Document:

Exhibit
10.25

 

FOURTH LEASE AMENDMENT AND
ASSIGNMENT AGREEMENT

 

This Fourth Lease Amendment and Assignment Agreement
(the “Agreement”), dated for references purposes as of December 9, 2004,
is entered into by and among TSI, L.P., a California limited partnership (“TSI”
or “Landlord”); Biogen Idec Inc., a Delaware corporation formerly known as IDEC
Pharmaceuticals Corporation (“BI”); and Tanox West, Inc., a Delaware
corporation (“Tanox West”), with reference to the following facts:

 

A.            The predecessor of TSI and BI entered into
that certain Lease dated July 9, 1992 (the “Initial Lease”) for the
premises located at 11011 Torreyana Road, San Diego, California  92121 (the “Demised Premises”).  A copy of the Initial Lease is attached
hereto as Exhibit “A-1.”

 

B.            The Initial Lease has been supplemented and
amended from time to time by the following documents:

 

i.              First Amendment to Lease, dated November 9,
1992, a copy of which is attached hereto as Exhibit “A-2”;

 

ii.             Lease Exhibit, dated December 22, 1994,
a copy of which is attached hereto as Exhibit
“A-3”;

 

iii.            Lease Amendment, dated December 30,
1994, a copy of which is attached hereto as

Exhibit “A-4”;

 

iv.            Third Lease Amendment Agreement, dated April 22,
2004, a copy of which is attached hereto as Exhibit “A-5”;

 

v.             Confirmation of Lease Commencement Date,
dated September 22, 1993, a copy of which is attached hereto as Exhibit “A-6”;

 

vi.            Letter agreement re BFP/Cell Bank Remodel,
dated October 16, 2001, a copy of which is attached hereto as Exhibit “A-7”.

 

The
Initial Lease and the above documents and this Agreement are collectively
referred to as the “Lease,” all of which are applicable to the Demised
Premises.

 

C.            TSI is the owner of the Demised Premises and
the Landlord under the Lease, and BI is the Tenant for the Demised Premises
under the Lease.

 

D.            The parties intend that, subject to all the
terms and provisions of this Agreement, as of the Effective Date (as defined
below):  (i) the Lease shall be modified
and amended as set forth in this Agreement; and (ii) the Assignment (as defined
below) of the Lease between BI and Tanox West shall become effective; and (iii)
TSI’s consent to the Assignment, as the owner and Landlord of the Demised
Premises, shall become effective.

 

E.             Terms which are not expressly defined in this
Agreement shall have the same meaning as defined in the Lease.

 

 

WHEREFORE, the parties hereby mutually agree to the
matters set forth above and as follows:

 

1.             Extension of Current Lease Term.  The
Term Expiration Date as set forth in Section 2.1.6(b) of the Lease is
hereby amended to be September 30, 2011.

 

2.             Options to Extend the Term of the Lease. 
Pursuant to Section 3.3 of the Lease, Tenant has two options to
extend the term of the Lease for a period of five years each.  As a result of the extension of the Term
Expiration Date set forth in Section 1 hereof, the first extension option
shall be for the period from October 1, 2011, through September 30,
2016; and the second term extension option shall be for the period from October 1,
2016, through September 30, 2021. 
If Tenant elects to exercise one or both of the extension options, it
shall do so in accordance with Section 3.3 of the Lease.  In addition, Tenant may exercise such options
if and only if as of the date Tenant exercises such option Tenant meets the
Credit Test (as defined in Section 6 below).

 

3.             Basic Annual Rent. 
Notwithstanding any provision of the Lease to the contrary, the Basic
Annual Rent payable for the Demised Premises for the lease year beginning October 1,
2004, is $3,843,840, which is equivalent to $320,320 per month; and said Basic
Annual Rent shall be automatically increased by 4% per year over the Basic
Annual Rent for the prior year, commencing as of October 1, 2005, and on
each October 1 thereafter during the term of the Lease and any extensions
of the term of the Lease.  Accordingly,
notwithstanding any provision of the Lease to the contrary, the scheduled
monthly installment of Basic Annual Rent for the twelve calendar month period
commencing as of October 1 of each year of the term of the Lease is as
follows:

 

	
  Starting October 1,

  in the Year:

  	
   

  	
  Monthly Installment of Basic
  Annual Rent

  	
   

  
	
   

  	
   

  	
  (rounded to $1.00)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2004

  	
   

  	
  $

  	
  320,320

  	
   

  
	
  2005

  	
   

  	
  $

  	
  333,133

  	
   

  
	
  2006

  	
   

  	
  $

  	
  346,458

  	
   

  
	
  2007

  	
   

  	
  $

  	
  360,316

  	
   

  
	
  2008

  	
   

  	
  $

  	
  374,729

  	
   

  
	
  2009

  	
   

  	
  $

  	
  389,718

  	
   

  
	
  2010

  	
   

  	
  $

  	
  405,307

  	
   

  
	
  2011

  	
   

  	
  $

  	
  421,519

  	
   

  
	
  2012

  	
   

  	
  $

  	
  438,380

  	
   

  
	
  2013

  	
   

  	
  $

  	
  455,915

  	
   

  
	
  2014

  	
   

  	
  $

  	
  474,152

  	
   

  
	
  2015

  	
   

  	
  $

  	
  493,118

  	
   

  
	
  2016

  	
   

  	
  $

  	
  512,843

  	
   

  
	
  2017

  	
   

  	
  $

  	
  533,356

  	
   

  
	
  2018

  	
   

  	
  $

  	
  554,690

  	
   

  
	
  2019

  	
   

  	
  $

  	
  576,878

  	
   

  
	
  2020

  	
   

  	
  $

  	
  599,953

  	
   

  

 

 

Section 5.1 of the Lease is hereby amended to
reflect the new rent schedule as set forth above; and the provisions of
Sections 3.3.1 (other than the last sentence thereof), 6.1 and 6.2 and the
second sentence of Section 3.3.3 of the Lease are hereby deleted.  There shall be no “Fair Rental Value”
adjustments to the Basic Annual Rent upon exercise of either of the extension
options referred to above.

 

4.             No Tenant Improvement Allowance. 
Sections  3.3.4 through 3.3.7 of
the Lease are hereby deleted and Landlord shall have no obligation to provide
any tenant improvement allowance upon exercise of either of extension options
referred to above.

 

5.             Fees Payable by TSI.  Section 3.3.8
of the Lease obligates Landlord to pay to Tenant a certain amounts in
connection with extensions of the term of the Lease under certain
circumstances.  The provisions in Section 3.3.8
of the Lease are hereby amended to provide as follows:

 

a.             Conditional upon: (i)  BI delivering to Landlord by the Effective
Date copies of the following materials (to the extent owned by BI and
transferable, and with all proprietary information redacted) utilized by, or on
behalf of, BI to market the Demised Premises for lease, including without
limitation: all marketing brochures; copies of all html and other computer files
related to the website; the list of consultants used to market the Premises;
and the list of all parties contacted, and all information derived about such
tenant prospects, in response to inquiries; and (ii) Tenant not being in
Default, and there not then existing a condition which with the giving of
notice or the passage of time or both would constitute a Default, under the
Lease as of the Effective Date, and the Lease then being in full force and
effect, Landlord hereby agrees to pay to BI a lease extension fee in the cash
sum of $200,000, applicable to the three year extension specified in Section 1
hereof, payable on the Effective Date. 
BI shall have a perpetual royalty-free non-exclusive license to use
copies of such materials retained by BI.

 

b.             If the first option to extend the term is
properly exercised, and Tenant is not in Default, and there is not then
existing a condition which with the giving of notice or the passage of time or
both would constitute a Default, under the Lease as of October 1, 2011,
then Landlord shall pay a leasing extension fee to Tanox West in the sum of
$1,369,850, payable on October 1, 2011.

 

c.             If the second option to extend the term of
the Lease is timely and properly exercised, and Tenant is not in Default, and
there is not then existing a condition which with the giving of notice or the
passage of time or both would constitute a Default, under the Lease as of October 1,
2016, then Landlord shall pay a leasing extension fee to Tanox West in the sum
of $1,666,632, payable on October 1, 2016.

 

Any of the foregoing to the contrary
notwithstanding, in the event that as of any of the dates set forth above for
the payment of a leasing extension fee there exists a Default or a condition
which with the giving of notice or the passage of time or both would constitute
a Default under the Lease, the extension fee which otherwise would have been
payable on such date shall nevertheless be payable ninety (90) days later
provided that upon such later date the Lease is in full force and effect and
there does not then exist a Default, or a condition which with the giving of
notice or the passing of time or both would constitute a Default, under the
Lease.  If such conditions are not fully
and timely satisfied as of such later date, such leasing extension fee shall no
longer be due and payable.

 

 

6.             Additional Security Deposit and/or Letter of
Credit.  Landlord and BI confirm that Landlord
currently holds a Security Deposit in the amount of $192,500 (exclusive of
accrued interest earned thereon).  At any
time throughout the term of the Lease (including any extension thereof) that
Tenant does not satisfy the “Credit Test” defined below, Tenant shall, within
five (5) business days of Tenant’s failure to meet the Credit Test, either:

 

(i)            deposit with Landlord a cash sum equal to six
(6) monthly installments of then current Rent (the “Additional Cash Security
Deposit”) to be held by Landlord as an additional Security Deposit in
accordance with and subject to, except as expressly set forth to the contrary
herein, Section 5.4 of the Lease; provided, however, the Additional Cash
Security Deposit shall be in addition to any Security Deposit required under Section 5.4
of the Lease and in the event that Landlord draws upon the Additional Cash
Security Deposit for any reason, Tenant shall restore the same to the full
amount required hereunder within five (5) business days of written notice from
Landlord of such draw and demand to restore; or

 

(ii)           furnish to Landlord a letter of credit in substantially the form
attached hereto as Exhibit “B”
and on the terms and conditions set forth herein (the “Letter of Credit”) in an
amount equal to six (6) monthly installments of then current Rent, which Letter
of Credit Landlord may draw upon from time to time upon the occurrence of any
Default by Tenant under the Lease up to the amount necessary to compensate
Landlord for any and all damages actually incurred by Landlord as a result of
such Default.  In the event that Landlord
draws upon the Letter of Credit, Tenant shall restore the same to the full
amount required hereunder  (or shall
deposit with Landlord, to be held as part of the Additional Cash Security
Deposit, cash in the amount necessary to restore the Letter of Credit to the
full amount required hereunder) within five (5) business days of written notice
from Landlord of such draw and demand to restore.

 

For purposes of this Section, Tenant shall be deemed
to satisfy the Credit Test if Tanox West or Tanox. Inc., a Delaware corporation
(“Guarantor”) (i) maintains
unencumbered cash and/or liquid investments (collectively, “Cash and Liquid
Investments”) balances of at least $35,000,000 which are available without
restriction for Tenant’s current operating expenses (the “Cash Test”), or (ii)
maintains an investment-grade credit rating from Moody’s (Baa or better), or
Standard & Poors (BBB or better) (the “Rating Test”).  For purposes of this Agreement, “liquid
investments” shall mean and include only: (a) securities issued or fully
guaranteed or insured by the United States government or any agency thereof;
(b) certificates of deposit, eurodollar time deposits, overnight bank deposits
and bankers’ acceptances of any commercial bank organized under the laws of the
United States, any state thereof, the District of Columbia, any foreign bank,
or its branches or agencies (fully protected against currency fluctuations)
which are rated at least “A-l” by Standard & Poor’s Rating Corporation, a
division of The McGraw-Hill Companies (“SP”) or “P-l” by Moody’s Investors
Service (“Moody’s”); (c) commercial paper, investment grade corporate bonds, or
asset backed securities of an issuer rated at least “A-1”  by SP or “P-1” by Moody’s; and (d) shares of
any money market fund that (i) has at least 95 % of its assets invested continuously
in the types of investments referred to in clauses (a) through (c) above, (ii)
has net assets of not less than US $500,000,000 and (iii) is rated at least “A-1”
by SP or “P-1” by Moody’s; provided, however, that the maturities of all
obligations of the type specified in clauses (a) through (c) above shall not
exceed three (3) years.  For the
avoidance of doubt, all references herein to Tenant’s obligation to satisfy the
Rating Test and/or the Cash Test shall be deemed to refer to the obligation of
Tanox West or Guarantor to satisfy such obligations, and such obligations shall
be deemed satisfied if satisfied by either Tanox West or Guarantor.

 

 

If Tenant is meeting either the Rating Test or the
Cash Test, then Tenant shall be deemed to be meeting the “Credit Test.”  Tenant will provide written notice to
Landlord within five (5) business days if at any time Tenant is not satisfying
the Credit Test.  In addition, at any
time that Tenant is not satisfying the Credit Test, Tenant shall furnish to Landlord
within five (5) business days of the end of each calendar month, compliance
certificates from the chief financial officer of each of Tanox West and
Guarantor in form and substance reasonably satisfactory to Landlord setting
forth the amount of unencumbered Cash and Liquid Investments that Tanox West
and Guarantor each have on hand as of the end of the month then ended which are
available without restriction for Tenant’s current operating expenses.

 

If at any time Tenant has provided to Landlord the
Additional Cash Security Deposit or the Letter of Credit, and Tenant thereafter
continuously meets the Credit Test for a period of twelve (12) consecutive
calendar months, then Landlord shall return the Additional Cash Security
Deposit or the Letter of Credit (as the case may be), or the portion thereof
remaining, to Tenant.  In the event that
Tenant thereafter again does not meet the Credit Test, Tenant shall be required
to deposit with Landlord either the Additional Cash Security Deposit or the
Letter of Credit in accordance with this Section 6.

 

The Letter of Credit shall be a negotiable,
transferable, sight-demand, unconditional, irrevocable letter of credit with a
term of one year.  The Letter of Credit
may be drawn by Landlord upon the occurrence of a Default by Tenant under the
Lease and shall be applied by Landlord in its unfettered discretion in the same
manner that it can apply a cash security deposit.  The Letter of Credit shall be issued by a
bank with a branch in Los Angeles, Orange or San Diego counties as reasonably
approved by Landlord; provided, however, in the event that at any time Landlord
in good faith believes that there has been a material adverse change in the
financial condition of the issuer of the Letter of Credit such that Landlord in
good faith believes there is, or may in the future be, a risk of nonpayment on
such Letter of Credit, Landlord may require that Tenant replace, or cause to be
replaced, within thirty (30) days of written demand, the Letter of Credit with
a new Letter of Credit on the same terms and provisions issued by a bank
reasonably approved by Landlord.  If a
new Letter of Credit from a bank reasonably approved by Landlord is not so
renewed and delivered to Landlord within said thirty (30) days period, Landlord
shall have the right to draw the entire amount of the Letter of Credit and to
thereafter hold the proceeds therefrom as a Security Deposit under Section 5.4
of the Lease.

 

The Letter of Credit shall indicate that it is
transferable in its entirety by Landlord as beneficiary, to any successor of
Landlord under the Lease, or to Landlord’s lender.  Any such transferee or assignee will be
subject to the terms of the Lease and shall agree in writing to hold the Letter
of Credit in accordance with the terms of this Agreement.  The Letter of Credit shall provide that upon
receiving written notice of transfer, and upon presentation to the issuing bank
of the original Letter of Credit, the issuer or confirming bank will reissue
the Letter of Credit naming such successor in interest as the beneficiary
thereunder.

 

The Letter of Credit shall be renewed (and increased
to an amount equal to the next six (6) months installments of Rent as of the
date of required renewal) and delivered to Landlord at least thirty (30) days
prior to its expiration.  If the Letter
of Credit is not so renewed and delivered to Landlord at least thirty (30) days
prior to expiration, Landlord shall have the right to draw the entire amount of
the Letter of Credit and to thereafter hold the proceeds therefrom as a
Security Deposit under Section 5.4 of the Lease.  If for any reason the Letter of Credit
expires or Landlord is required to draw upon the proceeds thereof in order to
avoid such expiration, Tenant

 

 

may
provide a new Letter of Credit pursuant to the terms hereof, and shall, as a
result thereof, pay to Landlord its costs and expenses reasonably incurred in
connection therewith, including reasonable attorneys’ fees.  Such replacement shall be accomplished
through an escrow or other method reasonably satisfactory to the parties
pursuant to which any cash sums then held by Landlord are concurrently
exchanged for the new Letter of Credit.

 

Any other provision of the Lease to the contrary
notwithstanding, the failure by Tenant to timely and fully observe the terms
and conditions of this Section 6 shall be a Default under the Lease.  Without limiting the foregoing, the notice
and cure provisions of Section 22.4(b) of the Lease shall not be
applicable to a Default arising under this Section.

 

The second sentence of Section 5.4 of the Lease
is hereby deleted.  The third sentence of
Section 5.4 of the Lease is hereby amended to provide as follows:  “At any time that the quarterly and annual
financial statements of Tenant and any guarantor of Tenant’s obligations under
this Lease are not filed with the SEC and publicly available on each such
company’s or the SEC’s website (it being understood that such financial
statements shall be deemed to be publicly-available if the consolidated
financial statements of Tenant and such guarantor are available to the general
public on the SEC’s or either such company’s website), Tenant shall deliver to
Landlord a copy of Tenant’s and such guarantor’s annual audited financial
statements and Tenant’s and such guarantor’s quarterly unaudited financial
statements within ten (10) days after said financial statements are prepared.”

 

7.             No Defaults.

 

a.             BI acknowledges and agrees that, to the best
of its knowledge after due and diligent inquiry, as of the date hereof  (i) there exists no breach, default, or event
or condition which, with the giving of notice or the passage of time or both,
would constitute a default by Landlord under the Lease, and (ii) there are no
existing claims, defenses or offsets against Rent due or to become due under
the Lease.

 

b.             Landlord acknowledges and agrees that, to
Landlord’s current knowledge, as of the date hereof there exists no breach,
default, or event or condition which, with the giving of notice or the passage
of time or both, would constitute a Default under the Lease other than:  (i) certain items of repair and maintenance
to be completed by Tenant listed in the attached Exhibit “C” (the “Deferred Maintenance Items”); (ii) BI’s failure to timely provide
notice to Landlord (the “Required Environmental Notices”) under Section 37
of the Lease of certain actual or potential violations of said Section 37,
as set forth in those certain letters from BI to Landlord dated November 17,
2004, and November 29, 2004, and the attachments referred to therein
(collectively, the “November 2004 Notices”) and (iii) any continuing
violations of Section 37 of the Lease associated with the matters
enumerated in the November 2004 Notices (collectively, the “Specific
Environmental Matters”).  Landlord hereby
agrees (A)  to forebear from declaring a
Default with respect to the Deferred Maintenance Items until March 31,
2005, and (B) to waive any Default under the Lease arising from the failure to
timely provide the Required Environmental Notices with respect to the Specific
Environmental Matters.  Such forbearance
and waiver shall not extend to (a) any requirements under the Lease regarding
Tenant’s obligation to cure any violation of Section 37 of the Lease
relating to the Specific Environmental Matters, or (b) Tenant’s obligation to
comply with all other provisions of Article 37 of the Lease; provided,
however, Landlord and BI agree that BI shall be personally responsible for the
administrative resolution of those certain Specific Environmental Matters as
follows: (X) BI’s

 

 

failure
to satisfy and discharge that certain Administrative Notice and Order received
by BI from the City of San Diego on or about March 4, 2004, relating to
discharges of chloroform and ammonia during the calendar year 2002, and (Y) BI’s
open issues with the California Department of Toxic Substance Control with
respect to the onsite release of five gallons of Sentol on June 2, 1999,
and the onsite release of one and a half gallons of hydraulic fluid on October 26,
1999 (collectively, the “BI Section 37 Matters”).  Tanox West shall have no responsibility with
respect to curing the BI Section 37 Matters.  Such waiver shall not extend to any other
actual or potential violations under Section 37 of the Lease, including
but not limited to any Specific Environmental Matters other than the BI Section 37
Matters.  BI represents, warrants and
agrees that (x) there are no currently existing violations, and there are no
uncured violations, of Section 37 of the Lease other than with respect to
the BI Section 37 Matters, and (y) BI will diligently prosecute curing,
and shall cure as soon as reasonably possible, the BI Section 37 Matters,
including obtaining the closure of the governmental records with respect
thereto.  BI will provide evidence of
such cures to Landlord and Tanox West, to their satisfaction in accordance with
the requirements of Section 37 of the Lease.  BI shall indemnify, defend and hold harmless
Landlord and Tanox West from any failure to cure the BI Section 37
Matters.  Except for the foregoing, and without
expanding the definition of Landlord’s current knowledge, such acknowledgement
and agreement shall not be deemed to include any reference to any Default
arising with respect to Section 37 of the Lease or otherwise in connection
with Hazardous Materials.  As used
herein, Landlord’s “current knowledge” shall mean the current, actual knowledge
of Ivan Gayler and David Winkler as of the date of this Agreement, without duty
of inquiry or investigation, and without constructive or imputed knowledge.

 

8.             Insurance.  Section 19.2 of the
Lease, specifies the maximum insurance deductible for the insurance to be
maintained by tenant is at $5,000.  The
parties hereby agree that said deductible amount may be increased to an
aggregate of $150,000.

 

9.             Vivarium Modifications. 
Landlord hereby consents to the alteration of the existing vivarium
portion of the Premises into a fully improved cGMP storage facility and/or
general warehouse; provided, however, that such alterations shall be completed
in accordance with the Lease, including but not limited to the requirement that
Tenant obtain Landlord’s consent to the plans therefor.  Tenant shall use reasonable efforts to retain
the existing utilities, drains and other infrastructure to support the
reinstallation of a vivarium. 
Notwithstanding any other provision of the Lease to the contrary, Tenant
shall not be required to remove or restore such alterations at the end of the
term of the Lease.  Landlord’s consent
herein is not a consent to any other improvement or alteration work to be
performed in the Premises.

 

10.           Documents,
Modifications, and Closure.

 

a.             Documents

 

Upon Landlord’s request, if Tenant has less than 12
months of Cash and Liquid Investments based on the then current burn rate
(negative cash flow); if there then exists a Default or a condition which with
the giving of notice or the passing of time or both would constitute a Default;
or at any time during the last two (2) years of the term of the Lease and, in
the case of clause (ii) below, during the two (2) years after the termination
of the Lease (provided that Landlord agrees to pay storage/handling costs as
set forth below); Tenant shall provide Landlord:

 

 

(i)            reasonable access to and delivery to Landlord
of all as-built drawings, manuals (provided that, as to manuals, delivery shall
be at the end of the Lease term), SOP’s, change control documents, and other
documents and materials required under the Lease, with updates through the
termination date of the Lease, required to operate and maintain: the utility
systems in the Demised Premises, and equipment which is to remain in the
Demised Premises under the terms of the Lease after the termination date of the
Lease; and

 

(ii)           upon payment by Landlord to Tenant of a cash purchase price of One
Million Five Hundred Thousand Dollars ($1,500,000), plus four percent (4%) per
annum from January 1, 2005, copies or, at Tenant’s election, originals of
the Validation Documents (as defined below). 
Landlord may elect to acquire the Validation Documents and pay the purchase
price at any time during the last two years of the term of the Lease and for up
to two years thereafter, provided that, Landlord agrees to pay all storage and
handling costs associated with the Validation Documents for any period after
the end of the Lease term, and provided further that, in no event shall Tenant
be required to deliver any such Validation Documents prior to the end of the
Lease term (but if Landlord has elected to purchase the Validation Documents
and has paid for the same, Landlord shall be provided reasonable access to, and
the unlimited right to copy, the same). 
Prior to the payment referred to above, in connection with any efforts
by Landlord to relet the Demised Premises, and subject to the execution of
appropriate confidentiality agreements, Tenant agrees to provide Landlord and
potential tenants with a then current list of the Validation Documents (similar
to that set forth in Exhibit “D”
hereto) and limited access to a sampling of such documents to the extent
reasonably necessary for the Landlord or potential tenant to evaluate the
benefit of acquiring such documents in connection with such tenant’s leasing of
the Demised Premises.  The “Validation
Documents” shall include all of those documents and materials which Tanox West
acquired from BI pursuant to that certain definitive agreement between Tanox
West, Guarantor and BI dated December 9, 2004 (“Definitive Agreement”),
with updates and additions through the termination date of the Lease, and
excludes the documents required under 10.a.i. above.  BI and Tanox West represent that the list of
documents in the attached Exhibit “D”
is the list of all documents transferred by BI to Tanox West pursuant to the
Definitive Agreement, and which include certain of the documents and other materials required under
10.a.i. above.  Landlord and Tenant
acknowledge and agree that the Validation Documents accessible by or
deliverable to Landlord will not include information related to Tenant’s
products, processes and quality systems to the same extent similar information
was redacted by BI in connection with the Definitive Agreement.

 

To the extent available in CAD or electronic format,
all such documents and other materials shall, upon delivery to Landlord, be
delivered in such format.  Upon delivery
of such documents and materials, Landlord shall be the owner of the same and
all of the information contained therein, free and clear of any rights or
claims of any other parties, with all rights thereto; provided, however, Tenant
shall retain and reserve, and Landlord agrees to recognize, a perpetual
royalty-free non-exclusive license to use copies and originals of any such
documentation retained by Tenant in compliance with the terms of this
Agreement.  Tenant shall be permitted
access to, and the opportunity to copy at its cost, any of the documents and
other materials (subject to coordination with Landlord or any subsequent
occupant so as not to interfere with Landlord’s or its occupants’ use thereof)
for a period of six (6) months following the later to occur of (i) termination
of the Lease or (ii) Landlord’s acquisition of the Validation Documents.
Landlord further acknowledges that, pursuant to the terms of the Definitive
Agreement, BI has retained and reserved, and Landlord agrees to recognize, a perpetual
royalty-free non-exclusive license to use, copies and originals of any such
documentation retained by BI.

 

 

b.             Modifications.

 

No alterations, additions, or improvements to the
cGMP portion of the Demised Premises or equipment which is to remain in the
Demised Premises under the terms of the Lease after the termination date of the
Lease may be made by Tenant which are not consistent with then applicable FDA
current good manufacturing practices (cGMP) or results in the inability to
restore the above to a Readily Validatable State (as defined below).

 

c.             Closure.

 

(i)            On the termination date of the Lease the cGMP
portion of the Demised Premises and equipment which must remain in the Demised
Premises after the termination date of the Lease shall be returned by Tenant to
Landlord in a “Readily Validatable State,” defined as a validation condition
equivalent to, or better than, the validation condition in which BI transferred
the Demised Premises to Tanox West, which would enable a knowledgeable successor
occupant to requalify the cGMP facility, systems and remaining equipment
(collectively, the “cGMP Facility”) within 6 to 12 months of occupancy of the
Demised Premises as a facility for the manufacture of biological or
pharmaceutical products.  The foregoing
condition in which the cGMP Facility is left, including any decommissioning,
shall be in conformance with then current industry standards and governmental
requirements.  Evidence of all permit and
license closures related to the cGMP Facility and the Demised Premises shall be
delivered by Tenant to Landlord at or before the end of the Lease term.

 

(ii)           Tenant and Landlord agree, and Landlord agrees to use commercially
reasonable efforts to cause any successor occupant, to cooperate and provide
reasonable assistance to each other in the transfer of the Demised Premises
without incurring substantial financial or time burdens, unless reimbursed by
the party requiring such assistance.

 

11.           Option Right to Purchase Equipment.

 

a.             Subject to clause 11.b below, Tenant grants
to Landlord an option to purchase (“Option”) some of the equipment which Tanox
West is purchasing from BI pursuant to the Definitive Agreement with all
modifications, replacements and substitutions thereto (“Option Equipment”).  The purchase price for each category of
equipment purchased shall be determined by Clark, Richardson and Biskup (“CRB”)
or another appraisal firm mutually acceptable to the Landlord and Tenant as of
the date of delivery of such items purchased by Landlord and shall equal thirty
nine and six tenths percent (39.6%) of the replacement cost of items in any
such category as determined in a manner consistent with that used by CRB in the
valuation relied on in connection with the acquisition of such items by Tanox
West from BI (the “Equipment Option Price”). 
Landlord shall pay all sales taxes attributable to any items
purchased.  The parties may discuss the
sale of other equipment and spare parts inventory in the Demised Premises.

 

Landlord
may exercise such Option as to the items in each of the following categories of
Option Equipment with all modifications, replacements and substitutions
therefor: MSM Equipment (Exhibit “E-1”)
and Additional FF&E (Exhibit “E-2”).  The Option may be exercised in whole but not
in part as to each such category.  The
Option may be exercised by Landlord delivering to Tenant written notice of
Landlord’s election to purchase, setting forth the categories so elected (i)
not more than twenty-four (24) months and not later than fifteen (15) months prior
to the end

 

 

of
the term of the Lease, as the same may be extended from time to time, or (ii)
upon the earlier termination of the Lease in the event of an early termination
of the Lease.

 

Title
to the items of equipment purchased shall be delivered by bill of sale upon the
termination of the Lease or, in the case of an early termination, upon such
later determination of the Equipment Option Price by CRB or such other
appraisal firm, free and clear of any liens or encumbrances or any other rights
of third parties with respect thereto; whereupon, Landlord shall deliver to
Tenant the Equipment Option Price in cash.

 

b.             Notwithstanding clause 11.a. above, Tanox
West may remove one or more large items from the Option Equipment list,
provided each such item: (i) cost in excess of Two Hundred Thousand Dollars
($200,000) (“Large Equipment”); (ii) is easily moved; and (iii) was replaced by
Tanox West during the last two (2) years of the Lease Term.  In addition, Tanox West may remove any
process equipment added by Tanox West that constitutes all or a portion of a
new technological system (i.e., new to the Demised Premises), provided that
such equipment removal does not compromise the ability to restore the Demised
Premises to a Readily Validatable State. Tanox West shall notify Landlord of
its intent to remove any such Large Equipment item with as much notice as is
reasonably possible to enable Landlord sufficient time to replace it, but not
less than (i) three (3) months prior to the termination date of the Lease or
(ii) by the date of an earlier termination of the Lease in the event of an
early termination of the Lease.

 

c.             If, during the last fifteen (15) months of
the term of the Lease, Tanox West receives a bona fide offer from an unrelated
third party (“Third Party Offer”) to purchase all or any portion of the Option
Equipment, Landlord shall have ten (10) days from receipt of written notice
from Tanox West of such Third Party Offer (setting forth the identity of the
proposed purchaser and the material terms of the offer) in which to exercise a
right of first refusal to purchase upon substantially similar terms such
particular items of equipment so specified (“Specified Items”), at a price
equal to the Third Party Offer price (“Right of First Refusal”).  If the offeror is a biotech or pharmaceutical
company with a market cap (i) over $500 million, Landlord must pay Tanox West a
premium of 15% over the Third Party Offer price, or (ii) between $150 million
and $500 million, Landlord must pay Tanox West a premium of 7% over the Third
Party Offer price .

 

In the event that Landlord does not timely exercise
such Right of First Refusal, Tenant may, with respect to the Specified Items
enter into a contract to sell the Specified Items to the proposed purchaser at
the same price contained in the notice to Landlord.  If an agreement to sell such Specified Items
with said third party offeror has not been entered into within one hundred
twenty (120) days of Landlord’s response or failure to respond as set forth
above, Tenant shall provide notice of the offer then under negotiation with the
third party offeror to Landlord, whereupon Landlord shall have the right to
exercise its Right of First Refusal as set forth above.

 

If for any reason, the negotiations with the third
party offeror are terminated, Landlord’s Right of First Refusal to purchase the
Specified Items shall be reinstated.

 

d.             All dollar amounts in paragraphs 11.b, c.i
and c.ii shall be subject to a 4% per annum increase from January 1, 2005.

 

 

e.             Except to the extent Landlord exercises its
right to purchase the Option Equipment as set forth above, Tanox West shall be
free to remove any such Option Equipment in accordance with Section 12
below.

 

12.           Revised List of Removable Equipment. 
Exhibit “B” to Exhibit “A-3” attached
hereto and Exhibit “A” to Exhibit “A-7”
attached hereto (collectively, the List of Removable Equipment referenced in Section 15.8
of the Lease) are deleted and replaced by the attached Exhibit “F.”  Notwithstanding any other provision of the
Lease, except to the extent of Landlord’s rights under Section 11 above,
Tenant may remove the Removable Equipment at any time during the final
forty-five (45) days of the term of the Lease provided that such removal does
not adversely affect the Readily Validatible State of the cGMP portion of the
Demised Premises.

 

13.           Assignment.  BI hereby assigns, transfers
and delivers to Tanox West, as of the Effective Date, all of BI’s rights and
interests as Tenant under the Lease and the Security Deposit.

 

14.           Assumption.  From and after the Effective
Date, Tanox West hereby accepts the assignment as set forth in Section 13
above and Tanox West hereby assumes all of Tenant’s obligations under the
Lease.

 

15.           Landlord’s Consent. 
Landlord hereby consents to the assignment and assumption of the Lease
rights and obligations as set forth in Sections 13 and 14 above (the “Assignment”),
all subject to the other terms as set forth in this Agreement, including
without limitation Section 7 hereof.

 

16.           No Release.  Except as otherwise expressly
set forth herein, nothing contained herein shall relieve BI of any of its
obligations as Tenant under the Lease or alter the primary liability of BI to
pay Rent and to perform all other obligations to be performed by Tenant under
the Lease.  Except as set forth in Section 7(b)
above regarding the BI Section 37 Matters, from and after the Effective
Date, BI and Tanox West shall be jointly and severally liable, as primary
obligors, for all duties, obligations and liabilities of Tenant under the
Lease.  BI shall be released from any
liabilities accruing from and after October 1, 2008, including, but not
limited to the obligation to pay Rent accruing from and after October 1,
2008; provided, however, such release shall not be deemed to relieve BI from
any ongoing liability for obligations under the Lease accruing prior to October 1,
2008, or for obligations surviving the termination of the Lease pursuant to the
terms thereof or as a matter of law, including but not limited to (i) the
obligation to remove from the Demised Premises all Hazardous Materials existing
thereon prior to October 1, 2008, which are required to be removed under
the Lease and to indemnify Landlord with respect thereto in accordance with
applicable provisions of the Lease, and (ii) the indemnification provisions of Section 18
of the Initial Lease (to the extent any claim for indemnification relates to
matters arising prior to October 1, 2008). 
Any of the foregoing notwithstanding, BI shall not be liable for any
damages in excess of lost Rent directly arising from a breach by Tanox West of
the provisions of Sections 10 or 11 of this Agreement.  As between BI and Tanox West, nothing in this
Section 16 shall limit or modify the provisions of the Definitive
Agreement.

 

17.           Incorporation.  Each
of the terms and conditions set forth in this Agreement are hereby incorporated
into the Lease as though initially set forth therein.

 

 

18.           Effect.  The amendments to the Lease
and the Assignment provided for under this Agreement shall only become
effective upon, and is subject to delivery to Landlord of, written
confirmation, executed by BI and Tanox West (the “Assignment Confirmation”),
that the Assignment has, or will, become effective as of the date specified in
the Assignment Confirmation (the “Effective Date”).  In the event the Assignment Confirmation has
not been delivered to Landlord on or prior to February 1, 2005, this
Agreement shall automatically terminate and be of no further force or effect,
unless extended by the written agreement of all parties hereto.  In the event of such termination, Tenant
shall pay all of Landlord’s out of pocket costs and expenses (including
attorneys’ and other consultants’ fees) incurred in connection with the
preparation of this Agreement, not to exceed $50,000.  Subject to the foregoing, except as otherwise
expressly set forth in this Agreement, all of the other terms and provisions of
the Lease shall remain in full force and effect.  In the event of any conflict between the
provisions of this Agreement and the provisions of the other documents
constituting the Lease, this Agreement shall control.  This Agreement, together with the Lease,
constitutes the entire agreement between Landlord, BI and Tanox West pertaining
to the subject matters hereof, and supersede all prior negotiations,
understandings or agreements concerning the subject matters hereof.  Notwithstanding the foregoing, as between BI
and Tanox West, nothing in this Agreement shall be construed as limiting or
modifying the provisions of the Definitive Agreement.

 

19.           Addresses for Notice. 
Notices and other written communications under the Lease shall be
delivered to the parties at the following addresses:

 

	
  To Landlord:

  	
  Ivan Gayler and David Winkler

  
	
   

  	
  c/o Del Mar Partnership, Inc.

  
	
   

  	
  1400 Maiden Lane

  
	
   

  	
  Del Mar, CA 92014

  
	
   

  	
   

  
	
   

  	
  Rob Tomlinson and Alton White

  
	
   

  	
  c/o Del Mar Partnership, Inc.

  
	
   

  	
  1400 Maiden Lane

  
	
   

  	
  Del Mar, CA 92014

  
	
   

  	
   

  
	
  To BI:

  	
  Biogen Idec Inc.

  
	
   

  	
  P.O. Box 229008

  
	
   

  	
  5200 Research Place

  
	
   

  	
  San Diego, CA 92129-9008

  
	
   

  	
   

  
	
  To Tanox West:

  	
  Tanox West, Inc.

  
	
   

  	
  Attn: President

  
	
   

  	
  10555 Stella Link

  
	
   

  	
  Houston, TX 77025

  
	
   

  	
   

  
	
   

  	
  Tanox, Inc.

  
	
   

  	
  Attn: Chief Legal Officer

  
	
   

  	
  10555 Stella Link

  
	
   

  	
  Houston, TX 77025

  

 

 

 

20.           Future Assurances.  Each
of the parties hereto will cause to be promptly and duly taken, executed,
acknowledged and delivered all such further acts, documents and assurances as
any of the others reasonably may request from time to time in order to carry
out more effectively the intent and purposes of this Agreement, including but
not limited to such further estoppel and/or subordination agreements reasonably
requested by Landlord’s lender holding an encumbrance on the Demised Premises.

 

21.           Counterparts.  This
Agreement may be signed in one or more counterparts, all of which shall be
treated as the same combined document.  A
party may evidence its execution and delivery of this Agreement by a telecopy
facsimile transmission of the signed Agreement to another party hereto.

 

22.           Guaranty.  Concurrently herewith, and as
a condition precedent to Landlord’s obligations under this Agreement, Tanox as
Guarantor is executing and delivering to Landlord a Guaranty of Lease
guarantying, on the terms set forth therein, all of the obligations of Tanox
West under the Lease.

 

23.           SNDA.  Prior hereto, Landlord, BI and
Washington Capital Joint Master Trust Mortgage Income Fund (“Lender”) entered
into that certain Subordination, Non-disturbance and Attornment Agreement dated
as of December 18, 2002 (the “SNDA”), which was recorded in the office of
the County Recorder of San Diego County, California, on December 18, 2002,
as Document Number 2002-1155747. 
Landlord and Tanox West agree, as of the Effective Date, to be bound by
all of the terms and conditions of the SNDA to the same extent as if Tanox West
executed the same as the “Tenant” thereunder.

 

IN WITNESS WHEREOF, the parties have executed and
delivered this Agreement as of the Effective Date first written above.

 

	
  TSI, L.P., a California limited partnership

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Ivan Gaylor

  	
   

  	
   

  
	
  Print Name:

  	
  Ivan Gaylor

  	
   

  	
   

  
	
  Title:

  	
  President

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Biogen Idec Inc., a Delaware corporation

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Edward M. Rodriquez

  	
   

  	
   

  
	
  Print Name:

  	
  Edward M. Rodriquez

  	
   

  	
   

  
	
  Title:

  	
  Vice President, Finance

  	
   

  	
   

  
	
   

  	
   

  
	
  Tanox West, Inc., a Delaware corporation

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Nancy T. Chang

  	
   

  	
   

  
	
  Print Name:

  	
  Nancy T. Chang

  	
   

  	
   

  
	
  Title:

  	
  President & CEO

  	
   

  	
   

  
	
   

  	
   

  
								

 

 

CONSENT OF
LENDER

 

Washington
Capital Joint Master Trust Mortgage Income Fund (“Lender”), the holder of a
deed of trust encumbering the Demised Premises, hereby consents to the
foregoing Fourth Lease Amendment and Assignment Agreement.  Lender agrees that Tanox West shall be
entitled to all rights of the “Tenant” under that certain Subordination,
Non-disturbance and Attornment Agreement dated as of December 18, 2002
(the “SNDA”), which was recorded in the office of the County Recorder of San
Diego County, California, on December 18, 2002, as Document Number
2002-1155747, to the same extent as if Tanox West executed the same as the “Tenant”
thereunder.

 

 

WASHINGTON
CAPITAL JOINT MASTER TRUST

MORTGAGE
INCOME FUND

 

By:  Washington Capital Management, Inc., its
Manager

 

	
  By:

  	
  /s/ Donald R. Maesher

  	
   

  
	
  Print Name:

  	
  Donald R. Maesher

  	
   

  
	
  Title:

  	
  President California
  Division

  	
   

  
					

 

 

Exhibit “A-1”

 

 

LEASE

 

 

July 9, 1992

 

 

Between

 

 

TORREY SORRENTO, INC.

a California corporation,

 

as Landlord

 

and

 

IDEC PHARMACEUTICALS CORPORATION,

a California corporation,

 

as Tenant

 

 

TABLE OF CONTENTS

 

	
  Article

  	
   

  
	
   

  	
   

  
	
  DEFINITION OF TERMS.

  	
   

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Lease Premises

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Basic Lease Provisions

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Term.

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Possession and
  Commencement Date

  	
   

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Rent

  	
   

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Rental Adjustments

  	
   

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Operating Expenses

  	
   

  
	
   

  	
   

  	
   

  
	
  8.

  	
  Rentable Area

  	
   

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Use

  	
   

  
	
   

  	
   

  	
   

  
	
  10.

  	
  Brokers

  	
   

  
	
   

  	
   

  	
   

  
	
  11.

  	
  Holding Over.

  	
   

  
	
   

  	
   

  	
   

  
	
  12.

  	
  Taxes on Tenant’s
  Property

  	
   

  
	
   

  	
   

  	
   

  
	
  13.

  	
  Condition of Demised
  Premises.

  	
   

  
	
   

  	
   

  	
   

  
	
  14.

  	
  Utilities and Services

  	
   

  
	
   

  	
   

  	
   

  
	
  15.

  	
  Alterations

  	
   

  
	
   

  	
   

  	
   

  
	
  16.

  	
  Repairs and Maintenance

  	
   

  
	
   

  	
   

  	
   

  
	
  17.

  	
  Liens

  	
   

  
	
   

  	
   

  	
   

  
	
  18.

  	
  Indemnification
  and Exculpation

  	
   

  
	
   

  	
   

  	
   

  
	
  19.

  	
  Insurance
  Waiver of Subrogation

  	
   

  
	
   

  	
   

  	
   

  
	
  20.

  	
  Damage or Destruction

  	
   

  
	
   

  	
   

  	
   

  
	
  21.

  	
  Eminent Domain

  	
   

  
	
   

  	
   

  	
   

  
	
  22.

  	
  Defaults and Remedies.

  	
   

  

 

 

	
  23.

  	
  Assignment or
  Subletting..

  	
   

  
	
   

  	
   

  	
   

  
	
  24.

  	
  Attorney’s Fees

  	
   

  
	
   

  	
   

  	
   

  
	
  25.

  	
  Bankruptcy.

  	
   

  
	
   

  	
   

  	
   

  
	
  26.

  	
  Definition of Landlord

  	
   

  
	
   

  	
   

  	
   

  
	
  27.

  	
  Estoppel Certificate

  	
   

  
	
   

  	
   

  	
   

  
	
  28.

  	
  Joint and Several
  Obligations.

  	
   

  
	
   

  	
   

  	
   

  
	
  29.

  	
  Limitation of
  Landlord’s Liability

  	
   

  
	
   

  	
   

  	
   

  
	
  30.

  	
  Intentionally Omitted

  	
   

  
	
   

  	
   

  	
   

  
	
  31.

  	
  Quiet Enjoyment.

  	
   

  
	
   

  	
   

  	
   

  
	
  32.

  	
  Quitclaim Deed

  	
   

  
	
   

  	
   

  	
   

  
	
  33.

  	
  Subordination and
  Attornment.

  	
   

  
	
   

  	
   

  	
   

  
	
  34.

  	
  Surrender.

  	
   

  
	
   

  	
   

  	
   

  
	
  35.

  	
  Waiver and Modification

  	
   

  
	
   

  	
   

  	
   

  
	
  36.

  	
  Waiver of
  Jury Trial and Counterclaims..

  	
   

  
	
   

  	
   

  	
   

  
	
  37.

  	
  Hazardous Materials.

  	
   

  
	
   

  	
   

  	
   

  
	
  38.

  	
  Miscellaneous

  	
   

  
	
   

  	
   

  	
   

  
	
  39.

  	
  Contingencies

  	
   

  

 

	
  EXHIBITS:

  	
   

  
	
   

  	
   

  	
   

  
	
  A

  	
  Legal Description of Land

  	
   

  
	
   

  	
   

  	
   

  
	
  A-2

  	
  Site Plan for Land and Building

  	
   

  
	
   

  	
   

  	
   

  
	
  B

  	
  Work Letter

  	
   

  
	
   

  	
   

  	
   

  
	
  C

  	
  Additional Building Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  D

  	
  Early Termination Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  E

  	
  Estoppel Certificate Form

  	
   

  
	
   

  	
   

  	
   

  
	
  F

  	
  Acknow1edgment of Term Commencement Date Form

  	
   

  

 

 

TORREY SORRENTO/IDEC LEASE

 

DEFINITION OF TERMS

 

	
  Term

  	
   

  	
  Section

  Location

  
	
   

  	
   

  	
   

  
	
  Additional Rent

  	
   

  	
  L 5.2

  
	
   

  	
   

  	
   

  
	
  Additional Building

  	
   

  	
  L 1.3

  
	
   

  	
   

  	
   

  
	
  Additional Building Agreement

  	
   

  	
  L 1.3

  
	
   

  	
   

  	
   

  
	
  Affiliates

  	
   

  	
  L 23.2

  
	
   

  	
   

  	
   

  
	
  Allocated Cost Estimate

  	
   

  	
  W 4.2.4

  
	
   

  	
   

  	
   

  
	
  Architect’s Contract

  	
   

  	
  W .1.1

  
	
   

  	
   

  	
   

  
	
  Assignment Date

  	
   

  	
  L 23.4

  
	
   

  	
   

  	
   

  
	
  Assignment Notice

  	
   

  	
  L 23.4

  
	
   

  	
   

  	
   

  
	
  Basic Annual Rent

  	
   

  	
  L 5.1

  
	
   

  	
   

  	
   

  
	
  Basic Improvements to Building Shell

  	
   

  	
  W 1.2.2

  
	
   

  	
   

  	
   

  
	
  Building Improvements for Generic Facilities

  	
   

  	
  W 1.2.3

  
	
   

  	
   

  	
   

  
	
  Building

  	
   

  	
  L 1.1

  
	
   

  	
   

  	
   

  
	
  City

  	
   

  	
  W 1.6

  
	
   

  	
   

  	
   

  
	
  City Required Change

  	
   

  	
  W 1.6

  
	
   

  	
   

  	
   

  
	
  Construction Documents

  	
   

  	
  W 1.2.8,

  W 1.4.4

  
	
   

  	
   

  	
   

  
	
  Construction Contract

  	
   

  	
  W 1.1

  
	
   

  	
   

  	
   

  
	
  Corrective Work

  	
   

  	
  W 1.2.1

  
	
   

  	
   

  	
   

  
	
  Cost Estimate

  	
   

  	
  W 4.2.3

  
	
   

  	
   

  	
   

  
	
  Default

  	
   

  	
  L 22.4

  
	
   

  	
   

  	
   

  
	
  Demised Premises

  	
   

  	
  L 1.1

  

 

 

	
  Term

  	
   

  	
  Section

  Location

  
	
  Design Development Drawings

  	
   

  	
  W 1.4.3

  
	
   

  	
   

  	
   

  
	
  Development Schedule

  	
   

  	
  W 1.3

  
	
   

  	
   

  	
   

  
	
  Effective Date

  	
   

  	
  L Intro.

  
	
   

  	
   

  	
   

  
	
  Estimated Tent Commencement Date

  	
   

  	
  L 2.1.6(a)

  
	
   

  	
   

  	
   

  
	
  Exhibits (in Lease)

  	
   

  	
  L 2.1.10

  
	
   

  	
   

  	
   

  
	
  Fair Rental Value

  	
   

  	
  L 6.2.1

  L 3.3

  
	
   

  	
   

  	
   

  
	
  Force Majeure Delays

  	
   

  	
  W 6.1

  
	
   

  	
   

  	
   

  
	
  Generic Office Facility

  	
   

  	
  W 1.2.3

  
	
   

  	
   

  	
   

  
	
  Generic Pilot Plant Production Facility

  	
   

  	
  W 1.2.3

  
	
   

  	
   

  	
   

  
	
  Generic Wet Laboratory Facility

  	
   

  	
  W 1.2.3

  
	
   

  	
   

  	
   

  
	
  Hazardous Materials

  	
   

  	
  L 37.7

  
	
   

  	
   

  	
   

  
	
  Hazardous Materials List

  	
   

  	
  L 37.1.2

  
	
   

  	
   

  	
   

  
	
  Improvement Plans

  	
   

  	
  W 1.2.7,

  W 1.4.1

  
	
   

  	
   

  	
   

  
	
  Improvements Cost Fund

  	
   

  	
  L 2.1.5

  
	
   

  	
   

  	
   

  
	
  Initial Monthly Rental Installments

  	
   

  	
  L 2.1.4

  
	
   

  	
   

  	
   

  
	
  Initial Rentable Area

  	
   

  	
  L 2.1.2

  
	
   

  	
   

  	
   

  
	
  Initial. Basic Annual Rent

  	
   

  	
  L 2.1.3

  
	
   

  	
   

  	
   

  
	
  Invitees

  	
   

  	
  L 3.7.1

  
	
   

  	
   

  	
   

  
	
  Land

  	
   

  	
  L 1.1

  
	
   

  	
   

  	
   

  
	
  Landlord

  	
   

  	
  L Intro.

  
	
   

  	
   

  	
   

  
	
  Landlord’s Agents

  	
   

  	
  L 18.1

  
	
   

  	
   

  	
   

  
	
  Landlord-Caused Delays

  	
   

  	
  W 6.1

  
	
   

  	
   

  	
   

  
	
  Landlord’s Construction Coordinator’s Fee

  	
   

  	
  W 4.4

  

 

 

	
  Term

  	
   

  	
  Section

  Location

  
	
  Landlord’s Contractor

  	
   

  	
  W 4.1

  
	
   

  	
   

  	
   

  
	
  Landlord’s Default

  	
   

  	
  L 22.10

  
	
   

  	
   

  	
   

  
	
  Landlord’s Invitees

  	
   

  	
  W 37.1

  
	
   

  	
   

  	
   

  
	
  Landlord’s Work

  	
   

  	
  W 1.2.6,

  W 2.1

  
	
   

  	
   

  	
   

  
	
  List of Removable Equipment

  	
   

  	
  L 15.8

  
	
   

  	
   

  	
   

  
	
  New Loan

  	
   

  	
  L 39.2

  
	
   

  	
   

  	
   

  
	
  Operating Expenses

  	
   

  	
  L 7

  
	
   

  	
   

  	
   

  
	
  Permitted Uses

  	
   

  	
  L 2.1.7

  
	
   

  	
   

  	
   

  
	
  Project Architect

  	
   

  	
  W 1.1

  
	
   

  	
   

  	
   

  
	
  Punch List

  	
   

  	
  W 1.7.13

  
	
   

  	
   

  	
   

  
	
  Rent

  	
   

  	
  L 5.3

  
	
   

  	
   

  	
   

  
	
  Rentable Area

  	
   

  	
  L 8.1

  
	
   

  	
   

  	
   

  
	
  Rental Adjustment Date

  	
   

  	
  L 6.2.1

  
	
   

  	
   

  	
   

  
	
  Requested Change

  	
   

  	
  W 1.5.2

  
	
   

  	
   

  	
   

  
	
  Revised Allocated Cost Estimate

  	
   

  	
  W 4.2.3

  
	
   

  	
   

  	
   

  
	
  Security Deposit

  	
   

  	
  L 5.4

  
	
   

  	
   

  	
   

  
	
  Schematic Design Drawings

  	
   

  	
  W 1.4.2

  
	
   

  	
   

  	
   

  
	
  Special Tenant Improvements

  	
   

  	
  W 1.2.4

  
	
   

  	
   

  	
   

  
	
  Substantial Completion

  	
   

  	
  L 4.2

  
	
   

  	
   

  	
   

  
	
  Tenant

  	
   

  	
  L Intro.

  
	
   

  	
   

  	
   

  
	
  Tenant-Caused Delays

  	
   

  	
  W 6.1

  
	
   

  	
   

  	
   

  
	
  Tenant Changes

  	
   

  	
  W 1.8.1

  
	
   

  	
   

  	
   

  
	
  Tenant’s Agents

  	
   

  	
  L 18

  
	
   

  	
   

  	
   

  
	
  Tenant’s Construction Representatives

  	
   

  	
  W 7.2

  

 

 

	
  Term

  	
   

  	
  Section

  Location

  
	
  Tenant’s Invitees

  	
   

  	
  W 37.1

  
	
   

  	
   

  	
   

  
	
  Tenant’s Work

  	
   

  	
  W 1.2.5; 3.2

  
	
   

  	
   

  	
   

  
	
  Term Expiration Date

  	
   

  	
  L 2.1.6(b)

  
	
   

  	
   

  	
   

  
	
  Term Commencement Date

  	
   

  	
  L 4.2,

  W 6.3.3

  
	
   

  	
   

  	
   

  
	
  Title 24

  	
   

  	
  W 1.4.1

  
	
   

  	
   

  	
   

  
	
  Work Letter (Exhibit B)

  	
   

  	
  L 1.1

  

 

 

LEASE

 

THIS LEASE is made as of July 9, 1992 (the “Effective
Date”), by and between Torrey Sorrento, Inc., a California corporation
(hereinafter called “Landlord”) and IDEC Pharmaceuticais Corporation, a
California corporation (“Tenants.).

 

1.             Lease Premises.

 

1.1           Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord the building premises and related land, parking
areas, and adjacent areas located at 11011 Torreyana Road, San Diego,
California. The building (the “Building”) is a two-story steel frame structure
containing approximately 70,000 square feet of Rental Area. The land upon which
the Building is located (the “Land”) is legally described in Exhibit “A”
attached hereto. The site plan for the Land and Building is attached hereto as
Exhibit A-2. Landlord shall make certain improvements to the Building, as
described in the Work Letter Agreement for Improvements which is attached
hereto as Exhibit “B” (“Work Letter”). The Land, the Building and improvements
thereto, and all landscaped areas, parking facilities, open parking areas, open
space, slope embankment areas, and other improvements and hardscape, driveways,
sidewalks, drainage, irrigation, lighting, and appurtenances related thereto
are hereinafter collectively referred to as the “Demised Premises”. Provided,
however, notwithstanding the foregoing, Landlord hereby reserves and retains
the right to sever and remove from the Demised Premises such areas as are
reasonably necessary, or appropriate for the one Additional Building as
referenced in Section 1.3 below, all in accordance with the provisions of
the Additional Building Agreement.

 

1.2           The Demised Premises constitute a single
project, all of which IS leased by this Lease to Tenant. Accordingly, the use
of the Demised Premises are provided exclusively to Tenant and there are no “common
area” facilities within the Demised Premises which are to be shared by multiple
tenants.

 

1.3           Notwithstanding the foregoing, pursuant to
the provisions of the Additional Building Agreement attached hereto as Exhibit “C”,
Landlord may Construct one additional building (the “Additional Building”) on a
portion of the Demised Premises. If said Additional Building is ever built and
is ever leased to a tenant other than Tenant, then the definition of the
Demised Premises covered by this Lease shall be modified, so as to eliminate
the Additional Building and that portion of the Land upon which the Additional
Building is located from the Demised Premises, all in accordance with the
provisions of the Additional Building Agreement. Further, some of the parking
areas,

 

1

 

driveways,
sidewalks, landscaped areas, open space and adjacent areas will be removed from
the definition of the Demised Premises, and instead said areas will become “common
areas” to be shared by Tenant and the tenant(s) of the Additional Building, all
in accordance with the provisions of the Additional Building Agreement;
provided however, Tenant shall retain the use of at least 210 parking spaces.
If and when the Additional Building is so constructed and the definition of the
Demised Premises is so modified, then all references in this Lease to the
Demised Premises shall thereafter mean said modified definition of the Demised
Premises.

 

2.             Basic Lease Provisions.

 

2.1           For convenience of the parties, certain basic
provisions of this Lease are set forth herein. The provisions set forth herein
are subject to the remaining terms and Conditions of this Lease and are to be
interpreted in light of such remaining terms and conditions.

 

2.1.1                        Address of the Building:

11011 Torreyana Road

San Diego, California 92121

 

2.1.2                        Initial Rentable Area: Approximately

70,000 square feet

 

2.1.3                        Initial Basic Annual Rent: Two Million

Three Hundred Ten Thousand Dollars

($2,310,000) ($2.75 per square foot of

Rentable Area per month) (see

Section 6.3.3 of the Work Letter for

reduced Rent for early occupancy)

 

2.1.4                        Initial Monthly Rental Installments: One
Hundred Ninety-

two Thousand Five Hundred

Dollars ($192,500)

 

2.1.5                        Improvements Cost Fund: 9,900,960 (This
amount consists of $240,960 for the Basic Improvements to Building Shell, and
$9,660,000 for the Building Improvements for Generic Facilities.) (See Section 1.7.14
of the Work Letter concerning a $100,000 credit.)

 

2.1.6                        (a)    Estimated Term
Commencement Date:

June 26, 1993 (See Section 6.3.8 of the
Work Letter for determining the actual term Commencement Date.)

 

2

 

(b)         Term Expiration Date:

Fifteen (15) years and no (0) months from the actual
Term Commencement Date, plus any partial month following the Term Commencement
Date, if the Term Commencement Date is other than the first day of a calendar
month. (See Section 6.3.8 of the Work Letter for determining the actual
Term Commencement Date.)

 

(c)          The term is subject to early termination by
Tenant, as specified in Section 3.2 herein. (See Exhibit D, the Early
Termination Agreement)

 

2.1.7                        Permitted Uses: All uses which are in
accordance with both (1) the City of San Diego Scientific Research zoning
ordinance in effect from time to time as applicable to the Demised Premises,
and (ii) other applicable governmental regulations and recorded covenants,
conditions and restrictions, Subject to the terms of this Lease.

 

2.1.8                        Address for Rent Payment and Notices to

Landlord:

 

Torrey Sorrento, Inc.

c/o Harman Realtors, Inc.

7835 Ivanhoe

La Jolla, CA 92037

 

With copy to (which copy shall not

constitute notice):

 

Earl Feldman, Esq.

1200 Third Ave., Ste. 1324

San Diego, CA 92101

 

Address for Notices to Tenant:

Prior to Tenant moving into Demised

Premises:

 

IDEC Pharmaceuticals Corporation

11099 N. Torrey Pines Rd., Ste. 160

La Jolla, CA 92037

Attention:  General Counsel and V.P. Finance

 

3

 

After Tenant moves into Demised Premises:

 

IDEC Pharmaceuticals Corporation

11011 Torreyana Road

San Diego, CA 92121

Attention:      General Counsel and V.P. Finance

 

With Copy to (which copy shall not

constitute notice):

 

Todd J. Anson, Esq.

Brobeck, Phleger & Harrison

550 West C Street, Suite 1300

San Diego, CA 92101

 

2.1.9                        The following Exhibits are attached hereto
and incorporated herein by this reference, and Landlord and Tenant hereby agree to the terms of these Exhibits:

 

	
  Exhibit

  	
   

  	
  Title

  
	
  “A”

  	
   

  	
  Legal Description of Land

  
	
  “A-2”

  	
   

  	
  Site Plan

  
	
  “B”

  	
   

  	
  Work Letter

  
	
  “C”

  	
   

  	
  Additional Building Agreement

  
	
  “D”

  	
   

  	
  Early Termination Agreement

  
	
  “E”

  	
   

  	
  Estoppel Certificate Form

  
	
  “F”

  	
   

  	
  Acknowledgment of Term Commencement Date Form

  

 

3.               Term.

 

3.1           This Lease shall take effect upon the date of
execution hereof by both parties hereto and, except as specifically provided
otherwise herein, each of the provisions hereof shall be binding upon and inure
to the benefit of Landlord and Tenant from the date of execution hereof by both
parties hereto.

 

3.2           The term of this Lease will be that period
from the Term Commencement Date, as defined in Section 4.2 below, through
the Term Expiration Date as set forth in Section 2.1.6(b), subject to the
earlier termination of this Lease in accordance with the tens of the Early
Termination Agreement attached hereto as Exhibit “D.”

 

4

 

3.3           Tenant shall have two options to extend the
term of this Lease for two additional periods of five (5) years each, in
accordance with the following terms:

 

3.3.1        Basic Annual Rent for the first year of the
first option shall be equal to the fair rental value (the “Fair Rental Value”)
of the then existing Demised Premises, as determined pursuant to Section 6.2.1
below and this Section 3.3, plus the fair rental value of the $2,800,000
allowance described in Section 3.3.4 below, Said Basic Annual Rent shall
be subject to annual upward adjustments equal to four percent (4%) of the
previous year’s Basic Annual Rent, for the duration of the first five (5) year
additional period, and also for the duration of the second five (5) year option
period, if this second option is exercised. Tenant shall also pay all Operating
Expenses and Additional Rent as set forth in this Lease.

 

3.3.2        Tenant may exercise each of these options
only by delivering a binding written notice of exercise to Landlord, so that
Landlord receives said notice of exercise at least two years prior to the
commencement of the extended term.

 

3.3.3        Tenant may exercise each of these options
only so long as no Default remains outstanding and uncured at the time that the
notice of exercise is received by Landlord. it is acknowledged that the Fair
Rental Value will not be determined pursuant to Section 6.2.1 below until
approximately 12 - 18 months after Tenant has exercised the option to extend.

 

3.3.4        As part of the first extension of the lease
term (but not the second extension), Landlord shall furnish to Tenant an
allowance of $2,800,000 for Tenant to construct additional generic tenant
improvements, or to refurbish previously existing generic tenant improvements,
in the Demised Premises (as “generic improvements” are defined in the Work
Letter). Regularly scheduled Rent shall be paid by Tenant during the course of
construction of the additional generic tenant improvements, whether said
construction occurs during the last portion of the original 15-year term or
during the first portion of the new 5-year extension term.

 

3.3.5        Tenant shall be responsible for hiring the
architect and the contractor for designing and constructing these additional
generic tenant improvements. Tenant’s selection of an architect and contractor
shall be subject to Landlord’s approval, which approval shall not be Withheld Unreasonably. The plans and
specifications and the construction contract, for these additional generic
tenant improvements shall be subject to Landlord’s approval, which approval
shall not be withheld unreasonably.

 

5

 

3.3.6        The $2,800,000 allowance shall be spent only
for the construction contract
costs to construct or refurbish generic tenant improvements. This allowance
shall be furnished by landlord during the 16th year of this Lease, as the
construction work progresses. Provided however, that Landlord shall reimburse
Tenant within the first ten (10) days of the sixteenth (16th) year for any
portion of this allowance previously expended by Tenant. Excepting only as is
otherwise specified in this Section 3.3, the $2,800,000 allowance shall be
administered, and the design and construction of the additional generic tenant
improvements shall proceed, in accordance with the procedures set forth in the
Work Letter.

 

3.3.7        If Tenant makes a permitted assignment or
sublease, the assignee or subtenant shall be entitled to the benefits of the
$2,800,000 allowance as specified above.

 

3.3.8        As of the first day of the first five (5)
year extension term (i.e., the 16th year of the Lease), Landlord shall pay to
Tenant, as a leasing commission, a cash sum equal to five percent (5%) of the
aggregate Basic Annual Rent (including the 4% per annum escalation) payable by
Tenant over said five year term. Similarly, as of the first day of the second
five (5) year term (i.e., the 21st year of the Lease), Landlord shall pay to
Tenant, as a leasing commission, a cash sum equal to five percent (5%) of the
aggregate Basic Annual Rent (including the 4% per annum escalation) payable by Tenant
over said five year term. These leasing commissions payable to Tenant shall not
be considered by the appraisal to increase the Fair Rental Value.

 

4.               Possession and Commencement Date.

 

4.1           Landlord and Tenant acknowledge that it is
very important to both parties to complete the Landlord’s Work as soon as
reasonably feasible and both parties agree to use diligent and good faith
efforts to cause the Landlord’s Work to be completed as soon as reasonably
feasible. Landlord shall use diligent efforts to tender possession of the
Demised Premises to Tenant on the Estimated Term Commencement Date as set forth
in Section 2.l.6(a) above (“Estimated Term Commencement Date”), with the
Work required of Landlord (Landlord’s Work”) as such is more Particularly described
in Exhibit “B” attached hereto (the “Work Letter”) substantially completed. The
design and construction of the Landlord’s Work is partially bifurcated, as
described in Section 6.3 of the Work Letter; and special provisions and
agreements are set forth in Section 6.3 of the Work Letter which are
intended to control and prevail over any conflicting or inconsistent provisions
of this Lease, including this Section 4. Accordingly, all provisions of Section 4
of this Lease are subject to and controlled by any conflicting or inconsistent
provisions in Section 6.3 of the Work Letter. Tenant agrees that, in the
event

 

6

 

Landlord
fails to tender possession of the Demised Premises with Landlord’s Work
substantially complete on or before the Estimated Term Commencement Date, this
Lease shall not be void or voidable and Landlord shall not be liable to Tenant
for any loss or damage resulting therefrom. In such event, however, Tenant
shall not be liable for any Basic Annual Rent or Additional Rent until the Term
Commencement Date (as defined in Section 4.2 below). In the event Landlord
reasonably determines that it will be unable to tender possession of the
Demised Premises on or before the Estimated Term Commencement Date, promptly
after making such determination Landlord shall give written notice to Tenant of
the date Landlord estimates being able to tender possession of the Demised
Premises to Tenant. If said estimated date for substantial Completion of
Landlord’s Work is later than one hundred eighty (180) days after the Estimated
Term Commencement Date plus the number of days of Tenant—caused Delays and
Force Majeure Delays (as Tenant—caused Delays and Force Majeure Delays are
defined in Section 6.1 of the Work Letter), then Tenant may, at Tenant’s
option, exercisable by written notice delivered to Landlord by Tenant Within
ten (10) days after the date of Landlord’s notice to Tenant specifying the
estimated new substantial completion date, terminate this Lease; and Landlord-
and Tenant shall not by reason thereof, be subject to any further liability
under this Lease.

 

4.2           The Term Commencement Date shall be the
earlier of (i) the date Landlord tenders possession of the Demised Premises to
Tenant With Landlord’s Work substantially complete; (ii) the date Tenant
actually accepts possession of the entire Demised Premises (including the Pilot
Plant) and commences to conduct business therefrom (subject to the special
provisions for partial possession as specified in Section 4.5 below); or
(iii) the date that Landlord’s Work Would have been substantially completed but
for Tenant-caused Delays. The terms “substantially complete(d)” and “substantial
completion” shall mean the date the Project Architect (as defined in Section 1.1
of the Work Letter) has certified that Landlord’s Work is substantiality
complete and that tenant can physically occupy the space, subject to the
punch-list items as described in Section 7.2 of the Work Letter, and the
Demised Premises are in clean and operating condition, subject to minor
punch-list items that may still need to be Corrected and subject to items which
constitute Tenant’s Work. The Project Architect Shall determine said “substantial
completion” based upon the generally accepted professional standards of the
American Institute of Architects, and not as an advocate, consultant, or agent
for either Tenant or Landlord. With respect to the Pilot Plant Production
Facility, it shall be deemed “substantially complete” when it is substantially
ready for pacification testing (subject to normal and reasonable punch-list
items), prior to validation testing. See Section 6.3.3 of the Work Letter
for determining the actual Term Commencement Date.

 

7

 

4.2.1        Commencing
approximately six months prior to the estimated Completion date, and continuing
at least monthly thereafter, Landlord shall give to Tenant written estimates
and revised estimates of the expected completion date. Notwithstanding anything
to the contrary in this Lease, Landlord shall provide Tenant with no less than
ten (10) days’ prior notice in writing that the Demised Premises are, or
shortly shall be, available for occupancy.

 

4.2.2        Landlord
and Tenant shall each execute and deliver to the other written acknowledgement
of the actual Term Commencement Date and the Term Expiration Date when such is
established and shall attach it to this Lease as Exhibit “F”; however, failure
to execute and deliver such acknowledgement shall not affect Tenant’s liability
hereunder.

 

4.2.3        if
at any time it is reasonably estimated that Landlord will be unable to
substantially complete the Demised Premises within one hundred eighty (180)
days after the Estimated Fern Commencement Date plus the number of days of
Tenant—caused Delays and Force Majeure Delays, either Landlord or Tenant may,
at its option, exercisable by written notice delivered to the other, terminate
this Lease; provided however, said election to terminate shall not be made more
than twenty (20) days after Landlord gives written notice to Tenant that the
estimated completion date will be beyond the foregoing specified permissible
time schedule (which written notice Landlord shall deliver promptly after
determining that the Demised Premises will probably not be substantially
complete within said time frame); but this option to terminate will again
become applicable on the same basis if the estimated completion date is again
delayed further beyond the previously specified revised estimated completion
date. Provided, however, if the laboratory and office portions of the Demised
Premises are occupied by Tenant,
then a delay in the completion of the pilot plant shall not entitle
Landlord or Tenant to terminate this Lease pursuant to this Section. In the event
of a termination of this Lease pursuant to this Section 4.2.3., then Landlord
and Tenant shall not, by reason thereof, be subject to any further liability
under this Lease; but such a termination shall not relieve either Landlord or
Tenant for any liabilities they may have for prior breaches of their
obligations under this Lease.

 

4.3           Landlord
shall allow Tenant to enter upon the Demised Premises prior to the Term
Commencement Date for the purpose of performing Tenant’s Work, provided such
entry shall be coordinated in advance with Landlord and Landlord’s Contractor
so as to not interfere with the performance by Landlord or Landlord’s
Contractor of Landlord’s Work. Such entry shall be subject to all the terms and
conditions of this Lease, and the Work Letter Agreement, other than the payment
of Basic Annual Rent or Additional Rent.

 

8

 

4.4           Prior to
Tenant’s initial entry onto the Demised Premises for the purpose of (i)
installing improvements that are a part of Tenant’s Work, (ii) placing Tenant’s
personal property within the Demised Premises, or (iii) taking any other action
which is a part of Tenant’s Work, or (iv) early possession for partial
occupancy pursuant to Section 4.5, Tenant and Landlord shall furnish each other
evidence satisfactory to the other that insurance coverages required under the
provisions of Article 19 herein are in effect.

 

4.5           In the
event that the office and laboratory facilities portion of the Demised Premises
is substantially complete prior to the Term Commencement Date, said Tenant
shall take early possession of said portion, pursuant to the terms of Section
6.3 of the Work Letter, Such early possession shall not constitute Term
Commencement for any purpose, notwithstanding the fact that Tenant flay
commence to conduct business from the Demised Premises as of the date of such
early possession. Any such early possession shall be implemented in accordance
with reasonable advance written notice from Tenant to Landlord and reasonable
cooperation between Tenant and Landlord. Upon any such early possession, Tenant
shall comply with all applicable provisions of this Lease relative to the
portion of the Demised Premises which Tenant occupies, excepting only that
Tenant shall pay only $2.00 (rather than $2.75) per square foot of Rentable
Area per month for said space, plus all Operating Expenses related to said
space, until the Penn Commencement Date.

 

5.             Rent
and Security Deposit.

 

5.1           Tenant
agrees to pay Landlord as Basic Annual Rent for the Demised Premises the sum
set forth in Section 2.1.3, subject to the rental adjustments provided in
Article 6 hereof. Basic Annual Rent shall be paid in the equal monthly
installments set forth in Section 2.1.4, subject to the rental adjustments provided
in Article 6 hereof, each in advance on the first day of each and every
calendar month during the term of this Lease, except.. that the first full
month’s installment of Basic Annual Rent (plus the monthly installment of Basic
Annual Rent pro rated for any partial month at the beginning of the term
hereof) shall be paid by Tenant to Landlord upon on the Term Commencement Date.

 

5.2           In
addition to Basic Annual Rent, Tenant agrees to pay to Landlord as additional
rent (‘Additiorial Rent”) at times hereinafter specified in this Lease (i) all
Operating Expenses as provided in Article 7 herein), which are paid by
Landlord, and (ii) any other amounts that Tenant assumes or agrees to pay under
the provisions of this Lease that are owed to Landlord, including, without
limitation, any and all other sums that may become due by reason of any default
of Tenant or Tenant’s failure to comply with

 

9

 

the
agreements, terms, covenants and conditions of this Lease to be performed by
Tenant.

 

5.3           Basic
Annual Rent and Additional Rent shall together be denominated “Rent”. Rent
shall be paid to Landlord, without abatement, deduction or offset, (excepting
only for the limited circumstances as specified in Section 16.1 for Landlord’s
maintenance, in Section 20.6 for destruction of a portion of the Demised
Premises and/or in connection with the terms upon which Tenant provides a
portion of the financing for the $13.1M construction loan sought by Landlord),
in lawful money of the United States of Anerica at the office of Landlord as
set forth in Section 2.1.8 herein or to such other person or at such other
place as Landlord may from time to time designate in writing. In the event the
term of this Lease commences or ends on a day other than the first day of a
calendar month, then the Rent for such fraction of a month shall be prorated
for such period on the basis of a thirty (30) day month and shall be paid at
the then current rate for such fractional month.

 

5.4           Upon the
Effective Date of this Lease, Tenant shall deposit with Landlord a cash amount
equal to one Initial Monthly Rental Installment (as defined in Section 2.1.4)
as a deposit (“Security Deposit”) to secure Tenant’s faithful performance of
its obligations hereunder. If Tenant’s net worth falls below $10,000,000 at any
time during the term hereof, as shown on the financial statements referenced in
the next sentence, then Tenant shall pay to Landlord the amount necessary to
increase the Security Deposit to equal three (3) monthly installments of the
then current Basic Annual Rent. Tenant shall deliver to Landlord a copy of
Tenant’s annual audited financial statements and Tenant’s quarterly unaudited
financial statements within ten (10) days after said financial statements are
completed. The Security Deposit may be commingled with other funds of Landlord’s,
but Landlord shall pay Tenant annually in arrears interest on the Security
Deposit equal to the then current rate for one year Certificates of Deposit
paid by Landlord’s regular business bank. If Tenant fails to pay Rent, or any
other charges due hereunder, or otherwise defaults with respect to any
provisions of this Lease, Landlord may use, apply or retain all or any portion
of the Security Deposit, and any accrued earnings thereon, for the payment of
such sums due Landlord, or for prepayment of any other sum to which Landlord
may become entitled by reason of Tenant’s default, or to compensate Landlord
for any loss or damage which Landlord may suffer thereby. If Landlord so uses
or applies all or any portion of the Security Deposit, Tenant shall within
twenty (20) days after written demand therefor, deposit with Landlord, in cash,
an amount sufficient to restore the Security Deposit to the full amount, and
Tenant’s failure to do so shall be a material breach of this Lease. This
Security Deposit shall be in cash; excepting however, Tenant shall have the
option after the Term

 

10

 

Commencement
Date to substitute a bank letter of credit, in
a form and from a bank pre-approved in Writing by Landlord. Promptly after the
expiration or termination of this Lease and after Tenant has satisfied all its
obligations under this Lease, Landlord shall refund to Tenant the unused
portion of the Security Deposit, plus accrued but unpaid interest.

 

6.             Rental
Adjustments.

 

6.1           Commencing
on the first anniversary of the Term Commencement Date, the Basic Annual Rent
shall be subject to annual upward adjustments equal to four percent (4%) of the
previous year’s Basic Annual Rent. The first such adjustment shall become
effective commencing with that monthly rental installment which is first due on
or after the first anniversary of the Term Commencement Date and subsequent
adjustments shall become effective on the same day of each calendar year
thereafter for so long as this Lease continues in effect. Commencing with the
eleventh (11th) anniversary of the Term Commencement Date, this four percent
(4%) annual adjustment shall apply to the adjusted Basic Annual Rent which was
determined pursuant to Section 6.2 below.

 

6.2           Beginning
on the tenth (10th) anniversary of the Term Commencement Date, the Basic Annual
Rent shall be adjusted up or down to equal the fair rental value (the “Fair
Rental Value”) of the Demised Premises as determined pursuant to Section 6.2.1
below, except in no event shall the adjusted Basic Annual Rent for the eleventh
(11th) year be less than one hundred twenty-two percent (122%) of the Initial
Basic Annual Rent, nor more than one hundred seventy-two percent (172%) of the
Initial Basic Annual Rent.

 

6.2.1        Rent
Adjustments. The Basic Annual Rent shall be increased on the first day of
the first month of the eleventh year of the term of this Lease (the “Rental
Adjustment Date”) to the “Fair Rental Value” of the Demised Premises determined
in the following manner:

 

(i)            Approximately
twelve months prior to the Rental Adjustment Date, Landlord and Tenant shall
meet in an effort to negotiate, in good faith, the fair rental value of the
Demised Premises as of such Rental Adjustment Date. If Landlord and Tenant have
not agreed upon the fair rental value of the Demised Premises at least ten (10)
months prior to the Rental Adjustment Date, the fair rental value shall be
determined by appraisal.

 

(ii)           Landlord
and Tenant shall attempt to agree in good faith upon a single appraiser not
later than nine (9) months prior to the Rental Adjustment Date. If Landlord and

 

11

 

Tenant are
unable to agree upon a single appraiser
within such time period, then Landlord and Tenant shall each appoint one
appraiser not later than eight (8) months prior to the applicable Rental
Adjustment Date. Landlord and Tenant shall each give written notice to each
other as to the name of the appraiser it has selected, as soon as the selection
is made. Within ten (10) days thereafter, the two appointed appraisers shall
appoint a third appraiser. All appraisers shall be independent from, and
disinterested in, both Landlord and Tenant.

 

(iii)          If
either Landlord or Tenant fails to appoint its appraiser within the prescribed
time period, the single appraiser appointed shall determine the fair rental
value of the Demised Premises. If both parties fail to appoint appraisers
within the prescribed time periods, then the first appraiser thereafter
selected by a party shall determine the fair rental value of the Demised
Premises.

 

(iv)          Each
party shall bear the cost of its own appraiser and the parties shall share
equally the cost of any single or third appraiser, if applicable. All
appraisers so designated herein shall have at least five (5) years’ experience
in the appraisal of biotechnology premises in the San Diego area and shall be
members of professional organization such
as MAI or its equivalent.

 

(v)           For
the purpose of such appraisal, the term “Fair Rental Value” shall mean the
price that a ready and willing single tenant would pay, as of the Rental
Adjustment Date, as annual rent to a ready and willing landlord of property
comparable to the Demised Premises on the terms of this Lease (including the
fixed annual 4% increase(s) in Basic Annual Rent), if such property were
exposed for lease on the open market for a reasonable period of time, and
taking into account all of the purposes for which such property may be used
legally. A comparable property shall mean a biotechnology laboratory and pilot
plant facility located in the Torrey Pines Mesa area of San Diego, with
improvements similar in age and character to the improvements to the Demised
Premises, which has been improved with all of the generic and special tenant
improvements (as those terms are defined in the Work Letter) comparable to
those constructed in the Demised Premises; provided, however, the appraisal
shall disregard (i) the value of the equipment which Tenant is entitled to
remove at the expiration or termination of the term of this Lease, as specified
in Section 15.8 below; and (ii) any extra value for the validation of the
Tenant’s own manufacturing processes and systems, although value, if any, shall
be given for the fact that the Demised Premises has been validated for
manufacturing biotechnology and/or pharmaceutical products in general. The
appraiser shall Consider all relevant factors, including without limitation,
the age of the Building and

 

12

 

improvements,
the Condition of the Demised Premises on the assumption that Tenant has
complied with its obligations to maintain and repair the Demised Premises, the
current rental market conditions and the alternative uses and users for the
Demised Premises.

 

(vi)          If
a single appraiser is chosen, then such appraiser shall determine the Fair
Rental Value of the Demised Premises. Otherwise, the Fair Rental Value of the
Demised Premises shall be the arithmetic average of the two (2) appraisals
which are closest in amount, and the third appraisal shall be disregarded.
Notwithstanding anything to the contrary contained herein, the Fair Rental
Value as so determined shall be no less than one hundred twenty-two percent
(122%) of the Initial Basic Annual Rent payable hereunder, and no more than one
hundred seventy-two percent (172%) of the Initial Basic Annual Rent.

 

(vii)         Landlord
and Tenant shall instruct in writing the appraiser(s) to complete their written
determination of the Fair Rental Value not later than six (6) months prior to
the Rental Adjustment Date. If the Fair Rental Value is not determined prior to
the Rental Adjustment Date, then Tenant shall continue to pay Landlord monthly
installments of Basic Annual Rent in the amount applicable to the Demised
Premises immediately prior to the Rental Adjustment Date until the Fair Rental
Value is determined. When the Fair Rental Value of the Demised Premises is
determined, Landlord shall deliver notice thereof to Tenant, and Tenant shall
pay to Landlord, or Landlord shall pay to Tenant, as the case may be, within
ten (10) days after receipt of such notice, the difference between the monthly
installments of Basic Annual Rent actually paid by Tenant to Landlord
subsequent to the Rental Adjustment Date and the new monthly installments of
Basic Annual Rent deter-mined hereunder.

 

7.             Operating
Expenses.

 

7.1           As used
herein, the term “Operating Expenses” shall include, but not be limited to:

 

(a)           Government
impositions including, without limitation, property tax costs consisting of
real and personal property taxes (except as specified in Section 7.2 below),
assessments, including amounts due under any improvement bond upon the Building
and/or Demised Premises or assessments levied in lieu thereof imposed by any
governmental authority or agency, any tax on or measured by gross rentals
received from the rental of space in the Building, or tax based on the square
footage of the Demised Premises or Building (if such tax is enacted in lieu of
presently existing real property taxes),

 

13

 

(b)           Any
parking charges, utilities, surcharges or any other costs levied, assessed or
imposed by, or at the direction of, or resulting from statutes or regulations,
or interpretations thereof, promulgated by any federal, state, regional,
municipal or local government authority in connection with the use or occupancy
of the Building or the parking facilities serving the Building,

 

(c)           Any
tax on any document to which Tenant is a party creating or transferring an
interest in the Demised Premises (excluding any transfer tax upon a sale by
Landlord of the Demised Premises),

 

(d)           Any
fee for a business license to operate the Demised Premises,

 

(e)           Any
expenses, including the cost of attorneys or experts, reasonably incurred in
seeking reduction by the taxing authority of the applicable taxes, less tax
refunds obtained as a result of an application for review thereof, and

 

(f)            All
other costs of any kind paid or incurred directly related to the operation,
maintenance and management of the Building and the Demised Premises including,
by way of examples and not as a limitation upon the generality of the
foregoing, costs of repairs and replacements to improvements within the Demised
Premises as appropriate to maintain the Demised Premises in first-class
condition (excepting only for maintenance costs to be paid by Landlord pursuant
to Section 16.1 below), costs to comply with applicable governmental
requirements for the Demised Premises, special utility assessments, including
sewer fees, trash collection, cleaning, maintenance of heating, ventilation and
air conditioning systems (except as otherwise provided herein), maintenance of
landscape and grounds, maintenance of drives and parking areas, property
management fees payable to Landlord’s agents in the sum of one percent (1%) of
the Rent, insurance premiums, portions of insured losses paid as part of
deductible portion of loss by reason of insurance policy terms, service
contracts, and costs of services of independent contractors retained to do work
of the nature referenced above. It is contemplated that Tenant will take the
initiative to perform and pay for most all of the items to operate, maintain
and manage the Demised Premises, thereby eliminating the need for Tenant to
advance or reimburse these costs to Landlord. If Tenant fails to perform and
pay for any item which is an Operating Expense, and Landlord reasonably
determines that Landlord needs to do so, then Landlord shall give to Tenant a
written notice thereof and a 30-day opportunity to so perform and pay, before
Landlord undertakes the initiative to perform and pay any such item. (Provided
however, Landlord shall take the initiative to perform

 

14

 

and pay for
the items which Landlord so designates pursuant to the first sentence of
Section 7.3 below)

 

7.2           Operating Expenses
shall not include any net income, franchis0, capital stock, estate or inheritance
taxes. Additionally, all reassessment increases in real Property taxes
based Solely on reassessment of the Demised Premises pursuant to California
Revenue and Taxation Code Section 60 et. seq. due to a change in ownership or
transfer of Landlord’s interest in the Demised Premises during the first five
(5) years of the term of this Lease shall not be considered an Operating
Expense. Additionally if no such change of ownership occurs during the first
five years, then the first one reassessment increase in real
property taxes resulting from a change of Ownership occurring after said first
five years shall not be considered an Operating Expense. In addition, roof
maintenance expenses for non-structural components of the roof, up to a maximum
of $30,000 over the life of this Lease, also shall be excluded from Operating
Expenses and paid for by Landlord; and any unexpended portion of said $30,000
as of each anniversary date of the Term Commencement Date shall be increased by
a sum equal to 4% of said unexpended portion.

 

7.3           Tenant
shall pay all of the Operating Expenses directly to the third party to whom the
expense is payable, excepting only for those specific Operating Expenses which
Landlord elects to pay directly and Landlord gives to Tenant at least a thirty
(30) day prior written notice of Landlord’s commitment to pay said expense(s).
Upon the written request to Tenant, Tenant shall furnish to Landlord
appropriate evidence of those Operating Expenses which have been paid by Tenant
directly to a third party. Similarly, upon the written request to Landlord,
Landlord shall furnish to Tenant appropriate evidence of those Operating
Expenses which have been paid by Landlord. As to those Operating Expenses which
Tenant does not pay directly, Tenant shall pay those Operating Expenses to
Landlord, at least twenty (20) days prior to the scheduled due date, pursuant
to written notice from Landlord to Tenant. Provided however, if Tenant fails to
make such timely payments, Landlord may require Tenant to make payments monthly
in advance, based upon Landlord’s estimate of said Operating Expenses. If such
a monthly payment arrangement is so instituted by Landlord, then Landlord shall
provide Tenant, in writing, a statement estimating the amount of monthly
Operating Expenses which will be paid by Landlord for the current year; and
Tenant shall pay to Landlord on the first day of each calendar month of the
term of this Lease, as Additional Rent, Landlord’s estimate of said Operating
Expenses which will be paid by Landlord with respect to the Demised Premises
for such month. Additionally, if any extraordinary Operating Expense which will
be paid by Landlord occurs which was not included in Landlord’s estimate of
said Operating Costs, then Landlord shall give written

 

15

 

notice thereof
to Tenant promptly after Landlord learns of the same; and Tenant shall pay said
extraordinary Operating Expense on or before its due date.

 

a.             Within
ninety (90) days after the conclusion of each calendar year, Landlord shall
furnish to Tenant a statement showing in reasonable detail the actual Operating
Expenses which have been paid by Landlord for the previous calendar year. If
the amounts paid by Tenant for said Operating Expenses are less than the actual
amount of said Operating Expenses for the previous year, any additional sum due
from Tenant to Landlord shall be due and payable within ten (10) days after
receipt by Tenant of said statement. If the amounts paid by Tenant to Landlord
exceed the actual Operating Expenses paid by Landlord for the previous calendar
year, the difference shall be credited by Landlord against the Rent next due
and owing from Tenant; provided that, if the Lease term has expired, Landlord
shall accompany said statement with payment for the amount of such difference.

 

b.             Any
amount due for Operating Expenses attributable to any period which is less than
a full month shall be prorated (based on a 30-day month) for such fractional
month.

 

7.4           Tenant
shall have the right, at Tenant’s expense, upon reasonable notice during
reasonable business hours, to have a Certified Public Accountant or other
authorized representative of Tenant inspect the portion of Landlord’s records,
invoices, and other data relating to the Demised Premises and used in the
preparation of the statement, provided any request for such review shall be
furnished within ninety (90) days of Tenant’s receipt of such statement as to
the prior year’s Operating Expenses. If the amount of Operating Expenses paid by
Landlord relating to the Demised Premises identified on such annual statement
are found to exceed the actual Operating Expenses paid by Landlord for the
Demised Premises, Landlor4 shall, within ten (10) days after Tenant’s request
therefor, refund to Tenant the amount of over Payment by Tenant.

 

7.5           Tenant
shall not be responsible for Operating Expenses attributable to the time period
prior to the Term Commencement Date (other than as specified in the Work
Letter); provided, however, if Tenant takes possession for occupancy of some or
all of the Demised Premises prior to the Term Commencement Date for the purpose
of occupying the same, Tenant shall be responsible for Operating Expenses for
the Demised Premises so occupied from such earlier date of possession. The
responsibility of Tenant for Operating Expenses attributable to the Demised
Premises shall continue to the latest of (i) the date of termination of this
Lease, or (ii) the date Tenant has fully vacated the Demised Premises; but if
termination of the Lease is

 

16

 

due to the
default of Tenant, Tenant shall be responsible for Operating Expenses even
after Tenant has vacated, as part of the damages to which Landlord is entitled,
to the extent of Tenant’s liabilities for a default.

 

7.6           Operating
Expenses for the calendar year in which Tenant’s obligation to reimburse
Landlord commences, and for the calendar year in which such obligation ceases
shall be prorated. Expenses such as taxes, assessments and insurance premiums
which are incurred for an extended time period shall be prorated based upon
time periods to which such items are applicable, so that the amounts attributed
to the Demised Premises relate in a reasonable manner to the time period in
which Tenant has an obligation to pay for Operating Expenses.

 

7.7           Operating
Expenses shall be only the actual and reasonable expenses incurred, subject to
proration as specified in Section 7.6.

 

8.             Rentable
Area.

 

8.1           The term “Rentable
Area” as referenced within the Work Letter, and as may otherwise be referenced
herein, refers to the area of the Building, which the parties agree consists of
approximately 70,000 square feet. Such area has been calculated by measuring
the floor areas to the outside finished surface of permanent outer Building
walls, where such walls intersect each floor, without deduction for columns,
projections or vertical penetrations such as stairs, elevator shafts, flues,
pipe shafts, vertical ducts and the like and their enclosing walls.

 

8.2           Prior to
the Effective Date, the square feet of Rentable Area in the Building was field
measured and confirmed by the Project Architect and has been approved by Tenant
and Landlord; and the parties have agreed upon the 70,000 square feet figure
for all calculations pursuant to this Lease.

 

9.             Use.

 

9.1           Tenant
shall use the Demised Premises for the purpose set forth in Section 2.1.7 and
shall not use the Demised Premises, or permit or suffer the Demised Premises to
be used, for any other purpose without the prior written consent of Landlord.

 

9.2           Tenant
shall conduct its business operations and use the Demised Premises in
compliance with all current or future federal, state and local laws and
regulations. Tenant shall not use or occupy the Demised Premises in violation
of any law or regulation or of the certificate of occupancy issued for the
Building and shall, upon five (5) days’ written notice from Landlord, discontinue any use of the Demised
Premises which is

 

17

 

declared by
any governmental authority having jurisdiction to be a violation of law or of
said certificate of occupancy. Landlord shall deliver to Tenant a copy of the
certificate of occupancy for the Demised Premises. Throughout the term of this
Lease and/or Tenant’s occupancy of the Demised Premises, Tenant shall, at its
expense, comply with any direction of any governmental authority having
jurisdiction which shall, by reason of the nature of Tenant’s use or occupancy
of the Demised Premises, impose any duty upon Tenant or Landlord with respect
to the Demised Premises or with respect to the use or occupation thereof.

 

9.3           The
insurance to be initially carried by Landlord and Tenant pursuant to the
provisions of Article 19 shall be consistent with the actual use of the Demised
Premises. Thereafter, if the use of the Demised Premises changes to another use
permitted under Section 2.1.7, such insurance shall, to the extent available,
be consistent with such changed use. Tenant shall not do or permit to be done
anything which will invalidate any fire, extended coverage or any other
insurance policy covering the Building and Demised Premises. Tenant shall
comply with all reasonable rules, orders, regulations and requirements of the
insurers of the Demised Premises. Tenant shall pay for any additional premium
charged for any policy by reason of Tenant’s failure to comply with the
provisions of this Section, or by reason of Tenant’s particular use of the
Demised Premises.

 

9.4           Tenant
shall make available to Landlord, upon at least a forty-eight (48) hour advance
notice, the opportunity to inspect the Demised Premises. Additionally, Tenant
agrees to maintain keys for all locked doors in the Demised Premises in a fire
department controlled lock box located on the Demised Premises. Landlord’s
access shall be subject to such reasonable controls as are necessary for
preserving Tenant’s trade secrets and to maintain Landlord’s safety.

 

9.5           Tenant
shall keep the exterior appearance of the Demised Premises in a neat and
attractive condition, comparable to the appearance as of the Term Commencement
Date. In this regard, Tenant shall not place any unsightly items on the Demised
Premises which are visible from the surrounding areas.

 

9.6           No
equipment weighing in excess of the load per square foot which such floor was
designed to carry, or which is allowed by law, shall be placed upon the Demised
Premises. As part of the Corrective Work, the second floor is being retrofitted
to support 80 pounds of live load, plus 20 pounds of partition load, per square
foot.

 

9.7           Tenant
shall not allow the Demised Premises to be used for unlawful purposes, nor
shall Tenant cause, maintain or permit any nuisance or waste in or on the
Demised Premises.

 

18

 

10.           Brokers.

 

10.1         By separate
agreement, Landlord has agreed to pay a fixed fee to Tenant’s real estate
broker, John Burnham and Company, which broker has also acted in a dual
capacity representing Landlord in some regards. Landlord and Tenant each
represents and warrants that it has had no dealings with any other real estate
broker or agent in connection with the negotiation of this Lease. Landlord and
Tenant each represent that it knows of no other real estate broker or agent who
is or might be entitled to a commission in connection with this lease.

 

10.2         Tenant and
Landlord each represents and warrants that no broker or agent has made any
representation or warranty relied upon by them to enter into this Lease other
than as contained in this Lease.

 

10.3         The
employment of any brokers by Landlord is for the purpose of solicitation of
offers of lease from prospective tenants and no authority is or has been
granted to any broker to furnish any representation (written or oral) or
warranty from Landlord unless specifically contained in this Lease. Landlord,
in executing this Lease, does so in reliance upon Tenant’s representations and
warranties contained within this Article.

 

11.           Holding
Over.

 

11.1         If Tenant
remains in possession of all or any part of the Demised Premises after the
expiration or earlier termination of this Lease, with Landlord’s prior written
consent, Tenant shall be deemed a month-to-month tenant upon the date of such
expiration or earlier termination and, in such case, Tenant shall continue to
pay the Basic Annual Rent (as adjusted from the Term Commencement Date in
accordance with Article 6), Operating Expenses in accordance with Article 7,
and any other amount of Rent due Landlord pursuant to the terms of this Lease,
and such month-to-month tenancy shall be subject to every other term, covenant
and agreement contained herein.

 

11.2         If Tenant
remains in possession of the Demised Premises after the expiration or earlier
termination of the term hereof without the express written consent of Landlord,
Tenant shall become a tenant at sufferance upon all the terms of this Lease
applicable to a tenant at sufferance, except that the monthly installments of
Basic Annual Rent shall be equal to one hundred thirty-five percent (135%) of
the monthly installment of the Basic Annual Rent in effect during the
immediately preceding thirty (30) days of the scheduled term of the Lease.

 

19

 

11.3         Acceptance
by Landlord of Rent after such expiration or earlier termination of this Lease
shall not result in a renewal or reinstatement of this Lease.

 

11.4         The
foregoing provisions of this Article are in addition to and do not affect
Landlord’s right to re-entry or any other rights of Landlord hereunder or as
otherwise provided by law.

 

12.           Taxes
on Tenant’s Property.

 

12.1         Tenant shall
pay not less than ten (10) days before delinquency, all taxes levied against
any personal property or trade fixtures in or about the Demised Premises.

 

12.2         If any such
taxes on Tenant’s personal property or trade fixtures are levied against
Landlord or Landlord’s property or, if the assessed valuation of the Building
is increased by the inclusion therein of a value attributable to Tenant’s
personal property or trade fixtures, and if Landlord, after written notice to
Tenant, elects to pay the taxes based upon such increase in assessed value,
then Tenant shall, upon demand,
repay to Landlord the taxes so levied against Landlord.

 

13.           Condition
of Demised Premises.

 

13.1         In addition
to the acknowledgements set forth in Section 1.1 of Exhibit B, Tenant
acknowledges that neither Landlord nor any agent of Landlord has made any
representations or warranties (i) with respect to the condition of the Demised
Premises or the Building except as set forth herein or in Exhibit B, or (ii)
with respect to the suitability of the Demised Premises for the conduct of
Tenant’s business. As specified in Section 1.7.13 of Exhibit B, on or before
the Term Commencement Date, Landlord and Tenant shall conduct a walk through
inspection of the Demised Premises and prepare a punch list of those
construction items for Landlord’s Work which require remedial action.
Additionally, not later than twenty-five (25) days after the Term Commencement
Date, Landlord and Tenant shall conduct an additional walk through inspection
and shall prepare a punch list of those construction items for Landlord’s Work
which still require corrective action. Landlord shall cause Landlord’s
Contractor to complete the corrective action for the punch list items as soon
as feasible within 30 days, or such longer time as is reasonably necessary to
correct the item. Tenant shall be entitled to pursue any available remedies and claims against the construction
contractors, equipment suppliers, manufacturers and other responsible third
parties for any defects that may be discovered in the Demised Premises; and
Landlord will assign, on a non-exclusive basis, to Tenant any such claims if
such an assignment is appropriate to enable Tenant to pursue said claims

 

20

 

and remedies.
Landlord shall also be entitled to pursue available remedies against said third
parties. Additionally, Tenant may pursue any available remedies and claims
against Landlord for damages caused by Landlord’s Default, as Specified in
Section 22.10 below.

 

14.           Utilities
and Services.

 

14.1         Tenant shall
pay for all water, gas, electricity, telephone, trash removal and all other
Utilities and services supplied to the Demised Premises, together with any
taxes thereon.

 

14.2         Landlord
shall not be liable for, nor shall any eviction of Tenant result from, the
failure of any such utility or service to be furnished to the Demised Premises
when such failure is caused by accident, breakage, repairs, strikes, lockouts
or other labor disturbances or labor disputes of any character, governmental
regulation, moratorium or other governmental action, the inability to furnish
such utility or service despite the exercise of reasonable diligence by
Landlord or by any other cause beyond Landlord’s reasonable control, excluding
only interruptions of service caused by Landlord’s Default. In the event of
such failure, tenant shall not be entitled to any abatement or reduction of
Rent, nor shall Tenant be relieved from the operation of any covenant or
agreement of this Lease.

 

14.3         If Tenant
shall require any utilities or services in excess of that initially provided in
the approved Improvement Plans, such as by reason of equipment to be operated,
then Tenant shall make all necessary arrangements, at Tenant’s expense, for
such excess services and utilities.

 

14.4       Utilities
and services provided by Landlord to the Demised Premises shall be paid by
Tenant directly to the supplier of such utility or service.

 

15.           Alterations.

 

15.1         Without
Landlord’s prior written consent, which consent shall not be unreasonably
withheld, Tenant shall make no alterations, additions or improvements in or to
the Demised Premises, after the initial build-out, other than alterations,
additions or improvements which satisfy each of the following three criteria:
(i) no structural component of the Demised Premises is affected; and (ii) there
is no diminution in the value of the Demised Premises as a generic
biotechnology facility; and (iii) the total costs do not exceed Two Hundred
Thousand Dollars ($200,000) during any twelve (12) month period (such dollar
amount being increased by four percent (4%) per annum for inflation). Said
costs shall not include costs of moveable equipment or fixtures which are to be
included in the first sentence of

 

21

 

Section 15.8
below or on the List of Removable Equipment referenced in Section 15.8 below.
All such alterations, additions or improvements, whether or not requiring
Landlord’s consent, shall be made only by licensed and qualified contractors or
mechanics. Tenant’s contractor for performing any alterations, additions or
improvements shall be subject to Landlord’s reasonable approval and shall
maintain appropriate insurance as reasonably approved by Landlord.

 

15.2         All
alterations, additions or improvements made to the Demised Premises after the
initial build-out, by Tenant shall, at the option of Landlord, be removed at
the expense of Tenant at the end of the term of this Lease, if Landlord
determines that the alteration,
addition or improvement is likely to adversely affect the sale or rental
valuation of the Demised Premises or Landlord’s ability to promptly sell or
lease the Demised Premises. Provided however, when Tenant requests Landlord’s
consent for making a specific alteration, addition or improvement, Tenant may
also request in writing that Landlord waive Landlord’s option to require Tenant
eventually to remove said specific alteration, addition or improvement; and
Landlord may deny said request for a waiver in Landlord’s good faith
discretion, only if Landlord determines that such alteration, addition or
improvement would likely result in a diminution of the sale or lease value of
the Demised Premises as a generic biotechnology facility, Said denial shall be
by written notice to Tenant stating Landlord’s reasons and delivered within 15
days after Landlord’s receipt of Tenant’s Written request.

 

15.3         Tenant
agrees that any work by tenant shall be accomplished in such a manner as to
permit any fire sprinkler system and fire water supply lines to remain fully
operable at all times,

 

15.4         Tenant
covenants and agrees that all work done by Tenant shall be performed in full
compliance with all laws, rules, orders, ordinances, directions, regulations
and requirements of all governmental agencies, offices, departments, bureaus
and boards having jurisdiction and in full compliance with the rules, orders,
directions, regulations and requirements of any applicable fire rating bureau.
Tenant shall provide Landlord with “as-built” plans showing any material
changes in the Demised Premises.

 

15.5         Before
commencing any material work, except as permitted in Section 15.1 above, Tenant
shall give Landlord at least fifteen (15) days’ prior written notice of the
proposed commencement of such work.

 

15.6         Except as
provided in Sections 15.2 and 15.8, all alterations, decorations, fixtures,
equipment, additions and improvements attached to or built into the Demised
Premises, made

 

22

 

by either
party, shall, unless Landlord elects otherwise, become the property of Landlord
upon the expiration or earlier termination of the term of this Lease and shall
remain upon and be surrendered with the Demised Premises as a part thereof.

 

15.7         Tenant shall
repair any damage to the Demised Premises caused by Tenant’s removal of any
property from the Demised Premises; and Tenant shall be entitled to remove
property from the Demised Premises as specified in Section 15.8 below. During
any such restoration period, Tenant shall pay Rent to Landlord as provided
herein as if said space were otherwise occupied by Tenant.

 

15.8         All articles
of Tenant’s personal property, moveable trade fixtures, moveable machinery,
moveable equipment furniture and movable partitions which are owned by Tenant
and installed by Tenant at its expense in the Demised Premises, and not
installed as part of Landlord’s Work, shall be and remain the property of
Tenant and may be removed by Tenant at any time during the term of this Lease.
Additionally, Landlord and Tenant, with the consultation of Project Architect
shall prepare a list of equipment, machinery, and fixtures which were paid for
by Tenant and which are attached to the Building, but which Landlord
nevertheless agrees may be removed by Tenant at the expiration or termination
of the ten of this Lease (the “List of Removable Equipment”). The items to be
placed on the List of Removable Equipment shall be items which are paid for by
Tenant and which are not needed for the Demised Premises to continue to be
functional as a biotechnology laboratory and pilot plant facility. Landlord and
Tenant shall each act reasonably and in good faith in proposing and approving
the items to be placed on the List
of Removable Equipment. The placement of items such as (by way of example only)
large reaction vessels on this List of Removable Equipment shall not be deemed
to render the facility non-functional. Furthermore, the List of Removable
Equipment (as added to from time to time) shall be the best evidence of the
type of items to be placed on the List of Removable Equipment and shall be
persuasive as to the types of items to be included on the list in any
subsequent arbitration Proceeding. Said list shall be prepared and mutually
approved as soon as feasible, prior to the Term Commencement Date; and items
may be added to (or removed from) said list by mutual agreement during the term
of this Lease, if Tenant installs new equipment or fixtures. Under no
circumstances shall Tenant be entitled to remove any equipment, machinery,
fixture, item or improvement which was paid
for from the Improvements Cost Fund. Tenant shall leave in good condition,
reasonable wear and tear excepted, all improvements and items other than those
permitted to be removed as specified in the first sentence of this Section and
as identified on the List of
Removable Equipment. If Tenant shall fail to remove all of its effects from the
Demised Premises upon the termination of this Lease, then Landlord may, at its
option, remove the same in any

 

23

 

manner that
Landlord shall choose and store said effects without liability to Tenant for
loss thereof or damage thereto; and Tenant agrees to pay Landlord upon demand
any expenses incurred in such removal and storage. Landlord may, at its option
sell said property or any of the same, at private sale, for such price as
Landlord may obtain; and Landlord may apply the proceeds of such sale against any
amounts due under this Lease from Tenant to Landlord and against any expenses
incident to the removal, storage and sale of said personal property, with any
balance of the sales proceeds to be delivered to Tenant.

 

16.           Repairs
and Maintenance.

 

16.1         Landlord
shall repair and maintain the Building foundation and the structural components
of the exterior walls and the structural components of the roof of the
Building. Additionally, over the life of the Lease, Landlord shall pay for up
to $30,000 of the maintenance expenses for non-structural components of the
roof; and any unexpended portion of said $30,000 as of each anniversary date of
the Term Commencement Date shall be increased by a sum equal to 4% of said
unexpended portion. Landlord’s costs for said repair and maintenance shall be
borne solely by Landlord, and said costs shall not constitute an Operating
Expense to be paid by Tenant. If Landlord fails to promptly make such repairs
after written notice from Tenant requesting the same, then Tenant may make such
repairs on Landlord’s behalf, and (i) Landlord shall promptly reimburse Tenant
for the reasonable costs of such repairs, or (ii) Tenant may take a credit for
said costs against the Rent which is to become due thirty (30) days following
Tenant’s written notice to Landlord stating that Tenant expects to take such
credit, unless the matter is subject to dispute and arbitration.

 

16.2         Except for
Landlord’s obligations pursuant to Section 16.1 above, and Landlord’s
performance of the Corrective Work as described in the Work Letter, Tenant
shall, at Tenant’s sole cost and expense, keep the Demised Premises and every
part thereof in a good quality condition, ordinary wear and tear excepted, and
damage which is to be repaired by Landlord pursuant to Articles 20 and 21 also
excepted. Tenant shall, upon the expiration or sooner termination of the term
hereof, surrender the Demised Premises to Landlord in the same good, quality
condition as when received, ordinary wear and tear excepted, and damage which
is to be repaired by Landlord pursuant to Articles 20 and 21 also excepted.

 

16.3         Landlord
shall not be liable for any failure to make any repairs or to perform any
maintenance which is an obligation of Landlord, unless Landlord fails to make
the repair or perform the maintenance within a reasonable period of time after
written notice of the need of such repairs or maintenance is

 

24

 

given to
Landlord by Tenant. Except as provided in Articles 20 and 21 entitled “Damage
or Destruction” and “Eminent Domain,” respectively, there shall be no abatement
of Rent and no liability of Landlord by reason of any injury to or interference
with Tenant’s business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Demised Premises or in
or to fixtures, appurtenances and equipment therein. Tenant waives any rights
under Sections 1941 and 1942 of the California Civil Code or under any law,
statute or ordinance now or hereafter in effect to make repairs at Landlord’s
expense.

 

16.4         This Article
relates to repairs and maintenance arising in the ordinary course of operation
of the Building and any related facilities. In the event of material damage due
to fire, earthquake, flood, vandalism, war or similar cause of damage or
destruction, this Article shall not be applicable and the provisions of Article
20 entitled “Damage or Destruction” shall apply and control.

 

16.5         In
performing all of their respective maintenance and repair work and duties, both
Tenant and Landlord shall adhere to a standard of maintaining the building and
grounds in a good, quality condition, comparable in quality, functionality and
aesthetics to what existed in the first year of the term of this Lease, ordinary
wear and tear excepted.

 

17.         Liens.

 

17.1         Tenant shall
keep the Demised Premises free from any liens arising out of work performed,
materials furnished and obligations incurred by Tenant. Tenant covenants and
agrees that any mechanic’s lien filed against the Demised Premises for work
claimed to have been done for, or materials claimed to have been furnished to
Tenant, will be discharged by Tenant, by bond or otherwise, within thirty (30)
days after the filing thereof, at the cost and expense of Tenant.

 

17.2         should
Tenant fail to discharge any such lien, Landlord may, at Landlord’s election,
pay such claim or post a bond or otherwise provide security to eliminate the
lien as a claim against title, and the cost thereof shall be immediately due
from Tenant as Additional Rent.

 

17.3         In the event
Tenant shall lease or finance the acquisition of equipment, furnishings or
other personal property of a removable nature utilized by Tenant in the
operation of Tenant’s business, Tenant warrants that any Uniform Commercial
Code Financing Statement executed by Tenant will, upon its face or by exhibit
thereto, indicate that such Financing Statement is applicable only to such
removable personal property of Tenant

 

25

 

located within
the Demised Premises, the acquisition of which was financed by Tenant pursuant
to said Financing Statement. In no event shall the address of the Building be
furnished on the statement without qualifying language as to applicability of
the lien only to removable personal property therein. Should any holder of a
Financing Statement executed by Tenant record or place of record a Financing
Statement which appears to constitute a lien against any interest of Landlord
or against equipment which may be located other than within the Demised
Premises, Tenant shall, within ten (10) days after filing such Financing
Statement, cause (i) copies of the Security Agreement or other documents to
which the Financing Statement pertains to be furnished to Landlord to show that
such lien is not applicable to Landlord’s interest, and (ii) its lender to
amend documents of record so as to clarify that such lien is not applicable to
any interest of Landlord in the Demised Premises.

 

18.           Indemnification
and Exculpation.

 

18.1         Tenant
agrees to indemnify Landlord and its partners, directors, officers, agents and
employees (collectively “Landlord’s Agents”) against, and to defend and save
them harmless from, all demands, claims, causes of action or judgments, and all
reasonable expenses incurred in investigating or resisting the same (including
reasonable professional fees, including without limitation, fees for attorneys,
architects, engineers, and environmental consultants), for death of, or injury
to, any person or damage to property (i) occurring in, upon or about the
Demised Premises, (ii) arising from or out of Tenant’s use and occupancy of the
Demised Premises, or (iii) arising from or out of any act or Omission of
Tenant, its agents, contractors, employees, servants, tenants and invitees (“Tenant’s
Agents”), except if such death or injury, or damage to property is caused by
Landlord’s Default.

 

18.2         Except as
otherwise provided in this Article, Landlord agrees to indemnify Tenant and its
directors, officers, agents and employees against, and to defend and save then
harmless from all demands, claims, causes of action or judgments, and all
reasonable expenses incurred in investigating or resisting the same (including
reasonable attorneys’ fees), for death of, or injury to, any person or damage
to property occurring in, upon, or about the Demised Premises during the term
of this Lease arising from or out of Landlord’s Default.

 

18.3         Notwithstanding
any provision of Sections 18.1 and 18.2 to the contrary, Landlord shall not be
liable to Tenant or any other party, and Tenant assumes all risk of damage to
personal property, including loss of records kept within the Demised Premises,
if the cause of such damage is of a nature which, if Tenant had elected to
maintain fire and theft insurance with

 

26

 

extended
coverage and business records endorsement would be a loss subject to settlement
by the insurance carrier including but not limited to damage or losses caused
by fire, electrical malfunctions gas explosion and water damage of any type,
including but not limited to broken water lines, malfunction of sprinkler
systems, roof leakage or Stoppages of lines, unless and except if such loss is
due to Landlord’s Default. Tenant further waives any claim for injury to
Tenants business or loss of income relating to any such damage or destruction
of personal property, including any loss of records. The foregoing waivers are
limited to the extent of the insurance coverage described above that could have
been obtained.

 

18.4         Additionally,
Landlord shall not be liable to Tenant or Tenant’s Agents, and Tenant assumes
all risk of damage and liability (other than as may be covered by insurance or
by a third party), resulting from any defect or malfunction of (a) any Building
system or component of a Building system (such as HVAC, mechanical plumbing,
electrical, waste disposal, or sewer), or (b) the Pilot Plant Production
facility, or any of its systems or components, excepting only as may be Caused
by Landlord’s Default. Tenant shall be entitled to pursue any available claims
against the construction contractors and equipment suppliers and manufacturers
for any defects that may be discovered in the Demised Premises; and Landlord
will assign to Tenant any such claims if such an assignment is appropriate to
enable Tenant to pursue said claims.

 

18.5         Security
devices provided for the Building, while intended to deter crime, may not in
given instances prevent theft or other criminal acts, and it is agreed that Landlord
shall not be liable for injuries or losses caused by criminal acts of third
parties. The risk that any security device may malfunction or otherwise be
circumvented by a criminal is assumed by Tenant. Tenant shall, at Tenant’s
cost, obtain applicable insurance coverages to the extent Tenant desires
protection against such criminal acts.

 

19.           Insurance
— Waiver of Subrogation.

 

19.1         Landlord shall carry insurance upon the
Building and its Improvements to the extent such is insurable as part of the Building,
in an amount equal to (i) full replacement cost (exclusive of the costs of
excavation, foundations and footings, and without reference to depreciation
taken by Landlord upon its books or tax returns), or (ii) such lesser coverage
AS Landlord may elect provided such coverage is not less than ninety percent
(90%) of such full replacement cost or the amount of such insurance Landlord’s
mortgage lender requires Landlord to maintain. Such insurance shall provide
protection against any peril generally included within the “All-Risk, Broad
Form 1020”

 

27

 

form of
property insurance policy, which includes insurance against sprinkler damage,
vandalism and malicious mischief. Subject to availability thereof, Landlord may
further insure, as Landlord or its lender deems appropriate, against flood
and/or earthquake (but Tenant is not obligated to pay for earthquake coverage),
loss or failure of building equipment, hazardous materials risks, rental loss
during the period to repair or rebuild, and worker’s compensation insurance.
Additionally, at Tenant’s request and cost, such additional riders,
endorsements and coverage shall be added as Tenant may desire, if available.
The deductible limits of the insurance policy shall not exceed Five Thousand
Dollars ($5,000). The cost of all said insurance (except for the cost of
earthquake coverage) shall be an Operating Expense which shall be paid or
reimbursed by Tenant as Additional Rent. Landlord shall furnish to Tenant a copy
of said property insurance policy. To the extent available and applicable,
Tenant shall be named as an additional insured on Landlord’s property insurance
policy; and all of the specifications and provisions in Sections 19.3 and 19.5
applicable to Tenant’s liability insurance policy shall also be applicable to
Landlord’s property insurance policy, on a reciprocal basis for the benefit of
Tenant.

 

19.2         Tenant, at
its own cost, shall procure and continue in effect, from the Term Commencement
Date or the date of occupancy, whichever first occurs, and continuing
throughout the term of this Lease and thereafter until Tenant has fully and
finally surrendered the Demised Premises to Landlord, commercial general
liability insurance with limits of not less than Five Million Dollars
($5,000,000) per occurrence for death, bodily injury or property damage with
respect to the Demised Premises. The deductible amounts of such policy of
insurance shall not exceed Five Thousand Dollars ($5,000). In the event an
additional building is constructed and occupied by a tenant other than Tenant,
then Landlord shall maintain a similar policy for the common areas.

 

19.3         The
aforesaid Tenant’s liability insurance policy shall name as additional insureds
Landlord and Landlord’s property manager, construction manager, agents and
representatives for the Demised Premises. Said insurance shall be with
companies having a Policyholder rating of not less than A and financial
category rating of Class VII in “Best’s Insurance Guide,” unless otherwise
materially approved in writing by both Landlord and Tenant. Tenant shall cause
any insurance companies issuing Policies to Tenant to furnish certificates
evidencing such coverage to Landlord. No such policies shall be cancelable or
subject to reduction of coverage or other modification or cancellation except
after thirty (30) days’ prior written notice to Landlord from the insurer. All
such policies shall be written as primary policies, not contributing with and
not in excess of the coverage which Landlord may carry. Any of Tenant’s
policies may be in the nature

 

28

 

of a “blanket
policy” which specifically provides that the amount of insurance shall not be
prejudiced by other losses covered by the policy. Tenant shall, at least twenty
(20) days prior to the expiration of any such policies, furnish Landlord with
renewals or binders. Tenant agrees that if Tenant fails to procure and maintain
such insurance, Landlord may (but shall not be required to) procure said
insurance on Tenant’s behalf and charge Tenant the premiums for any such
policies, together with a reasonable handling charge, payable upon demand.

 

19.4         Tenant
assumes the risk of damage to any fixtures, goods, inventory, merchandise,
equipment, personal property of any kind, and Tenant’s Work. Landlord shall not
be liable for injury to Tenant’s business or any loss of income therefore
relative to damage to such items, all as more particularly set forth herein.
Tenant, at Tenant’s cost, shall carry such insurance as Tenant desires for
Tenant’s protection with respect to such items, business interruption or loss
of income.

 

19.5         If any
policy of insurance is to name
Landlord as additional insured, Tenant shall, upon written request of Landlord,
also designate and furnish certificates evidencing Landlord as an additional
insured to (i) any lender to Landlord holding a security interest in the
Building or, and/or (ii) the landlord under any lease wherein Landlord is or
shall become a tenant under a ground lease for the Land rather than that of fee
owner, and/or (iii) Landlord’s property manager, construction manager, agents
and representatives.

 

19.6         Landlord and
Tenant each hereby waive any and all rights of recovery against the other, or
against the officers, employees, agents and representatives of the other, on
account of loss or damage occasioned to such waiving party or its property or
the property of others under its Control to the extent that such loss or damage
is insured against under any all risk or fire and extended coverage insurance
policy which either party may have in force at the time of such loss or damage,
such waivers to continue as long as their respective insurers so permit. Any
termination of such a waiver shall be by written notice of circumstances as
hereinafter set forth. Landlord and Tenant, upon obtaining the policies of
insurance required or permitted under this Lease, shall give notice to the
insurance carrier or carriers that the foregoing mutual waiver of subrogation
is contained in this Lease. If such policies are unobtainable with such waiver
or obtainable only at premium over that chargeable without such waiver, the
party seeking such policy shall notify the other thereof, and the latter shall
have ten (10) days thereafter to either (i) procure such insurance in companies
reasonably satisfactory to the other party or (ii) agree to pay such additional
premium. If neither (i) nor (ii) are done, this Section 19.6 shall have no
effect during such time as such policies are unobtainable or the party in

 

29

 

whose factor a
waiver of subrogation is desired shall refuse to pay the additional premium. If
such policies shall at any time be unobtainable, but subsequently shall be
obtainable, neither party shall be subsequently liable for a failure to obtain
such insurance until a reasonable time after notification thereof by the other
party. If the release of either Landlord or Tenant, as set forth in the first
sentence of this Section shall contravene any law with respect to exculpatory
agreements, the liability of the party in question shall be deemed not released
but shall be secondary to the other’s insurer.

 

19.7         Not
more frequently than once each three (3) years, Landlord may require insurance
policy limits to be raised to conform with reasonable requirements of Landlord’s
lender or to bring coverage limits to the level then being required of similar
tenants of similar properties.

 

20.           Damage
or Destruction.

 

20.1         In
the event of a partial destruction of the Building by fire or other perils
covered by the property insurance, not exceeding fifty percent (50%) of the
full insurable value thereof, and if the damage thereto is such that the
Building may reasonably be expected to be repaired, reconstructed or restored
within a period of one year from the date of the happening of such casualty (or
up to 18 months with Force Majeure Delays as specified in section 20.7 below),
then Landlord shall commence and proceed diligently with the work of repair,
reconstruction or restoration and this Lease shall continue in full force and
effect.

 

20.2         In
the event of any insured damage to, or destruction of, the Building, other than
as provided in Section 20.1 above, such that the cost to repair such damage or
destruction is greater than fifty percent (50%) of the insurable value of the
Building, or restoration will require more than one year (or up to 18 months
with Force Majeure Delays as
specified in Section 20.7 below), then either Tenant or Landlord may, at its
option, elect to terminate this Lease by giving a written notice of termination
to the other party within thirty (30) days after the date of said damage or
destruction. If neither party so terminates, then Landlord shall be obligated
to repair the damages as soon as reasonably feasible.

 

20.3          In
the event of any uninsured damage to or destruction of the Building and the
cost to repair such damage or destruction is less than twenty-five percent
(25%) of the value of the Building (excluding the value of the Land) and the
repair can reasonably be expected to be completed within one year from the date
of damage (or up to 18 months with Force Majeure Delays as specified in Section
20.7 below), then Landlord shall repair,

 

30

 

reconstruct
and restore the Building, and this Lease shall continue in full force and
effect; provided however, that at least two (2) years will remain in the ten of
this Lease from the date the repair, reconstruction or restoration of the
Building will be completed. If any of the conditions are not satisfied, then
Landlord may elect to repair, reconstruct and restore the Building, in which
case this Lease shall Continue in full force and effect. If Landlord elects not
to so repair, reconstruct or restore the Building, then this Lease shall
terminate as of the date of destruction, unless Tenant elects (within 20 days
after receipt of Landlord’s election) to continue the Lease in full force and
effect, without Landlord being obligated to do any repairs, reconstruction or
restoration.

 

20.4         If Landlord
elects not to repair, reconstruct or restore the Buildings as permitted in
Sections 20.2 and 20.3 above, Landlord promptly shall give written notice to
Tenant of such election, but in no event shall such notice be given later than
forty-five (45) days after the date of damage or destruction. Even if Landlord
wants to make the repairs, reconstruction or restoration, if it is reasonably
likely that Landlord will not be able to complete the repairs, reconstruction
or restoration within eighteen months after the partial destruction (which time
period shall be extended for any delays caused by Tenant), then Tenant shall
have the option to terminate this Lease, so long as Tenant exercises this
option by delivering written notice of termination to landlord within
forty-five (45) days after Tenant receives written notice stating that
completion of the repair work likely will require more than said eighteen
months. Landlord shall keep Tenant informed as to the estimated completion date
for any repair work.

 

20.5         Upon any
termination of this Lease under any of the provisions of this Article, the
parties each shall be released thereby without further obligation to the other
from the date of damage or destruction, except for any liabilities or
obligations theretofore incurred or arising from matters which have theretofore
occurred (including any liability related to the damage or destruction).

 

20.6         In the event
of repair, reconstruction or restoration as herein provided, Basic Annual Rent
to be paid under this Lease shall be reduced equitably as of the date of damage
or destruction until the completion of the repairs and the restoration, but
only to the extent to which Tenant’s use of the Demised Premises is impaired
during the period of such repair, reconstruction or restoration. Tenant shall
not be entitled to any compensation or damages from Landlord occasioned by any
such damage, repair, reconstruction or restoration, excepting only as otherwise
expressly provided herein.

 

31

 

20.7         Notwithstanding
anything to the contrary contained in this Article, if Landlord is delayed or
prevented from completing the repair, reconstruction or restoration of the
Demised Premises by reason of acts of God, war, governmental restrictions,
inability to procure the necessary labor or materials, strikes or other causes
beyond the control of landlord (“Force Majeure Delays”), the time for Landlord
to commence or Complete repairs shall be extended for the length of such Force
Majeure Delays; provided, however, at the election of Landlord or Tenant,
Landlord shall be relieved of its obligation to make such repairs or
restoration (and Tenant shall be released thereby from its obligations under
this Lease) as of the end of eighteen (18) months from date of destruction if
the Demised Premises are not then substantially complete. Any such election
shall be by written notice delivered to the other party. In the event of any
Force Majeure Delay, Landlord shall give written notice to Tenant of Landlord’s
estimate of the length of time the delay is expected to continue. If the Force
Majeure Delay is expected to continue for more than nine (9) months, then
Landlord may, by written notice, elect to terminate this Lease. Tenant shall
have the right to independently verify Landlord’s estimate of the length of
time such delay is expected to continue.

 

20.8         If Landlord
is obligated to or elects to repair or restore as herein provided, Landlord
shall be obligated to repair or restore only those portions of the Building and
the Demised Premises which were originally provided at Landlord’s expense, plus
such other portions for which insurance proceeds are available to pay the costs
to repair or restore. The repair and restoration of Tenant’s Work and Special
Tenant Improvements for which no insurance proceeds are available shall be the
obligation of Tenant. Landlord’s repairs shall be limited to those repairs
which are payable from the available insurance proceeds; and if any additional
repairs or improvements are desired by Tenant, Tenant shall pay for the same.
Landlord shall cooperate with Tenant so as to enable Tenant to begin Tenant’s
Work as Landlord’s Work progresses.

 

20.9         Notwithstanding
anything to the contrary contained in this Article, Landlord shall have no
obligation whatsoever to repair, reconstruct or restore the Demised Premises
when (i) the damage resulting from any casualty covered under this Article
occurs during the last twenty-four (24) months of the term of this Lease (or
the term of any option period which Tenant exercises), and (ii) the aggregate
costs for repairs as expected reasonably to exceed the aggregate amount of the
Basic Rent payable for the
remainder of the term of this Lease (or any exercised option period). In the
event Landlord elects not to repair, reconstruct or restore the Demised
Premises pursuant to this Section, Tenant may, by written notice delivered to
Landlord within ten (10) days after receipt by Tenant of Landlord’s notice of
its election not

 

32

 

to repair,
reconstruct or restore the Demised Premises, elect to terminate this Lease.

 

21.           Eminent
Domain.

 

21.1         In the event
the whole of the Demised Premises, or such critical and essential parts thereof
as shall deprive Tenant of the usefulness to Tenant of the Demised Premises, be
taken for any public or quasi-public purpose by any lawful power or authority
by exercise of the right of appropriation, condemnation or eminent domain, or
sold to prevent such taking, Tenant or Landlord may terminate this Lease
effective as of the date possession is required to be surrendered to said
authority.

 

21.2         Upon any
taking, if this Lease is not terminated pursuant to Section 21.1 above, then
Landlord promptly shall proceed to restore the Demised Premises to
substantially their same condition, to the extent reasonably possible, prior to
such partial taking. Until such restoration has been completed, thereafter
Basic Annual Rent shall be abated proportionately based on the percentage of
the rental value of the Demised Premises after such taking as compared to the
rental value of the Demised Premises prior to such taking.

 

21.3         Tenant shall
be entitled to any award which is specifically awarded as compensation (i) for
the taking of Tenant’s personal property and fixtures, including excess tenant
improvements which were installed at Tenant’s expense, and (ii) for costs of
Tenant moving to a new location, and (iii) for Tenant’s loss of business. All
other compensation awarded for such taking shall belong to Landlord.

 

22.           Defaults
and Remedies.

 

22.1       Late
payment by Tenant to Landlord of Rent or other sums due will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which is
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, attorneys’ charges, late payment charges on
a mortgage, and so forth. In the event that Landlord does not receive a monthly
installment of Rent by the first day of the month and said delinquency is not
cured within two (2) business days after Tenant receives a written notice of
the delinquency, then Tenant shall pay to Landlord a service charge in an
amount of One Thousand Dollars ($1,000); and a similar late payment service
charge shall be paid on the second day of each subsequent month that the same
monthly installment of Rent remains unpaid. Provided, however, if more than one
such delinquency occurs during any twelve month period, then no notice of
delinquency shall be required for the following twelve months, and tenant shall
pay said $1,000 service charge for each installment which is not

 

33

 

received by
Landlord by the fifth day of the month (which installment nevertheless is due
on the first day of the month) and a similar late payment service charge shall
be paid on the second day of each subsequent month that the same monthly
installment of Rent remains unpaid. In addition to the foregoing late payment
service charge, the unpaid monthly installment of Rent amount owing and past
due, shall bear interest at a per annum rate equal to the Bank of America prime
rate, plus three percentage points. Such interest shall be calculated from the
date such amount was first due and payable until the same shall have been fully
paid. Additionally, if Landlord uses its own fund reserves to pay an
installment owing on any mortgage or deed of trust covering the Demised
Property, or if Landlord defaults on any said mortgage or deed of trust,
because of a default by Tenant in paying Rent when due, then Tenant shall also
pay to Landlord such late payment charge as is specified by the terms of said
mortgage or trust deed covering the Demised Premises. Further, if Landlord
incurs any reasonable attorney’s fees in excess of $500 with respect to all
defaults by Tenant in any calendar year, then Tenant shall pay as an additional
late payment charge the sum of all such attorney’s fees in excess of $500. The
foregoing late payment charges and interest shall accrue without the need for
Landlord to give Tenant any reminder notice or default notice as to the unpaid
amount owing.

 

22.2         No payment
by Tenant or receipt by Landlord of a lesser amount than that due shall be
deemed to be other than on account of the amount due, nor shall any endorsement
or statement on any check or any letter accompanying any check or payment be
deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord’s right to recover the balance or pursue
any other remedy provided. If at any time a dispute shall arise as to any
amount or sum of money to be paid by Tenant to Landlord, Tenant shall have the
right to make payment “under protest” and such payment shall not be regarded as
a voluntary payment, and Tenant shall have the right to institute suit for
recovery of the payment paid under protest. Tenant shall have the right to
specify what obligation its payment is to be applied against.

 

22.3         If Tenant
fails to perform any other act on its part to be performed hereunder, Landlord
may, without waiving or releasing Tenant from any obligations of Tenant,
perform such act on behalf of Tenant if Tenant has not cured its failure within
the time period specified in Section 22.4(b) below.

 

22.4         The
occurrence of any one or more of the following events shall constitute a “Default”
hereunder by Tenant:

 

34

 

(a)             The failure by Tenant to make any
payment of Rent, as and when due, which failure is not cured within five days
after Tenant receives written notice of the delinquent Rent;

 

(b}            The
material failure by Tenant to observe or perform any material obligation other
than described in Section 22.4(a) above, to be performed by Tenant where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Landlord to Tenant. Such notice shall be in lieu of, and not in
addition to, any notice required under California code of Civil Procedure
Section 1161; provided that, if the nature of Tenant’s default is such that it
reasonably requires more than thirty (30) days to cure, then Tenant shall not
be deemed to be in default if Tenant shall commence such cure within said
thirty (30) day period and thereafter diligently prosecute the same to
completion;

 

(c)           Tenant
makes an assignment for the benefit of creditors;

 

(d)           A
receiver, trustee or custodian is appointed to, or does, take title, possession
or control of all, or substantially all, of Tenant’s assets and is not removed
within sixty (60) days;

 

(e)           An
order for relief is entered against Tenant pursuant to a voluntary or
involuntary proceeding commenced under any chapter of the Bankruptcy Code and
is not removed within sixty (60) days;

 

(f)            Any
involuntary petition if filed against the Tenant under any chapter of the
Bankruptcy Code and is not dismissed within ninety (90) days;

 

(g)           Tenant’s
interest in this Lease is attached, executed upon or otherwise judicially
seized and such action is not released within ninety (90) days of the action;
or

 

(h)           Tenant
fails to comply fully with all provisions in Article 37 concerning Hazardous
Materials, subject to Tenant’s right to cure as specified in Section 22.4(b)
above.

 

Notices given
under this Section shall specify the alleged default and shall demand that
Tenant perform the provisions of this Lease within the applicable period of
time, or quit the Demised Premises. No such notice shall be deemed a forfeiture
or a termination of this Lease unless Landlord elects otherwise in such notice.

 

22.5          In
the event of a Default by Tenant, and at any time thereafter while the Default
remains uncured, with or without

 

35

 

notice or
demand and without limiting Landlord in the exercise of any right or remedy
which Landlord may have, Landlord shall be entitled to terminate Tenant’s right
to possession of the Demised Premises by any lawful means, in which case this Lease shall terminate and Tenant
shall immediately surrender possession of the Premises to Landlord. In such
event, Landlord shall have the immediate right to re-enter and remove all
persons and property, and such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Tenant, in
accordance with California law, and without being deemed guilty of trespass or
becoming liable for any loss or damage which may be occasioned thereby,
excepting only for damages caused by Landlord’s gross negligence or willful
misconduct. In the event that Landlord shall elect to so terminate this Lease,
then Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant’s default, including:

 

(a)           The worth at the time
of award of any unpaid rent which had been earned at the time of such
termination; plus

 

(b)           The worth at the time
of award of the amount by which the unpaid rent which would have been earned
after termination until the time of award exceeds that portion of such rental
loss which Tenant proves could have been reasonably avoided; plus

 

(c)           The worth at the time
of award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of such rental loss which Tenant
proves could have been reasonably avoided; plus

 

(d)           Any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant’s failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom, including but
not limited to the cost of restoring the Premises to the condition required
under the terms of this Lease; plus

 

(e)           At
Landlord’s election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law.

 

As used in
Subsections (a) and (b) above, “worth at the time of award” shall be computed
by allowing interest at the rate specified in Section 22.1 above. As used in
Subsection (c) above, the “worth at the tine of award” shall be computed by
determining the present value of such amount using the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percentage
point.

 

36

 

The amount of
damages recoverable by Landlord shall be calculated and determined in
accordance with the applicable California legal principle requiring Landlord to
use reasonable efforts to mitigate damages.

 

22.6         If Landlord does not elect to terminate
this Lease on account of Tenant’s Default as provided in this Section, then
Landlord may, from time to time, recover all Rent as it becomes due under this
Lease pursuant to California Civil Code section 1951.4. At any time thereafter
while the Default remains uncured, Landlord may elect to terminate this Lease
and to recover damages to which Landlord is entitled.

 

22.7         In the event Landlord elects to
terminate this Lease and relet the Premises, it may execute any new lease in
its own name. Tenant hereunder shall have no right or authority whatsoever to
collect any rent or other sums from such tenant. The proceeds of any such
reletting shall be applied as follows:

 

(a)           First, to the payment of any
indebtedness other than Rent due hereunder from Tenant to Landlord, including
but not limited to storage charges or brokerage commissions owing from Tenant
to Landlord as the result of such reletting;

 

(b)           Second, to the payment of the costs
and expenses of reletting the Premises, including alterations and repairs which
Landlord deems reasonably necessary and advisable, and reasonable attorneys’
fees incurred by Landlord in connection with the retaking of the Premises and
such reletting;

 

(c)           Third, to the payment of Rent and
other charges due and unpaid hereunder; and

 

(d)           Fourth, to the payment of future Rent
and other damages payable by tenant under this Lease.

 

22.8         All rights, options and remedies of
Landlord contained in this Lease shall be construed and held to be
non-exclusive and cumulative. Landlord shall have the right to pursue any or
all of such remedies or any other remedy or relief which may be provided by
law, whether or not stated in this Lease. No waiver of any default of Tenant
hereunder shall be implied from the acceptance by Landlord of any Rent or other
payments due hereunder or any omission by Landlord to take any action on
account of such default if such default persists or is repeated, and no express
waiver shall affect defaults other than as specified in said waiver.

 

22.9         Termination of this Lease or Tenant’s
right to possession by Landlord shall not relieve Tenant from any liability to
Landlord which has theretofore accrued or shall arise based

 

37

 

upon events
which occurred prior to the later of (1) the date of Lease termination, or (ii)
the date possession of Demised Premises is surrendered to Landlord.

 

22.10       Landlord shall not be in default under
this tease unless Landlord fails to perform an obligation required of Landlord
under this Lease within a reasonable time, but in no event later than thirty
(30) days after written notice by Tenant specifically identifying the
obligation Landlord has failed to perform; provided, however, that if the
nature of Landlord’s obligation is such that more than thirty (30) days are
required for performance, then Landlord shall not be in default if Landlord
commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion. A “Landlord’s Default” shall
exist if and only if (i) said written notice of default is given to Landlord
and Landlord fails to promptly cure the same; or (ii) Landlord commits an
intentionally wrongful act or (iii) Landlord acts negligently at the Demised
Premises relative to Landlord’s general law duties, as distinguished from
Landlord’s contractual duties under this Lease. Landlord’s liability for a
Landlord’s Default shall be only for damages arising from and after Landlord’s
receipt of Tenant’s written notice claiming a default by landlord. Any claims
for a Landlord’s Default concerning the Landlord’s Work shall be asserted in
writing, if at all, not later than 360 days following the substantial
completion of the Landlord’s Work. In the event that there is any insurance
coverage for the damages claimed to be caused by a Landlord’s Default, said
insurance proceeds shall be exhausted and Landlord shall be obligated to pay
only the remainder of said damages.

 

22.11       In the event of any default on the part
of Landlord, Tenant shall give notice, by registered or certified mail, at any
address provided to Tenant, to any beneficiary of a deed of trust or mortgagee
of a mortgage covering the Building or Demised Premises whose address shall
have been furnished to Tenant and Tenant shall offer such beneficiary or
mortgagee a reasonable opportunity to cure the default, not to exceed thirty
(30) days from the date of receipt of notice from Tenant.

 

23.                                 Assignment or
Subletting.

 

23.1         Tenant shall have the right to sell,
hypothecate or transfer this Lease, or sublet the Demised Premises or any part
hereof, only after first obtaining the prior written consent of
Landlord, which consent shall not be unreasonably withheld. A transfer of more
than fifty percent (50%) of the equity ownership of Tenant during any two-year
period to a party (or to an affiliated group of parties) shall constitute a
prohibited assignment; provided, however, this provision shall not be
applicable if such transfers occurred on a public stock exchange.

 

38

 

23.2         If Tenant desires to assign this Lease
to any entity (i) into which Tenant is merged, (ii) with which Tenant is
consolidated, (iii) which acquires all or substantially all of the assets of
Tenant, (iv) which owns a Controlling interest in Tenant, (v) in which Tenant
owns a controlling interest, or (vi) which is owned or controlled by an entity owning a
controlling interest in Tenant (collectively, “Affiliates”), Landlord will
consent to the assignment so long as each of the following conditions are
satisfied: (x) the assignee Affiliate first executes, acknowledges and delivers
to Landlord an agreement whereby the assignee agrees to be bound by all of the
covenants and agreements in this Lease, (y) the assignee Affiliate shall have a
net worth (determined in accordance with generally accepted accounting
principles consistently applied) immediately after such assignment, which is at
least as high a net worth as Tenant’s is immediately preceding the assignment,
and (z) the assignee Affiliate’s use of the Demised Premises will not
materially adversely affect the value of the Demised Premises or the risks of
Hazardous Materials problems.

 

23.3         If Tenant desires to sublet the Demised
Premises to any Affiliate, provided that the sublessee first executes,
acknowledges and delivers to Landlord an agreement whereby the sublessee agrees
to be bound by all of the covenants and agreements in this Lease, other than
the payment of Basic Annual Rent and Operating Expenses, then Landlord, upon
receipt of the foregoing, will consent to the subletting.

 

23.4         In the event Tenant desires to assign,
sublease, hypothecate or otherwise transfer this Lease or sublet the Demised
Premises, or part thereof, and the proposed transaction is not within the
criteria specified in Section 23.2, then at least fifteen (15) days prior to
the date when Tenant desires the assignment or sublease to be effective (the “Assignment
Date”), Tenant shall give Landlord written notice (“the Assignment Notice”)
which shall set forth the name, address and business of the proposed assignee
or sublessee, information (including references) concerning the character of
the proposed assignee or sublessee, the Assignment Date, any ownership or
commercial relationship between Tenant and the proposed assignee or sublessee,
and the consideration and all other material terms and conditions of the
proposed assignment or sublease, all in such detail as Landlord shall
reasonably require. Additionally, Tenant shall furnish to Landlord a copy of
the financial statements for the most recently past fiscal year, as well as the
most recent quarterly financial statements for both Tenant and the proposed
assignee or sublessee.

 

23.5         Except as otherwise provided in
Sections 23.2 and 23.3above, Landlord, in making its determination as to
whether consent should be given to a proposed assignment or sublease, may

 

39

 

give
consideration to the reputation in the community of a proposed successor, the
financial strength of such successor (notwithstanding the assignor or sublessor
remaining liable for Tenant’s Performance), and any change in use which such
successor proposes to make in use of Demised Premises (provided, however,
Landlord will not withhold its consent if the changed use is permitted by
applicable Zoning and does not involve a material risk to the Demised Premises
due to the use of a prohibited Hazardous Material as defined in Section 37.7
hereof). In no event shall Landlord be deemed to be unreasonable for declining
to consent to a transfer to a successor of poor reputation, lacking a net worth
equal to at least two times the Basic Annual Rents, or seeking change in use.
Landlord may also withhold consent reasonably, pursuant to the terms of Section
37.3 concerning Hazardous Materials. It shall be unreasonable and bad faith for
Landlord to ask for any additional consideration as a condition for Landlord to
consent to a proposed assignment or subletting. In the event Landlord’s
Withholding of consent to a proposed assignment or subletting is found to be
unreasonable pursuant to the arbitration proceeding, Tenant’s sole remedy shall
be to have the proposed assignment or subletting declared valid as if Landlord’s
consent had been given, and to recover attorneys fees and arbitration cost for
the arbitration, unless the arbitration proceeding also finds that Landlord
withheld its consent in bad faith, it Landlord withholds its consent to a
proposed assignment or subletting, and Tenant requests an arbitration to determine
if Landlord’s withholding is reasonable, said arbitration shall be held,
conducted and Completed on an expedited basis, within fourteen (14) days after
Landlord receives Tenant’s written demand for arbitration. In lieu of the
arbitration procedures set forth in Section 38.19 below, (i) the arbitration
shall be by a single neutral arbitrator, who shall be the person who is the
head of the Commercial Real Estate Department of John Burnham & Company (if
he is willing to serve and is independent and neutral of both Tenant and
Landlord),or otherwise a similar person at CB Commercial Real Estate, San Diego
office; and (ii) the arbitration proceedings shall be expedited by the parties
and the arbitrator so as to complete the proceedings within fourteen days.

 

23.6         Any sale, assignment, hypothecation or
transfer of this Lease or subletting of Demised Premises, or part thereof, that
is not in compliance with the provisions of this Article shall be void. Any
such transaction shall constitute a Default if Landlord would have been
entitled to withhold its consent to such proposed transaction and if not
remedied within thirty (30) days after Tenant receives a written notice thereof
from Landlord.

 

23.7         The consent by Landlord to an
assignment or subletting shall not relieve Tenant or any assignee of this Lease
or sublessee of the Demised Premises from obtaining the consent of

 

40

 

Landlord to
any further assignment or as releasing Tenant or any assignee or sublessee of
Tenant from full and primary liability.

 

23.8         If Tenant shall sublet the Demised
Premises, or any part thereof, Tenant hereby immediately and irrevocably
assigns to Landlord, as security for Tenant’s obligations under this Lease, all
rent from any such subletting, and Landlord, as assignee and as
attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord’s
application, may collect such rent and apply it toward Tenant’s obligations
under this Lease; except that Tenant shall have the right to collect such rent
from the sublessee at all tines while there is no Default by Tenant
outstanding.

 

23.9         Notwithstanding any subletting or
assignment, Tenant shall remain fully and primarily liable for the payment of
all Rent and other sums due, or to become due, hereunder, and for the full
performance of all other terms, conditions and covenants to be kept and
performed by Tenant hereunder. The acceptance of Rent or any other sum due
hereunder, or the acceptance of performance of any other term, covenant or condition
hereof, from any other person or entity shall not be deemed to be a waiver of
any of the provisions of this Lease or a consent to any subletting or
assignment of the Demised Premises.

 

23.10       Upon the termination of any sublease, the
subtenant or Tenant shall comply with the provisions of Sections 37.5.1 and
37.5.2 for the sublet premises.

 

24.                                 Attorney’s Fees.

 

24.1         If either party hereto becomes a party
to any litigation concerning this Lease, the Demised Premises, or the Building,
by reason of any act or omission of the other party or its authorized
representatives, and not by any act or omission of the party that becomes a
party to that litigation or any act or omission of its
authorized-representatives the party that causes the other party to become
involved in the litigation shall be liable to that party for reasonable
attorneys’ fees and court costs incurred by it in the litigation.

 

24.2         If either party hereto commences an
action or arbitration against the other party arising out of or in connection
with this Lease, the prevailing party shall be entitled to have and recover
from the losing party reasonable attorneys’ fees and costs incurred in any
legal action or arbitration proceeding.

 

25.                                 Bankruptcy.

 

25.1         In the event a debtor, trustee or debtor-in-possession
under the Bankruptcy Code, or other person with similar

 

41

 

rights, duties
and powers under any other law, proposes to cure any default of Tenant under
this Lease or to assume or assign this Lease and is obliged to provide adequate
assurance to Landlord that (i) a default will be cured, (ii) Landlord will be
compensated for its damages arising from any breach of this Lease, or (iii)
future performance under this Lease will occur, then adequate assurance shall
include any or all of the following:

 

(a)           Those acts specified in the
Bankruptcy Code or other laws as included within the meaning of adequate
assurance, even if this Lease does not concern a shopping center or other
facility described in such laws:

 

(b)           A prompt cash payment to compensate
Landlord for any monetary defaults or damages arising from a breach of this
Lease;

 

(c)           A cash deposit in an amount at least
equal to the Security Deposit originally required at time of execution of this
Lease;

 

(d)           The creditworthiness and
desirability, as a tenant, of the person assuming this Lease or receiving an
assignment of this Lease, at least equal to Landlord’s customary and usual
creditworthiness requirements and desirability standards in effect at the time
of the assumption or assignment; and

 

(e)           The assumption or assignment of all
of Tenant’s interest and obligations under this Lease.

 

26.                                 Definition of
Landlord.

 

26.1         The term “Landlord” as used in this
Lease, so far as covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only Landlord or the
successor-in-interest of Landlord under this Lease at the time in question.
From and after the Term Commencement Date, in the event of any transfer, assignment
or the conveyance of Landlord’s title or leasehold, the Landlord herein named
(and in case of any subsequent transfers or conveyances, the then grantor)
shall be automatically freed and relieved from and after the date of such
transfer, assignment or conveyance of all liability for the performance of any
covenants or obligations contained in this Lease thereafter to be performed by
Landlord. Said transfer shall not affect any liabilities for failures in
Landlord’s performance which occurred prior to the transfer. Without further
agreement, the transferee of such title or leasehold shall be deemed to have
assumed and agreed to observe and perform any and all obligations of Landlord
hereunder during its ownership or ground lease of the Demised Premises. Landlord
may transfer its interest in the Demised Premises or this Lease without the
consent of Tenant, and

 

42

 

such transfer,
or a subsequent transfer shall not be deemed a violation on the part of
Landlord or the then grantor of any of the terms or conditions of this Lease.

 

27.                                Estoppel Certificate.

 

27.1         From time to time as reasonably
requested by Landlord, Tenant shall, for the benefit of Landlord’s lender(s) or
purchasers, within fifteen (15) days of written notice from Landlord, execute,
acknowledge and deliver to Landlord a statement in writing substantially in the
form attached to this Lease as Exhibit “E” with the blanks filled in, or on any
other form reasonably requested by a proposed lender or purchaser (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this
Lease as so modified is in full force and effect) and the dates to which the
Rent and other charges are paid in advance, if any, (ii) acknowledging that
there are not, to Tenant’s knowledge, any uncured defaults on the part of
Landlord hereunder or specifying such defaults if any are claimed, and (iii)
setting forth such further reasonable information with respect to this Lease or
the Demised Premises as may be requested thereon. Any such statement may be
relied upon by any prospective purchaser or encumbrancer of all or any portion
of the Demised Premises. Nothing in any estoppel certificate shall change the
rights or obligations of the Landlord and Tenant as between themselves.

 

27.2         From time to time as reasonably
requested by Tenant, Landlord shall, within fifteen (15) days of written notice
from Tenant, execute, acknowledge and deliver to Tenant an estoppel certificate
similar in form to the estoppel certificate specified in Section 27.1, for the
benefit of a specified third party with whom Tenant is dealing, such as an
investor, lender, potential Affiliate, subtenant or assignee.

 

28.                                 Joint
and Several Obligations.

 

28.1         If more than one entity executes this
Lease as Tenant:

 

(a)           Each of them is jointly and severally
liable for the keeping, observing and performing all of the terms, covenants,
conditions, provisions and agreements of this Lease to be kept, observed and
performed by Tenant; and

 

(b)           The term “Tenant” shall mean and
include each of them jointly and severally. The act of, notice from, notice to,
refund to or the signature of any one or more of them, with respect to this
Lease, including but not limited to any renewal, extension, expiration,
termination or modification of this Lease,

 

43

 

shall be
binding upon each and all of the persons executing this Lease as Tenant with
the same force and effect as if each and all of them had so acted, so given or
received such notice or refund or so signed.

 

29.                          Limitation
of Landlord’s Liability.

 

29.1         If Landlord is a limited partnership or
joint venture, the limited partners of such partnership shall not be personally
liable and no limited partner of Landlord shall be sued individually or named
individually as a party in any suit or action or service of process be made
against any limited partner of Landlord. If Landlord is a corporation, the shareholders,
directors, officers, employees and/or agents of such corporation shall not be
personally liable and no shareholder, director, officer, employee or agent of
Landlord shall be sued or named as a party in any suit or action or service of
process be made against any shareholder, director, officer, employee or agent
of Landlord (excluding however the corporation’s statutory agent for service of
process). No limited partner, shareholder, director, employee or agent of
Landlord shall be required to answer or otherwise plead to any service of
process and no judgment will be taken or writ of execution levied against any
limited partner, shareholder, director, employee or agent of Landlord.

 

29.2         Each of the covenants and agreements of
this Article shall be applicable to any covenant or agreement either expressly
contained in this Lease or imposed by statute or by common law.

 

29.3         See also, Section 22.10 for a
definition of Landlord’s Default.

 

30.                                 Intentionally
Omitted.

 

31.                                 Quiet Enjoyment.

 

31.1         Landlord covenants that Landlord or
anyone acting through or under Landlord will not disturb Tenant’s occupancy of
the Demised Premises, except as permitted by the provisions of this Lease.

 

32.                                 Quitclaim Deed.

 

32.1         Tenant shall execute and deliver to
Landlord on the expiration or termination of this Lease, immediately upon
Landlord’s request, a quitclaim deed to the Demised Premises or other document
in recordable form suitable to evidence of record termination of this Lease.
Landlord may withhold the refund of any security deposit until said quit claim
deed has been delivered by Tenant.

 

44

 

33.                                 Subordination
and Attornment.

 

33.1         This Lease shall be subject and
subordinate to the lien of any mortgage, deed of trust or lease in which
Landlord is tenant, now or hereafter in force against the Demised Premises, and
to all advances made or hereafter to be made upon the security thereof without
the necessity of the execution and delivery of any further instruments on the part
of Tenant to effectuate such subordination; provided the holder of any such
mortgage, deed of trust or lease executes, acknowledges and delivers to Tenant
a non-disturbance agreement (in a torn reasonably satisfactory to Tenant)
providing that so long as Tenant performs all of its obligations under the
Lease, Tenant’s quiet enjoyment and use of the Demised Premises shall not be
disturbed.

 

33.2         Notwithstanding the foregoing, Tenant
shall execute and deliver upon demand such further instrument or instruments
evidencing such subordination of this Lease to the lien of any such mortgages,
deeds of trust or leases in which Landlord is tenant as may be required
reasonably by Landlord’s lender. However, if any such mortgagee, beneficiary or
landlord under a lease wherein Landlord is tenant so elects, this Lease shall
be deemed prior in lien to any such lease, mortgage or deed of trust upon or
including the Demised Premises, regardless of date, and Tenant shall execute a
statement in writing to such effect at Landlord’s request.

 

33.3         In the event any proceedings are
brought for foreclosure, or in the event of the exercise of the power of sale
under any mortgage or deed of trust covering the Demised Premises, Tenant
shall, at the election of purchaser at such foreclosure or sale, attorn to such
purchaser and recognize such purchaser as the Landlord under this Lease.

 

33.4         If Landlord obtains a loan commitment
from a lender for the financing or refinancing of the Demised Premises, and
said loan commitment requires same amendment(s) to this Lease, then Tenant,
shall cooperate with Landlord in executing said amendment(s), so long as the
amendment(s) do not materially adversely affect any of the material rights or
obligations of Tenant under this Lease.

 

34.                                 Surrender.

 

34.1         No surrender of possession of any part
of the Demised Premises shall release Tenant from any of its obligations
hereunder unless accepted by Landlord.

 

34.2         The voluntary or other surrender of
this Lease by Tenant shall not work a merger, unless Landlord consents, and

 

45

 

shall, at the
option of Landlord, operate as an assignment to it of any or all subleases or
subtenancies.

 

34.3         The voluntary or other surrender of any
ground or underlying lease that may hereafter be executed affecting the
Building or Demised Premises, or a mutual cancellation thereof or of Landlord’s
interest therein, shall not work a merger and shall, at the option of the
successor of Landlord’s interest in the Building or Demised Premises, operate
as an assignment of this Lease.

 

35.                                 Waiver and
Modification.

 

35.1         No provision of this Lease may be
modified, amended or added to except by an agreement in writing executed by
Landlord and Tenant. The waiver by Landlord or Tenant of any breach of any
term, covenant or condition herein contained shall not be deemed to be a waiver
of any subsequent breach of the same or any other term, covenant or condition
herein contained.

 

36.                                 Waiver
of Jury Trial and Counterclaims.

 

36.1         The parties hereto shall and do hereby
waive trial by jury in any action, proceeding or counterclaim brought by either
of the parties hereto against the other on any flatters whatsoever arising out
of or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant’s use or occupancy of the Demised Premises and/or any claim of
injury or damage.

 

37.                                 Hazardous Materials.

 

37.1         Prohibition/Compliance. Tenant,
at its sole cost, shall comply with all federal, state and local laws,
statutes, ordinances, codes, regulations and orders relating to the receiving,
handling, use, storage, accumulation, transportation, generation, spillage,
migration, discharge, release and disposal of any Hazardous Material (as
defined in this Article) in or about the Demised Premises or the Building.
Provided, however, Tenant shall not be responsible for Hazardous Materials
which were on the Demised Premises prior to the Term Commencement Date (and the
parties are not aware of any), and Tenant shall not be responsible for Hazardous
Materials which might spill or seep onto the Land from a neighboring property
(none of which are known or anticipated), and Tenant shall not be responsible
for Hazardous Materials which were placed on the Demised Premises by persons
who are not subject to Tenant’s control, it being agreed that the following
types of persons are subject to Tenant’s control: Tenant’s employees, officers,
directors, consultants, agents, contractors, subcontractors, invitees,
customers, vendors, suppliers, etc. (hereinafter collectively called “Tenant’s
Invitees”) Tenant shall not cause or permit any Hazardous

 

46

 

Material to be
brought upon, kept or used in or about the Demised Premises by Tenant, or
Tenant’s Invitees in a manner or for a purpose prohibited by any federal, state
or local law, rule or regulation. The disposal of Hazardous Material shall be
in approved containers and removed from the Demised Premises by duly licensed
carriers. Tenant shall immediately provide Landlord with telephonic notice,
which shall promptly be confirmed by written notice, of any and all spillage,
discharge, release and disposal (outside the ordinary course of business) of
Hazardous Materials onto or within the Demised Premises or the Building, which
by law must be reported to any federal, state or local agency, and any injuries
or damages resulting directly or indirectly therefrom. A failure of Tenant to
give to Landlord the notices required in this Section 37.1 shall constitute a
default under this Lease, subject to the cure provisions specified in Section
22.4(b). Further, Tenant shall deliver to Landlord each and every notice or
order received from any federal, state or local agency concerning Hazardous
Materials and the possession use and/or disposal thereof promptly upon receipt
of each such notice or order. Similarly, if Landlord receives any such
government notices or orders, then Landlord shall promptly deliver a copy to
Tenant. Tenant shall be responsible for and shall indemnify, protect, defend
and hold harmless Landlord and its agents, employees, representatives,
directors and officers from any and all claims, costs, penalties, fines,
losses, including without limitation, (i) temporary or permanent diminution in
value of the Demised Premises or the Building for the time period after the
termination of this Lease, (ii) damages for the temporary or permanent loss or
restriction on Use of rentable or usable space or of any amenity of the Demised
Premises or the Building for the time period after the termination of this
Lease, and (iii) sums paid in settlement of claims, consultant fees and expert
fees, liabilities, attorneys’ fees, damages, injuries, causes of action,
judgments and expenses, which arise during or after the term of this Lease and
which result from Tenant’s
receiving, handling, use, storage, accumulation, transportation, generation,
spillage, migration, discharge, release or disposal of Hazardous Materials in,
upon or about the Demised Premises or the Building. Similarly, Landlord shall
be responsible for and shall indemnify, protect, defend and hold harmless
Tenant and its agents, employees, representatives, directors and officers from
any and all claims, costs, penalties, fines, losses, including without
limitation sums paid in settlement of claims, consultant fees and expert fees,
liabilities, attorneys! fees, damages, injuries, causes of action, judgments
and expenses which arise from Landlord’s or Landlord’s Invitees’ placement,
discharge, release, disposal, transportation or spillage of Hazardous Materials
upon the Demised Premises (excluding, however, any Hazardous Materials placed
on the Demised Premises by Landlord’s Invitees in connection with Landlord’s
Work pursuant to the Improvement Plans). The term “Landlord’s Invitees” shall
mean persons who are subject to Landlord’s

 

47

 

control,
consisting of Landlord’s employees, officers, directors, consultants, agents,
contractors, subcontractors, invitees, customers, vendors, suppliers, etc., who
go onto the Demised Premises on behalf of Landlord.

 

37.1.1      Clean-up. The indemnifications of
Landlord and indemnities by Tenant pursuant to Section 37.1 above include, to
the extent Tenant is responsible for such costs and expenses under the
provisions of Section 37.1 above, but without limiting the generalities
thereof, reasonable costs incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal or restoration work lawfully
required by any federal, state or local governmental agency or political
subdivision because of any Hazardous Materials present in the soil, subsoil,
ground water, or elsewhere at, on or under the Demised Premises or the
Building. Without limiting the foregoing, if the presence of any Hazardous
Materials at, on or under the Demised Premises or the Building caused or
permitted by Tenant results in the Demised Premises or the Building becoming in
violation of law, Tenant promptly shall take all actions at its expense as are
necessary to return the Demised Premises or the Building to the condition
required by law; provided that Landlord’s approval of such action shall first
be obtained, which approval shall not be unreasonably withheld or delayed so
long as such action would not potentially have any material adverse long-term
or short-term effect on the Building or the Demised Premises; and provided
further that Tenant shall not be required to obtain Landlord’s prior approval
to any action of an emergency nature reasonably required or any action
mandated, by a governmental authority, but Tenant shall give Landlord prompt
notice thereof. Provided further, the foregoing provisions of this Section
37.1.1 shall not be applicable if such Hazardous Materials (i) were placed on
the Demised Premises prior to the Term Commencement Date, or (ii) were placed
on the Demised Premises by means of spillage or seepage from a neighboring
property, or (iii) were placed on the Demised Property by persons who are not
Tenant’s Invitees. Additionally, Landlord shall cooperate in good faith with
Tenant to approve a clean-up or remediation plan which mitigates the overall
damages and costs; but if such remediation plan involves a delay in completing
the remediation, then Tenant shall agree to toll the statute of limitations for
the duration of said delay applicable to any claim against Tenant related to
Tenant’s obligation to clean up Hazardous Materials.

 

37.1.2      Business. Landlord acknowledges
that it is not the intent of this Article to prohibit Tenant from operating its
business as described in Section 2.1.7 above or to unreasonably interfere with
the operation of Tenant’s business. Tenant may operate its business according
to the custom of the industry so long as the use, presence and disposal of
Hazardous

 

48

 

Materials is
strictly and properly monitored according to all applicable governmental
requirements. As a material inducement to Landlord to allow Tenant to use
Hazardous Materials in connection with its business, Tenant agrees to deliver
to Landlord prior to the Tern Commencement Date a confidential list (i)
identifying each type of Hazardous Material to be present in or upon the
Demised Premises and (ii) setting forth any and all governmental approvals or
permits required in connection with the presence of such Hazardous Materials on
the Demised Premises (“Hazardous Materials List”), and a confidential copy of
the Hazardous Materials business plan prepared pursuant to Health and Safety
Code Section 25500, et seq. Tenant shall deliver to Landlord an updated
Hazardous Materials List at least once every twelve (12) months. Tenant shall
deliver to Landlord true and correct copies of the following documents
(hereinafter referred to as the “Documents”), relating to the handling,
storage, disposal and emission of Hazardous Materials prior to the Term
Commencement Date or, if unavailable at that time, concurrent with the receipt
from or submission to a governmental agency: (i) permits; (ii) approvals; (iii)
reports and correspondence relating to the release of Hazardous Materials; (iv)
storage and management plans; (v) notice of violations of any laws; (vi) plans
relating to the installation of any storage tanks to be installed in or under
the Demised Premises (provided, said installation of tanks only shall be
permitted after Landlord has given Tenant its written consent to do so, which
consent nay be withheld in Landlord’s sole discretion); and (vii) all closure
plans or any other documents required by any and all federal, state and local
governmental agencies and authorities for any storage tanks installed in, on or
under the Demised Premises. Landlord shall treat all such proprietary
information furnished by Tenant to Landlord as strictly confidential and
Landlord shall not disclose such information to any person or entity without
Tenant’s prior written consent (which consent Tenant shall not unreasonably
withhold), except as required by law, by insurance carriers, by the local fire
department, or by applicable governmental agencies. Landlord’s confidentiality
covenant in this section 37.1.2 is a material covenant for the benefit of
Tenant.

 

37.2         Termination of Lease.
Notwithstanding the provisions of this Article, Landlord shall have the right
to terminate the Lease in this event that (i) Tenant uses the Demised Premises
for the generation, storage, use, treatment or disposal of Hazardous Material
in a manner prohibited by applicable law (unless Tenant is diligently pursuing
compliance therewith) and such use has a material adverse effect on Landlord,
the Demised Premises or the Building, (ii) Tenant has been required by any
governmental authority to take remedial action in connection with Hazardous
Material contaminating the Demised Premises or the Building if the contamination
resulted from Tenant’s action or use of the Demised Premises and such remedial
action has a material

 

49

 

adverse effect
on Landlord, the Demised Premises or the Building, or (iii) Tenant is subject
to an enforcement order issued by any governmental authority in connection with
the use, disposal or storage of a
Hazardous Material on the Demised Premises and such enforcement order has a
material adverse effect on Landlord, the Demised Premises or the Building. Each
of the foregoing events shall, be deemed to be a material default by Tenant
under this Lease, if the default is not cured within the provisions of Section 22.4(b).

 

37.3         Assignment and Subletting.
Notwithstanding the provisions of Article 23 above, if (i) any anticipated use
of the Demised Premises by any proposed assignee or sublessee involves the
generation or storage, use, treatment or disposal of Hazardous Material in any
manner prohibited hereunder or by any applicable law, (ii) the proposed
assignee or sublessee has been required by any governmental authority to take
remedial action in connection with a Hazardous Material if the contamination
resulted from such party’s action or use of the property in question and such
party has failed to take such action, or (iii) the proposed assignee or
sublessee is subject to an enforcement order issued by any governmental,
authority in connection with the use, disposal or storage of a Hazardous
Material of a type such proposed assignee or sublessee intends to use in, on or
at the Demised Premises and the proposed assignee or sublessee has failed to
fully comply with such enforcement order, it shall not be unreasonable for
Landlord to withhold its consent to an assignment or subletting to such proposed
assignee or sublessee.

 

37.4         Condition. Landlord represents
that, to the best of its knowledge, as of the date of this Lease, there are no
Hazardous Materials on the Demised Premises, except as previously disclosed to
Tenant in writing. If Landlord discovers that any Hazardous Material exists in,
on or about the Demised Premises, then Landlord promptly shall give Tenant
written notice of such condition and shall, except to the extent Tenant is
responsible therefor, use its best efforts to have such Hazardous Material
cleaned up and the Demised Premises brought into compliance with applicable
laws. At Landlord’s sole cost, Landlord shall furnish to Tenant, as soon as is
reasonably feasible, an update to the existing November 16, 1989 Phase t
environmental audit for the
Demised Premises and the results of any additional tests reasonably recommended
by said Phase I audit and update. If said audit update and tests reveal
Hazardous Materials which will materially and adversely impair the ability of
Tenant to satisfactorily occupy and use the Demised Premises, then Tenant may
terminate this Lease within ten (10) days after receipt of said audit update
and tests if Landlord does not commit in writing within said ten (10) days to
remedy the same at Landlord’s sole expense in a timely manner which will not
impair Tenant’s use of the Demised Premises.

 

50

 

37.5         Perform Tests.

 

37.5.1      At any time prior to the expiration of the
term of this Lease, Landlord shall have the tight to enter upon the Demised
Premises at all reasonable times, and at reasonable intervals, upon forty-eight
(48) hours’ prior written notice, and accompanied by an authorized
representative of Tenant, if Tenant so elects, in order to conduct appropriate
tests to determine whether contamination in excess of permissible levels has
occurred as a result of Tenant’s use of the Demised Premises. Landlord shall
deliver to Tenant written notice of the results of such tests. Tenant shall pay
the reasonable costs of any test conducted pursuant to this Section which
demonstrates that contamination in excess of legally permissible levels has
occurred and such contamination was caused by Tenant’s use of the Demised
Premises.

 

37.5.2      Upon the expiration or upon any early
termination of this Lease, Tenant shall furnish to Landlord, at Tenant’s sole
cost, a then customary Phase I environmental audit for the Demised Premises,
plus such additional tests and studies as may be customary, reasonable or
recommended by said audit, so as to obtain a then customary and reasonable
verification, if any, that the Demised Premises are free from any Hazardous
Materials or contamination in excess of legally permissible levels. If said
report and studies indicates that there are any impermissible levels of
Hazardous Materials on the Demised Premises, then Tenant shall pay for all
costs necessary to clean up and remedy said impermissible levels of Hazardous
Materials to the extent such levels of Hazardous Materials are not permitted by
applicable governmental laws or regulations, but only to the extent such
impermissible Hazardous Materials are reasonably likely to impair Landlord’s
effort to sell, lease, use or finance the Demised Premises at full value.
Provided, however, Tenant shall have no duty with respect to any such Hazardous
Materials which (i) were on the Demised Premises prior to the Term Commencement
Date, or (ii) were placed on the Demised Premises by means of spillage or
seepage from a neighboring property, or (iii) were placed on the Demised
Property by persons other than Tenant or Tenant’s Invitees. Additionally, if
such Hazardous Materials prevent Landlord from leasing the Demised Premises,
then Tenant shall also continue to be liable to Landlord for all damages
suffered by Landlord until such time as the impermissible levels of Hazardous
Materials are cleaned up and remedied, to the extent such levels of Hazardous
Materials are not permitted by applicable governmental laws or regulations, but
only to the extent such impermissible Hazardous Materials impair Landlord’s
efforts to sell, lease, use or finance the Demised Premises at full value;
provided however, that Landlord shall use reasonable good faith efforts to
mitigate its damages, and to the extent that some or all of the Demised
Premises continue to be used and to generate

 

51

 

rental income
to Landlord while the remediation work is being conducted, then said rental
income shall be credited against the damages otherwise payable by Tenant for
the same premises and time period. Additionally, Landlord shall cooperate in
good faith with Tenant to approve a remediation plan which mitigates the
overall damages and costs; but if such remediation plan involves a delay in
completing the remediation, then Tenant shall agree to toll the statute of
limitations for the duration of said delay applicable to any claim against
Tenant related to Tenant’s obligation to clean up Hazardous Materials.

 

37.6       Tenant’s Obligations. Tenant’s
obligations under this Article shall survive the termination of this Lease.
During any period of time employed by Tenant after the termination of this
Lease to complete the removal from the Demised Premises or the Building of any
such Hazardous Materials, Tenant shall continue to pay the full Rent in
accordance with this Lease. (Provided however, to the extent that some or all
of the Demised Premises continue to be used and to generate rental income to
Landlord while the remediation work is being conducted, then said rental income
shall be credited against the Rent otherwise payable by Tenant for the same
premises and time period. Additionally, Landlord shall cooperate in good faith
with Tenant to approve a remediation plan which mitigates the overall damages
and costs.)

 

37.7         Definition of “Hazardous Material”.
As used herein, the term “Hazardous Material” means any hazardous or toxic
substance, material or waste which is or becomes regulated by any local
governmental authority, the State of California or the United States
Government. The term “Hazardous Material” includes, without imitation, any
material or substance which is (i) defined as a “hazardous waste”, “extremely
hazardous waste” or “restricted hazardous waste” under Sections 25115, 25117 or
25122.7 or listed pursuant to Section 25140 of the California Health and Safety
Code, Division 20, chapter 6.5 (Hazardous Waste Control Law); (ii) defined as a
“hazardous substance” under Section 25316 of the California Health and Safety
Code, Division 2, chapter 6.8 (Carpenter-Presly-Tanner Hazardous Substance
Account Act); (iii) defined as a “hazardous material”, “hazardous substance” or
“hazardous waste” under Section 25501 of the California Health and Safety Code,
Division 2O, Chapter 6.95 (Hazardous Substances); (v) petroleum; (vi) asbestos;
(vii) listed under Article 9 and defined as hazardous or extremely hazardous
pursuant to Article 11 of Title 22 of the California Administrative Code,
Division 4, Chapter 20; (viii) designated as a “hazardous substance” pursuant
to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section
1317); (ix) defined as a “hazardous waste” pursuant to Section 1004 of the
Federal Resource Conservation and Recovery Act, 42 U.S.C. section 6901, et seq.
(42 U.S.C. Section 6903); or (x) defined as a “hazardous substance” pursuant to
Section 101 of

 

52

 

the
Comprehensive Environmental Response Compensation Liability Act, 42 U.S.C.
Section 9601, et seq. (42 U.S.C. Section 9601).

 

38.                                 Miscellaneous.

 

38.1         Terms and Headings. Where
applicable in this Lease, the singular includes the plural and the masculine or
neuter includes the masculine, feminine and neuter. The headings used in this
Lease are not a part hereof and shall have no effect upon the construction or
interpretation of any part hereof.

 

38.2         Examination of Lease. Submission
of this Lease for examination or signature by Tenant does not constitute a
reservation of, or option for, lease, nor is it effective as a lease or
otherwise until execution by, and delivery to, both Landlord and Tenant.

 

38.3         Time. Time is of the essence
with respect to the performance of every provision of this Lease in which time
of performance is a factor.

 

38.4         Covenants and Conditions. Each
provision of this Lease performable by Landlord or Tenant shall be deemed both
a covenant and a condition.

 

38.5         Consents. Whenever consent or
approval-of either party is required, that party shall not unreasonably
withhold such consent or approval, except as may be expressly set forth herein
to the contrary.

 

38.6         Entire Agreement. This Lease
(together with its Exhibits) is intended by the parties as a final expression
of their agreement with respect to the terms as are included herein, and all
prior agreements, understandings, representations and statements, oral or
written, are merged herein, excepting only for written agreements signed
contemporaneously with or after the signing of this Lease.

 

 38.7        Severability.
Any provision of this Lease which shall be deemed or prove to be invalid, void
or illegal shall in no way affect, impair or invalidate any other provision
hereof, and all such other provisions shall remain in full force and effect.

 

38.8         Recording. Landlord and Tenant
shall execute, acknowledge and record a short form memorandum of this Lease.

 

38.9         Impartial Construction. The
language in all parts of this Lease shall be in all cases construed as a whole
according to its fair meaning and not strictly for or against either Landlord
or Tenant. As both parties participated in the drafting

 

53

 

and review of
this Lease, any ambiguity in the language will not be constructed against
either Party as the drafter of that language.

 

38.10       Inurement. Each of the covenants,
conditions and agreements herein contained shall inure to the benefit of and
shall apply to and be binding upon the parties hereto and their respective
heirs, legatees, devisees, executors, administrators, successors, assigns,
sublessees or any person who may come into possession of said Demised Premises
or any part thereof in any manner whatsoever. Nothing contained in this Section
shall in any way alter the provisions against assignment or subletting provided
in this Lease.

 

38.11       Force Majeure. If either party
cannot perform any of its obligations hereunder, excluding however obligations
to pay money, due to events beyond the party’s control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond a party’s control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.

 

38.12       Notices. Any notice, consent,
demand, bill, statement or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed duly delivered upon
personal delivery, or as of the second business day after mailing by United
States mail, postage prepaid, return receipt requested, or upon the next
business day if delivered by overnight courier or similar overnight delivery
system, addressed to Tenant at the Demised Premises or to Tenant or Landlord at
the addresses shown in Section 2.1.8 herein. Either party may, by notice to the
other given pursuant to this Section, specify additional or different addresses
for notice purposes.

 

38.13       Exhibits.
All exhibits and schedules referred to herein and attached hereto are a part
hereof, and incorporated herein by this reference.

 

38.14       Modification. No modification,
waiver, amendment, discharge or change of this Lease shall be valid unless the
same is in writing and signed by the party against which the enforcement of
such modification, waiver, amendment, discharge or change is or may be sought.

 

38.15       Periods of Time. All periods of
time referred to in this Lease shall include all Saturdays, Sundays and state
or United States holidays, unless the period of time specifies business days,
provided that if the date or last date to perform any act or give any notice
with respect to this Lease shall fall

 

54

 

on a Saturday,
Sunday or state or national holiday, such act or notice may be timely performed
or given on the next succeeding day which is not a Saturday, Sunday or state or
national holiday.

 

38.16       Choice of Law. This Lease shall be
construed and enforced in accordance with the laws of the State of California,
and venue for any legal action under this Lease shall be San Diego County,
California.

 

38.17       Interpretation. En the event any
conflict exists between the provisions of this Lease, the order of priority in
the interpretation hereof shall be as follows; (a) any supplemental agreement,
memorandum of understanding or addendum signed simultaneously with, or after,
the signing of this Lease, (b) Work Letter Exhibit B, (c) Exhibits (except Work
Letter Exhibit B), (d) basic Lease provisions, and (e) general provisions.

 

38.18       Sale by Landlord. In the event
Landlord decides to market the Demised Premises for sale, Landlord shall use
good faith efforts to notify Tenant and to give Tenant up to five (5) days to
make an offer to be the purchaser. If Landlord receives an offer from a third party
to buy the Demised Premises before Landlord has notified Tenant of Landlord’s
decision to market the Demised Premises, Landlord shall use good faith efforts
to reach Tenant and to allow Tenant to make an offer, if the timing of the
third party’s offer allows Landlord to do so. Nevertheless, if timing or
circumstances do not reasonably enable Landlord to so notify Tenant, or if the
unique nature or facts of the third party’s offer can not readily be matched by
Tenant, then Landlord shall be free to sell the Demised Premises even if no
notice of potential sale is given to Tenant. If any holder of a deed of trust
on the Demised Property acquires title by “deed-in-lieu of foreclosure” or by
foreclosure, the procedures of this Section 38.18 shall not be applicable to
such a sale or any subsequent sale. The foregoing commitments by Landlord shall
not constitute a right of first refusal or a right of first offer which Tenant
can enforce against Landlord to the detriment of any sale to a third party
which Landlord may elect to make.

 

38.19       Arbitration. In the event of any
dispute arising with respect to this Lease, which dispute is not resolved by
negotiations between Landlord and Tenant, said dispute shall be resolved by
binding arbitration, in accordance with the arbitration procedures set forth
below, excepting only as set forth below. Provided, however, any dispute in
connection with Exhibit B Work Letter Agreement shall be resolved by the
Dispute Resolution procedures set forth in Article VIII of Exhibit B, and any
disputes relating to Landlord’s consent to an assignment or Sublease shall be
resolved by the procedures set forth in Article 23 of this Lease, in lieu of
this arbitration procedure; and provided further, in the event of any Default
by Tenant in

 

55

 

paying any
Rent or other sums owing under this Lease, Landlord may also pursue,
at-Landlord’s option, court remedies for unlawful detainer and collection of
Rent and sums owing under this Lease.

 

38.19.1 Jurisdiction
and Choice of Law. Except as otherwise provided herein, any matters
submitted to binding arbitration under this Lease shall be decided in
accordance with the procedures set forth in Title 9 of Part lit of the
California Code of Civil Procedure (Sections 1280 et seq.). The location
of the arbitration shall be the County of San Diego and the arbitration
proceedings shall be governed by the laws of California.

 

38.19.2 Commencement.
If a party determines that a dispute is not likely to be resolved by
negotiations, said party (the “Initiating Party”) may commence binding
arbitration pursuant to this section 38.19 by delivering a written notice of
arbitration to the other party (the “Responding Party”). Said notice shall
specify the nature and details of the dispute, and the resolution thereof
desired by the Initiating Party. Within ten (10) days following receipt of the
notice of arbitration, the Responding Party shall deliver to the Initiating
Party a written response which specifies the resolution of the dispute desired
by the Responding Party. If the Responding Party has other disputes it wants to
be submitted to the arbitration, the Responding Party shall also specify in the
response the nature and details of the dispute, and the resolution thereof
desired by the Responding Party; and the Initiating Party shall respond thereto
in the same manner as set forth above.

 

38.19.3 Selection
of Arbitrator(s). The arbitrator(s) shall be individuals skilled in the
legal and business aspects of the subject matter of this Lease; the
arbitrator(s) shall be neutral, independent and disinterested with respect to
the parties and the outcome of the arbitration. A single arbitrator may be
appointed and used so long as both parties agree on the selection of the single
arbitrator. However, upon the request of either party before the single
arbitrator is mutually selected and appointed, three arbitrators shall be used,
with each party appointing one arbitrator, and the two arbitrators so selected
then mutually selecting the third arbitrator. If a party fails to appoint its
designated arbitrator within ten (10) days after receiving a written demand to
do so, the one arbitrator who has already been designated shall appoint the
other two (2) arbitrators. If a single arbitrator is used, the decision of the
single arbitrator shall be binding upon the parties. If three arbitrators are
used, the decision of any two of the three arbitrators shall be binding upon
the parties.

 

38.19.4 Pre-Hearing
Procedure. Within fifteen (l5) days following the appointment of the
arbitrator(s), each party

 

56

 

shall deliver
to each arbitrator and to the other party a written position paper setting
forth its view of the facts and law, and its position on the dispute, and its
requested decision to be made by the arbitrator(s), Said position paper shall
also identify generally the written evidence and the witnesses which the party
expects to present at the arbitration hearing. Said position paper shall specify
the specific discovery which the party desires to pursue, such as the
description of documents the party wants to be produced for inspection and the
names or titles of witnesses it wants to depose, and the nature of written
interrogatories it wants answered. The arbitrator(s) shall control and
reasonably limit the scope and nature of the discovery by each party, but
otherwise the discovery shall be conducted in accordance with California CCP
Section 1283.05. No depositions may be taken or discovery obtained later than
fifteen (15) days prior to the scheduled arbitration hearing date. The
arbitration hearing shall commence as soon as feasible, but generally within
two months following the appointment of the arbitrator(s).

 

38.19.5 Hearing.
At the hearing, each party may present testimony and documentary evidence
relevant to the issues to enable the arbitrator(s) to render a decision. All
evidence and testimony presented to the arbitrator(s) shall be given in the
presence of both parties or their respective counsel. Neither party may contact
any arbitrator concerning the subject of the arbitration unless the other party
or its counsel is present, in person or by phone. The decision of the
arbitrator(s) shall be based solely on the evidence presented at the hearing
and on the written position paper submitted by each party. The arbitrator(s)
shall establish such procedures and timing schedule as the arbitrator(s)
determine to be fair and reasonable, including without limitation, procedures
and rules for admission of evidence and relevancy of evidence. Any decision by
the arbitrator(s) may be entered in any court having jurisdiction, or
application may be made to such court for a judicial acceptance of the decision
and an order of enforcement.

 

38.19.6 Decision.
The arbitrator(s) shall make such decisions as the arbitrator(s) determine to
be supported by the evidence and law, including remedies such as (i) an award
of damages (compensatory, consequential, and/or punitive), (ii) equitable
remedies (such as an injunction or specific performance) and (iii) declaratory
relief.

 

38.19.7 Costs
of Arbitration. The costs of the arbitration, including the arbitrator(s)
fees, expert witness fees and the parties’ attorneys’ fees, shall be awarded to
the prevailing party, as determined by the arbitrator(s). Unless and until the
arbitrator(s) decide that one party is to pay all (or a disproportionate share)
of the arbitrator(s) ‘ fees, both parties

 

57

 

shall share
equally in the payment of the arbitrator(s)’ fee
as and when billed by the arbitrator(s).

 

38.19.8 Confidentiality
The parties shall keep confidential (except from persons who have a need to
know, such as management employees of the parties, the parties’ attorneys, and
lenders, insurers and others who may be affected by the decision in the
arbitration) the fact of the arbitration, the dispute being arbitrated and the
decision of the arbitrator(s) Provided, however, if the arbitration decision is
not promptly satisfied the arbitration decision may be filed in any court
having jurisdiction

 

38.19.9 Notices.
Notices shall be given by and to the parties for this arbitration Proceeding as
specified in Section 2.1.8 of this Lease.

 

38.20       Counterparts. This Lease may be
signed in counterparts, each of which shall he deemed an original, and all of
which together shall be deemed one and the same Lease when both parties have
signed a counterpart.

 

39.           Contingencies

 

39.1         Board of Directors. Landlord and
Tenant each hereby warrants and represents that its respective Board of
Directors has approved this Lease transaction and has authorized the officer
who is signing this Lease to sign and deliver this Lease.

 

39.2         Lender.

 

39.2.1      The existing lender (Mission Land) which
has a first deed of trust encumbering the Demised Premises is expected to
subordinate its deed of trust to a new first deed of trust which will secure a
new loan (or loans) of approximately $13,100,000, which new loan proceeds are
to cover the Landlord’s Improvements Cost Funds and Landlord’s other direct and
indirect costs for improving the Demised Premises and for implementing this
Lease (the “New Loan”). As a precondition to the existing lender so giving its
subordination Landlord must first arrange for the New Loan, which Landlord
plans to do within the next thirty to sixty days after the signing and the
Effective Date of this tease. Landlord’s obligations under this Lease are
contingent upon the existing lender approving the New Loan and the related
subordination The New Loan shall contain reasonable control arrangements for
disbursing the funds in the Improvements Cost Fund to the Landlord’s Contractor
and to other parties entitled thereto. Tenant shall be made a third-party
beneficiary of the Landlord’s rights under the New Loan, to the extent
permitted by the new lender, in order to enable Tenant to use the remaining

 

58

 

loan proceeds
to complete the Landlord’s Work in the event of a material default by Landlord
under the Work Letter. Additionally, if the new lender requires a completion
guarantee, Tenant shall be an additional beneficiary of the completion
guarantee, if the new lender so permits.

 

39.2.2      Accordingly, the rights and obligations of
both Landlord and Tenant under this Lease are contingent upon Landlord
arranging said New Loan within sixty days after the Effective Date of this
Lease, or such longer period as the parties may mutually approve in writing. If
Landlord has not arranged for the New Loan within said sixty days and Landlord
has not given to Tenant written evidence that said New Loan has been so
arranged, then either Landlord or Tenant may terminate this Lease by giving a
written notice of termination to the other party any time after said sixty days
and prior to Tenant receiving a written notice that Landlord has subsequently
arranged the New Loan. En the event that Tenant participates in the New Loan as
a lender, or otherwise provides related financing, an appropriate amendment to
this Lease will be entered into concerning said Tenant financing.

 

 39.2.3 
If this Lease is terminated because Landlord does not arrange the New
Loan within said sixty days, then Landlord shall reimburse Tenant for the fees
paid or payable to the Project Architect for the work performed by the Project
Architect up to the date of the termination of this Lease, but, subject,
however, to Landlord’s prior review and written approval of the Tenant’s
contract with the Project Architect, including the fee schedule and termination
fee provisions in said contract, which approval shall be obtained before Tenant
signs the contract with the Project Architect. Except as specified in this
Section 39.2.3, neither party shall have any further rights, obligations or
liabilities under this Lease after this Lease is terminated pursuant to Section
39.2.2 above.

 

IN WITNESS
WHEREOF, the parties hereto have executed this Lease as of the date first above
written.

 

	
  Landlord:

  	
  Tenant:

  
	
  TORREY
  SOPRENTO, INC., a

  	
  IDEC
  PHARMACEUTICALS

  
	
  California
  corporation

  	
  CORPORATION,
  a California

  
	
   

  	
  Corporation

  
	
   

  	
   

  
	
  By:

  	
  signature present

  	
   

  	
  By:

  	
  signature present

  	
   

  
	
   

  	
  Its:

  	
  Vice
  President

  	
   

  	
   

  	
  Its:

  	
  Vice
  President

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  	
   

  	
  Its:

  	
   

  	
   

  
											

 

59

 

EXHIBIT
“A”

 

Legal Description

 

 

Lot 7 Torrey
Pines Science Park Unit E, Map

No. 8434, in
the City of San Diego, County of

San Diego,
State of California

 

Address:                                            11011
Torreyana Road

San Diego,
California, 92121

 

 

Exhibit B

 

WORK LETTER AGREEMENT FOR IMPROVEMENTS

 

 

TABLE OF CONTENTS

 

 

	
  I

  	
  GENERAL REQUIREMENTS

  	
   

  
	
   

  	
  1.1

  	
  Project Architect; Condition of Demised
  Premises General;

  	
   

  
	
   

  	
  1.2

  	
  Categories of Work

  	
   

  
	
   

  	
  1.3

  	
  Development Schedule

  	
   

  
	
   

  	
  1.4

  	
  Improvement Plans

  	
   

  
	
   

  	
  1.5

  	
  Approval of Improvement Plans

  	
   

  
	
   

  	
  1.6

  	
  Building Permit for Improvement Work

  	
   

  
	
   

  	
  1.7

  	
  Construction of Landlord’s Work

  	
   

  
	
   

  	
  1.8

  	
  Tenant Changes

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  II

  	
  LANDLORD’S WORK

  	
   

  
	
   

  	
  2.1

  	
  General

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  III

  	
  TENANT’S WORK

  	
   

  
	
   

  	
  3.1

  	
  General

  	
   

  
	
   

  	
  3.2

  	
  Equipment and Furnishings

  	
   

  
	
   

  	
  3.3

  	
  Early Possession

  	
   

  
	
   

  	
  3.4

  	
  Permit and Completion

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  IV

  	
  LANDLORD’S USE OF A CONTRACTOR, COST
  ESTIMATE, CONSTRUCTION COORDINATOR

  	
   

  
	
   

  	
  4.1

  	
  Contractor Selection; Construction Contract

  	
   

  
	
   

  	
  4.2

  	
  Estimate of Costs for Landlord’s Work

  	
   

  
	
   

  	
  4.3

  	
  Tenant Approval of Cost Estimate

  	
   

  
	
   

  	
  4.4

  	
  Construction Coordination

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  V

  	
  TENANT’S USE OF A CONTRACTOR

  	
   

  
	
   

  	
  5.1

  	
  Contractor Selection

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  VI

  	
  COMPLETION, RENT COMMENCENENT AND DELAYS

  	
   

  
	
   

  	
  6.1

  	
  Definitions

  	
   

  
	
   

  	
  6.2

  	
  Completion of the Work and Rent
  Commencement

  	
   

  
	
   

  	
  6.3

  	
  Delays and Bifurcation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  VII

  	
  DEVELOPMENT

  	
   

  
	
   

  	
  7.1

  	
  Tenant's Construction Representatives

  	
   

  
	
   

  	
  7.2

  	
  Delivery of the Premises

  	
   

  
	
   

  	
  7.3

  	
  As-Built Drawings

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  VIII

  	
  CONSTRUCTION DISPUTE RESOLUTION

  	
   

  
	
   

  	
  8.1

  	
  Dispute Resolution

  	
   

  
	
   

  	
  8.2

  	
  Notice

  	
   

  
	
   

  	
  8.3

  	
  Selection of Fifth Party/Costs

  	
   

  
	
   

  	
  8.4

  	
  Interpretation and Resolution

  	
   

  
	
   

  	
  8.3

  	
   Continued Performance

  	
   

  
	
   

  	
  8.6

  	
  Binding Resolution

  	
   

  

 

 

	
  Schedules

  	
   

  	
  Description

  
	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  Improvements
  to Basic Building Shell

  
	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  Building
  Improvements for Generic Facilities

  
	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  Special
  Tenant Improvements

  
	
   

  	
   

  	
   

  
	
  4

  	
   

  	
  Tenant’s
  Work

  
	
   

  	
   

  	
   

  
	
  5

  	
   

  	
  Development
  Schedule

  

 

 

Exhibit B

 

WORK LETTER AGREEMENT FOR IMPROVEMENTS

 

 

ARTICLE I

 

GENERAL
REQUIREMENTS

 

1.1           Project
Architect; Condition of Demised Premises; General.

 

1.1.1        McGraw
Baldwin Architects shall serve as the “Project Architect”, representing Tenant.
If the Project Architect does not perform satisfactorily, Tenant reserves the
right to replace McGraw Baldwin Architects with another qualified architectural
firm mutually approved by both Tenant and Landlord, which approval shall not be
withheld unreasonably. Tenant and the Project Architect have entered into an “Architect’s
Contract,” dated as of the same date as the Lease, using the AIA form document
B-141-1987 edition.

 

1.1.2        Tenant
acknowledges that (a) Landlord purchased the Demised Premises recently, and
that Landlord has limited knowledge and information about the Demised Premises.
Tenant acknowledges that Tenant has engaged the Project Architect to
investigate the Demised Premises, and (b) Tenant and Tenant’s representatives
have investigated the Demised Premises and studied available information
concerning the Demised Premises, and (c) tenant has obtained information about
the Demised Premises from an architect (McGraw Baldwin Architects) and a
construction consultant (Coronado Assets, Inc.) who have investigated the
Demised Premises, and (d) Tenant now possesses all information about the
Demised Premises which Tenant needs in order to accept the Lease, and (e) the
Project Architect will familiarize itself with all information about the
Demised Premises which the Project Architect needs to prepare appropriate plans
and specifications for the Landlord’s Work, and (f) neither Landlord nor any
agent of Landlord has made any representations or warranties with respect to
the condition of the Demised Premises or the Building or with respect to the
suitability of the Demised Premises for the conduct of Tenant’s business,
except as set forth herein or in the Lease. Tenant and Landlord each
acknowledge that each has had prior business or consulting relationships with
the Project Architect, and that each has recommended and approved Tenant’s
selection of the Project Architect. Landlord and Tenant acknowledge and agree
that Project Architect may serve as a neutral party to help Landlord and Tenant
evaluate and decide upon disputed items, rather than Project Architect serving as
an agent or advocate for Tenant.

 

1.1.3          As
more fully set forth throughout this Exhibit B, (i) the Project Architect is
preparing the Improvement

 

1

 

Plans for all
improvement work to be performed at the Building, which includes both the
Landlord’s Work and the Tenant’s work, (ii) Landlord and Landlord’s Contractor
shall be responsible for constructing the Landlord’s Work, (iii) Landlord shall
pay for all of the Corrective Work, and $240,690 for the Basic Improvements to
Building Shell Work, and $9,660,000 for the Building Improvements for Generic
Facilities Work, for an aggregate $9,900,960 as the Improvements Cost Fund,
(iv) Tenant shall pay for all additional costs, and for the costs of Special
Tenant Improvements Work, and for Tenant’s Work, and (v) Tenant and Tenant’s
contractor shall be responsible for constructing the Tenant’s Work, which is
all improvement work that is not defined as Landlord’s Work.

 

1.1.4        The
parties acknowledge and agree, (i) that the improvements to be constructed in
the Building involve highly specialized, complex and difficult design,
construction and installation, and (ii) that the parties mutually will use
diligent and good faith efforts to cooperate with and assist each other in
order to promptly and efficiently perform the necessary design, construction
and installation.

 

1.1.5        Subject
to Landlord’s completion of the corrective Work (as defined in Section 1.2.1(c)
below), Tenant is accepting the current condition of the Demised Premises in
their “as is” condition as ready for Landlord to construct the Landlord’s Work
and for Tenant to perform the Tenant’s work. 
In consideration for Landlord agreeing to fund the Improvements Cost
Fund, and as specified in Section 1.7.11, Tenant agrees that Landlord shall
have no financial responsibility beyond the Improvements Cost Fund for any
improvements or repairs to the Demised Premises, excepting only for the
Corrective Work, and as specified in the Lease. Tenant shall be entitled to pursue
any available remedies and claims, (i) against the construction contractors,
equipment suppliers and manufacturers, and other responsible third parties for
any defects in the Landlord’s Work, and (ii) against Landlord for damages
caused by Landlord’s gross negligence or willful misconduct, or Landlord’s
Default (as defined in the Lease). Landlord shall cooperate fully with Tenant
to enable tenant to pursue any available remedies and claims against such third
parties, including without limitation assigning to Tenant any warranties or
claims relating to defects in Landlord’s Work. Landlord represents that
Landlord is not aware of any material problems with the condition of the
Demised Premises, including, without limitation, soils, geological condition,
structural condition (other than for the Corrective Matters), zoning,
compliance with laws, Hazardous Materials (other than for the Corrective
Matters, and items identified in the Phase I report dated November 16, 1989 by
Applied Geosciences, Inc.), and permits and approvals that would materially and
adversely affect the Demised Premises or use thereof. Tenant shall have no
claims against Landlord for any unknown or latent defects or problems with the
Demised Premises, excepting only if there is a misrepresentation by Landlord in
the

 

2

 

preceding
sentence, or if Landlord fails to comply with its obligations in Section
1.2.1(c) below.

 

1.1.6        Whenever
consent or approval of either party is required, that party shall not
unreasonably withhold or delay such consent or approval, except as may be
expressly set forth herein to the contrary. If a party does not deliver its
written approval or disapproval for an item within the time deadline specified
in this Exhibit B, the party shall be deemed to have disapproved the item. Any
delays caused by such a “deemed disapproval” shall be charged to the party who
so disapproved the item.

 

1.1.7        whenever
a party fails to respond to a request for an approval of an item, such that there
is a “deemed disapproval” as specified in Section 1.1.6 above, the party
seeking the approval may give a written notice again requesting the approval,
and if a specific written disapproval is not received by the requesting party
within five (5) days after said written request is received by the other party,
then the other party shall be deemed to have approved item. Any delays
caused by the foregoing deemed disapproval or deemed approval shall be charged
to the party who so fails to act.

 

1.2           Categories
of Work. The work to be performed at the Demised Premises is categorized as
follows:

 

1.2.1        “Corrective
Work”, consisting of:

 

a. removal of
any asbestos-related materials and products from the interior of the Building;
and

 

b. providing
structural retrofit to the existing second floor of the Building to support 80
pounds of live load, plus 20 pounds of partition load, per square foot;  and

 

c. obtaining
and furnishing to Tenant an update to the existing November 16, 1989 phase I
environmental audit for the Demised Premises, plus such additional studies as
may be reasonably recommended by said audit and update. If said audit update
and studies reveal Hazardous Materials which will materially and adversely
impair the ability of Tenant to satisfactorily occupy and use the Demised
Premises, then Tenant may terminate this Lease within ten (10) days after
receipt of said update and studies if Landlord does not commit in writing
within said ten (10) days to remedy the same at Landlord’s sole expense, in a
timely manner which will not impair Tenant’s use of the Demised Premises. This
Corrective Work shall be performed by Landlord at Landlord’s sole cost,
promptly after the execution of this Lease and prior to commencement of-
construction of the Building Improvements for Generic Facilities (as defined in
Section 1.2.3 below), or as soon thereafter as is feasible, so long as the
delay does not impair or delay Tenant’s use of the Demised Premises.

 

3

 

1.2.2         “Basic
Improvements to Building Shell” as described on Schedule 1 to this Exhibit B.
This work is to be performed by Landlord at Landlord’s cost up to the aggregate
lump sum cost limit as specified in Schedule 1, and thereafter any additional
costs are to be paid by Tenant. These costs paid by Landlord shall be payable
from the Improvements Cost Fund.

 

1.2.3         “Building
Improvements for Generic Facilities,” as described on Schedule 2 to this
Exhibit B for Generic Office Facility, Generic Wet Laboratory Facility and
Generic Pilot Plant Production Facility. This work is to be performed by
Landlord, with payment to come from the “Improvements Cost Fund” to the extent
of said Fund, and with Tenant to pay for any excess costs.

 

1.2.4         “Special
Tenant Improvements,” as described on schedule 3 to this Exhibit B. This work
is to be performed by Landlord at Tenant’s sole cost.

 

1.2.5         “Tenant’s
Work,” as described on Schedule 4 to this Exhibit B. This work is to be
performed by Tenant at Tenant’s sole cost. -

 

1.2.6         “Landlord’s
Work” shall mean all of the combined work referenced above as Corrective Work,
Basic Improvements to Building Shell, Building Improvements for Generic
Facilities, and special Tenant Improvements. The “Landlord’s Work” includes the
corrective Work, plus the work to be performed pursuant to the Construction
Contract.

 

1.2.7         “Improvement
Plans” shall mean collectively the “Schematic Design Drawings,” the “Design
Development Drawings,” the “Construction Documents” and all related plans,
drawings, specifications and notes prepared (and to be prepared) by the Project
Architect for all of the Landlord’s Work and the Tenant’s Work.

 

1.2.8         “Construction
Documents” shall mean the construction drawings as defined in Section 1.4.4.

 

1.3           Development
Schedule. The time schedule for design and development of the Landlord’s
Work to be performed, including without limitation the tine periods for
preparation and review of the Improvement Plans, approvals and performance,
whether by Landlord or by Tenant, shall be in accordance with that certain Time
and Responsibility Schedule attached as Schedule 5 to this Exhibit B, subject
to adjustment as mutually agreed to by the parties and as provided in this
Exhibit B (the “Development Schedule”). As is set forth on schedule 5, there
are two separate time schedules for (i) the Office and Laboratory Facilities,
and (ii) the Pilot Plant Facility. The parties acknowledge and agree that it is
very important to both parties to complete the Landlord’s Work as soon as
reasonably feasible; and both parties agree to Use diligent efforts to cause
the Landlord’s Work to be completed as soon as reasonably feasible.

 

4

 

Landlord and
Tenant will cooperate to comply with the Development Schedule and Landlord and
Tenant will schedule and participate in weekly meetings with the Project
Architect and the Landlord’s Contractor to keep all interested persons informed
and to keep the progress of Landlord’s Work on schedule.

 

1.4           Improvement
Plans.

 

1.4.1         Prior
to Tenant and the Project Architect preparing calculations, designs, drawings
and specifications for the Landlord’s Work as required in Section 1.4.4 below,
Tenant and the Project Architect shall endeavor to thoroughly familiarize
themselves with all applicable information concerning the Demised Premises,
plus all applicable building codes and governmental regulations. The
Improvement Plans shall be prepared by Tenant and the Project Architect in full
knowledge of and in compliance with this Exhibit B, and all cities. County and
State ordinances, rules and regulations relating to the Landlord’s Work,
including, without limitation, the energy conservation and handicap access
requirements of Title 24 of the California Administrative Code (“Title 24”),
and the federal regulations to assist handicapped persons, to comply fully with
local, state or federal regulations and authorities.

 

1.4.2         On
or before the date set forth in the Development Schedule, Tenant agrees to
submit to Landlord fully detailed and dimensioned 1/8” scale preliminary
schematic design drawings (“Schematic Design Drawings”) prepared by the Project
Architect for the Demised Premises. This preliminary submittal shall include
the following: three (3) sets of prints and one (1) sepia which show fully
developed floor plans. Tenant’s Schematic design Drawings are subject to
Landlord’s approval, within three (3) business days after Tenant delivers to
Landlord the Schematic Design Drawings, Landlord shall deliver to Tenant
written notice of its approval or disapproval of the Schematic Design Drawings.
If Landlord disapproves, then Landlord’s notice shall specify the reasons for
such disapproval and the changes which Landlord requests. If Landlord so
disapproves the Schematic Design Drawings, Landlord and Tenant shall meet and
confer within three (3) business days after delivery of Landlord’s notice
disapproving the Schematic Design Drawings and shall attempt in good faith to
promptly reach agreement on the Schematic Design Drawings. If necessary, Tenant
shall resubmit Schematic Design Drawings and repeat the foregoing process until
approval is obtained. In the event an agreement is not reached, then the
dispute shall be resolved pursuant to Article VIII. Any delays resulting from
such dispute shall not be charged to either party, unless the Construction
Panel (defined in Section 8.1) finds that a party created the dispute in bad
faith and contrary to the parties’ reasonable understandings and expectations
as set forth in the Lease and this Exhibit B.

 

1.4.3         On
or before the date set forth in the Development Schedule (but subject to prior
delays as specified

 

5

 

herein),
Tenant agrees to submit to Landlord three (3) sets of the preliminary
construction drawings for the Landlord’s Work for the Demised Premises, as
prepared by the Project Architect (“Design Development Drawings”) as
contemplated by the Architect’s Contract. Within three (3) business days after
Landlord receives the Design Development Drawings, Landlord shall deliver to
Tenant written notice of Landlord’s approval or disapproval of the Design
Development Drawings. If Landlord disapproves, then Landlord’s notice shall
specify the reasons for such disapproval and the changes which Landlord
requests. If necessary, Tenant shall resubmit the Design Development Drawings
and repeat the foregoing process until approval is obtained. In the event
agreement is not reached, the dispute shall be resolved pursuant to Article
VIII. Any delays resulting from such dispute shall not be charged to either
party, unless the construction Panel (defined in Section 8.1) finds that a
party created the dispute in bad faith and contrary to the parties’ reasonable
understandings and expectations as set forth in the Lease and this Exhibit B.

 

1.4.4         On
or before the date set forth in the Development Schedule (but subject to prior
delays as specified herein), Tenant agrees to-submit to Landlord thirty-five
(35) sets of prints and one (1) sepia of fully detailed and dimensioned 1/4” or
1/8” scale construction drawings for the Demised Premises prepared by the
Project Architect pursuant to the Architect’s Contract (the “Construction
Documents”). These Construction Documents shall include the following: (a) plan
views of the entry and partitions, and along the longitudinal axis; door,
finish and color schedules; and final design drawings for Building and entry
signs; (b) electrical drawings prepared by an electrical engineer including
circuitry plans, panel schedules, riser diagrams, load calculations and all
Title 24 calculations and completed forms; (c) mechanical drawings prepared by
a mechanical engineer, including heating, ventilating and air conditioning
design calculations, equipment schedule and specifications, air distribution
ductwork system, plumbing fixtures and piping, and all, required Title 24
calculations and completed forms. As part of the Construction Documents, Tenant
shall submit a schedule of specifications completed by mechanical and
electrical engineers including heating, ventilating and air conditioning
requirements.

 

1.4.5         Fees
of the Project Architect for preparing the Improvement Plans shall be subject
to Landlord’s prior written approval and shall be paid from the Improvements
Cost Fund; provided, however, if Tenant does not obtain a building permit for
the Landlord’s Work, then Tenant shall pay such fees or, if such fees have
already been paid by Landlord, Tenant shall, upon Landlord’s written request,
forthwith reimburse Landlord for such fees previously paid by Landlord. The
fees for process engineering and the Tenant’s construction consultant shall be
paid separately by Tenant, rather than being paid from the Improvements Cost
Fund. The architectural and consulting fees

 

6

 

for Tenant to
obtain any unique or special approvals or permits for the Pilot Plant
Production Facility from the local health department, the State Department of
Health, the Federal rood and Drug Administration, and other agencies (such as
for validating the Pilot Plan Production Facility or satisfying quality
assurance requirements or safety inspections) shall be borne solely by Tenant.

 

1.4.6         At
or before the time as specified on the Development schedule, Tenant shall cause
the Project Architect to submit to Landlord a pre-purchase packages with all
necessary information to purchase all long-lead items necessary to construct
Landlord’s Work and to meet Landlord’s construction schedule. Any delay in
receiving these packages which necessitates an extension in the Landlord’s
construction schedule shall be a Tenant-Caused Delay.

 

1.5           Approval
of Improvement Plans.

 

1.5.1         The
design of, the quality of materials used in, and the installation methods
undertaken in the Demised Premises and the Improvement Plans, shall be subject
to the approval of Landlord after consultation with the Project Architect,
within section 1.5.2 of this Exhibit B, and particularly Section 1.5.2 of this
Exhibit B.  Tenant shall instruct the
Project Architect to furnish to Landlord, simultaneously with furnishing to
Tenant, copies of all Improvement Plans and related progress prints, to enable
Landlord to timely review and approve the same. Any failure of the Project
Architect to do so, which thereby causes Landlord to be delayed, shall be deemed
a delay caused by the Project Architect (and therefore a Tenant-Caused Delay),
rather than a delay caused by Landlord. So long as the building Improvements
for Generic Facilities to be paid for from the Improvements Cost Fund are “generic”
improvements as described in schedule 2 of this Exhibit B, then Landlord will
not unreasonably withhold its approval. All work shall be in accordance with
all City, County and State ordinances, rules and regulations relating thereto.
Any approval given by Landlord shall not constitute a representation or
warranty by Landlord that the approved item complies with applicable building
codes or governmental regulations, or that the item is suitable for the
intended use, or that the item is in compliance with the Improvement Plans.
Rather, Tenant shall retain full responsibility for said matters,
notwithstanding any approval given by Landlord, but subject to Tenant’s rights
as set forth in Section 1.1.5. Landlord shall act reasonably at all times in
reviewing and approving Tenant’s submittals and in determining whether an
improvement is “generic.”  It is
anticipated that Tenant will have the entire Improvements Cost Fund available
to pay for the Basic Improvements to Building Shell and the Building
Improvements for Generic Facilities, as set forth in this Exhibit B. In the
event that Landlord and Tenant cannot agree on the Improvement Plans or any
portion thereof, the dispute shall be resolved as specified in Article VIII
below.

 

7

 

1.5.2         Any
reasonable out-of-pocket costs and expenses incurred by Landlord for outside
consultants as a result of Landlord’s review of the Improvement Plans,
including fees of the Project Architect and its consultants, shall be paid from
the Improvements Cost Fund, Provided however, Landlord shall not incur any such
costs without first conferring with the Project Architect and Tenant in an
effort to avoid the need for such costs. Landlord shall approve or disapprove
the Construction Documents in writing within three (3) business days after
Landlord’s receipt of such documents. If Landlord disapproves any portion of
the Construction   Documents, then
Landlord shall specifically (a) approve those portions which are acceptable to
Landlord and (b) disapprove those portions which are not acceptable to
Landlord, specifying the reasons for such disapproval and describing in detail
the change Landlord requests for each item disapproved (“Requested Change”) .
Tenant shall cause Requested Changes acceptable to Tenant to be made to the
Construction Documents. If Tenant does not approve of a Requested Change,
Landlord and Tenant shall meet and confer within three (3) business days after
delivery of Landlord’s notice of Requested Changes and shall attempt in good
faith to reach an agreement on any Requested Changes. In the event agreement is
not reached, the dispute shall be resolved pursuant to Article VIII. Any delays
resulting from such dispute shall not be charged to either party, unless the
Construction Panel (defined in Section 8.1) finds that a party created the
dispute in-bad faith and contrary to the parties’ reasonable understandings and
expectations as set forth in the Lease and this Exhibit B.

 

l.5.3         As
a part of Landlord’s review and approval of the Improvement Plans described in
Sections 1.5.1 and 1.5.2 above, Landlord shall review the Improvement Plans for
their conformance with provisions contained within this Exhibit B and the
approved Schematic Design Drawings and Design Development Drawings. Without limiting
the generality of the foregoing, the Improvement Plans shall show the Building
space allocated approximately 25,000 square feet for Generic Office Facility,
approximately 35,000 square feet for Generic Wet Laboratory Facility and
approximately 10,000 square feet for Generic Pilot Plant Product Facility. The
exact square footage for each type of facility shall be determined by Tenant,
subject to Landlord’s approval which shall not be withheld unreasonably; but it
is agreed that there will not be a material reduction in the Generic Wet
Laboratory Facility. Where the Improvement Plans, as approved by Landlord,
conflict with this Exhibit B, the provisions of this Exhibit B shall prevail,
unless the particular conflict is expressly noted as a change from this Exhibit
B and Landlord expressly approves said particular change (as opposed to a
general approval for an entire submittal) Landlord and Tenant shall use good
faith efforts to mutually designate on a periodic basis what portions of the
improvements are or are not “generic,” and Landlord and Tenant shall
periodically prepare and sign a memorandum to memorialize their designation.
Landlord shall act

 

8

 

reasonably at
all times in reviewing and approving Tenant’s submittals and in determining
whether an improvement is “generic.” It is anticipated that Tenant will have
the entire Improvements Cost Fund available to pay for the Basic Improvements
to building Shell and the Building Improvements for Generic Facilities, as set
forth in this Exhibit B In the event that Landlord and Tenant cannot agree on
the Improvement Plans or any portion thereof, the dispute shall be resolved as
specified in Article VIII below.

 

1.5.4        Any
subsequent material changes, modifications or alterations to the Construction
Documents requested by Tenant after Landlord’s approval thereof and before
completion of the Landlord’s Work shall be processed in the manner provided in
Section 1.8 of this Exhibit B, and any additional reasonable costs and expenses
incurred by Landlord and paid to third parties in connection with said
processing, including but not limited to additional fees of Project Architect
and its consultants, shall be paid from the Improvements Cost Fund. No such
material changes, modifications or alterations in said approved drawings shall
be made without the written consent of Landlord after written request therefore
by Tenant. To the extent that the requested change is approved and results in
an improvement which is not a “generic” improvement or is not for completing
the design intent of the Construction Documents, then Tenant shall pay for the
same as an addition to Special Tenant Improvements; and the Improvements Cost
Fund shall not be charged for any expenses actually saved as a result of said
change- If the Tenant and Landlord cannot agree as to whether or not the
requested change is a “generic improvement” or for completing the design intent
of the Construction Documents, then said disagreement shall be resolved by
arbitration pursuant to Article VIII of this Exhibit B. The construction work
may proceed while the arbitration is pending, as the arbitration is solely to
decide who pays for the change in the construction work. If the approved
requested change is a generic improvement, it shall be paid from the
Improvement Cost Fund, if funds remain available. If the approved requested
change results in a cost savings, such savings shall remain in the Improvements
Cost Fund for use for other generic improvements pursuant to this Exhibit B.

 

1.6           Building
Permit for Improvement Work.

 

1.6.1        Within
the timing specified in the Development Schedule (but subject to prior delays
as specified herein) Tenant and the Project Architect shall be responsible for
processing from the City of San Diego (“City”) a building permit for the
construction of the Landlord’s Work and the Tenant’s Work. If the City rejects
the Construction Documents and thereby prevents the issuance of a building
permit, Tenant and the Project Architect shall immediately make all necessary
corrections to the Construction Documents required by the City (a “City-Required
Change”), so long as Tenant reasonably determines

 

9

 

that the
City-Required Change does not materially adversely impact tenant’s ability to
effectively use the Demised Premises. Any dispute between Tenant and Landlord
as to the reasonableness of the Tenant’s determination as to the adverse effect
on Tenant by the City-Required Change shall be resolved pursuant to Article
VIII below. Any delay days incurred as a result of such City-required Change
resulting from flew requirements of the City shall not be a Tenant-Caused Delay
or a Landlord-Caused Delay.  Any
additional reasonable costs and expenses incurred in connection with a
City-Required Change shall be paid from the Improvements Cost Fund.

 

1.6.2        Upon
the City’s approval of the construction Documents and permit application,
Tenant shall cause the Project Architect to pick up and deliver to Landlord the
building permit and the approved set of the Construction Documents marked “For
Construction.” Landlord will pay for the plan check fees, general building
permit fees, and the water and sewer capacity and connection fees from the
Improvements Cost Fund, provided that the building permit is issued. Any
existing credits available to the Demised Premises for water and sewer capacity
shall accrue to the benefit of the tenant for the Demised Premises. Tenant
shall apply and pay for and obtain all other unique or special approvals and
permits for the Pilot Plant Production Facility from the local health
department, the State Department of Health, the Federal Food and Drug
Administration, and the utility companies, as required, which costs shall not
be payable from the Improvements Cost Fund. A delay which is caused by Tenant
or the Project Architect in obtaining the building permit beyond the date
specified in the Development Schedule shall be a Tenant-Caused Delay.

 

1.6.3        At
the option of Tenant, Tenant may authorize Landlord’s Contractor to commence
construction of portions of Landlord’s Work up to thirty (30) days prior to
receipt of the building permit. If Landlord’s Contractor determines that such
early commencement is appropriate, Landlord’s Contractor shall so commence the
work. If the building permit is not obtained ultimately, then Tenant shall pay
all costs related to the early commencement of work and Tenant shall indemnify
and hold harmless Landlord and Landlord’s Contractor from all costs and
liabilities related thereto.

 

1.7           Construction
of Landlord’s Work.

 

1.7.1        Subject
to the terms and limitations specified in the Lease and this Exhibit B,
Landlord agrees to construct, as per Section 6.2.1, within the time period set
forth in the Development Schedule, those improvements described as “Landlord’s
Work” in Section 1.2.6 and Article II of this Exhibit B, in accordance with the
Construction Documents. Through the Landlord’s Contractor, said Landlord’s Work
shall be constructed diligently and continuously to completion.

 

10

 

1.7.2        The
aggregate costs for the Basic Improvements to Building Shell, as described in
Schedule 1 hereto and as shown on the Construction Documents, shall be paid for
by Landlord, as part of the Improvements Cost Fund, subject to the limitation
in Schedule 1 and Section 1.2.2 above. Any such costs in excess of said
limitation shall be paid by Tenant.

 

1.7.3        All
of the costs for the Building Improvements for Generic Facilities, as described
in Schedule 2 hereto and as shown on the Construction Documents, shall be paid
by Landlord, up to the aggregate limit of the Improvements Cost Fund for said
Generic Facilities, as specified in Section 2.1.5 of the Lease. Any costs in
excess of said limit shall be paid by Tenant.

 

1.7.4        All
of the costs for the special Tenant Improvements and for the tenant’s Work as
described on Schedules 3 and 4 hereto, and as shown on the Construction
Documents, shall be paid for by Tenant separate from and in addition to the
Improvements Cost Fund.

 

1.7.5        The
costs to be paid from the Improvements Cost Fund shall be those direct and
indirect costs incurred by landlord (or by Tenant as to the Architect’s
Contract, and the contracts for civil engineers, traffic engineers, and soils engineers
services) to design and construct the Basic Improvements to Building Shell and
the Building Improvements for Generic. Facilities, including without limitation
costs for:

 

a.   Architectural
and engineering services for Improvement Plans, pursuant to Tenant’s Architect
Contract with the Project Architect, subject to Landlords approval of said
contract, and subject to the exclusion of process engineering fees; and the
contracts for civil engineers, traffic engineers, and soils engineers services.

 

b. Governmental
permits, plan checks, inspections, approvals, occupancy permits, traffic
permits, and others which are paid for by Landlord, subject to exclusions as
specified in Section 1.4.5 above.

 

c.   Utility
company hook-ups, installation charges, sewer and water capacity fees, meter(s)
and associated piping and other related charges.

 

d.   Property
damage and liability insurance during course of construction.

 

e.  Sales Taxes for materials used in said
construction.

 

11

 

f.    Labor
and material costs for constructing the Basic      Improvements
to building Shell ands the building Improvements for Generic Activities.

 

g. All
payments and charges owed under the construction contract and subcontractors
for Generic facilities..

 

h. Landlord’s
Construction Coordinator Fee as specified in Section 4.4 below.

 

i.  All
other costs and services directly related to the construction or installation
of the Basic Improvements to Building Shell and the Building Improvements for
Generic Facilities, which costs are paid by Landlord to third parties.

 

To the extent
that a particular cost can be readily attributable to a particular improvement
(e.g., Basic Improvements to Building Shell, Building Improvements for Generic
facilities or Special Tenant Improvements) then the cost shall be so allocated
to that improvement, as described in Section 4.2.4 below. However, to the
extent that a particular cost cannot be readily attributable to a particular
improvement, but rather the cost is applicable generally to all improvements,
then said cost shall be allocated among the improvements on a fair and
equitable basis (e.g., pro rata square footage basis, or pro rata cost basis,
etc.). Said allocation of costs shall be used to determine whether the cost
shall be paid by Tenant or from the Improvements Cost Fund, as specified in
Sections 1.7.2, 1.7.3 and 1.7.4 of this Exhibit B.

 

Landlord and
Tenant acknowledge that it is highly probable that all of the
Improvements Cost Fund will be spent and that Tenant will be contributing
$2,000,000 or more for the costs of Landlord’s Work. If for some unexpected
reason all of the monies in the Improvement Cost Fund are not needed and
expended for the Basic Improvements to Building Shell and the Building
Improvements for Generic Facilities, then the remainder can be used to pay for
some of the extra and additional costs incurred and paid by Tenant for
constructing said improvements in the Demised Premises, including process
engineering fees. If all monies in the Improvements Cost Fund are not
ultimately expended for constructing said improvements, then the Basic Annual
Rent shall be reduced in accordance with the following formula:

 

For each one
dollar of unexpended funds remaining in the Improvements Cost Fund (which unexpended
funds are returned to Landlord), there shall be an eleven cents ($0.11)
reduction in the Basic Annual Rents.

 

12

 

1.7.6        With
respect to the costs to be paid by Tenant for (a) the excess costs for Basic
Improvements to Building Shell and Building Improvements for Generic Facilities
over the Improvements Cost Fund, and (b) the costs for Special Tenant
Improvements, Tenant shall deposit a cash amount equal to said costs in an
interest bearing construction fund control account reasonably satisfactory to
Tenant, at such time as may be required by the first trust deed construction
lender fur the Landlord’s Work. Interest earning on said deposit shall be
retained in the account and shall inure to the benefit of the fund and
Tenant.  Withdrawals from said account
shall require the signature of a representative from Tenant plus the signature
of a representative from Landlord. Funds in said deposit account shall be used
to pay Tenant’s share of the costs as required, with any unused funds to be
refunded to Tenant. Tenant shall fund separately the costs for Tenant’s Work.

 

1.7.7        With
respect to the costs to be paid by Landlord from the Improvements Cost Fund,
Landlord shall furnish the funds to pay said costs on a timely basis. Landlord
shall furnish to Tenant a copy of the lender’s loan commitment for said
Improvements Cost Fund, as soon as the loan commitment becomes available.
Withdrawals and payments from the Improvements Cost Fund shall be in accordance
with procedures established by the construction 1ender. All withdrawals and
payments shall be used only for paying the costs as described in Section 1.7.5
above, Tenant shall be given an opportunity to review and
comment on the proposed payment schedules from the Improvements Cost Fund, but
Landlord retains the final decision to make payments in accordance with the
requirements of the construction lender and the construction contract.

 

1.7.8        Upon
Substantial Completion of the landlord’s Work, except for (1) punch list items
to be corrected by Landlord pursuant to Section 13.1 of the Lease, (ii) unknown
latent defects, and (iii) Tenant’s rights pursuant to Section 1.1.5, Tenant
shall occupy and accept the Demised Premises in the condition in which they
then exist. As specified in Section 6.3, Tenant is expected to occupy different
portions of the Demised Premises at different times. At such time or times as
is it appropriate to file a Notice of Completion under applicable California
mechanic’s lien laws, Landlord shall promptly do so.

 

 1.7.9       From
the commencement of Landlord’s Work until the completion of Landlord’s Work,
Landlord (or Landlord’s Contractor) shall obtain and maintain public liability
and worker’s compensation insurance subject to Tenant’s reasonable review and
approval, in amounts sufficient to protect fully Tenant and Landlord from and
against liability for death or injury to persons and for damage to property
caused by or arising from the performance of Landlord’s Work. The costs of said
insurance are payable from the Improvements Cost Fund. From the commencement
until the completion of Tenant’s Work, Tenant shall obtain and maintain, at
Tenant’s expense, public liability and

 

13

 

worker’s
compensation insurance in amounts sufficient to protect fully Landlord and
Tenant from and against liability for death of or injury to persons and for
damage to property caused by or arising from the performance of Tenant’s Work.

 

1.7.10      As
specified in Section 13.1. of the Lease, on or before the Term Commencement
Date, Landlord and Tenant shall conduct a walk-through inspection of the
Demised Premises and shall jointly prepare a list of initial construction
detects (commonly called “punch list”) items that need to be corrected.
Landlord, shall cause Landlord’s Contractor to correct such initial
construction defect items as soon as is reasonably feasible within thirty (30)
days thereafter, provided, however, if by the nature of such correction more
than thirty (30) days is required to effect such correction, Landlord shall not
be in default hereunder if such correction is commenced as soon as is
reasonably feasible within such thirty (30) day period and is diligently
pursued to completion. On or before twenty-five (25) days following the Term
Commencement Date, Landlord and Tenant shall again conduct a walk-through
inspection to determine if any remaining punch list items require correction,
and Landlord shall cause all such corrective work to be commenced as soon as is
reasonably feasible within fifteen (15) days thereafter and diligently pursued
to completion.

 

1.7.11      The
parties acknowledge that the Building already contains various tenant
improvements which are in excess of what a customary “building shell” would
contain. Examples of said excess tenant improvements include HVAC equipment and
installments, other equipment, perimeter insulation, roof insulation,
elevators, telephone room, telephone conduct, exterior perimeter drywall,
roughed-in plumbing and fire panels. Eased upon the parties’ good faith
evaluation of said existing improvements, the parties have agreed to give to
Landlord a $100,000 credit against the Improvements Cost Fund, as though
Landlord had already spent said $100,000 from the Improvements Cost Fund,
thereby reducing by $100,000 the aggregate amounts to be contributed by
Landlord for the Improvements Cost Fund. As part of this evaluation, the
parties have also agreed that Tenant is accepting all existing tenant
improvements in their “as is” condition and that Tenant shall have the full and
sole responsibility for all future maintenance and repair for said existing
tenant improvements, excepting only as is otherwise specified in Section 16.1
of the Lease.

 

1.7.12      The
parties acknowledge that it is in both parties best interests to expedite the
construction of the Landlord’s Work, and that some overtime work and expedited
material delivery might be needed to expedite the construction work.
Accordingly, Tenant hereby agrees to establish a $250,000 contingency fund from
Tenants own monies under Tenant’s control, to be used by Tenant to pay for
overtime and expedited material delivery work which is helpful to expedite the
Construction for a

 

14

 

prompt completion.
Expenditure of this $250,000 contingency fund shall be used at Tenant’s
discretion.

 

1.8           Tenant
Changes. Any changes requested by Tenant to the Construction Documents
after approval of the Construction Documents by Landlord shall be requested and
instituted in accordance with the provisions of this Section 1.8 and shall be
subject to the written approval of Landlord after consultation with the Project
Architect. The parties recognize that any such change may delay completion of
the Landlord’s Work, which will be Tenant-Caused Delays. The parties agree to
use reasonable and good faith efforts to initially do proper planning and
designing for the Landlord’s
Work, within the time schedule specified in the Development Schedule, in order
to minimize the need for later change. However, the parties also recognize that
it is important to have the completed Demised Premises suitable for Tenant’s
business operations, and that if changes are in fact necessary to make the
Demised Premises suitable, then said changes will need to be made.

 

1.8.1        From
time to time after the Construction Documents have been approved by Landlord,
Tenant may request changes to the Construction Documents or request changes to
the Landlord’s Work already completed (“Tenant Changes”) by notifying Landlord
in writing of the nature and extent of any such Tenant Change as per section
1.5.4 above; and if the nature of such Tenant Change requires revisions to the
Construction Documents then the Project Architect shall revise the Construction
Documents. Such notice must be signed by at least one of Tenant’s Construction
Representatives (as that term is defined in Section 7.1 of this Exhibit B) or
Landlord shall not be required to process such Tenant Change request. Landlord
shall, before proceeding with a Tenant Change, use its best efforts to respond
to Tenant as soon as is reasonably possible with an estimate of (i) the time it
will take Landlord to analyze the requested Tenant Change, and (ii) the
architectural and engineering fees and costs which will be incurred in order to
analyze the requested Tenant Change, and thereafter submit to Tenant in
writing, within ten (10) business days after Tenant notifies Landlord of the
requested Tenant Change (or such longer period of time as is reasonably required
depending on the extent of Tenant’s Change request), an analysis of the
additional cost or savings involved, including without limitation architectural
and engineering costs, and the period of time, if any, that the Tenant Change
will extend the time for completion of Landlord’s Work. If Tenant fails to
expressly approve or disapprove in writing Landlord’s submission within two (2)
business days of receipt thereof, then each day of delay in the Tenant’s
approval or disapproval of Landlord’s submission beyond such two (2) business
day period shall be a Tenant-Caused Delay. In addition, so long as Landlord
proceeds diligently, each day of delay in Landlord’s subsequent repricing or
reanalysis of the same, or substantially same, Tenant Change, shall be Tenant-Caused
Delay.

 

15

 

1.8.2        If
Tenant approves in writing the cost or savings and the extension in the time
for completion of the Work, if any, Landlord shall cause the approved Tenant
change to be instituted. The time for completion of the Landlord’s Work shall
be extended one day for each day of delay caused by instituting the Tenant
Change requested by Tenant and such delay shall be a Tenant-Caused Delay.

 

1.8.3.       During
the construction of the Landlord’s work, Landlord or Landlord’s Contractor may
request information or clarification from the Project Architect as to the
Construction Documents if they are not complete and adequate. If the response
to such request for information or clarification(s) requires revisions to the
Construction Document, then the Project Architect shall revise the Construction
Documents as soon as possible. Such revisions to the Construction Documents
shall then be analyzed for cost or savings, and the period of time, if any,
that it will extend the time for completion of the Landlord’s Work. If the
Improvement Plans as originally prepared by the Project Architect were not
adequate, then any delays incurred because of these revisions shall be a
Tenant-Caused Delay. Any cost associated with this revision shall be subject to
section 1.7.3 of this Exhibit B.

 

1.8.4        All
architectural and engineering fees and costs incurred in connection with
modifications and revisions to the construction Documents, which result from a
Tenant Change request and/or instituting the Tenant change shall be paid from
the Improvements Cost Fund, subject to the availability of said funds.

 

1.8.5        Landlord
and Tenant agree that time and strict punctual performance are of the essence
with respect to this Article 1 and that each shall use due diligence in
performing their respective obligations pursuant to this Article 1.

 

1.8.6        If
Landlord’s Contractor is requested by Tenant or Tenant’s Construction
Representative to stop work in an area of the Building while a Tenant Change is
being contemplated, then such stoppage of work shall be a Tenant-Caused Delay.

 

1.8.7        If
any dispute should arise between Landlord and Tenant as to whether a delay is a
Landlord-Caused Delay or Tenant-Caused Delay, then such dispute shall be resolved
in accordance with Article VIII of this Exhibit B.

 

ARTICLE II

LANDLORD’S WORK

 

2.1           General.
“Landlord’s Work” shall include and be limited to the construction; purchase
and/or installation of (a) the Basic Improvements to the Building Shell (as per

 

16

 

Schedule 1
hereto), and (b) Building Improvements For Generic Facilities (as per Schedule
2 hereto), (c) Special Tenant Improvements (as per Schedule 3 hereto), (d) the
Corrective Work (as per section 1.2.1 above), and (e) any other work to be
completed by Landlord’s Contractor pursuant to the Construction Contract, all
in accordance with the Construction Documents and Section 1.7 hereof and the
Construction Contract. Subject to the extensions permitted pursuant to the
terms of the Lease and this Exhibit B, Landlord shall cause to be constructed,
within the time period set forth in the Development Schedule, the Landlord’s
Work.

 

ARTICLE III

TENANTS WORK

 

3.1         General.
“Tenant’s Work” shall include any extra construction of improvements, or
purchase and/or installation of equipment for the Demised Premises which are
not defined as Landlord’s Work. Tenant agrees, at its own expense, to construct
diligently and continuously to completion those improvements described as “Tenant’s
Work.” Tenant’s Work shall comply with all City, County and State ordinances,
rules and regulations relating thereto and shall be constructed in a manner
consistent with the approved Improvement Plans. Tenant shall maintain, or cause
its contractor to maintain, customary liability insurance, property damage
insurance and worker’s compensation insurance covering Tenant’s Work in the
Demised Premises.

 

3.2           Equipment
and Furnishings. Without limiting the generality of Section 3.1, Tenant
shall construct, purchase and/or install, at Tenant’s expense, all portable
equipment and furnishings and other improvements in the Demised- Premises
required by Tenant in the operation of its business, other than the
improvements and equipment described as Landlord’s Work in Article 2 of this
Exhibit B. Costs of interior decorating services which are not included in the
Construction Contract shall be part of Tenant’s Work. Any costs, expenses or
damages incurred by Landlord arising out of or related to the performance of
Tenant’s Work by Tenant, its contractor, subcontractor or other agents shall be
paid by Tenant to Landlord.

 

3.3           Early
Possession. The parties shall strive to achieve the earliest completion and
occupancy date as is reasonably feasible. In this regard, Landlord shall
cooperate with Tenant to allow Tenant’s contractors early possession of
portions of the Demised Premises for performing Tenant’s Work, so long as such
early possession does not interfere with or delay the prompt completion of
Landlord’s Work. Such early possession shall not constitute early occupancy as
described in Section 6.3 and shall not trigger a Rent obligation on the part of
Tenant. In the event Tenant or Tenant’s contractors enter possession of the
Demised Premises prior to Substantial Completion of the Demised Premises for
the purpose of performing Tenant’s Work, Tenant agrees to indemnify, defend and
hold Landlord harmless from any loss or

 

17

 

damage to
Tenant’s or Tenant’s contractor’s property, the Building, Landlord’s Work,
fixtures, equipment, materials or merchandise, or from liability for death of
or injury to any person, if the same is caused by Tenant, its contractors or
its agents.

 

3.4           Permit
and Completion. If a permit is required to construct Tenant’s work, Tenant
shall deliver a completed, signed-off inspection card to Landlord as soon as
possible after completion of Tenant’s Work or Tenant’s opening for business,
whichever occurs first. If Tenant contracts with any person or entity to
perform any part of Tenant’s Work, Tenant shall obtain and record a Notice of
Completion promptly following completion of Tenant’s Work and shall promptly
forward a certified copy thereof to Landlord. Tenant shall deliver an original
Certificate of Occupancy to Landlord as soon as possible after its issuance.

 

ARTICLE IV

 

LANDLORD’S USE OF A CONTRACTOR, COST ESTIMATE,

CONSTRUCTION COORDINATOR

 

4.1           Contractor
Selection; Construction Contract.

 

4.1.1        Subject
to the conditions set forth in this Article 4, Landlord and Tenant shall
mutually select the general contractor (“Landlord’s Contractor”) for the
construction of Landlord’s Work, provided such contractor meets all licensing
and insurance requirements established by the state of California and the City
of San Diego. Tenant shall be entitled to participate in negotiations between
Landlord and Landlord’s Contractor relating to the terms and conditions of the
contract for the construction of Landlord’s Work (the “Construction Contract”)
but Landlord shall have the final approval authority for the Construction
Contract, so long as the requirements of section 4.1.2 below are satisfied.

 

4.1.2        The
Construction Contract shall specify that Tenant has “third party beneficiary
rights” under the Construction Contract relative to enforcing the obligations
of Landlord’s Contractor for completing the construction, construction defects,
delay damages, warranties and indemnities. The Construction Contract shall
specifically provide that, in the event of a default by Landlord or foreclosure
on the Demised Premises by Landlord’s lender or Tenant, Tenant shall have the
option of stepping into Landlord’s position to complete construction. Further,
if Landlord defaults and Landlord is replaced by the construction lender,
second trust deed holder, or Tenant, then the Construction Contract shall
remain in effect for the benefit of Tenant, at Tenant’s option. In the event
that. Landlord is in material default under the Lease or the Construction
Contract, which default is not cured promptly after notice of the default, then
Tenant shall have the right to complete construction. Landlord shall use
diligent efforts to negotiate into the construction Contract a reasonably high
per diem delay damage amount. The Construction

 

18

 

Contract shall
include at least a one year warranty for construction defects. If any dispute
arises between Landlord and Tenant in connection with giving instructions to
Landlord’s Contractor, then Tenant shall make the final decision and give the
resulting instruction concerning the disputed matter, so long as the same does
not result in a change or deviation from the approved Improvement Plans. Prior
to signing the Construction Contract, Landlord shall review with Tenant the
negotiations for these provisions, and Landlord shall give due consideration to
Tenant’s recommendations for these provisions. All of these provisions in the
Construction Contract shall be subject to Tenant’s review and approval, which
approval shall not be withheld unreasonably. All of Landlord’s Work shall be
performed by Landlord’s Contractor pursuant to the Construction Contract,
except as may be agreed to otherwise by Tenant, and except that Landlord may
use a different contractor for the Corrective Work.

 

4.2           Estimate
of Costs for Landlord’s Work.

 

4.2.1        On
or before the date tenant submits the Construction Documents to the City for
plan check, Landlord and Tenant shall submit to Landlord’s Contractors list of
acceptable subcontractors from whom Landlord and Tenant desire to receive bids
for the Landlord’s Work required by the Construction Documents, within the time
period set forth in the Development Schedule for submittal of such
subcontractor list. Unless otherwise mutually agreed to by Landlord and Tenant,
a minimum of three subcontractors per major trade shall be designated, one (1)
designated by Tenant and two (2) designated by Landlord.

 

4.2.2        Landlord’s
contractor shall promptly provide to Landlord and Tenant all subcontractor bids
when received, which bids shall be in a form pre-approved by Landlord and
Tenant. All bids shall be pursuant to the approved Construction Documents.
Landlord and Tenant shall meet and confer; and acting reasonably, Landlord and
Tenant shall select one subcontractor bid from each trade bid from the
subcontractors, and deliver a list of selected subcontractors to Landlord’s
Contractor, within the time period for such selection set forth in the
Development Schedule.

 

4.2.3        Landlord’s
contractor shall prepare a cost estimate of the Landlord’s Work (“Cost Estimate”)
based upon the bids of the selected subcontractors. Said Cost Estimate is
intended to be a good faith and reasonable best efforts estimate of the
applicable costs, but neither Landlord nor Landlord’s Contractor shall have any
liability if said Cost Estimate ultimately proves to be inaccurate. Such Cost
Estimate shall include the entire cost of the construction and all materials
required for completing the Landlord’s Work, including without limitation
direct construction costs, costs of design build components of the Landlord’s
Work, costs of materials supplied by materialmen, project management, all
applicable taxes, and Landlord’s contractor’s fees, but excluding costs for
change

 

19

 

orders which
have not yet been approved at the time the Cost Estimate is prepared..

 

4.2.4        Landlord’s
Contractor and the Project Architect shall evaluate the components of the Cost
Estimate, and they shall reasonably and fairly attribute and allocate said Cost
Estimate among the following categories:

 

a.             Basic Improvements to
Building Shell (Schedule 1), and Building Improvements for Generic Facilities
(Schedule 2).

 

b.             Special Tenant
Improvements (Schedule 3)

 

c.             Tenant’s Work (if
any) (Schedule 4)

 

Said
allocation shall hereinafter be referred to as the “Allocated Cost Estimate”.

 

4.2.5        Landlord
shall submit to tenant, within the time period set forth in the Development
Schedule, the Allocated Cost Estimate for Tenant’s approval.

 

4.3           Tenant
Approval of Cost Estimate.

 

4.3.1        Tenant
shall, within five (5) business days after receipt of the Allocated Cost
Estimate, notify Landlord in writing of either (i) Tenant’s approval of the
Allocated Cost Estimate or (ii) Tenant’s disapproval of the Allocated Cost
Estimate, with Tenant giving specific instructions as to what scope of the
Landlord’s Work is to be reduced or eliminated. Alternatively, if Tenant and
Landlord’s Contractor mutually determine that it is appropriate to re-bid some
portions of the Landlord’s Work, in lieu of reducing the scope of the Landlord’s
Work, such re-bidding shall proceed promptly.

 

4.3.2          If
Tenant disapproves the Allocated Cost Estimate and instructs Landlord to reduce
the scope of Landlord’s Work, and the scope reduction complies with the
requirements of Section 1.8 hereof, and Tenant delivers to Landlord revisions
to the Construction Documents prepared by the Project Architect, if required,
then Landlord shall cause a revised Cost Estimate to be prepared as soon as
feasible by Landlord’s Contractor (including re-bidding in accordance with
Section 4.2 hereof, if necessary), and delivered to Tenant (“Revised Allocated
Cost Estimate”) for approval by the procedure set forth in Sections 4.3.1 and
4.3.2. This procedure shall be followed and/or repeated until Tenant approves a
Revised Cost Estimate.

 

4.3.3        If
Tenant fails to expressly approve the original Allocated Cost Estimate within
the time specified in Section 4.3.1, then each day of delay until Tenant does
approve an Allocated Cost Estimate shall be a Tenant-Caused Delay.

 

20

 

4.3.4        As
soon as reasonably feasible within fourteen (14) days after Tenant approves the
original Allocated Cost Estimate or any Revised Allocated Cost Estimate,
Landlord shall enter into a construction contract with Landlord’s Contractor
for construction of Landlord’s Work. Tenant shall be made a third-party
beneficiary of the construction contract for purposes of being able to pursue
available remedies against Landlord’s Contractor as specified in Section 4.1
above.

 

4.3.5        Landlord
shall provide to Tenant a copy of the fully executed construction contract for
Landlord’s Work between Landlord and Landlord’s Contractor. As one of the terms
of such contract, Landlord and Tenant shall have the right, at all reasonable
times, to audit Landlord’s Contractor’s financial and accounting records in
connection with the construction of Landlord’s Work.

 

4.4           Construction
Coordination. Landlord shall enter into a contract with Del Mar
Partnership, Inc. to act as construction coordinator for the construction of
Landlords Work, for a fee of five percent (5%) of the cost of the Landlord’s
Work (“Landlord’s Construction Coordinator’s Fee”), payable from the
Improvements Cost Fund. Said construction coordination services shall include
(i) participating in weekly construction meetings with representatives from the
Landlord’s Contractor, the Project Architect, and the Tenant, and (ii) helping
to coordinate all participants’ performance of their obligations, in an effort
to substantially complete Landlord’s Work as soon as reasonably feasible. Del
Mar Partnership, Inc. is providing these construction coordination services for
the benefit of Landlord; and Tenant is not a third party beneficiary of
the obligations of Del Mar Partnership, Inc. to Landlord; and neither Del Mar
partnership Inc., nor any of its shareholders or employees shall have any
liability to Tenant.

 

ARTICLE V

TENANT’S USE OF A CONTRACTOR

 

5.1           Contractor
Selection. Tenant shall contract with Landlord’s Contractor (or with such
other contractor as Tenant may select, subject to Landlord’s approval, which
approval wilt not be withheld unreasonably for the construction of Tenant’s
Work, to be performed at a fair, reasonable and competitive price. Tenant shall
provide Landlord with a copy of the contract with said contractor prior to the
commencement of Tenant’s Work.

 

21

 

ARTICLE VI

 

COMPLETION, RENT COMMENCEMENT AND DELAYS

 

6.1           Definitions.
Any capitalized terms used in this Exhibit B shall have the same meaning as set
forth in the Lease to which this Exhibit B is attached. The following
capitalized terms shall have the following meaning:

 

a.             “Substantial
Completion” and “Substantially Complete” shall have the same meaning as defined
in the Lease;

 

b.             “Tenant-Caused
Delays” shall mean (i) those delays caused by the failure of Tenant, the
Project Architect or other representatives of Tenant to act within the time
limits set forth in the Development schedule and this Exhibit B, excepting only
for a delay by the Project Architect which is caused by Landlord’s failure to
comply with Landlord’s obligations under this Work Letter; (ii) delays defined
as Tenant-Caused Delays pursuant to this Exhibit B; and (iii) delays resulting
from Tenant’s request for materials, finishes or installations which are not
readily available, as specified in section 1.4.6 above. Provided, however, a “Tenant-Caused
Delay” shall not commence more than two (2) business days before Landlord gives
written notice to Tenant thereof.

 

c.             “Landlord-Caused
Delays” shall mean (i) those delays caused by the failure of Landlord to act
within the time limits set forth in the Development Schedule and this Exhibit
B; and (ii) delays defined as Landlord-Caused Delays pursuant to this Exhibit
B. Provided however, a “Landlord-Caused Delay” shall not commence more than two
(2) business days before Tenant gives written notice to Landlord thereof.

 

d.             “Force-Majeure
Delays” shall mean delays beyond Landlord’s or Tenant’s control, including, but
not limited to, acts of God, war, civil commotion, labor disputes, strikes,
fire, flood or other casualty, shortages of labor or material (other than-
materials referenced in section 6.1(b) (iii) above), governmental regulation or
restriction and weather conditions, but excluding inability of Landlord to
obtain financing.

 

6.2           Completion
of the Work and Rent Commencement.

 

6.2.1        Landlord
shall use its best efforts to Substantially Complete Landlord’s Work on or
before the Estimated Term Commencement Date, as the Estimated Term Commencement
Date is extended pursuant to the terms of this Exhibit B or the Lease. The
Estimated Term Commencement Date (but not the date when Rent commences, nor the
actual Term Commencement Date) shall be extended one day for each day of delay
in substantial Completion of Landlord’s Work resulting from Tenant-Caused
Delays. As specified in Section 6.3, the actual construction time schedule

 

22

 

will be
bifurcated, with there being two separate dates for the actual date of
Substantial Completion.

 

6.2.2        Tenant’s
obligation to commence paying Basic Annual Rent and Additional Rent shall be on
the date when Landlord’s Work is substantially Complete, with respect to the
applicable Laboratory and Office facilities and the Pilot Plant facility, as
specified in Section 6.3, excepting however, said date shall be advanced one
day for each day of delay in substantial Completion of Landlord’s Work which
result from more than twenty (20) days of Tenant-Caused Delays. In other words,
said Rent commencement date shall be the date that Substantial completion would
have occurred had there been no more than twenty (20) days of Tenant-Caused
Delays.

 

6.2.3        Any
delay in the Substantial completion of Landlord’s Work for reasons other than
Tenant-Caused Delays shall result in a delay in when Tenant commences to pay
Rent, but, as specified in Section 4.2.3 of the Lease, said delays shall not
entitle Tenant to recover any damages or losses from Landlord. However, Tenant
shall be entitled to share in the delay damages paid by the Landlord’s
Contractor, as specified in section 6.3.7 below.

 

6.3           Delays
and Bifurcation.

 

6.3.1        It
is contemplated that the Landlord’s Work for the Generic Pilot Plant Production
Facility will require approximately sixty (60) days more to design and
construct than the Office and Laboratory Facilities. Accordingly, the parties
have agreed to proceed on a partially bifurcated schedule for said Pilot Plant,
as set forth in this Section 6.3.

 

6.3.2        The
Office and Laboratory Facilities portions of the Demised Premises shall be
occupied as soon as both portions are Substantially Complete.

 

6.3.3 The Basic
Rent payable for each portion so occupied shall be at the rate of $2.00 per
square foot of Rentable Area (instead of $2.75) until the Substantial
Completion of all of the Landlord’s work, at which time the Basic Rent shall be
at the rate of $2.75 per square foot. Provided, however, if Substantial
Completion is delayed by more than twenty (20) days of Tenant-Caused Delays,
then the $2.75 per square foot Basic Rent shall commence before Substantial
Completion, as of the date which is twenty-one (21) days after Substantial
Completion would have occurred if there had not been any Tenant-Caused Delays.

 

6.3.4        At
such time as Basic Rent commences to accrue at $2.00 per square foot, Tenant
shall also be responsible to pay all Additional Rent and Operating Expenses
applicable to the portion of the premises for which the Basic Rent is payable.

 

23

 

6.3.5        At
such time as the Pilot Plant is Substantially Complete, the Basic Rent,
Additional Rent, and Operating Expenses applicable to the Pilot Plant shall
commence to accrue and be payable by Tenant. Provided, however, if
Tenant-Caused Delays cause a delay in the Substantial Completion of the Pilot
Plant by more than twenty (20) days, then said Rent and Operating Expenses
shall confluence to accrue and be payable twenty-one (21) days after the date
when said Substantial Completion would have occurred if there had not been any
Tenant-Caused Delays.

 

6.3.6        Notwithstanding
anything to the contrary contained in this Exhibit B or the Lease, if a
Tenant-Caused Delay does not ultimately cause an actual delay in when Landlord
would otherwise be able to achieve Substantial Completion and the commencement
of Rent, then there shall be no adverse consequences to Tenant as a result thereof.

 

6.3.7        If
Landlord’s Contractor fails to Substantially Complete the Landlord’s Work
within twenty (20) days after Landlord’s Contractor is obligated to do so, and
Tenant does not terminate the Lease pursuant to sections 4.1 and 4.2 of the
Lease, then Landlord and Tenant shall share equally the per diem delay damages
paid by Landlord’s Contractor to Landlord for said delay days beyond twenty
(20) days, with the amount of said delay damages to be as specified in the
construction contract between Landlord and Landlord’s Contractor. Landlord
shall pay Tenant’s share to Tenant promptly upon receipt by Landlord of the
delay damages paid by Landlord’s Contractor.

 

6.3.8        The
date when Rent becomes $2.75 per square foot pursuant to Section 6.3.3 shall be
the Ten Commencement Date for purposes of calculating the fifteen (15) year
Term Expiration Date pursuant to Section 2.1.6(b) of the Lease.

 

ARTICLE VII

 

DEVELOPMENT

 

7.1.          Tenant’s
Construction Representatives. Tenant designates Robert Dilworth, Timothy
Hughes and Phillip Schneider as Tenant’s construction representatives (“Tenant’s
Construction Representatives”) in connection with the Landlord’s Work. Tenant’s
Construction Representatives shall use their best efforts to participate in all
meetings with Landlord’s Contractor and subcontractors involved in the
construction of the Landlord’s Work. Tenant’s Construction Representatives are
the only individuals authorized to approve Changes requested by Tenant pursuant
to section 1.7 of this Exhibit B.  Any
questions arising during construction shall be directed to one of Tenant’s
Construction Representatives. Notwithstanding anything to the contrary in this
Exhibit B, any and all changes requested by Landlord to be made to the
Construction Documents, after Landlord

 

24

 

has previously
approved the Construction Documents, shall be subject to approval by Tenant
prior to implementing such change, which approval shall not be unreasonably
withheld or delayed. Such change (i) must be consistent with the approved
Construction Documents, as modified by any Changes, and (ii) shall be
documented in writing and Tenant shall give approval by having one of Tenant’s
Construction Representatives sign an appropriate change order. Any delays
caused by such Landlord changes shall be Landlord-Caused Delays.

 

7.2           Delivery
of the Premises. Pursuant to Section 1.7.8 above, Landlord shall deliver
the Demised Premises to Tenant upon Substantial Completion of Landlord’s Work.

 

7.3           As-Built
Drawings. Within sixty (60) days after substantial Completion, Landlord
shall furnish to Tenant a set of “as-built” drawings or “record drawings” of
the Demised Premises.  Landlord shall
also retain a set of the “as-built” drawings or “record drawings.”

 

ARTICLE VIII

 

CONSTRUCTION DISPUTE RESOLUTION

 

8.1           Dispute
Resolution. If any dispute arises in connection with this Exhibit B, such
dispute shall be resolved in accordance with this Article.  Such dispute shall be determined by a panel
consisting of two representatives of Landlord, and two representatives of the
Tenant, and a fifth party with extensive development and construction
experience in the construction of biotechnology or pharmaceutical research and
development laboratories in the San Diego County area (or having such other
qualifications as the parties mutually approve), selected in accordance with
Section 8.3 of this Article (the “Construction Panel”). The fifth member shall
be independent from and disinterested in both Landlord and Tenant.  No member of the Construction Panel shall be
an attorney, unless Landlord and Tenant both consent thereto in writing.

 

8.2           Notice.
All disputes to be determined in accordance with this Article shall be raised
by notice to the other party, which notice shall state with particularity the
nature of the dispute and the demand for relief, making specific reference by
Section number to the provision of this Exhibit 5 alleged to give rise to the
dispute. Such notice shall also refer to this Article and shall designate the
two representatives who are representing the party on the “Construction Panel.”

 

8.3           Selection
of Fifth Party/Costs. Landlord’s representatives and Tenant’s
representatives shall mutually and promptly select a fifth party who meets the
qualifications set forth in Section 8.1 of this Article. In the event a
selection is not made within two days after demand for resolution is made,

 

25

 

the fifth
party shall, upon the request of either party, be appointed by the then-president
of the Associated General Contractors of San Diego County. All proceedings
contemplated by this Section shall take place at the location for all job-site
meetings, unless the Construction Panel mutually agrees to another location.
The cost for the fifth party’s services shall be paid by the non-prevailing
party in the dispute being determined by the Construction Panel.

 

8.4           Interpretation
and Resolution. In determining any dispute, the Construction Panel shall
apply the pertinent provisions of this Exhibit B without departure there from
in any respect. The Construction Panel shall not have the power to add to,
modify or change any of the provisions of this Exhibit B; but this provision
shall not prevent in any appropriate case the interpretation: construction and
determination by the Construction Panel of the applicable provisions of this
Exhibit B to the extent necessary in applying the same to the matters to be
determined by the Construction Panel. As part of resolving a dispute, the
Construction panel shall determine the days of delay in completing the Landlord’s
Work and Tenant’s Work which directly result from the dispute being considered
by the Construction Panel, if any. The days of delay shall be designated as
either Tenant-Caused Delays, Landlord-Caused Delays or Force-Majeure or any
combination of the three types of delay, as determined by the Construction
Panel.

 

8.5           Continued
Performance. During any proceedings pursuant to this Article,
Landlord and Tenant shall, to the extent possible, continue to perform and
discharge all of their respective obligations under this Exhibit B and the
Lease.

 

8.6           Finding
Resolution. The Construction Panel shall meet within two days of the fifth
party being selected as a member of the construction Panel and the Construction
Panel shall thereafter resolve the issue in dispute within two business days,
unless it is mutually agreed among the Construction panel members that
additional time is necessary to resolve the dispute, but in no event shall such
additional time exceed five business days. Landlord and Tenant agree that time
and strict punctual performance are of the essence with respect to each
provision of this Exhibit B and that any and all decisions of the Construction
Panel as to the matter in dispute shall be binding upon both Landlord and
Tenant.

 

Approved by:

 

TENANT:   signature present, vice president   

 

LANDLORD:   signature present, vice president   

 

26

 

EXHIBIT C

 

ADDITIONAL BUILDING AGREEMENT

 

This Agreement
is an exhibit to that certain Lease between Torrey Sorrento. Inc. (“Landlord”)
and IDEC Pharmaceuticals Corporation (“Tenant”) dated July 9, 1992. Pursuant to
the Lease, Landlord is leasing to Tenant all of the land and improvements
described in Exhibit A to the Lease, all of which constitutes the “Demised
Premises”, as defined in the Lease.

 

There
currently exists an approximately 70,000 square foot building located on the
leased land; and the applicable zoning regulations may permit the construction
of an additional building (the “Additional Building”) on the land. Pursuant to
Section 1.3 of the Lease, Landlord has reserved the right to construct one
additional building on the Demised Premises, in accordance with the terms and
provisions of this Agreement.

 

1.             Description of
Additional Building.

 

a.  The Additional Building may be attached to
the existing building on the land, or located within the atrium area of said
existing building only with Tenant’s approval, which approval Tenant may
withhold in its sole discretion. If Tenant does not so approve, then the
Additional Building shall be a detached building, generally located on the
southeast portion of the land where open surface parking is now located. Said
Additional Building may also include a parking structure or an addition to the
existing parking structure on the Demised Premises.

 

b. If Tenant
has committed to lease the Additional Building on terms mutually approved by
Tenant and Landlord, then the Additional Building shall be constructed in
accordance with plans and specifications to be mutually approved by Landlord
and Tenant, all in accordance with applicable governmental requirements.

 

c. If Tenant
has not committed to lease the Additional Building on terms mutually approved
by Tenant and Landlord, then the Additional Building shall be constructed in
accordance with plans and specifications prepared by Landlord’s architect, in
accordance with all applicable governmental requirements, which plans and
specifications shall be subject to Tenants reasonable review, comment and
approval, none of which shall be unreasonably delayed or withheld. The
Additional Building shall be located and constructed in a manner to not
unreasonably interfere with Tenant’s use and enjoyment of the remainder of the
Demised Premises. Tenant shall continue to have the use of 210 parking spaces,
and Tenant and the occupants of the Additional Building shall have common,
shared rights to the ingress and egress driveways and sidewalks. Utility
services shall be separately metered; property taxes and insurance shall be
fairly allocated; and the costs to maintain and repair any common use
facilities shall be shared fairly. Unless otherwise mutually agreed for
prorating and allocating the common area expenses and the common operating
expenses, said expenses shall be prorated and allocated in proportion to the
relative square footage of the Additional Building leased to Tenant as compared
to the square footage of the Additional Building.

 

 

d.
Landlord hereby reserves and retains the right to sever and remove from the
Demised Premises leased to Tenant such areas as are reasonably necessary or
appropriate for the Additional Building, consistent with the provisions of
Section 1.3 of the Lease and this Exhibit C. Without limiting the generality of
the foregoing, Landlord shall have rights of reasonable ingress and egress to
construct and maintain the Additional Building; and the tenant(s) of the
Additional Building shall have reasonable ingress and egress to occupy and
enjoy the use of the Additional Building. Additionally, during the course of
construction for the Additional Building, some of the non-Building areas of the
Demised Premises may be used temporarily for storage, ingress and egress, so
long as Tenant’s use of the remaining Demised Premises is not materially
adversely affected.

 

e. All of the arrangements
for severance, common areas, use and sharing of expenses as specified in
subsections c and d above, shall be subject to Tenant’s reasonable review,
comment and approval, none of which shall be unreasonably delayed or withheld.
Landlord shall reimburse Tenant for Tenant’s reasonable attorney’s fees
incurred to review the implementing documents, up to a maximum of $10,000.

 

2.             During
First Four Years. During the first four years of the term of the Lease
(i.e., ending an the fourth anniversary in 1997), Landlord shall not commence
construction of the Additional Building unless (a) Landlord and Tenant mutually
agree to do so, and (b) Tenant has committed to lease the Additional Building
on terms and conditions mutually approved by both Landlord and Tenant. During
such period, Landlord shall not build the Additional Building for
occupancy by any tenant other than Tenant.

 

3.             After
First Four Years. From and after the fourth anniversary of the Term
Commencement Date (i.e., in 1997), Landlord may proceed with the construction
of the Additional Building without having obtained a commitment from Tenant to
lease the Additional Building, subject to Tenant’s approval as set forth in the
provisions of Section 1 above. Provided, however, Tenant shall have the “first
right to offer” to become the tenant of the Additional Building, as specified
in Section 4 below. Once any Additional Building is built by Landlord on the
Demised Premises, whether for Tenant’s use or the use of a third party, and
regardless of the size of the Additional Building, Landlord shall have no
further rights under this Agreement to build a second additional building on the
Demised Premises.

 

4.             First
Right to Offer. If Landlord commences construction of the Additional
Building after January 1, 1997, Landlord shall deliver to Tenant a written
notice as to the general size plans, specifications, and description for the
Additional Building, and the notice shall also specify the financial and other
terms for Tenant to ease the Additional Building on a long-term basis (the
Landlord’s Notice). Tenant shall have a period of 45 days after receipt of the
Landlord’s Notice in which to deliver a written commitment to Landlord for
Tenant to lease the Additional Building in accordance with Landlord’s Notice,
or to lease the Additional Building on such other terms as may have been agreed
to by that time in writing between Landlord and Tenant (“Tenant’s Commitment”).
If Landlord has not received Tenant’s Commitment within said 45-day period,
then Landlord shall be tree to pursue the construction and leasing of the

 

3

 

Additional Building any time
during the following two years, without Tenant having any rights with respect
thereto (other than Tenant’s approval rights as set forth in Section 1 above),
so long as the lease terms offered by Landlord to a third party tenant are not
materially more favorable to the third party tenant than Landlord had offered
to Tenant in the Landlord’s Notice. The lease terms offered to the third party
tenant shall be deemed 10 be “materially more favorable” only if the present
value of all of the economic terms offered to the third party tenant are less
than 90% of the present value of the economic terms offered to Tenant lot the
same period of time. If construction has not commenced within said two-year
period, then Tenant shall again have the first right to offer, in accordance
with this Section 4, for any Additional Building to be constructed thereafter.

 

5.             Termination
Agreement. In the event that Tenant commits to lease the Additional
Building, then Tenant’s rights to an early termination of the Lease (as set
forth in Exhibit E to the Lease) shall automatically terminate and be of no
further force or effect.

 

a. Arbitration.
In the event of any disputes arising with respect to this Additional Building
Agreement, said dispute shall be resolved by binding arbitration in accordance
with the procedures set forth in Section 38.19 of the Lease.

 

	
   

  	
  Approved by:

  
	
   

  	
   

  	
  TENANT:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  signature
  present, vice president

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LANDLORD

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
       signature
  present, vice president

  	
   

  
							

 

4

 

EXHIBIT D

EARLY TERMINATION AGREEMENT

 

This Early
Termination Agreement is an exhibit to the Lease between Torrey Sorrento, Inc.
(“Landlord”) and IDEC Pharmaceuticals Corporation (“Tenant”), dated July 9,
1992. The scheduled term of the Lease is for 15 years, ending in the year 2008.
Pursuant to the terms of this Agreement, Tenant shall have the right to an
early termination of the Lease prior to the scheduled expiration of the term of
the Lease, in accordance with the provisions as hereinafter set forth.

 

1.             Notice
of Termination.

 

1.1.          Lease
Year. As used in this Agreement, the term “Lease Year” means each twelve
full calendar months following the Term Commencement Date. For reference
purposes, the first Lease Year commencing in 1993 shall be referred to also as
the 1993 Lease Year, and so forth, as follows:

 

	
  Lease Year

  	
   

  	
  Lease Year

  (commences in)

  	
   

  
	
    1

  	
   

  	
  1993

  	
   

  
	
    6

  	
   

  	
  1998

  	
   

  
	
    7

  	
   

  	
  1999

  	
   

  
	
    8

  	
   

  	
  2000

  	
   

  
	
    9

  	
   

  	
  2001

  	
   

  
	
  10

  	
   

  	
  2002

  	
   

  
	
  11

  	
   

  	
  2003

  	
   

  

 

1.2.          Notice.
If Tenant decides to elect to exercise its right for an early termination of
the term of the Lease, Tenant shall deliver a written notice of termination to
Landlord, which written notice shall expressly state that Tenant is exercising
its right of termination pursuant to this Agreement. Said notice shall be for a
termination to occur twelve months later.

 

1.3.          Time
for Delivering Notice. Tenant may give written notice of early termination
only during the sixth through the tenth year of the Lease (for an actual
termination to occur during the seventh through the eleventh year of the
Lease). Provided, however, if the new rent for the eleventh year of the Lease
has not been determined pursuant to Section 6.2 of the Lease by the end of the
ninth month of the tenth year of the Lease, through no fault of Tenant, then
Tenant’s right to terminate in the tenth year shall be extended until three
months

 

5

 

after said new
rent is determined. Said termination shall become effective 12 months following
the date when Landlord receives said written notice; provided, however, that
said notice shall be effective if, and only if, it is accompanied at the time
of delivery with a payment to Landlord of the termination fee, as specified in
Section 2 below.

 

2.             Termination Fee.

 

Upon Tenant
electing an early termination of the term of the Lease in accordance with the
provisions of Section 1 above, Tenant shall pay to Landlord, (i) by cashier’s
or certified check, or by wire transfer, or (ii) by an irrevocable and
unconditional bank letter of credit, in a form and from a bank approved by
Landlord, which approval shall not be unreasonably withheld,
which payment or letter of credit shall accompany the notice of termination
delivered to Landlord, the following termination fee:

 

	
  Lease Year in which

  Tenant’s Notice is given

  	
   

  	
  Termination fee equal to

  the following number

  of months of

  Basic Annual Rent

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
    6th year (1998)

  	
   

  	
  20 months

  	
   

  
	
    7th year (1999)

  	
   

  	
  18 months

  	
   

  
	
    8th year (2000)

  	
   

  	
  16 months

  	
   

  
	
    9th year (2001)

  	
   

  	
  14 months

  	
   

  
	
  10th year (2002)

  	
   

  	
  12 months

  	
   

  

 

Said
termination fee shall be calculated using the regular monthly installments of
the Basic Annual Rent applicable for the specified number of months following
the effective date of the early termination of the Lease.

 

3.             Tenant
to Perform Accrued Obligations. Tenant shall fully perform all obligations
required of Tenant up to and including the date of said termination, including
without limitation, payment of all accrued rent (both Basic Annual Rent and
Additional Rent), and completion of all required maintenance and repair work,
and removal of Tenant’s personal property, and Tenant leaving the Demised
Premises in a good and clean condition and in good repair, as specified in
Section 16.2 of the Lease. In the event of any failure of Tenant to so fully
perform all of its obligations, the Lease shall nevertheless terminate in
accordance with Tenant’s previous termination notice, and Tenant shall be
liable to Landlord for all costs and damages related to Tenant’s failure to fully
perform said accrued obligations.

 

6

 

4.             Effect.
Upon the early termination of the term of the Lease, the provisions of the
Lease which would be applicable upon the normal expiration of the term of the
Lease shall be applicable to the early termination.

 

5.             Sublease
or Assignment. In the event that Tenant ceases to occupy the Demised
Premises by reason of a sublease or an assignment made in accordance with the
terms of the Lease, then such situation shall not be deemed an early
termination of the Lease, and the above reference termination fee shall not be
payable. If Tenant assigns its rights in the Lease (other than as collateral
security, or by merger or sale of substantially all of the assets of Tenant), or
if Tenant subleases 50% or more of the space in the Building, then all rights
to an early termination of this Lease pursuant to this Exhibit D shall
automatically terminate or be of no further force or effect.

 

6.             Future
Agreement. In the event that Landlord and Tenant enter into some future
agreement for Landlord to construct a new facility for Tenant, said future
agreement may include provisions to reduce or eliminate the above stated
termination fee, on such terms and provisions as may be negotiated and mutually
agreed to between the parties.

 

7.             Additional
Building. Landlord and Tenant also have certain rights and obligations
concerning the Additional Building, as described in Exhibit C attached to the
Lease. In the event that Tenant commits to lease the Additional Building, on
terms and conditions mutually agreed to by Landlord and Tenant as specified in
Exhibit C, then Tenant’s right to an early termination of the term of the Lease
pursuant to this Exhibit D shall automatically terminate and be of no further
force or effect.

 

 

	
   

  	
  Approved by:

  
	
   

  	
   

  
	
   

  	
  TENANT: 

  	
        signature
  present, vice president

  	
   

  
	
   

  	
   

  
	
   

  	
  LANDLORD: 

  	
              signature
  present, vice president

  	
   

  
						

 

7

 

EXHIBIT E

 

FORM OF ESTOPPEL LETTER FROM TENANTS

 

[subject to such modifications as nay reasonably be required by
Landlord’s lender or purchaser]

 

                          ,
19        

 

TO: 

 

RE:          Lease (“Lease”) dated                         ,
1992, by and between Torrey Sorrento, Inc., a California corporation (“Landlord”),
and IDEC Pharmaceuticals Corporation, a California corporation (“Tenant”), of
approximately 70,000 square feet of rentable area in the Building located at
11011 Torreyana Road, in the City and County of SanDiego, California.

 

Gentlemen:

 

The undersigned, as Tenant, has been advised that the Lease has been or
will be assigned to you as a result of your purchase of the above-referenced
Property or that you are a lender who intends to perfect a security interest in
the property and, as an inducement therefor hereby confirms the following:

 

1.              That
it has accepted possession and is in full occupancy of the Demised Premises,
that the Lease is in full force and effect and that Tenant has received no
notice of any default of any of its obligations under the Lease and is not in
default of any such obligations, except as follows: (If none, so state.)

 

2.             That
the improvements and space required to be furnished according to the Lease,
including any construction required to be made by the landlord under the Lease,
have been satisfactorily completed by the Landlord in all respects and that

 

8

 

the Landlord
has fulfilled all of its duties under the terms, covenants and obligations of
the Lease and is not currently in default thereunder, except as follows: (If
none, so state.)

 

3.             That
the Lease has not been modified, altered or amended and represents the entire
agreement of the parties, except as follows: (If none, so stats.)

 

4.             That
Tenant has accepted the Demised Premises and there are no offsets concessions,
counterclaims or credits against rentals, nor have rentals been prepaid or
forgiven, except as follows: (If none, so state.)

 

5.             That
Tenant has no claim, cause of action or right of setoff against the Landlord,
or any defense to payment of any sum or performance of any obligation due under
the Lease, except as follows: (It none, so state.)

 

6.             That
the rent payable under the Lease is $                  
per month plus additional rent comprised of operating Expenses as provided in
the Lease with respect to the Project and said rents commenced to accrue on the
             
day of                   
.. The Lease term commenced on                                                       
.. The Lease term expires on                                                       .

 

7.             That
Tenant has no notice of a prior assignment, hypothecation or pledge of rents
under the Lease, except as follows: (If non., so state.)

 

8.             That
Tenant agrees to attorn to you and recognize you as Landlord under the Lease
upon your purchase of or foreclosure upon the Demised Premises and assumption
of the Lease

 

9

 

pursuant to its terms, and hereby consents to the assignment of the Lease
to you.

 

9.             That
this letter shall inure to your benefit and to the benefit of your successors
and assigns and shall be binding upon Tenant and Tenant’s heirs, personal
representatives, successors and assigns. This letter shall not be deemed to
alter or modify any of the terms, covenants or obligations of the Lease.

 

10.           That
Tenant has not executed or otherwise agreed to any sublease or other rental or
occupancy agreements with respect to the Demised Premises, except as follows:
(If none, so state.)

 

11.           That
Tenant does not claim, and knows of no person or entity claiming, any right to
or interest in all, or any part of the Demised Premises.

 

12.           That
Tenant does not have a purchase option or renewal option other than as
described above with regard to the Demised Premises, except as follows: (If
none, so state.)

 

13.           That
Tenant has accepted parking On the Demised Premises without requiring Landlord
to provide other parking elsewhere.

 

 14.          That
Tenant has no right to cancel or terminate the Lease under the terms thereof or
otherwise, except in the case of condemnation or destruction of the Demised
Premises in accordance with the applicable provisions of the Lease and except
to the extent that applicable California law may permit the termination of a lease
by a tenant in the case of certain breaches thereof by the Landlord thereunder
(but nothing herein shall be deemed to imply that the tenant has any greater
right to terminate the Lease beyond any rights of termination, if any,
generally permitted under applicable California Law), except as follows: (If
none, so state.)

 

The above
statements are made with the understanding that you will rely on them in
connection with the purchase of or securing financing upon the Demised
Premises.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  Tenant:

  
	
   

  	
  IDEC
  Pharmaceuticals Corporation,

  a California corporation

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  

 

10

 

EXHIBIT F

 

ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE

 

Pursuant to
Section 4.2 of that certain Lease dated July 3, 1992, by and between Torrey
Sorrento. Inc., a California corporation (“Landlord”), and IDEC Pharmaceuticals
Corporation, a California corporation (“Tenant”), for approximately 70,000
square feet of rentable area in the Building at the address of 11011 Torreyana
Road, in the city of San Diego, California:

 

We hereby
acknowledge that the Term Commencement Date of the Lease is                           
, 1993.

 

 

	
  LANDLORD:

  	
  TENANT:

  
	
  TORREY
  SORRENTO, INC.,

  	
  I DEC
  PHARMACEUTICALS

  
	
  a California
  corporation

  	
  CORPORATION,
  a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Its: 

  	
   

  	
   

  	
  Its: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By: 

  	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Its: 

  	
   

  	
   

  	
  Its:

  	
   

  	
   

  

 

11

 

FIRST AMENDMENT TO LEASE

 

This Agreement
is entered into as of November 9, 1992, by and between TORREY SORRENTO INC., a
California corporation (hereinafter called “Landlord”), and IDEC
PHARMACEUTICALS CORPORATION, a California corporation (hereinafter called “Tenant”),
with reference to the following facts:

 

A.            Prior hereto Landlord
and Tenant entered into that certain Lease dated July 9, 1992, for thepremises
located at 11011 Torreyana Road, San Diego, California (the “Lease”).

 

B.            Landlord and Tenant
now desire to amend the Lease on the terms set forth herein.

 

C.            All capitalized terms
not defined herein shall have the same meaning as set forth in the Lease.

 

NOW,
THEREFORE, the parties hereto agree as follows:

 

1.     A new Section 2.1.10 is
hereby added to the Lease as follows:

 

“2.1.10
Landlord’s Mortgagee: The term “Landlord’s Mortgagee” shall mean the
beneficiaries from time to time of the first deed of trust encumbering the
Demised Premises dated November 25, 1992, in favor of four construction
industry labor-management pension trust funds. The agent for said beneficiaries
is Seidler Realty Advisors, who shall act as the agent for the Landlord’s
Mortgagee. The term “Landlord’s Mortgagee” also includes said agent. By written
notice from all of said beneficiaries to Landlord and Tenant, said agent may be
changed to another party, in which event said new agent shall thereafter act
for the Landlord’s Mortgagee. The address for notice to Landlord’s Mortgagee
is:

 

	
   

  	
  Seidler
  Realty Advisors

  
	
   

  	
  4275
  Executive Square, Suite 325

  
	
   

  	
  La Jolla, CA
  92037

  
	
   

  	
  Attn:

  	
  Daniel J.
  Ryan

  

 

2.     The Lease is hereby amended
by adding thereto the following new Section 2.1.11:

 

“2.1.11
Landlord’s Lender: The term “Landlord’s Lender” shall include Landlord’s
Mortgagee and any other lender at any time which is the beneficiary of a first
deed of trust encumbering the Demised Premises.”

 

12

 

3.     The Lease is hereby amended
by adding thereto the following new Paragraph 3.4:

 

“3.4 Landlord
and Tenant acknowledge that Landlord’s Mortgagee is a group of four
construction industry labor-management pension trust funds, and that, pursuant
to the terms of the loan from Landlord’s Mortgagee, union labor is to be used
for constructing or rebuilding the improvements to be constructed on the
Demised Premises pursuant to the terms of Exhibit “B” attached hereto. Such
construction shall be subject to the terms of the Commitment Letter from
Landlord’s Mortgagee to Landlord dated October 8, 1992. Such obligation to use
union labor shall expire upon the Extension of the Maturity Date of the loan
from Landlord’s Mortgagee as set forth in paragraph 1 of the promissory note
evidencing the same which the parties anticipate will occur no later than
December 31, 1993. Landlord and Tenant acknowledge that neither Landlord nor
Landlord’s Mortgagee shall be responsible for any additional costs arising
from such use of union labor.”

 

4.     The second sentence of
Section 4.2 of the Lease is hereby amended and restated as follows:

 

“The terms “substantially
complete(d)” and “substantial completion” shall mean the earlier of (i)
issuance of a temporary certificate of occupancy by the City of San Diego or
(ii) the date the Project Architect (as defined in Section 1.1 of the Work
Letter) has certified that Landlord’s Work is substantially complete and that
Tenant can physically occupy the space, subject to the punch-list items as
described in Section 7.2 of the Work Letter, and the Demised Premises are in
clean and operating condition, subject to punch-list items that may still need
to be corrected and subject to items which constitute Tenant’s Work.”

 

5.     Section 4.2.3 of the Lease is
hereby amended by adding at the end of the first line of such section the words
“by Landlord’s contractor.”

 

6.     Sections 4.1 and 4.2.3 of the
Lease are hereby amended by eliminating Landlord’s and Tenant’s termination
rights and by adding thereto the following Section 4.2.4:

 

 “Any other provision of this
Lease to the contrary notwithstanding, but without limiting Landlord’s
liabilities or responsibilities under the Lease in any way whatsoever, Tenant
sha11, subject to events of force majeure and delays caused by the like, fully
occupy the entire Demised Premises, conduct business therefrom and commence
paying the entire Initial Base Rent on or before December 31, 1993. Tenant
shall cooperate with Landlord in taking all good faith steps necessary to allow
Landlord to timely complete Landlord’s Work as required by Landlord’s
Mortgagee. Without limiting the

 

13

 

foregoing,
Tenant shall provide to Landlord, Tenant’s Plans for the Landlord’s work in a
timely manner to allow Landlord to complete the pilot plant by December 31,
1993. Tenant shall not take any action which shall cause Landlord to be in
default under the loan from Landlord’s Mortgagee.”

 

7.     Paragraph 5.2 of the Lease is
hereby amended by adding thereto at the end thereof the following provision:

 

“In addition
to any other obligation of Tenant hereunder, in the event that Tenant shall be
the proximate cause of a default by Landlord under the loan from Landlord’s
Mortgagee and Landlord’s Mortgagee shall require Landlord to thereafter deposit
monthly installments of real property taxes and insurance premiums, Tenant
shall timely make such deposits with Lender.”

 

8.     Section 4 of the Lease is
hereby amended by adding thereto the following new Section 4.6:

 

“Any provision
of this Lease to the contrary notwithstanding, Tenant shall commence paying
Basic Annual Rent in the amount of $120,000 per month commencing May 25, 1993.
Tenant shall further commence paying the full payment of Basic Annual Rent on
the earlier of (a) the Term Commencement Date, (b) sixty three (63) days from
May 25, 1993, plus the period of any Landlord-Caused Delays or Force Majeure
Delays, or (c) December 31, l993.”

 

9.     The second sentence of
Section 5.3 is hereby amended and restated in its entirety as follows:

 

“Basic Annual
Rent and Additional Rent shall together be denominated “Rent.” Rent shall be
paid to Landlord, without abatement, deduction or offset, (excepting only for
the limited circumstances as specified in Section 16.1 for Landlord’s
maintenance, in Section 20.6 for destruction of a portion of the Demised
Premises and/or in connection with the terms upon which Tenant provides a
$3,200,000.00 loan for a portion of the financing for the project costs) in
lawful money of the United States of America at the office of Landlord as set
forth in Section 2.1.8 herein or to such other person or at such other place as
Landlord may from time to time designate in writing. In the event the term of
this Lease commences or ends on a day other than the first day of a calendar
month, then the Rent for such fraction of a month shall be prorated for such
period on the basis of a thirty (30) day month and shall be paid at the then
current rate for such fractional month.”

 

14

 

10.   Section 5.3 of the Lease is
hereby amended by adding at the end thereof the following provision:

 

“Tenant shall
also be entitled to a credit against Basic Annual Rent for the difference
between (i) any Basic Annual Rent or Additional Rent payable by Tenant with
respect to the Demised Premises for any period between the date Tenant is
required to pay the same pursuant to the terms of Section 4.6 of this Lease and
the date Tenant would have been required to pay the same pursuant to the other
terms of this Lease(exclusive of section 4.6), and (ii) any proceeds received
by Tenant for reimbursement therefor from the loan from Landlord’s Mortgagee
that would otherwise be payable to Landlord from the balance of any contingency
or interest reserve line items and Landlord’s share of any penalties payable by
the general contractor to Borrower pursuant to the terms of the general
contract for the construction to be performed pursuant to the terms of this
Lease, which such sums shall be payable to Tenant to the extent necessary to
satisfy such obligations. Tenant shall be entitled to interest on any Rent so
incurred at the rate payable under the promissory note given by Borrower to
Tenant in the same manner as pertains to Tenant’s credit against Basic Annual
Rent pursuant to Section 5.4 of this Lease. Tenant shall also be entitled to
the rent credit set forth in Paragraph 40.5 of this Lease, to the extent
applicable. Provided, however, any such monthly rent credit shall be limited to
the greater of (i) Forty-Seven Thousand Five Hundred Dollars ($47,500.00), or
(ii) the difference between (a) the monthly installment of Basic Annual Rent
payable by Tenant and (b) the monthly debt service payment which Landlord is
obligated to pay on the loan from Landlord’s Mortgagee, notwithstanding the
foregoing, during any period during which Landlord’s Mortgagee continues to
have a first deed of trust or is the owner through a foreclosure or deed in
lieu thereof, then in no event shall the amount of any rent credit cause the
monthly installment of Basic Annual Rent to be less than $145,500.00 with any
uncredited portions continuing to accrue with interest as otherwise provided in
this Lease.”

 

11.   The third sentence of Section
5.4 of the Lease is hereby amended by adding at the end thereof the phrase “but
no later than ninety (90) days after Tenant’s quarterly and fiscal year end.”

 

12.   The next to last sentence of
Section 5.4 is hereby amended and restated in its entirety as follows:

 

“This Security
Deposit shall be in cash; excepting, however, Tenant shall have the option
after the Term Commencement Date to substitute an irrevocable bank letter of
credit, in a form and content and from a bank

 

15

 

pre-approved
in writing by Landlord and Landlord’s Mortgagee.”

 

13.   Section 5.4 of the Lease is
hereby amended by adding at the end thereof the following provision:

 

“To the extent
that Landlord’s Lender forecloses under its loan to Landlord or otherwise
obtains title to the Demised Premises and Tenant is not given credit for the
Security Deposit as a result thereof, Tenant shall be entitled to credit
against the Rent due for the last month of this Lease the amount of such
Security Deposit.”

 

14.   Section 7.3 of the Lease is
hereby amended by adding a new sentence thereto after the first two sentences
thereof, as follows:

 

“Upon the
written request of Landlord, Tenant shall furnish to Landlord written evidence
that all such property taxes and insurance premiums required in the first
instance to be paid by Tenant have been paid.”

 

15.   Section 11.1 of the Lease is
hereby amended by revising the first line thereof to state as follows:

 

“If Tenant
fails to fully vacate all or any part ....”

 

16.   Section 12.2 of the Lease is
hereby amended by adding at the beginning thereof the clause “Notwithstanding
any provision of Section 7.2 to the contrary,...”

 

17.   Section 15.5 of the Lease is
hereby amended by providing that a copy of the notice to be provided to the
Landlord therein shall also be provided to Landlord’s Mortgagee.

 

18.   The last sentence of Section
16.2 of the Lease is hereby amended and restated in its entirety as follows:

 

“Tenant shall, upon the expiration or sooner termination of the term
hereof, surrender the Demised Premises to Landlord in the same good, quality
condition as when received, ordinary wear and tear excepted, and damage by
fire, other peril or condemnation which is to be repaired by Landlord pursuant
to Articles 20 and 21 also excepted.”

 

19.   The third to last line of
Section 17.3 on Page 26 of the Lease is hereby amended by adding after the word
“clarify” the phrase “to the reasonable satisfaction of such lender.”

 

16

 

20.   Section 18.4 of the Lease is
hereby amended by adding in the first line thereof after the word “Landlord”
the words “and Landlord’s Mortgagee.”

 

21.   Section 19.1 of the Lease is
hereby amended by adding “,automobile liability,” in the seventh line on Page
28 of the Lease after the words “materials risks.”

 

22.   Section 19.3 of the Lease is
hereby amended by adding at the end of the first sentence thereof the phrase “and
Landlord’s Lender to the extent that such lender has notified Tenant in writing
of such request.”

 

23.   Section 19.3 of the Lease is
further amended by providing that the policyholder rating set forth in the
second sentence of such section shall be “A-” and the financial category set
forth in the second sentence shall be “Class X.”

 

24.   Section 19.5 of the Lease is
hereby amended and restated in its entirety as follows:

 

“19.5 If any
policy of insurance is to name Landlord or Landlord’s Lender as additional
insured, Tenant shall, upon written request of Landlord or such lender, also
designate and furnish certificates evidencing Landlord and such lender as an
additional insured to (i) any lender to Landlord holding a security interest in
the Building or, and/or (ii) the Landlord under any lease wherein Landlord is
or shall become a tenant under a ground lease for the Land rather than that of
fee owner, and/or (iii) Landlord’s property manager, construction manager,
agents and representatives.”

 

25.   Section 32.1 of the Lease is
hereby amended by adding thereto at the end thereof the phrase “or sue to
compel specific performance hereunder.”

 

26.   Section 33.2 of the Lease is
hereby amended and restated in its entirety as follows:

 

“33.2
Notwithstanding the foregoing, Tenant shall execute and deliver within thirty
(30) says or such shorter period as is reasonable under the circumstances after
written demand such further instrument or instruments evidencing such
subordination of this Lease to any such mortgages, deeds of trust or leases in
which Landlord is tenant as may be required reasonably by Landlord’s Lender.
However, if any such mortgagee, beneficiary or landlord under a lease wherein
Landlord is tenant so elects, this Lease shall be deemed prior to any such
lease, mortgage or deed of trust upon or including the Demised Premises,
regardless of date, and

 

Tenant shall
execute a statement in writing to such effect at Landlord’s request.”

 

17

 

 

27.   Section 33.3 of the Lease is
hereby amended by adding at the end thereof the following sentence:

 

“Additionally,
at the request of said purchaser or transferee, Tenant and the purchaser or
transferee shall sign a new lease on the same terms and conditions set forth in
this Lease (except for as modified by any subordination agreement hereafter
executed if such subordination agreement so requires) but showing the purchaser
as the landlord.”

 

28.   Section 34.2 of the Lease is
hereby amended and restated in its entirety as follows:

 

“34.2 The
voluntary or other surrender of this Lease by Tenant shall not work a merger,
unless Landlord and Landlord’s Lender consent, and shall, at the option of
Landlord and Landlord’s Lender, operate as an assignment to it of any or all
subleases or subtenancies.”

 

29.   The Lease is hereby amended by
adding thereto the following new Section 34.4:

 

“34.4 In the
event Tenant acquires fee ownership of the Demised Premises, that acquisition
will not result in a merger of the leasehold interest and the fee interest, but
rather, at the option of Landlord’s Lender, the Lease and the Landlord’s Lender’s
interests in the Lease shall remain in effect. Landlord and Tenant shall
execute such additional documents as may be necessary to effectuate this
waiver.”

 

30.   Section 35.1 of the Lease is
hereby amended by adding thereto at the end of the first sentence thereof the
words “and approved by Landlord’s Mortgagee.”

 

31.   Section 37.1 of the Lease is
hereby amended by adding thereto in the tenth line thereof after the close of
the parenthetical phrase the following phrase:

 

“. . .
excluding, however, any Hazardous Materials which were placed on the Demised
Premises by Tenant or Tenant’s Invitees. . .”

 

32.   Section 37.1.2 of the Lease is
hereby amended by adding the following provision at the end thereof:

 

“Landlord may
disclose such materials on a confidential basis to Landlord’s Mortgagee.”

 

33.   Section 37.5.1 of the Lease is
hereby amended by adding after the word “Landlord” in the second line thereof
the phrase “and Landlord’s Lender.”

 

18

 

34.   Section 39.2.1 of the Lease is
hereby amended by revising the fifth line thereof on Page 58 to state as
follows:

 

“...$10,000,000.00,
which new loan proceeds are to cover a portion of the Landlord’s ....”

 

35.   The last two sentences in Section
39.2.1 of the Lease are amended and restated as follows:

 

“The new loan
shall enable Tenant to use the remaining loan proceeds to complete the Landlord’s
Work in the event of a material default by Landlord under the Work Letter if
Tenant is entitled to complete the same under the terms of this Lease.
Additionally if the new lender requires a completion bond, Tenant shall be an
additional beneficiary of the completion bond.”

 

36.   The Lease is hereby amended by
adding thereto the following Section 40:

 

“40.         Completion
by Tenant.

 

40.1.        Lender
Requirement. Landlord’s Mortgagee under the construction/permanent
financing for the New Loan referenced in Section 39.2 above is allowing Tenant
to complete construction of the Landlord’s Work to the Demised Premises as
permitted by Section 4.1.2 of Exhibit “B” to this Lease in the event of the
failure by Landlord to do so. In recognition thereof, Landlord and Tenant have
agreed to the provisions set forth in this Section 40. The provisions set forth
below shall be applicable if, and only if, (i) Landlord defaults on its
obligations to complete construction of the Landlord’s Work, and (ii) Tenant
exercises its right to complete the Landlord’s Work, and (iii) Tenant has not
materially defaulted on its obligations to provide the funds to pay for the
costs of the Landlord’s Work, and (iv) there is no other default by Tenant
which is a proximate cause for Landlord’s failure to complete construction of
the Landlord’s Work, in which event the provisions set forth below in this
Section 40 shall become applicable. Once these provisions become applicable,
these provisions shall prevail over any inconsistent provisions contained
elsewhere in this Lease (including Exhibit B to this Lease).

 

40.2.        Costs
and Damages. Subject to the provisions set forth below, notwithstanding
anything to

 

the contrary
in the Lease (including, without limitation, Sections 22.10, 18.3 and 18.4
thereof), Landlord shall indemnify Tenant and its partners, directors,
officers, agents and employees against and save them harmless from all demands,
claims, damages, causes of action or judgments and all reasonable expenses
incurred in 

 

19

 

investigating
or resisting the same (including reasonable professional fees, including
without limitation, fees for attorneys, architects, engineers, and
environmental consultants and any costs or damages incurred relative to a
transition from Landlord to Tenant for performing the Landlord’s Work) arising
from or out of Tenant’s performing the Landlord’s Work. Tenant shall be
entitled to interest at the rate of Bank of America’s “reference rate” plus 3%
on any amounts expended by Tenant as provided herein.

 

40.3.        Contractor’s
Delay Damages. Pursuant to Section 6.3.7 of Exhibit B to this Lease (the
Work Letter), the delay damages payable by Landlord’s Contractor are to be
shared between Landlord and Tenant. Landlord hereby agrees that its share of
said delay damages payable by Landlord’s Contractor shall initially be paid to
Tenant, in addition to Tenant’s share to compensate Tenant for Tenant’s costs
and damages under Section 40.2 above; provided, however, to the extent that
Landlord’s share of said delay damages exceeds Tenant’s costs and damages as
specified in Section 40.2 above, then Tenant shall pay over to Landlord the
excess portion of Landlord’s share of said delay damages which exceed Tenant’s
costs and damages pursuant to Section 40.2 above.

 

40.4.        Delay
Days. Any delays in completing the Landlord’s Work which result from Tenant
taking over from Landlord the responsibilities to perform Landlord’s Work shall
be treated as Landlord-Caused Delays, pursuant to Section 6.1 of Exhibit B
(Work Letter), notwithstanding any other contrary provisions. Notwithstanding
the foregoing, the time period within which Landlord must deliver the Demised
Premises to Tenant as set forth in Section 4.2.3 of the Lease shall be extended
by any such delay.

 

40.5.        Rental
Credit. To the extent that Tenant’s costs and damages pursuant to Section
40.2 above exceed Landlord’s share of the delay damages from Landlord’s
Contractor (as specified in Section 40.3 above and after crediting Tenant as
provided in Section 5.3), then Tenant shall be entitled to pursue all available
remedies against Landlord to collect such excess costs and damages (together
with interest on

 

such sums at the rate of Bank of America’s “reference rate” plus 3% per
annum), including, without limitation, the right to make a credit offset
against the next rent payment(s) owing on this Lease to the extent of such sums
owing to Tenant. Prior to exercising such offset right, Tenant shall first
attempt to satisfy Landlord’s obligation to compensate Tenant under this
Section 40 through the sums to be received pursuant to Section 40.3 and any
remaining loan proceeds available from the New Loan.

 

37.   The second sentence of Section
1.1.1 of Exhibit “B” to the Lease is hereby amended and restated as follows:

 

“If the
Project Architect does not perform satisfactorily, Tenant reserves the right 

 

20

 

to replace
McGraw Baldwin Architects with another qualified architectural firm mutually
approved by both Tenant and Landlord and Landlord’s Mortgagee, which approval
shall not be withheld unreasonably.”

 

38.   The fourth and fifth sentences
of Section 1.5.1 of Exhibit “B” to the Lease are hereby amended and restated in
their entirety as follows:

 

“All work
shall be in accordance with all City, County, State and Federal ordinances,
rules and regulations relating thereto. Any approval given by Landlord or
Landlord’s Mortgagee shall not constitute a representation or warranty by
Landlord or Landlord’s Mortgagee that the approved item complies with
applicable building codes or governmental regulations, or that the item is
suitable for the intended use, or that the item is in compliance with the
Improvement Plans.”

 

39.   The second sentence of Section
1.6.3 of Exhibit “B” to the Lease is hereby amended by adding thereto at the
end thereof the phrase “in accordance with applicable law.”

 

40.   The last sentence of Section
1.7.9 of Exhibit “B” to the Lease is hereby amended by adding thereto at the
end thereof the following:

 

“provided,
however, the insurance limit, the deductible amounts, and the insurance carrier
size shall not be less than as specified in Section 19 of the Lease.”

 

41.   The third line of Section 1.8
of Exhibit “B” to the Lease is hereby amended by adding after the word “Landlord”
the phrase “and Landlord’s Mortgagee.”

 

42.   The second line of Section
1.8.1 of Exhibit “B” to the Lease is hereby amended by adding after the word “Landlord”
the phrase “and Landlord’s Mortgagee.”

 

43.   The seventh line of Section 3.1
of Exhibit “B” to the Lease is hereby amended and restated as follows:

 

“... City,
County, State and Federal ordinances, rules and regulations relating .. .”

 

44.   Section 3.1 of Exhibit “B” to
the Lease is further amended by adding at the end thereof the phrase “comparable
to the insurance as specified in Section 1.7.9 above.”

 

45.   Section 4.1.2 of Exhibit “B” to
the Lease is hereby amended by adding thereto at the end thereof the following
sentence:

 

“Pursuant to
the terms of the Loan from Landlord’s Mortgagee, and as specified in Section
3.4 of the Lease, Landlord and Tenant acknowledge that union labor is to 

 

21

 

be used for
constructing the improvements within the criteria set forth in Section 3.4 of
the Lease.”

 

46.   Paragraph 2 to Schedule 4 to
Exhibit “B” to the Lease is hereby amended by adding thereto at the end thereof
the following provision:

 

“Tenant shall keep construction va1idation current throughout the term
of the Lease, and provide to Landlord all supporting documentation for the
ongoing construction validation. Tenant shall not allow the construction
validation of the pilot plant to lapse at any time during the Lease Term.”

 

47.   Paragraph 2 of Exhibit “D” to
the Lease is hereby amended by adding thereto at the end thereof the following
sentence:

 

“Tenant shall
be entitled to a credit against the termination fee payable pursuant to this
Paragraph for all unreimbursed amounts due Tenant pursuant to the provisions of
Paragraphs 5.3 and 40 of the Lease as well as for all amounts then outstanding
under the promissory note from Landlord to Tenant dated

 

November 25,
1992, in the amount of $3,200,000.00, but only to the extent of any excess of
such termination fee over the then unpaid balance of the loan from Landlord’s
Mortgagee.”

 

IN WITNESS
WHEREOF, the parties hereto have executed this Agreement as of the date first
set forth above.

 

	
   

  	
   

  	
  TORREY
  SORRENTO INC.,

  a California corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
     signature
  present

  	
   

  
	
   

  	
   

  
	
   

  	
  IDEC PHARMACEUTICALS CORPORATION,

  a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
     signature
  present

  	
   

  
							

 

22

 

Lease Amendment

 

This agreement
is entered into as of December 30, 1994, by and between TORREY SORRENTO, INC.,
a California Corporation (hereinafter called “Landlord”), and IDEC
PHARMACEUTICALS CORPORATION, a California corporation (hereinafter called “Tenant”),
with reference to the following facts:

 

A.            Prior
hereto the Landlord and Tenant entered into that certain Lease dated July 9,
1992, for the premises located at 11011 Torreyana Road, San Diego, California
(the “Lease”), as amended by that certain First Amendment to Lease dated
November 9, 1992.

 

B.            Landlord
and Tenant now desire to amend the Lease on the terms set forth herein.

 

C.            All
capitalized terms not defined herein shall have the same meaning as set forth
in the Lease.

 

NOW, THEREFORE,
the parties hereto agree as follows:

 

1.             Exhibit
D to the Lease, the Early Termination Agreement, shall be deleted in its
entirety and all rights of the Tenant and/or any successors and assigns, for
early termination under the Lease pursuant to Section 3.2 of the Lease, Exhibit
D (Early Termination Agreement) to the Lease, and/or any and all other
reference thereto, shall be waived.

 

2.             The
third sentence of Section 6.2.1. (vi) is hereby amended by adding the words “for
the eleventh year of the term of the Lease” after the words “herein, the Fair
Rental Value”.

 

IN WITNESS
WHEREOF, the parties hereto have executed this Agreement as if the date first
set forth above.

 

	
   

  	
  TORREY
  SORRENTO, INC.,

  a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
             signature
  present

  	
   

  
	
   

  	
   

  
	
   

  	
  IDEC
  PHARMACEUTICALS CORPORATION,

  a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
             signature
  present

  	
   

  

 

23

 

Third Lease Amendment Agreement

 

This Third
Lease Amendment (this “Amendment”) is entered into as of April 22, 2004, by and
between Biogen Idec Inc., a Delaware corporation, formerly known as DEC
Pharmaceuticals Corporation, a Delaware corporation (“Tenant”), and TSI, L.P., a California limited
partnership, the successor-in-interest to Torrey Sorrento, Inc., a California
Corporation (“Landlord”), with reference to that certain Lease dated July 9, 1992 (the “Initial Lease”), as
amended by that certain First
Amendment to Lease dated November 9, 1992 (the “First Amendment”), that certain
Lease Exhibit executed by Landlord and Tenant
on December 22, 1994 (the “Lease Exhibit”) and that certain Lease
Amendment dated December 30, 1994 (the “Second Amendment” and collectively with the Initial
Lease, the First Amendment and the
Lease Exhibit, the “Lease”), for the premises located at 11011 Torreyana Road, San Diego, California (the “Demised
Premises”).

 

Recitals

 

A.           Terms
which are defined in the Lease shall have the same meaning in this Amendment, unless otherwise
specified in this Amendment.

 

B.            Pursuant to Section 6.2 of the Lease,
beginning on the 10th anniversary of
the Term Commencement Date, the Basic Annual Rent is to be adjusted to the Fair
Rental Value of the Demised Premises, subject to specific provisions set forth
in Section 6.2.

 

Wherefore, the

parties hereto

mutually agree as

follows:

 

1.             Rent.
For all purposes under the Lease, including without limitation Section 6.2 of
Lease, Basic Annual Rent shall be adjusted to equal $3,696,000 per year, for the year commencing October
1, 2003 and ending September 30,
2004. This is equivalent to $308,000 per month. Accrued unpaid Basic Annual
Rent in the amount of Two
Hundred Thirty Eight Thousand Ninety One and
00/100 Dollars ($238,091.00), representing amounts not paid for accruals
up through April 30, 2004 shall be paid by Tenant on or before April 30, 2004.

 

2.             Annual
Rent Adjustment. Pursuant to
Section 6.1 of the Lease, the
Basic Annual Rent shall be increased annually at a rate of four percent (4%) of
the prior year’s Basic Annual
Rent, with the next adjustment to occur on October 1, 2004 for an adjusted
Basic Annual Rent equal to $3,843,840, or $320,320 per month.

 

3.             Term
Expiration Date. The parties hereby acknowledge, agree and confirm that the Term of the Lease
currently extends until September 30, 2008 (the “Term Expiration Date”), and that neither party has any right for an early termination
of the Term, other than in accordance with 

 

24

 

the terms of the Lease;
provided, however, for avoidance of doubt, the parties confirm that Tenant’s
early termination right
under Exhibit D of the Initial Lease was extinguished by the Second
Amendment.

 

4.             Excess
Subtenant Rentals. The parties hereby agree that any excess Basic Annual
Rent which may be realized through the Term Expiration Date from Tenant
subletting the Demised Premises shall inure solely for the benefit of Tenant.

 

5.             Agreements
Regarding Certain Removed Equipment. Tenant is removing from the Demised
Premises those certain items of equipment which are listed on Exhibit A
attached hereto (the “Removed Equipment”). In connection with the Removed
Equipment, Landlord and Tenant hereby agree that: (a) Landlord retains no
interest in the Removed Equipment; and (b) the provisions of this Paragraph 5
are not intended as, and shall not constitute, an amendment to Section 15.8 of
the Lease.

 

6.             Miscellaneous.

 

a.              Effect of
Amendment; Recitals. Except as expressly amended under this Amendment, all
provisions of the Lease shall remain in full force and effect. In the event of
any conflict between this Amendment and the Lease, this Amendment shall control
to the extent of such conflict. The Recitals constitute a part of this
Amendment and are hereby incorporated by reference.

 

b.             Entire Agreement.
This Amendment constitutes the entire agreement between the parties pertaining
to the subject matter hereof, and the final, complete and exclusive expression
of the terms and conditions thereof. All prior agreements, representations,
negotiations and understandings of the parties hereto, oral or written, express
or implied, are hereby superseded and merged herein. This Amendment may be
executed in one or more counterparts, each of which shall be deemed an
original, and all of which shall constitute one and the same binding agreement.

 

c.              Certain
Confirmations. Tenant confirms that, notwithstanding its name change, it
continues to be bound by all of the covenants and agreements of the Lease, as
amended by this Amendment. TSI, L.P., as the successor-in-interest to the original
Landlord via an assignment and transfer of assets, hereby agrees to be bound by
all of the covenants and agreement of the Lease, as amended by this Amendment.

 

d.             Further
Assurances; Lender Acknowledgment. Each of the parties hereto agrees to
execute all documents and instruments and to take all other actions as may
specifically be provided for herein or in the Lease as may be required in order
to consummate the purposes of this Amendment. Landlord shall provide Tenant
with a written acknowledgement of the consent of any lender on the Demised
Premises to this Amendment, and agreement of such lender that the Landlord and
Tenant’s entry into and performance of this Amendment is not in violation of
any previously existing non-disturbance agreement given by such lender in favor
of Tenant.

 

25

 

IN WITNESS
WHEREOF, the undersigned have executed this Third Lease Amendment as of the
date first written above.

 

	
   

  	
  TENANT:

  	
  Biogen Idec
  Inc., a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
         signature
  present

  	
   

  

 

 

	
  Its: 

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LANDLORD: TSI,
  L.P., a California limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Science
  Park, Inc., a California corporation

  
	
   

  	
   

  
	
  Its:

  	
  General
  Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
         signature
  present

  	
   

  
	
   

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  
								

 

 

	
   

  	
  ACKNOWLEDGMENT
  AND CONSENT TO THE ABOVE:

  
	
   

  	
   

  
	
   

  	
  By
  landlord’s lender:

  
	
   

  	
   

  
	
   

  	
  WASHINGTON
  CAPITAL JOINT MASTER

  TRUST MORTGAGE INCOME FUND

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Washington
  Capital Management, Inc.

  a Washington corporation

  its Manager

  
	
   

  
	
   

  	
  By:

  	
              /s/
  Don Maescher

  	
   

  
	
   

  	
   

  	
  Don Maescher

  
	
   

  	
   

  	
  President, California
  Division

  

 

26EXHIBIT 10.1

 

 

 

Pixelworks, Inc.

2005 Senior Management Bonus Plan

 

Bonuses for executive officers of the Company are calculated based on
attainment of planned levels of revenue and pro forma operating income, as well
as attainment of specified operating goals. 
Each of the goals is weighted as follows:

 

	
  Revenue

  	
   

  	
  25.0

  	
  %

  
	
  Pro Forma
  Operating Income

  	
   

  	
  25.0

  	
  %

  
	
  Operational
  Goals

  	
   

  	
  50.0

  	
  %

  
	
   

  	
   

  	
  100.0

  	
  %

  

 

If all goals are attained, bonuses are calculated as a percentage of
each executive officer’s salary, as follows:

 

	
  President and
  Chief Executive Officer

  	
   

  	
  100

  	
  %

  
	
  Chief Operating
  Officer

  	
   

  	
  100

  	
  %

  
	
  Vice Presidents

  	
   

  	
  50

  	
  %

  

 

 

If goals are not attained, bonuses are reduced proportionally.  Additionally, the Compensation Committee of
the Board of Directors may increase or decrease individual bonuses based on
qualitative factors.

 

Determination as to whether or not the performance targets have been
met is made quarterly.  The payout of
bonuses will occur in the first quarter of 2006.

 

 

1

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