Lease (providing that the Premises is
damaged to the extent of thirty-three and one third percent (33 1/3%) or more
of the replacement cost, exclusive of footings, foundations and floor slabs).

If Landlord does not give
Tenant notice in writing within thirty (30) days from the destruction of the
Premises of its election to either rebuild and restore them, or to terminate
this Lease, Landlord shall be deemed to have elected to rebuild or restore
them, in which event Landlord agrees, at its expense except for any deductible,
which is the responsibility of the Tenant, promptly to rebuild or restore the
Premises to their condition prior to the damage or destruction.  Tenant shall be entitled to a reduction in
Rent from the date of such damage or destruction, provided Tenant is not using
any portion of such damaged area, while such repair is being made in the
proportion that the area of the Premises rendered untenantable by such damage
bears to the total area of the Premises. 
If Landlord initially estimates that the rebuilding or restoration will
exceed 180 days or if Landlord does not complete the rebuilding or restoration
within one hundred eighty (180) days following the date of destruction (such
period of time to be extended for not more than sixty (60) additional days for
delays caused by the fault or neglect of Tenant or because of Acts of God, acts
of public agencies, labor disputes, strikes, fires, freight embargoes, rainy or
stormy weather, inability to obtain materials, supplies or fuels, acts of
contractors or subcontractors, or delay of the contractors or subcontractors
due to such causes or other contingencies beyond the control of Landlord) (the “Allowed
Restoration Period”), then, provided the Premises is damaged to the extent of
33 1/3% or more of the replacement cost (exclusive of footings, foundations and
floor slabs) and provided the damage or destruction does not result from
routine maintenance and repairs or incidental damage or destruction caused from
vandalism and accidents for which Tenant is responsible under Paragraph 11 (“Tenant
Maintenance”), Tenant shall have the right to terminate this Lease by giving
written notice to Landlord within ten (10) days following the date Tenant
receives Landlord’s written notice stating that the restoration will exceed the
Allowed Restoration Period.  Regardless
of whether Landlord and/or Tenant elects to terminate the Lease early as
provided herein, Tenant shall remain liable for the insurance deductible as it
relates to the Leased Premises. 
Notwithstanding anything herein to the contrary, Landlord’s obligation
to rebuild or restore shall be limited to the Building and interior
improvements constructed by Landlord as they existed as of the Commencement
Date of the Lease and shall not include restoration of Tenant’s trade fixtures,
equipment, merchandise, or any improvements, alterations or additions made by
Tenant to the Premises, which Tenant shall forthwith replace or fully repair at
Tenant’s sole cost and expense provided this Lease is not canceled according to
the provisions above.

Unless this Lease is
terminated pursuant to the foregoing provisions, this Lease shall remain in
full force and effect.  Tenant hereby
expressly waives the provision of Section 1932, Subdivision 2, in Section 1933,
Subdivision 4 of the California Civil Code.

 

30

 

In any event that the
Building in which the Premises are situated is damaged or destroyed to the
extent of not less than thirty-three and one third percent (33 1/3%) of the
replacement cost thereof, Landlord may elect to terminate this Lease, whether
the Premises be injured or not. 
Notwithstanding anything to the contrary herein, Landlord may terminate
this Lease in the event of an uninsured event or if insurance proceeds are
insufficient to cover one hundred percent of the rebuilding costs net of the
deductible.

Without regard to whether
this Lease is terminated pursuant to the foregoing, Tenant, upon demand by
Landlord, shall pay to Landlord Tenant’s Proportionate Share of the deductibles
from any casualty policy Landlord carries pursuant to Paragraph 17 (“Property
Insurance”).

27.          EMINENT DOMAIN.  If all or any
part of the Premises shall be taken by any public or quasi-public authority
under the power of eminent domain or conveyance in lieu thereof, this Lease
shall terminate as to any portion of the Premises so taken or conveyed on the
date when title vests in the condemnor, and Landlord shall be entitled to any
and all payment, income, rent, award, or any interest therein whatsoever which
may be paid or made in connection with such taking or conveyance, and Tenant
shall have no claim against Landlord or otherwise for the value of any
unexpired Term of this Lease. 
Notwithstanding the foregoing sentence, any compensation specifically
awarded Tenant for loss of business, Tenant’s personal property, moving costs
or loss of goodwill, shall be and remain the property of Tenant.  Notwithstanding anything to the contrary
herein, Tenant shall not be responsible for any costs of repairs, restoration,
replacements or other work occasioned by the exercise of the right (or a
voluntary conveyance resulting from the threatened exercise of the right) of
eminent domain or condemnation.

If (i) any action or
proceeding is commenced for such taking of the Premises or any part thereof, or
if Landlord is advised in writing by any entity or body having the right or
power of condemnation of its intention to condemn the Premises or any part
thereof, or (ii) any of the foregoing events occur with respect to the taking
of any space in the Complex not leased hereby, or if any such spaces so taken
or conveyed in lieu of such taking and Landlord shall decide to discontinue the
use and operation of the Complex, or decide to demolish, alter or rebuild the
Complex, then in any such events Landlord shall have the right to terminate
this Lease by giving Tenant written notice thereof within sixty (60) days of
the date of receipt of said written advice, or commencement of said action or
proceeding, or taking conveyance, which termination shall take place as of the
first to occur of the last day of the calendar month next following the month
in which such notice is given or the date on which title to the Premises shall
vest in the condemnor.

In the event of such a
partial taking or conveyance of the Premises, if the portion of the Premises
taken or conveyed is so substantial that the Tenant can no longer reasonably
conduct its business, Tenant shall have the privilege of terminating this Lease
within sixty (60) days from the date of such taking or conveyance, upon written
notice to the Landlord of its intention so to do, and upon giving of such
notice this Lease shall terminate on the last day of the calendar month next
following the month in which such notice is given, upon payment by Tenant of the
Rent from the date of such taking or conveyance to the date of termination.

 

31

 

If a portion of the
Premises be taken by condemnation or conveyance in lieu thereof and neither
Landlord nor Tenant shall terminate this Lease as provided herein, this Lease
shall continue in full force and effect as to the part of the Premises not so
taken or conveyed, and the Rent herein shall be apportioned as of the date of
such taking or conveyance so that thereafter the Rent to be paid by Tenant
shall be in the ratio that the area of the portion of the Premises not so taken
or conveyed bears to the total area of the Premises prior to such taking.

28.          SALE OR CONVEYANCE BY LANDLORD. 
In the event of a sale or conveyance of the Premises or any interest
therein, by any owner of the reversion then constituting Landlord, the
transferor shall thereby be released from any further liability upon any of the
terms, covenants or conditions (express or implied) herein contained in favor
of Tenant, and in such event, insofar as such transfer is concerned, Tenant
agrees to look solely to the responsibility of the successor in interest of
such transferor in and to the Complex and this Lease.  This Lease shall not be affected by any such
sale or conveyance, and Tenant agrees to attorn to the successor in interest of
such transferor.

29.          ATTORNMENT TO LENDER OR THIRD PARTY. 
In the event the interest of Landlord in the land and Building in which
the Leased Premises are located (whether such interest of Landlord is a fee
title interest or a leasehold interest) is encumbered by deed of trust, and
such interest is acquired by the lender or any third party through judicial
foreclosure or by exercise of a power of sale at private trustee’s foreclosure
sale, Tenant hereby agrees to attorn to the purchaser at any such judicial
foreclosure or foreclosure sale and to recognize such purchaser as the Landlord
under this Lease.  In the event the lien
of the deed of trust securing the loan from a Lender to Landlord is prior and
paramount to the Lease, this Lease shall nonetheless continue in full force and
effect for the remainder of the unexpired Term hereof, at the same rental
herein reserved and upon all the other terms, conditions and covenants herein contained.

30.          HOLDING OVER.  Any holding
over by Tenant after expiration or other termination of the Term of this Lease
shall not constitute a renewal or extension of the Lease or give Tenant any
rights in or to the Leased Premises except as expressly provided in this
Lease.  Any holding over after the
expiration or other termination of the Term of this Lease, with or without the
consent of Landlord, shall be construed to be a tenancy from month to month, on
the same terms and conditions herein specified insofar as applicable except
that the monthly Basic Rent shall be increased to an amount equal to two
hundred (200%) percent of the monthly Basic Rent required during the last month
of the Lease Term; provided, however, that the monthly Rent shall be prorated based
on the actual number of days in the month for any partial month of the holding
over.  Holding over conduct within the
meaning of the Lease and this Paragraph 30 shall also include the failure by
Tenant to surrender the Leased Premises on the Lease Termination Date in the
physical condition described in Paragraphs 8 (“Acceptance and Surrender of
Premises”), 10 (“Alterations and Additions”) and 11 (“Tenant Maintenance”)
and/or any Consents to Modifications/Alterations (if any) for which conduct
Tenant shall be subject to the Hold Over Basic Rent under this Paragraph until
the Leased Premises is restored to the condition required under this
Lease.  If Tenant is responsible for
paying to Landlord the cost of the restoration work pursuant to Paragraph 8 (“Acceptance
and Surrender of Premises”) in lieu of Tenant completing said restoration,
Tenant shall be liable to Landlord, at the Basic Rent rate for the last month
of the Lease Term, for the estimated time it would take to complete said 

 

32

 

restoration, regardless of whether or not Landlord
elects to make such restoration to the Leased Premises.

31.          CERTIFICATE OF ESTOPPEL.  Tenant shall
within ten (10) days of receipt of prior written notice from Landlord execute,
acknowledge and deliver to Landlord an estoppel statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
Basic Rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Tenant’s knowledge, any uncured defaults
on the part of Landlord hereunder, or specifying such defaults, if any, are
claimed.  Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises.  Tenant’s failure to deliver
such statement within such time shall be conclusive upon Tenant that this Lease
is in full force and effect, without modification except as may be represented
by Landlord; that there are no uncured defaults in Landlord’s performance, and
that not more than ten months’ Basic Rent has been paid in advance.

32.          CONSTRUCTION CHANGES.  It is understood
that the description of the Premises and the location of ductwork, plumbing and
other facilities therein are subject to such minor changes as Landlord or
Landlord’s architect determines to be desirable in the course of construction
of the Premises, and no such changes or any changes in plans for any other
portions of the Complex shall affect this Lease or entitle Tenant to any
reduction of Rent hereunder or result in any liability of Landlord to
Tenant.  Landlord does not guarantee the
accuracy of any drawings supplied to Tenant and verification of the accuracy of
such drawings rests with Tenant.

33.          RIGHT OF LANDLORD TO PERFORM. 
All terms, covenants and conditions of this Lease to be performed or
observed by Tenant shall be performed or observed by Tenant at Tenant’s sole
cost and expense and without any reduction of rent.  If Tenant shall fail to pay any sum of money,
or other Rent, required to be paid by it hereunder and such failure shall
continue for five (5) days after written notice thereof by Landlord or shall
fail to perform any other term or covenant hereunder on its part to be
performed, and such failure shall continue for thirty (30) days after written
notice thereof by Landlord (or such longer grace period as provided under
Paragraph 24), Landlord, without waiving or releasing Tenant from any
obligation of Tenant hereunder, may, but shall not be obliged to, make any such
payment or perform any such other term or covenant on Tenant’s part to be
performed.  All sums so paid by Landlord
and all necessary costs of such performance by Landlord together with interest
thereon at the Interest Rate (as defined in Paragraph 20 (“Liens”) above) from
the date of such payment or performance by Landlord, shall be paid (and Tenant
covenants to make such payment) to Landlord within five (5) business days after
demand by Landlord, and Landlord shall have (in addition to any other right or
remedy of Landlord) the same rights and remedies in the event of nonpayment by
Tenant as in the case of failure by Tenant in the payment of Rent hereunder.

34.          ATTORNEYS’ FEES.

A.            In the event that either Landlord or Tenant should
bring suit for the possession of the Premises, for the recovery of any sum due
under this Lease, or because of the breach of any provision of this Lease, or
for any other relief against the other party hereunder, 

 

33

 

then all costs and expenses, including reasonable
attorneys’ fees, incurred by the prevailing party therein shall be paid by the
other party, which obligation on the part of the other party shall be deemed to
have accrued on the date of the commencement of such action and shall be
enforceable whether or not the action is prosecuted to judgment.

B.            Should Landlord be named as a defendant in any suit
brought against Tenant in connection with or arising out of Tenant’s occupancy
hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such
suit, including reasonable attorneys’ fees.

C.            Any deposition of Landlord and/or its agents, whether
initiated by Landlord or Tenant, shall be administered and taken at Landlord’s
place of business.

35.          WAIVER.  The waiver by
either party of the other party’s failure to perform or observe any term,
covenant or condition herein contained to be performed or observed by such
waiving party shall not be deemed to be a waiver of such term, covenant or
condition or of any subsequent failure of the party failing to perform or
observe the same or any other such term, covenant or condition therein contained,
and no custom or practice which may develop between the parties hereto during
the Term hereof shall be deemed a waiver of, or in any way affect, the right of
either party to insist upon performance and observance by the other party in
strict accordance with the terms hereof.

36.          NOTICES.  All notices,
demands, requests, advices or designations which may be or are required to be
given by either party to the other hereunder shall be in writing.  All notices, demands, requests, advices or
designations by Landlord to Tenant shall be sufficiently given, made or
delivered if personally served on Tenant by leaving the same at the Premises or
if sent by United States certified or registered mail, postage prepaid or by a
reputable commercial carrier’s same day or overnight service addressed to
Tenant at the following addresses:

	
  Prior to Lease Commencement

  	
   

  	
  After Lease Commencement

  
	
   

  	
   

  	
   

  
	
  Attn:

  	
  Joe Maurino

  	
   

  	
  Attn:

  	
  Controller

  
	
  6536 Kaiser Drive

  	
   

  	
  Premises Address

  
	
  Fremont, CA 94555

  	
   

  	
  Fremont, CA 94555

  
	
  (510) 402-4014 (phone)

  	
   

  	
   

  
	
  (510) 794-8540 (fax)

  	
   

  	
   

  
	
  jmaurino@qbius.com (email)*

  	
   

  	
  dparker@qbius.com (email)*

  
					

*         The inclusion of an email address does
not obligate Landlord to provide a notice by electronic mail.

All notices,
demands, requests, advices or designations by Tenant to Landlord shall be sent
by United States certified or registered mail, postage prepaid, or by a
reputable commercial carrier’s same day or overnight service addressed to
Landlord at its offices at: PEERY/ARRILLAGA, 2560 MISSION COLLEGE BLVD., SUITE
101, SANTA CLARA, CA 95054, Attention: Company Manager.  Each notice, request, demand, advice or
designation referred to in this Paragraph shall be deemed received on the date
of the personal service or receipt or refusal to 

 

34

 

accept receipt of
the mailing thereof in the manner herein provided, as the case may be.  Either party shall have the right, upon ten
(10) days written notice to the other, to change the address as noted herein;
however, Landlord shall send Tenant notices to only one address of Tenant as
identified above.

37.          EXAMINATION OF LEASE.  Submission of
this instrument for examination or signature by Tenant does not constitute a
reservation of or option for a lease, and this instrument is not effective as a
lease or otherwise until its execution and delivery by both Landlord and
Tenant.

38.          DEFAULT BY LANDLORD.  Landlord shall
not be in default unless Landlord fails to perform obligations required of
Landlord within a reasonable time, but in no event later than (30) days after
receipt of written notice by Tenant to Landlord and to the holder of any first
mortgage or deed of trust covering the Premises whose name and address shall
have heretofore been furnished to Tenant in writing, specifying wherein
Landlord has failed to perform such obligations; provided, however, that if the
nature of Landlord’s obligations is such that more than thirty (30) days are
required for performance, then Landlord shall not be in default if Landlord
commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion. 
Landlord shall, however, make a reasonable effort to take immediate
action on its obligations on an emergency situation that impairs (i) the safety
of the Building and/or (ii) the occupancy of the Building.

39.          CORPORATE AUTHORITY.  If Tenant is a
corporation (or a partnership), each individual executing this Lease on behalf
of said corporation (or partnership) represents and warrants that he is duly authorized
to execute and deliver this Lease on behalf of said corporation (or
partnership) in accordance with the by-laws of said corporation (or partnership
in accordance with the partnership agreement) and that this Lease is binding
upon said corporation (or partnership) in accordance with its terms.  If Tenant is a corporation, Tenant shall,
within thirty (30) days after execution of this Lease, deliver to Landlord a
certified copy of the resolution of the Board of Directors of said corporation
authorizing or ratifying the specific execution of this Lease by the individual
executing said Lease.  In lieu of said
corporate resolution, Tenant may provide Landlord with an outside legal opinion
stating that the party executing this Lease on behalf of Tenant is authorized
to do so by the Board of Directors.

40.          LIMITATION OF LIABILITY.  In
consideration of the benefits accruing hereunder, Tenant and all successors and
assigns covenant and agree that, in the event of any actual or alleged failure,
breach or default hereunder by Landlord:

(a)           the sole and exclusive remedy shall be
against Landlord’s interest in the Premises leased herein;

(b)           no partner of Landlord shall be sued or
named as a party in any suit or action (except as may be necessary to secure
jurisdiction of the partnership);

(c)           no service of process shall be made against any
partner of Landlord (except as may be necessary to secure jurisdiction of the
partnership);

 

35

 

(d)           no partner of Landlord shall be required to answer or
otherwise plead to any service of process;

(e)           no judgment will be taken against any partner of
Landlord;

(f)            any judgment taken against any partner of Landlord may
be vacated and set aside at any time without hearing;

(g)           no writ of execution will ever be levied against the
assets of any partner of Landlord;

(h)           these covenants and agreements are enforceable both by
Landlord and also by any partner of Landlord.

Tenant agrees that each
of the foregoing covenants and agreements shall be applicable to any covenant
or agreement either expressly contained in this Lease or imposed by statute or
at common law.

41.          SIGNS.  No sign,
placard, picture, advertisement, name or notice shall be inscribed, displayed
or printed or affixed on or to any part of the outside of the Building or any
exterior windows of the Building without the written consent of Landlord first
had and obtained and Landlord shall have the right to remove any such sign,
placard, picture, advertisement, name or notice without notice to Tenant and at
the expense of Tenant.  If Tenant is
allowed to print or affix or in any way place a sign in, on, or about the
Premises, upon expiration or other sooner termination of this Lease, Tenant at
Tenant’s sole cost and expense shall both remove such sign and repair all
damage in such a manner as to restore all aspects of the appearance of the
Premises to the condition prior to the placement of said sign.

All approved signs and/or
lettering on sign monuments and/or interior Common Area sign directories, if
any, shall be printed, painted, affixed or inscribed at the sole cost and
expense of Tenant by a licensed contractor approved of by Landlord.

Tenant shall not place
anything or allow anything to be placed near the glass of any window, door
partition or wall which may appear unsightly from outside the Premises.

 

36

 

Notwithstanding anything to the contrary in this
Paragraph 41 and subject to (i) Tenant complying with the Design Guidelines of
the Ardenwood Corporate Commons, a copy of which has been provided to Tenant
and (ii) Landlord’s approval of Tenant’s signage (which approval shall not be
unreasonably withheld), Tenant shall be entitled to install, at Tenant’s sole
cost and expense, Tenant’s name on (x) Tenant’s Proportionate Share of the
existing monument sign for the Building in which the Premises are located (the
exact placement and size of Tenant’s sign is to be approved by Landlord), (y)
on the exterior glass adjacent to the entrance to the main lobby of the
Building (the exact placement and size of Tenant’s sign is to be approved by
Landlord), and (z) on the entrance door to Tenant’s Leased Premises, with the
understanding that Tenant shall be liable for repairing any damage to said monument
and door resulting from the installation and or removal of said signs upon
Lease Termination.

42.          CONSENT.  Whenever the
consent of one party to the other is required hereunder, such consent shall not
be unreasonably withheld.

43.          AUTHORITY TO EXECUTE.  The parties
executing this Lease hereby warrant and represent that they are properly
authorized to execute this Lease and bind the parties on behalf of whom they
execute this Lease and to all of the terms, covenants and conditions of this
Lease as they relate to the respective parties hereto.

44.          HAZARDOUS MATERIALS:  Landlord and
Tenant agree as follows with respect to the existence or use of “Hazardous
Materials” (as defined herein) on, in, under or about the Premises and real
property located beneath said Premises and the Common Areas of the Complex
(hereinafter collectively referred to as the “Property”):

A.            As used herein, the term “Hazardous Materials” shall
mean any material, waste, chemical, mixture or byproduct which is or hereafter
is defined, listed or designated under Environmental Laws (defined below) as a
pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or
material, or any other unwholesome, hazardous, toxic, biohazardous, or
radioactive material, waste, chemical, mixture or byproduct, or which is
listed, regulated or restricted by any Environmental Law (including, without
limitation, petroleum hydrocarbons or any distillates or derivatives or
fractions thereof, polychlorinated biphenyls, or asbestos).  As used herein, the term “Environmental Laws”
shall mean any applicable Federal, State of California or local government law
(including common law), statute, regulation, rule, ordinance, permit, license,
order, requirement, agreement, or approval, or any determination, judgment,
directive, or order of any executive or judicial authority at any level of
Federal, State of California or local government (whether now existing or
subsequently adopted or promulgated) relating to pollution or the protection of
the environment, ecology, natural resources, or public health and safety.

B.            Tenant shall obtain Landlord’s written consent, which
may be withheld in Landlord’s discretion, prior to the occurrence of any Tenant’s
Hazardous Materials Activities (defined below) (and Tenant shall first provide
Landlord with a list of said materials used and specify the location in the
Premises where said materials are used and stored, the method of storage and
disposal of the same, and a copy of the related permits); provided, however, that
Landlord’s consent shall not be required for normal use in compliance with
applicable 

 

37

 

Environmental Laws of customary household and office
supplies, such as mild cleaners, lubricants and copier toner.  As used herein, the term “Tenant’s Hazardous
Materials Activities” shall mean any and all use, handling, generation,
storage, disposal, treatment, transportation, discharge, or emission of any
Hazardous Materials on, in, beneath, to, from, at or about the Property, in
connection with Tenant’s use of the Property, or by Tenant or by any of Tenant’s
agents, employees, contractors, vendors, invitees, visitors or its future
subtenants or assignees.  Tenant agrees
that any and all Tenant’s Hazardous Materials Activities shall be conducted in
strict, full compliance with applicable Environmental Laws at Tenant’s expense,
and shall not result in any contamination of the Property or the
environment.  Tenant shall not discharge
any Hazardous Materials in the plumbing, sewer and/or storm drains in the
Premises and/or Complex.  Tenant agrees
to provide Landlord with prompt written notice of any spill or release of
Hazardous Materials at the Property during the term of the Lease of which
Tenant becomes aware, and further agrees to provide Landlord with prompt
written notice of any violation of Environmental Laws in connection with Tenant’s
Hazardous Materials Activities of which Tenant becomes aware.  If Tenant’s Hazardous Materials Activities
involve Hazardous Materials other than normal use of customary household and
office supplies, Tenant also agrees that Tenant shall at Tenant’s cost and
expense: (i) install such Hazardous Materials monitoring, storage and
containment devices as required by applicable Environmental Law and/or the
governing agencies (however, in no event shall Tenant discard any Hazardous
Materials in the Building plumbing system and/or the Building sewer system) and
(ii) deliver to Landlord by April 1, 2008 and on April 1 of each year
thereafter during the Term of this Lease and any extended Term thereof, a
written report prepared by a licensed, qualified environmental consultant,
reasonably acceptable to Landlord, which confirms that Tenant is in compliance
with all applicable Environmental Laws with respect to Tenant’s Hazardous
Materials Activities at the Premises or if not in compliance, the corrective
action required; said report shall include a list of the Hazardous Materials
used, stored and/or disposed at the Premises and the location(s) within the
Premises of such Hazardous Materials use, storage and/or disposal.  Tenant, at its expense, shall promptly
undertake and complete any and all steps necessary to be in full compliance
with applicable Environmental Laws and to fully correct any and all problems or
deficiencies addressed in said report; and Tenant shall promptly provide
Landlord with documentation of all such corrective action taken.

C.            Prior to termination or expiration of the Lease,
Tenant, at its expense, shall (i) properly remove from the Property all
Hazardous Materials which come to be located at the Property in connection with
Tenant’s Hazardous Materials Activities, and (ii) fully comply with and
complete all facility closure requirements of applicable Environmental Laws
regarding Tenant’s Hazardous Materials Activities, including but not limited to
(x) properly restoring and repairing the Property to the extent damaged by such
closure activities, and (y) obtaining from the local Fire Department or other
appropriate governmental authority with jurisdiction a written concurrence that
closure has been completed in compliance with applicable Environmental
Laws.  Tenant shall promptly provide
Landlord with copies of any claims, notices, work plans, data and reports
prepared, received or submitted in connection with any such closure activities.

D.            If Landlord, in its sole discretion, believes that the
Property has become contaminated as a result of Tenant’s Hazardous Materials
Activities, Landlord in addition to any other rights it may have under this
Lease or under Environmental Laws or other laws, may enter 

 

38

 

upon the Property and conduct inspection, sampling and
analysis, including but not limited to obtaining and analyzing samples of soil
and groundwater, for the purpose of determining the nature and extent of such
contamination.  Tenant shall promptly
reimburse Landlord for the costs of such an investigation, including but not
limited to reasonable attorneys’ fees Landlord incurs with respect to such
investigation, that discloses Hazardous Materials contamination for which
Tenant is liable under this Lease. 
Notwithstanding the above, Landlord may, at its option and in its sole
and absolute discretion, choose to perform remediation and obtain reimbursement
for cleanup costs as set forth herein from Tenant.  Any cleanup costs incurred by Landlord as the
result of Tenant’s Hazardous Materials Activities shall be reimbursed by Tenant
within thirty (30) days of presentation of written documentation of the expense
to Tenant by Landlord.  Such reimbursable
costs shall include, but not be limited to, any reasonable consultants’ and
attorneys’ fees incurred by Landlord. 
Tenant shall take all actions necessary to preserve any claims it has
against third parties, including, but not limited to, its insurers, for claims
related to its operation, management of Hazardous Materials or contamination of
the Property.  Except as may be required
of Tenant by applicable Environmental Laws, Tenant shall not perform any
sampling, testing, or drilling to identify the presence of any Hazardous
Materials at the Property, without Landlord’s prior written consent which may
be withheld in Landlord’s discretion. 
Tenant shall promptly provide Landlord with copies of any claims,
notices, work plans, data and reports prepared, received or submitted in
connection with any sampling, testing or drilling performed pursuant to the
preceding sentence.

E.             Tenant shall indemnify, defend (with legal counsel
acceptable to Landlord, whose consent shall not unreasonably be withheld) and
hold harmless Landlord, its employees, assigns, successors,
successors-in-interest, agents and representatives from and against any and all
claims (including but not limited to third party claims from a private party or
a government authority), liabilities, obligations, losses, causes of action,
demands, governmental proceedings or directives, fines, penalties, expenses,
costs (including but not limited to reasonable attorneys’, consultants’ and
other experts’ fees and costs), and damages, which arise from or relate to: (i)
Tenant’s Hazardous Materials Activities; (ii) releases or discharges of
Hazardous Materials at the Premises and/or on the Property if released and/or
discharged by Tenant, Tenant’s agents, employees, contractors, vendors,
invitees, visitors or its future subtenants or assignees, which occur during
the Term of this Lease, (iii) any Hazardous Materials contamination caused by
Tenant prior to the Commencement Date of the Lease; or (iv) the breach of
any obligation of Tenant under this Paragraph 44 (collectively, “Tenant’s
Environmental Indemnification”).  Tenant’s
Environmental Indemnification shall include but is not limited to the
obligation to promptly and fully reimburse Landlord for losses in or reductions
to rental income, and diminution in fair market value of the Property.  Tenant’s Environmental Indemnification shall
further include but is not limited to the obligation to diligently and properly
implement to completion, at Tenant’s expense, any and all environmental
investigation, removal, remediation, monitoring, reporting, closure activities,
or other environmental response action (collectively, “Response Actions”).  Tenant shall promptly provide Landlord with
copies of any claims, notices, work plans, data and reports prepared, received
or submitted in connection with any Response Actions.

 

39

 

As evidenced by
their initials set forth immediately below, Tenant acknowledges that Landlord
has provided Tenant with copies of the environmental reports listed on Exhibit
C (“Reports”), and Tenant acknowledges that Tenant and Tenant’s experts (if
any) have had ample opportunity to review such reports and that Tenant has
satisfied itself as to the environmental conditions of the Property and the
suitability of such conditions for Tenant’s intended use of the Property.  To the best of Landlord’s actual knowledge as
of the date of this Lease, except as noted in said Reports, no additional on site
Hazardous Materials contamination exist on the Property; however, Landlord
shall have no obligation to further investigate.

	
  Initial:

  	
   

  	
  Initial:  

  	
   

  	
  ”

  
	
   

  	
  Tenant

  	
   

  	
  Landlord

  	
   

  

 

It is agreed that
the Tenant’s responsibilities related to Hazardous Materials will survive the
expiration or termination of this Lease and that Landlord may obtain specific
performance of Tenant’s responsibilities under this Paragraph 44.

45.          BROKERS.  Landlord and
Tenant each represent and warrant to the other that they have not dealt with
any real estate brokers, agents, or finders in connection with the original
Term of this Lease, and knows of no real estate broker, agent or finder who is
entitled to a commission in connection with this Lease (“Lease Commission”).  Each party agrees to defend, protect,
indemnify and hold the other party harmless from and against all claims for
Lease Commissions, finder’s fees, and other compensation made by any broker,
agent, or finder as consequence of the indemnifying party’s actions or dealings
with such broker, agent or finder.  The
parties hereto acknowledge that Landlord will not pay a Lease Commission to any
broker secured by Tenant related to the original Term of this Lease, or in the
event this Lease is extended or the square footage leased hereunder is
increased for any reason whatsoever.

46.          PERSONAL PROPERTY OF LANDLORD: 
Tenant acknowledges that the Furniture within the Premises (as detailed
on Exhibit D attached hereto) (“Furniture”), is the personal property of
Landlord and is being leased hereunder by Tenant (hereinafter referred to as “Personal
Property of Landlord”) free of Additional Rent. 
Tenant agrees, at its sole cost and expense, to maintain, repair and
replace the Personal Property of Landlord as needed, normal wear and tear excepted.  Tenant shall not replace, remove, or encumber
in any way, any of the Personal Property of Landlord without Landlord’s prior
written consent

47.          ASSOCIATION DUES:  The Premises
is part of the Ardenwood Property Owner’s Association, and is subject to dues
to fund the cost of the Association’s obligations and expenses as authorized
under the By-Laws of said Association (“Association Dues”).  As of the date of this Lease, Tenant’s
current Proportionate Share of the Association Dues is currently estimated at
Three and 51/100 Dollars ($3.51) per month and is subject to adjustment as
provided for by said Association.  Said
Association Dues are payable by Tenant to Landlord as Additional Rent on a
monthly basis throughout the Term of this Lease.  Tenant understands that it will not be a
direct member of the Association.

 

40

 

48.          TENANT’S OPTION TO TERMINATE LEASE: 
Provided Tenant is not in default in any of the terms, covenants and
conditions of this Lease and any amendments thereto, and in exchange for the
payment to Landlord of a Termination Fee as referenced below, Landlord hereby
grants to Tenant Two (2) Options to Terminate this Lease, subject to the
following terms and conditions:

A.            Tenant’s First Option to
Terminate:  Provided Tenant is not in default in any of
the terms, covenants and conditions of this Lease and any amendments thereto,
Tenant shall have the right to terminate this Lease effective October 31, 2007,
by giving Landlord notice of Tenant’s exercise of said First Option to
Terminate this Lease, which written notice must be received by Landlord not
later than March 31, 2007.

1.             In the event Tenant fails to timely
exercise Tenant’s First Option to Terminate as set forth herein in writing,
this Lease shall, subject to the terms of this Lease, continue in full force
and effect for the full remaining Term hereof, absent this Paragraph 48.A but
subject to Tenant’s Second Option to Terminate pursuant to Paragraph 48.B (“Tenant’s
Second Option to Terminate”) below.

2.             In the event Tenant timely exercises
Tenant’s First Option to Terminate as set forth in this Paragraph 48.A, this
Lease shall be amended and executed by the parties hereto to memorialize the
exercise by Tenant of said Option to Terminate this Lease and the revised
Termination Date of October 31, 2007, with each party being responsible for the
full performance of all terms, covenants, and conditions of said Lease through
the effective date of termination as set forth above and thereafter for those
terms and conditions of the Lease that survive the termination of the Lease.

3.             As consideration to Landlord for Tenant’s
exercise of the privilege of the early termination of this Lease under this
First Option to Terminate, Landlord shall retain one hundred percent (100%) of
the Prepaid Termination Fee of $106,727.40 as referenced in Paragraph 49 (“Prepaid
Termination Fee”) below.

B.            Tenant’s Second Option to
Terminate.  Provided Tenant is not in default in any of
the terms, covenants and conditions of this Lease and any amendments thereto,
Tenant shall have the right to terminate this Lease effective October 31, 2008,
by giving Landlord notice of Tenant’s exercise of said Second Option to
Terminate this Lease, which written notice must be received by Landlord not
later than March 31, 2008.

1.             In the event Tenant fails to timely
exercise Tenant’s Second Option to Terminate as set forth herein in writing,
Tenant shall have no further Option to Terminate this Lease, and this Lease
shall, subject to the terms of this Lease, continue in full force and effect
for the full remaining Term hereof, absent this Paragraph 48.

2.             In the event Tenant timely exercises
Tenant’s Second Option to Terminate as set forth in this Paragraph 48.B, this
Lease shall be amended and executed by the parties hereto to memorialize the
exercise by Tenant of said Option to Terminate this Lease and the revised
Termination Date of October 31, 2008, with each party being 

 

41

 

responsible for
the full performance of all terms, covenants, and conditions of said Lease
through the effective date of termination as set forth above and thereafter for
those terms and conditions of the Lease that survive the termination of the
Lease.

3.             As consideration to Landlord for Tenant’s
exercise of the privilege of the early termination of this Lease under this
Second Option to Terminate, Landlord shall retain one hundred percent (100%) of
the Adjusted Prepaid Termination Fee ($54,665.25) as referenced in Paragraph 49
(“Prepaid Termination Fee”) below.

C.            Surrender of Premises. 
In the event Tenant timely exercises Tenant’s Option to Terminate as set
forth in Paragraph 48.A (“Tenant’s First Option to Terminate”) or 48.B (“Tenant’s
Second Option to Terminate”) above, Tenant agrees to surrender the Leased
Premises to Landlord, free and clear of Tenant’s occupancy or the occupancy of
any subtenants, as of the early Termination Date, and shall comply with all
surrender requirements as outlined in Paragraphs 8 (“Acceptance and Surrender
of Premises”), 10 (“Alterations and Additions”) and 44 (“Hazardous Materials”)
of this Lease.

D.            Option to Terminate Not
Transferable.  The Option to Terminate rights of Tenant
under this Paragraph 48 are granted for Tenant’s personal benefit and may not
be assigned or transferred by Tenant, either voluntarily or by operation of
law, in any manner whatsoever, except under a Permitted Transfer pursuant to
Paragraph 21.E (“Assignment and Subletting: Permitted Transfers”).  In the event that Landlord consents to an
assignment under Paragraph 21.A (“Assignment and Subletting”), excluding a
Permitted Transfer, the Option to Terminate granted herein shall be void and of
no force and effect, whether or not Tenant shall have purported to exercise
such Option to Terminate prior to such assignment, and (i) the then current
balance of the Prepaid Termination Fee shall first be applied to Tenant’s
account to offset any amounts due as of the effective date of the assignment
and (ii) the balance (if any) shall be refunded to Tenant.

E.             Default — Forfeiture of Option to
Terminate.  Notwithstanding anything to the contrary in
this Paragraph 48 (“Tenant’s Option to Terminate Lease”), the Option to
Terminate is automatically forfeited by Tenant (without notice from Landlord)
in the event Tenant is, at any time during the Term of this Lease, in default
of said Lease and if Tenant does not completely cure said default within five
days for a monetary default and thirty days for a non-monetary default; provided,
however that with respect to non-monetary defaults not involving Tenant’s
failure to pay Basic Rent or Additional Rent, Tenant shall not be in default of
any non-monetary obligation if (i) more than thirty (30) days is required to
cure such non-monetary default, and (ii) Tenant commences cure of such default
as soon as reasonably practicable after receiving written notice of such
default from Landlord and thereafter continuously and with due diligence
prosecutes such cure to completion.

49.          PREPAID TERMINATION FEE:  Landlord has
agreed to allow Tenant to Terminate this Lease as referenced in Paragraph 48 (“Tenant’s
Option to Termination Lease”) above in exchange for a Termination Fee equal to
(i) $106,727.40 in the event Tenant exercises Tenant’s First Option to
Terminate as referenced in Paragraph 48.A (“Tenant’s First Option to Terminate”)
or (ii) $54,665.25 in the event Tenant exercises Tenant’s Second Option to 

 

42

 

Terminate as referenced in Paragraph 48.B (“Tenant’s
Second Option to Terminate”). 
Concurrently with the execution of this Lease, Tenant shall pay to
Landlord the prepaid Termination Fee of $106,727.40 (“Prepaid Termination Fee”).  Said Prepaid Termination Fee shall be either
retained by Landlord or Tenant shall be given credit against the Basic Rent due
as referenced below:

A.            Lease Terminates on or before
October 31, 2007:  In the event the Lease Terminates on or
before October 31, 2007 by an exercise by Tenant of Tenant’s First Option to
Terminate pursuant to Paragraph 48.A (“Tenant’s First Option to Terminate”)
above, the entire Prepaid Termination Fee of $106,727.40 shall be retained by
Landlord as a Termination Fee.

B.            Lease Does Not Terminate by
October 31, 2007:  In the event Landlord does not receive notice
by January 31, 2007 of Tenant’s exercise of its First Option to Terminate this
Lease effective October 31, 2007, (i) Landlord shall apply $52,062.15 of said
Prepaid Termination Fee, as a credit against the Basic Rent due for the months
of November 2007, December 2007, January 2008, February 2008 and March 2008 and
(ii) Landlord shall hold the remaining balance ($54,665.25) of said Prepaid
Termination Fee (“Adjusted Prepaid Termination Fee”) as a potential Termination
Fee to be retained by Landlord and/or to be given as a credit against Tenant’s
Basic Rent subject to Paragraphs 49.0 (“Lease Terminates on or before October
31, 2008”) and 49.D (“Lease Does Not Terminate by October 31, 2008”) below.

C.            Lease Terminates on or before
October 31, 2008.  In the event the Lease Terminates on or
before October 31, 2008 by an exercise of Tenant’s Second Option to Terminate
pursuant to Paragraph 48.B above, the Adjusted Prepaid Termination Fee of
$54,665.25 shall be retained by Landlord as a Termination Fee.

D.            Lease Does Not Terminate by
October 31, 2008.  In the event Landlord does not receive notice
by January 31, 2008 of Tenant’s exercise of its Second Option to Terminate this
Lease effective October 31, 2008, Landlord shall apply said Adjusted Prepaid
Termination Fee ($54,665.25) as a credit against the Basic Rent due for the
months of November 2008, December 2008, January 2009, February 2009 and March
2009.

50.          MISCELLANEOUS AND GENERAL PROVISIONS.

A.            Use of Building Name. 
Tenant shall not, without the written consent of Landlord, use the name
of the Building for any purpose other than as the address of the business
conducted by Tenant in the Premises.

B.            Premises Address. 
It is understood that (i) the current address for the Premises is shown on
page 1 of this Lease, and that (ii) the address for the Premises is subject to
change at any time by the City in which the Premises are located (the “City”).  In the event the address assigned to the
Premises is changed by the City, this Lease shall thereafter be amended to
reflect the assigned address for the Premises leased hereunder and Landlord
shall not be liable to Tenant for any costs or expenses incurred by Tenant as a
result of said address change.

C.            Choice of Law/Venue; Severability. 
This Lease shall in all respects be governed by and construed in
accordance with the laws of the County of Santa Clara in the State 

 

43

 

of California and each party specifically stipulates
to venue in Santa Clara County.  If any
provision of this Lease shall be invalid, unenforceable, or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in full
force and effect.

D.            Definition of Terms. 
The term “Premises” includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto.  The term “Landlord” or any pronoun used in
place thereof includes the plural as well as the singular and the successors
and assigns of Landlord.  The term “Tenant”
or any pronoun used in place thereof includes the plural as well as the
singular and individuals, firms, associations, partnerships and corporations,
and their and each of their respective heirs, executors, administrators,
successors and permitted assigns, according to the context hereof, and the
provisions of this Lease shall inure to the benefit of and bind such heirs,
executors, administrators, successors and permitted assigns.

The term “person”
includes the plural as well as the singular and individuals, firms,
associations, partnerships and corporations. 
Words used in any gender include other genders.  If there be more than one Tenant the
obligations of Tenant hereunder are joint and several.  The paragraph headings of this Lease are for
convenience of reference only and shall have no effect upon the construction or
interpretation of any provisions hereof.

E.             Time Of Essence. 
Time is of the essence of this Lease and of each and all of its
provisions.

F.             Quitclaim. 
At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after
written demand from Landlord to Tenant, any quitclaim deed or other document
required by any reputable title company, licensed to operate in the State of California,
to remove the cloud or encumbrance created by this Lease from the real property
of which Tenant’s Premises are a part.

G.            Incorporation of Prior
Agreements; Amendments.  This instrument along with any
exhibits and attachments hereto constitutes the entire agreement between
Landlord and Tenant relative to the Premises and this agreement and the
exhibits and attachments may be altered, amended or revoked only by an
instrument in writing signed by both Landlord and Tenant.  Landlord and Tenant agree hereby that all
prior or contemporaneous oral agreements between and among themselves and their
agents or representatives relative to the leasing of the Premises are merged in
or revoked by this agreement.

H.            Recording. 
Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.

I.              Amendments for Financing. 
Tenant further agrees to execute any reasonable amendments required by a
lender to enable Landlord to obtain financing, so long as Tenant’s rights
hereunder are not substantially affected.

J.             Clauses, Plats and Riders. 
Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.

 

44

 

K.            Diminution of Light, Air or View. 
Tenant covenants and agrees that no diminution or shutting off of light,
air or view by any structure which may be hereafter erected (whether or not by
Landlord) shall in any way affect this Lease, entitle Tenant to any reduction
of Rent hereunder or result in any liability of Landlord to Tenant.

 

[SIGNATURES
ON NEXT PAGE]

 

45

 

IN WITNESS WHEREOF,
Landlord and Tenant have executed and delivered this Lease as of the day and
year last written below.

	
  LANDLORD:

  	
   

  	
  TENANT:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  JOHN ARRILLAGA SURVIVOR’S TRUST

  	
  QUARK BIOTECH, INC.

  a California corporation

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ JASON PEERY

  	
  By:

  	
  /s/ DANIAL ZURR

  
	
   

  	
  Jason Peery, as his Attorney in Fact

  	
   

  	
  Danial Zurr, President and Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  9/14/06

  	
  Date:

  	
  9/13/06

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  RICHARD T. PEERY SEPARATE

  PROPERTY TRUST

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ JASON PERRY

  	
   

  	
   

  
	
   

  	
  Jason Peery, as Special Trustee

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  9/14/06

  	
   

  	
   

  
						

 

 

46

 

 

 

 

 

 

EXHIBIT C TO LEASE AGREEMENT DATED
SEPTEMBER 8, 2006 BETWEEN THE JOHN ARRILLAGA SURVIVOR’S TRUST AND THE RICHARD
T. PEERY SEPARATE PROPERTY TRUST, AS LANDLORD, AND QUARK BIOTECH, INC., AS TENANT

 

HAZARDOUS MATERIALS REPORTS

PROVIDED
TO TENANT

1)                                      Preliminary Environmental Assessment and
Soil Testing for Ardenwood Corporate Commons: prepared for Bedford Properties
on August 10, 1988 by Kaldveer Associates;

2)                                      Preliminary Environmental Assessment and
Soil Testing for Ardenwood Corporate Commons Lots 1 through 27: prepared for
Bedford Properties on June 13, 1989 by Kaldveer Associates;

3)                                      Phase I Site Assessment for Ardenwood
Corporate Commons: prepared for Bedford Properties in July 1991 by Mittelhauser
Corporation.

 

 

EXHIBIT D TO LEASE AGREEMENT DATED
SEPTEMBER 8, 2006, BY AND BETWEEN THE JOHN ARRILLAGA SURVIVOR’S TRUST AND THE
RICHARD T. PEERY SEPARATE PROPERTY TRUST, AS LANDLORD, AND QUARK BIOTECH, INC.,
AS TENANT.

 

PERSONAL
PROPERTY OF LANDLORD TO BE LEASED BY TENANT:

Landlord shall
lease to Tenant the following furniture, which items are currently installed in
the Premises and which shall be leased by Tenant pursuant to Lease Paragraph 46
(“Personal Property of Landlord”):

	
  Quantity

  	
   

  	
  Description

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10

  	
   

  	
  Pre-owned 8’ x 8’ cubicles

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00120-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00120-of-00352.parquet"}]]