Document:

Exhibit 10.46

 

TRIPLE
NET SPACE LEASE

 

 

Between

 

PACIFIC
SHORES INVESTORS, LLC,

as

LESSOR

 

 

and

 

 

BROADVISION,
INC.

a Delaware corporation

as

LESSEE

 

 

for

 

PREMISES

at

Pacific Shores Center

Redwood City, California

 

1

 

ARTICLE
I

PARTIES

 

Section 1.01.          Parties.  This Lease, dated for reference purposes,
and effective as of July 7, 2004, is made by and between PACIFIC SHORES
INVESTORS, LLC (“Lessor”) and BROADVISION, INC., a Delaware corporation
(“Lessee”).

 

ARTICLE
II

PREMISES

 

Section 2.01.          Demise.  Lessor hereby leases to Lessee and Lessee
leases from Lessor for the term, at the rental, and upon all of the terms and
conditions set forth herein, certain Premises (defined below) which shall be
located in one of ten free standing, office and research and development
buildings (“Project Buildings”) on real property situated in Redwood City,
County of San Mateo, State of California, more particularly described in
Exhibit “A” and commonly known as Pacific Shores Center.  The Premises, the Project Buildings and
appurtenances described herein, including Common Area (defined below), and all
other improvements at Pacific Shores Center together with the land on which the
same are located are together designated as the project (the “Project”).  The Project Building in which the Premises
shall be located shall be referred to herein as the “Building.”  Lessor reserves the right to access and use
the restrooms and janitor, telephone and electrical closets (as well as the space
above any dropped ceilings) for cabling, wiring, pipes and other Building
system elements.  The actual rentable
square footage of the Premises, the Building and the other Project Buildings
(the “Rentable Area) will be determined and certified by Lessor’s architect by
a method described as “dripline,” whereby the measurement encompasses the
outermost perimeter of the constructed building, including every projection
thereof and all area beneath each such projection, whether or not enclosed,
with no deduction for any inward deviation of structure and with the
measurement being made floor by floor, beginning from the top of the Building
provided, that, Rentable Area does not include the open area beneath any
walkway between the Building and any other Project Building.  The Rentable Area of the Premises also
includes an allocation of the Building Common Area (defined in Section 2.03.
below).

 

Section 2.02.          Designation of Premises.  As used
herein, the “Premises” shall mean and refer to the space leased to Lessee
pursuant to this Lease, the exact location of which shall be as determined in
accordance with the terms of this Section 2.02.   As of the date of this Lease, Lessor and Lessee anticipate that,
subject to the terms and conditions of this Section 2.02., the Premises shall
consist of approximately fifty thousand (50,000) square feet of Rentable Area
which shall comprise a portion of that certain Project Building, sometimes
known as “Building 6” and commonly known as 1600 Seaport Boulevard, Redwood
City, California 94063 (“Building 6”). 
At any time on or after February 1, 2006 and on or before September 1,
2006, Lessor shall deliver written notice (the “Designation Notice”) to Lessee
describing the space in the Project which Lessor proposes shall comprise the
Premises (the “Designated Space”), which Designated Space shall be located
entirely within any one Project Building, and which Designated Space may be
contiguous or non-contiguous within such Project Building; provided, however,
if the Designated Space is located in a Project Building other than Building 6,
then Lessor shall cause any non-contiguous space within the Designated Space to
be located in as close proximity as reasonably practicable, including on
adjacent floors, but subject in all

 

2

 

instances to the criteria set forth below for Available
Tenant Space.  The Designation Notice
shall set forth the approximate Rentable Area of the Designated Space;
provided, however, the Rentable Area of the Premises shall be subject to
verification upon the Substantial Completion (defined below) of the
Premises.  Lessor shall use its
reasonable efforts to cause the Rentable Area of the Designated Space to
contain not less than 49,500 square feet of Rentable Area and not more than
50,500 square feet of Rentable Area. 
The Designation Notice shall also describe any furniture, fixtures or
equipment which Lessor shall provide to Lessee as part of the Premises leased
hereby, it being understood that Lessor shall have the right, but no
obligation, to provide any furniture, fixtures or equipment.  If Lessor fails to deliver the Designation
Notice on or before September 1, 2006, then, at any time after September 1,
2006 and prior to Lessor’s delivery of the Designation Notice, Lessee, as its
sole remedy for such failure, shall have the right, but not the obligation, to
deliver written notice of such failure (the “Designation Reminder”) to Lessor,
in which event Lessor thereafter shall deliver the Designation Notice to Lessee
within five (5) days after Lessor’s receipt of the Designation Reminder.  If the Designated Space is located in
Building 6, then Lessor’s Designation Notice shall be determinative and the
Designated Space shall constitute the Premises for all purposes hereunder.  If Lessor, at its sole option, elects to
locate the Designated Space in a Project Building other than Building 6, then
the Designation Notice shall describe, in addition to the Designated Space, one
alternative Available Tenant Space (defined below) in the Project, if any
exist.  For purposes hereof, “Available
Tenant Space” shall mean contiguous or non-contiguous space located in a single
Project Building, which space satisfies all of the following criteria as of the
date of delivery of the Designation Notice: 
(i) Lessor reasonably believes that such space would be available
for lease to Lessee commencing as of January 1, 2007, subject to any extension,
renewal, expansion, first offer, first refusal or other similar rights of
existing tenants of the Project, and taking into consideration any Tenant
Improvements that Lessor is required to construct in accordance with Section
2.05(a) below; (ii) such space contains not less than 49,500 square feet
of Rentable Area and not more than 50,500 square feet of Rentable Area;
(iii) the configuration of such space within the subject Project Building
would not, in Lessor’s reasonable judgment, materially, adversely affect
Lessor’s ability to lease other space within such Project Building;
(iv) Lessor is not then in negotiations with any prospective tenant to
lease any portion of such space; and (v) such space is not located in that
certain Project Building, sometimes known as “Building 10” and commonly known
as 1500 Seaport Boulevard, Redwood City, California 94063 (“Building 10”), it
being understood that Lessor may, but in no event shall be required to, include
any space in Building 10 in the Designation Notice (either as the Designated
Space or as an alternative Available Tenant Space).  If the Designated Space is not located in Building 6, and if
Lessee desires to lease the alternative Available Tenant Space described in the
Designation Notice, if any, in lieu of the Designated Space described in the
Designation Notice, then Lessee shall have the right, within ten (10) days
after Lessee’s receipt of the Designation Notice, to deliver written notice
(the “Relocation Notice”) to Lessor electing to lease the alternative Available
Tenant Space, in which event Lessee’s Relocation Notice shall be determinative
and such alternative Available Tenant Space shall constitute the Premises for
all purposes hereunder.  If Lessee does
not timely deliver a Relocation Notice, then Lessor’s Designation Notice shall
be determinative and the Designated Space shall constitute the Premises for all
purposes hereunder.  In the event that
the actual Rentable Area of the Premises is determined in accordance herewith
to be other than 50,000 square feet, then all amounts, percentages and figures
appearing or referred to in this Lease based upon such Rentable Area
(including, without limitation, the amounts of Base Rent,

 

3

 

Additional Rent and Lessee’s Share, as those terms are
defined herein) shall be modified in accordance with such determination.  The Project Building in which the Premises
shall be located shall be referred to herein as the “Building.”

 

Section 2.03.          Common Area.  During the Lease Term, Lessee
shall have the non-exclusive right to use the Common Area defined herein.  Lessor reserves the right to modify the
Common Area, including reducing the size or changing the use, configuration and
elements thereof in its sole discretion, to designate certain portions for use
by certain occupants of the Project (such as Common Areas located within a
particular Project Building), and to close or restrict access from time to time
for repair, maintenance or to prevent a dedication thereof, provided that
Lessee nonetheless shall have access to parking and the Premises during such
activities and, provided further, that Lessor will continue to maintain the
baseball and soccer fields and the amenities/athletic facility or replacement
items of like kind for so long as Lessor is legally able to do so during the
Lease Term.  Lessor further reserves the
right to establish, repeal and amend from time to time rules and regulations
for the use of the Common Area (provided that, to the extent that any conflict
between any new Rules and Regulations and this Lease (including the Rules and
Regulations attached hereto as Exhibit “L”) would materially and adversely
affect Lessee’s use of the Premises, this Lease shall govern), and to grant
reciprocal easements or other rights to use the Common Area to owners of other
property.  “Common Area” includes,
without limitation, (i) ”Project Common Area” which includes all portions
of the Project other than the Project Buildings, including landscaping,
sidewalks, walkways, driveways, curbs, parking lots (including striping),
roadways within the Project, sprinkler systems, lighting, surface water
drainage systems, an amenities/athletic facility to be available for use by
Lessee’s employees (the “Amenities/Athletic Facility”), as well as baseball and
soccer fields, a water front park, and a perimeter walking/biking trial, and,
to the extent required by government authorities having jurisdiction over
Lessor’s development of the Project, amphitheater, marine life resource center,
retreat and conference center, child care center and such further portions of
the Project or additional or different facilities as Lessor may from time to
time designate or install or make available for the use by Lessee in common
with others, and (ii) ”Building Common Area” which includes all mechanical
areas, stairwells, elevators and elevator shafts, pipe, cabling and wiring
shafts, together with their enclosing walls, plus, to the extent not leased to
an occupant, all entrances, elevator and other lobbies, common corridors and
hallways, restrooms, janitor closets, telephone closets, electric closets and
other public or common areas located in the Building.

 

Section 2.04.          Parking.  Lessor shall provide Lessee with parking
spaces within the Common Area in the ratio to space within the Premises as
required by law which is three (3.0) spaces per one thousand (1,000) square
feet of space within the Premises.  In
the event Lessor elects or is required by any law to limit or control parking
at the Project, whether by validation of parking tickets or any other method of
assessment, Lessee agrees to participate in such validation or assessment
program under such reasonable rules and regulations as are from time to time
established by Lessor.

 

Section 2.05.          Condition of Premises.  Except as
otherwise expressly provided herein, Lessor shall deliver the Premises to Lessee
in its then existing condition, “as is, where is, with all faults” without any
representation or warranty as to the condition thereof whatsoever.

 

4

 

(a)           Tenant Improvements. 
Notwithstanding the foregoing, prior to the Commencement Date, Lessor,
at its sole cost and expense, shall perform the following improvements (“Tenant
Improvements”):  (i) if the
Premises are located in Building 6, then Lessor shall construct such demising
walls, if any, as may be necessary to separately demise the Premises or each
portion thereof located on a different floor of Building 6; or (ii) if the
Premises are located in a Project Building other than Building 6, then Lessor
shall construct such demising walls, if any, as may be necessary to separately
demise the Premises or each portion thereof located on a different floor of
such Project Building and Lessor shall perform such improvements in the
Premises as Lessor may deem necessary or desirable, in Lessor’s sole discretion,
to cause the Premises to constitute Open Floor Office Space (defined
below).  As used herein, “Open Floor
Office Space” shall mean space suitable for general office use, with a density
not to exceed one occupant per each 250 usable square feet of space, improved
with private offices for approximately ten percent (10%) of occupants, one
conference room for every twenty (20) occupants, one break room and one coffee
room.  All Tenant Improvements shall be
performed using Lessor’s standard methods, and using materials and finishes of
a quality equivalent to or better than those in Building 6 as of the date
hereof.  A general contractor selected
by Lessor in its sole discretion shall construct the Tenant Improvements.  The Premises shall be deemed “Ready for Occupancy”
upon the later to occur of (i) the Substantial Completion of the Premises,
or (ii) January 1, 2007.  For
purposes of this Lease, “Substantial Completion” of the Premises shall occur
upon the completion of construction of the Tenant Improvements in the Premises
in accordance with this Section 2.05., with the exception of any punch
list items and any fixtures, telephones and computers and any cabling related
thereto, photocopy machines, work-stations, built-in furniture, or equipment to
be installed by Lessee.  For purposes of
this Lease, the Tenant Improvements shall be deemed to include any furniture,
fixtures or equipment, if any, identified in the Designation Notice and
provided by Lessor as part of the Premises, all of which shall be delivered by
Lessor to Lessee in their respective, then existing condition, “as is, where
is, with all faults” without any representation or warranty as to the condition
thereof whatsoever.  Lessee shall not
have, or at any time acquire, any right, title or interest in the Tenant
Improvements, except the right to possession and use of the Tenant Improvements
during the Lease Term.  Lessee shall
maintain the Tenant Improvements in good working order and condition during the
Lease Term, at Lessee’s sole expense, ordinary wear and tear excepted.  Lessee shall not modify or alter the Tenant
Improvements, or remove the Tenant Improvements,  without the prior written consent of Lessor and, upon the
expiration or earlier termination of this Lease, Lessee shall deliver the Tenant
Improvements to Lessor in the same condition in which they were received from
Lessor on the Commencement Date, reasonable wear and tear excepted.

 

(b)           Lessee’s Fixturing Period. 
Lessor shall provide Lessee access to the Premises during the thirty
(30) day period prior to the Commencement Date (“Lessee’s Fixturing Period”)
for the purpose of installing furnishings and equipment, e.g. security system,
furniture system and phone and data system, provided, that Lessee and Lessee’s
employees and contractors shall at all times avoid interfering with Lessor’s
ongoing work to cause the Premises to be Ready for Occupancy.  Except for payment of Base Rent and
Additional Rent, all terms and provisions of this Lease shall apply during
Lessee’s Fixturing Period, including, without limitation, Lessee’s indemnity
and other obligations set forth in Sections 7.07., 7.08. and 17.22. hereof.

 

5

 

ARTICLE
III

TERM

 

Section 3.01.          Lease Term.

 

(a)           Commencement Date. 
The term of this Lease (“Lease Term”) shall be for five (5) years and
six (6) months beginning on the earlier of (i) the date the Premises are “Ready
for Occupancy”, or (ii) the date on which Lessee first occupies or conducts
business at the Premises (the “Commencement Date”) provided that, for each day
that any act or omission by Lessee causes the construction schedule for Tenant
Improvements to be delayed (collectively “Lessee Delay”), the Commencement Date
shall occur one (1) day in advance of the date the Premises are Ready for
Occupancy for each such day of delay, provided that, in no event shall Lessee
Delay be used to advance the Commencement Date to a date earlier than January
1, 2007.  For example, if seven (7) days
of Lessee Delay causes the date the Premises are Ready for Occupancy to occur
on January 8, 2007 rather than January 1, 2007, the Commencement Date shall be
January 1, 2007 for all purposes, including payment of Base Rent and Additional
Rent.  The Lease Term shall expire,
unless sooner terminated or extended as provided herein, on the date which
completes five (5) years and six (6) months after the Commencement Date occurs
or is deemed to have occurred (“Expiration Date”), e.g. if the date on which
the Premises are Ready for Occupancy is or is deemed to be January 1, 2007, the
Lease Term shall expire on June 30, 2012 and if that date is January 3, 2007,
the Lease Term shall expire on July 2, 2012. 
The parties shall execute a “Memorandum of Commencement of Lease Term”
when the Commencement Date becomes known, which shall include a certification
of the actual Rentable Area of the Premises determined by the methodology
described in Section 2.01. and the actual monthly installments of Base Rent to
be paid pursuant to Section 4.01., and shall be substantially in the form
attached hereto as Exhibit “E.”

 

(b)           Scheduled Commencement Date. 
Lessor shall use commercially reasonable efforts to cause the date the
Premises are Ready for Occupancy to be no later than January 1, 2007
(“Scheduled Commencement Date”).  If the
Premises are not Ready for Occupancy on or before the Scheduled Commencement
Date, this failure shall not affect the validity of this Lease or the
obligations of Lessee under it.  If the
Commencement Date is adjusted for delay from any cause, the Expiration Date
shall be likewise adjusted for a like period.

 

Section 3.02.          Lessor Termination Right. 
Notwithstanding anything to the contrary contained in this Lease, Lessor
shall have the one-time right to terminate this Lease, provided that Lessor
delivers written notice of such termination (“Lessor Termination Notice”) to
Lessee on or before September 1, 2006, time being of the essence.  If Lessor timely terminates this Lease
pursuant to the terms of this Section 3.02., then this Lease shall automatically
terminate and be of no further force or effect, and Lessor and Lessee shall be
relieved of their respective obligations under this Lease, as of the date
Lessee receives the Lessor Termination Notice, except those obligations set
forth in this Lease which specifically survive the expiration or earlier
termination of this Lease.

 

Section 3.03.          Lessee Termination Right. 
Notwithstanding anything to the contrary contained in this Lease, Lessee
shall have the one-time right to terminate this Lease, provided that, on or
before the earlier to occur of (i) five (5) days after Lessee’s receipt of
the Designation

 

6

 

Notice, or (ii) September 11, 2006, time being of the
essence, Lessor receives (A) written notice of such termination (“Lessee
Termination Notice”) from Lessee, and (B) cash in the amount of Four
Million Five Hundred Thousand Dollars ($4,500,000.00) (the “Termination Fee”),
as consideration for such early termination by Lessee.  If Lessee timely terminates this Lease
pursuant to the terms of this Section 3.03., then this Lease shall
automatically terminate and be of no further force or effect, and Lessor and
Lessee shall be relieved of their respective obligations under this Lease, as
of the date Lessor receives the Lessee Termination Notice and the Termination
Fee, except those obligations set forth in this Lease which specifically
survive the expiration or earlier termination of this Lease.  Notwithstanding anything to the contrary
contained in this Section 3.03., Lessee shall have no right to exercise the
termination right set forth herein if Lessee is in material default or breach
of this Lease as of the date of Lessee’s delivery to Lessor of the Lessee
Termination Notice and the Termination Fee.

 

ARTICLE
IV

RENT: TRIPLE NET LEASE

 

Section 4.01.          Base Rent.  Lessee shall pay to Lessor as
Base Rent an initial monthly installment of One Dollar and Sixty-Five Cents
($1.65) per square foot of Rentable Area as determined under Section 2.01., in
advance, on the first day of each calendar month of the Lease Term, commencing
on the Commencement Date.  Base Rent for
any period during the Lease Term which is for less than one month shall be a
pro rata portion of the monthly installment (based on the actual days in that
month).

 

Section 4.02.          Rent Adjustment.  The Base
Rent set forth in Section 4.01. above shall be adjusted upward by an annual
compounded increase of three percent (3%), as of the first day of the
thirteenth (13th) full calendar month following the Commencement
Date and as of each anniversary of that date thereafter during the Lease Term,
as shown on the schedule of Base Rent attached to Exhibit “E” hereto (it being
understood that the dates set forth on such schedule shall be adjusted, as
necessary, to reflect the actual Commencement Date).

 

Section 4.03.          First Payment of Base Rent.  The
estimated first monthly payment of Base Rent in the sum of Eighty-Two Thousand
Five Hundred Dollars ($82,500.00) (which estimate is based upon 50,000 square
feet and the monthly based rent per square foot of $1.65 and shall be adjusted
for the actual Rental Area of the Premises) shall be due within ten (10) days
after Lessor’s delivery of the Designation Notice.  Base Rent payments shall resume on the first day of the calendar
month immediately succeeding the Commencement Date.  If the Commencement Date is other than the first day of a
calendar month, the first payment of Base Rent subsequent to the Commencement
Date, but only that payment of Base Rent, shall be reduced by any excess of the
first Base Rent installment paid in advance over the prorated amount actually
due for such partial first month of the Lease Term.

 

Section 4.04.          Absolute Triple Net Lease.  This Lease
is what is commonly called an “Absolute Triple Net Lease,” it being understood
that Lessor shall receive the Base Rent set forth in Section 4.01. free and
clear of any and all expenses, costs, impositions, taxes, assessments, liens or
charges of any nature whatsoever. 
Lessee shall pay all rent in lawful money of the United States of
America to Lessor at the notice address stated herein or to such other persons
or at such other places as Lessor may designate in writing on or before the due
date specified for

 

7

 

same without prior demand, set-off or deduction of any
nature whatsoever.  It is the intention
of the parties hereto that this Lease shall not be terminable for any reason by
Lessee except as herein expressly provided in Section 3.01, and that, except as
herein expressly provided in Articles III, VIII and XIII, concerning delay,
destruction and condemnation, Lessee shall in no event be entitled to any
abatement of or reduction in rent payable under this Lease.  Any present or future law to the contrary shall
not alter this agreement of the parties.

 

Section 4.05.          Additional Rent.  In addition
to the Base Rent reserved by Section 4.01., Lessee shall pay, as Additional
Rent (i) 100% as to amounts applicable solely to the Premises and Lessee’s
Share as to amounts applicable to the Project or Common Area of all taxes,
assessments, fees and other impositions payable by Lessee in accordance with
the provisions of Article IX, and insurance premiums in accordance with the
provisions of Article VII, (ii) Lessee’s Share of Operating Expenses defined
below, and (iii) any other charges, costs and expenses (including appropriate
reserves therefor) which are contemplated or which may arise under any
provision of this Lease during the Lease Term, plus a Management Fee to Lessor
equal to 3% of the Base Rent.  The
Management Fee is due and payable, in advance, with each installment of Base
Rent.  All of such charges, costs,
expenses, Management Fee and all other amounts payable by Lessee hereunder,
shall constitute Additional Rent, and upon the failure of Lessee to pay any of
such charges, costs or expenses, Lessor shall have the same rights and remedies
as otherwise provided in this Lease for the failure of Lessee to pay Base Rent.

 

Section 4.06.          Letter of Credit Security.  On or
before Transfer Date, as defined in the Assignment and Assumption of Master
Lease, Partial Termination of Master Lease and Assignment and Assumption of
Subleases (“Assignment”), Lessee shall deliver to Lessor an unconditional,
irrevocable, standby letter of credit, without documents, in the amount of One
Million Dollars ($1,000,000.00), issued or confirmed by a commercial money
center bank reasonably satisfactory to Lessor with retail branches in San
Francisco, California, designating either (1) Lessor as beneficiary or (2) if
required by Lessor’s lender(s), (a) Lessor and Lessor’s lender(s) as
co-beneficiaries or (b) Lessor’s lender(s) as beneficiary(ies), which letter of
credit shall be drawable in whole or in part, and providing for payment in Chicago,
Illinois on presentation of the beneficiary’s(ies’) drafts on sight, and
otherwise from a bank and in a form acceptable to Lessor (the “Letter of
Credit”).  The Letter of Credit (1)
shall provide for automatic annual extensions, without amendment (so-called
“evergreen” provision) with a final expiry date no sooner than one hundred
(100) days after the end of the Lease Term, (2) shall provide that is governed
by the Uniform Customs and Practice for Documentary Credits (1993 revisions)
International Chamber of Commerce Publication 500 or International Standard
Practice 1998 (ISP 98), International Chamber of Commerce Practice, Publication
No. 590, and (3) may be cancelable if, and only if, the issuing bank delivers
to the beneficiary(ies) no less than ninety (90) days advance written notice of
the issuing bank’s intent to cancel. 
Lessee shall pay all costs, expenses, points and/or fees incurred by
Lessee in obtaining the Letter of Credit.

 

The Letter of Credit shall further
provide that the beneficiary(ies) may draw on the Letter of Credit, in whole or
in part, and retain, if (i) within one hundred (100) days following Lessor’s
receipt of the Termination Payment hereunder, a bankruptcy or other similar
insolvency proceeding (e.g., an assignment for the benefit of creditors) under
state law is commenced by or against BroadVision, or (ii) BroadVision shall
fail to pay either the First Installment or the Second Installment, as provided
for in the Assignment.

 

8

 

If, for any reason whatsoever, the
Letter of Credit Security becomes subject to cancellation or expiration during
the term of the Lease, within forty-five (45) days prior to expiration of the
Letter of Credit, Lessee shall cause the issuing bank (or another bank meeting
the criteria set forth in this Section 4.06) to issue and deliver to Lessor a
replacement Letter of Credit.  The
replacement Letter of Credit shall be in the same amount as the original Letter
of Credit and shall be on the terms and conditions set forth in this Section
4.06.  Failure of Lessee to cause the
replacement Letter of Credit to be issued forty-five (45) days prior to the
then pending expiration or cancellation shall entitle the beneficiary(ies) to
fully draw down on the existing Letter of Credit and, at Lessor’s election,
such failure to deliver a replacement Letter of Credit shall be an event of
default under this Lease without any notice and cure period.

 

During the term of the Lease, Lessor
may request a change to the beneficiary(ies) under the Letter of Credit to a
successor of Lessor and/or Lessor’s lender(s). 
Lessee agrees to cooperate and to cause the issuing bank, at Lessor’s
cost, to timely issue a new or modified Letter of Credit to effectuate the
designation of any successor beneficiary(ies), which shall otherwise be on the
terms and conditions as the original Letter of Credit.  Lessor shall surrender the existing Letter
of Credit to Lessee simultaneously with Lessee’s delivery of the new Letter of
Credit to the designated successor beneficiary(ies).

 

The Letter of Credit shall be held
by Lessor or Lessor’s lender(s) as security for the faithful performance by
Lessee of all of the terms, covenants, and conditions of this Lease applicable
to Lessee, and of Lessee’s indemnification obligations under Article 11 of the
Assignment.  If Lessee defaults with
respect to any provision of this Lease, including but not limited to the
provisions relating to the condition of the Premises upon Lease Termination, or
if Lessee shall fail to honor its indemnification obligations under Article 11
of the Assignment, the beneficiary(ies) may (but shall not be required to) draw
on the Letter of Credit, in whole or in part, and use, apply or retain all or
any part of the proceeds of such draw for the payment of any amount which
Lessor may spend by reason of Lessee’s default or to compensate Lessor for any
loss or damage which Lessor actually suffers by reason of Lessee’s
default.  If any portion of the Letter of
Credit is so used or applied, Lessee shall, within ten days after written
demand therefore, deposit cash with Lessor in an amount equal to restore the
Letter of Credit to its original amount, or deliver a replacement letter of
credit to Lessor, in accordance with the provisions of this Section 4.06, or
restore the Letter of Credit to its original amount.  Lessee’s failure to so restore the Letter of Credit to its
original amount shall be a default by Lessee under the Lease.  The rights of Lessor pursuant to this
Section 4.06 are in addition to any rights which Lessor may have pursuant to
Article 12 below.  If Lessee fully and
faithfully performs every provision of this Lease to be performed by it, the
Letter of Credit and any balance thereof drawn upon and held (and not used or
applied) by Lessor at the time shall be returned (without interest) to Lessee
(or, at Lessor’s option, to the last assignee of Lessee’s interests hereunder)
within one hundred (100) days after Lease expiration or termination and
Lessee’s vacation and surrender of the Premises, unless such termination is the
result of a material default or breach of this Lease by Lessee.  The proceeds of any draw of the Letter of
Credit shall not be required to be kept separate from the beneficiary’s(ies’)
general funds or be deemed a trustee of same, and any such proceeds shall be
for the sole benefit and account of, and may be retained (unconditionally) by,
Lessor or Lessor’s lender(s).

 

9

 

Section 4.07.          Operating Expenses.

 

(a)           Definition. 
“Operating Expenses” shall mean and include, to the extent not billed as
a cost or expense of the Premises or pursuant to Article VII or IX, all costs
and expenses of every kind and nature paid or incurred by Lessor (whether
obligated to do so or undertaken at Lessor’s discretion) in the operation,
maintenance and replacement of the Building, Project and Common Areas,
including Common Area buildings and improvements located within the Project and
including Common Areas located in the Building.  Such cost and expenses shall include, but not be limited to,
costs of management; cleaning; lighting; the costs of maintaining, repairing
and replacing all Common Area improvements (replacing shall be deemed to
include but not be limited to the replacement of light poles and fixtures,
storm and sanitary sewers, parking lots, driveways and roads as well as
Building elevators, stairways, floors and walls in the Common Area and
Building, roof, roof membrane and other Building elements which are the
responsibility of Lessor to maintain, repair and replace under this Lease),
repairs to and maintenance of the structural and non-structural portions of the
amenity/athletic facility; supplies, tools, equipment and materials used in the
operation and maintenance of the Project; snow removal; parking lot striping;
removal of trash, rubbish, garbage and other refuse; painting; removal of
graffiti; painting of exterior walls; landscaping; providing security to the
extent Lessor determines in its sole discretion to do so (including security
systems and/or systems designed to safeguard life or property against acts of
God and/or criminal and/or negligent acts, and the costs of maintaining of
same); public liability, property damage, fire insurance, earthquake and flood
coverage, all risk or special form insurance coverage, rent interruption
insurance coverage, the costs of excess award above insurance aggregate, total
compensation and benefits (including premiums for workers’ compensation and
other insurance) paid to or on behalf of employees, including but not limited
to full or part time on-site management or maintenance personnel; personal
property taxes; fire protection and fire hydrant charges (including fire
protection system signaling devices, now or hereafter required, and the costs
of maintaining of same); water and sewer charges; utility charges; license and
permit fees necessary to operate and maintain the Building and Project; the
initial cost of or the reasonable depreciation of equipment used in operating
and maintaining the Building, Project and Common Areas and rent paid for
leasing any such equipment; reasonable cost of on or off site storage space of
any and all items used in conjunction with the operation, maintenance and
management of the Project, including but not limited to tools, machinery,
records, decorations, tables, benches, supplies and meters; the cost of and
installation cost of any and all items which are installed for the purpose of
reducing Operating Expenses, increasing building or public safety or which may
be then required by governmental authority, laws, statutes, ordinances and/or
regulations, a use privilege consisting of Base Rent and Operating Expenses
allocated to the Amenities/Athletic Facility and all costs and expenses arising
from the operation of same.  Lessor
shall apply all of the following amounts received by Lessor to reduce Operating
Expenses; (1) fees paid by any user other than tenants of the Project
(including, without limitation, the public and Lessee’s employees) for use of
the Amenities/Athletic Facility and any of the other Common Areas; (2) base
rent and additional rent paid by the operators of the Amenities/Athletic
Facility and any of the other Common Areas. 
Lessor agrees to use commercially reasonable efforts to seek such
amounts to reduce the amount of Operating Expenses payable by Lessee hereunder,
bearing in mind the amenity nature of the Common Areas and restrictions imposed
by the City.

 

10

 

(b)           Payment. 
Lessee shall pay Lessee’s Share of Operating Expenses in monthly
installments on the first day of each month in an amount set forth in a written
estimate by Lessor.  Lessor agrees that
it will base its estimate on Lessor’s experience in managing office/research
and development projects and in a reasonable manner.  Within ninety (90) days following the end of the period used by
Lessor in estimating Lessor’s cost, Lessor shall furnish to Lessee a statement
(hereinafter referred to as “Lessor’s Statement”) of the actual amount of Lessee’s
Share of such Operating Expenses for such period.  Within thirty (30) days thereafter, Lessee shall pay to Lessor,
as Additional Rent, or Lessor shall remit to Lessee, as the case may be, the
difference between the estimated amounts paid by Lessee and the actual amount
of Lessee’s Share of Operating Expenses for such period as shown by such
Statement.  Lessee’s Share of Operating
Expenses for the ensuing estimation period shall be adjusted upward or downward
based upon Lessor’s Statement.

 

(c)           Lessee’s Share. 
For purposes hereof, “Lessee’s Share” shall mean (i) as to amounts
allocable solely to the Building or Building Common Area (and with respect to
real property tax, also to the legal parcel in which the Building is located),
the Rentable Area of the Premises divided by the Rentable Area of the Building,
and (ii) as to amounts allocable to the Project or Project Common Area,
the Rentable Area of the Premises divided by the Rentable Area of all Project
Buildings (irrespective of whether they are rented), in each case measured (at
the time in question) on a dripline basis.

 

(d)           Exclusions. 
For purposes of this Lease, the term Operating Expenses shall not
include (and Lessee shall have no liability for) any of the following:  school fees and other charges imposed under
the Development Agreement; construction costs of the Pacific Shores
Infrastructure (as defined in the Development Agreement); construction costs of
any child care facility at the Project or payment to the City of Redwood City
(the “City”) in lieu of constructing the child care facility; construction of
any Common Area improvements; traffic mitigation payments due under Section 13
of the Development Agreement; legal fees, permit fees, architectural and
engineering fees related to the development and construction of the Project;
any off-site improvements (other than the widening of Seaport Boulevard as set
forth below); the purchase of sanitary sewer capacity; costs to fill wetlands
at the Project or restore wetlands habitat; costs to relocate power lines or
other utilities; marketing costs, costs of leasing commissions, attorneys’ fees
and other costs and expenses incurred in connection with negotiations or
disputes with prospective tenants or other occupants of the Project; costs
incurred by Lessor in the repairs, capital additions, alterations or
replacements made or incurred to rectify or correct defects in design,
materials or workmanship in connection with the Project; costs (including
permit, license and inspection costs) incurred in renovating or otherwise
improving, decorating or redecorating rentable space for prospective tenants or
vacant rentable space; costs incurred due to the violation by Lessor of the
terms, covenants and conditions of any lease or license of space in the Project;
costs of general overhead and general administrative expenses, not including
management fees and building office expenses which are included in operating
expenses by landlords of comparable buildings; marketing costs, legal fees,
space planner’s fees, and advertising and promotional expenses and brokerage
fees incurred in connection with the original development, subsequent
improvement, or original or future leasing of the Project; any bad debt loss,
rent loss, or reserves for bad debts or rent loss; costs associated with the
operation of the business of the partnership or entity which constitutes the
Lessor, as the same are distinguished from the costs of operation of the
Project (which shall specifically include, but not

 

11

 

be limited to, costs of partnership accounting and legal
matters, costs of defending any lawsuits with any mortgagee (except as the
actions of the Lessee may be in issue), costs of selling, syndicating,
financing, mortgaging or hypothecating any of the Lessor’s interest in the
Project, and costs incurred in connection with any disputes between Lessor and
its employees, between Lessor and Project management, or between Lessor and
other tenants or occupants, and Lessor’s general corporate overhead and general
and administrative expenses); the wages and benefits of any employee who does
not devote substantially all of his or her employed time to the Project unless
such wages and benefits are prorated to reflect time spent on operating and managing
the Project vis-à-vis time spent on matters unrelated to operating and managing
the Project; provided, that in no event shall Operating Expenses for purposes
of this Lease include wages and/or benefits attributable to personnel above the
level of Project manager or Project engineer; interest, charges and fees
incurred on debt, payments on mortgages and amounts paid as ground rental for
the real property underlying the Project by the Lessor; any costs covered by
any warranty, rebate, guarantee or service contract which are actually
collected by Lessor (which shall not prohibit Lessor from passing through the
costs of any such service contract if otherwise includable in Operating
Expenses); interest, late charges and tax penalties incurred as a result of
Lessor’s gross negligence, inability or unwillingness to make payments or file
returns when due; any expense, to the extent Lessor receives reimbursement for
such costs, to remedy damage caused by or resulting from the gross negligence
of any licensees in the Project, including their agents, contractors and
employees; reserves for anticipated future expenses; costs or repairs or other
work occasioned by fire, casualty or other risk to the extent of proceeds
received from insurance maintained (or obligated to be maintained pursuant to
this Lease) by Lessor; costs, fines, or fees incurred by Lessor due to Lessor’s
violations of any federal, state or local law, statute or ordinance, or any
rule, regulation, judgment or decree of any governmental rule or authority; any
costs representing an amount paid to a person, firm, corporation or other
entity related to Lessor which is in excess of the amount which would have been
paid in the absence of such relationship; capital costs incurred to bring the
Building or the Project into compliance as of the Commencement Date with any
use permit or design permit, any CC&R’s, underwriter’s requirements, or
Laws applicable to the Premises, the Building or the Project.  Nothing contained in this Section shall
prohibit or limit Lessor from passing through, in Article IX, any one or more
specified items as part of the Community Facility District Bond.

 

Section 4.08.          Lessee’s Right to Review Supporting Data.

 

(1)           Exercise of Right by Lessee. 
Provided that Lessee is not in default under this Lease and provided
further that Lessee strictly complies with the provisions of this Paragraph,
Lessee shall have the right to reasonably review supporting data for any
portion of a Lessor’s statement that Lessee claims is incorrect.  In order for Lessee to exercise its right
under this Paragraph, Lessee shall, within thirty (30) days after any such
Lessor’s statement is sent, deliver a written notice to Lessor specifying the
portions of the Lessor’s statement that are claimed to be incorrect, and Lessee
shall simultaneously pay to Lessor all amounts due from Lessee to Lessor as
specified in the Lessor’s statement. 
Except as expressly set forth in subparagraph 3 below, in no event shall
Lessee be entitled to withhold, deduct, or offset any monetary obligation of
Lessee to Lessor under the Lease including, without limitation, Lessee’s
obligation to make all Base Rent payments and all payments for Additional Rent
pending the completion of, and regardless of the results of, any review under
this Paragraph.  The right to review
granted to Lessee under this Paragraph may only be exercised once for any
Lessor’s

 

12

 

statement, and if Lessee fails to meet any of the above
conditions as a prerequisite to the exercise of such right, the right of Lessee
under this Paragraph for a particular Lessor’s statement shall be deemed
waived.

 

(2)           Procedures for Review. 
Lessee acknowledges that Lessor maintains its records for the Building
and Project at its offices in San Francisco, and Lessee therefore agrees that
any review of supporting data under this Paragraph shall occur at such
location.  Any review to be conducted
under this Paragraph shall be at the sole expense of Lessee and shall be
conducted by an independent (i.e. not then engaged by lessee for any other
purposes) firm of certified public accountants of national standing.  Lessee acknowledges and agrees that any
supporting data reviewed under this Paragraph constitute confidential
information of Lessor, which shall not be disclosed to anyone other than the
accountants performing the review and the principals of Lessee who receive the
results of the review.  The disclosure
of such information to any other person, whether or not caused by the conduct
of Lessee, shall constitute a material breach of this Lease.

 

(3)           Finding of Error. 
Any errors disclosed by the review of supporting data under this
Paragraph shall be promptly corrected, provided that Lessor shall have the
right to cause another review of the supporting data to be made by an
independent (i.e. not then engaged by Lessor for any other purposes) firm of
certified public accountants of national standing.  In the event of a disagreement between the two accounting firms,
the review that discloses the least amount of deviation from the Lessor’s
statement shall be deemed to be correct and its review shall be final and
binding on both Lessor and Lessee.  If
the results of the review of supporting data taking into account, if
applicable, the results of any additional review caused by Lessor reveal that
Lessee has overpaid obligations for a preceding period, the amount of such
overpayment shall be credit against Lessee’s subsequent installment obligations
to pay its share of Additional Rent.  In
the event that such results show that Lessee has underpaid its obligations for
a preceding period, the amount of such underpayment shall be paid by Lessee to
Lessor with the next succeeding installment obligation of Additional Rent or,
if the Lease has terminated, in cash within thirty (30) days after the
determination of underpayment is delivered to Lessee.  Each party shall pay the cost and expense of its chosen
accounting firm.

 

(4)           Effect of Lessee’s Default. 
In the event that Lessee becomes in default of its obligations under
this Lease at any time during the pendency of a review of records under this
Paragraph, said right to review shall immediately cease and the matters
originally set forth in the Lessor’s statement shall be deemed to be correct.

 

ARTICLE
V

USE

 

Section 5.01.          Permitted Use and Limitations on Use.  The
Premises shall be used and occupied only for office, research and development,
together with such ancillary uses which do not cause excessive wear of the
Premises or increase the potential liability of Lessor, and for no other use,
without Lessor’s prior written consent. 
Lessee shall not use, suffer or permit the use of the Premises in any
manner that will tend to create waste, nuisance or unlawful acts.  In no event shall it be unreasonable for
Lessor to withhold its consent as to uses which it determines would tend to
increase materially the wear of the Premises or any part thereof or increase
the potential

 

13

 

liability of Lessor or decrease the marketability,
financability, leasability or value of the Premises, Building or Project.  Lessee shall not do anything in or about the
Premises which will (i) cause structural injury to the Building or Premises, or
(ii) cause damage to any part of the Building except to the extent reasonably
necessary for the installation of Lessee’s trade fixtures and Lessee’s
Alterations, and then only in a manner which has been first approved by Lessor
in writing.  Lessee shall not operate
any equipment within the Building or Premises which will (i) materially damage
the Building or the Common Area, (ii) overload existing electrical systems or
other mechanical equipment servicing the Building, (iii) impair the efficient
operation of the sprinkler system or the heating, ventilating or air
conditioning (“HVAC”) equipment within or servicing the Building, or (iv)
damage, overload or corrode the sanitary sewer system.  Lessee shall not attach, hang or suspend
anything from the ceiling, roof, walls or columns of the Building or set any
load on the floor in excess of the load limits for which such items are
designed nor operate hard wheel forklifts within the Premises.  Any dust, fumes, or waste products generated
by Lessee’s use of the Premises shall be contained and disposed so that they do
not (i) create an unreasonable fire or health hazard, (ii) damage the Premises,
or (iii) result in the violation of any law. 
Except as approved by Lessor, Lessee shall not change the exterior of
the Building, or install any equipment or antennas on or make any penetrations
of the exterior or roof of the Building. 
Lessee shall not conduct on any portion of the Premises any sale of any
kind, including any public or private auction, fire sale, going-out-of-business
sale, distress sale or other liquidation sale. 
No materials, supplies, tanks or containers, equipment, finished
products or semifinished products, raw materials, inoperable vehicles or
articles of any nature shall be stored upon or permitted to remain within the
outside areas of the Premises except in fully fenced and screened areas outside
the Building which have been designed for such purpose and have been approved
in writing by Lessor for such use by Lessee.

 

Section 5.02.          Compliance with Law.

 

(a)           Lessor shall deliver the Premises to
Lessee on the Commencement Date (without regard to the use for which Lessee
will use the Premises) free of violations of any covenants or restrictions of
record, or any applicable law, building code, regulation or ordinance in effect
on such Commencement Date, including without limitation, the Americans with
Disability Act.

 

(b)           Except as provided in paragraph
5.02.(a), Lessee shall, at Lessee’s cost and expense, comply promptly with all
statutes, ordinances, codes, rules, regulations, orders, covenants and
restrictions of record, and requirements applicable to the Premises and
Lessee’s use and occupancy of same in effect during any part of the Lease Term,
whether the same are presently foreseeable or not, and without regard to the
cost or expense of compliance.  In the
event any compliance under this paragraph 5.02(b) is not caused by Lessee’s
particular use or Alterations and would require Lessee to make any capital
improvement to the Premises, Lessor shall make such capital improvement,
amortize the costs thereof (including interest at the Agreed Rate) over the
useful life of the improvement (as determined by Lessor in the reasonable
exercise of its discretion) and charge to Lessee as Additional Rent, such
amortizing portion to be paid in equal monthly installments with payments of
Base Rent.

 

(c)           By executing this Lease, Lessee
acknowledges that it has reviewed and satisfied itself as to its compliance, or
intended compliance with the applicable zoning and permit laws,

 

14

 

hazardous materials and waste requirements, and all other
statutes, laws, or ordinances relevant to the uses stated in Section 5.01.,
above.

 

Section 5.03.          Condition of Premises at Commencement Date. 
Subject to all of the terms of this Lease for the construction of Tenant
Improvements, Lessor shall deliver the Premises to Lessee on the Commencement
Date with the Building plumbing, lighting, heating, ventilating, air
conditioning, gas, electrical, and sprinkler systems and loading doors, if any,
in proper operating condition.  Except
as otherwise provided in this Lease, Lessee hereby accepts the Premises in
their condition existing as of the Commencement Date, subject to all applicable
zoning, municipal, county and state laws, ordinances and regulations governing
and regulating the use and condition of the Premises, and any covenants or
restrictions, liens, encumbrances and title exceptions of record, and accepts
this Lease subject thereto and to all matters disclosed thereby and by any exhibits
attached hereto.  Lessee acknowledges
that neither Lessor nor any agent of Lessor has made any representation or
warranty as to the present or future suitability of the Premises for the
conduct of Lessee’s business.

 

Section 5.04.          Defective Condition at Commencement Date. 
In the event that it is determined, and Lessee notifies Lessor in
writing within one year after the Commencement Date, that any of the
obligations of Lessor set forth in Section 5.02.(a) or Section 5.03. were not
performed, then it shall be the obligation of Lessor, and the sole right and
remedy of Lessee, after receipt of written notice from Lessee setting forth
with specificity the nature of the failed performance, to promptly, within a
reasonable time and at Lessor’s sole cost, correct same.  Lessee’s failure to give such written notice
to Lessor within one year after the Commencement Date shall constitute a
conclusive presumption that Lessor has complied with all of Lessor’s
obligations under the foregoing sections 5.02. and 5.03., and any required
correction after that date shall be performed by Lessee, at its sole cost and
expense.  At the end of the first year
of the Lease Term, Lessor shall promptly assign to Lessee all of Lessor’s
contractor’s, and/or manufacturer’s guarantees, warranties, and causes of
action.

 

Section 5.05.          Building Security.  Lessee
acknowledges and agrees that it assumes sole responsibility for security at the
Premises for its agents, employees, invitees, licensees, contractors, guests
and visitors and will provide such systems and personnel for same including, as
it deems necessary or appropriate and at its sole cost and expense.  Lessee acknowledges and agrees that Lessor
does not intend to provide any security system or security personnel at the
Premises or Project including, without limitation, at the Common Areas.

 

Section 5.06.          Rules and Regulations.  Lessor may
from time to time promulgate reasonable and nondiscriminatory rules and
regulations applicable for the care and orderly management of the Premises, the
Common Area and the Project.  Such rules
and regulations shall be binding upon Lessee upon delivery of a copy thereof to
Lessee, and Lessee agrees to abide by such rules and regulations.  A copy of the initial Rules and Regulations
is attached hereto as Exhibit “L.” If there is a conflict between the rules and
regulations and any of the provisions of this Lease, the provisions of this
Lease shall prevail.  Lessor shall not
be responsible for the violation of any such rules and regulations by any person,
including, without limitation, Lessee or its employees, agents, invitees,
licensees, guests, visitors or contractors.

 

15

 

ARTICLE
VI

MAINTENANCE, REPAIRS AND ALTERATIONS

 

Section 6.01.          Maintenance of Premises.

 

(a)           Throughout the Lease Term, Lessee,
at its sole cost and expense, shall keep, maintain, repair and replace the
Premises (except as provided in 6.01.(b)) and all improvements and
appurtenances in or serving the Premises, including, without limitation, all
interior and exterior walls, all doors and windows, the roof membrane, all
elevators and stairways, all wall surfaces and floor coverings, all Tenant
Improvements and alterations, additions and improvements installed during the
Lease Term, all sewer, plumbing, electrical, lighting, heating, ventilation and
cooling systems, fire sprinklers, fire safety and security systems, fixture and
appliances and all wiring and glazing, in the same good order, condition and
repair as they are in on the Commencement Date, or may be put in during the
Lease Term, reasonable wear excepted, provided that wear which could be
prevented by first class maintenance shall not be deemed reasonable.

 

(b)           Lessor, at its sole cost and
expense, shall repair defects in the exterior walls (including all exterior
glass which is damaged by structural defects in such exterior walls),
supporting pillars, structural walls, roof structure and foundations of the
Building and sewer and plumbing systems outside the Building, provided that the
need for repair is not caused by Lessee, in which event Lessor shall, at
Lessee’s sole cost and expense, repair same. 
Lessor shall replace the exterior walls, structural roof, walls and
other elements and roof membrane of the Building, the Building Common Areas
(including lobbies, stairs, hallways and elevators), portions of the Building
systems not located within the Premises or other leased space in the Building,
the parking lot surface, landscaping, drainage, irrigation, sprinkler and sewer
and plumbing systems outside the Building systems when the useful life of each
has expired, and Lessee shall pay Lessee’s Share of that portion of the cost of
each replacement, together with annual interest at the Agreed Rate, which shall
be amortized over the useful life of each such replacement applicable to the
balance of the Lease Term, in equal monthly installments due and payable with
installments of Base Rent.  Lessee shall
give Lessor written notice of any need of repairs which are the obligation of
Lessor hereunder and Lessor shall have a reasonable time to perform same.  Should Lessor default as provided in Section
12.03 with respect to its obligation to make any of the repairs assumed by it
hereunder with respect to the Premises, Lessee shall have the right to perform
such repairs and Lessor agrees that within thirty (30) days after written
demand accompanied by detailed invoice(s), it shall pay to Lessee the cost of
any such repairs together with accrued interest from the date of Lessee’s
payment at the Agreed Rate.  Lessor
shall not be liable to Lessee, its employees, invitees, or licensees for any
damage to person or property, and Lessee’s sole right and remedy shall be the
performance of said repairs by Lessee with right of reimbursement from Lessor
of the reasonable fair market cost of said repairs, not exceeding the sum
actually expended by Lessee, together with accrued interest from the date of
Lessee’s payment at the Agreed Rate, provided that nothing herein shall be
deemed to create a right of setoff or withholding by Lessee of Base Rent or
Additional Rent or any other amounts due herein.  Lessee hereby expressly waives all rights under and benefits of
Sections 1941 and 1942 of the California Civil Code or under any similar law,
statute or ordinance now or hereafter in effect to make repairs and offset the
cost of same against rent or to withhold or delay any

 

16

 

payment of rent or any other of its obligations hereunder as
a result of any default by Lessor under this Section 6.01.(b).

 

(c)           Lessee agrees to keep the Premises,
both inside and out, clean and in sanitary condition as required by the health,
sanitary and police ordinances and regulations of any political subdivision
having jurisdiction and to remove all trash and debris which may be found in or
around the Premises.  Lessee further
agrees to keep the interior surfaces of the Premises, including, without
limitation, windows, floors, walls, doors, showcases and fixtures clean and
neat in appearance.

 

(d)           If Lessee refuses or neglects to
commence such repairs and/or maintenance for which Lessee is responsible under
this Article VI within a thirty (30) day period (or as soon as practical and in
no event later than five (5) days, if the failure to initiate the repair
threatens to cause further damage to the Premises) after written notice from
Lessor and thereafter diligently prosecute the same to completion, then Lessor
may (i) enter the Premises (except in an emergency, upon at least 24 hours advanced
written notice) during Lessor’s business hours and cause such repairs and/or
maintenance to be made and shall not be responsible to Lessee for any loss or
damage occasioned thereby and Lessee agrees that upon demand, it shall pay to
Lessor the reasonable cost of any such repairs, not exceeding the sum actually
expended by Lessor, together with accrued interest from the date of Lessor’s
payment at the Agreed Rate and (ii) elect to enter into a maintenance contract
at a market rate for first-rate maintenance with a third party for the
performance of all or a part of Lessee’s maintenance obligations, whereupon,
Lessee shall be relieved from its obligations to perform only those maintenance
obligations covered by such maintenance contract, and Lessee shall bear the
entire cost of such maintenance contract which shall be paid in advance, as
Additional Rent, on a monthly basis with Lessee’s Base Rent payments.

 

Section 6.02.          Maintenance of Common Areas.  Subject to
6.01.(c) and subject to Lessee paying Lessee’s Share of the cost and expense
for same pursuant to Section 4.05 and 4.07 Lessor shall maintain, repair and
replace all landscape, hardscape and other improvements within the Common Area
and shall operate and manage the Amenities/Athletic Facility and other Common
Area features and facilities described in Section 2.02 including without
limitation, all landscape, hardscape and other improvements within the outside
areas of the Building and the other Project Buildings, including without
limitation, landscaping, curbs, walkways, driveways, parking areas and lighting
and sprinkler systems.

 

Section 6.03.          Alterations, Additions and Improvements. 
No alterations, additions, or improvements (“Alterations”) shall be made
to the Premises by Lessee without the prior written consent of Lessor which
Lessor will not unreasonably withhold, provided, however, that Lessee may make
Alterations which do not affect the Building systems, exterior appearance,
structural components or structural integrity and which do not exceed collectively
Fifty Thousand Dollars ($50,000) in cost within any twelve (12) month period,
without Lessor’s prior written consent. 
As a condition to Lessor’s obligation to consider any request for
consent hereunder, Lessee shall pay Lessor upon demand for the reasonable costs
and expenses of consultants, engineers, architects and others for reviewing
plans and specifications and for monitoring the construction of any proposed
Alterations.  Lessor may require Lessee
to remove any such Alterations at the expiration or termination of the Lease
Term and to restore the Premises to their prior condition

 

17

 

by written notice given on or before the earlier of (i) the
expiration of the Lease Term or (ii) thirty (30) days after termination prior
to the expiration of the Lease Term of the Lease or (iii) thirty (30) days
after a written request from Lessee for such notice from Lessor provided, that,
if Lessee requests same from Lessor, Lessor will notify Lessee within five (5)
business days after receipt of Lessee’s request and a copy of all plans and
specifications for the proposed Alteration whether it will require
removal.  All Alterations to be made to
the Premises shall be made under the supervision of a competent, California
licensed architect and/or competent California licensed structural engineer
(each of whom has been approved by Lessor) and shall be made in accordance with
plans and specifications which have been furnished to and approved by Lessor in
writing prior to commencement of work. 
All Alterations shall be designed, constructed and installed at the sole
cost and expense of Lessee by California licensed architects, engineers, and
contractors approved by Lessor, in compliance with all applicable law, and in
good and workmanlike manner.  Any
Alteration except furniture and trade fixtures, shall become the property of
Lessor at the expiration, or sooner termination of the Lease, unless Lessor
directs otherwise, provided that Lessee shall retain title to all furniture and
trade fixtures placed on the Premises. 
All heating, lighting, electrical, air conditioning, full height
partitioning (but not moveable, free standing cubicle-type partitions which do
not extend to the ceiling or connect to Building walls), drapery and carpeting
installations made by Lessee together with all property that has become an
integral part of the Premises, shall be and become the property of Lessor upon
the expiration, or sooner termination of the Lease, and shall not be deemed
trade fixtures.  Within thirty (30) days
after completion of any Alteration, Lessee, Lessee shall provide Lessor with a
complete set of “as built” plans for same.

 

Section 6.04.          Covenant Against Liens.  Lessee
shall not allow any liens arising from any act or omission of Lessee to exist,
attach to, be placed on, or encumber Lessor’s or Lessee’s interest in the
Premises, Building or Project, or any portion of either, by operation of law or
otherwise.  Lessee shall not suffer or
permit any lien of mechanics, material suppliers, or others to be placed
against the Premises, Building or the Project, or any portion of either, with
respect to work or services performed or claimed to have been performed for
Lessee or materials furnished or claimed to have been furnished to Lessee or
the Premises.  Lessor has the right at
all times to post and keep posted on the Premises any notice that it considers
necessary for protection from such liens. 
At least seven (7) days before beginning construction of any Alteration,
Lessee shall give Lessor written notice of the expected commencement date of
that construction to permit Lessor to post and record a notice of
nonresponsibility.  If any such lien
attaches or Lessee received notice of any such lien, Lessee shall cause the
lien to be immediately released and removed of record.  Despite any other provision of this Lease,
if the lien is not released and removed within twenty (20) days after Lessor
delivers notice of the lien to Lessee, Lessor may immediately take all action
necessary to release and remove the lien, without any duty to investigate the
validity of it.  All expenses (including
reasonable attorney fees and the cost of any bond) incurred by Lessor in
connection with a lien incurred by Lessee or its removal shall be considered Additional
Rent under this Lease and be immediately due and payable by Lessee.  Nothing contained herein shall prohibit
Lessee from obtaining secured financing for personal property at the Premises.

 

Section 6.05.          Reimbursable Capital Expenditures.  Except for
items of capital expenditures, which are to be made at Lessor’s sole cost and
expense pursuant to the first sentence of Section 6.01(b) above, capital
expenditures, together with interest thereon at the

 

18

 

Agreed Rate, for any replacement item at the Common Areas
made by Lessor in excess of Ten Thousand Dollars ($10,000.00) during the Lease
Term shall be amortized over the remaining Lease Term for the useful life of
such replacement item within the numerator being the number of months remaining
in the Lease Term and the denominator being the number of months of the “useful
life” of the improvements.  Lessee shall
be obligated for such amortized portion of any such expenditure in equal
monthly installments due and payable with each installment of Base Rent.

 

ARTICLE
VII

INSURANCE

 

Section 7.01.          Property/Rental Insurance for Premises. 
At all times during the Lease Term, Lessor shall keep the Premises,
Building and Project insured against loss or damage by fire and those risks
normally included in the term “all risk,” including, without limitation,
coverage for (i) earthquake and earthquake sprinkler leakage, (ii) flood, (iii)
loss of rents and extra expense for eighteen (18) months, including scheduled rent
increases, (iv) boiler and machinery, (v) improvements which are permanently
affixed to the Premises, and (vi) fire damage legal liability form, including
waiver of subrogation.  Lessee shall pay
Lessee’s Share of any deductibles.  The
amount of such insurance shall not be less than 100% of replacement cost.  Insurance shall include a Building Ordinance
and Increased Cost of Construction Endorsement insuring the increased cost of
reconstructing the Premises incurred due to the need to comply with applicable
statutes, ordinances and requirements of all municipal, state and federal
authorities now in force, which or may be in force hereafter.  Any recovery received from said insurance
policy shall be paid to Lessor and thereafter applied by Lessor to the reconstruction
of the Premises in accordance with the provisions of Article VIII below.  Lessee, in addition to the rent and other
charges provided herein, shall reimburse Lessor for Lessee’s Share of the cost
of the premiums for all such insurance described herein in accordance with
Article IV.  Lessee shall pay to Lessor
any deductible (subject to the above conditions) owing within fifteen (15) days
after receipt of notice from Lessor of the amount owing.  To the extent commercially available,
Lessor’s insurance shall have a deductible not greater than fifteen percent
(15%) for earthquake and five percent (5%) for the basic “all risk”
coverage.  Any deductible over $100,000
payable by Lessee hereunder shall be amortized over the useful life of the
repair or replacement, and charged to Lessee as Additional Rent.

 

Section 7.02.          Property Insurance for Fixtures and Inventory. 
At all times during the Lease Term, Lessee shall, at its sole expense,
maintain insurance with “all risk” coverage on any Tenant Improvements (other
than improvements which are permanently affixed to the Premises), Alterations,
fixtures, furnishings, merchandise, equipment or personal property in or on the
Premises, whether in place as of the date hereof or installed hereafter.  The amount of such insurance shall not be
less than one hundred percent (100%) of the replacement cost thereof, and
Lessor shall not have any responsibility nor pay any cost for maintaining any
types of such insurance.  Lessee shall
pay all deductibles.

 

Section 7.03.          Lessor’s Liability Insurance.  During the
Lease Term, Lessor shall maintain a policy of policies of commercial general
liability insurance naming Lessor (and such others as designated by Lessor)
against claims and liability for bodily injury, personal injury and property
damage on our about the Project, with combined single limit coverage in an
amount

 

19

 

determined by Lessor in its sole discretion (which amount is
currently Fifty Million Dollars ($50,000,000.00)); provided that if such policy
is a blanket policy that covers properties (other than the Project) owned by
Lessor, only that portion allocable to the Project shall be payable
hereunder.  Lessee, in addition to the
rent and other charges provided herein, agrees to pay Lessee’s Share of the
premiums for all such insurance in accordance with Article IV.

 

Section 7.04.          Liability Insurance Carried by Lessee.  At all
times during the Lease Term (and any holdover period) Lessee shall obtain and
keep in force a commercial general liability policy of insurance protecting
Lessee, Lessor and any lender(s) whose names are provided to Lessee as
Additional Insureds against claims and liability for bodily injury, personal
injury and property damage based upon involving or arising out of ownership,
use, occupancy or maintenance of the Premises. 
Such insurance shall be on an occurrence basis providing a single limit
coverage in amount of not less than Five Million Dollars ($5,000,000) per
occurrence with an Additional Lessors or Premises Endorsements and containing
an “Amendment of the Pollution Exclusion Endorsement” for damage caused by
heat, smoke, fumes from a hostile fire. 
The limits of said insurance required by this Lease as carried by Lessee
shall not, however limit the liability of Lessee nor relieve Lessee of any
obligation hereunder.  All insurance to
be carried by Lessee shall be primary to and not contributory with, any similar
insurance carried by Lessor whose insurance shall be considered excess insurance
only.

 

Section 7.05.          Lessee to Furnish Proof of Insurance.  Lessee
shall furnish to Lessor prior to the Commencement Date, and at least thirty
(30) days prior to the expiration date of any policy, certificates indicating
that the property insurance and liability insurance required to be maintained
by Lessee is in full force and effect for the twelve (12) month period
following such expiration date; that Lessor has been named as an additional
insured to the extent of contractual liability assumed in Section 7.07.
“Indemnification” and Section 7.08. “Lessor as Party Defendant”; and that all
such policies will not be canceled unless thirty (30) days’ prior written
notice of the proposed cancellation has been given to Lessor.  The insurance shall be with insurers
approved by Lessor, provided, however, that such approval shall not be
unreasonably withheld so long as Lessee’s insurance carrier has a Best’s
Insurance Guide rating not less than A+ VIII.

 

Section 7.06.          Mutual Waiver of Claims and Subrogation Rights. 
Lessor and Lessee hereby release and relieve the other, and waive their
entire claim of recovery for loss or damage covered by the insurance policies
required to be carried by Lessor and Lessee pursuant to this Article VII when
such property constitutes the Premises, or is in, on or about the Premises,
whether or not such loss or damage is due to the negligence of Lessor or
Lessee, or their respective agents, employees, guests, licensees, invitees, or
contractors.  Lessee and Lessor waive
all rights of subrogation against each other on behalf of, and shall obtain a
waiver of all subrogation rights from, all property and casualty insurers
referenced in this Article VII.

 

Section 7.07.          Indemnification and Exculpation.

 

(a)           Except as otherwise provided in Section
7.07.(b), Lessee shall indemnify and hold Lessor free and harmless from any and
all liability, claims, loss, damages, causes of action (whether in tort or
contract, law or equity, or otherwise), expenses, charges, assessments, fines,
and penalties of any kind, including without limitation, reasonable attorney
fees, expert witness

 

20

 

fees and costs, arising by reason of the death or injury of
any person, including any person who is an employee, agent, invitee, licensee,
permittee, visitor, guest or contractor of Lessee, or by reason of damage to or
destruction of any property, including property owned by Lessee or any person
who is an employee, agent, invitee, permitee, visitor, or contractor of Lessee,
caused or allegedly caused (1) while that person or property is in or about the
Premises; (2) by some condition of the Premises; (3) by some act or omission by
Lessee or its agent, employee, licensee, invitee, guest, visitor or contractor
or any person in, adjacent, on, or about the Premises with the permission,
consent or sufferance of Lessee; (4) by any matter connected to or arising out
of Lessee’s occupation and use of the Premises, or any breach or default in
timely observance or performance of any obligation on Lessee’s part to be
observed or performed under this Lease.

 

(b)           Notwithstanding the provisions of
Section 7.07.(a) of this Lease, Lessee’s duty to indemnify and hold Lessor
harmless shall not apply to any liability, claims, loss or damages arising
because of Lessor’s active negligence or willful acts of misconduct.

 

(c)           Lessee hereby waives all claims
against Lessor for damages to goods, wares and merchandise and all other
personal property in, on or about the Premises and for injury or death to
persons in, on or about the Premises from any cause arising at any time to the
fullest extent permitted by law.  In no
event shall Lessor be liable (i) for lost profits or other consequential
damages arising from any cause or (ii) for any damage which is or could be
covered by the insurance Lessee is required to carry under this Lease.

 

Section 7.08.          Lessor as Party Defendant.  If by
reason of an act or omission of Lessee or any of its employees, agents,
invitees, licensee, visitors, guests or contractors, Lessor is made a party
defendant or a cross-defendant to any action involving the Premises or this
Lease, Lessee shall hold harmless and indemnify Lessor from all liability or
claims of liability, including all damages, attorney fees and costs of suit.

 

ARTICLE
VIII

DAMAGE OR DESTRUCTION

 

Section 8.01.          Destruction of the Premises.

 

(a)           In the event of a partial
destruction of the Premises during the Lease Term from any cause, Lessor, upon
receipt of, and to the extent of, insurance proceeds paid in connection with
such casualty, shall forthwith repair the same, provided the repairs can be
made within a reasonable time under state, federal, county and municipal
applicable law, but such partial destruction shall in no way annul or void this
Lease, (except as provided in Section 8.01.(b) below) provided that Lessee
shall be entitled to a proportionate credit for rent equal to the payment of
rental income insurance received by Lessor; provided that if Lessor failed to
carry such insurance as required by Article VII hereof, Lessee shall
nonetheless be entitled to an abatement of rent to the same extent as if Lessor
had carried such insurance.  Lessor
shall use diligence in making such repairs within a reasonable time period,
acts of God, strikes and delays beyond Lessor’s control excepted, in which
instance the time period shall be extended accordingly, and this Lease shall
remain in full force and effect, with the rent to be proportionately reduced as
provided in this Section.  If the
Premises are damaged by any peril within twelve (12) months prior to the last
day of the Lease Term and, in the reasonable opinion

 

21

 

of the Lessor’s architect or construction consultant, the
restoration of the Premises cannot be substantially completed within ninety
(90) days after the date of such damage and such damage renders unusable more
than thirty percent (30%) of the Premises, Lessor may terminate this Lease on
sixty (60) days written notice to Lessee.

 

(b)           If the Building is damaged or
destroyed by any cause to the extent of more than fifty percent (50%) of its
total Rentable Area during the Lease Term, Lessor shall notify Lessee within
sixty (60) days after such damage or destruction whether it will repair the
same within nine months (9) (subject to Force Majeure Delays) from the date of
such notice and if Lessor states that it will not repair within said nine
months (9) (subject to Force Majeure Delays) this Lease shall terminate ten
(10) business days after Lessor gives its notice.  In the event of termination, Lessee shall pay to Lessor all
insurance proceeds, if any, received by Lessee as a result of the damage or
destruction except to the extent allocable to the unamortized (over the Lease
Term) cost of Alterations installed therein at Lessee’s sole cost and expense.

 

Section 8.02.          Waiver of Civil Code Remedies.  Lessee
hereby expressly waives any rights to terminate this Lease upon damage or
destruction to the Premises, including without limitation any rights pursuant
to the provisions of Section 1932, Subdivisions 1 and 2 and Section 1933,
Subdivision 4, of the California Civil Code, as amended from time-to-time, and
the provisions of any similar law hereinafter enacted.

 

Section 8.03.          No Abatement of Rentals.  The Rentals
and other charges due under this Lease shall not be reduced or abated by reason
of any damage or destruction to the Premises (except to the extent of proceeds
received by Lessor from the Rental Loss Insurance; provided that if Lessor
failed to carry such insurance as required by Article VII hereof, Lessee shall
nonetheless be entitled to an abatement of rent to the same extent as if Lessor
had carried such insurance), and Lessor shall be entitled to all proceeds of
the insurance maintained pursuant to Section 7.01. above during the period of
rebuilding pursuant to Section 8.01.(a) above, or if the Lease is terminated
pursuant to Section 8.01.(a) above. 
Lessee shall have no claim against Lessor, including, without limitation,
for compensation for inconvenience or loss of business, profits or goodwill
during any period of repair or reconstruction.

 

Section 8.04.          Liability for Personal Property.  In no event
shall Lessor have any liability for, nor shall it be required to repair or
restore, any injury or damage to Lessee’s personal property or to any other
personal property or to Tenant Improvements (other than improvements which are
permanently affixed to the Premises) or Alterations in or upon the Premises by
Lessee.

 

Section 8.05.          Lessee’s Right to Terminate.  If the
Premises are damaged by any peril and Lessor does not elect to terminate this
Lease or is not entitled to terminate this Lease pursuant to this Article, then
as soon as reasonably practicable, Lessor shall furnish Lessee with the written
opinion of Lessor’s architect or construction consultant as to when the
restoration work required of Lessor may be complete.  Lessee shall have the option to terminate this Lease in the event
any of the following occurs, which option may be exercised only by delivery to
Lessor of a written notice of election to terminate within seven days after
Lessee receives from Lessor the estimate of the time needed to complete such
restoration (i) if the time estimated to substantially complete the restoration
or the actual restoration exceeds fifteen (15) months from and after the date
the architect’s or construction consultant’s written opinion is delivered or
(ii) if the damage occurred

 

22

 

within twelve months prior to the last day of the Lease Term
and the time estimated to substantially complete the restoration exceeds one
hundred eighty (180) days from and after the date such restoration is
commenced.

 

ARTICLE
IX

REAL PROPERTY TAXES

 

Section 9.01.          Payment of Taxes.  Lessee
shall pay Lessee’s Share of all real property taxes, including any escaped or
supplemental tax and any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license, fee, charge, excise or
imposition (“real property taxes”), imposed, assessed or levied on or with
respect to the Project by any Federal, State, County, City or other political
subdivision or public authority having the direct or indirect power to tax,
including, without limitation, any improvement district or any community
facilities district, as against any legal or equitable interest of Lessor in
the Project or against the Project or any part thereof applicable to the
Project for a period of time included within the Lease Term as well as any
government or private cost sharing agreement assessments made for the purpose
of augmenting or improving the quality of services and amenities normally
provided by government agencies.  All
such payments shall be made at least ten (10) days prior to the delinquency date
for such payment or ten (10) days after Lessee’s receipt of the tax bill,
whichever is later.  Notwithstanding the
foregoing, Lessee shall not be required to pay any net income taxes, franchise
taxes, or any succession or inheritance taxes of Lessor.  If at anytime during the Lease Term, the
State of California or any political subdivision of the state, including any
county, city, city and county, public corporation, district, or any other
political entity or public corporation of this state, levies or assesses
against Lessor a tax, fee, charge or imposition, excise on rents under the
Lease, the square footage of the Premises or Project, the act of entering into
this Lease, or the occupancy of Lessee, or levies or assesses against Lessor
any other tax, fee, or excise, however described, including, without
limitation, a so-called value added, business license, transit, commuter,
environmental or energy tax fee, charge or excise or imposition related to the
Project as a direct substitution in whole or in part for, or in addition to,
any real property taxes on the Project, the same shall be included in real
property taxes.  Real property taxes
payable by Lessee hereunder shall not include real property taxes applicable to
office/research and development buildings other than the Building or to the
legal parcels on which such other buildings are located, but Lessee shall pay
Lessee’s Share of real property taxes applicable to the Building (together with
the legal parcel on which it is located) and the Project Common Areas.  Notwithstanding anything to the contrary
contained in this Lease, Lessee shall have no obligation to pay for any
improvement district for construction of the presently approved Project or any
community facilities district except for such a district established for
purposes of constructing the Seaport Boulevard improvements and other
improvements as required in the Development Agreement (“Community Facility
District Bond’’).  The maximum amount of
the Community Facility District Bond shall be $12,000,000; which amount shall
be amortized over not less than fifteen (15) years.  Lessee shall pay only Lessee’s Share of the yearly amortizing
amount.  Lessee shall have no obligation
to pay for the initial construction of any other off-site improvements, improvements
in the Common Areas or infrastructure at the Project contemplated as part of
the initial development of the Project, regardless of whether characterized as
an assessment, tax, bond or operating expense.

 

23

 

Section 9.02.          Pro Ration for Partial Years.  If any such
taxes paid by Lessee shall cover any period prior to the Commencement Date or
after the Expiration Date of the Lease Term, Lessee’s Share of such taxes shall
be equitably prorated to cover only the period of time within the tax fiscal
year during which this Lease shall be in effect, and Lessor shall reimburse
Lessee to any extent required.  If
Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the
same in which case Lessee shall repay such amount to Lessor within ten (10)
days after written demand, together with interest at the Agreed Rate.

 

Section 9.03.          Personal Property Taxes.

 

(a)           Lessee shall pay prior to
delinquency all taxes imposed, assessed against and levied upon trade fixtures,
furnishings, equipment and all other personal property of Lessee contained in
the Premises or elsewhere.  When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.

 

(b)           If any of Lessee’s said personal
property shall be assessed with Lessor’s real property, Lessee shall pay Lessor
the taxes attributable to Lessee within ten (10) days after receipt of a
written statement setting forth the taxes applicable to Lessee’s property.

 

(c)           If Lessee shall fail to pay any such
taxes, Lessor shall have the right to pay the same, in which case Lessee shall
repay such amount to Lessor with Lessee’s next rent installment together with
interest at the Agreed Rate.

 

ARTICLE
X

UTILITIES

 

Section 10.01.        Lessee to Pay.  Lessee shall pay prior to
delinquency and throughout the Lease Term, all charges for water, gas, heating,
cooling, sewer, telephone, electricity, garbage, air conditioning and
ventilation, janitorial service, landscaping and all other materials and
utilities supplied to the Premises, including Lessee’s Share of any such
services or utilities which are not separately metered for the Premises.  Lessor may, at Lessee’s expense, install
devices which separately meter Lessee’s consumption of utilities.  The disruption, failure, lack or shortage of
any service or utility due to any cause whatsoever shall not affect any
obligation of Lessee hereunder, and Lessee shall faithfully keep and observe
all the terms, conditions and covenants of this Lease and pay all rent due
hereunder, all without diminution, credit or deduction.  Lessee’s share of utilities may differ from
Lessee’s Share of Operating Expenses in that Lessor shall, in no event, recover
less than eighty-five percent (85%) of the cost of utilities of the Building
from the combination of Lessee and all other tenants of the Building.

 

ARTICLE
XI

ASSIGNMENT AND SUBLETTING

 

Section 11.01.        Lessor’s Consent Required.  Except as
provided in Section 11.02, Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage, sublet, license or otherwise transfer or encumber
all or any part of Lessee’s interest in this Lease or in the Premises or any
part thereof, without Lessor’s prior written consent which Lessor shall not
unreasonably

 

24

 

withhold or delay. 
Lessor shall respond in writing to Lessee’s request for consent
hereunder in a timely manner and any attempted assignment, transfer, mortgage,
encumbrance, subletting or licensing without such consent shall be void, and
shall constitute a breach of this Lease. 
By way of example, but not limitation, reasonable grounds for denying
consent include: (i) poor credit history or insufficient financial strength of
transferee, (ii) transferee’s intended use of the Premises is inconsistent with
the permitted use or will materially and adversely affect Lessor’s
interest.  Lessee shall reimburse Lessor
upon demand for Lessor’s reasonable costs and expenses (including attorneys’
fees, architect fees and engineering fees) involved in renewing any request for
consent whether or not consent is granted.

 

Section 11.02.        Lessee Affiliates.  Lessee may
assign or sublet the Premises, or any portion thereof, to any corporation which
controls, is controlled by, or is under common control with Lessee, or to any
corporation resulting from the merger or consolidation with Lessee, or to any
person or entity which acquires all, or substantially all of the assets of
Lessee as a going concern of the business that is being conducted on the
Premises, provided that said assignee or sublessee assumes, in full, the
obligations of Lessee under this Lease and provided further that the use to
which the Premises will be put does not materially change.  Any such assignment shall not, in any way,
affect or limit the liability of Lessee under the terms of this Lease.

 

Section 11.03.        No Release of Lessee.  Regardless
of Lessor’s consent, no subletting or assignment shall release Lessee of
Lessee’s obligation or alter the primary liability of Lessee to pay the rent
and to perform all other obligations to be performed by Lessee hereunder.  The acceptance of rent by Lessor from any
other person shall not be deemed consent to any subsequent assignment or
subletting.  In the event of default by
any assignee of Lessee or any successor of Lessee, in the performance of any of
the terms hereof, Lessor may proceed directly against Lessee without the
necessity of exhausting remedies against said assignee.

 

Section 11.04.        Excess Rent.  In the event Lessor shall
consent to a sublease or an assignment, Lessee shall pay to Lessor with its
regularly scheduled Base Rent payments, fifty percent (50%) of all sums and the
fair market value of all consideration collected or received by Lessee from a
sublessee or assignee which are in excess of the Base Rent and Additional Rent
due and payable with respect to the subject space pursuant to Article IV for
the time period encompassed by the sublease or assignment term, after first
deducting reasonable leasing commissions paid by Lessee with respect to such
sublease or assignment.

 

Section 11.05.        No Impairment of Security.  Lessee’s
written request to Lessor for consent to an assignment or subletting or other
form of transfer shall be accompanied by (a) the name and legal composition of
the proposed transferee; (b) the nature of the proposed transferee’s business
to be carried on in the Premises; (c) the terms and provisions of the proposed transfer
agreement; and (d) such financial and other reasonable information as Lessor
may request concerning the proposed transferee.

 

Section 11.06.        Lessor’s Recapture Rights.

 

(a)           Lessor’s Recapture Rights. 
Notwithstanding any other provision of this Article 11, in the event
that Lessee proposes to sublease or assign or otherwise transfer any interest
in this Lease or the Premises or any part thereof affecting (collectively with
all other such

 

25

 

subleases, assignments, or transfers then in effect) more
than sixty percent (60%) of the square footage of the Rentable Area of the
Premises (“Recapture Space”) for more than half of the then remaining Lease
Term, then Lessor shall have the option to recapture the Recapture Space by
written notice to Lessee (“Recapture Notice”) given within ten (10) business
days after Lessor receives any notice of such proposed assignment or sublease
or other transfer (“Transfer Notice”). 
A timely Recapture Notice terminates this Lease for the Recapture Space,
effective as of the date specified in the Transfer Notice.  If Lessor declines or fails timely to
deliver a Recapture Notice, Lessor shall have no further right under this
Section 11.06 to the Recapture Space unless it becomes available again after
transfer by Lessee.

 

(b)           Consequences of Recapture. 
To determine the new Base Rent under this Lease if Lessor recaptures the
Recapture Space, the then current Base Rent (immediately before Lessor’s
recapture) under the Lease shall be multiplied by a fraction, numerator of
which is the square feet of the Rentable Area retained by Lessee after Lessor’s
recapture and the denominator of which is the total square feet of the Rentable
Area before Lessor’s recapture.  The
Additional Rent, to the extent that it is calculated on the basis of the square
feet within the Premises, shall be reduced to reflect Lessee’s proportionate
share based on the square feet of the Premises retained by Lessee after
Lessor’s recapture.  This Lease as so
amended shall continue thereafter in full force and effect.  Either party may require written
confirmation of the amendments to this Lease necessitated by Lessor’s recapture
of the Recapture Space.  If Lessor
recaptures the Recapture Space, Lessor shall, at Lessor’s sole expense,
construct, paint, and furnish any partitions required to segregate the
Recapture Space from the remaining Premises retained by Lessee.

 

ARTICLE
XII

DEFAULTS; REMEDIES

 

Section 12.01.        Defaults.  The occurrence of any one or
more of the following events shall constitute a material default and breach of
this Lease by Lessee:

 

(a)           The abandonment of the Premises by
Lessee or the commission of waste at the Premises or the making of an
assignment or subletting in violation of Article XI, provided however,
abandonment shall be considered to not occur if the Premises are maintained and
occupied to the extent necessary to maintain the insurance on each and every
portion of the Premises;

 

(b)           The failure by Lessee to make any
payment of rent or any other payment required to be made by Lessee hereunder,
as and when due, if such failure continues for a period of five (5) business
days after written notice thereof from Lessor to Lessee.  In the event that Lessor serves Lessee with
a Notice to Pay Rent or Quit in the form required by applicable Unlawful
Detainer statutes such Notice shall constitute the notice required by this
paragraph, provided that the cure period stated in the Notice shall be five (5)
business days rather than the statutory three (3) days;

 

(c)           Lessee’s failure to provide (i) any
supplemental letter of credit as required by Section 4.06, (ii) any
instrument or assurance as required by Section 7.05 or (iii) estoppel
certificate as required by Section 15.01 or (iv) any document subordinating
this Lease to a lender’s deed of trust, if any such failure continues for five
(5) business days after written notice

 

26

 

of the failure.  In
the event Lessor serves Lessee with a Notice to Perform Covenant or Quit in the
form required by applicable Unlawful Detainer Statutes, such Notice shall
constitute the notice required by this paragraph, provided that the cure period
stated in the Notice shall be five (5) business days rather than the statutory
three (3) days;

 

(d)           The failure by Lessee to observe or
perform any of the covenants, conditions or provisions of this Lease to be
observed or performed by Lessee, other than described in paragraph (a) (b) or
(c) above, if such failure continues for a period of ten (10) days after
written notice thereof from Lessor to Lessee; provided, however, that if the
nature of Lessee’s default is such that more than ten (10) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commences such cure within said ten (10) day period and thereafter
diligently prosecutes such cure to completion;

 

(e)           (i) The making by Lessee of any
general arrangement or assignment for the benefit of creditors; (ii) the filing
by Lessee of a voluntary petition in bankruptcy under Title 11 U.S.C. or the
filing of an involuntary petition against Lessee which remains uncontested for
a period of sixty days; (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee’s assets located at the Premises or
of Lessee’s interest in this Lease; or (iv) the attachment, execution or other
judicial seizure of substantially all of Lessee’s assets located at the
Premises or of Lessee’s interest in this Lease, provided, however, in the event
that any provisions of this Section 12.01(e) is contrary to any applicable law,
such provision shall be of no force or effect;

 

(f)            The discovery by Lessor that any
financial statement given to Lessor by Lessee, or any guarantor of Lessee’s
obligations hereunder, was materially false; and

 

(g)           The occurrence of a material default
and breach by Lessee under any other Lease between Lessee and Lessor (or any
affiliate of Lessor) for premises in Pacific Shores Center.

 

Section 12.02.        Remedies.  In the event of any such
material default and breach by Lessee, Lessor may at any time thereafter, and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default and breach:

 

(a)           Terminate Lessee’s right to
possession of the Premises by any lawful means including by way of unlawful
detainer (and without any further notice if a notice in compliance with the
unlawful detainer statutes and in compliance with paragraphs (b), (c) and (d)
of Section 12.01 above has already been given), in which case this Lease shall
terminate and Lessee shall immediately surrender possession of the Premises to
Lessor.  In such event Lessor shall be
entitled to recover from Lessee all damages incurred by Lessor by reason of
Lessee’s default including, but not limited to, (i) the cost of recovering
possession of the Premises including reasonable attorney’s fees related
thereto; (ii) the worth at the time of the award of any unpaid rent that had
been earned at the time of the termination, to be computed by allowing interest
at the Agreed Rate but in no case greater than the maximum amount of interest
permitted by law, (iii) the worth at the time at the time of the award of the
amount by which the unpaid rent that would have been earned between the time of
the termination and the time of the award exceeds the amount of unpaid rent
that Lessee proves could reasonably have been avoided, to be computed by
allowing interest at the Agreed Rate but in no case greater than the maximum

 

27

 

amount of interest permitted by law, (iv) the worth at the
time of the award of the amount by which the unpaid rent for the balance of the
Lease Term after the time of the award exceeds the amount of unpaid rent that
Lessee proves could reasonably have been avoided, to be computed by discounting
that amount at the discount rate of the Federal Reserve Bank of San Francisco
at the time of the award plus one per cent (1%), (v) any other amount necessary
to compensate Lessor for all the detriment proximately caused by Lessee’s
failure to perform obligations under this Lease, including brokerage
commissions and advertising expenses, expenses of remodeling the Premises for a
new tenant (whether for the same or a different use), and any special
concessions made to obtain a new tenant, and (vi) any other amounts, in
addition to or in lieu of those listed above, that may be permitted by
applicable law.

 

(b)           Maintain Lessee’s right to
possession as provided in Civil Code Section 1951.4 in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises.  In such event Lessor shall be
entitled to enforce all of Lessor’s rights and remedies under this Lease,
including the right to recover the rent as it becomes due hereunder.

 

(c)           Pursue any other remedy now or
hereafter available to Lessor under the laws or judicial decisions of the state
of California.  Unpaid amounts of rent
and other unpaid monetary obligations of Lessee under the terms of this Lease
shall bear interest from the date due at the Agreed Rate.

 

Section 12.03.        Default by Lessor.  Lessor
shall not be in default under this Lease unless Lessor fails to perform
obligations required of Lessor within a reasonable time, but in no event later
than thirty (30) days after written notice by Lessee to Lessor and to the
holder of any first mortgage or deed of trust covering the Premises whose name
and address shall have theretofore been furnished to Lessee in writing,
specifying that Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor’s obligation is such that more than
thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such thirty day period and
thereafter diligently prosecutes the same to completion.  In the event Lessor does not commence
performance within the thirty (30) day period provided herein, Lessee may
perform such obligation and will be reimbursed for its expenses by Lessor
together with interest thereon at the Agreed Rate.  Lessee waives any right to terminate this Lease or to vacate the
Premises on Lessor’s default under this Lease. 
Lessee’s sole remedy on Lessor’s default is an action for damages or
injunctive or declaratory relief. 
Notwithstanding the foregoing, nothing herein shall be deemed applicable
in the event of Lessor’s delay in delivery of the Premises.  In that situation, all rights and remedies
shall be determined under Section 3.01 above.

 

Section 12.04.        Late Charges.  Lessee hereby acknowledges
that late payment by Lessee to Lessor of rent and other sums due hereunder will
cause Lessor to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain.  Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises.  Accordingly, if any installment of rent or
any other sum due from Lessee shall not be received by Lessor or Lessor’s
designated agent within five (5) days after such amount is due and owing,
Lessee shall pay to Lessor a late charge equal to ten percent (10%) of such
overdue amount.  The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
costs

 

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Lessor will incur by reason of late payment by Lessee.  Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee’s default with respect to such
overdue amount, nor prevent Lessor from exercising any of the other rights and
remedies granted hereunder.  In the
event that a late charge is payable hereunder, whether or not collected, for
three (3) consecutive installments of rent, then rent shall automatically
become due and payable quarterly in advance, rather than monthly,
notwithstanding Section 4.01 or any other provision of this Lease to the
contrary.

 

ARTICLE
XIII

CONDEMNATION OF PREMISES

 

Section 13.01.        Total Condemnation.  If the
entire Premises, whether by exercise of governmental power or the sale or
transfer by Lessor to any condemnor under threat of condemnation or while
proceedings for condemnation are pending, at any time during the Lease Term,
shall be taken by condemnation such that there does not remain a portion
suitable for occupation, this Lease shall then terminate as of the date
transfer of possession is required. 
Upon such condemnation, all rent shall be paid up to the date transfer
of possession is required, and Lessee shall have no claim against Lessor or the
award for the value of the unexpired portion of this Lease Term.

 

Section 13.02.        Partial Condemnation.  If any
portion of the Premises is taken by condemnation during the Lease Term, whether
by exercise of governmental power or the sale for transfer by Lessor to an
condemnor under threat of condemnation or while proceedings for condemnation
are pending, this Lease shall remain in full force and effect except that in
the event a partial taking leaves the Premises unfit for the conduct of the
business of Lessee, then Lessee shall have the right to terminate this Lease
effective upon the date transfer of possession is required.  Moreover, Lessor shall have the right to
terminate this Lease effective on the date transfer of possession is required
if more than thirty-three percent (33%) of the total square footage of the
Premises is taken by condemnation. 
Lessee and Lessor may elect to exercise their respective rights to
terminate this Lease pursuant to this Section by serving written notice to the
other within thirty (30) days after receipt of notice of condemnation.  All rent shall be paid up to the date of
termination, and Lessee shall have no claim against Lessor for the value of any
unexpired portion of the Lease Term.  If
this Lease shall not be canceled, the rent after such partial taking shall be
that percentage of the adjusted Base Rent specified herein, equal to the
percentage which the square footage of the untaken part of the Premises,
immediately after the taking, bears to the square footage of the entire
Premises immediately before the taking. 
If Lessee’s continued use of the Premises requires alterations and
repair by reason of a partial taking, all such alterations and repair shall be
made by Lessee at Lessee’s expense. 
Lessee waives all rights it may have under California Code of Civil
Procedure Section 1265.130 or otherwise, to terminate this Lease based on
partial condemnation.

 

Section 13.03.        Award to Lessee.  In the
event of any condemnation, whether total or partial, Lessee shall have the
right to claim and recover from the condemning authority such compensation as
may be separately awarded or recoverable by Lessee for loss of its business
fixtures, moving expenses or equipment belonging to Lessee immediately prior to
the condemnation.  The balance of any
condemnation award shall belong to Lessor (including, without limitation, any
amount attributable to any excess of the market value of the Premises for

 

29

 

the remainder of the Lease Term over the then present value
of the rent payable for the remainder of the Lease Term) and Lessee shall have
no further right to recover from Lessor or the condemning authority for any
claims arising out of such taking.

 

ARTICLE
XIV

ENTRY BY LESSOR

 

Section 14.01.        Entry by Lessor Permitted.  Lessee
shall permit Lessor and its employees, agents and contractors to enter the
Premises and all parts thereof (i) upon twenty-four (24) hours notice (or
without notice in an emergency), including without limitation, the Building and
all parts thereof at all reasonable times for any of the following purposes: to
inspect the Premises; to maintain the Premises (in accordance with the terms of
this Lease); to make such repairs to the Premises as Lessor is obligated or may
elect to make pursuant to the terms of this Lease; to make repairs, alterations
or additions to any other portion of the Project and (ii) upon twenty-four (24)
hours notice to show the Premises and post “To Lease” signs for the purposes of
reletting during the last twelve (12) months of the Lease Term (provided that
Lessee has failed to exercise its option to extend) or extended Lease Term to
show the Premises as part of a prospective sale by Lessor or to post notices of
nonresponsibility.  Lessor shall have
such right of entry without any rebate of rent to Lessee for any loss of
occupancy or quiet enjoyment of the Premises hereby occasioned.

 

ARTICLE
XV

ESTOPPEL CERTIFICATE

 

Section 15.01.        Estoppel Certificate.

 

(a)           Lessee shall at any time upon not
less than fifteen (15) days’ prior written notice from Lessor execute,
acknowledge and deliver to Lessor a statement in writing (i) certifying, if
true, that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying, if true, that
this Lease, as so modified, is in full force and effect) and the date to which
the rent and other charges are paid in advance, if any, and (ii) acknowledging,
if true, that there are not, to Lessee’s knowledge, any uncured defaults on the
part of Lessor hereunder, or specifying such defaults if any are claimed and
(iii) certifying or acknowledging such other matters as are requested by any
prospective lender or buyer which are reasonably related to the loan or sale
transaction.  Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises.

 

(b)           Lessee’s failure to deliver such
statement within such time shall be conclusive upon Lessee (i) that this Lease
is in full force and effect, without modification except as may be represented
by Lessor, (ii) that there are no uncured defaults in Lessor’s performance, and
(iii) that not more than one month’s rent has been paid in advance.

 

ARTICLE
XVI

LESSOR’S LIABILITY

 

Section 16.01.        Limitations on Lessor’s Liability.  The term
“Lessor” as used herein shall mean only the owner or owners at the time in
question of the fee title of the Premises. 
In the

 

30

 

event of any transfer of such title or interest, Lessor
herein named (and in case of any subsequent transfers then the grantor) shall
be relieved from and after the date of such transfer of all liability as
respects Lessor’s obligations thereafter to be performed, except as to any
claim Lessee may have as to any funds in the hands of Lessor or the then
grantor at the time of such transfer, including without limitation, the
Security Deposit, in which Lessee has an interest, which are not delivered to
the grantee.  The obligations contained
in this Lease to be performed by Lessor shall, subject as aforesaid, be binding
on Lessor’s successors and assigns, only during their respective periods of
ownership.  For any breach of this Lease
by Lessor, the liability of Lessor (including all persons and entities that
comprise Lessor, and any successor Lessor) and any recourse by Lessee against
Lessor shall be limited to the interest of Lessor, and Lessor’s successors in
interest, in and to the Building.  On
behalf of itself and all persons claiming by, through, or under Lessee, Lessee
expressly waives and releases Lessor and each member, agent and employee of
Lessor from any personal liability for breach of this Lease.

 

ARTICLE
XVII

GENERAL PROVISIONS

 

Section 17.01.        Severability.  The invalidity of any
provision of this Lease as determined by a court of competent jurisdiction,
shall in no way affect the validity of any other provision hereof.

 

Section 17.02.        Agreed Rate Interest on Past-Due Obligations. 
Except as expressly herein provided, any amount due to either party not
paid when due shall bear interest at the Bank of America prime rate plus one
percent (1%) (“Agreed Rate”).  Payment
of such interest shall not excuse or cure any default by Lessee under this
Lease.  Despite any other provision of
this Lease, the total liability for interest payments shall not exceed the
limits, if any, imposed by the usury laws of the State of California.  Any interest paid in excess of those limits shall
be refunded to the payor by application of the amount of excess interest paid
against any sums outstanding in any order that payee requires.  If the amount of excess interest paid
exceeds the sums outstanding, the portion exceeding those sums shall be
refunded in cash to the payor by the payee. 
To ascertain whether any interest payable exceeds the limits imposed,
any nonprincipal payment (including late charges) shall be considered to the
extent permitted by law to be an expense or a fee, premium, or penalty rather
than interest.

 

Section 17.03.        Time of Essence.  Time is of
the essence in the performance of all obligations under this Lease.

 

Section 17.04.        Additional Rent.  Any
monetary obligations of Lessee to Lessor under the terms of this Lease shall be
deemed to be Additional Rent and Lessor shall have all the rights and remedies
for the nonpayment of same as it would have for nonpayment of Base Rent, except
that the one year requirement of Code of Civil Procedure Section 116l(2) shall
apply only to scheduled installments of Base Rent and not to any Additional
Rent.  All references to “rent” (except
specific references to either Base Rent or Additional Rent) shall mean Base
Rent and Additional Rent.

 

Section 17.05.        Incorporation of Prior Agreements, Amendments and Exhibits. 
This Lease (including Exhibits A, B, C, D, E, F, G; H, I, J, K, L and M)
contains all agreements of the

 

31

 

parties with respect to any matter mentioned herein.  No prior agreement or understanding
pertaining to any such matter shall be effective.  This Lease may be modified in writing only, signed by the parties
in interest at the time of the modification. 
Except as otherwise stated in this Lease, Lessee hereby acknowledges
that neither the Lessor nor any employees or agents of the Lessor has made any
oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of said Premises and Lessee acknowledges that Lessee
assumes all responsibility regarding the Occupational Safety Health Act, the
legal use and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the Lease Term except as
otherwise specifically stated in this Lease. 
Neither party has been induced to enter into this Lease by, and neither
party is relying on, any representation or warranty outside those expressly set
forth in this Lease.

 

Section 17.06.        Notices.

 

(a)           Written Notice. 
Any notice required or permitted to be given hereunder shall be in
writing and shall be given by a method described in paragraph (b) below and
shall be addressed to Lessee or to Lessor at the addresses noted below, next to
the signature of the respective parties, as the case may be.  Either party may by notice to the other
specify a different address for notice purposes.  A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by notice to
Lessee, but delay or failure of delivery to such person shall not affect the
validity of the delivery to Lessor or Lessee.

 

(b)           Methods of Delivery:

 

(i)            When personally delivered to the
recipient, notice is effective on delivery. 
Delivery to the person apparently designated to receive deliveries at
the subject address is personally delivered if made during business hours (e.g.
receptionist).

 

(ii)           When mailed by certified mail with return receipt requested, notice is
effective on receipt if delivery is confirmed by a return receipt.

 

(iii)          When delivery by overnight delivery Federal Express/Airborne/United
Parcel Service/DHL Worldwide Express with charges prepaid or charged to the
sender’s account, notice is effective on delivery if delivery is confirmed by
the delivery service.

 

(c)           Refused, Unclaimed or Undeliverable
Notices.  Any correctly addressed notice that is
refused, unclaimed, or undeliverable because of an act or omission of the party
to be notified shall be considered to be effective as of the first date that
the notice was refused, unclaimed, or considered undeliverable by the postal
authorities, messenger, or overnight delivery service.

 

Section 17.07.        Waivers.  No waiver of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach of
the same or any other provisions.  Any
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of consent to or approval of any subsequent act.  The acceptance of rent hereunder by Lessor
shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure

 

32

 

of Lessee to pay the particular rent so accepted, regardless
of Lessor’s knowledge of such preceding breach at the time of acceptance of
such rent.

 

Section 17.08.        Recording.  Either Lessor or Lessee shall,
upon request of the other, execute, acknowledge and deliver to the other a
“short form” memorandum of this Lease for recording purposes, provided that
Lessee shall also simultaneously execute in recordable form and delivering to
Lessor a Quit Claim Deed as to its leasehold and any other interest in the
Premises and hereby authorizes Lessor to date and record the same only upon the
expiration or sooner termination of this Lease.

 

Section 17.09.        Surrender of Possession: Holding Over.

 

(a)           At the expiration of the Lease,
Lessee agrees to deliver up and surrender to Lessor possession of the Premises
and all improvements thereon broom clean and, in as good order and condition as
when possession was taken by Lessee, excepting only ordinary wear and tear
(wear and tear which could have been avoided by first class maintenance
practices and in accordance with industry standards shall not be deemed
“ordinary”).  Upon expiration or sooner
termination of this Lease, Lessor may reenter the Premises and remove all
persons and property therefrom.  If
Lessee shall fail to remove any personal property which it is entitled or obligated
to remove from the Premises upon the expiration or sooner termination of this
Lease, for any cause whatsoever, Lessor, at its option, may remove the same and
store or dispose of them, and Lessee agrees to pay to Lessor on demand any and
all expenses incurred in such removal and in making the Premises free from all
dirt, litter, debris and obstruction, including all storage and insurance
charges.  If the Premises are not
surrendered at the end of the Lease Term, Lessee shall indemnify Lessor against
loss or liability resulting from delay by Lessee in so surrendering the
Premises, including, without limitation, actual damages for lost rent and with
respect to any claims of a successor occupant.

 

(b)           If Lessee, with Lessor’s prior
written consent, remains in possession of the Premises after expiration of the
Lease Term and if Lessor and Lessee have not executed an express written
agreement as to such holding over, then such occupancy shall be a tenancy from
month to month at a monthly Base Rent equivalent to one hundred fifty percent
(150%) of the monthly rental in effect immediately prior to such expiration,
such payments to be made as herein provided for Base Rent.  In the event of such holding over, all of
the terms of this Lease, including the payment of Additional Rent all charges
owing hereunder other than rent shall remain in force and effect on said month
to month basis.

 

Section 17.10.        Cumulative Remedies.  No remedy
or election hereunder by Lessor shall be deemed exclusive but shall, wherever
possible, be cumulative with all other remedies at law or in equity, provided
that notice and cure periods set forth in Article XII are intended to extend
and modify statutory notice provisions to the extent expressly stated in
Section 12.01.

 

Section 17.11.        Covenants and Conditions.  Each
provision of this Lease to be observed or performed by Lessee shall be deemed
both a covenant and a condition.

 

Section 17.12.        Binding Effect; Choice of Law.  Subject to
any provisions hereof restricting assignment or subletting by Lessee and
subject to the provisions of Article XVI, this

 

33

 

Lease shall bind the parties, their personal
representatives, successors and assigns. 
This Lease shall be governed by the laws of the State of California and
any legal or equitable action or proceeding brought with respect to the Lease
or the Premises shall be brought in Santa Clara County, California.

 

Section 17.13.        Lease to be Subordinate.  Lessee
agrees that this Lease is and shall be, at all times, subject and subordinate
to the lien of any mortgage, deed of trust or other encumbrances which Lessor
may create against the Premises including all renewals, replacements and
extensions thereof provided, however, that regardless of any default under any
such mortgage, deed of trust or other encumbrance or any sale of the Premises
under such mortgage, deed of trust or other encumbrance so long as Lessee
timely performs all covenants and conditions of this Lease and continues to
make all timely payments hereunder, this Lease and Lessee’s possession and
rights hereunder shall not be disturbed by the mortgagee or beneficiary or
anyone claiming under or through such mortgagee or beneficiary.  Lessee shall execute any documents
subordinating this Lease within ten (10) days after delivery of same by Lessor
so long as the mortgagee or beneficiary agrees therein that this Lease will not
be terminated if Lessee is not in default following a foreclosure, including,
without limitation, any Subordination Non-Distribution and Attornment Agreement
(“SNDA”) which is substantially in the form attached hereto as Exhibit “F.”

 

Section 17.14.        Attorneys’ Fees.  If either
party herein brings an action to enforce the terms hereof or to declare rights
hereunder, the prevailing party in any such action, on trial or appeal, shall
be entitled to recover its reasonable attorney’s fees, expert witness fees and
costs as fixed by the Court.

 

Section 17.15.        Signs.  Lessee shall not place any sign outside the
Premises or Building (or which is visible from outside the Premises or
Building) without Lessor’s prior written consent, which consent shall not be
unreasonably withheld or delayed and subject to approval by the City.  Lessee, at its sole cost and expense, after
obtaining Lessor’s prior written consent, shall install, maintain and remove
prior to expiration of this Lease (or within ten (10) days after any earlier
termination of this Lease) all signage in full compliance with (i) all
applicable law, statutes, ordinances and regulations, (ii) all provisions of
this Lease concerning Alterations, and (iii) Exhibit “G.”  Lessor, at its expense, shall identify
Lessee on the lobby directory in the Building.

 

Section 17.16.        Merger.  The voluntary or other surrender of this
Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor,
shall not work a merger, and shall, at the option of Lessor, terminate all or
any existing subtenancies or may, at the option of Lessor, operate as an
assignment to Lessor of any or all of such subtenancies.

 

Section 17.17.        Guarantor.  [Intentionally Omitted]

 

Section 17.18.        Quiet Possession.  Upon Lessee
timely paying the rent for the Premises and timely observing and performing all
of the covenants, conditions and provisions on Lessee’s part to be observed and
performed hereunder, Lessee shall have quiet possession of the Premises for the
entire Lease Term, subject to all of the provisions of this Lease.

 

34

 

Section 17.19.        Easements.  Lessor reserves to itself the
right, from time to time, to grant such easements, rights and dedications that
Lessor deems necessary or desirable, and to cause the recordation of Parcel
Maps and conditions, covenants and restrictions, so long as such easements, rights,
dedications, Maps and conditions, covenants and restrictions do not
unreasonably interfere with the use of the Premises by Lessee or materially
increase Lessee’s actual or potential monetary and non-monetary obligations
under this Lease.  Lessee shall sign any
of the aforementioned or other documents, and take such other actions, which
are reasonably necessary or appropriate to accomplish such granting recordation
and subordination of the Lease to same, upon request of Lessor, and failure to
do so within ten (10) business days of a written request to do so shall
constitute a material breach of this Lease.

 

Section 17.20.        Authority.  Each individual executing this
Lease on behalf of a corporation, limited liability company or partnership
represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of such entity in accordance with a duly adopted
resolution of the governing group of the entity empowered to grant such
authority, and that this Lease is binding upon said entity in accordance with
its terms.  Each party shall provide the
other with a certified copy of its resolution within ten (10) days after
execution hereof, but failure to do so shall in no manner (i) be evidence of
the absence of authority or (ii) affect the representation or warranty.

 

Section 17.21.        Force Majeure Delays.  In any case
where either party hereto is required to do any act (other than the payment of
money), delays caused by or resulting from Acts of God or Nature, war, civil
commotion, fire, flood or other casualty, labor difficulties, shortages of
labor or materials or equipment, government regulations, delay by government or
regulatory agencies with respect to approval or permit process, unusually
severe weather, or other causes beyond such party’s reasonable control (“Force
Majeure Delays”) the time during which act shall be completed, shall be deemed
to be extended by the period of such delay, whether such time be designated by
a fixed date, a fixed time or “a reasonable time.”

 

Section 17.22.        Hazardous Materials.

 

(a)           Definition of Hazardous Materials
and Environmental Laws.  “Hazardous
Materials” means any (a) substance, product, waste or other material of any
nature whatsoever which is or becomes listed regulated or addressed pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. sections 9601, et seq. (“CERCLA”); the Hazardous Materials
Transportation Act (“HMTA”) 49 U.S.C. section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. section 6901, et seq. (“RCRA”); the
Toxic Substances Control Act, 15 U.S.C. sections 2601, et seq. (“TSCA”); the
Clean Water Act, 33 U.S.C. sections 1251, et seq.; the California Hazardous
Waste Control Act, Health and Safety Code sections 25 100, et seq.; the
California Hazardous Substances Account Act, Health and Safety Code sections
26300, et seq.; the California Safe Drinking Water and Toxic Enforcement Act,
Health and Safety Code sections 25249.5, et seq.; California Health and Safety
Code sections 25280, et seq.; (Underground Storage of Hazardous Substances);
the California Hazardous Waste Management Act, Health and Safety Code sections
25 170.1, et seq.; California Health and Safety Code sections 25501. et seq.
(Hazardous Materials Response Plans and Inventory); or the Porter-Cologne Water
Quality Control Act, California Water Code sections 13000, et seq., all as
amended, or any other federal, state or local statute, law, ordinance,

 

35

 

resolution, code, rule, regulation, order or decree
regulating, relating to or imposing liability (including, but not limited to,
response, removal and remediation costs) or standards of conduct or performance
concerning any hazardous, toxic or dangerous waste, substance or material, as
now or at any time hereafter may be in effect (collectively, “Environmental
Laws”); (b) any substance, product, waste or other material of any nature
whatsoever whose presence in and of itself may give rise to liability under any
of the above statutes or under any statutory or common law theory based on
negligence, trespass, intentional tort, nuisance, strict or absolute liability
or under any reported decisions of a state or federal court, (c) petroleum or
crude oil, including but not limited to petroleum and petroleum products
contained within regularly operated motor vehicles and (d) asbestos.

 

(b)           Lessor’s Representations and
Disclosures.  Lessor represents that it has provided
Lessee with a description of the Hazardous Materials on or beneath the Project
as of the date hereof, attached hereto as Exhibit “I” and incorporated herein
by reference.  Lessee acknowledges that
in providing the attached Exhibit “I”, Lessor has satisfied its obligations of
disclosure pursuant to California Health & Safety Code Section 25359.7
which requires:

 

“Any owner of nonresidential real property who knows, or has
reasonable cause to believe, that any release of hazardous substances has come
to be located on or beneath that real property shall, prior to the sale, lease
or rental of the real property by that owner, give written notice of that
condition to the buyer, lessee or renter of the real property.”

 

(c)           Use of Hazardous Materials. 
Lessee shall not cause or permit any Hazardous Materials to be brought
upon, kept or used in, on or about the Project by Lessee, its agents,
employees, contractors, licensees, guests, visitors or invitees without the
prior written consent of Lessor.  Lessor
shall not unreasonably withhold such consent so long as Lessee demonstrates to
Lessor’s reasonable satisfaction that such Hazardous Materials are necessary or
useful to Lessee’s business and will be used, kept and stored in a manner that
complies with all applicable Environmental Laws.  Lessee shall, at all times, use, keep, store, handle, transport,
treat or dispose all such Hazardous Materials in or about the Project in
compliance with all applicable Environmental Laws.  Prior to the expiration or earlier termination of this Lease,
Lessee shall remove from the Premises and Project all Hazardous Materials used
or brought onto the Premises and Project during the Lease Term by Lessee or its
agents, employees, contractors, licensee, guests, visitors or invitees.

 

(d)           Lessee’s Environmental Indemnity. 
Lessee agrees to indemnify and hold Lessor harmless from any
liabilities, losses, claims, damages, penalties, fines, attorney fees, expert
fees, court costs, remediation costs, investigation costs, or other expenses
resulting from or arising out of the use, storage, treatment, transportation,
release, presence, generation, or disposal of Hazardous Materials on, from or
about the Project, and/or subsurface or ground water, from an act or omission
of Lessee (or Lessee’s successor), its agents, employees, invitees, vendors,
contractors, guests or visitors.

 

(e)           Lessee’s Obligation to Promptly
Remediate.  If the presence of Hazardous Materials on
the Premises after the Commencement Date which results from an act or omission

 

36

 

of Lessee (or Lessee’s successors), its agents, employees,
invitees, vendors, contractors, guests, or visitors also results in
contamination or deterioration of the Project or any water or soil beneath the
Project, Lessee shall promptly take all action necessary or appropriate to
investigate and remedy that contamination, at its sole cost and expense,
provided that Lessor’s approval of such action shall first be obtained.  Lessor’s approval shall not be unreasonably
withheld.

 

(f)            Notification. 
Lessor and Lessee each agree to promptly notify the other of any
communication received from any governmental entity concerning Hazardous
Materials or the violation of Environmental Laws that relate to the Project.

 

(g)           Lessor’s Environmental Indemnity. 
Lessor agrees to indemnify and hold Lessee harmless from any
liabilities, losses, claims, damages, penalties, fines, attorney fees, expert
fees, court costs, remediation costs, investigation costs, or other expenses
resulting from or arising out of the use, storage, treatment, transportation,
release, presence, generation, or disposal of Hazardous Materials on, from or
about the Premises, and/or subsurface or ground water prior to the Commencement
Date or caused by Lessor (or Lessor’s successor), its agents or employees.

 

Section 17.23.        Modifications Required by Lessor’s Lender. 
If any lender of Lessor requires a modification of this Lease that will
not increase Lessee’s cost or expense or materially and adversely change
Lessee’s rights and obligations, this Lease shall be so modified and Lessee
shall execute whatever documents are required by such lender and deliver them
to Lessor within ten (10) days after the request.

 

Section 17.24.        No Brokers.  Lessor and Lessee each
represents to the other that it has had no dealings with any real estate broker
or agent in connection with the negotiation of this Lease, and that they know
of no other real estate broker or agent who is entitled to a commission or
finder’s fee in connection with this Lease. 
Each party shall indemnify, protect, defend, and hold harmless the other
party against all claims, demands, losses, liabilities, lawsuits, judgments,
and costs and expenses (including reasonable attorney fees) for any leasing
commission, finder’s fee, or equivalent compensation alleged to be owing on
account of the indemnifying party’s dealings with any real estate broker or
agent.  The terms of this Section 17.24
shall survive the expiration or earlier termination of the Lease Term.

 

Section 17.25.        Acknowledgment of Notices.  Lessor has provided
and Lessee hereby acknowledges receipt of the Notices attached as Exhibits J
and K hereto, concerning the presence of certain uses and operations of
neighboring parcels of land.

 

37

 

Section 17.26.        List of Exhibits.

 

	
  EXHIBIT
  A:

  	
  Real
  Property Legal Description, Site Plan, and Building Elevations

  
	
   

  	
   

  
	
  EXHIBIT
  B:

  	
  Plans
  and Specifications for Shell Building [Intentionally Omitted]

  
	
   

  	
   

  
	
  EXHIBIT
  C:

  	
  Work
  Letter Agreement for Tenant Improvements and Interior Specification Standards
  [Intentionally Omitted]

  
	
   

  	
   

  
	
  EXHIBIT
  D:

  	
  Cost
  Responsibilities of Lessor and Lessee [Intentionally Omitted]

  
	
   

  	
   

  
	
  EXHIBIT
  E:

  	
  Memorandum
  of Commencement of Lease Term and Schedule of Base Rent

  
	
   

  	
   

  
	
  EXHIBIT
  F:

  	
  SNDA

  
	
   

  	
   

  
	
  EXHIBIT
  G:

  	
  Signage
  Exhibit

  
	
   

  	
   

  
	
  EXHIBIT
  H:

  	
  Guaranty
  of Lease [Intentionally Omitted]

  
	
   

  	
   

  
	
  EXHIBIT
  I:

  	
  Hazardous
  Materials Disclosure

  
	
   

  	
   

  
	
  EXHIBIT
  J:

  	
  Notice
  to Tenants

  
	
   

  	
   

  
	
  EXHIBIT
  K:

  	
  Notice
  to Tenants

  
	
   

  	
   

  
	
  EXHIBIT
  L:

  	
  Rules
  and Regulations

  
	
   

  	
   

  
	
  EXHIBIT
  M:

  	
  Warm
  Shell Improvements [Intentionally Omitted]

  

 

38

 

LESSOR AND LESSEE EACH HAS CAREFULLY READ AND HAS REVIEWED
THIS LEASE AND BEEN ADVISED BY LEGAL COUNSEL OF ITS OWN CHOOSING AS TO EACH
TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS
LEASE, SHOWS ITS INFORMED AND VOLUNTARY CONSENT THERETO.  EACH PARTY HEREBY AGREES THAT, AT THE TIME
THIS LEASE IS EXECUTED, THE TERMS AND CONDITIONS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.

 

Executed at San Jose, California, as
of the reference date.

 

39

 

	
  LESSOR:

  	
   

  	
  ADDRESS FOR
  NOTICES TO LESSOR:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  PACIFIC SHORES INVESTORS, LLC,

  	
   

  	
  Pacific Shores Investors, LLC

  	
   

  
	
  a Delaware limited liability company

  	
   

  	
  c/o Technology Land, LLC

  	
   

  
	
   

  	
   

  	
  350 California Street, Suite 1905

  	
   

  
	
  By:

  	
  Pacific Shores Mezzanine, LLC, a
  Delaware limited

  	
   

  	
  San Francisco, California
  94104-1432

  	
   

  
	
   

  	
  liability company, its sole member

  	
   

  	
  Attention:  Mr. Jay Paul

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Pacific Shores Junior Mezz, LLC, a
  Delaware

  	
   

  	
  With a copy to:

  	
   

  
	
   

  	
   

  	
  limited liability company, its
  sole member

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Allen Matkins Leck Gamble &
  Mallory LLP

  	
   

  
	
   

  	
   

  	
  By:

  	
  Pacific Shores Junior Mezz
  Managers,

  	
   

  	
  Three Embarcadero Center, 12th
  Floor

  	
   

  
	
   

  	
   

  	
   

  	
  LLC, a Delaware limited liability

  	
   

  	
  San Francisco, California
  94111-4074

  	
   

  
	
   

  	
   

  	
   

  	
  company, its sole member

  	
   

  	
  Attention:  Nicholas B. Waranoff, Esq.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  Pacific Shores Development, LLC, a

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Delaware limited liability
  company, its 

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  sole member

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  Technology Land LLC, a

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  California limited liability

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  company, Operating Member

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/Joseph K. Paul

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Joseph K.
  Paul, 

  Sole Managing Member

  	
   

  	
   

  	
   

  	
   

  
												

 

 

	
  LESSEE:

  	
   

  	
  ADDRESS FOR
  NOTICES TO LESSEE:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  BROADVISION, INC.,

  	
   

  	
  BroadVision, Inc.

  	
   

  
	
  a Delaware corporation

  	
   

  	
  585 Broadway

  	
   

  
	
   

  	
   

  	
  Redwood City, California 94063

  	
   

  
	
  By:

  	
  /s/ Pehong Chen

  	
   

  	
  Attention:  Legal Department

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Pehong Chen

  	
   

  	
  With a copy to:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  Chairman, CEO & President

  	
   

  	
  Cooley Godward LLP

  	
   

  
	
   

  	
   

  	
  One Maritime Plaza, 20th
  Floor

  	
   

  
	
  By:

  	
  /s/ Scott C. Neely

  	
   

  	
  San Francisco, California 94111

  	
   

  
	
   

  	
   

  	
  Attention:  Kenneth Guernsey, Esq.

  	
   

  
	
  Name:

  	
  Scott C. Neely

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  VP, General Counsel & Asst.
  Secty

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
									

 

40Exhibit 10.25

 

NEORX
CORPORATION

KEY EXECUTIVE SEVERANCE AGREEMENT

 

 

This Key Executive Severance Agreement (VP) (this “Agreement”),
dated as of May 11, 2004, is entered into by and between NEORX
CORPORATION, a Washington corporation (as supplemented by Section 10, the
“Company”), and GERALD MCMAHON (the “Executive”).

 

The Board of Directors of the Company (the “Board”)
has determined that it is in the best interests of the Company and its
shareholders to ensure that the Company will have the continued dedication of
the Executive, notwithstanding the fact that the Executive does not have any
form of assurance of job security in his Offer Letter dated April 26, 2004
for employment with the Company to which this Agreement is attached (the “Offer
Letter”).  The Board believes it is
imperative to diminish any distraction of the Executive arising from the
personal uncertainty and insecurity that arises in the absence of any assurance
of job security by providing the Executive with reasonable compensation and benefit
arrangements in the event of termination of the Executive’s employment by the
Company under certain defined circumstances.

 

In order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.

 

1.     Term

 

The initial term of this Agreement (the “Initial Term”) shall be for a period of
four (4) years from the date of this Agreement as first appearing; provided,
however, that this Agreement shall automatically renew for successive
additional two (2) year periods (“Renewal Terms”), unless notice of nonrenewal is given by
either party to the other party at least ninety (90) days prior to the end of
the Initial Term or any Renewal Term, and provided further that if a “Change of
Control” (as defined in the Change of Control Agreement referenced
in Section 16 hereof) occurs during the Term, the Term shall automatically
extend for the duration of the Employment Period (as defined in the Change of
Control Agreement).  The “Term” of this
Agreement shall be the Initial Term plus all Renewal Terms and, if applicable,
the duration of the Employment Period. 
At the end of the Term, this Agreement shall terminate without further
action by either the Company or the Executive.

Employment

 

The Executive and the Company acknowledge that, except as may otherwise
be provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company or successor company is
“at will” and may be terminated by either the Executive or the Company or its successor
companies at any time with or without cause, subject to the termination
payments prescribed herein.

 

3.     Attention and Effort

 

During any period of time that the Executive remains in the employ of
the Company, and excluding any periods of vacation and sick leave to which the
Executive is entitled, the Executive will devote all his productive time,
ability, attention and effort to the business and affairs of the Company and
the discharge of the responsibilities assigned to him hereunder, and will seek to
perform faithfully and efficiently such responsibilities.  It shall not be a violation of this
Agreement for the Executive to hold board of director positions with outside
civic organizations or to spend a reasonable amount of time fulfilling the
duties of those positions, or to engage in other outside activities permitted
by the policies of the Company or as specifically permitted by the Board, so
long as such activities do not interfere with the performance of the
Executive’s duties hereunder.  Service
on a board of directors for a commercial entity will be subject to prior
approval of the Board; however, the Company acknowledges and agrees that
Executive has previously disclosed his appointment to the board of directors of
Trellis Bioscience, Inc.  It is
understood and agreed that activities specifically approved or acquiesced in
during the Term shall not be deemed to interfere with the performance of the
Executive’s responsibilities to the Company.

 

 

4.     Termination

 

During the Term, employment of the Executive may be terminated as
follows, but, in any case, the nondisclosure provisions set forth in
Sections 7.1 and 7.2 hereof and certain obligations under the Invention
Agreement (as defined in Section 7.3 hereof) and the Offer Letter shall survive
the termination of this Agreement and the termination of the Executive’s
employment with the Company:

 

4.1          By the Company or the
Executive

 

At any time during the Term, the Company may terminate the employment
of the Executive with or without Cause (as defined below), and the Executive
may terminate his employment for Good Reason (as defined below) or for any
reason, upon giving Notice of Termination (as defined below).

 

4.2          Automatic Termination

 

This Agreement and the Executive’s employment shall terminate automatically
upon the death or Total Disability of the Executive.  The term “Total Disability” as used
herein shall mean the Executive’s inability (with such accommodation as may be
required by law and which places no undue burden on the Company), as determined
by a physician selected by the Company and acceptable to the Executive, to
perform the Executive’s essential duties for a period or periods aggregating
twelve (12) weeks in any three hundred sixty-five (365) day period as a result
of physical or mental illness, loss of legal capacity or any other cause beyond
the Executive’s control, unless the Executive is granted a leave of absence by
the Board.

 

4.3          Notice of Termination

 

Any termination by the Company or by the Executive during the Term
shall be communicated by Notice of Termination to the other party given in
accordance with Section 9 hereof. 
The term “Notice of Termination” shall
mean a written notice that (a) indicates the specific termination
provision in this Agreement relied upon and (b) to the extent applicable,
sets forth in reasonable detail the facts and circumstances claimed to provide
a basis for termination of the Executive’s employment under the provision so
indicated.  The failure by the Executive
or the Company to set forth in the Notice of Termination any fact or
circumstance that contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in enforcing
the Executive’s or the Company’s rights hereunder.

 

4.4         Date of Termination

 

“Date of Termination” means
(a) if the Executive’s employment is terminated by reason of death, the
last day of the calendar month in which the Executive’s death occurs, (b) if
the Executive’s employment is terminated by reason of Total
Disability, immediately upon a determination by the Company of the
Executive’s Total Disability, and (c) in all other cases, ten (10) days
after the date of personal delivery or mailing of the Notice of
Termination.  The Executive’s employment
and performance of services will continue during such ten (10) day period;
provided, however, that the Company may, upon notice to the Executive and
without reducing the Executive’s compensation during such period, excuse the
Executive from any or all of his duties during such period.

 

5.     Termination Payments

 

In the event of termination of the Executive’s employment during the
Term, all compensation and benefits shall terminate, except as specifically provided
in this Section 5.

 

5.1          Termination by the Company Other Than
for Cause or by the Executive for Good Reason

 

If during the Term the Company terminates the Executive’s employment
other than for Cause or the Executive terminates his employment for Good
Reason, the Executive shall be entitled to:

 

(a)  receive payment of the
following accrued obligations (the “Accrued Obligations”):

 

(i)    the Executive’s then current annual base
salary through the Date of Termination to the extent not theretofore paid; and

 

(ii)   any compensation previously deferred by the
Executive (together with accrued interest or earnings thereon, if any) and any
accrued vacation pay that would be

 

 

payable under the Company’s standard policy, in each case to the extent
not theretofore paid;

 

(b)  for one year after the Date
of Termination or until the Executive qualifies for comparable medical and
dental insurance benefits from another employer, whichever occurs first, the
Company shall pay the Executive’s premiums for health insurance benefit
continuation for the Executive and his family members, if applicable, that the
Company provides to the Executive under the provisions of the federal
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), to the
extent that the Company would have paid such premiums had the Executive
remained employed by the Company (such continued payment is hereinafter
referred to as “COBRA Continuation”);
and

 

(c)  an amount as severance pay
equal to one hundred percent (100%) of the Executive’s then current annual base
salary for the fiscal year in which the Date of Termination occurs, subject to
payment and potential reduction as set forth in Sections 5.5 and 5.9
hereof.

 

5.2          Termination by the Company
for Cause or by the Executive Other Than for Good Reason

 

If during the Term the Executive’s employment shall be terminated by
the Company for Cause or by the Executive for other than Good Reason, this
Agreement shall terminate without further obligation on the part of the Company
to the Executive, other than the Company’s obligation to pay the Executive the
Accrued Obligations to the extent theretofore unpaid.

 

5.3          Expiration of Term

 

In the event the Executive’s employment is not terminated prior to
expiration of the Term, this Agreement shall terminate without further
obligation on the part of the Company to the Executive.

 

5.4          Termination Because
of Death or Total Disability

 

If the Executive’s employment is terminated during the Term by reason
of the Executive’s death or Total Disability, this Agreement shall terminate
automatically without further obligation on the part of the Company to the
Executive or his legal representatives under this Agreement, other than the
Company’s obligation to pay the Executive the Accrued Obligations (which shall
be paid to the Executive’s estate or beneficiary, as applicable in the case of
the Executive’s death) and to provide COBRA Continuation.

 

5.5          Payment Schedule and
Offset for Other Earnings

 

All payments of Accrued Obligations, or any portion thereof payable
pursuant to this Section 5, shall be made to the Executive within ten (10)
working days of the Date of Termination. 
Any severance payments payable to the Executive pursuant to
Section 5.1(c) shall be made to the Executive in the form of salary continuation,
payable at normal payroll intervals during the one year period following the
Date of Termination (“Payment Period”). 
Any severance payments payable to the Executive pursuant to
Section 5.1(c) on or after the date of nine (9) months after the Date of
Termination (“Offset Period”)
shall be subject to offset for other earnings received by the Executive as
follows:

 

(a)  The Executive shall have no
affirmative duty to seek other employment or otherwise mitigate lost earnings
during any part of the Payment Period.

 

(b)  The Executive shall disclose
to the Company any earnings received (or that the Executive had the right to
receive) from employment, consulting or performance of other personal services
during the Offset Period, and the source(s) of such earnings.

 

(c)  The Company, in each payroll
period during the Offset Period that a severance payment is due, shall have the
right to offset on a dollar-for-dollar basis all such earnings that the
Executive received during that payroll period.

 

5.6          Cause

 

For purposes of this Agreement, “Cause” means cause
given by the Executive to the Company and shall include, without limitation,
the occurrence of one or more of the following events:

 

 

(a)  a clear refusal to carry out
any material lawful duties of the Executive or any directions of the Board
reasonably consistent with those duties;

 

(b)  persistent failure to carry
out any lawful duties of the Executive or any directions of the Board
reasonably consistent with those duties; provided, however, that the Executive
has been given reasonable notice and opportunity to correct any such failure;

 

(c)  violation by the Executive of
a state or federal criminal law involving the commission of a crime against the
Company or any other criminal act involving moral turpitude;

 

(d)  current abuse by the
Executive of alcohol or controlled substances; deception, fraud,
misrepresentation or dishonesty by the Executive; or any incident materially
compromising the Executive’s reputation or ability to represent the Company
with investors, customers or the public; or

 

(e)  any other material violation
of any provision of this Agreement by the Executive, subject to the notice and
opportunity to cure requirements of Section 8 hereof.

 

5.7          Good Reason

 

For purposes of this Agreement, “Good Reason”
means:

 

(a)  reduction of the Executive’s
annual base salary to a level below the level in effect on the date of this
Agreement, regardless of any change in the Executive’s duties or
responsibilities;

 

(b)  the assignment to the
Executive of any duties materially inconsistent with the Executive’s position,
authority, duties or responsibilities or any other action by the Company the
results in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated and inadvertent action
not taken in bad faith and that is remedied by the Company promptly after
receipt of notice thereof given by the Executive;

 

(c)  the Company’s requiring the
Executive to be based at any office or location more than thirty (30) miles
from the Company’s current location in Seattle, Washington or from the city of
San Francisco, California;

 

(d)  any failure by the Company to
comply with and satisfy Section 10 hereof, provided, however, that the
Company’s successor has received at least ten (10) days’ prior written notice
from the Company or the Executive of the requirements of Section 10
hereof; or

 

(e)  any other material violation
of any provision of this Agreement by the Company, subject to the notice and
opportunity to cure requirements of Section 8 hereof.

 

5.8          General  Release of Claims

 

As a condition to the payment contemplated by Section 5.1(c), the
Executive shall execute a general release of claims against the Company in a
form satisfactory to the Company in its sole discretion.  By way of example and not limitation, the
general release of claims will include any claims for wages, bonuses,
employment benefits, or damages of any kind whatsoever, arising out of any
contracts, express or implied, any covenant of good faith and fair dealing,
express or implied, any theory of wrongful discharge, any legal restriction on
the Company’s right to terminate employment, or any federal, state or other
governmental statute or ordinance, including, without limitation, Title VII of
the Civil Rights Act of 1964, the federal Age Discrimination in Employment Act,
the Americans with Disabilities Act, the Family and Medical Leave Act, the
Washington Law Against Discrimination or similar California law, or any other
legal limitation on the employment relationship.

 

5.9          Dispute Regarding Existence of Good
Reason for Termination

 

In the event the Company disputes whether Good Reason existed for the
Executive to terminate his employment for Good Reason, the Company shall pay
salary continuation as provided in Section 5.5 until the earliest of
(i) settlement by the parties, (ii) determination by arbitration in
accordance with Section 14 hereof that Good Reason did not exist, and
(iii) completion of the payments required by Section 5.5 and
Section 5.1(c) hereof.

 

 

If, pursuant to Section 14
hereof, an arbitrator determines that Good Reason did not exist, the arbitrator
shall also decide whether the Executive had a reasonable, good-faith basis for
claiming that there was Good Reason to terminate.  If the arbitrator determines that there was not such a basis, the
Executive shall be obligated to repay promptly to the Company the salary
continuation payments; if the arbitrator determines that there was such a
basis, the Executive shall not be obligated to repay the salary continuation.

 

6.     Representations, Warranties and Other Conditions

 

In order to induce the Company to enter into this Agreement, the
Executive represents and warrants to the Company as follows:

 

6.1          Health

 

The Executive is in good health and knows of no physical or mental
disability that, with any accommodation that may be required by law and that
places no undue burden on the Company, would prevent him from fulfilling his
obligations hereunder.  The Executive
agrees, if the Company requests, to submit to reasonable periodic medical
examinations by a physician or physicians designated, paid for and arranged by
the Company.  The Executive agrees that
the examination’s medical report shall be provided to the Company.

 

6.2          No Violation of Other Agreements

 

The Executive represents that neither the execution nor the performance
of this Agreement by the Executive will violate or conflict in any way with any
other agreement by which the Executive may be bound.

 

7.     Nondisclosure; Return of Materials

 

7.1          Nondisclosure

 

Except as required by his employment with the Company, the Executive
will not, at any time during the term of employment by the Company, or at any
time thereafter, directly, indirectly or otherwise, use, communicate, disclose,
disseminate, lecture upon or publish articles relating to any confidential,
proprietary or trade secret information without the prior written consent of
the Company.  The Executive understands
that the Company will be relying on this covenant in continuing the Executive’s
employment, paying his compensation, granting him any promotions or raises, or
entrusting him with any information that helps the Company compete with others.

 

7.2          Return of Materials

 

All documents, records, notebooks, notes, memoranda, drawings or other
documents made or compiled by the Executive at any time while employed by the
Company, or in his possession, including any and all copies thereof, shall be
the property of the Company and shall be held by the Executive in trust and
solely for the benefit of the Company, and shall be delivered to the Company by
the Executive upon termination of employment or at any other time upon request
by the Company.

 

7.3          Invention and Proprietary Information
Agreement

 

The parties have executed concurrently herewith the NeoRx Corporation
Invention and Proprietary Information Agreement, in the form attached as
Exhibit C to the Offer Letter (“Invention Agreement”) and acknowledge that their
respective obligations thereunder shall apply to the entire period of Executive’s
employment with the Company and shall survive the execution of this Agreement,
the termination of this Agreement and the termination of the Executive’s
employment with the Company.

 

8.     Notice  and Cure of Breach

 

Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than clause (a), (b), (c) or (d) of
Section 5.6 hereof, before such action is taken, the party asserting the
breach of this Agreement shall give the other party at least twenty (20) days’
prior written notice of the existence and the nature of such breach before
taking further action hereunder and shall give the party purportedly in breach
of this Agreement the opportunity to correct such breach during the twenty (20)
day period.

 

 

9.     Form of Notice

 

Every notice required by the terms of this Agreement shall be given in
writing by serving the same upon the party to whom it was addressed personally
or by registered or certified mail, return receipt requested, at the address
set forth below or at such other address as may hereafter be designated by
notice given in compliance with the terms hereof:

 

	
  If
  to the Executive:

  	
   

  	
  Gerald
  McMahon

  
	
   

  	
   

  	
  522 12th Avenue

  
	
   

  	
   

  	
  San Francisco, CA 
  94118

  
	
   

  	
   

  	
   

  
	
  If to the Company:

  	
   

  	
  NeoRx Corporation

  
	
   

  	
   

  	
  300 Elliott Avenue West

  
	
   

  	
   

  	
  Seattle, Washington
  98119

  
	
   

  	
   

  	
  Attn:  Corporate Secretary

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Perkins Coie LLP

  
	
   

  	
   

  	
  1201 Third Avenue, 40th
  Floor

  
	
   

  	
   

  	
  Seattle, Washington
  98101-3099

  
	
   

  	
   

  	
  Attn:  James R. Lisbakken

  

 

Except as set forth in Section 4.4 hereof, if notice is mailed,
such notice shall be effective upon mailing.

 

10.   Assignment

 

This Agreement is personal to the Executive and shall not be assignable
by the Executive.

 

The Company shall assign to and require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place.  As used in this Agreement,
the “Company” shall mean NeoRx Corporation and any affiliated
company or successor to its business and/or assets as aforesaid that assumes
and agrees to perform this Agreement by contract, operation of law or
otherwise; and as long as such successor assumes and agrees to perform this
Agreement, the termination of the Executive’s employment by one such entity and
the immediate hiring and continuation of the Executive’s employment by the
succeeding entity shall not be deemed to constitute a termination or trigger
any severance obligation under this Agreement. 
All the terms and provisions of this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.

 

11.   Waivers

 

No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a
waiver thereof.  The express waiver by a
party hereto of any right, title, interest or remedy in a particular instance
or circumstance shall not constitute a waiver thereof in any other instance or
circumstance.  All rights and remedies
shall be cumulative and not exclusive of any other rights or remedies.

 

12.   Amendments in Writing

 

No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, or consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by the
Company and the Executive, and each such amendment, modification, waiver,
termination or discharge shall be effective only in the specific instance and
for the specific purpose for which given. 
No provision of this Agreement shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or any other
matter not set forth in an agreement in writing and signed by the Company and
the Executive.

 

 

13.   Applicable Law and Venue

 

This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the State of Washington, without
regard to any rules governing conflicts of laws.  Executive irrevocably consents to the jurisdiction and venue of
the state and federal courts located in King County, Washington, and agrees not
to bring any action, or seek to remove or transfer any action, relating to this
Agreement in or to any other court, other than a state or federal court located
in King County, Washington.

 

14.   Arbitration; Attorneys’ Fees

 

Except in connection with enforcing Section 7 hereof, for which
legal and equitable remedies may be sought in a court of law, any dispute
arising under this Agreement shall be subject to arbitration.  The arbitration proceeding shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the “AAA Rules”) then
in effect, conducted by one (1) arbitrator either mutually agreed upon or
selected in accordance with the AAA Rules. 
The arbitration shall be conducted in King County, Washington, under the
jurisdiction of the Seattle office of the American Arbitration
Association.  The arbitrator shall have
authority only to interpret and apply the provisions of this Agreement, and
shall have no authority to add to, subtract from or otherwise modify the terms
of this Agreement.  Any demand for
arbitration must be made within sixty (60) days of the event(s) giving rise to
the claim that this Agreement has been breached.  The arbitrator’s decision shall be final and binding, and each
party agrees to be bound by the arbitrator’s award, subject only to an appeal
therefrom in accordance with the laws of the State of Washington.  Either party may obtain judgment upon the
arbitrator’s award in the Superior Court of King County, Washington.

If it becomes necessary to pursue or defend any legal proceeding,
whether in arbitration or court, in order to resolve a dispute arising under
this Agreement, the prevailing party in any such proceeding shall be entitled
to recover its reasonable costs and attorneys’ fees.

 

15.   Severability

 

If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, including, without
limitation, the duration of such provision, its geographical scope or the
extent of the activities prohibited or required by it, then, to the full extent
permitted by law, (a) all other provisions hereof shall remain in full
force and effect in such jurisdiction and shall be liberally construed in order
to carry out the intent of the parties hereto as nearly as may be possible,
(b) such invalidity, illegality or unenforceability shall not affect the
validity, legality or enforceability of any other provision hereof, and
(c) any court or arbitrator having jurisdiction thereover shall have the
power to reform such provision to the extent necessary for such provision to be
enforceable under applicable law.

 

16.   Coordination with Change of Control Agreement

 

The Company and the Executive are contemporaneously with this Agreement
entering into a Change of Control Agreement (the “Change
of Control Agreement”), which agreement provides for certain
forms of severance and benefit payments in the event of termination of
Executive’s employment under certain defined circumstances.  This Agreement is in addition to the Change
of Control Agreement, providing certain assurances to the Executive in
circumstances that the Change of Control Agreement does not cover, and in no
way supersedes or nullifies the Change of Control Agreement.  Nevertheless, it is possible that a
termination of employment by the Company or by the Executive may fall within
the scope of both agreements.  In such
event, payments made to the Executive under Section 5.1 hereof shall be
coordinated with payments made to the Executive under Section 8.1 of the
Change of Control Agreement as follows:

 

(a)            Accrued Obligations
under this Agreement need not be paid if paid under the Change of Control
Agreement;

(b)           COBRA Continuation
under this Agreement need not be provided if provided under the Change of
Control Agreement; and

(c)            The severance
payment required under Section 5.1(c) hereof need not be paid if a severance
payment is made under Section 8.1(d) of the Change of Control Agreement.

 

17.   Excess  Parachute Payments

 

Unless provided by Section 8.8 of the Change of Control Agreement,
if any portion of the payments or benefits under this Agreement or any other
agreement or benefit plan of the Company (including stock options)

 

 

would be characterized as an
“excess parachute payment” to the Executive under Section 280G of the
Internal Revenue Code of 1986, as amended (the “Code”),
the Executive shall be paid any excise tax that the Executive owes under
Section 4999 of the Code as a result of such characterization, such excise
tax to be paid to the Executive at least ten (10) days prior to the date that
he is obligated to make the excise tax payment.  The determination of whether and to what extent any payments or
benefits would be “excess parachute payments” and the date by which any excise
tax shall be due, shall be determined in writing by recognized tax counsel
selected by the Company and reasonably acceptable to the Executive.

 

18.   Entire Agreement

 

Except as described in Section 16 hereof, this Agreement
constitutes the entire agreement between the Company and the Executive with
respect to the subject matter hereof, and all prior or contemporaneous oral or
written communications, understandings or agreements between the Company and
the Executive with respect to such subject matter are hereby superseded and
nullified in their entireties, except that the Invention Agreement between the
Executive and the Company, and the Offer Letter to which it and this Agreement
are Exhibits, shall continue in full force and effect to the extent not
superseded by Sections 7.1 and 7.2 hereof.

 

19.   Withholding

 

The Company may withhold from any amounts payable under this Agreement
such federal,
state or local taxes as shall be required to be withheld pursuant to any
applicable law or regulation.

 

20.   Counterparts

 

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

IN WITNESS
WHEREOF, the parties have executed and entered into this Agreement effective on
the date first set forth above.

 

 

	
   

  	
  NEORX
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Jack L. Bowman

  	
   

  
	
   

  	
   

  	
  Name: Jack L. Bowman

  
	
   

  	
   

  	
  Its: Executive Chairman

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gerald McMahon

  	
   

  
	
   

  	
   

  	
  Name: Gerald McMahon

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